Hyatt of Australia Limited v Coolum Resort Pty Limited
[2012] QSC 49
•9 March 2012
SUPREME COURT OF QUEENSLAND
CITATION:
Hyatt of Australia Limited v Coolum Resort Pty Limited & ors [2012] QSC 49
PARTIES:
HYATT OF AUSTRALIA LIMITED ARBN 007 509 373
(applicant)
AND
COOLUM RESORT PTY LIMITED ACN 010 593 638
(first respondent)
AND
COEUR DE LION INVESTMENTS PTY LIMITED ACN 006 334 872
(second respondent)
AND
CLIVE FREDERICK PALMER
(third respondent)
FILE NO/S:
1625 of 2012
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
9 March 2012
DELIVERED AT:
Brisbane
HEARING DATES:
1 and 2 March 2012
JUDGE:
Atkinson J
ORDER:
Until the conclusion of the trial of this matter or earlier order, the defendants by themselves or by their servants or agents, shall, except as required for the conduct of the administration of the companies under Part 5.3A of the Corporations Act 2001 (Cth):
(a) refrain from interfering with the plaintiff’s access to the operating accounts for the Hyatt Regency Coolum Golf Resort and Spa (the resort);
(b) refrain from giving directions to staff working at the resort;
(c) refrain from removing or replacing signage at the resort; and
(d) refrain from describing the resort otherwise than as the Hyatt Regency Coolum Golf Resort and Spa.
CATCHWORDS:
EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUCTIONS – INJUNCTIONS TO PRESERVE THE STATUS QUO PENDING DETERMINATION OF RIGHTS – where the applicant managed resort owned by the first and second respondents in return for fees calculated on revenue and profit – where resort running at a loss – where the first and second respondents alleged that applicant had breached the duty of fidelity in the management agreement by running the resort to maximise revenue rather than profit – where first and second respondents obliged under the management agreement to provide funds to applicant manager as required – where the third respondent owned and funded the first and second respondent companies – where the third respondent refused to continue to provide funds as long as the applicant remained the manager under the management agreement – where the first and second respondent companies were in voluntary administration – where the applicant sought continuation of interim injunction to restrain the respondents from interfering with the applicant’s access to the resort, giving directions to staff or removing the applicant’s name from the name of the resort – whether the applicant has a prima facie case – whether the balance of convenience favours the granting of an injunction
American Cyanamid Co v Ethicon Ltd [1975] AC 396, followed
Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, followed
Commonwealth Bank of Australia v Batterell (1994) 38 NSWLR 64, applied
Ipex ITG Pty Ltd (In Administration) (Receivers and Managers Appointed) v Melbourne Water Corporation [2008] VSC 497, applied
Ladies Sanctuary Pty Ltd v Parramatta Property Investments Ltd (1997) 7 BPR 15, 156, applied
Patrick Stevedores v MUA (1998) 195 CLR 1, consideredCOUNSEL:
W Sofronoff QC and D O’Sullivan for the applicant
RN Traves SC and J Baartz for the first and second respondents
TG Bradley for the third respondentG Newton SC and M Trim for the administrators
SOLICITORS:
McCullough Robertson Lawyers for the applicant
Ashurst Australia for the first and second respondents
Hopgood Ganim for the third respondent
The plaintiff, Hyatt of Australia Limited (“Hyatt”) is a company which runs hotels and resorts in Australia as part of a world-wide network of hotels and resorts.
On 21 February 2012, Hyatt obtained an interim injunction against the defendants on terms that, upon the plaintiffs providing the usual undertaking as to damages:
“1.Until 4pm on Thursday 1 March 2012 or earlier order each of the defendants by themselves or by their servants or agents shall: -
(a)refrain from interfering with the Plaintiff’s access to the operating account for the Hyatt Regency Coolum Golf Resort and Spa (‘resort’);
(b)refrain from giving directions to staff working at that place;
(c)refrain from describing the resort otherwise than as the Hyatt Regency Coolum Golf Resort and Spa.
2.The defendants forthwith sign all necessary documents to reinstate the bank accounts that were closed by them and had been opened pursuant to Article III of the Management Agreement, reinstate all signatories to those bank accounts and credit those accounts with the monies diverted from them by the Defendants upon their closure less the sum of any payments made therefrom to the staff at the resort.”
The plaintiff also filed a claim on that day against the defendants claiming:
“1.Against the First and Second Defendant, damages for breach of contract.
2.Against the Third Defendant, damages for inducing breach of contract and for unlawfully interfering in the Plaintiff’s business;
3.Against all Defendants, exemplary and/or aggravated damages;
4.Against the First and Second Defendants, a permanent injunction restraining further breaches of the Management Agreement;
5.Against the Third Defendant, a permanent injunction restraining him from further inducing breaches of the Management Agreement and from further unlawfully interfering in the Plaintiff’s business.”
Directions were made by the court for the filing of material and the matter was listed for hearing on 1 March 2012. The application took two days to hear and the interim injunction was extended until a decision was given in the application.
