Category: Hotel Law

In a recent Ontario decision, a company running two restaurants in a Toronto hotel sued the hotel after it terminated the parties’ relationship during the COVID-19 pandemic shutdown.

Hotel Signs Agreements to Open Two Restaurants on Premises

In 2017, an Ontario company signed a Food and Beverage Services Agreement (the “FBA”) and two leases with a hotel located in Toronto. The purpose of the FBA and the leases was to open and operate two restaurants within the hotel.

In March 2018, the hotel officially opened and the company began operating two restaurants on the premises. 

However, on March 17, 2020, the hotel closed to the public due to the COVID-19 pandemic and the Ontario government’s declaration of a state of emergency. The hotel demanded that the company continue to pay rent during the shutdown, which it failed to do.

On July 2, 2020, the hotel terminated the FDA and the leases with the company. Unbeknownst to the company, the hotel had signed a letter of intent with another restaurant on June 3, 2020, which was conditional on the dissolution of these agreements.

The hotel reopened to the public on July 14, 2020 and has remained open ever since.

On July 20, 2020, the company commenced a court action against the hotel. 

Parties Claim Against Each Other

Among its claims, the company sought damages against the hotel in the amount of $12,758,000 for lost profits. It also sought punitive and aggravated damages of $10 million for breach of certain agreements and a breach of the duty of good faith and honest performance. The company further alleged that the hotel had acted in bad faith by insisting that it pay rent while the hotel was shut down during the COVID-19 pandemic. It further claimed employee termination damages for close to $2 million. Finally, the company stated that it had spent millions of dollars on leasehold improvements with the expectation of running two profitable restaurants within the hotel and the hotel had benefitted and would continue to benefit in the future from those improvements. Thus, the hotel should be required to compensate it for its capital outlay with adjustments for a total of $8,965,542.

In response, the hotel denied entitlement to damages of any kind and counterclaimed for $2,000,000 for unpaid rents and services charges. Among its claims, the hotel alleged that the company had failed to provide the services it had said it would and had not paid rent as required. As such, the hotel stated that the company had breached numerous provisions of the FDA and it had been entitled to terminated the agreement and leases.

Court Rules That Hotel Was Not Entitled to Terminate Agreements

After reviewing all the evidence, the court ruled that the hotel’s termination of the FDA was unlawful. Among other reasons, the court found that the hotel’s own actions had contributed to the company’s inability to pay rent and the breaches alleged by the hotel in the termination letter were groundless. 

In addition, the court held that the termination of the FDA and leases had been done in bad faith, in part because the hotel had allowed the company to believe that it was“business as usual” all the while negotiating with another restaurant with a clear intention to replace the company.

Court Awards Damages

In the result, the court therefore ordered the hotel to pay the company $7,124,524 in reliance damages, from which the sum of $735,879 owed by the company for unpaid rent was to be deducted. The court further ordered the hotel to pay the company just over $2 million in employee compensation damages. 

However, the court refused to award punitive damages, stating:

“Although I have found bad faith on the part of the Hotel in the manner in which they terminated the Agreements, their actions do not reach the high threshold of reprehensible or egregiously objectionable conduct in the employment law cases cited by [the company]. This is, therefore, not a case for punitive damages. If I am wrong, I would have awarded $1.00 in punitive damages to [the company].”

Get Advice

Due to the very specific nature of the hotel industry and the day-to-day realities of running a hotel, financing a hotel purchase or project can be complicated. If you are building, buying or selling a hotel, it is important to retain a team of lawyers who are familiar with the hospitality industry and who are tuned in to the unique requirements of hotel owner-operators.

A good lawyer with experience in hospitality properties will be able to save you more money than you will spend on legal fees.  The opportunities to win or lose in hotel transaction negotiations is almost endless; it is one area of the law where having experienced counsel is especially important.

At Baker & Company, our highly skilled Toronto hotel lawyers have been advising clients on hotel financing for more than 30 years. We have helped prospective buyers and current owners of hotels of all sizes.

At Baker & Company,we provide tailored legal solutions.  We rely on our broad base of experience and multidisciplinary expertise in hotel law, corporate & commercial law, commercial real estate law, and employment law to provide exceptional legal guidance to our clients in the hotel industry. Call us at 416-777-0100 or contact us online for a consultation.

We had previously written about a British Columbia decision in which the owners of a hotel were awarded over four million dollars in damages after the prospective purchasers failed to complete the deal.

More recently, the owners were awarded the extraordinary remedy of special costs, which are normally only awarded during costs proceedings where a party knowingly misleads the court or presents false evidence.

