Court Awards Special Costs For Hotel Purchasers' Bad Behaviour
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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 lawcorporate & 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.

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