In order to understand the circumstances in which such an order was made it is necessary to consider the factual background and the legal relations between the parties, their actions and the effect of those actions on the future conduct of this matter and to set out the general principles for the grant of an injunction.
Interlocutory injunction
There was no dispute between the parties as to the relevant principles applicable to the grant of interlocutory injunctions, which were set out by the High Court in Australian Broadcasting Corporation v O’Neill.[1] The principles were explained by Gummow and Hayne JJ at [65] as follows:
[1](2006) 227 CLR 57.
“The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:
‘The first is whether the plaintiff had made out a prima face case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if any injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.’
By using the phrase ‘prima facie case’, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the court continued, in a statement of central importance for this appeal:
‘How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.’ ”
Their Honours considered the differences which were more apparent than real between the High Court decision in Beecham Group Ltd v Bristol Laboratories Pty Ltd and the decision of Lord Diplock in the Court of Appeal in England in American Cyanamid Co v Ethicon Ltd.[2] Their Honours then observed at [70] – [71]:
[2][1975] AC 396.
“When Beecham and American Cyanamid are read with an understanding of the issues for determination and an appreciation of the similarity in outcome, much of the assumed disparity in principle between them loses its force. There is then no objection to the use of the phrase ‘serious question’ if it is understood as conveying the notion that the seriousness of the question, like the strength of the probability referred to in Beecham, depends upon the considerations emphasised in Beecham.
However, a difference between the court in Beecham and the House of Lords in American Cyanamid lies in the apparent statement by Lord Diplock that, provided the court is satisfied that the plaintiff’s claim is not frivolous or vexatious, then there will be a serious question to be tried and this will be sufficient. The critical statement by his Lordship is ‘[t]he court no doubt must be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried’. That was followed by a proposition which appears to reverse matters of onus:
‘So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should be on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.’ [emphasis added]
Those statements do not accord with the doctrine in this court as establish by Beecham and should not be followed. They obscure the governing consideration that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.”
Gleeson CJ and Crennan J specifically agreed with Gummow and Hayne JJ explaining the principles at [19] as follows:
“… in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff’s entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd should be followed.”
A prima facie case
The contractual relationship between the parties is governed by a Management Agreement which was entered into on 9 August 1985 by Hyatt Regency Corporation Pty Ltd who later assigned the benefit of the contract to the plaintiff, Hyatt, and the first and second defendant companies. The Management Agreement dealt with the development of the resort and also with its management and operation. It is those parts of the Management Agreement dealing with the resort’s management and operation which are of concern in this case.
Article II set out the operating term. It is common ground that there were many years to go in the operating term of the Management Agreement.
Article III dealt with the use and operation of the resort. It provided that Hyatt would operate the resort under standards comparable to those prevailing in Hyatt Hotels and, subject to the terms of agreement, would have complete control and discretion in the operation of the resort.
The agreement specifically provided that nothing in the Management Agreement could be construed to create a partnership or joint venture between the Hyatt and the defendant companies. Article III provided that the control of the operation of the resort by Hyatt would include “the use of the resort for all customary purposes, terms of admittance, charges for rooms and commercial space, entertainment and amusement, food and beverages, labour policies (subject to applicable law) (including wage rates, the hiring and discharge of employees), the maintenance of the bank accounts and holding of funds in the trade name of the resort and, all phases of promotion and publicity relating to the resort.” Hyatt had the right to let, rent or license the suites, apartments and townhouses and collect all rents, fees and other income from that activity. Hyatt was bound to deposit the remuneration and reimbursement and all funds received from the operation of the resort into bank accounts in the trade name of the resort. Payments out of those bank accounts for the operation of the resort could only be made by employees of the resort designated by Hyatt.
Hyatt had the right under the Management Agreement to enter into contracts with third parties in the ordinary course of business of the resort in the name of the defendants or in its own name as agent for the defendants. The contracts into which it could enter included contracts for the sale of rooms, food and beverage and other facilities of the resort, the purchase of food and beverage and operating supplies, employment of personnel, advertising and business promotion, repairs and maintenance, administration, heat, light and power, insurance, and other goods and services; provided that it would be required to get approval from the defendant companies for any contract involving an expenditure in excess of US$25,000 or that would be binding on the defendants for a period in excess of two years from signature.
Article III also allowed Hyatt to purchase goods, supplies and services from its affiliated or subsidiary companies.
Article III also provided that, in the performance of its duties as manager of the resort, Hyatt would act solely as agent of the defendant companies. All debts and liabilities to third persons incurred by Hyatt in the course of its operation and management of the resort would be the debts and liabilities of the defendant companies only and Hyatt would not be liable for any such obligations by reason of its management or operation of the resort. Every employee of the resort including the general manager would be an employee of the defendant companies and not of Hyatt.
