COURT FILE NO.: CV-20-00644262
DATE: 20210705
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2505243 Ontario Limited o/a ByPeterandPaul.com
Plaintiff
– and –
Princes Gate GP Inc. in its Capacity as General Partner of Princes Gates Hotel Limited Partnership
Defendant
Randy Sutton, Robert Frank and Erica Anscheutz, for the Plaintiff
Peter W.G. Carey, Paul E.F. Martin and Amanda Pilieci, for the Defendant
HEARD: March 1-5 and March 8-10, 2021
C. Gilmore, J.
trial judgment
OVERVIEW
[1] This is a case in which both parties looked forward to a profitable working partnership based on their respective service industry skill sets. Unfortunately, the plan did not work out. The Defendant terminated the Plaintiff’s contract and leases, and the Plaintiff has sued for damages.
[2] The undisputed facts in this case make it clear that each side had very different expectations and philosophical approaches to running a profitable hotel. Even if a termination had not occurred, it is unlikely that the parties could have worked together cooperatively in the long term. In short, it would be unrealistic for there to have been future business profits generated from what had become a toxic relationship.
[3] However, the Plaintiff spent millions of dollars on leasehold improvements with the expectation of running two profitable restaurants within the hotel. No matter what the reason for the breakdown of the commercial relationship, the hotel has benefitted and will benefit in the future from those improvements. The hotel should be required to compensate the Plaintiff for its capital outlay with adjustments.
[4] The Plaintiff, 2505243 Ontario Limited o/a ByPeterandPaul.com (“250”), seeks damages in the amount of $12,758,000 for lost profits from the Defendant, Princes Gate GP Inc. (“the Hotel”). Alternatively, 250 seeks damages for $11,000,000, representing the Plaintiff’s lost investment, breach of the Food and Beverage Services Agreement (the “FBA”) and the Leases (defined below), breach of the duty of good faith and honest performance, and unjust enrichment.
[5] 250 seeks a further $2,100,000 for 250’s liability to its former employees for termination pay, vacation pay and other amounts which may be owed under the Employment Standards Act 2000, S.O. 2000, c.41 (“the ESA”).
[6] Finally, 250 seeks punitive and aggravated damages of $10,000,000 for breach of certain agreements and a breach of the duty of good faith and honest performance.
[7] The Hotel denies entitlement to damages of any kind and counterclaims for $2,000,000 for unpaid rents and services charges after applying any set offs.
[8] The main dispute between the parties centres on leases to two restaurants at the Hotel on Princess Boulevard at Exhibition Place in Toronto, and the FBA. 250 alleges that the Hotel purported to terminate the FBA and the Leases on the basis of alleged defaults.
[9] 250 further alleges that the Hotel acted in bad faith by insisting that 250 pay rent while the Hotel was shut down during the pandemic and refusing to reasonably assist it with applications for government rental assistance. The Hotel then replaced 250 with a new food and beverage service provider, Harlo, immediately after terminating the Agreements it had with 250, and coincident with its selection as one of two venues in Toronto selected as NHL hubs.
[10] The Hotel defends by alleging that 250 failed to provide the service it represented it could, took event deposits and used them for cash flow, and failed to pay rent and additional rent when required. 250 was in default of numerous provisions of the FBA and the leases which entitled it to terminate its Agreements with 250. 250 still owes the Hotel rent and other unreconciled amounts.
[11] The Hotel also denies that it acted in bad faith, and denies any intentional connection with the termination of the FBA and the Leases with the commencement of Harlo as a new food service provider. The Agreements were terminated due to 250’s failure to pay rent.
The Parties, Witnesses and Agreed Facts
[12] Set out below are the agreed facts as between the parties and a general timeline of events:
(a) Princes Gates GP Inc., in its capacity as general partner of Princes Gates Hotel Limited Partnership, operates Hotel X Toronto (referred to as “the Hotel” in these reasons).
(b) The Hotel is located at 111 Princes' Boulevard in the Exhibition Place grounds in Toronto, Ontario.
(c) The Hotel is incorporated under the laws of British Columbia.
(d) 250 is incorporated under the laws of Ontario. The common shares of 250 are owned by 2566345 Ontario Ltd. and the Eliopoulos 2018 Family Trust, 20% and 80% respectively.
(e) The FBA dated January 4, 2017 was executed by the Hotel and 250 on January 25, 2017. An Amending Agreement to the FBA was executed by the parties on March 16, 2018 (“the Amending Agreement”). 250 is listed as the Operator under the FBA and the Amending Agreement.
(f) The Garden Restaurant Lease dated January 4, 2017 was executed on January 25, 2017 (“the Petros Lease”). The Second Floor Restaurant Lease dated January 4, 2017 was executed on January 25, 2017 (“the Maxx's Lease”) (together with the Petros Lease “the Leases”).
(g) The FBA, the Amending Agreement, the Petros Lease, and the Maxx's Lease are collectively referred to in this Judgment as “the Agreements.”
(h) On March 20, 2018, Hotel X officially opened. 250 began offering food and beverage services under the FBA in March 2018.
(i) 250 began operating Maxx's Kitchen in March 2018. 250 began operating Petros in September 2019.
(j) On March 17, 2020, the Ontario government declared a State of Emergency in response to the COVID-19 pandemic. On March 23, 2020, the Hotel closed to the public.
(k) On June 3, 2020, a Letter of Intent was signed between Harlo and the Hotel which was conditional on the dissolution of the Agreements.
(l) The Hotel terminated the Agreements on July 2, 2020.
(m) On July 9, 2020, it was announced that the Hotel would be one of the National Hockey League bubble hotels for the resumed NHL season which was set to begin on August 1, 2020.
(n) On July 14, 2020, the Hotel reopened its doors. It has remained open since then.
(o) On July 20, 2020, 250 commenced this action.
(p) None of the Agreements contain any provision requiring 250 to ensure that client deposits were applied solely and exclusively to the cost of the specific events to which they related. None of the Agreements contain any provision requiring 250 to maintain cash on deposit or other liquid investments equal to the amount of all client deposits paid to it.
(q) On September 9, 2020, the Hotel, along with other creditors, commenced a bankruptcy application seeking to have 250 involuntarily adjudged bankrupt.
(r) On October 9, 2020, the bankruptcy application was stayed in favour of the Notice of Intention filed by 250.
(s) On October 30, 2020, the Hotel filed its Statement of Defence and Counterclaim.
[13] Set out below is a table identifying the parties, witnesses and other persons mentioned during the course of the trial.
| NAME | TITLE |
|---|---|
| PRINCES’ GATE GP INC. | |
| Henry Kallan | President of Princes’ Gate GP Inc., in its capacity as general partner of Princes’ Gate Hotel Limited Partnership |
| Christopher Lambert | Former Managing Director, Hotel X |
| Fariyal Hasham | General Manager, Hotel X |
| Colleen Ross | Former General Manager, Hotel X |
| Budi Laksmono | Chief Financial Officer, Hotel X |
| Sanket Patel | Former Controller, Hotel X |
| Krishna Gaudel | Former Director of Finance, Hotel X |
| Adele Gutman | Vice President of Sales, Marketing and Revenue, Hotel X |
| Celso Thompson | Former Director of Sales and Marketing, Hotel X |
| Luke Nixon-Janssen | Former Director of Sales and Marketing, Hotel X |
| Saira Morris | Director of Sales and Catering, Hotel X |
| Matt Black | Director of Brand Management, Hotel X |
| Angela Racco | Director of Human Resources, Hotel X |
| Meagan McDonald | Director of Guest Experience, Hotel X |
| 2505243. ONTARIO LTD | |
| Peter Eliopoulos | Founder and President of Peter and Paul’s Hospitality Group. Owner of 2505243 Ontario Ltd. |
| Dean Galanis | Owner of 2505243 Ontario Ltd. |
| Erin Breckbill | Vice President of Sales and Marketing of Peter and Paul’s Hospitality Group |
| Anil Dash | Chief Financial Officer of Peter and Paul’s Hospitality Group |
| Jacob Park | Director of Food and Beverage Operations/Hotel Division, Peter and Paul’s Hospitality Group |
| Yannis Paravolos | Former Vice President of Operations/Hotel Division, Peter and Paul’s Hospitality Group |
| Michelle Law | Accounting Manager at Peter and Paul’s Hospitality Group |
| OTHER | |
| Angelo Raitsinis | President, Rose Hill Design/Build |
| Michael Kimel | Chairman, Harlo Entertainment |
| Brad Kinsella | Director, Escape Management Group |
| Joseph Sgro | General Manager and Partner, ZZEN Group of Companies |
The Agreements and Background
[14] As set out in the agreed facts, 250 operated at the Hotel under the Agreements. The Agreements included the leases for Petros and Maxx’s, and the FBA. Petros was a high-end restaurant, and Maxx’s was intended for more casual dining for breakfast, lunch, and dinner service. The Agreements were signed in January 2017.
[15] The leases stipulated that each of Maxx’s and Petros were required to pay a minimum rent which increased in year 3 and year 7. Each restaurant also paid 10% of gross receipts to the Hotel, where those receipts were in excess of specified amounts which were different for each restaurant. Additional rent was also charged to each restaurant as their share of common expenses with the Hotel.
[16] The FBA provided that 250 would provide food and beverage services for Petros, Maxx’s, banquets and conferences, the rooftop bar (sometimes referred to as the “Skybar”), the lobby bar, the patio, the Grab & Go restaurant (sometimes referred to as “Nespresso Café"), the staff cafeteria, the VIP lounge, the cinema concessions, and in-room dining.
[17] Mr. Dean Galanis testified on behalf of 250. He is a minority shareholder in 250 with over 35 years’ experience in the restaurant industry. His evidence was that as early as 2014, 250 began planning for the construction of the two restaurants at the Hotel. There was a significant amount of planning, design, construction, and supply and materials management to get the restaurants ready for the Hotel opening. Mr. Galanis was integrally involved in the management of that construction.
[18] The Hotel opened in March 2018, and 250 began service under the FBA. Maxx’s was also opened at that time. Petros was supposed to open within 180 days of the Hotel opening. There is a dispute about why there were delays in opening Petros, but suffice to say it did not open until September 2019. During periods of full operation, 250 employed over 200 people at the Hotel. According to the damages brief of 250, the capital expenditures of 250 for fixturing the restaurants and paying for uniforms was $7,124,524.
[19] There are several key disputes concerning the FBA. These relate to the payment of licence fees, the room rental revenue split, the payment of 250’s share of gross receipts, and the performance of services. The relevant provisions are set out below in the excerpts below. The FBA identifies 250 as the “Operator” and the Hotel as “PGH”.
4.1. Performance of the Services
(a) The Operator agrees to provide and perform the Services in a manner that is consistent with the highest standards established and maintained by PGH with respect to the Hotel as a first class transient hotel comparable to Four Season Hotel, Trump Hotel or the Hazelton Hotel in Toronto, Ontario. At all times through the Term, the Operator shall continuously, actively and diligently provide the Services in an up-to-date, and first-class, and reputable manner each day during such Business Hours as may be determined by PGH acting reasonably and in conjunction with the Operator. The Parties agree that “room service” to the Hotel Rooms will be provided on a 24 hour, 7 days a week basis.
(d) The Operator acknowledges that the performance of the Services will have a material impact on the ability of PGH to successfully operate the hotel as a first-class transient hotel comparable to the Four Seasons Hotel, the Trump Hotel and the Hazelton Hotel in Toronto, Ontario. Accordingly, the Operator acknowledges and agrees that its covenants and agreements to provide the Services at the times, in the manner and to the level and standards required by this Agreement was a material inducement to PGH entering into this Agreement with the Operator, that PGH relied on such covenants and agreements of the Operator in entering into this Agreement and that PGH would not have entered into this Agreement with the Operator in the absence of such covenants and agreements by the Operator. If at any time, in the sole opinion of PGH, the services are not being performed in compliance with the standards established and maintained by PGH with respect to the Hotel or in the event the Operator is not complying with the provisions of this Agreement, including, without limitation, this Article 4, the PGH Operational Requirements (as hereinafter defined) and Schedule “E”, PGH shall provide written notice thereof to the Operator (a “Default Notice”). The Operator shall have a period of 60 days to remedy, to the satisfaction of PGH, all of the items of default referred to in the Default Notice, failing which PGH shall have the right to terminate this Agreement upon written notice to the Operator.
4.2 Covenants of the Operator
(a) In the court of the Operator’s performance of the Services and use of the Facilities, the Operator covenants and agrees to do the following:
(i) Maintain such number of full time and part-time personnel, including hostesses, servers, bartenders, bus personnel, food prep and kitchen staff, and managers, to ensure that the Services are performed to the standards required by PGH and so as to maintain the highest standards established and maintained by the Landlord with respect to the Hotel.
- Payments
5.1 In consideration of the rights and privileges herein granted, PGH and the Contractor agree to the following:
(a) Payment of License Fees - The Operator shall pay to PGH an amount equal to twenty-two and one-half percent (22.5%) of the Gross Receipts generated in each Accounting Period (the “Licence Fees”). The Licence Fees shall be paid to PGH at the same time that PGH provides to the Operator its bi-weekly statement of Gross Receipts for the immediately preceding Accounting Period. Licence Fees shall be payable bi-weekly on Monday of each second week during the Term including the Monday next following the end of the Term. The amount of each payment shall be equal to the amount determined by applying the percentage referred to in Section 5.1(a) to the aggregate of the Gross Receipts for the immediately preceding Accounting Period.
5.3 Rooftop Bar and Room Rental (RB+RR) revenue split – All revenue received for the Rooftop Bar event space rental (RB) as well as revenue received from Room Rental (RR) will be split 60% to PGH and 40% to the Operator. Price for RB+RR may be re-visited upon the written request of either PGH or the Operator and changed upon the mutual agreement of PGH and the Operator. For further clarity, it is agreed that there shall be no Licence Fees paid by the Operator on the forty percent (40%) of the RB and RR revenue that is allocated to the Operator.
17.1 Repairs and Maintenance
17.1 Operator Obligations
The Operator shall, at all times during the Term, at is own cost and expense, replace, repair, maintain and keep the Operator Built facilities….in a manner consistent with the highest standards established and maintained by PGH with respect to the Hotel….
- Termination by PGH
21.1 Grounds for Termination
If any one or more of the following shall occur (each, an “Event of Default”), PGH may at its option terminate this Agreement by written notice of termination delivered to the Operator at its address set forth herein which notice shall be deemed to be given when received.
(a) The Operator fails to observe or perform any of its obligations under this Agreement… and the default continues for thirty (30) days….
Gross Receipts – means the total of all gross sales and receipts from all business conducted by the Operator upon or from the Hotel or the supply and performance of the Services, save and except gross receipts derived from the second floor restaurant owned by the Operator pursuant to the Second Floor Lease and gross receipts derived from the main floor Garden Restaurant and Lobby Bar operated by the Operator pursuant to the Ground Floor Lease…
[20] The FBA was amended in March 6, 2018. The amendments may be summarized as follows:
Food and Beverage Agreement
Licence fees with respect to banquet facilities and conference room facilities - 15% of the gross receipts in any year that are less than $15 million and 22.5% of the gross receipts in any year that are in excess of $15 million.
Licence fees with respect to the Rooftop Bar - 15% of the gross receipts in any year that are less than $5 million and 22.5% of the gross receipts in any year that are in excess of $5 million.
No licence fees with respect to supply of food and beverages to the hotel rooms, the Grab & Go or the Cinema Concessions.
Rooftop bar event space rental, as well as revenue received from conference room rentals are split 60% to PG and 40% to 250.
250 was responsible to pay Hotel X for its share of utilities and taxes ("F&B Billback").
[21] Mr. Galanis agreed that the March 2018 amendment was beneficial to 250 as it meant 250 received a larger split of the Licence Fees. His evidence was that it represented a concession on the part of the Hotel of about $1M. Mr. Kallan, the President of the Hotel, agreed but was clear that the concession was made on the understanding that 250 would pay proper wages and benefits to its staff, maintain required levels of service, and hire appropriate staff and management. As will be set out below, the Hotel’s position is that 250 never lived up to its commitments in this regard.
[22] Mr. Eliopoulos testified that the Amending Agreement was required because the original 22.5% licence fee payable to the Hotel was much too high when the Hotel was not making money. In any event, he and Mr. Kallas originally shook hands on 16.5% which was more aligned to the right percentage so the reduction to 15% was entirely reasonable.
[23] Mr. Christopher Lambert, the Managing Director of the Hotel, gave evidence that the real purpose of the Amending Agreement was to lower the Licence Fees payable by 250 to ensure it had sufficient funds to pay its employees at a level similar to other five-star hotels. As the Hotel sought to market itself in the “Comparative Set” (“CompSet”) of other five-star hotels in Toronto such as the Four Seasons, the Shangri-la, the Ritz Carlton and the St. Regis, it was imperative that its employees were paid at the CompSet level.
Readying for the Hotel Opening – A Rough Start
[24] Mr. Peter Eliopoulos is the President and Founder of the ByPeterandPaul (“BPNP” or “PNP”) group of companies. 250 is one of BPNP’s companies. Mr. Eliopoulos described BPNP as a family-run business which employs over 1,200 people. BPNP has 11 event venues and specializes in weddings, fundraisers, and corporate events. Mr. Eliopoulos has been in the event business for over 39 years.
[25] When Mr. Eliopolous met Mr. Henry Kallan, the owner of the Hotel, he was enthusiastic about his vision for the hotel and the promise of significant occupancy right from the start. He knew that Mr. Kallan wanted the Hotel to be the best in Toronto and at least on par with other five-star hotels in Toronto.
[26] Mr. Kallan is a self-made businessman who owns seven hotels throughout the world, including the exclusive and highly-rated Aria Hotel in Budapest. Mr. Kallan speaks five languages and has been in the hotel business his entire life. He has third-party food and beverage providers in all of his hotels except the Aria hotel. He told the Court that he has never had problems with his food and beverage providers until his dealings with 250. When Mr. Kallan first met Mr. Eliopoulos, he liked his energy and enthusiasm. Mr. Kallan was told and believed that 250 had the tools, connections, and experience to do the job and make money for the Hotel and 250.
