China-Australia relations: ripping up Chinese firm’s Darwin Port lease could cost Canberra

A revocation of the 99-year deal on national security grounds could have serious financial and commercial ramifications

Lease by Landbridge Group began in 2015 and triggered a sharp reply from Washington over not being consulted about the deal

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Australia will review the 99-year lease of Darwin Port by a Chinese firm, on national security grounds. Photo: Handout

Published: 4:30am, 4 May 2021Updated: 9:31am, 6 May 2021

The Australian government may have to pay taxpayer-funded compensation to a Chinese company if its lease contract of Darwin Port is overturned on national security grounds, but experts say the government has no “immediate imperative” to terminate the deal.

An Australian parliamentary inquiry’s call last month for the government to consider revoking the 99-year lease to Landbridge Group has gained momentum after Minister for Defence Peter Dutton confirmed to The Sydney Morning Herald on Sunday that his department was looking into whether Landbridge should relinquish its lease under a set of critical infrastructure laws passed in 2018.

Such a move could also jeopardise Australia’s sovereign risk rating – the level of interest a country has to pay for loans and credits – and would surely serve to further strain relations between Beijing and Canberra that have gradually worsened over the past year.

As Canberra’s concerns over Beijing’s impact on Australia’s national security continue to mount, former prime minister Kevin Rudd also weighed in last week, saying Canberra should conduct a cost-benefit analysis to determine whether the lease to Landbridge was justified.

But unlike the axing of a non-binding Belt and Road Initiative memorandum of understanding (MOU) two weeks ago, the revocation of this deal could have financial and commercial ramifications, as it is a commercial contract, and would not be a simple tear-up like the MOU, experts say.

“Both parties have obligations under the terms of the lease, and the initial question is simply whether those terms are being met at this stage,” said John Garrick, a business law academic at Charles Darwin University. “If lease terms are not being met, there are standard procedures to follow for terminating a lease based on non-performance of an essential term, for example.

“But termination is extremely unlikely through the [Foreign Investment Review Board]. More likely, termination would come from a commercially negotiated mutual agreement that the lease is not viable.”