Article IV provided for the division of the income of the resort. Section 1 provided for a basic management fee for Hyatt. It provided that, during the operating term of the Management Agreement, Hyatt was entitled to charge, as an expense of the operation of the resort, a basic management fee of an amount equal to three per cent of the revenue of the resort. Section 2 provided that, in addition to that fee, during the operating term Hyatt was entitled to receive 10 per cent of the gross operating profit (“incentive fee”). Section 3(A) of Article IV provided that the remainder of the gross operating profit of the resort was to be paid to the defendant companies. Each of the payments referred to in Sections 2 and 3 were to be made monthly with provision for adjustment after the annual audited financial statements were available. Sections 2 and 3(A) give both Hyatt and the defendant companies respectively a financial interest in the profitability of the resort.
Article VI dealt with repairs and changes to the resort.
Article VII dealt with covenants between Hyatt and the defendant companies including with regard to working capital. Section 1 provided that the defendant companies would “throughout the Operating Term, at [their] sole expense, provide working capital sufficient to assure the uninterrupted and efficient operation of the resort”. Under Section 3, Hyatt accorded to the duly authorised officers, accountants, employees, agents and attorneys of the defendant companies the right to enter into any part of the resort at all reasonable times during the operating term for the purpose of examining or inspecting the resort or examining or making extracts from books and records.
Article XII dealt with defaults and provided that in the event of default the non-defaulting party could give the defaulting party notice of intention to terminate the agreement after the expiration of a period of 15 days from the date of such notice. Article XII also explicitly provided that the rights granted under the Management Agreement would not be in substitution for but in addition to common law rights. It also provided that neither party would be deemed to be in default under the Management Agreement if a bona fide dispute with respect to any of the events of default had arisen between the parties and the dispute had been submitted to arbitration.
Although the terms of the Management Agreement apply specifically to this resort and these parties, Maurice Holland, who has been the general manager of the resort since 2004, deposed that the structure whereby he was employed by the local owning company was generally how Hyatt operated and that this structure was common in the hotel management industry.
The resort operated profitably from 1993 until 2009 when it operated at a loss. It has continued to operate at a loss since that time.
In 2011, Lend Lease, who had been the shareholders of the defendant companies, sold their shares to companies owned and controlled by the third defendant, Clive Palmer. This was preceded by a due diligence process in which all relevant documents were made available via a data room to potential purchasers. The defendant companies can therefore be taken to have known of the legal and financial arrangements between the parties and the financial situation of the resort. Presumably that was reflected in the price paid.
Mr Palmer rang the general manager of the resort, Mr Holland, to tell him that he had bought the resort and to assure Mr Holland of his on going support. He told Mr Holland that he was aware of the extent of the operating losses of the resort and was prepared to tolerate this position for two to three years until he had his plans in place for a major redevelopment of the resort.
Mr Palmer visited the resort regularly and made suggestions about various operational matters regarding the resort. In October 2011, Mr Palmer visited the resort with men who were said to be managers of Mr Palmer’s business, Queensland Nickel, in Townsville. They were Basil Ahyick, David Wright and Darren Knight. Mr Palmer also introduced Peter Burke as his architect. Together with Mr Holland, they reviewed the operation of the resort.
On 11 October 2011, Mr Ahyick, the Chief Financial Officer of the second defendant, wrote to Mr Holland with regard to strategies to increase profitability which he requested be undertaken. They included raising room rates and food and beverage prices, proposals relating to golf, tennis and the spa and advertising, strategies for tourists from China and some refurbishment. Mr Holland replied on 14 October 2011. At a meeting on 20 October 2011, Mr Wright, who describes his occupation in his affidavit as “Bulk and Energy Superintendant”, met with Mr Holland, who agreed to implement all the strategies referred to in Mr Ahyick’s letter of 11 October 2011. Mr Wright asserts in an affidavit filed on 27 February 2012 that the “agreed actions” were implemented “slowly, poorly or without conviction”. Various dissatisfactions about Hyatt’s performance were expressed by Mr Wright and others in their affidavits but none of them appears to detract from the fact that there is a strong prima facie case that Hyatt did not breach the Management Agreement.
Mr Holland deposes that there were no real difficulties in them working together. However, in mid-January 2012, Mr Ahyick mentioned to Mr Holland that he would be getting a letter that might upset him.
On 3 February 2012, Hickey Lawyers, acting for the defendants, wrote to the plaintiff asserting that Hyatt failed to follow instructions given with regard to the operation of the resort by the defendant and that its failure to do so was a breach of the Management Agreement. Specifically, it said that the defendants considered its instruction to increase room rates to be reasonable in the circumstances and conversely the failure by Hyatt to increase the room rates as instructed to be unreasonable. The letter expressed the defendants’ concern that lower room rates might contribute to a higher turnover creating higher revenue with low (or no) profit margin and higher rates of wear and tear, which might benefit Hyatt on account of the basic management fee being calculated as a percentage of revenue rather than net profit. The letter informed Hyatt that the defendants would appoint Mr William Schoch as a director to approve and authorise financial transactions, room rates, charges, expenses and use of property at the resort by third parties and that he would be the joint signatory on cheques and financial transactions. The letter also provided that Mr Holland in his role as general manager would report to Mr Schoch. On 4 February 2012, Mr Schoch moved into a villa at the resort.
