Steller Developments - Case Update

The long-standing saga between Steller Developments and its former directors has ended with a win for the directors, with the Federal Court dismissing a $100 million guarantee claim against them and refusing to interfere in the contractual arrangements between the parties notwithstanding some inconsistencies in the text.

Steller Developments collapsed in 2020 midway through restoring and expanding Sorrento’s Continental Hotel. Liquidator Richard Stone of RSM commenced proceedings against the company’s co-founders, Nicholas Smedley and Simon Pitard, and two other former directors, seeking to enforce personal guarantees of debts owed to investors.

We last reported on this matter in December, when the Court refused to transfer the hearing from Sydney to Melbourne, ruling that various parties’ lawyers had prepared for trial on the basis that it would take place in Sydney. The trial took place over two days in February and the Court has now released its decision dismissing the claim.

The case centred on whether a deed of guarantee executed in 2017 by various directors correctly identified the parties and whether it should be rectified to reflect the alleged true intention of the parties. The company argued that there was a drafting error in the agreement such that it referred to “Steller Investment Notes Pty Ltd” instead of “Steller Developments Pty Ltd”, and that the Court should either construe the agreement in its favour or rectify it to reflect the intention that Steller Developments was the true issuer liable for the secured money.

The Court rejected both arguments, holding that there was no absurdity in the deed's wording that required judicial correction. The deed explicitly named Steller Investment Notes Pty Ltd as the issuer, and while there were “some drafting curiosities” in the deed, it was far from self-evident that the directors’ objective intention was to provide a personal guarantee of the obligations of Steller Developments.

The Court also dismissed the rectification claim, ruling that there was no evidence of a continuing common intention among the parties that was mistakenly omitted from the document. Rectification requires a shared, pre-existing agreement that was incorrectly recorded, and Steller Developments failed to prove such an agreement existed.

The Court went on to address a cross-claim brought by Thomas Vines, one of the guarantors, who argued that he was indemnified against liability under a separate Retirement Agreement signed in 2018. The Court agreed with Mr Vines that, under the agreement, he was no longer liable for any guarantees concerning the Steller Group. Therefore, even if Steller Developments had succeeded on its principal claim, Mr Vines would have been shielded from liability under the Retirement Agreement.

The decision can be found HERE.

Professionals involved:

• Counsel for Nicholas Smedley: Jeremy Giles SC of 7 Wentworth Selborne and Nicole Papaleo of List G Barristers

• Solicitor for Nicholas Smedley: Lander & Rogers

• Counsel for Thomas Vines: Doug Porteous of List A Barristers

• Solicitor for Thomas Vines: Strongman & Crouch

• Counsel for Steller Developments: Michael Izzo SC of Eleven Wentworth and Amelia Smith of Tenth Floor Chambers

• Solicitor for Steller Developments: Hogan Lovells