Owners Attempt to Sell Hotel

The two owners purchased the hotel in British Columbia in 1979. Prior to 2008, the hotel was generating substantial revenues. However, in 2012, the owners decided to sell the hotel and transition into retirement.

In March 2014, the owners met two prospective purchasers, Mr. Durkin and Mr. Gregory. In their letter of intent, the purchasers affirmed their intention to purchase 100% of the shares of the hotel for consideration of $6 million.

Prospective Purchasers Fail to Close Deal

However, Mr. Durkin and Mr. Gregory had neither the means nor the intention of paying the owners. Instead, following six years of lies, excuses, threats, intimidation and bullying by the purchasers, the owners’ substantial equity in the hotel was entirely dissipated. 

The owners were able to regain control of the hotel in August 2017. They subsequently advised the purchasers that all agreements were formally terminated. 

Purchasers Lose Court Case Against Owners

Then, in 2017, in an attempt to reassert control of the hotel, the prospective purchasers filed a court claim seeking an interim injunction to remove the owners from the hotel. Additionally, the purchasers sought specific performance of the share purchase agreement and restitution of $1,344,328 based on unjust enrichment.

However, following a 56-day trial, the court ruled in favour of the owners, finding that the purchasers had engaged in considerable misconduct and bad faith in their dealings. The court also found that the purchasers had deliberately misrepresented their intention to pay the purchase price.

In the result, the court awarded the hotel owners over four million dollars in damages. 

Owners Go Back to Court to Obtain Special Costs

In 2021, the parties were back in court to determine costs. The owners sought special costs against Mr. Durkin and Mr. Gregory, and their corporate entities, jointly and severally, arising from the trial and several post-trial applications.

The court began by explaining the purpose of special costs as follows:

“The standard for awarding special costs is that the conduct in question must be reprehensible. This includes scandalous and outrageous conduct and other milder forms of misconduct deserving of reproof or rebuke…. 

Special costs are punitive and intended to encompass an element of deterrence aimed at discouraging reprehensible conduct. The focus of the inquiry is on the party’s blameworthiness and intent….

Special costs are warranted if a person knowingly misleads the court or gives false evidence on matters in question….. Evidence is “false” when it is knowingly untrue, not just erroneous….” 

In addition, the court explained that special costs may also be awarded against an individual who:

• withheld admissions and denied facts;
• delayed pre-trial procedures;
• failed to attend for examination for discovery;
• conducted themselves in an unreasonable or high-handed manner;
• engaged in obfuscation; 
• wasted court time by mischaracterizing the evidence or raising trivial issues;
• pursued a meritless claim with reckless disregard to the truth;
• made improper allegations of fraud, conspiracy or breach of fiduciary duty;
• made the resolution of an issue far more difficult than it should have been;
• brought a proceeding for an improper motive;
• maintained unfounded allegations of fraud or dishonesty; and
• pursued claims frivolously or without foundation.

Court Considers Purchasers’ Conduct

The court first reviewed Mr. Durkin’s conduct, and concluded that he had failed to comply with court orders, lied, deliberately misled the court, fabricated evidence, withheld admissions and denied facts, maintained unfounded allegations of fraud and criminal conduct, mischaracterized evidence, intentionally delayed and elongated the trial, and abused and intimidated witnesses. As such, the court held that Mr. Durkin was liable for special costs. 

Turning to Mr. Gregory’s conduct, the court also concluded that he was liable for special costs. It found that he had knowingly given false evidence and had intended to mislead the court, in addition to fabricating evidence and testifying untruthfully. As such, the court was satisfied that he had engaged in fraudulent, reprehensible, and outrageous conduct that deserved rebuke. 

Court Awards Special Costs

In the result, the court held Mr. Durkin, Mr. Gregory and their corporate entities jointly and severally liable for special costs. However, the court declined to use its jurisdiction to determine the amount of the special costs. While the hotel owners had submitted evidence detailing over one million dollars in legal fees incurred throughout the ordeal, the court found the information insufficient to determine the reasonableness of the legal fees underlying the special costs award.

The court therefore referred the matter to the registrar for determination of the amount of special costs.

Get Advice

Due to the very specific nature of the hotel industry and the day-to-day realities of running a hotel, financing a hotel purchase or project can be complicated. If you are building, buying or selling a hotel, it is important to retain a team of lawyers who are familiar with the hospitality industry and who are tuned in to the unique requirements of hotel owner-operators.