Ryan Lawyers, acting for Hyatt, replied on 3 February and again on 10 February 2012, essentially pointing out that the relationship between the parties was governed by the Management Agreement, the terms of which were known to the new shareholders of the defendant companies prior to their entry into the acquisition of that share capital. It denied that Hyatt had been in breach of the Management Agreement and that the defendants had the right under the Management Agreement to exercise the power and control that they were seeking to exercise.
Various correspondences continued between the parties’ legal representatives. On Monday 13 February, Mr Holland attended a meeting with Mr Palmer in Brisbane. Mr Palmer informed Mr Holland that he would like to extend Mr Holland’s contract for a further three years and increase his salary markedly. They discussed the need to refurbish the resort and Mr Palmer told Mr Holland that perhaps Hyatt would not fit in with his plans.
On Monday 20 February 2012, the legal representatives of the first defendant sent a letter to the legal representatives for the plaintiff saying “Your client, by its performance and its failure to allow our clients’ directors to meet their statutory obligations and comply with the law; and because of your client’s overall failure to perform the Management Agreement, your client has repudiated the agreement and we advise you on behalf of our clients that they have accepted your client’s repudiation of the agreement and it is now terminated.”
This letter was followed by a letter on the same day asserting that no employees or representatives were permitted to enter the resort and if they did so it would be regarded as a trespass and that the defendants would enforce their rights including by making a complaint to police. The letter demanded that all confidential and commercially sensitive information held by Hyatt as resort manager “in hard copy or electronic form” be delivered to the defendants within 30 days.
A third letter of the same date demanded continued use of Hyatt’s accounts, billing systems and point of sale system and that they remain open and operational at the resort for use by the defendant’s employees.
On the morning those letters were sent, 20 February 2012, business at the resort commenced with the usual meeting of the executive committee that managed the resort under Mr Holland’s supervision. Mr Braithwaite, the food and beverage director was called out of the meeting to meet Mr Palmer. Mr Braithwaite then told Mr Holland he was to meet Mr Schoch.
Mr Schoch gave Mr Holland a letter telling him, inter alia, that his employment would continue so long as he acted on instructions from Mr Schoch and the defendants and not from Hyatt. He was given a week to agree. Mr Schoch told Mr Holland that the contract with Hyatt had been repudiated. Mr Schoch also said words to the effect that, “Clive Palmer is a very determined person and a formidable opponent. He intends to spend a lot in this area and wants control. Clive has had about 60 litigation cases and has won them all.”
A press release was then published saying:
“February 20, 2012
Palmer terminates Hyatt from Coolum Golf Resort and Spa
Leading businessman Clive Palmer has terminated the management agreement with the Hyatt at his luxury golf resort and spa at Coolum on Queensland’s Sunshine Coast.
Mr Palmer announced today that the resort would now be known as The Coolum Gold Resort and Spa, ending a 27 year association between the global hospitality company and the flagship Sunshine Coast property.
He said poor performances by Hyatt on behalf of the owners and their lack of consultation and commitment with resort staff were the main reasons behind the decision.
‘The Hyatt has managed the property for 27 years, but in that time it has just led to millions of dollars in losses to the owners,’ Mr Palmer said.
‘The agreement has been based on increasing turnover rather than making a profit, a flawed business model which was delivering substandard results for stakeholders.
The Hyatt hasn’t given the property the priority it deserves. The Hyatt Group doesn’t even have a full-time employee in Queensland.’
Mr Palmer said he would invest a further $2 billion developing his Queensland tourism assets, with The Coolum Gold Resort and Spa receiving significant attention.
The resort’s 650 staff will benefit immediately, with Mr Palmer paying workers a $500 bonus each.
‘I have addressed all the staff and I was surprised to learn that they had never been paid a bonus before’, he said.
‘Everybody will be paid a $500 bonus immediately, and we plan to make bonuses an ongoing part of our staff incentive structure under a profit-based system that will see The Coolum Golf Resort and Spa exceed all expectations as a place to work, visit and invest.’
Mr Palmer has appointed his long-time senior executive Bill Schoch as general manager of the property.
‘I have the utmost confidence in the current staff led by Bill delivering future success for the resort and the region as a whole,’ he said.
Mr Palmer said the resort would continue to be home to the Australian PGA golf championship and would be looking to bring additional high-calibre events to the Sunshine Coast.”
The defendants’ employees at the resort were instructed to remove all Hyatt branded products and signs from and near the resort. The director of human resources, Cordine Sorby, received a letter from the defendants’ solicitors advising her that she was required to act on instructions from Mr Schoch and the defendants and not from Hyatt. The defendants sent a notice to staff under the name of Mr Schoch telling them that Hyatt’s management of the resort had been terminated and that “Professor Palmer as owner has now assumed full management of the Palmer Coolum Golf Resort and Spa.”
