Kmart Initiates $10 Million Lawsuit Against Mirvac, Alleging Breach Over Toombul Flood Closure

Toombul
Photo Credit: Google Maps

Retail giant Kmart Australia Limited (Kmart), a subsidiary of Wesfarmers, has filed a lawsuit against Mirvac Retail Sub SPV Pty Ltd and Mirvac Capital Pty Ltd, part of the ASX-listed Mirvac group, over the closure of Toombul Shopping Centre due to flood damage.



The lawsuit, which seeks $10 million in compensation, alleges that Mirvac breached their lease agreement by closing the shopping centre. This lawsuit unfolds 18 months after Toombul Shopping Centre’s closure was initially announced due to extensive flood damage.


 


The Lease Dispute: Kmart vs. Mirvac

Kmart contends that it had a valid lease agreement with Mirvac until February 2027. In the claim filed in the Supreme Court in Brisbane on Friday, 15 Dec 2023, Kmart asserts that Mirvac should compensate them for the loss of profit that the discount department store would have earned during the lease period. 

They argue that this compensation should be based on the anticipated trading if the store had reopened after flood damage occurred on 25 and 27 Feb 2022.

Kmart further alleges that Mirvac’s estimate of the loss of profit during this time amounts to $13.4 million, reduced to $10.1 million in net present value.

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According to Kmart, had the lease been in effect in April 2023, when Mirvac settled its insurance claim for flood damage, Mirvac would have breached the lease by not using the insurance payout to repair and rebuild the shopping centre.

Insurance and Repudiation: The Key Claims

Kmart’s lawsuit claims that Mirvac’s insurer had agreed to indemnify Mirvac concerning the flood damage. However, in April 2023, Mirvac informed Kmart that it had settled its insurance claim with insurer FM Insurance but could not disclose the dollar value due to confidentiality. 

Kmart had already accepted Mirvac’s repudiation of the Toombul lease on 8 Sept 2022 but maintained that Mirvac’s decision to permanently close the shopping centre constituted a significant loss due to repudiatory conduct.

Mirvac’s Decision and Future Plans

Mirvac, a prominent player in Australian real estate with a portfolio exceeding $11.9 billion, announced the permanent closure of Toombul Shopping Centre on 9 June 2022. 

CEO Susan Lloyd-Hurwitz cited extensive damage to crucial infrastructure such as electricity, fire, and escalators, along with the risk of future flooding, as reasons behind the decision.

Kmart asserts that Mirvac’s decision to close Toombul Shopping Centre represented an unequivocal intention not to fulfil its lease obligations, including using insurance funds to rebuild the centre. To date, no defence has been filed against Kmart’s claims, and a hearing date has not been scheduled.

Toombul
Photo Credit: Google Maps

Future Developments: Toombul’s Transformation

Mirvac’s acquisition of the 9.9-hectare Toombul Centre in 2016 marked a significant investment. On 18 July 2023, Brisbane City Council approved Mirvac’s application to demolish the former shopping centre, including buildings, car parks, and shade sails. 

Post-demolition, Mirvac plans to create a temporary park in the southeast corner of the site and will fence it off until approvals for the new development, still in the design phase, are obtained. The approved plans include retaining the Toombul bus interchange and associated roads.

Kmart’s Financial Performance

Despite the legal battle surrounding Toombul Shopping Centre, Kmart performs well. In the 2022-2023 financial year, Kmart posted $8.3 billion in sales, representing a remarkable 22 per cent increase, while earnings at the Kmart Group, including Target, surged by 53 per cent. 



Furthermore, in August, Wesfarmers reported that Kmart’s sales growth remained strong at the beginning of the 2024 financial year.

Published 24-Dec-2023