A good lawyer with experience in hospitality properties will be able to save you more money than you will spend on legal fees.  The opportunities to win or lose in hotel transaction negotiations is almost endless; it is one area of the law where having experienced counsel is especially important.

At Baker & Company, our highly skilled Toronto hotel lawyers have been advising clients on hotel financing for more than 30 years. We have helped prospective buyers and current owners of hotels of all sizes.

At Baker & Company,we provide tailored legal solutions.  We rely on our broad base of experience and multidisciplinary expertise in hotel law, corporate & commercial law, commercial real estate law, and employment law to provide exceptional legal guidance to our clients in the hotel industry. Call us at 416-777-0100 or contact us online for a consultation.

A recent Saskatchewan decision addressed a claim that a hotel was liable for serving a man excessive amounts of alcohol at a bar located on its premises prior to his death in a fatal car crash. 

Man Dies in Car Crash After Leaving Hotel

A 19-year old man’s common law spouse commenced a claim on her own behalf and on behalf of the beneficiaries of his estate following his death in a fatal head-on collision with a semi-trailer on December 5, 2015. 

The claim alleged that on the evening of his death, the man had been at a restaurant and bar adjacent to the Whitewood Inn, a hotel in Saskatchewan, where he was served excessive amounts of alcohol before getting behind the wheel of a car.

The spouse named as defendants the company that operated the hotel, the owners and operators of the restaurant and bar located in the hotel, and two servers employed in the bar. 

The hotel, as a landlord, had entered into a lease with the bar as tenant on September 15, 2015. The lease was subsequently terminated in January 2017. The spouse’s claim was commenced in November 2017. 

The essence of the spouse’s claim against the hotel was that it was or had been the operator and/or occupier of the bar and had failed to train and/or supervise staff, such that the man was over-served on December 5, 2015. As part of the claim, it was assumed that the man’s car accident had been caused or contributed to by the alcohol served to him at the bar.

Court Dismisses Spouse’s Claim Against Hotel

In the present decision, only the liability of the hotel was at issue.

The court first set out to determine whether the hotel had been a joint occupier with the tenant of the bar where the over-serving allegedly occurred. It held that the hotel had not been the occupier of the bar as it pertained to hiring staff, training staff, supervising staff, obtaining a liquor license, and most importantly, ensuring patrons were not over served. Therefore, the court determined that the hotel had not been the occupier of the bar as alleged in the claim as of December 5, 2015 when the tragedy occurred and could therefore not be held liable as such.

Additionally, the court rejected the spouse’s claim that the hotel was liable under The Automobile Accident Insurance Act. Under the legislation, a party may bring a claim against a third party who, through an act or omission, caused non-economic loss. However, the court determined that because the hotel had not been a permit holder or occupier of the bar on the date of the accident, it had not committed an act or omission that could result in such liability. 

The court then turned to the spouse’s argument that, even if the hotel had not been the holder of the permit in 2015, the permit was transferred to the hotel in 2017 and, therefore, it became the licensee upon the transfer and assignment and was for all intents and purposes responsible for the operation of the bar from and after December 1, 2015. The court noted that there did not appear to be any statutory provision or case law that addresses the issue. Ultimately, however, the court determined that the hotel could not be responsible for conduct occurring more than a year before it became the permit holder and dismissed the argument.

As a result, the spouse’s claim against the hotel was dismissed in its entirety.

Get Advice

Hotels generally have a large number of employees in a vast range of service areas: from food service and housekeeping staff to customer service, sales and marketing, and executive level employees. Unsurprisingly, this comes with a diverse range of employment law and related issues, including numerous obligations on the part of the hotel owner and a substantial amount of risk and liability.

At Baker & Company, our Toronto hotel lawyers have been advising hotel owners on employment law, labour law, human rights law, and occupational health and safety matters for over 30 years. We represent owners and franchisees across a wide range of hotels, both small and large and franchised and non-franchised, across the province.

At Baker & Company, we take the time to meet with you and understand your unique needs in order to offer holistic hotel solutions to the diverse problems you may encounter. We rely on our broad base of experience and expertise to provide exceptional legal guidance. Call us at 416-777-0100 or contact us online for a consultation.

In a recent decision, the owners of a hotel were awarded several million dollars in damages after the prospective purchasers failed to complete the deal.

Owners Try to Sell Hotel

The two owners purchased a British Columbia hotel in 1979 when it was a small six-room bed and breakfast. The hotel underwent several significant renovations between 1979 and 1997. In 1986, the owners built a separate building with 10 additional guestrooms. In 1988, they renovated the original six guestrooms and added private bathrooms. In 1997, the owners completed a substantial renovation that joined the two existing buildings and added 13 guestrooms.