On the following day, 21 February 2012, following a contested hearing, this court granted an interim injunction in the terms referred to earlier in these reasons.
Following the grant of the interim injunction Mr Holland returned to managing the resort in the ordinary way. The Hyatt signage was reinstated and the resort bank accounts were returned. Accordingly, as the plaintiff submitted, it was not necessary to have a fresh order in accordance with paragraph 2 of the interim order made on 21 February 2012 as its work had been done. The plaintiff, however, sought a continuation of the orders made in paragraph 1 of the order made on 21 February 2012 until the trial of this matter or earlier order.
The defendants have had the opportunity following the grant of the interim injunction to file material demonstrating that the plaintiff does not have a prima facie case. The third defendant exhibited to an affidavit filed by leave on 1 March 2012 a report dated 28 February 2012 by an accountant, Dominic Martino, who retired as the Chief Executive Officer as Deloitte Touche Tohmatsu in 2003. He opined that the Management Agreement put the directors of the defendant companies “in an untenable position” and their options were to resign as directors, obtain advice as to external administration or “terminate the Management Agreement”. By the time this advice was received the defendant companies had already purported to terminate the Management Agreement. The advice from Mr Martino did not provide persuasive legal grounds for terminating the Management Agreement.
Many other grounds for terminating the Management Agreement have been put forward in a valiant attempt to show that the defendant companies accepted Hyatt’s breach of the Management Agreement. The defendants argued, for example, that the plaintiff preferred its interests to that of the defendants in breach of its duty of fidelity as an agent but, while that inference is arguable, the bulk of the evidence is against it, particularly with the scope of the agency as set out in the Management Agreement. None of the defendants’ many arguments provides a persuasive case that the plaintiff has been in breach of the Management Agreement. Rather, it would appear that a commercial decision was made by and on behalf of the defendant companies to terminate the Management Agreement, notwithstanding that such action was in breach of contract. This is reinforced by the valuation of the property with and without the Management Agreement found attached to the affidavit of Ken Smith, a registered valuer who is the regional director from CBRI Hotels Valuation and Advisory Service. There is a prima facie case that that action was taken at the behest of the third defendant. The final determination of these matters must await the final hearing of the matter.
In my opinion, it follows from the matters set out in these reasons that the plaintiff has established at least a prima facie case that it will be successful in obtaining the orders which it seeks in the claim: in particular, in vindicating a claim that the plaintiff has not been in breach of the Management Agreement and there was a wrongful repudiation of the contract by the first and second defendants and that that breach of contract was induced by the third defendant.
Balance of convenience
The question of balance of convenience requires a determination of what the effect the maintenance of the status quo would have on the parties and third parties, viewed in the context of the obvious strength of the plaintiff’s case, and its argument that damages would not adequately compensate it for its loss.
Robert Dawson is a director of the plaintiff and holds the position of Vice-President Asia-Pacific for Hyatt Hotels and Resorts, International Operations. He is responsible for supervising the seven Hyatt branded hotels in Australia managed by Hyatt Australia and is also the general manager of the Park Hyatt in Melbourne. He swore an affidavit in which he expressed his opinion that if the interim injunction were lifted and the defendants moved again to remove Hyatt as manager of the resort, that would cause very real damage to the Hyatt group and the plaintiff’s reputation and brand. It was not possible for him to put a value on the damage caused.
His affidavit shows that Hyatt manages hotels and resorts on behalf of hotel owners pursuant to hotel management contracts under which the plaintiff is given a broad discretion to operate the hotels. Hyatt’s core relationships are with those various hotel owners, the guests of the hotels and the hotels’ employees.
In order for Hyatt to maintain the value of its brand and to secure hotel management agreements with hotel owners in Australia and around the world the plaintiff must demonstrate its competence as hotel manager, the strength of its reservations and marketing networks, the competiveness of its operating systems and its corporate integrity. It competes with a number of well known hotel chains. He anticipated that news of the lifting of the interim injunction and the subsequent removal of Hyatt by the owners of the resort would be rapidly disseminated throughout the hotel industry around the world and would have a very negative impact on Hyatt’s standing and reputation and on the Hyatt brand. This is particularly so because the owners have issued several press releases stating that Hyatt was removed on 21 February 2012 because of poor performance and running the resort for its own benefit and for “syphoning $60 million in funds from the Coolum Resort over the past two decades”.
The use of the term “syphoning” suggests some impropriety and that the payment to Hyatt had been otherwise than in accordance with the Management Agreement. This perception appears to be confirmed by a statement attributed to Mr Palmer in his press release where he says “we believe Hyatt has been syphoning funds over the years back to their headquarters in Chicago and there has been a major cover up of these activities.” There is no evidence to support any assertion of impropriety by the plaintiff. Mr Dawson observes that if Hyatt were again to be removed as manager following the lifting of the interim injunction, the damage to its reputation would be significantly magnified by the owners’ public statements that their actions had been prompted by Hyatt’s incompetence and dishonesty. Given the defendants’ past behaviour, that concern is well based.