[27] The Hotel is a very large property with over 400 rooms, a large fitness facility, 30,000 square feet of banquet space, a café and restaurants. The 250 team knew that this was a premiere property and that it was the biggest project that BPNP had ever taken on. It was also projected to be its most lucrative, generating revenues that would be double or triple those generated by BPNP’s other venues. Mr. Kallan was careful to mention in his evidence that, although the Hotel was a premiere property, there was never any promise of guaranteed profits made to 250.
[28] Ms. Erin Breckbill is the Vice-President of Sales and Marketing for BPNP and has been with BPNP for 18 years. Her evidence was that Mr. Kallan came to tour some of BPNP’s venues, attended one of their events, and sampled their catering. He was very impressed with BPNP’s approach, service levels and food quality.
[29] Mr. Eliopoulos was very disappointed with how things started out with the Hotel. The fitness club, which was projected to have 2,700 members, opened with only 100 members. The Hotel opening was delayed by 2.5 years. 250 had several false starts which included ramping up and hiring employees for openings that were repeatedly delayed.
[30] Mr. Eliopolous reflected back on the business losses 250 suffered in 2018, 2019 and 2020. He had never been in a business that was not busy from day one due to corporate and catered events having to be booked far in advance. His evidence was that the consistently-delayed hotel opening, alongside an insufficient marketing plan on the part of the Hotel, led to 250 having to fund a fully-staffed food and beverage business and restaurants with minimal Hotel occupancy.
[31] Mr. Galanis agreed that the Hotel and 250 got off to a difficult start. Hotel occupancy was seriously affected by the Hotel opening delays resulting in a decrease in projected revenues. Since the Agreements with the Hotel were based on percentages, the Hotel’s revenue stream from the Agreements flowed from 250’s revenues. Both parties were negatively affected when the Hotel was below capacity.
[32] Ms. Colleen Ross, the former General Manager of the Hotel, testified for 250. She worked for the Hotel from March 2016 and was terminated in 2018. She described the many challenges in readying the Hotel for opening. First, there were design shortcomings which did not allow for sufficient office space or storage. Second, without a firm opening date it was very difficult to find and hire staff. Third, with respect to construction, change orders were not signed off in a timely manner and the General Contractor changed mid-stream. Cellphone service was also problematic in the Hotel due to many “dead zones.”
[33] Ms. Ross also testified that the occupancy rate on opening was very low because the public lacked confidence in the Hotel opening and little advance marketing or sales were done. The Hotel had a marketing director, Mr. Celso Thompson, whom Ms. Ross described as capable and enthusiastic, but he lacked independence as he took direction from Mr. Kallan and Ms. Gutman (in New York), and was often unable to make decisions on his own.
[34] Ms. Breckbill also testified about the operational challenges at the Hotel. 250 was not consulted about the layout of food and beverage service areas. The banquet areas and Skybar lacked sufficient kitchen and prep space. The elevators were often under construction or not working.
The Staffing and Management Issues
[35] The real problems between the parties began a mere nine months after the opening of the Hotel.
[36] On January 3, 2019, the Hotel wrote to 250 outlining concerns with the FBA and the Leases. The complaints in the January 3, 2019 letter alleged various breaches of the FBA and the Leases, and may be summarized as follows:
a. 250 had failed to achieve the “highest standards” operational threshold in the FBA by failing to ensure it had adequate and trained employees and managers to deliver services. Temporary personnel and turnover created a lack of consistency.
b. 250 failed to hire an HR Manager for its employees at the Hotel.
c. 250 had undertaken minimal marketing of its banquet facilities and restaurants thereby resulting in revenues far below those anticipated.
d. Mr. Eliopoulos had made disparaging remarks about the Hotel and its operation, and instructed 250’s employees not to cooperate with the staff at the Hotel. Further, Mr. Eliopoulos had also used profane language when speaking with hotel employees.
e. 250 attempted to divert prospective banquet business to affiliate businesses of 250.
[37] Mr. Kallan described the concerns as a problem with “the overall culture and the way they managed their people.”
[38] 250 responded to the January 3, 2019 letter on January 7, 2019, expressing outrage at the allegations of breaches and reminding the Hotel that it was underperforming and that 250 had provided “unmortgaged capital” to fixture the restaurants believing in the Hotel X vision. 250 pointed out that the promised hotel spa had not yet been constructed and that the fitness club with a projected 2,700 members only had 100 members. 250 reiterated that the Hotel insisted that 250 retain a full complement of staff when the hotel’s occupancy levels were less than 20%. 250 complained it had lost $1M in the previous nine months.
[39] The Hotel’s position, as expressed by Mr. Lambert, was that staff turnover with 250 was simply too high and that the outlets (meaning the restaurants, Skybar, Grab & Go, the VIP lounge and room service) were not properly managed. Managers were actually working in the outlets as opposed to managing them. Mr. Lambert explained that if a hotel wants to be at the top of the CompSet, a consistently high level of service and food quality is key. Mr. Lambert had learned the importance of this during his eight years with the Four Seasons Hotel. His view was that 250’s inadequate management style and high turnover created inconsistencies that affected the quality service the Hotel sought to deliver.
[40] Tensions between 250 and the Hotel continued. 250’s Food and Beverage Director, Mr. Jacob Park, agreed that there were communication challenges between 250 and the Hotel. His instructions from Mr. Galanis and Mr. Eliopoulos were that staff were to report issues to their immediate supervisors, who in turn would consult with him as the Director. The concern expressed by Mr. Galanis, Mr. Eliopoulos and Mr. Park in their evidence was that they did not want staff to receive inconsistent messaging from the Hotel.
[41] Mr. Yannis Paravolos testified on behalf of 250. He was the Vice President of Operations and the General Manager of Food and Beverage for 250 from early 2016 to October 2018. He was hired before the Hotel opened to ensure appropriate staff were hired, trained and ready for food services for the Hotel opening. He explained that 250’s approach to staffing at the hotel was to hire the best talent they could find and use a selective and thorough recruitment process. Ms. Breckbill agreed that 250’s team was both experienced and senior. It was frustrating when the Hotel interfered with 250’s operations as the Hotel did not have the same level of experience with food and beverage operations.
[42] Mr. Paravolos did not agree that there was any lack of cooperation by 250 towards the Hotel. He described 250’s performance as “excellent” in the circumstances given the challenges with the opening of the Hotel.
[43] Ms. Ross agreed that 250 was cooperative with the Hotel. She had a daily briefing with 250’s management and felt they met food and beverage expectations. Their leadership team were all food and beverage professionals.
[44] Mr. Paravolos prepared an organizational management chart before the Hotel opened. The chart contained positions that were not yet filled but would be based on demand. He explained that several job fairs were held to hire staff for the Hotel opening. However, each time the opening was delayed they would lose potential hires. They did occasionally use agency services for staff because they had a difficult time attracting hourly wage workers. 250 did not like doing this as it was actually more expensive. But given the low occupancy and business demand, it simply made sense to fill in with agency services as needed.
[45] Mr. Kallan was shown Mr. Paravolos’ organization chart during his testimony. His evidence was that many of the positions in the organizational chart were never filled. His view was that250 lacked proper oversight for its outlets. It lacked management structure and reporting lines. Mr. Park was a good manager but unable to make decisions on his own. Mr. Kallan begged 250 to hire an HR manager. That never happened. Mr. Kallan did not agree with Mr. Paravolos that positions would be filled as demand grew. His philosophy was that the entire staff and management structure had to be in place to attract and retain business.
[46] The organization chart that Mr. Paravolos created was updated several times as the Hotel progressed towards opening. The chart he created in June 2018 was intended to reflect staffing for a completed hotel with 80% occupancy. It was based on the $30M in revenue that Mr. Kallan suggested would be the minimum 250 could expect when the Hotel opened. However, Mr. Paravolos was clear that they never earned anything close to that level of revenue while he was there.
[47] The Hotel complained from the start that 250’s employees had been going to the Hotel’s HR manager when they had a concern, and that this arrangement was not acceptable. Mr. Galanis agreed that the organization chart included 250 having an HR manager. An HR manager was never hired. Mr. Eliopoulos’ evidence was that he did not believe in HR managers. He felt it best that the manager of that department dealt directly with employees when there were difficulties.
[48] The lack of an HR manager was raised on multiple occasions by the Hotel after the January 3, 2019 letter. It was the view of the Hotel that 250 could not effectively manage a staff of over 200 people without an HR manager. The Hotel’s witnesses all testified that 250 committed to hiring an HR manager but never did. According to Mr. Lambert, this was frustrating for the Hotel management and led to food and beverage service issues because there was no designated person overseeing each outlet.
[49] Ms. Angela Racco has been the HR Director at the Hotel since March 2017. She was provided with a copy of the organization chart. She was also concerned about the lack of an HR manager within the 250 organization. Occasionally 250 employees came to her with concerns because 250 management was not responding to them and there was confusion about whom they were supposed to go to with their concerns.
[50] The Hotel offered a new employee orientation. Over time, the number of 250 employees that attended the new employee orientation dwindled. Ms. Racco speculated that this was because it was not encouraged by 250, which did not want their employees to be given information about wage and benefits entitlements. She was critical of 250’s employee training program which consisted of a day or two of job shadowing.
[51] It was pointed out to Mr. Kallan that there was no requirement that 250 hire an HR manager in any of the Agreements. Mr. Kallan understood this, but said that 250’s organization chart included an HR Manager and that 250 committed to hiring one. Mr. Kallan’s view was that one could not run a business like 250 with 200 employees without an HR manager.
[52] Mr. Park’s evidence was that he met daily with Hotel staff to ensure coordination and that service levels were met. There were challenges though. Because of the low occupancy rates at the Hotel, business levels were not what was expected. Some staff left because they were not getting the hours they needed. Scheduling was another challenge. Staff were scheduled based on occupancy rates and historical data. Often the Hotel would upgrade guests or give them access to the VIP lounge without letting 250 know. This created scheduling and service issues.
[53] Mr. Lambert’s evidence was that the Hotel did not view Mr. Park as the right person to lead the entire food and beverage operation. He lacked authority to make decisions and was constantly having to run decisions by 250’s ownership. Mr. Lambert felt that Mr. Park was better suited as the Banquets Manager. According to Mr. Lambert, these types of conflicts concerning 250’s management were constant.
[54] Ms. Racco’s evidence was that 250’s management had nice people but that they were ineffective and lacked autonomy. There were a lot of issues about Mr. Park because the Hotel felt he could not continue in the job if he did not have the authority to make decisions without the approval of Mr. Galanis or Mr. Eliopoulos.
[55] Ms. Racco was directed to the minutes of several senior leadership meetings which set out that 250 was continuing to hire staff. In particular, the minutes of the February 25, 2020 meeting reflected that Mr. Park was actively recruiting an HR manager. Ms. Racco agreed that Mr. Park had come to her office and told her that he had interviewed some candidates, however the position was never filled because of the Hotel shutdown.
[56] It was pointed out to Mr. Kallan that he had his own management turnover issues at the Hotel. For example, he initially hired Colleen Ross as the Managing Director, but she was terminated in the fall of 2018. He then promoted Mr. Lambert to that position, only to have Mr. Lambert - leave in October 2020. He was replaced with another Hotel employee, Fariyal Hasham. It was put to him that in less than three years there were three different Managing Directors.
[57] Mr. Kallan did not see it that way. Ms. Ross had conflicts with other employees, and it was better that she left, but the parting was amicable. Mr. Lambert left for a job that was closer to his home and family. Mr. Lambert and Ms. Hasham were not changes to management, they were promotions from within the Hotel. He viewed it as being only one real change in three years.
[58] Mr. Kallan was also asked about the turnover of his Director of Sales (four people in two years, plus Ms. Gutman filling in for a few months). Again, he only viewed this as two changes and not four because the current Director of Sales, Saira Morris, was promoted from within the Hotel.
Further Tensions in the Relationship Between the Hotel and 250
[59] 250 was critical of the Hotel’s Managing Director, Mr. Lambert, whom it blamed for fostering an “us. v. them” attitude and inciting whispered discussions about ousting 250 from the Hotel. Mr. Galanis agreed that he and Mr. Eliopoulos never saw eye to eye with Mr. Lambert, although he never heard Mr. Eliopoulos swear at Mr. Lambert as was alleged by the Hotel.
[60] Mr. Lambert told the Court that there was a “learning curve” with respect to 250 and the Hotel working together. His view was that 250 did not have experience in the luxury hotel industry. When the Hotel tried to set expectations and help with food and service quality, 250 took this as an affront and pushed back. There were many, many meetings between 250 and the Hotel to try to maintain communication channels.
[61] Mr. Eliopoulos agreed that matters occasionally became heated between 250 and the Hotel. He did not deny that he told Mr. Lambert to “fuck off” on more than one occasion. His evidence was that Mr. Lambert was completely unwilling to work with 250. Mr. Park testified that he heard both Mr. Eliopoulos and Mr. Kallan use colourful language at various times.
[62] Mr. Lambert confirmed that Mr. Eliopoulos had told him to “fuck off” on more than one occasion and recalled a 10-minute tirade in which Mr. Eliopoulos yelled at him, told him he did not know what he was doing, and called him a “fucking idiot.” Mr. Lambert told the Court that he did not receive any form of apology from Mr. Eliopoulos after this incident. According to Mr. Lambert, this was just the way Mr. Eliopoulos behaved.
[63] Mr. Lambert complained that Mr. Eliopoulos would at times get very loud, drunk, and “in your face” at the Hotel. His behavior instilled a permissive culture within 250 that led to complaints from staff about management. This was yet another reason why the Hotel insisted that 250 hire an HR Manager.
[64] Mr. Park described Mr. Lambert as intimidating. He testified that Mr. Lambert told him on more than one occasions that if 250 did not meet their demands he would fire Mr. Park and “kick them [250] out.” Mr. Park found this stressful.
[65] Ms. Ross described Mr. Lambert’s relationship with 250 as adversarial and tense. She was puzzled as to why Mr. Lambert was hired as the Hotel’s Managing Director when his experience was in accounting and not hotel management.
[66] Mr. Lambert denied the allegations related to both his behavior and that of Mr. Kallan. Mr. Lambert has a CPA designation and significant experience in the hotel industry. He described Mr. Kallan as an approachable and respectful employer. He felt the workplace at the Hotel was safe and harassment free.
[67] However, Mr. Park’s evidence was that Mr. Kallan’s leadership style was intimidating. He put down Mr. Eliopoulos and called him a drunk. He told Mr. Park more than once that the Hotel wanted nothing to do with Mr. Eliopoulos because he was crazy. He insisted that Mr. Park hire and fire certain people without input from 250. On December 12, 2019, Mr. Kallan told Mr. Park he had to fire a certain employee who worked in the Skybar whom he described as a “prick” and that if he did not, he would terminate the Agreements with 250 and lock them out. Mr. Kallan told the Court that this particular Skybar employee, Stephane, had done more damage than any other staff member hired by 250. 250 kept him on for a short time after this incident and only until they could replace him.
[68] Mr. Park protested that he was beset with constant complaints from Mr. Lambert and Mr. Kallan, and felt they were trying to pit him against 250. On one occasion, Mr. Park told Mr. Kallan that he had a wife and children because Mr. Kallan insisted he was gay. Mr. Park set out many of these complaints in an email to Mr. Eliopolous and Mr. Galanis dated February 3, 2020. Mr. Lambert’s evidence was that Mr. Kallan was not homophobic and employed an openly gay Executive Housekeeper without any issues. Mr. Kallan denied making any such statements to Mr. Park and testified that Mr. Park’s evidence was simply “complete nonsense and garbage.”
[69] Mr. Park also recalled a meeting with Mr. Kallan in January 2020 in which Mr. Kallan threatened that 250 should either “fucking deliver” or get out. Mr. Kallan testified that it was very sad that Mr. Eliopoulos had forced his employees to go to such lengths to lie in order to keep their jobs.
[70] Mr. Paravolos described an incident in which there was a complaint by TD after a corporate event they held at the Hotel. A meeting took place between Hotel management, 250’s management, and two representatives from TD. During that meeting, Mr. Kallan suddenly told the TD representatives that someone at TD (not anyone at that meeting) had been rude to him and he did not want him back at the Hotel. He went on to say that the individual reacted angrily towards Mr. Kallan probably because he was gay. Mr. Paravolos was not involved beyond that and did not know what occurred as a result of Mr. Kallan’s comment. Mr. Kallan denied any comment related to the TD employee’s sexual orientation, but he did not deny that the employee had been rude to him and that he told TD he would prefer not to deal with that individual in future.
[71] Ms. Ross was aware of the TD event incident and testified that TD blacklisted the Hotel from future business as a result. Mr. Kallan was not aware that TD had taken this position.
[72] Mr. Kallan was directed to a letter from Parkdale Legal Services to Ms. Angela Racco, dated February 24, 2021, regarding hotel employee Ms. Evelina Tihomirova. Ms. Tihomirova has worked at the hotel since June 2019 and was originally hired by 250. She was moved from one location to another in the Hotel because it was an “open secret” amongst Hotel staff that Mr. Kallan did not like Ms. Tihomirova’s appearance. The letter sets out that “she drew derision from Mr. Kallan because she deviated from traditional beauty standards that Mr. Kallan upheld as prerequisites for front-facing female employees.” The letter goes on to say that Mr. Kallan would tell Hotel management that Ms. Tihomirova should be fired.
[73] Mr. Kallan had never seen this letter and denied that he said anything of the kind. Ms. Racco confirmed in her evidence that she had received the letter but that the Hotel had not responded to it. Mr. Kallan’s evidence was that s. 4.13 of the FBA permitted him to relocate employees based on appearance. He temporarily moved Ms. Tihomirova because she had a mole on her face. He described it as a “condition” which meant she had to be relocated until the condition was “dealt with.” Mr. Kallan was clear that personal appearance and grooming are part of the overall ambiance of a restaurant. He testified that his request to move the employee was not personal, he was just being helpful.
[74] Ms. Racco denied that there was any discrimination at the Hotel based on sex, gender or sexual orientation. She described the Hotel employee roster as very diverse.
[75] Mr. Kallan was directed to a letter to him from Mr. Eliopoulos dated January 7, 2019. Mr. Eliopoulos makes reference to Mr. Kallan insisting that the manager of Maxx’s, Mr. Colin DeLima, be removed because he did not like his “look.” It was alleged that Mr. Kallan said that the employee looked “stupid” and stated “that Indian guy looks like an idiot, get him out of here now, we should not have people like this in my hotel.”