Prior to 2008, the hotel was generating substantial revenues. It was particularly profitable between 2001 and 2008. The global financial crisis in 2008 caused a significant decline in the hotel’s revenues, largely due to the significant reduction in American clients who previously accounted for a considerable proportion of the hotel’s business. These financial difficulties were compounded by a series of personal tragedies suffered by the owners.

In 2012, the owners decided to sell the hotel and transition into retirement.

In 2013, three separate deals to sell the hotel to two different purchasers failed to complete. 

By 2014, the owners were both anxious and eager to find a purchaser for the hotel. In March 2014, they met two prospective purchasers. In their letter of intent, the prospective purchasers affirmed their intention to purchase 100% of the shares of the hotel for consideration of $6 million.

The owners thought they had found honest and reputable business people who would comply with their contractual obligations and pay for the hotel. 

However, the prospective purchasers had neither the means nor the intention of paying them for their valuable asset. Instead, the owners suffered a six-year odyssey of lies, excuses, threats, intimidation and bullying by both individuals. In the end, the owners’ substantial equity in the hotel was entirely dissipated because of the actions of prospective purchasers. 

The prospective purchasers had failed to perform any of the obligations detailed in the agreements with the owners. They asserted that they had reasonable explanations for failing to comply with the terms of these agreements; these explanations largely consisted of blaming the owners.

By April 2016, 18 months had passed since the closing date agreed to by the parties in their agreement and the prospective purchasers had reneged on no fewer than eight amended closing dates.

After the prospective purchasers had failed to meet their obligations, the ownersregained control of the hotel in August 2017. In their letter to the prospective purchasers, they advised that all agreements between the parties were formally terminated because of repudiation of the agreements. 

On August 31, 2017, in a bid to reassert control of the hotel, the prospective purchasers, filed a notice of civil claim application seeking an interim injunction to remove the owners from the hotel. In their notice of civil claim, the prospective purchasers sought two equitable remedies: specific performance of the share purchase agreement and restitution of $1,344,328 based on unjust enrichment.

Court Finds in Favour of the Hotel Owners

After reviewing the conduct of all parties, the court concluded:

“In my view, the [prospective purchasers’] considerable misconduct and bad faith in respect of its non-performance of the [agreements] over the past six years establishes a clear basis for a finding that they failed to act honestly or in good faith in their contractual performance. Specifically, the evidence shows that [they] never intended to perform their fundamental obligations under these agreements and they knowingly misled the [the owners] into believing that they would. […]

I also conclude that [the prospective purchasers] deliberately misrepresented their intention to pay the purchase price to the [the owners]. This was their primary contractual obligation but they did not have the intent or the financial capacity to pay this amount at any time during the past six years. […]

In my view, the extensive record of lies and fraudulent misrepresentations deployed by [prospective purchasers] throughout the history of their dealings with the [owners] illustrates considerable bad-faith that is more than sufficient to preclude [them] from obtaining an equitable remedy.” 

As a result, the court awarded the hotel owners $2,645,229 in compensatory damages for the prospective purchasers’ breach of the share purchase agreement and an additional $1,359,544 in damages for the filing of a false affidavit in the injunction hearing.

Get Advice

Baker & Company has adopted all of the COVID-19 safety precautions and vulnerable employees have been invited to work from home. We are fully operational and continuing to work on client assignments. Where possible, meetings are being held via video link or by telephone conference.

Due to the very specific nature of the hotel industry and the day-to-day realities of running a hotel, financing a hotel purchase or project can be complicated. If you are building, buying or selling a hotel, it is important to retain a team of lawyers who are familiar with the hospitality industry and who are tuned in to the unique requirements of hotel owner-operators.

A good lawyer with experience in hospitality properties will be able to save you more money than you will spend on legal fees.  The opportunities to win or lose in hotel transaction negotiations is almost endless; it is one area of the law where having experienced counsel is especially important.

At Baker & Company, our highly skilled Toronto hotel lawyers have been advising clients on hotel financing for more than 30 years. We have helped prospective buyers and current owners of hotels of all sizes.

At Baker & Company,we provide tailored legal solutions.  We rely on our broad base of experience and multidisciplinary expertise in hotel law, corporate & commercial law, commercial real estate law, and employment law to provide exceptional legal guidance to our clients in the hotel industry. Call us at 416-777-0100 or contact us online for a consultation.