Mr Dawson deposes that the resort has a long-established reputation as one of Australia’s leading resorts and it enjoys “an iconic status” within the Australian hospitality industry. The resort is a critical component of Hyatt’s network in Australia which includes hotels and resorts in Sydney, Melbourne, Perth and Queensland. The inability of Hyatt to offer the resort as part of that network would cause considerable damage to Hyatt’s reputation within the Australian market. The capacity of Hyatt to offer a resort of the type found in Coolum together with its downtown CBD hotels and other resorts is important in the marketing of the plaintiff’s hotels and resorts in Australia and, Mr Dawson deposes, is an important component of the meetings and incentives business which seeks to capitalise on Hyatt’s reputation in the corporate market for both city centre locations and resort locations appropriate for offsite conferences and conventions. The resort at Coolum makes a unique contribution to the Hyatt network in Australia as it is the only fully integrated Hyatt-operated resort in Asia-Pacific region – that is, the only resort that offers the combination of a Hyatt operated championship golf course, beach, spa and tennis facilities.
Mr Dawson deposes that about half of Hyatt reservations are from conferences and business meetings which are often made on an annual basis and rotate among various Hyatt properties. He deposes that if the resort at Coolum were no longer part of the Hyatt network, there would be a real risk that Hyatt would suffer loss of overall conference bookings due to the resort at Coolum being such an integral and well reputed resort. Mr Dawson deposes to the significance of golf as part of the Hyatt offering and its importance as a marketing strategy for upscale resort properties. He also expresses the opinion that the Hyatt brand might suffer in the eyes of the travel agents who recommend and make bookings at Hyatt hotels on behalf of their customers in circumstances where Hyatt’s tenure may appear to them to be unreliable and capable of termination at very short notice.
Mr Dawson also deposes to the impact on future reservations made to stay at the resort. He deposes that there are confirmed reservations for approximately 28,000 room nights, which bookings have been made on the basis that the guests will be staying at a Hyatt hotel. This represents to those who have made reservations that the standards, procedures and policies relevant to a Hyatt hotel including standards of service, training provided to staff, marketing, reservations, guest relations, food and beverage operations, information technology, fit out, spa operations, human resources, management and room operations will be in accordance with the Hyatt standards. Should Hyatt be removed as the operator of the resort, guests who have made reservations will not be receiving what they have booked and paid for. Further, those guests who are members of the Hyatt’s loyalty programme will not receive the benefits to which that programme would otherwise entitle them. Mr Dawson deposes that the negative impact on guests as a result of making a reservation at a Hyatt hotel only to find that Hyatt has been removed, so that they bought one thing and received another, would be likely to create a negative perception of Hyatt, which is likely in turn to have a negative impact on bookings throughout the network of hotels operated by Hyatt.
Mr Dawson also deposes to the benefits and features of employment received by the employees who have been hired and trained by Hyatt and who are employed by the first and second defendant companies. There are approximately 600 employees who receive the usual benefits available to employees of Hyatt hotels. All of those benefits would be unavailable to employees of the first and second defendant companies if the resort was no longer operated by the Hyatt.
Mr Holland deposed to a telephone conversation with a real estate agent from Noosa on 21 February 2012 who had been associated with the resort from its inception. He had been involved in sales of villas at the resort and developments adjacent to the resort with rights of access to various resort facilities. He expressed the opinion that termination of Hyatt’s management would have a significant detrimental effect on their values.
The question of balance of convenience has also been affected by actions taken by the defendants immediately prior to this hearing.
On 29 February 2012, the day before the hearing of the application, the first and second defendant companies were placed into voluntary administration. The circumstances in which those defendants were put into voluntary administration are set out in various affidavits. An affidavit of Clive Palmer exhibits minutes of a meeting of directors of the defendant companies held on 29 February 2012. Those minutes show that the companies resolved that:
· adequate notice had been given for the holding of the meeting;
· “the termination of the Hyatt Management Agreement on 20 February 2012 is in the best interests of the company for the following reasons:
A.The agreement and Hyatt have frustrated the operation of Australian law stopping the directors from performing the statutory obligations
B.Hyatt has been negligent in carrying out its responsibilities under the Agreement
C.Hyatt as fiduciary of the company has preferred its own interest to that of the company;”
· “the legal challenge to the termination is without merit and its protraction for possibly years in the courts is not in the best interests of the company or the employees of the resort”.
Mr Palmer, Geoffrey Smith and Mr Ahyick then tendered their resignations to be effective immediately. The minutes then show that a consent to act as administrator under s 448A of the Corporations Act signed by Ginette Dawn Muller and John Richard Park was tabled. The companies resolved (by their remaining director Mr Schoch)
“Appointment of Administrators
1.That in the opinion of the director, the company is likely to become insolvent at some future time, and an administrator of the company should be appointed.