[76] Mr. Kallan denied making these statements but offered that Mr. DeLima looked very unkempt. He testified that the rest of the statements attributed to him were simply a “jumble of exaggeration” typical of Mr. Eliopoulos.
[77] Ms. Ross agreed that that the Hotel tended to foster an “us vs. them” attitude rather than a “we” approach. During a meeting at Stanley Barracks at which Mr. Lambert, Ms. Racco and Mr. Kallan were present, Ms. Ross heard Mr. Kallan say that as soon as 250 had finished their leasehold improvements, he would be terminating their contract. Mr. Kallan vehemently denied this allegation in his evidence. He said he made concessions to 250 that cost him almost $2M. It would make no sense for him to make such threats.
[78] Ms. Breckbill described the Hotel’s leadership team as “people on the wrong seats on the bus.” Leadership team members had been recruited from three-star express hotels which were not in the CompSet. Mr. Lambert had been promoted to oversee Hotel operations when his experience was in accounting. The Hotel leadership was ineffective and worked against 250 with a dictatorship-type approach. It was a difficult working relationship.
Marketing Issues
[79] Ms. Breckbill explained that there had been much confusion about marketing issues since the opening of the Hotel. Initially 250 was advised by the Hotel that it would not be involved in marketing and it was only to provide food and beverage services. As time went on, however, it was clear that the Hotel needed marketing support so meetings would be set up with them to try to assist. Mr. Kallan and his team only had experience marketing boutique hotels and this property was very different.
[80] Ms. Breckbill was alarmed at the low occupancy of the Hotel at the start and explained that on opening there were times when occupancy was below 10%. While 250 was doing well with wedding and special event bookings, the Hotel was not doing well with their corporate event bookings. As a result of Ms. Breckbill’s concern, she began to arrange meetings with Ms. Ross, Mr. Kallan, Mr. Eliopoulos and Mr. Thompson. 250 was worried that the Hotel’s representation that it would be one of busiest in Toronto was not coming to fruition. The Hotel consistently reassured 250 that they were on top of these issues.
[81] Mr. Lambert’s evidence was that it would take about three years for the hotel to achieve full capacity because large group events booked six to 18 months out. Occupancy in 2019 was up to 56%, although Mr. Lambert agreed that occupancy in the CompSet of established Hotels would have been in the range of 75%.
[82] Ms. Breckbill described the Hotel’s approach to marketing as “complicated.” This was because their senior marketing management was based out of New York as was Mr. Kallan. Overall, Ms. Breckbill’s view was that the Hotel had a confused and mediocre approach to marketing, using influencers and social media to attract transient hotel guests with little or no focus on attracting large corporate events.
[83] Ms. Breckbill told the Court that the Hotel had a marketing team of only four people when it should have had eight or ten people. The Hotel’s original Director of Sales and Marketing, Mr. Celso Thompson, left in June 2018 and his position remained vacant for a year. The Hotel attempted to recruit a replacement but had difficulty because of the Hotel’s reputation. They finally filled the position in January 2019, but the new Marketing Director lasted only seven months. When that individual left, the Hotel promoted from within. In Ms. Breckbill’s view, the person promoted was far too junior for the job.
[84] Contrary to the Hotel’s assertions, Ms. Breckbill testified that 250 did market itself by way of Open Houses, the Petros grand opening, social media, influencers, corporate gatherings at Skybar and Petros and many crossover events with the Hotel.
[85] The Hotel was insistent that 250 had an obligation to market its banquet facilities and the bars and lounges in the Hotel. In a letter to 250 dated February 18, 2019, the Hotel stated:
PGH [the Hotel] demands that the Operator [250] provide, on or before April 19, 2019, and on an ongoing basis detailed reports as to the promotional and marketing activities undertaken by the Operator with respect to the banquet facilities, the bars and the lounges at the Hotel. The continued failure of the Operator to undertake such promotional and marketing activities constitutes a default under the Agreement.
[86] While it is clear that there is no requirement in the Agreements that 250 do the marketing described above, Mr. Lambert told the Court that this was not an unreasonable request given that the income from the outlets was for their mutual benefit.
The Delayed Opening of Petros and the Rose Hill Issues
[87] On the issue of the delayed opening of Petros, Mr. Galanis’ evidence was that the Hotel engaged 250’s main contractor, Rose Hill Design Build (“Rose Hill”), and then assigned it to complete the Hotel spa. Notwithstanding the delay caused by this unilateral action on the part of the Hotel, 250 committed to an opening date for Petros.
[88] Mr. Kallan denied that any of the problems related to the delay in opening Petros were related to the Hotel spa. It is true that the spa used Rose Hill as their General Contractor, but it used entirely different trades from 250.
[89] Mr. Eliopoulos was shown an email dated March 11, 2019 from Mr. Angelo Raitsinis, the President of Rose Hill, to Mr. Kallan. In that email, Mr. Raitsinis recounted a conversation between he and Mr. Eliopoulos in which Mr. Eliopoulos accused Rose Hill of being the cause of the delay of the Petros opening and purported to fire Rose Hill. Mr. Raitsinis took the position that the delays were attributable to 250. He set out a list of 10 items including payment delays to Rose Hill and trades, last minute design changes, 250’s inexperienced designer, incorrect drawings, major communication issues and repeated requests for meetings and documents which remained unsatisfied. Mr. Raitisinis testified that an HVAC union strike in 2019 also contributed to the delays.
[90] Mr. Raitsinis testified that he wrote the March 11, 2019 email because Mr. Eliopoulos met with him and purported to fire him when Petros was 2/3 complete as a consequence of the alleged spa-related delays. After Mr. Raitsinis sent the email, Mr. Galanis asked to meet with him and asked him to come back and resume work on Petros.
[91] Mr. Raitsinis agreed to resume work on Petros, but he sent an email to Mr. Galanis on August 30, 2019 complaining that he had not been paid in 17 months and would have to stop work on the project. He agreed that he had only sent the relevant invoices to 250 a few weeks prior and that was because of an accounting issue at his end. Mr. Raitisinis copied Mr. Kallan on this email, who then called Mr. Eliopoulos and told him to pay Rose Hill.
[92] Mr. Eliopoulos then called Mr. Raitsinis and was upset that the email had been copied to Mr. Kallan. He called Mr. Raitsinis “a motherfucker”, suggested he could make his business suffer due to his connections, and said that Mr. Raitsinis should watch himself. Mr. Raitsinis took this as a threat.
[93] Mr. Kallan was concerned about the financial issues between 250 and Mr. Raitsinis. Mr. Raitsinis claimed that 250 owed him over $200,000 while Mr. Galanis insisted they only owed him $13,000. While Mr. Kallan was not directly involved in this dispute, he was concerned that within months of opening there were already allegations that 250 was having financial difficulties. He intervened to ensure the project was completed as he did not want to have any liens registered against the Hotel and it was in everyone’s interest to ensure Petros opened as quickly as possible.
[94] Mr. Raitsinis sent another demand letter to 250 on July 17, 2020 for the outstanding balance of over $209,000. His evidence at trial was that he has now been paid some of the outstanding amount, and is now owed $120,000. $20,000 of the amount paid to him was in the form of a credit for BPNP’s restaurants and event spaces. Mr. Raitsinis preferred not to be paid in this manner but felt he had no choice. His evidence was that it was possible that Mr. Kallan told him to write the demand letter to 250.
[95] Mr. Raitsinis was shown an aged payables list from 250 which showed that Rose Hill was owed $13,000. He disagreed and insisted he had all the invoices for the work done for 250. He also agreed he had not produced those invoices.
[96] Mr. Raitsinis agreed that there were times that the Hotel also owed him money for projects he was working on for them. At one point, he was owed as much as $900,000 for several months.
Guest Experience
[97] Mr. Park’s evidence was that every hotel has a process in place to monitor guest satisfaction. The Hotel used a system called “Revenate.” Mr. Park noted that the Hotel rarely focused on positive reviews related to the restaurants or other food and beverage services. They focused only on the negative reviews.
[98] When a complaint was received that related to 250, Mr. Park would meet with Meghan McDonald, the Hotel’s Customer Experience Manager. Mr. Park did not always agree with the way that the Hotel handled complaints. Rather than thoroughly investigating the problem so that it could be fixed, the Hotel was quick to give out “freebies” such as vouchers for Skybar or a complimentary night at the Hotel. If a complimentary room was given in relation to a 250 complaint, the charge was always billed back to 250.
[99] The Revenate program would combine all online reviews of the Hotel and the restaurants into weekly scorecards. Revenate showed a 92% positive rating for the Hotel. Mr. Park was quick to point out that a customer’s Hotel experience always included food and beverage in some form (room service, restaurant dining, events or banquets), so the Hotel’s positive rating was in part attributable to 250. A guest at the Hotel would not be aware that 250 and the Hotel were two different entities.
[100] Mr. Park was taken through some very positive reviews of events such as the following outstanding review from a corporate client:
Welcome dinner at "The view" were just simply outstanding. Great food, great view, great bar and great service. Jessica, Enza, Karen, Chef and Fabien, you were on top of all details with the kitchen staff, what an amazing dinner you provided. Our guests can't stop talking about it. This dinner is definitely the one to talk about for years to come.
[101] Mr. Park agreed that the restaurant reviews of Maxx’s and Petros were also aligned with the CompSet. He agreed that Revenate summaries for Maxx’s were not consistent, although they trended higher in 2020. The Revenate summaries for Petros were also somewhat inconsistent, although they generally trended higher than Maxx’s.
[102] Mr. Lambert testified that he felt 250 did not take customer complaints as seriously as the Hotel. When Meghan McDonald was hired by the Hotel, 250 resisted her working with their managers even though the majority of complaints related to Maxx’s restaurant. Mr. Lambert’s view was that 250 simply wanted to move on when it received a complaint, whereas the Hotel sought to respond right away and change the course of the complaint, sometimes resulting in the customer withdrawing the complaint completely.
[103] Mr. Kallan’s evidence is that 250 never took complaints seriously and basically ignored Meghan McDonald. She had been hired by Mr. Kallan (at the Hotel’s expense) to deal with the complaints about 250, but Mr. Eliopoulos’ view was always that 250 was doing a great job and there was nothing to worry about.
[104] Mr. Kallan was shown a series of positive Trip Advisor reviews and a breakdown of 347 complaints between March 2018 and March 2020. Mr. Kallan agreed that there would always be complaints in his business. The issue was the manner in which they were handled. His evidence was that 250 did not follow up on complaints and simply maintained they were doing a great job.
[105] Mr. Kallan also agreed that the Hotel had dropped from its previous fourth place ranking to sixth place for Toronto Hotels in Toronto. Mr. Kallan was clear that this had no correlation to 250’s termination. His evidence was that, with restaurants shut down and his hotel really only having one full year of operation (2019), sixth place was a great achievement.
[106] As noted above, Ms. Hasham has been the General Manager of the Hotel since September 2018. She has been in the Hotel industry for 25 years. Her evidence was that the Hotel’s policy regarding complaints is to respond within 24 hours. Unfortunately, 250 did not have such a policy. They simply ignored complaints. When a negative review was posted, the Hotel attempted to track down Mr. Park and have him deal with it, but he was unresponsive. Ms. Hasham suspected this was because Mr. Park was simply stretched too thin.
Server Gratuities and Event Deposits
[107] For all banquet and corporate events at the Hotel, there was a mandatory 20% service charge added to every bill. The Hotel had understood that 15% of that 20% was being allocated as a gratuity to servers, porters, and bar staff by 250. Indeed, according to the evidence of Mr. Lambert, this is why the Licence fees payable to the Hotel by 250 had been reduced from 22.5% to 15% by way of the Amending Agreement. The Management at the Hotel assumed that 250 was paying gratuities at the 15% level from the time the Amending Agreement was signed in March 2018.
[108] In October 2019, the Hotel and 250 jointly funded an employee survey. When the results of that survey were published, the Hotel discovered that 250 was paying out a gratuity of only 11.25% to its serving staff. The Hotel’s position was that this was contrary to Section 6 of the Amending Agreement, which required 250 to provide compensation packages to its employees at the Hotel “equal to or better than the average provided by five-star hotels in downtown Toronto.”
[109] Mr. Lambert expressed concern about the gratuity issue. He was concerned about the comments from employees in the survey saying they were being “short changed.” There were also other concerns for the Hotel such as employee turnover, Hotel reputation within the CompSet, and the possibility of unionization. He felt the Hotel needed to act quickly to rectify the situation.
[110] Ms. Racco testified that she was certain that she had discussed the issue of gratuities with Mr. Paravolos and that he understood the 15% flow through to banquet staff. She was unclear as to how there could have been a disconnect on this issue. Ms. Racco told the Court that 11.5% is definitely not within the CompSet range, and the lowest she has seen is 12%.
[111] Mr. Kallan was genuinely concerned by the survey results and his discovery that 250 was only paying 11.5% gratuities. He felt misled and troubled that 250 was in blatant breach of the March 2018 Amending Agreement. 250 had led the Hotel to believe they were paying their employees a 15% gratuity. While he conceded that the FBA did not specifically reference a required gratuity percentage for banquet staff, it was always implied that employees would be paid as much or more than CompSet employees. He referred to Section 6 of the Amending Agreement which specifies that:
The Operator agrees to select and provide compensation packages (wages and benefits) for its employees working at the Hotel equal to or better than the average provided by five-star hotels in downtown Toronto.
[112] Mr. Kallan’s evidence was that if 250 did not understand their obligations under Section 6 of the Amending Agreement they could have asked for clarification.
[113] 250’s position was that the employee compensation package had been approved from the start by the Hotel’s HR Director Angela Racco, and that this arrangement was transparent and well known to the Hotel. Ms. Racco denied that the Hotel was aware of this until the results of the survey became available.
[114] Mr. Galanis agreed that 11.25% was probably less than the gratuity paid to servers in other five-star hotels in Toronto, and that there was nothing in writing that was given to the Hotel confirming what gratuity 250 had been paying.
[115] Mr. Eliopoulos’ evidence was that he was not sure that 11.25% was below the rate paid by other five-star hotels. He told the Court that each hotel has a different pay structure and some hotels have unionized staff, so it is hard to compare. Mr. Eliopoulos at his discovery on January 26, 2021 agreed that 11.25% was below the rate of other five-star hotels in Toronto. He testified that at trial he was changing his answer because after talking to other people in the industry he was not sure his answer on discovery was correct.
[116] Mr. Parvolos’ agreed that a 15% gratuity is the average. He added that the Hotel insisted they pay top wages to ensure that high quality staff could be maintained. For example, the Hotel insisted that starting hostesses be paid $22 per hour. Mr. Paravolos thought this was excessive, as it was a pay rate similar to long established and often unionized hotels. He thought that high quality staff could be attracted at $19 per hour. However, they agreed to the Hotel’s demands to pay the top rates.
[117] The Hotel wrote to 250 on December 6, 2019 demanding that they increase the gratuities and that failing to do so would be treated as a default under the Agreement. Following this letter, a negotiation took place whereby 250 agreed to increase the gratuity to its employees so long as the Hotel gave up its portion of the 5% of the 20% administration fee collected on banquet room rentals and on food and beverage. 250 agreed that if the Hotel gave up those amounts it would commence paying a gratuity of 14% as of December 1, 2019 and 15% as of April 1, 2020.
[118] Negotiations continued between the parties on these issues, and this led to a meeting with Mr. Kallan, Mr. Eliopoulos, Mr. Galanis and Ms. Racco on December 18, 2019. In his letter to Mr. Kallan of December 23, 2019, Mr. Eliopoulos summarized the parties’ discussions about going forward as follows and requested that they be kept confidential:
a. 250 requested that out of the 20% administration fee charged for catering and banquet events, 14 % would be given to staff as of December 1, 2019 and 15% as of April 1, 2020. The Hotel would no longer receive any portion of the gratuity on F & B and room rental for such events.
b. The room rental fees for banquet and catering was revised from 60% to 250 and 40% to the Hotel, to 85% to 250 and 15% to the Hotel.
c. In return for the revised administration fee, 250 agreed to hire a Director of Banquets, an HR Manager, an F & B Director, a Director of Catering, and address various uniform issues as requested.
[119] By way of letter dated February 3, 2020, the Hotel generally agreed with these conditions so long as 250 hired the agreed-upon managers within 30 days. Further, Maxx’s, Petros, in-room dining, and the Skybar were to have a dedicated department head and assistant managers with coverage seven days a week. The Hotel required a written commitment to these hirings signed by Mr. Galanis and Mr. Eliopoulos. Failure to hire the required management personnel would constitute a default under the FBA and grounds for termination.
[120] Mr. Kallan expressed his considerable frustration with 250 on the gratuity issue. Staff had been deprived of their proper compensation for 18 months, and when 250 was asked to comply with their clear obligations their response was always to ask for something in return.
[121] The Hotel also continued with its requirement that 250 spend $100,000 on marketing its restaurants in 2020, based on a marketing plan approved by the Hotel. Finally, the Hotel required an agreement for a 30-day cancellation policy for eight different areas in the Hotel that 250 was using for storage. Of note in this letter is the Hotel’s position that it would continue to hold event deposits owing to 250 until it agreed to the terms sought. The Hotel gave 250 a deadline of February 7, 2020 to agree to its terms.
[122] These discussions coincided with a disagreement between the parties regarding the receipt of deposits paid for banquets and catering.
[123] As per the Amending Agreement, 250 was owed 85% of all gross receipts from banquets and catering (which included deposits) under $15M worth of sales, and 77.5% of all gross receipts for sales over $15M. 250’s portion of the gross receipts was to be paid to them every second Monday as per s. 5.1 of the FBA.
[124] When a banquet event is sold, a contract is signed and a deposit paid. Often more than one deposit is paid as the event date approaches. The event contract is between the Hotel and customer. Therefore, in the event of a cancellation, the Hotel was responsible for returning the deposit.
[125] On November 11, 2019, the Hotel unilaterally changed the arrangement for payment of deposits to 250. Rather than paying out 250’s share as received, the Hotel did not pay out 250’s share of deposits until two weeks prior to the event. Mr. Lambert told the Court that the Hotel was not in breach of the FBA in doing this because gross receipts under that Agreement were not “earned” until the event took place. He agreed that 250 received no advance notice of the Hotel’s decision to change how it paid out deposits to 250 but the decision to do so was Mr. Kallan’s. He also agreed that the sudden change in payment of deposits would have impacted 250’s cashflow.
[126] However, the reasons for changing the payment terms of the deposits were based on more than just the Hotel’s rights under the FBA. Mr. Lambert’s evidence was that the Hotel had serious concerns about 250’s financial viability. They were not making required repairs around the hotel, they were cutting corners, not paying suppliers, and using the event deposits for construction on Petros. By November 2019, 250 had over $1M in event deposits. Given 250’s request to commence negotiations to dissolve the Agreements, the Hotel was concerned about its liability to repay deposit cancellations if 250 left.
[127] Mr. Kallan explained that the change in how deposits were paid out to 250 was the result of several converging factors. Mr. Kallan recalled having a conversation with Mr. Galanis about how 250 intended to promote Petros. Mr. Kallan became concerned when Mr. Galanis told him that 250 had no money for any such promotion. Mr. Kallan then found out that 250 had not paid its additional rent since May 2019, used its deposit money to fixture Petros, and had outstanding accounts with trades. He was concerned that 250 might not survive. Since catering contracts were made between the client and the Hotel, Mr. Kallan was concerned that if 250 continued to receive the deposits upfront and then suddenly left, the Hotel would have all of the exposure with respect to cancellations and ensuring the events went forward. Mr. Kallan agreed that he instructed Mr. Laksmono not to pay 250 anything from that point forward. It was a business decision that was made based on the circumstances.
[128] Mr. Kallan testified that he understood that 250 was taking the position that the Hotel was in breach of the Agreements for failing to pay out deposits biweekly as part of gross receipts. He disagreed. His evidence was that he did not interpret the Agreements that way. In fact, his position was that technically he was not required to pay 250 until the event had taken place. Initially, he agreed to pay out their share of the deposits upfront to help them out with cash flow as they ramped up their business. However, when he found out they were using the deposits to build out Petros he became concerned about the Hotel’s exposure. He became aware that 250 owed money to many suppliers and he was also concerned about liens being registered against the Hotel, although he agreed that no liens had actually been registered by any of 250’s contractors.
[129] Mr. Lambert was directed to Section 7 of the Amending Agreement. Under that section, 250 was required to return all advance deposits to the Hotel in the event of a termination of the Agreement. When asked why it was necessary to withhold deposits from 250 given the wording of that section, he testified that it was Mr. Kallan’s decision to change the deposit arrangements, not his.
[130] Mr. Lambert was also directed to an email he sent to Mr. Kallan on August 30, 2017, in which he stated that his interpretation of the FBA was that deposits were included in gross receipts and that therefore 250 was entitled to receive its share every second Monday. Mr. Lambert’s evidence at trial was that he no longer holds this view. His revised view was that deposits form part of gross receipts only when they are earned. Mr. Kallan’s evidence was that Mr. Lambert was simply wrong about his interpretation of that section of the FBA.
[131] The Hotel used the retained deposits as a bargaining tool. For example, the Hotel wrote to 250 on January 3, 2020 and demanded that 250 commit to hire certain management positions within 30 days. If it did so, the Hotel would release deposits for events coming up within the next 30 days.
[132] A February 3, 2020 letter led to a further meeting with Mr. Kallan and Mr. Eliopoulos on February 12, 2020. Mr. Eliopoulos wrote to Mr. Kallan on February 13, 2020 expressing that he was “beyond frustrated” after the February 12, 2020 meeting. He was very concerned that Mr. Kallan was blaming 250 for the Hotel’s number four rating on Trip Advisor. Mr. Eliopoulos reiterated that 250 had agreed to hire more management staff and revise the gratuity arrangements, and that event deposits which had been held back by the Hotel and owing to 250 should be released immediately. Mr. Eliopoulos suggested that the parties immediately commence negotiations to dissolve their contracts.
[133] Unbeknownst to 250, Ms. Racco recorded the February 12, 2020 meeting. Part of the recording was played during the trial. The Court heard Mr. Kallan tell Mr. Eliopoulos that he agreed that 250 was entitled to the event deposits but that only if it fixed the outstanding issues would the deposits be paid to it. Mr. Kallan testified that he was also very frustrated at this point. It had been more than a year since his first letter to Mr. Eliopoulos in January 2019, yet they were still rehashing the same issues. Management issues remained a problem, as well as proper marketing of Petros and Maxx’s. Mr. Kallan told the Court that he would have agreed to a compromise of releasing the deposits 30 days before the event date but 250 had to live up to its commitments.
[134] It was suggested to Mr. Kallan that he had flip flopped on his position regarding the deposits. His initial evidence was that he changed the payment schedule for deposits because of concerns about Hotel exposure and how 250 was using the deposit money. However, in the February 12, 2020 meeting he stated that if 250 fixed its management issues he would resume payment of the deposits. He was reminded that 250 was hiring new management staff and had increased the gratuity payments as requested. His response was that 250 had still not hired an HR manager and they still had not lived up to commitments made two years prior.
[135] Mr. Kallan gave evidence that he was always the one giving in. He agreed to give up percentages of administrative revenue that cost him money so that he could continue to work with 250, gave it office space at no charge, and accommodated Mr. Eliopoulos for 4.5 months free of charge at the Hotel while the restaurants were being built. In return, Mr. Eliopoulos seemed to imply that he was doing Mr. Kallan a favour by complying with the Agreements.
[136] The recording from the February 12, 2020 meeting made it clear that Mr. Eliopoulos became agitated during that meeting. He complained that he had paid $400,000 in rent for Petros before it even opened. He complained that he had invested $8M in restaurants for a hotel that was delayed three years in opening. He said that Hotel X did not respect 250 or its staff and that it was holding back $1M in deposits that were rightfully owed to it. He suggested that it was perhaps time to think about parting ways.
[137] There was considerable disagreement amount the precise amount of deposits owed and withheld.
[138] Mr. Budi Laksmono, the Hotel’s CFO, was shown a spreadsheet prepared by 250 which showed that during December 2019 the Hotel collected $781k in deposits. Mr. Laksmono agreed that prior to the change in practice in November 2019, 250 would have received $563k of this amount net of any cancellations. He agreed that, based on the spreadsheets he was shown, and not accounting for any cancellations, 250 should have received a further $320k in January 2020, $476k in February 2020 and $495k in March 2020. 250 acknowledged when questioning Mr. Laksmono that five events actually occurred before the end of March and the deposit amounts would have been paid to 250. However, Mr. Laksmono agreed that as of the end of March 2020, and apart from events held and any pandemic impact, over $1.7M would have been paid to 250 in event deposits had the Hotel not changed its practice of withholding the amounts.
[139] The additional rent and other charges were reconciled as between 250 and the Hotel in mid-March, but 250 was not paid its share of event deposits at that point. Mr. Laksmono was asked why this was the case. His evidence was that he knew there had been discussions about 250 leaving and 250 still having commitments to live up to with respect to hiring staff. He agreed that if the staffing issues had been dealt with, he likely would have received instructions from management to pay out the event deposits to 250 but he was not sure of this.
[140] Mr. Galanis’ evidence was that prior to November 11, 2019 there had been no issue with the Hotel paying 250 its event deposits as a share of gross receipts every two weeks. Mr. Galanis was clear that it is standard in the industry to use deposits to fund cashflow. He explained that this is because the cost of an event is not just incurred on the day it is held. Planning and resources are devoted to the event from the date the event contract is signed. Mr. Galanis agreed that as of the date the Agreements were terminated, 250 had $611,000 in deposits for events which had not yet occurred.
[141] Mr. Eliopoulos sent a follow-up letter after the February 12, 2020 meeting demanding a return of the withheld deposits, complaining that 250 could not continue to be bullied by the Hotel and “adhere to the unreasonable asks.” The letter requested that negotiations begin immediately with a view to dissolving the Agreements. His evidence was that he was not the only one talking about terminating the Agreements. Mr. Kallan had told him many times that if he did not like the arrangement with the Hotel, 250 should leave.
[142] As a result of Mr. Eliopoulos’ letter, a meeting was held on February 20, 2019 between Mr. Kallan, Mr. Eliopoulos and Mr. Galanis. Mr. Galanis’ evidence was that the purpose of that meeting was to discuss an amicable dissolution of the contracts. The meeting did not go well. Mr. Eliopoulos did not deny that at that meeting he suggested that the Hotel begin looking for a new food and beverage provider.
[143] In a follow-up letter from Mr. Eliopoulos to the Hotel, he requested that negotiations towards the dissolution of the contracts commence immediately and be completed by March 31, 2020.
Did 250 Want to Dissolve the Agreements or Not?
[144] As is made clear from the above, the parties had several discussions about terminating their relationship throughout this time. It is worth repeating some of those discussions below.
[145] Mr. Galanis agreed that after receipt of the January 3, 2020 letter, he and Mr. Eliopoulos discussed a number of options including leaving the Hotel. They even drafted a letter to that effect, but never sent it. Mr. Eliopoulos testified that he and Mr. Galanis had many discussions about the low occupancy and what he described as an “unreasonable” management group at the Hotel.
[146] Mr. Galanis told the Court that he had heard things to the effect that the Hotel wanted 250 out. He could not recall whom he had heard this from. Mr. Lambert denied that anyone in the Hotel management threatened to terminate the Agreements. The focus was always on trying to get 250 to improve.
[147] These issues had been discussed by the parties on several occasions prior to 2020. In early 2019, a meeting about the Hotel’s concerns was requested by 250, and was held on January 23, 2019. The results of the meeting were positive based on the summary of the meeting in the January 25, 2019 letter of Mr. Lambert. Mr. Eliopoulos responded on February 8, 2019 expressing concern that the January 25, 2019 letter did not accurately reflect what occurred at the January 23, 2019 meeting. 250 set out its views on the various issues as well as a further list of concerns mostly related to chargebacks to which they did not agree. Nonetheless, Mr. Eliopoulos concluded the letter by confirming he wanted to work with the Hotel on a marketing plan to make Hotel X the “best hotel in the city.”
[148] In that February 8, 2019 letter to the Hotel, Mr. Eliopoulos stated:
Henry, I want to express clearly that our intent is to stay in partnership with PGH [the Hotel] and move forward in a positive direction. We feel we are excellent operators and providers of food and beverage, and based on your occupancy levels we have done an outstanding job managing the daily fluxes and the challenges this operation poses, including the financial burden of the low occupancy.
[149] However, issues such as staffing, marketing, the delayed opening of Petros, occupancy levels and threatened terminations by the Hotel for alleged breaches of the Agreements led to Mr. Eliopoulos writing to the Hotel on March 8, 2019 that:
I would like to stress that termination is not the solution we seek and in the event that we cannot reach an immediate mutual resolution then we suggest we proceed to arbitration.
[150] The months that followed this letter were very busy ones for both the Hotel and 250. However, tensions rose again after the results of the October 2019 employee survey were published and the Hotel discovered that 250 had been underpaying server gratuities.
[151] The negotiations with respect to changes to the gratuities are set out above. It was these events that triggered the important correspondence between the parties in February 2020. Mr. Eliopoulos remained extremely upset about the Hotel’s change of position in November 2019 that they would retain event deposits until two weeks prior to the event. He became even more frustrated when the withholding of deposits was used to leverage commitments from 250 such as the demand to hire certain staff in the Hotel’s letter of February 3, 2020.
[152] As set out above, the February 3, 2020 letter led to the February 12, 2020 meeting which was recorded by Ms. Racco. The transcript of that meeting revealed that Mr. Kallan was quite frank about the fact that he wanted certain “issues” fixed before he would release the deposits to 250. It was during this meeting that Mr. Eliopoulos began expressing the possibility of parting ways with the Hotel. Mr. Lambert described the February 12, 2020 meeting as very lengthy and emotional, with Mr. Eliopoulos becoming very agitated at the end and saying he wanted to dissolve the Agreements.
[153] The February 12, 2020 meeting was next followed by a letter from 250 to Mr. Kallan on February 13, 2020 demanding that the deposits be released. After expressing his frustration and stating that the parties were at an impasse after the February 12 meeting, Mr. Eliopoulos writes: “We would like to immediately begin the negotiation to dissolve our contracts.”
[154] The Hotel was very concerned by the February 13, 2020 letter. This was the first time that 250 had sent a written request to negotiate a dissolution of the Agreements. The Hotel could not function without a food and beverage operator and had to start thinking about options if 250 wanted to leave.
[155] The next meeting, as set out above, took place a week later. Mr. Eliopoulos met with Mr. Kallan on February 20, 2020 to once again discuss the issues between the parties. Mr. Kallan testified that he was clear with Mr. Eliopoulos that he was prepared to negotiate an amicable exit, but Mr. Eliopoulos was of the view that Mr. Kallan should find a new food and beverage operator.
[156] The February 20, 2020 meeting led to a further letter from Mr. Eliopoulos on February 24, 2020, in which he requested that negotiations to dissolve the Agreements should commence immediately and be completed by March 31, 2020. Mr. Kallan described this letter as “talking about nothing” and said that Mr. Eliopoulos had “lost his way.” Mr. Kallan was looking for proposals but 250 was giving them nothing.
[157] Mr. Lambert further responded to 250’s February 12, 2020 letter on February 27, 2020. This letter is pivotal in this case, in that the parties each interpreted the contents of it differently which, in part, led to the within Action. 250 viewed the letter as simply another recitation of the issues between the parties but an expression of an intention to continue to work together. The Hotel viewed it as the commencement of negotiations to dissolve the parties’ contracts with a specific request for a proposal from 250 as to how to end the parties’ relationship.
[158] The following paragraph is key in terms of the parties’ differing views on the intent of the February 27, 2020 letter:
Negotiations to dissolve your contracts
We note from your letters dated February 15, 2020, and February 24, 2020, that you would like to immediately begin a negotiation to dissolve your contracts. We would prefer that you remain as Operator and Tenant in the hotel and focus on creating and sustaining a culture and management structure that enables you to perform the services at the level required. This has always been our objective. However, we are open to discussions if you insist. Any discussions would be on the strict basis the hotel is not in default of any of its contracts with PnP, and that PnP has a desire to leave on a voluntary basis. Your request for a meeting to discuss the dissolution of your contracts is premature. We request that you provide to us for our review any specific proposals that you may have with respect to the requested dissolution of the contracts. We can have a meeting with you once we have seen and reviewed your specific proposals.
…If it is in fact your preference to dissolve your contracts with the Hotel on a voluntary basis, please provide us with your specific proposals at your earliest convenience.
[159] The evidence of Mr. Galanis and Mr. Eliopoulos was that the Hotel made it clear in the February 27, 2020 letter that they wanted to continue to work with 250. As a result, they did not think it was necessary to make any proposals for dissolution since it was left to 250 to do so if it was “their preference” to dissolve the Agreement. Mr. Galanis’ view was as a result of their election not to dissolve the Agreements, 250 carried on with business as usual.
[160] Ms. Breckbill agreed. Her evidence is that while she was aware that Mr. Eliopoulos and Mr. Galanis expressed on more than one occasion that they wanted to dissolve the Agreements, they never really wanted to leave the Hotel. The problem was that the Hotel had their backs against the wall and was holding money that belonged to 250. Ms. Breckbill recalled a meeting she had with Mr. Kallan and Mr. Eliopoulos on March 4, 2020. She remembered this because March 4 is her birthday. She recalled that Mr. Eliopoulos told Mr. Kallan that he wanted to work things out and stay at the Hotel. Mr. Eliopoulos made no reference to this meeting in his evidence. Mr. Kallan testified that the meeting never happened.
[161] Evidence of business continuing “as usual” was presented by 250 in the form of an email from Mr. Laksmono to Mr. Dash on March 13, 2020 in which the Hotel agreed to release $159,000 in gross receipts owing to 250 in exchange for March rent and intimating that a cheque would be written to clear any difference. Mr. Dash’s evidence was that the Hotel and 250 would often operate this way by “swapping out” outstanding amounts owed by each and clearing the difference. Mr. Dash’s evidence was that the Hotel and 250 would often operate this way by “swapping out” outstanding amounts owed by each and clearing the difference. Mr. Galanis concurred that financial matters were often resolved this way between 250 and the Hotel.
[162] More evidence of “business as usual” was that in March 2020, 250 paid its basic rent, and on March 11, 2020, Mr. Galanis responded to Ms. Gutman telling her that 250 was working aggressively on putting a new management structure in place.
[163] On March 26, 2020, there were email exchanges about a banquet event planned at Petros in September 2020.
[164] On May 1, 2020, Mr. Park and Mr. Black exchanged emails about a marketing plan for reopening the Hotel.
[165] The difficulty with 250’s position that things were “business as usual” after the February 27, 2020 letter was that this was not clearly expressed to the Hotel. While it was true, according to Mr. Lambert, that the Hotel did not want 250 to leave, the Hotel wanted 250’s proposals right away so it could move forward. The Hotel was left in limbo with no response to the February 27, 2020 letter in either February or March 2020. By then, the pandemic had hit and the Hotel was even more concerned about ensuring they had a food and beverage operator in place for reopening in July 2020.
[166] In April 2020, after the Hotel had closed down due to the pandemic, Mr. Galanis wrote to Mr. Kallan confirming that 250 would not be in a position to pay rent until normal business resumed. Mr. Lambert responded on April 19, 2020, advising that rent was due and asking for 250’s position on their February 27, 2020 letter with respect to the dissolution of the Agreements.
[167] On June 4, 2020, a follow-up letter was sent to 250 from Mr. Lambert. He requested a response to the Hotel’s letters of February 27, 2020 and April 19, 2020 with respect to 250’s position stated in February 2020 that it wanted to dissolve the contracts. The Hotel also demanded rent for April, May and June 2020.
[168] Mr. Galanis testified that he was surprised to receive this letter given the representations in the Hotel’s February 27, 2020 letter that it wanted to continue working with 250 and the ongoing discussions concerning an application for government rental subsidy programs.
[169] Mr. Eliopoulos responded to Mr. Lambert on June 12, 2020, indicating that 250 was prepared to resume operations when the Hotel reopened on July 15, 2020. He was hopeful that the parties could work toward compromises. Mr. Eliopoulos emphasized that all parties must act reasonably given the pandemic and the Hotel closure with respect to any outstanding rent. He stated that he felt the Hotel was not being reasonable in refusing to assist 250 with its rental subsidy application.