2.That the Company appoints Ginette Dawn Muller and John Richard Park of KordaMentha as Administrators of the Company under Part 5.3A of the Corporations Act 2001 (Cth).
3.That the company execute the Instrument of Appointment of Administrators.”
It was further resolved that the companies execute an Instrument of Appointment of Administrators to be signed by Mr Schoch and the company secretary Derek Payne. The minutes show that the meeting of the second defendant commenced at 6.57am and concluded at 7.50am and that the meeting of the first defendant commenced at 7.50am and concluded at 8.03am. The Instrument of Appointment of Ms Muller and Mr Park as administrators of the second defendant was signed at 7.45am and the instrument of appointment of Ms Muller and Mr Park as administrators of the first defendant was signed at 7.59am.
Ms Muller deposed to having met on 28 February 2012 with Mr Schoch and Mr Palmer at Mr Palmer’s offices in Brisbane, where she was informed of the basis on which they were of the opinion that the first and second defendants were likely to become insolvent.
This raises the question of future funding of the operation of the resort which the defendant companies are obliged to provide pursuant to the Management Agreement.
On 24 February 2012, the third defendant personally wrote to the plaintiff’s solicitors setting out at some length his views about the legal relationship between the plaintiff and the defendant companies. As to future funding of the resort in accordance with the requirements of the Management Agreement Mr Palmer deposed that exhibited to his affidavit sworn on 28 February 2012 were copies of letters received by the defendant companies from Queensland North Australia Pty Ltd (“QNA”) saying that no further loans would be made to them whilst the plaintiff remained in control of the resort. No exhibit of that type was annexed to his affidavit.
However, Mr Palmer explained in an affidavit filed by leave at the hearing on 1 March 2012, that he omitted those letters “in [his] haste to ensure that [his] earlier affidavit was filed by the time and date directed by the order made on 21 February 2011 [sic].” Those letters were exhibited to his later affidavit. They said that the debt owed by the second defendant to QNA was $1,461,058 and the debt owed by the first defendant to QNA was $5,426,010. The letters said that QNA was aware that:
“(a)[Hyatt] purports to have a Management Agreement with [the defendant companies];
(b)[the defendant companies] attempted to exercise control over bank accounts, expenses and revenues of the resort, which is the sole undertaking of [the defendant companies]; and
(c)Hyatt has resisted the attempt by [the defendant companies] to exercise control and currently Hyatt continues to control the bank accounts of [the first defendant].”
The letter said that “Whilst QNA may have been prepared to continue lending funds to operate the resort business to [the second defendant] if [the defendant companies] could exert control over income and expenditure; whilst Hyatt purports to exercise control over the resort, QNA is no longer prepared to advance any funds.” QNA then said that if the resort were controlled by the defendant companies, it was “willing to reconsider its position.”
In his affidavit filed at the hearing by leave on 1 March 2012, Mr Palmer deposed that, subject to the administration process, if Hyatt no longer remains in control of the resort, “funds may be advanced through entities controlled by me to the administrator (or as otherwise required) to continue the operation of the resort.”
On 21 February 2012, Mr Palmer, who appeared for himself before Martin J, told the court:
“I can give you my undertaking that those funds are available for the resort to continue and they will not be available to support Hyatt continuing to lose money at the resort and to pay money to themselves.”
When Martin J asked him who was providing the funds he said:
“They’ll be provided by companies that I own a hundred per cent of, your Honour, and the owner – and the ultimate owner of the resort property is Queensland Nickel Corporation of which I’m also a director and which has currently in its bank account over 100 million dollars, 120 million dollars, more than enough to meet the requirements of the resort and to continue those operations.”
When the matter came before me, counsel on behalf of Mr Palmer gave an undertaking in the following terms:
“The third defendant undertakes to the court to procure that funds of up to $1,000,000 available to the Administrators of the first and second defendants to allow them to continue to trade the resort business provided the plaintiff is no longer managing the resort business and no interlocutory injunction is granted restraining the Administrators from managing the resort business.”
This appeared a none too subtle attempt to allow the third defendant to offer funds to support the defendant companies only if what appears prima facie to be a wrongful repudiation of their contract with Hyatt was not visited with any consequences in terms of interlocutory relief. It supports the submission made by the plaintiff that, unless restrained, the third defendant will act on what is prima facie wrongful repudiation of the contract and once again engage in the conduct that is presently subject to restraint.
The Director of Finance of the resort has prepared a cash flow projection from which he estimates that the business will have sufficient cash to stay open until the end of March without further external funding.
As the defendant companies are now in administration, the plaintiff may not now proceed against them without the leave of the court given under s 440D(1)(b) of the Corporations Act 2001 (Cth). Given the importance attached to the application and the uncertainty if it were not to be determined, it is appropriate to grant leave.