[170] Mr. Eliopoulos also stated as follows in his June 12, 2020 email:
To be clear, we intend to continue to work with you and fulfill our contractual obligations, and while we expressed certain frustrations in February as a result of PGH’s actions, we are ready to discuss a path forward. I am hopeful we can move forward amicably and take this opportunity to refresh and revive our relationship in a positive direction with both parties acting reasonably.
[171] Mr. Kallan responded to Mr. Eliopoulos by way of his June 14, 2020 letter. His position was that the email from Mr. Eliopoulos was the first time the Hotel had received a formal response to their February 27, 2020 letter, and he was surprised given what he asserted was 250’s stated intention to terminate the relationship with the Hotel and that 250 had suggested the Hotel find a new food and beverage operator. Mr. Kallan indicated that the Hotel “has been moving forward accordingly so as to minimize the impact to our operations while we prepare to re-open…” Mr. Kallan suggested a without-prejudice Zoom meeting between the parties to discuss the terms of 250’s departure.
[172] Mr. Galanis expressed confusion about this letter. He was surprised to hear from the Hotel that they were looking for a new operator when their February 27, 2020 letter requested that they continue to work together. Mr. Galanis stated that the Hotel had no right to terminate their Agreements because the Hotel was in default as well, by failing to pay 250 their event deposits.
[173] The Zoom meeting took place on June 17, 2020. However, in a mid-trial ruling date March 5, 2020, I determined that the contents of the Zoom meeting and two related letters and phone calls were without prejudice as requested by Mr. Kallan and their contents were therefore privileged. As such, no reference will be made to that information in this judgment.
[174] In a June 26, 2020 email from Mr. Eliopoulos to Mr. Kallan marked “with prejudice”, he confirmed a willingness to resume operations at the Hotel on July 15, 2020 and repeated his request for the Hotel’s cooperation in applying for government assistance for outstanding rent.
[175] Mr. Lambert expressed confusion about this email. There was no offer to pay rent and no proposal or compromise that would have changed the Hotel’s position that it wanted to move forward with a dissolution of 250’s Agreements, just as 250 had requested in February 2020.
The Pandemic Shutdown and its Effect on the Parties
[176] The discussions about dissolving the contracts, as described above, coincided with the arrival of the COVID-19 pandemic and subsequent lockdowns.
[177] On March 23, 2020, the Hotel shut down due to the pandemic. There was very little notice given to 250 and no consultation. Mr. Kallan testified that although he was not in Toronto at that time, he was certain that there must have been discussions with 250 about the closure.
[178] On April 7, 2020, Mr. Galanis sent a letter to Mr. Kallan confirming that he had received an invoice for April’s rent. He explained that 250 could not pay rent as it had no revenue given the closure and the Hotel’s refusal to allow take-out services at even a basic level. 250 complained it had received inadequate written notice of the closure and that it would not be in a position to pay rent until business resumed.
[179] The April 7, 2020 letter did not contain any proposals with respect to the dissolution of the Agreements as the Hotel had requested in its February 27, 2020 letter. Mr. Eliopoulos testified that when the pandemic hit, there was chaos in the banquet and event business. Clients were calling non-stop to ask about cancellation or deferral of their event. After the closure, he was not focused on responding to the Hotel’s request for proposals about dissolution of the Agreements.
[180] The April 7, 2020 letter provoked a written response from Mr. Lambert on April 19, 2020. Mr. Lambert reminded Mr. Galanis that the restaurant leases made it clear that payment was due even in the event of circumstances beyond the control of the landlord or the tenant. Mr. Lambert suggested that 250 consider other options, including government loans and subsidies and that 250 had “an obligation to engage your landlord to explore options.” The Hotel did not accept 250’s position that it could not pay rent during the Hotel closure. Mr. Lambert requested a response to the February 27, 2020 letter discussed above.
[181] The evidence of Mr. Galanis was that 250 could have operated in-room dining, take-out, patio service and some limited inside dining in July 2020 when the hotel was permitted to open. When they approached the Hotel about doing this, they were refused. The Hotel’s position, as stated in the letter of April 19, 2020 from Mr. Lambert, was that take-out options could be explored but only if 250 paid its rent.
[182] 250 lost significant revenue as a result of the Hotel’s refusal to make any accommodation to allow some sources of revenue for 250 during the closure. Mr. Galanis estimated that 250 could have earned in the range of $1.2M during that period for take-out service and patio service plus any in-room dining. The Hotel’s position was that if 250 paid its rent, it would have permitted take-out and other arrangements upon reopening such as in-room dining and patio service.
[183] It was suggested to Mr. Galanis that 250 could have paid the outstanding rent by way of transfers from the other BPNP companies. They had provided capital to 250 in the past when needed. Mr. Galanis did not disagree that this was possible, but said that 250 was owed money from gross receipts and was entitled to rental subsidies, and that these options should have been used before any money would be paid from other sources.
[184] Mr. Dash was taken to 250’s March 2020 bank statement showing $450,000 in branch-to-branch transfers. Mr. Dash testified that some of those amounts could have been deposits but agreed that some of those transfers came from related companies and that, with permission, he did make transfers to 250 from the related companies when needed.
[185] Mr. Eliopoulos’ evidence was that it was not simply that he did not want to pay the rent. The Hotel owed 250 money and 250 owed the Hotel money. If the Hotel had cooperated with 250 to get a rent subsidy and the subsidy had been declined, Mr. Eliopoulos said he would have paid the rent. Since there were always ongoing discussions between him and Mr. Kallan, he never anticipated that Mr. Kallan would lock him out for non-payment of rent without a telephone call or discussion in advance.
[186] Mr. Park’s evidence was that after the Hotel shutdown he remained in constant contact with Hotel management. He was hoping that 250 would be permitted to do take-out service and patio dining. He contacted the Hotel’s Director of Marketing & Revenue, Mr. Matt Black, on May 1, 2020 to see what 250 could do to assist with any reopening plans. Mr. Black responded the same day confirming that a phased reopening was planned starting June 1, 2020. He said he would get back to Mr. Park the following week with more information. An email from Mr. Lambert to Hotel department heads confirmed that the reopening was pushed to July 15, 2020. No information was provided to Mr. Park that the Hotel was in negotiations with a new service provider or that 250 should not make preparations for the reopening.
[187] Mr. Park wrote to Mr. Lambert on July 2, 2020 (the morning of the termination letter) and made enquiries about information in the media that the Hotel had been chosen as one of the NHL hubs. He was excited about this news and was looking forward to making preparations for it. Mr. Lambert responded shortly thereafter, indicating that he did not have all the information yet about the hub but that certain key staff members would need to be brought back.
[188] Mr. Lambert did not mention the termination letter or make any indication that the Hotel had, by that point, signed a Letter of Intent with Harlo. He explained to the Court that no decision had been made by the NHL at that point. Actual negotiations with the NHL did not commence until July 10, 2021.
[189] Mr. Lambert denied that there was an intention on the part of the Hotel to deliberately remove 250 such that Harlo would be in place in time for the NHL bubble. Mr. Lambert’s evidence was that all of the Hotel’s negotiations had been directly with the NHL and he had no reason to believe Harlo had any influence in that regard.
[190] Mr. Laksmono testified that he had a meeting with a representative from Harlo on May 19, 2020 in order to introduce himself. He conceded that he knew of the possibility of Harlo taking over as the new food and beverage operator at that point. However, he was not part of the negotiations of the contract with Harlo and his evidence was it was not his responsibility to communicate any information about the potential of a new food and beverage operator to Mr. Dash or any of the 250 team.
Disagreements about CECRA
[191] All parties agree that there were discussions about 250 making an application under the Canada Emergency Commercial Rent Assistance program (“CECRA”) subsidized by the Canadian government. The program was introduced to provide relief to small businesses experiencing hardship during COVID-19. It provided unsecured forgivable loans to property owners for the months of April, May and June 2020. The program was subsequently extended. The program provided a forgivable loan to the landlord of 50% of the rent; the tenant paid 25% of the rent, and the landlord was required to forgive 25% of the rent for the period. The application was made for the aggregate rent for April, May and June, 2020. The eligibility requirements for the program are set out below:
• The property owner had to own commercial property occupied by one or more impacted small business tenants. An “impacted small business tenant” was defined as being a tenant that paid no more than $50,000 per month in gross monthly rent for each rental location (with a valid lease), generated no more than $20M in gross annual revenues calculated on a consolidated basis, and have experienced at least a 70% decline in pre-COVID-19 revenues;
• The property owner had to enter a binding rent reduction agreement for April, May and June 2020, reducing the tenant’s rent by at least 75% including a moratorium on eviction for the period in which the loan proceeds were to be applied.
• The property owner was required to provide an attestation confirming their information and attesting to their eligibility as well as agreeing to the terms of the loan agreement.
• The tenant was required to sign an attestation as to their eligibility for the program.
• The owner had to agree that the 25% rent to be forgiven would not be recoverable.
• If the tenant provided false or misleading information in their attestation, the tenant could be responsible for all rent forgiven under the lease.
[192] Mr. Dash testified that had 250 been permitted to continue operations at the Hotel, the CERS (“Canada Emergency Rent Subsidy”) would have been available to it after CECRA expired in September 2020. That subsidy was available directly to renters without the participation of the landlord. A tenant who is approved for the subsidy is protected from eviction for 12 weeks from the date of approval and each new approval thereafter.
[193] Mr. Dash prepared a chart for a CERS calculation for 250 for the period of September 27, 2020 to January 16, 2021.[^1] Based on his calculations using a fixed rent plus an estimate of additional rent, 250 would have qualified for between $146,000 to $202,000 in subsidies depending on the percentage of the subsidy.
[194] Mr. Dash’s evidence is that he has applied for CERS for BPNP’s other companies and consistently received it simply by certifying the required documents as the company’s CFO.
[195] Also available to 250 would have been the Canada Emergency Wage Subsidy (“CEWS”) initially available from March 15, 2020 to June 6, 2021, which provided a subsidy of 75% of wage remuneration to eligible entities up to a maximum of $847 per week. Mr. Dash’s evidence is that he applied for this subsidy for other BPNP entities and received it. He applied for and received the subsidy for the period of time 250’s employees were working at the Hotel prior to July 2, 2020.
[196] Mr. Dash also explained the Regional Relief and Recovery Fund (“RRRF”). This benefit provides small businesses with interest-free loans repayable over five years up to $1M. There is also the Highly Affected Sectors Credit Availability Program (“HASCAP”) which provides a bank loan of up to $1M with a low interest rate and repayable over 10 years. Mr. Dash’s evidence was that he had applied for and received both of these loans for the other BPNP locations and that had 250 been able to remain at the Hotel it would have applied for and received these loans as well.
[197] A significant amount of evidence was given in this trial about the proposed CECRA application by 250. Mr. Galanis and Mr. Dash testified that 250’s annual gross revenue was under the $20M threshold and monthly gross rents for the restaurants were under $50,000. Their revenue drop in the relevant months had been 100%. 250 therefore qualified for the CECRA rental assistance.
[198] Both Mr. Galanis and Mr. Dash were clearly frustrated at the Hotel’s position that 250 did not qualify for the program. Their evidence was that the Hotel had improperly included gratuity income and HST into 250’s gross revenue which put them over the threshold. 250’s expert also opined that 250 would have qualified for CECRA. The expert’s evidence will be more fully examined below.
[199] Mr. Lambert, who is a CPA, testified that since CECRA was based on gross revenue, adjustments for items such as gratuities would result in a net revenue number which was not permitted under the program. Mr. Kallan took a similar view and did not agree with 250’s expert. He called the evidence given by 250’s expert “a joke” and “100% wrong.” He testified that he could not change the numbers when 250 filed an HST return showing their revenues exceeded $21M. 250’s attempt to deduct gratuities and licence fees would result in net revenue, not gross. Mr. Kallan said he was not prepared to lie to the government to help 250.
[200] Mr. Eliopoulos’ evidence was that it appeared that the Hotel was working against them and spent their time trying to prove why 250 would not qualify rather than helping to show how they would.
[201] Mr. Dash explained that 250 owned the MICROS point of sale system which was installed at the Hotel. All food and beverage revenue that went through the point-of-sale system was collected by the Hotel. HST collected on all revenue was collected on 250’s HST number. Every two weeks the Hotel would pay 250 its share of the revenue. 250 would remit HST which included the Hotel’s share of HST collected on point of sale. The Hotel would then pay 250 its share of HST upon proof that 250 had filed the HST return.
[202] The problem with this arrangement was that because of the tensions between the parties, the Hotel stopped paying its share of HST to 250 in February and March 2020. They still owe 250 $175,000 for February and March 2020 HST. Mr. Lambert confirmed in his evidence that Mr. Kallan had instructed the Hotel management in February not to pay out the HST to 250 given the Hotel’s concerns about 250’s financial viability. Mr. Lambert further confirmed that HST owing to 250 was never kept in a separate account and was therefore used to fund operations.
[203] According to Mr. Dash, the problem created by this HST arrangement was that 250’s HST returns were higher than they should have been. This meant that the 2019 HST returns showed 250’s gross revenue at over $21M. The Hotel relied on this, in part, in refusing to cooperate with 250 in applying for CECRA. Mr. Dash expressed concern that HST returns are not intended to reflect revenues as HST is a tax on supplies. Further, 250’s HST returns were inflated due to its remittance of the Hotel’s HST.
[204] Mr. Lambert’s evidence was that the Hotel tried to cooperate with 250 on this issue. However, 250 did not provide the Hotel with any Financial Statements or Corporate Tax Returns. The Hotel only had the HST returns to rely on and they clearly showed that 250’s gross revenue exceeded the CECRA threshold. He reiterated to the Court that the Hotel was willing to assist 250 with its application so long as it met the eligibility requirements and went so far as to say it would have been unreasonable for the Hotel not to cooperate if 250 had qualified for the program.
[205] Mr. Lambert was shown a copy of 250’s Financial Statements ending December 31, 2019. The revenue was shown as $17,557,618. Mr. Lambert agreed that was below the CECRA threshold and that if he had received these documents in May or June, he would certainly have reviewed them. He agreed that there were challenges in completing Financial Statements for all businesses (including the Hotel) due to pandemic shutdowns. However, if the 250 had paid their rent and asked for extra time to put together their financials, he might have considered that, but he received no communication from 250.
[206] Mr. Dash was asked why he did not take steps when his view was that the Hotel’s HST-remitting practice was incorrect. He testified that he went along with it even though he did not agree with it in order to comply with what the Hotel wanted. Further, he had checked with CRA whose position was that as long as they were receiving the correct remittances they were not concerned.
[207] Mr. Laksmono emailed Mr. Dash on May 1 and May 5, 2020 requesting information about 250’s income with respect to qualifying for CECRA. On May 6, 2020, Mr. Laksmono sent an email to Mr. Dash setting out that he had run the numbers for 250 and that their revenues surpassed the $20M mark and that 250 would not qualify for CECRA. He suggested that the April and May rent be paid. The discussions between the accountants continued throughout May with Mr. Dash insisting that the Hotel was not basing 250’s income on the proper information.
[208] On May 23, 2020, Mr. Lambert emailed Mr. Dash advising that if 250 was insisting they qualified for CECRA they would need to provide the 2019 financials for 250 reviewed by an independent CPA. Mr. Galanis and Mr. Dash agreed that no such independent review was ever sent to the Hotel. They maintained their position that such a review was not required under CECRA.
[209] 250’s position on their qualification for CECRA is clearly set out in the email from Mr. Dash to Mr. Laksmono dated May 21, 2020. Mr. Dash was concerned as the deadline for the application was August 31, 2020. 250’s witnesses testified that the Hotel was uncooperative on the issue of CECRA and refused to listen to 250’s point of view. In any event, given the pandemic and the resulting delays in both the Hotel and 250 completing their 2019 Financial Statements, it was completely unrealistic to expect any form of independent review of those statements in the time frame demanded by the Hotel.
[210] Mr. Lambert testified that there were three tenants in the Hotel. The Hotel did not work with the other tenants to obtain CECRA relief. He mentioned that the Hotel was able to obtain a deferral of their rental payments owed to the City of Toronto for a period of time due to the pandemic.
[211] Mr. Dash’s evidence was that 250’s audit accountants, KPMG, confirmed that 250 qualified for CECRA and that a review engagement was not required and would be prohibitively expensive. Mr. Dash referred to an email from a KPMG Business Law partner, Mr. Ali Baniasadi, dated July 15, 2020. Mr. Dash also relied on 250’s Financial Statements for 2019 as prepared by KPMG which showed revenue of $17.557M which was below the $20M CECRA threshold. This same revenue amount is reflected in 250’s corporate tax return for 2019. Mr. Lambert testified that the Hotel never received the email from KPMG or 250’s financial statements until this litigation commenced.
[212] Mr. Dash was asked why he did not ask for this memo from KPMG sooner so it could be provided to Mr. Lambert. Mr. Dash told the Court he felt it was futile. Once Mr. Lambert had made up his mind, there was no point in carrying on discussions with him.
[213] Mr. Dash was referred to a chart of rents payable by Petros and Maxx’s contained in the memorandum of RSM Canada LLP (the Hotel’s expert) dated February 21, 2021. That chart showed that total monthly rents for the restaurants (basic rent and additional rent) was less than $50,000 for April, May and June. Mr. Dash pointed out that these numbers included HST and would therefore be even lower and still well within the CECRA limits.
[214] Mr. Dash also testified that he had applied for CECRA for BPNP’s other venues and received the benefit based on the required attestation.
[215] The Hotel was concerned that if an application was made and 250 did not qualify for the program, the forgivable loan may have to be repaid. They did not want to participate in what they felt was a misrepresentation to the Government of Canada. 250 disagreed and took the position that an investigation into 250’s financials was not required, and that the landlord was required to attest that their information was correct, not that the tenant’s information was correct. Further, the CECRA application was clear that if there was reporting fraud, it was the tenant who would be required to repay the forgiven rent, not the landlord.
Expert Evidence on CECRA
[216] Mr. Brian McGee testified as an expert on behalf of 250. He was qualified to give evidence in relation to corporate accounting, tax, and the HST issue.
[217] Mr. McGee’s expertise was not contested and for good reason. He has been a partner at Zeifmans LLP since 1988. He is qualified CA, CPA and has been in the accounting business for more than 30 years. He has extensive experience with accounting and auditing standards, HST, and corporate tax issues.
[218] Mr. McGee testified that he was aware of the CECRA eligibility requirements. The proper method to use for determining gross revenue would be revenue from ordinary activities using the normal accounting method. The “normal accounting method” would be the manner in which a business normally recorded its revenues on its books and records and in its corporate tax returns.
[219] The applicable accounting standard for determining 250’s gross revenue is the Accounting Standards for Private Enterprises (“ASPE”). Mr. McGee reviewed 250’s typical transaction cycle including who invoiced amounts to customers, whose invoice it was on, who collected the money, credit terms, and who paid whom. He determined that some invoices from the Hotel to 250 contained services that were irrelevant to 250 such as baggage handling and rooms.
[220] Mr. McGee also reviewed s. 5.1(a) of the FBA. He determined that this section and section 5.2 were inconsistent, in that section 5.1 said that 250 would collect the revenues and pay the Hotel, but what actually happened was as per section 5.2 whereby the Hotel collected the revenues and paid 250. That is, the Hotel invoiced the gross amounts, collected the amounts, retained their share, and then gave 250 its share on a periodic basis. Under ASPE, 250 is strictly limited to its revenue only being those amounts it received as owing to it from the Hotel. Mr. McGee confirmed that 250’s normal accounting method is consistent with ASPE.
[221] Mr. McGee looked at the normal accounting method for 250. He determined that 250 recorded revenues from the FBA on amounts actually received from the Hotel. In 2019, those amounts totaled $17.55M. He disagreed with the conclusion reached by the Hotel’s expert (Fuller Landau) that revenues would have been $21.613M. Fuller Landau had included the Hotel’s share of the Licence Fee for banquet services, Skybar, room rental sales, admin fees and banquet staff gratuities. These amounts were collected by and retained by the Hotel and therefore should not have formed part of 250’s revenues based on 250’s normal accounting method and based on ASPE principles.
[222] Further, Mr. McGee stated that staff gratuities should not have been included as part of 250’s revenues because they passed through a clearing account and then directly to staff. Such amounts did not pass the test of being 250’s revenues as it did not decrease their liabilities nor increase their assets.
[223] It was Mr. McGee’s opinion that there was no requirement under the CECRA program that 250’s report to the Hotel on its revenues required review by an independent CPA. The reason for this is that there is no requirement for the owner to undertake any investigation into the information provided by the tenant. The owner’s responsibility is to receive the information from the tenant and to attest to its own representations and confirm it has no knowledge of any falsehood or misrepresentation on the part of the tenant, without investigation and acting reasonably.
[224] In Mr. McGee’s expert opinion, it was important to view this program in the manner intended, that is, as an incentive program. Mr. McGee had been involved with CECRA applications for other clients. The program was not designed with the precision of the Income Tax Act and applicants were told not to do certain things, which is rare but consistent with a program trying to provide assistance quickly and efficiently. CECRA was effectively telling applicants they did not need to perform an audit, and that CECRA would make their own determinations. He suggested that if the Hotel had concerns in this situation, it could have made the application but simply pointed out that their interpretation was that 250 had more than $20M in revenue.
[225] Mr. McGee was asked about the monthly gross rent eligibility under CECRA. Monthly gross rent for either restaurant could not exceed $50,000 per month. The Hotel’s expert report from RSM Canada concluded that the gross monthly rents for Petros exceeded the $50,000 per month threshold. It concluded, however, that Maxx’s rent was below the threshold and since 250 was required to meet all criteria in order to meet the criteria as an impacted tenant, it would not qualify. Mr. McGee did not agree with this conclusion. He noted that RSM used rent references for months other than April-June 2020, which was the qualifying period. Between April to June 2020, both Maxx’s and Petros’ rents were under $50,000 per month.
[226] With respect to HST reporting, Mr. McGee testified that 250’s HST returns included revenue on food and beverage services that were retained by the Hotel. Mr. McGee confirmed Mr. Dash’s evidence that in fact it was the Hotel that obliged 250 to remit HST in this manner. It was not an appropriate manner in which to file HST returns because they included amounts not invoiced by 250 under its own HST number. While 250 would have been required to remit HST on gratuities, this did not change Mr. McGee’s opinion with respect to 250’s gross revenues. Mr. McGee disagreed with RSM’s conclusion that HST returns can be a reliable source to determine gross revenue. His report noted that HST is charged on supplies made by a commercial business, and accordingly includes revenues from a business together with other supplies made by a business that are not revenue.
[227] Based on all of the above, it was Mr. McGee’s opinion that 250 qualified for CECRA.
[228] Mr. Sam Tabrizi gave expert evidence on behalf of Hotel. He was qualified to give expert evidence in the areas of corporate taxation including HST and eligibility for CECRA. Mr. Tabrizi was well qualified to give his evidence. He has a CPA and CA designation and is a tax partner at RSM Canada LLP with over 12 years' experience. He has a degree in computer science and a Masters in Professional Accounting from the Rotman School of Business. His qualifications were not contested in this trial.
[229] Mr. Tabrizi testified that he had been involved in over 50 applications for CECRA. His opinion is that 250 did not qualify for CECRA because its total gross revenue based on line 101 in its HST return exceeded $20M based on a 12-month rolling period and the prior year.
[230] Mr. Tabrizi did not agree with Mr. McGee’s conclusions that 250’s HST returns were not an accurate reflection of 250’s income because it included revenue collected by the Hotel and not received by 250. Mr. Tabrizi’s view was that just because revenue was collected by the Hotel did not mean it could not form part of 250’s revenues for HST purposes. Licence Fees could not be deducted from revenue because of the definition of gross receipts in the FBA, 250 could only expense the Licence Fees.
[231] Mr. Tabrizi also did not agree that gratuities collected by 250 and remitted to serving staff could be deducted from its HST revenues because the gratuities were mandatory and therefore represented an economic benefit to 250. That is, they collected the full amount of the gratuity but were not obliged to pass it all along to serving staff.
[232] In coming to his conclusions with respect to 250 exceeding the threshold for gross revenue, Mr. Tabrizi conceded that he did not review 250’s corporate tax return or financial statements for 2019, both of which show gross revenue of just over $17M. However, Mr. Tabrizi went on to testify that if 250’s financial statements showed that it had deducted fees and gratuities from its gross revenues, it was likely because it told the tax preparer to put in amounts that 250 had decided were revenue with a Notice to Reader.
[233] Where financial statements and tax returns contain different revenue amounts from HST returns, this raises a red flag with CRA and could result in an audit.
[234] He also agreed that in assessing 250’s inflow of cash for gross revenue purposes, he did not investigate who invoiced customers for food and beverage, who collected the payments, whose account the payments went to, who set the credit terms or how much was collected by the Hotel. More importantly, he did not evaluate how much of the amounts collected by the Hotel were actually received by 250 or how 250 accounted for gratuities in its books. He agreed that it was rare but possible that an HST return could include amounts that are not revenues.
[235] In terms of the rent threshold issue, Mr. Tabrizi agreed that HST should not be included in the calculation of gross rents. He also agreed that the CECRA eligibility looked only at rents for the months of April, May and June 2020 which would mean that Maxx’s and Petros would qualify.
[236] Mr. Tabrizi was taken to the CMHC website with respect to FAQs on CECRA eligibility. He agreed that the website was clear that if false information was given by a tenant, the tenant would be obliged to repay the forgiven portion of the rent. And further, the landlord was entitled to rely on the tenant’s attestation without investigation. He added, however, that the landlord must make good faith efforts to determine if its tenant(s) are eligible.
The Hotel Terminates the Agreements and Replaces 250
[237] As early as April 1, 2020, the Hotel began engaging in discussions with a new food and beverage service provider, namely Harlo Entertainment Inc. (“Harlo”). Mr. Mike Kimel is the founder and President of Harlo Entertainment. His evidence was that Mr. Kallan approached him at the end of March 2020 advising he was having problems with his food and beverage operator and inquired whether Harlo might be interested in taking over.
[238] Mr. Kimel told the Court that the Kimel family owns two Toronto e-sports teams, the Toronto Defiant and the Toronto Ultra. He is working with Mr. Kallan on developing an e-sports stadium which would be part of Phase II of the Hotel development. At this point, the project is only in the planning stages and no agreement has been signed.
[239] In an April 1, 2020 email from Mr. Lambert to Mr. Kimel, copies of the Agreements were provided to Mr. Kimel for his review. In an email from Mr. Lambert to Mr. Kimel dated April 17, 2020, a site visit was arranged and net revenues by outlet were provided to Mr. Kimel.
[240] On May 30, 2020, the Hotel sent a non-binding Letter of Intent (“LOI”) to Harlo with respect to a food and beverage partnership with the Hotel. 250 was not aware of the LOI.
[241] On June 3, 2020, Mr. Lambert circulated the signed LOI to senior management at the Hotel and requested that it be kept confidential. Section 2 of the LOI stipulated that it was not binding until definitive agreements were signed. The execution of those agreements was conditional on the dissolution of 250’s Agreements.
[242] Mr. Lambert agreed that he did not invite 250 to have discussions with Harlo about a transition. His evidence was that the did not consider introducing Harlo to 250 even though 250 had spent over $7M on fixturing and renovating parts of the Hotel. Mr. Lambert did not deny that 250 was kept out of all negotiations with Harlo and that 250 was carrying on with its plans for reopening without any idea that they would be terminated. Mr. Lambert also did not deny that the Hotel closure had made it convenient for the Hotel to transition to a new food and beverage operator.
[243] Mr. Kimel’s evidence was that he was not invited to have discussions with 250 but he had no interest in doing so.
[244] Mr. Kallan’s evidence was that the Hotel’s negotiations with Harlo were not 250’s business. 250’s management had told the Hotel they wanted to leave and they could have provided an exit strategy or they could have found their own replacement. They did neither. Instead, Mr. Kallan continued to receive self-serving correspondence from 250’s management saying they wanted to stay when they were refusing to pay rent and still had not hired an HR Manager. Mr. Kallan decided that terminating the Agreements with 250 was the only option as he could not operate with such a level of uncertainty.
[245] It was suggested to Mr. Kallan that it would have made sense to have 250 negotiate directly with Harlo to ensure a smooth transition. He did not agree. He felt there was no reason to keep 250 in the loop as Mr. Eliopoulos had made it clear both verbally and in writing that he was not interested in staying on at the Hotel. 250 was no longer Mr. Kallan’s priority and he would not chase them. He could not stay idle and wait to see what 250 would do.
[246] Mr. Lambert explained that the Hotel had no choice but to pursue a new food and beverage operator. 250 had not paid basic rent since April and owed additional rent from March as well. It had retained over $600,00 in deposits for future events. With a reopening after the lockdown looming, the Hotel wanted to ensure it was not left without a food and beverage operator. Mr. Lambert and Mr. Kallan agreed that if 250 had paid its rent, their Agreements would have continued and the LOI would never have become binding.
[247] Mr. Kallan’s evidence was that he had been waiting for a response to his February 27, 2020 letter for months and he would have continued to work with 250 had they paid what they owed the Hotel and lived up to their commitments. It was suggested to Mr. Kallan that in fact the rent was the only outstanding issue as the deposits would not be required to be repaid unless there was a termination. He disagreed. He testified that there was additional rent owing and that the Hotel had had to fund cancellations from the $611,000 in deposits retained by 250 as 250 refused to do so.
[248] Mr. Kallan was asked about 250’s June 12, 2020 letter in which they indicated they were ready to resume operations when the Hotel reopened. He told the Court that it had taken 250 four months to make up their mind, and by then he had already moved on. He denied that his motivation was to terminate 250’s Agreements so that the condition on his LOI with Harlo would be removed. He was forced into the position of negotiating with Harlo because of 250’s inaction. While he did not disagree that by the end of June 2020 250 had made it clear they wanted to return, by this point Mr. Kallan had learned of 250’s financial problems. His evidence was that 250 knew that they were insolvent by that point. He did not think that they would be able to survive even if they returned.
[249] Mr. Kimel testified that in early June Harlo was contacted about whether it had the capability of providing food and beverage services if the Hotel was chosen for the NHL bubble. Mr. Kimel’s evidence was that he found out about the Hotel being chosen for the NHL bubble at the same time as everyone else. The decision had nothing to do with the Kimel family, who owned a small interest in the Pittsburgh Penguins franchise but had no influence on the MLSE decision. Mr. Kimel testified that Harlo did not make any money from the bubble contract. They basically broke even.
[250] Ms. Hasham’s evidence is that the Hotel was chosen for the bubble because they had a large on-site fitness center, they were within walking distance of BMO field where the team was doing some training, and the Hotel had expansive outdoor areas. Because of COVID-19 restrictions, all of these things were important for the players.
[251] Mr. Lambert denied that the Hotel planned to replace 250 with Harlo because Harlo had better connections to the NHL (for the possible bubble contract) and e-sports. Phase II of the Hotel included building an e-sports arena next to the Hotel. Mr. Kallan testified that he had no control over the NHL’s decision to use the Hotel for one of their player bubbles. He described MLSE as a tough negotiator. The Hotel did not make a lot of money out of the contract, but it was good for morale during the pandemic.
[252] It was suggested to Mr. Lambert that the only issue at this point between the Hotel and 250 were the rental arrears. The gratuity issue had been resolved, 250 had committed to hiring more managers, and the Hotel had backed away from its position that it required 250 to spend $100,000 per year on marketing. While there was still a disagreement about repairs and maintenance, Mr. Lambert agreed that the FBA was clear that if the tenant did not do required repairs, the Hotel could do them and charge back to the tenant.
[253] Mr. Lambert disagreed that all breaches other than rent had been resolved. He insisted that 250 had not hired the proper managers. He agreed that that would have been difficult to do while the Hotel was closed. He did not disagree that the Hotel owed 250 HST payments of more than $175,000 and an unreconciled amount from 2018 of $106,000.
[254] On July 2, 2020, after multiple meetings and exchanges of correspondence as set out above, the Hotel’s counsel wrote to 250 and terminated its Agreements with 250 based on a breach of the Agreements by way of failure to pay rent. 250 was given no prior notice of any impending termination. Employees’ lockers were cut open and their belongings thrown into bags. 250’s witnesses testified that the termination was humiliating and unprofessional.
[255] Ms. Racco disagreed. She advised that employee lockers had to be emptied to make way for Harlo employees. Because of restrictions related to the NHL bubble, 250 employees were required to pick up their belongings at specific times. Ms. Racco also gave them the link to upcoming job fairs because Harlo was hiring. Ms. Racco advised that about 60% of the employees’ belongings are still at the Hotel as no one has come to retrieve them.
[256] Ms. Hasham confirmed that in October 2020 there was a demonstration outside the Hotel by 250 staff who had been terminated on July 2, 2020. They claimed the Hotel owed them over $1.4 million in unpaid wages. Ms. Hasham’s evidence was that any outstanding wage amounts were owed by 250, not the Hotel, as all 250 employees were employed by 250 and not the Hotel. The public is not informed about this, as the protests resulted in the Hotel receiving 27 one-star ratings on Trip Advisor which affected the Hotel’s ranking on Trip Advisor. Ms. Hasham told the Court that she is not aware that 250 has ever properly told its employees that the Hotel is not legally responsible for their wages or benefits.
[257] It was suggested to Mr. Laksmono that the Hotel actually owed 250 more than the outstanding rent when the HST amounts and the $106,000 from 2018 were factored in. Mr. Laksmono disagreed. Deposits held by 250 were due to the Hotel upon termination. It is an agreed fact that 250 had $611,000 in deposits as of July 2, 2020. Factoring in other outstanding amounts including the rent, 250 owed the Hotel $735,879.85 on the date of termination. Mr. Laksmono relied on a damages chart he had prepared showing payables and receivables owed as between the Hotel and 250 as of July 1, 2020.
[258] Mr. Laksmono was questioned extensively on this chart in terms of the numbers he had used to formulate his calculation of what was owing by 250 to the Hotel on the date of termination. For example, he included in the amounts owing to the Hotel by 250 an amount for the monitoring of a fire panel of $59,582. The Hotel alleged that 250 had incorrectly installed a fire alarm and it was constantly set off. It was turned off which required 24/7 security monitoring until the issue was repaired. 250 denied that it owed these amounts. The issue had previously been one which had been set aside to be decided between the owners.
[259] It was suggested to Mr. Laksmono that many of the numbers in his damages chart were incorrect. Understanding that the chart was prepared as of July 1, 2020, 250 challenged the accuracy of the input numbers as follows:
a. The amount owing to 250 for the charity rally should have been $98,000 and not $90,000.
b. The June billbacks had not yet been billed to 250 as of July 1, 2020.
c. The fire security panel amount ($59,582.) remained in dispute.
d. The $611,000 in event deposits was not actually owed to the Hotel until the termination date of July 2, 2020.
e. The amounts paid to Rogers & Company ($11,459) were paid after termination.
[260] It was further suggested to Mr. Laksmono that if the event deposit payment practice had not been changed, and using his numbers, the Hotel would actually have owed 250 $358,000. Mr. Laksmono testified that would only have been the case (and assuming he agreed with the calculations) had 250 fulfilled their management hiring commitments which they had not.
[261] Mr. Laksmono agreed that he had received instructions from Mr. Kallan not to pay 250 any amounts owed to it by the Hotel including the HST from January and February 2020. He also agreed the additional rent for March 2020 would not have been due until April 2020 when the invoices would have been available. Further, an email from Mr. Dash dated June 29, 2020 made it clear that 250 was still willing to pay amounts owing to the Hotel including Licence Fees for February and March 2020 totaling $26,990.34. Mr. Dash’s email indicates that a cheque had been prepared for that amount and he wanted to coordinate with Mr. Laksmono.
[262] Mr. Eliopoulos testified that he will never forget the devastating lock out by the Hotel. Nothing like this had ever happened to him. He was concerned for the hundreds of employees who were affected and his large network of customers. He felt embarrassed and humiliated.
[263] Mr. Eliopoulos told the Court that if 250 had been given the chance to continue providing services at the Hotel it would have been business as usual. They would have learned to adapt. Things were looking up for 2020 had the pandemic not hit, and Mr. Eliopoulos was looking for great returns from Petros and the patio.