The administrator’s duty to act impartially was set out by the High Court in Patrick Stevedores v MUA (1998) 195 CLR 1 at 38:
“The administrator must act impartially as among all parties having or claiming to have an interest in the present or future assets of the company and must make those decisions which, in the light of contemporary circumstances, best serve those interests. It is for the administrator, in exercise of the discretionary powers conferred by s 437A, to decide whether or not to carry on the company’s business and the form in which it should be carried on during the administration.”
The administrators must act in accordance with the defendant companies’ legal obligations subject to their statutory powers and duties found, inter alia, in Part 5.3A of the Corporations Act. The administrator does not achieve on appointment any “greater right to the company’s property than the company has to it.”[3] For the purposes of an interlocutory application in Ipex ITG Pty Ltd (In Administration) (Receivers and Managers Appointed) v Melbourne Water Corporation [2008] VSC 497, Byrne J accepted as a correct statement of principle, relying on the decision in Osborne Computer that “the property comes into the control of the administrators subject to pre-existing rights affecting it.”[4]
[3]I adopt the words used by Rolfe J in Osborne Computer v Air Road Distribution (1995) 37 NSWLR 382 at 390.
[4]{2008] VSC 497 at [26].
Germane to the question in the this case in the decision of Windeyer J in the Supreme Court of New South Wales where his Honour considered a claim in Ladies Sanctuary Pty Ltd v Parramatta Property Investments Ltd (1997) 7 BPR 15, 156 for relief against forfeiture of a lease and held at 15,159-15,660:
“The debts admitted by the administrators amounted to $16,564.35 and the administrators’ remuneration amounts to $14,594.70. It was not clear from the evidence of Mr Civil, a manager of the administrators, whether or not Contours had lodged a proof of debt. If it had then it had not been admitted and on the evidence the administrators have no intention of paying any amount to Contours. In fact, the administrators by letter to Contours dated 28 August 1996 advised that they were terminating the franchise agreement. It is not clear on what basis they purported to do that but I assume it was s 437A(1)(c) Corporations Law pursuant to which the administrator:
(c)may terminate or dispose of all or part of that business (namely the company’s business) and may dispose of any of that property.
This is not a matter of a liquidator disclaiming a lease pursuant to some statutory power and it would be quite extraordinary if an administrator could, pursuant to that section, have been granted power to make a unilateral decision to bring a valid contract to an end. There is a considerable difference between terminating a part of a business and breaching a valid contract see Osborne Computer Corporation Pty Ltd v Air Road Distribution Pty Ltd (1995) 37 NSWLR 382, particularly at 385C. No proper argument was addressed to the question, although I did raise it. I do not consider the administrators had the right to terminate the franchise agreement if they relied upon that section for their power.”
As Young J held in Commonwealth Bank of Australia v Batterell (1994) 35 NSWLR 64 at 71, in the context of an administration “one should not read a statute as over-riding pre-existing rights unless it says so with some clarity.” Section 437A(1)(c) does not give an unfettered right to the administrator to ignore any subsisting contractual rights over property. It may terminate the business but if it does so in breach of the company’s obligations under a subsisting contract then the company bears the consequences of its breach of contract.
In this case the administrator does not appear free to terminate the contract the defendant companies have with the plaintiff, the Management Agreement, without being in breach of that agreement. That said, the administrator is not entitled to act in breach of s 443A of the Corporations Act or engage in insolvent trading. However I was informed at the hearing that the defendant companies are not presently insolvent and the second defendant holds unencumbered title to the property.
On the information presently before me, it does not appear that the court orders which are in place inhibit the proper performance by the administrators of their duties. Ms Muller gave evidence that Hyatt has co-operated in assisting her to obtain all of the information she sought in order to conduct her investigation into the affairs of the company. It is the subsisting contractual rights and duties of the companies which prevent certain actions being taken by the administrators without putting the companies into breach of contract.
In these circumstances, the balance of convenience favours maintenance of the status quo, subject to allowing the administrators to comply with their statutory duties, pending the speedy determination of these proceedings or earlier order, should the situation, which appears fluid, change.
At the conclusion of the hearing at the request of the administrators I ordered that:
1. the administrators are not required to convene a first creditors’ meeting pursuant to s 436E of the Corporations Act 2001 (Cth) until eight business days after they have received from the plaintiffs a complete and correct written list of the first and second defendants’ creditors known to the plaintiff; and
2. the administrators are not required to give written notice to as many of the creditors as reasonably practicable until three business days after they receive the list referred to in paragraph 1.
The further orders will be that until the conclusion of the trial of this matter or earlier order, the defendants by themselves or by their servants or agents, shall, except as required for the conduct of the administration of the companies under Part 5.3A of the Corporations Act 2001 (Cth)
(a) refrain from interfering with the plaintiff’s access to the operating accounts for the Hyatt Regency Coolum Golf Resort and Spa (the resort);
(b) refrain from giving directions to staff working at the resort;
(c) refrain from removing or replacing signage at the resort; and
(d) refrain from describing the resort otherwise than as the Hyatt Regency Coolum Golf Resort and Spa.
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