[264] Mr. Lambert was asked why 250 was terminated when they had made it clear in at least three separate correspondences that they wanted to stay. His evidence was that 250 had flip flopped on their position, could have paid their rent and did not, and failed to make any real proposal.
[265] The July 2, 2020 letter claimed numerous defaults under the Leases and the FBA. A copy of the list of alleged defaults and other extracts from the July 2, 2020 letter are set out below:
As you are aware, despite numerous requests, 25054243 Ontario Limited o/a byPeterandPaul.com ("P&P") has failed to pay rent on the Leases since March 2020. As of the date of this correspondence P&P owes at least $702,007.92 in back rent, even accounting for set off amounts owing by Hotel X to P&P.
In addition, P&P has been in default of the Leases on an ongoing and constant basis since at least January 2019. These additional defaults include;
Failure to operate the Petros 82 restaurant and Maxx's Kitchen restaurant (collectively the "Restaurants"") to a level that is consistent with restaurants in other first-class hotels in the City of Toronto, including The Four Seasons Hotel, St. Regis Hotel (formerly Trump Hotel) or the Hazelton Hotel.
Failure to provide the list of equipment and related information required under Section 2.7 of the Petros 82 Lease.
Failure to provide the written reports set out in Section 5.4 of both Leases.
Failure to provide or make available the financial information requested by Hotel X pursuant to Section 16.10 of each of the Leases.
With respect to both Leases, the failure to maintain an adequate management staff in order to provide first class service; and
Failure to abide by operational requirements and minimum standards as set out at Article 11 of the Leases and as particularized in Hotel X's earlier letters to you.
You have been notified of these defaults in correspondence dated January 3, 2019, January 17, 2019, February 18, 2019, December 6, 2019, January 3, 2020, February 3, 2020, February 27, 2020 and April 19, 2020.
As a result of the above defaults Hotel X is terminating the Leases effective immediately.
Please contact the undersigned lo advise when, prior to Friday July 10, 2020, P&P wishes to attend at Hotel X to pick up personal effects.
P&P is also in breach of the F&B Agreement. P&P has been notified of those breaches in the above noted correspondence. The breaches include:
Failure to perform the food and beverage services to a level that is consistent with other first-class hotels in the City of Toronto, including The Four Seasons Hotel, St. Regis Hotel (formerly Trump Hotel) or the Hazelton Hotel;
Failure to provide staffing levels to the level required under Section 4.2(a) of the F&B Agreement;
Failure to abide by PGH Operational Requirements as detailed in Hotel X's earlier letters to you;
Failure to adequately advertise and promote the food and beverage services at Hotel X including the requirement to provide a detailed marketing plan, as pertains to the "Falcon Skybar" and catering and other event operations;
Failure to ensure that F&B staff cooperate fully with management of Hotel X Toronto to ensure efficient and seamless performance of the food and beverage services;
Failure to undertake repairs and maintenance of equipment and facilities that are your express obligation under the F&B Agreement;
Failure to consistently conduct yourself in a professional manner and in compliance with all applicable laws, including laws relating to employee harassment;
Failure to pay and satisfy all of your trade debts, including amounts owing to food suppliers and others, as and when they became due and payable;
Failure to ensure that you maintain at all times cash on deposit or other liquid investments equal to the amount of all client deposits paid to you, currently in the outstanding amount of approximately $600,000;
Failure to ensure that client deposits paid to you are applied solely and exclusively to the cost and expense of specific events to which they relate; and
Voiding customer bills at the rooftop bar in order to avoid payment of Licence Fees owing under the F&B Agreement.
As a result of the above, Hotel X considers P&P to have repudiated the F&B Agreement and has, under earlier cover, already accepted this repudiation.
[266] Mr. Galanis testified that he and Mr. Eliopoulos were shocked to receive this letter. He was asked to comment on the alleged defaults. His evidence sums up 250’s position on the disputed issues as follows:
a. The alleged rental arrears were incorrect. The arrears were in the range of $200,000.
b. The restaurants and food and beverage services were operated at a superior level at all times.
c. He could not recall being asked for a list of equipment as per the Petros Lease and would have provided it if asked.
d. Mr. Galanis was certain that written reports were always provided to the Hotel as per the Lease requirements.
e. The Hotel had access to all 250’s transactions at the hotel and provided other financial information when requested.
f. 250 agreed to fill the management positions as requested as per the parties’ negotiations in February 2020. 250 always maintained adequate staffing levels despite the Hotel’s lack of occupancy. 250 had issues with the Hotel’s management as well. Mr. Eliopoulos’ evidence is that he was experienced in running a service business and knew what he was doing. The organizational chart prepared by 250 showing various management positions had been prepared at the very beginning when hotel occupancy was estimated at 90%. Further, Mr. Eliopoulos does not philosophically agree with having HR Managers. His view is that they only create more problems. However, he agreed that 250 would hire one based on the negotiations that had taken place in February 2020.
g. 250 was not required to provide any marketing or promotion under the Agreements.
h. 250 always cooperated with and accommodated Hotel staff.
i. 250 maintained the equipment it was required to under the Agreements.
j. 250 always paid its trade debts. Mr. Galanis had different terms with different suppliers, so some debts were shown as outstanding because the supplier had agreed to a longer term.
k. 250 was not required to keep event or room rental deposits in trust. There was no such provision in the Agreements. Deposits were treated as part of 250’s gross receipts. There was nothing improper in this. Mr. Galanis mentioned that with the Peter & Paul group, all event and banquet deposits are retained as gross receipts and used for cash flow.
l. 250 did not void customer bills to avoid Licence Fees. Occasionally, 250 would provide a free drink for a good customer or a potential special event client.
[267] 250’s counsel responded to the July 2, 2020 letter on July 7, 2020 denying any defaults and disputing the Hotel’s right to terminate the Agreements. The letter sets out in detail 250’s position on all of the alleged defaults.
[268] Mr. Park testified that the manner in which 250’s employees were terminated was both devastating and shocking. They were treated unfairly with little thought as to how the termination would affect their life or family. The Hotel broke over 100 employee lockers, put their belongings in garbage bags, and left them at the loading dock for pick up. Employees reported to Mr. Park that they then saw their job posted online by Harlo. A few of 250’s employees were hired by Harlo but not many.
[269] Mr. Galanis’ evidence was that if 250 had been permitted to return to the Hotel upon reopening it would have continued to provide service under the Agreements including the NHL contract, in-room dining, takeout service, Grab & Go and patio dining. The Hotel has never paid the deposits or gross receipts owed to 250.
[270] Mr. Galanis testified that with some help from the governmental rental assistance and wage subsidy programs he was confident that 250 would have been able to make a small profit during COVID if the Hotel had not terminated the Agreements. His view was that revenues would have returned to pre-COVID levels in late 2021, especially with plans for sizeable revenue from the Petros private rooms, Sunday brunch and patio service.
[271] Mr. Galanis was clear that 250 never wanted to leave the Hotel. They simply felt bullied to the point that in February 2020 they mentioned the possible dissolution of the Agreements. However, after receipt of Mr. Lambert’s February 27, 2020 letter they thought the idea had been shelved while the parties tried to work together cooperatively.
[272] Ms. Breckbill testified that even after the Hotel shut down in March, the senior leadership team continued working and making marketing plans for a reopening. That continued from the Hotel closing until the termination on July 2, 2020.
[273] Mr. Kimel testified that he was aware of the termination of 250 and began recruiting staff for his organization as early as July 9, 2020 to be ready for the NHL bubble. Harlo began to operate at the Hotel on July 16, 2020.
[274] It is true that 250 lost money in 2018 (March to December), 2019 (January to December) and 2020 (January to March), but Mr. Galanis stated he was looking forward to a busier hotel in 2021 and a chance to recoup some losses. Mr. Galanis was clear that the losses were not from any form of mismanagement on the part of 250. BPNP was an experienced food and beverage and event provider. However, such a large enterprise takes time to reach capacity. As well, as a result of the low occupancy rates at the Hotel and what 250 perceived was a failure by the Hotel to properly market itself, both sides suffered financially at the outset.
The Evidence of Brad Kinsella
[275] Mr. Kinsella is a businessman and the Director of the Starbucks located in the Hotel. He originally met with Mr. Kallan in 2014 to discuss the possibility of providing food and beverage service to the Hotel. However, Mr. Kinsella’s business does not specialize in fine dining and did not think he was the right fit. Mr. Kinsella and Mr. Kallan did agree that Mr. Kinsella could lease the Stanley Barracks outdoor event space next door. Stanley Barracks’ Gardens can accommodate 4,500 guests including a stage and a gazebo.
[276] Mr. Kinsella described Mr. Kallan as “genius” who knows how to get things done. However, Mr. Kinsella was critical of Mr. Kallan’s bullying tactics with staff and with him. Mr. Kallan called one of his staff members a “dyke.” She quit two days later. Mr. Kinsella added that Mr. Kallan refused to assist him with a CECRA application for rental relief during the pandemic.
[277] Mr. Kinsella is in litigation with Mr. Kallan. According to Mr. Kinsella, Mr. Kallan would not allow him to use the designated parking spot, patio or common area seating outside of his Starbucks in the Hotel. Mr. Kinsella had to obtain an injunction to allow access to those areas. That lawsuit is ongoing. Mr. Kinsella has also sued Mr. Kallan in relation to the termination of his lease at the Stanley Barracks.
[278] Mr. Kallan confirmed several times throughout the trial that it was important to him and to the Hotel that he act in the best interests of his tenants and engage in a partnership with them so they could both have success. Mr. Kallan was asked how this was possible when he is being sued by his Starbucks tenant, the food and beverage operators of Stanley Barracks and 250, all of whom are or were his tenants. Mr. Kallan insisted that all of these tenants had failed to keep up their end of the bargain. He had given up millions to support them but in the end they simply lied.
The Bankruptcy Issue
[279] On September 9, 2020, the Hotel and five other creditors commenced a bankruptcy application against 250. The Hotel was the driving force behind the application since the other five creditors’ claims only total approximately $100,000.
[280] On September 24, 2020, 250 filed a Notice of Intention pursuant to section 50.4 of the BIA. In October 2020, 250 brought a motion to stay the bankruptcy application. The Hotel opposed the motion. The Court allowed the motion pursuant to section 43(11) of the BIA. The Court noted that “on my view of the record, Hotel X commenced the application for the collateral purpose of putting an end to the litigation, not to protect any legitimate creditor interest.”
[281] Prior to the commencement of trial, 250 brought a motion to extend the stay from March 8, 2021 to 15 days after the day on which the Court released its final decision in this matter. The relief was sought on the grounds that 250 will have sufficient funds to fund its expenses during the extension period and no stakeholder would be materially affected. Further, the BIA maximum extension would have been March 24, 2021 which is just over two weeks after the originally scheduled last day of trial. In fact, the trial continued well beyond the projected completion date taking 13 days instead of the projected seven days.
[282] As the Hotel did not take a position on the motion, the Court permitted the stay on the terms requested by 250. Given that the main asset of 250 is the claim in this litigation, it was logical to deal with the bankruptcy issues once the result of this trial is known.
Damages
[283] 250 claims damages for monies spent on leasehold improvements in fixturing the restaurants and other areas of the hotel. 250 claims capital expenditures of $7,124,524.92 inclusive of uniforms. It also claims an amount for bartered services at $670,000, and cash losses for 2017, 2018 and 2019 at $1,171,000 for a total of $8,965,542.92.
[284] With respect to bartered services, Mr. Galanis testified that for services done to improve the restaurant by Rose Hill Design, Norr and Superior Seating, events for those businesses were held at the hotel which offset or partially offset the cost of those services.
[285] In his evidence, Mr. Dash was referred to the Proposal Trustee’s First Report dated September 28, 2020 which showed 250’s assets at $8.372M as of September 25, 2020.
[286] Liabilities in that report were listed as $10.414M including trade payables of $3.9M. The trade payables in the First Report included $1.1M in related party loans and $583,000 in “bill backs” owed to the Hotel for April – June 2020. Bill backs included 250’s share of things such as cleaning, utilities, garbage and parking.
[287] Other liabilities included loans from related parties (other PNP companies) and shareholder loans (from Mr. Galanis and Mr. Eliopoulos) at $5.778M. There were no repayment terms for those loans. The unearned revenue shown under liabilities included the $611,000 that 250 had retained as event deposits.
[288] Mr. Laksomono was referred to a spreadsheet he had prepared, which calculated the amount expended by 250 for Hotel fixturing at $4.737M. This was based on documents provided to him by 250. There was some dispute about this document and its admissibility at trial. Counsel for 250 objected on the grounds that the document was prepared after the commencement of litigation and for the purpose of settlement. Counsel for the Hotel argued that this document had been submitted in the Hotel’s schedule of productions and was not identified as privileged.
[289] This document is some evidence of expenditures made by 250 but does not appear to be reliable. That is, the witness who prepared it, Mr. Laksmono, identified many questions about the documents used to formulate the spreadsheet. I therefore give the document some weight and accept Mr. Laksmono’s evidence that as far as he knew Harlo did not have to pay for any of the capital expenditures he identified in the spreadsheet.
Employee Termination Damages
[290] After the termination letter on July 2, 2020, 250 was required to terminate approximately 270 full-time and part-time employees. At least 12 weeks of pay was owed to the employees. At the request of the Proposal Trustee, Mr. Dash prepared various charts setting out 250’s potential liability for salary, hourly wages, vacation pay, and the employer’s share of CPP, EI, WISB and EHT. Depending on the scenario, the liability ranged from $1.8M to just over $2M.
[291] Four employees made complaints to the Ministry of Labour. The payment orders resulting from those complaints have been stayed pending the outcome of this litigation.
[292] Mr. Kallan was asked about a meeting he attended at a Meeting of the Board of Governors of Exhibition Place on October 26, 2020. This meeting related to Phase II of the Hotel which has not yet commenced. During the course of that meeting, a former employee of 250 called in and asked that the City not approve any Hotel expansion because of Mr. Kallan’s refusal to take responsibility for the hundreds of workers who were left without work when he broke his contract with 250. Councillor Joe Cressy asked Mr. Kallan to respond to the deputation from the former workers. Mr. Kallan explained that the 250 contract was terminated because it was not paying proper wages and benefits to its employees and failing to provide proper service. He also mentioned that 250 had been insolvent for 18 months.
[293] Mr. Kallan was asked why he said this at the meeting when the reason given to 250 for termination of the Agreements was their failure to pay rent. He told the Court that rent was the primary reason for the termination but there were many others including his two-year battle with 250 to force them to pay proper wages and hire adequate management staff. He insisted that these questions were a staged maneuver by disgruntled employees of 250. The Board of Governors meeting had nothing to do with termination of the Agreements with 250.
The Mistrial Motion
[294] After five and a half days of trial, on the afternoon of Monday March 8, 2020, Mr. Jacob Park, the former Director of Food and Beverage for 250 at the Hotel, was being cross-examined by the Hotel’s counsel. During his cross-examination, he mentioned that he was aware of certain facts because he had learned them in the course of watching the trial. At that point, Mr. Park was placed in a separate room and a discussion took place between counsel and the Court. It was clear that neither the Court nor the Defendant were aware that 250’s witnesses had been observing the trial. No Order Excluding Witnesses was sought at the commencement of trial by the Defendant. Counsel for the Hotel assumed, as did the Court, that the witness room that 250 had set up was a waiting room and not an observation room. An Order Excluding Witnesses was sought by the Hotel and granted shortly after this event.
[295] On the first morning of trial (March 1, 2021), counsel for 250 advised that Norton Rose’s office would have three boardrooms connected to Zoom: one for counsel, one from which witnesses would testify, and another where witnesses would wait prior to their testimony. Counsel for the Plaintiff and submitted that both the Court and counsel for the Hotel had been advised that their clients would be observing the proceeding. Clearly, both the Court and the Defence took the reference to “clients” to mean clients who were not witnesses or witnesses who had already testified. Counsel for 250 has advised in its motion material that Mr. Eliopoulos, Mr. Galanis (other than times he was excluded), Anil Dash (until he was excluded), Erin Breckbill and Jacob Park had been observing the trial throughout.
[296] A transcript of the first morning of trial was ordered and circulated to counsel. During the opening minutes of the trial, the Court did a roll call and asked the various parties on the Zoom call to identify themselves. In response to the Court asking who was in the room identified as “L N Computer”, counsel for 250 responded that “I believe that may be our clients in the boardroom.” There was no indication that those “clients” were witnesses who would be testifying during the trial or that they would be observing the trial prior to their testimony. The clients in the witness room did not identify themselves nor were they requested to do so by either party or the Court.
[297] The Hotel brought a motion seeking a mistrial and full indemnity costs. Alternatively it sought an Order striking the evidence of Jacob Park, Anil Dash and Erin Breckbill. The Hotel submitted that having these witnesses listen to and discuss the evidence of other witnesses resulted in unfairness to the Hotel. Specifically, Mr. Dash attempted to rehabilitate the evidence of Mr. Galanis, and Ms. Breckbill attempted to rehabilitate the evidence of Mr. Galanis and Mr. Eliopoulos.
[298] 250’s position was that these witnesses were viewed as essential as each had specialized knowledge of 250’s business. They were required to instruct counsel and if an Order excluding witnesses had been sought, 250 would have opposed it.
[299] I found that while the situation was concerning, it was not so egregious that it would require the extreme remedies of either a mistrial or the striking of evidence. I ruled that the Court would examine what weight to give to the evidence of Ms. Breckbill, Mr. Park and Mr. Dash where it related to issues about which Mr. Galanis or Mr. Eliopoulos testified.
[300] In the end, the Court relied very little on the evidence of Ms. Breckbill or Mr. Park on substantive issues. The evidence given by Mr. Dash was more significant as it related to what constituted HST revenues for the purpose of the CECRA application and how much money the Hotel owed to 250 as of June 30, 2020.
[301] However, these issues were ones in which Mr. Dash alone had expertise. Neither Mr. Galanis nor Mr. Eliopoulos were aware of the details of the HST issue, the parameters of the CECRA application or the reconciliation of what was owed to whom. As such, in retrospect, while the issue was very concerning when first raised, in the end it is not one which would change this Court’s view with respect to the reliability of the testimony of the impugned witnesses and particularly Mr. Dash.
[302] What remains is perhaps a lesson for the world of virtual trials. Since there is no courtroom where those present can easily be accounted for, counsel and the Court must be aware of and enquire as to exactly who is present in each Zoom “room” during a trial to ensure trial fairness.
THE LEGAL ISSUES
ISSUE #1 – WAS THE TERMINATION OF THE AGREEMENTS LAWFUL?
[303] 250 argues that the termination of the Agreements was not lawful because the Hotel owed it money, the parties were engaged in discussions to seek relief, and the Commercial Tenancies Act, R.S.O., 1990, c. L.7, precluded eviction. The termination was a breach of the duty of good faith and honest performance and unlawful.
[304] The Hotel submits that all of this is very simple. 250 did not pay rent when it was obligated to do so. The Hotel had the right to terminate pursuant to the Lease. Further, 250 could have paid rent if it had chosen to do so. The Hotel refers by example to the fact that 250 has paid $500,000 in security for costs in this action. It had the funds available and simply chose not to pay rent.
[305] Further, 250 never brought a motion for relief from forfeiture or an injunction because it had already chosen not to carry on with its financially disastrous business at the Hotel.
[306] The Proposal Trustee’s report reveals that 250 owes $3.5M in trade debt, spent the $611,000 in deposits, and has no assets. 250 lost $1M in its first year of business and is insolvent. The non-payment of rent was simply a way to end what was the inevitable demise of 250’s badly managed business.
[307] I do not agree with the Hotel. 250 was not obliged to pay rent from other sources. The Hotel insisted that 250 work with it to explore government subsidies for rent. It then failed to cooperate and act reasonably. I also do not agree that 250’s actions were intended to lead to an end to its relationship with the Hotel. The evidence, in fact, demonstrates the contrary.
A. Was the Hotel Entitled to Keep the Deposits?
[308] A strict reading of s. 5.1 of the FBA did not permit the Hotel to keep the deposits. They were payable bi-weekly on the Monday of each second week. As set out in the extensive summary of facts above, the Hotel unilaterally and without notice changed the deposit arrangement on November 11, 2019. It is uncontested that this had a drastic effect on 250’s cashflow.
[309] The Hotel’s position was that this unilateral action was necessary to protect itself from liability related to cancellations as all catering contracts were made with the Hotel and not 250. Mr. Kallan gave evidence that he was concerned about 250’s financial viability and needed to protect the Hotel. Mr. Kallan was also concerned that 250 was using the deposits for cashflow and to build out Petros. The unstated concern was that when the event came along, 250 would not have the money to pay for staff and supplies.
[310] The Hotel’s alternative position is that the deposits were not actually withheld, only the timing of the payment of the deposits changed. The deposits were not money owed to 250, they were effectively advances and recorded as a liability on the Hotel’s books. As such, Mr. Kallan took the view that s. 5.1 of the FBA actually meant that the Hotel was not required to pay the deposits until the event had taken place.
[311] I prefer the evidence of Mr. Galanis on this point. He was clear that the cost of putting on an event starts the moment it is booked considering staffing, meal selection and overall planning. This makes sense. The contractual arrangement between the parties was intended to allow 250 the benefit of the deposits in advance. The FBA did not specify what the deposits were to be spent on or that they were to be segregated in any way.
[312] By February 2020, it became clear that Mr. Kallan was using the non-payment of deposits to extract certain concessions from 250, many of which 250 was not contractually required to provide. Mr. Kallan conceded in the February 2020 meeting that was recorded by Ms. Racco that 250’s failure to hire sufficient staff was the only reason the Hotel was holding the money. He did not mention his alleged concerns with 250’s solvency.
[313] Mr. Kallan insisted that 250 hire an HR Manager and commit to spending $100,000 per year on marketing. This was not required under the FBA, but the Hotel clung to its insistence on these items, using the withheld deposits as leverage.
[314] It is clear that the Hotel and 250 had different management styles. The Hotel had a traditional top-down departmental management style with very defined roles at each level of staff and management. 250 had a much looser style of management with managers floating from one area to another as needed and sometimes even working in the assigned area if staffing necessitated it. These two management styles clashed throughout the time that 250 was at the Hotel.
[315] The parties disagree with respect to the ultimate reconciliation of amounts owing between the parties. 250 takes the position that the approximately $611,000 in “unearned deposits” should not be included in the reconciliation, as those would not be payable but for the termination of the Agreements. Based on 250’s calculations, the Hotel would have owed it over $358,000 as of June 30, 2020 meaning that there were no grounds for termination of the Agreements.
[316] The Hotel’s accounting is different. Their position is that even if you back out the unearned deposits of $611,000, the HST payments and the 2018 outstanding payable, 250 owed the Hotel $152,000. However, many of the numbers in Mr. Laksomono’s calculations were disputed as outlined in the summary of the evidence. In the end, there is some evidence to conclude that 250 was either owed money by the Hotel, there was no money owing either way or 250 owed a very small amount to the Hotel.
[317] I prefer the position of 250 on this issue. Accounting for HST payments, an outstanding payable of $106,225, the wrongly withheld deposits of $582,000, a rental security deposit of $112,000, backing out the charge for additional rent which would not have been billed until mid-July, and accepting that the unearned deposits of $611,000 would not have been due to be repaid until termination, the amounts owed to 250 by the Hotel exceeded any outstanding rent as of June 30, 2020.
[318] The Hotel had its own version of these numbers but it cannot have things both ways. It withheld the payment of deposits and HST it owed 250 and accounted for deposits in 250’s possession which 250 had every right to retain until termination.
[319] In the end, I find that the Hotel took a high-handed approach to the situation with 250 on the issue of deposits. I find that it 1) wrongfully withheld them contrary to the FBA, 2) used the unpaid deposits to demand concessions to which it was not entitled under the FBA and 3) then used the deposits properly in the possession of 250 to justify amounts owing to it prior to and by way of justification for termination.
B. Should the Hotel Have Assisted 250 with CECRA?
[320] The evidence was clear that when the pandemic hit, the Hotel encouraged 250 to work with it to explore government subsidies available to assist with rent. However, the Hotel’s actions were inconsistent with its statement that it truly wanted to work with 250 on the rental assistance issue as set out below.
a. The Hotel’s insistence on an independent CPA’s opinion as to revenue was unrealistic and entirely unnecessary with respect to the requirements of the Program. Further, the early constraints of the pandemic when virtually all businesses closed for a period of time meant that services (including accounting services) were delayed and it would have been impossible to obtain such an opinion in the short turnaround time demanded by the Hotel.
b. The Hotel’s position was inconsistent, claiming on the one hand it wanted to work with 250 with respect to the payment of outstanding rent and then advising it by letter on June 4, 2020 that it wanted to dissolve the agreements due to unpaid rent. 250 advised by way of email on June 12, 2020 that it wanted to continue to work with the Hotel on the rent issue.
c. I accept the evidence of 250’s expert on the issue of CECRA. He was very familiar with these applications, having assisted many clients with them. It was his evidence that revenue audits such as the one demanded by the Hotel were not required. Further, I accept his evidence that if the Hotel had an issue with whether 250 exceeded the revenue threshold for the program, it could have pointed out its concerns to CRA without entirely refusing to participate. The liability and risk related to the program was shouldered by the tenant not the landlord.
d. The parameters of the Program were in evidence. The Hotel’s obligation was to confirm that its own information was correct and it was entitled to rely on the tenant’s attestation. If the tenant was found to have provided false information, this would have had no impact on the Hotel. Rather, 250 would have had to repay all forgiven rent. The landlord’s 25% contribution of rent was not recoverable in any event.
e. It is clear that 250 qualified for the assistance in relation to its restaurants which both had revenues of under $50,000 during April, May and June 2020. The Hotel’s expert, Mr. Tabrizi, agreed that Petros and Maxx’s would have qualified under CECRA.
f. While Mr. Tabrizi and Mr. McGee differed in their views with respect to the revenues in the HST return for 2019 for 250, in the end I find that the fact that 250 exceeded the $20M revenue threshold by a small amount (assuming you accept Mr. Tabrizi’s view) was insufficient to justify the Hotel’s refusal to assist 250. There were ways around this according to Mr. McGee and ultimately 250’s financial statements (when ready) revealed that their revenues in 2019 were in the range of $17M.
g. The Hotel submitted that 250 did nothing to verify its income. Its financial statements for 2018 and 2019 were not completed until December 2020. All the Hotel had was the HST return. The attestation required by CRA stipulated that the Landlord “had no knowledge, acting reasonably and without investigation, of any falsehood or misrepresentation contained in the tenant attestation…” The Hotel had knowledge that the tenant’s revenue exceeded the threshold so they could not attest that they had no knowledge of a falsehood or representation by the tenant. However, Mr. Dash had provided a comprehensive outline of why certain revenue in the HST return should not form part of revenue due to “flow throughs” such as gratuities, license fees for banquet services, Skybar, and room rental sales. Mr. McGee agreed that these were all amounts collected by and retained by the Hotel and the HST on those amounts should not have been included in 250’s revenue for the purpose of the CECRA Application.
[321] Pursuant to revisions to Commercial Tenancies Act made as a result of the pandemic, the Hotel would have been precluded from evicting 250 if 250 had qualified for CECRA (see s. 82) during the period of May 1, 2020 to August 31, 2020. Thereafter, 250 would have been eligible for the Canada Emergency Rent Subsidy Program (“CERS”) and protected from eviction until as late as April 2022. Mr. Dash testified that he has successfully applied for both CECRA and CERS for PNP’s other businesses.
[322] 250 submits that pursuant to s.86 of the CTA it is entitled to damages for an eviction during the pause period from May 1, 2020 to August 31, 2020 under CECRA. The damages are expectation damages as per Dasham Carriers Inc. v. Gerlach, 2012 ONSC 4797. In that case the court awarded damages for unlawful re-entry by a landlord including lost income and forfeiture of any security deposit.
[323] The Hotel argues that even if 250 had qualified for CECRA, this would not have resulted in any quantifiable damages because the lease had been terminated. The Hotel would have been precluded from entering until January 2021 but both experts called in relation to expectation damages testified that 250 would have lost money between July 1, 2020 and January 31, 2021. If 250 had qualified for CERS (which the Hotel submits it would not have since it was no longer a tenant) the Hotel could not have re-entered until April, 2022. 250’s expert testified that 250 would not have been making a profit by that point in any event so there are still no damages. I deal with the issue of damages below.
[324] In summary, I find that the Hotel should have assisted 250 with its CECRA application. In hindsight, its reasons for not doing so were unjustified and it was resolute in its insistence that 250 did not qualify rather than finding ways in which it did. I further infer that part of the reason the Hotel did not want to assist 250 was that it had already decided that it wanted to dissolve the Agreements. By this point in June, the Hotel already had a signed Letter of Intent with Harlo. Committing to assisting 250 with CECRA meant further ties between the Hotel and 250. The Hotel had already moved on but had not told 250 this.
C. Did 250 Breach the Agreements?
[325] While the Hotel claimed that if 250 had simply paid its rent it could have continued on at the Hotel, this is not borne out by the Hotel’s actions. The Hotel had a myriad of complaints about 250, its staff, its management and the quality of its services.
[326] If I am wrong that the Hotel owed 250 more than 250 owed the Hotel as of June 30, 2020 and there were no grounds to terminate the tenancy, were there other breaches of the Agreements that would have entitled the Hotel to terminate them?
[327] There was significant evidence about customer satisfaction during the trial. The Hotel claimed that 250 failed to follow up on or completely ignored customer complaints. 250’s position was that overall, in consideration of the number of people served and the fact that it was a new Hotel, the complaints were entirely within the normal range. Further, Mr. Park’s evidence was that he tried very hard to follow up on complaints. Mr. Kallan’s evidence was that he had to hire Meagan McDonald to deal with customer complaints given that 250 failed to do so.
[328] In the end, I do not find that this issue can be framed as a formal “breach” of the Agreements nor was it specifically raised in the July 2, 2020 termination letter. The fact is that there were many positive reviews of the hotel, catered events and the restaurants. Hotel X was new and had only had one full year of operation before the pandemic hit. Without an historic basis on which to compare the complaints it is difficult to use the Revenate or Trip Advisor information to substantiate a breach of the standard of performance expected pursuant to the Agreements.
[329] There was also significant evidence at trial concerning 250’s management structure. This is set out in detail in the description of the trial evidence but as mentioned above, it is this Court’s view that the real problem was the fundamentally different philosophical approaches taken by the Hotel and 250 towards how to manage its employees and its services.
[330] I accept the evidence of Mr. Paravalos that the organizational chart he prepared before the Hotel opened was based on 80% occupancy and a projected $30M in revenue. The Hotel referenced this chart repeatedly during the trial claiming that 250 was bound to provide the management structure set out in the chart but had failed to do so. First, staffing 250 in accordance with Mr. Paravolos’ organizational chart was not a requirement under the Agreements. Second, it is not disputed that the Hotel occupancy was never even close to 80% during the time that 250 was there. Mr. Paravolos’ evidence was that management positions would be filled as demand grew. That demand did not grow at the pace that was anticipated.
[331] The evidence of Mr. Kallan was that this was not the way to organize staff. One must have all of the staff hired up front rather than waiting to fill a demand. While no expert evidence was called on the optimum staffing model for hotel food and beverage services, suffice it to say that there was a significant divergence of opinion on this issue.
[332] It is clear, however, that after the “gratuity crisis” in November 2019, 250 recognized that if it wanted to continue to have a good working relationship with the Hotel, it had to hire more management staff. As such, by February 2020 250 had added eight management staff and seven supervisory staff from the date it commenced operations in the Hotel in 2018. Further, it is clear from Senior Leadership Team meeting minutes in February 2020 that recruitment was “ongoing.” The February 25, 2020 Senior Leadership Team meeting minutes reflected that Mr. Park was actively recruiting an HR Manager. Ms. Racco testified that she was aware that Mr. Park had undertaken an interview process for an HR Manager. Unfortunately, due to the pandemic shutdown and the subsequent termination of 250, no one was ever hired for that position.
[333] Despite Mr. Kallan’s and Ms. Racco’s concurrence that an HR Manager was essential for 250’s effective operation, there was no such requirement in the Agreements. Mr. Kallan conceded that this was true but insisted that 250 was bound by the fact that its organizational charts included an HR Manager position which had never been filled.
[334] I do not find that 250 can be reasonably bound to management planning set out in an organizational chart. Such charts were prepared for guidance and none were ever referred to in the Agreements. In the end, the Hotel never achieved its occupancy or revenue goals during the time that 250 operated there so it is not surprising that 250 was not staffed to its full capacity. While hiring an HR Manager earlier on would likely have been beneficial to 250, it was not required under the Agreements and the failure to do so cannot be considered a breach.
[335] The Hotel justified many of its actions post-November 2019 on the basis of concerns that 250 was insolvent. While 250 did owe suppliers money, Mr. Galanis told the Court that he had different arrangements with different suppliers. Mr. Galanis had been in the construction business for many years and had long standing relationships with many suppliers. There was also evidence from Mr. Dash that PNP would make capital transfers to 250 as necessary for cash flow purposes.
[336] I accept 250’s submissions that the actions of the Hotel itself contributed significantly to 250’s financial difficulties after November 2019, including the following:
a. The unilateral and without-notice withholding of deposits;
b. The decision by the Hotel to close (without consulting 250) thereby depriving 250 of potential in-room dining and take out revenue;
c. The unilateral and without-notice withholding of HST payments owed to 250;
d. The Hotel allowed 250 to continue to incur costs for a reopening in July while covertly negotiating with Halo;
[337] Mr. Kallan’s evidence was that he was concerned that 250 was spending its deposit revenue on fixturing Petros and this was a reason for concern about 250’s solvency. The Agreements did not prohibit using deposit revenue for cashflow. Further, Mr. Laksomono agreed that the Hotel used funds earmarked for HST owed to 250 for its own cashflow.
[338] Mr. Kallan also relied on the “Rose Hill Dispute” as a reason for concern about 250’s solvency. The evidence about what was actually owed to Rose Hill was contradictory. Mr. Raitsinis agreed that when he first demanded payment from 250 in August 2019 he had only provided the invoices for the previous year’s work a few weeks before due to an “accounting issue at his end.”
[339] In the end, I agree that it would be unfair for the Hotel to rely on 250’s alleged insolvency as a breach of the Agreements when the Hotel’s own actions contributed to 250’s financial difficulties after November 2019.
[340] When the gratuity issue was resolved in December 2019, Mr. Kallan and Mr. Lambert agreed that the only remaining outstanding issues with 250 as of June 30, 2020 were the rent arrears and the commitment to hiring management staff. 250 was surprised to receive the July 2, 2020 termination letter setting out a list of alleged breaches, many of which had not previously been brought to 250’s attention.
[341] With respect to termination based on a failure to pay rent, the alleged breach is addressed either by outstanding amounts owed by the Hotel to 250 or by the Hotel’s failure to assist 250 with its CECRA application. The Hotel’s position is that the failure to pay rent cannot be dealt with by way of set off since set off of rent is not permitted under the Leases. Specifically, the Leases do not permit either set off or abatement of basic rent even in the face of a breach. However, I find that the fact that set off is not permitted under the terms of the Leases does not end the matter. Any amounts found owing to 250 could form the basis of a counterclaim against a judgment obtained by 250 against the Hotel. That is, the terms of the Leases cannot be viewed in a vacuum in terms of amounts owing to 250.
[342] Turning to the other alleged breaches in the July 2, 2020 letter, two of them do not require consideration because there was no such requirement in the Agreements. These include:
a. Failure to promote and market the Hotel or the Restaurants or to commit to a $100,000 per annum marketing spend;
b. Failure to ensure cash on deposit equal to the amount of client deposits and that such deposits must be applied solely to the events to which they related.
[343] With respect to the allegations that 250 stole the Hotel’s client lists or diverted business to their other venues, there was no evidence led by the Hotel at trial to refute the evidence of 250. 250’s witnesses testified that client lists were used with the Hotel’s knowledge to cross promote events. 250’s witnesses denied any diversion of business.
[344] Regarding the allegation that 250 was voiding customer bills at Skybar, Ms. Breckbill conceded that occasionally she or other members of senior management would provide free food or drinks at Skybar to potential customers related to large catering contracts. When the Hotel complained, the practice immediately stopped. The Hotel’s undertakings confirmed that this was no longer an issue. I find that it was not a ground on which the Hotel could rely by way of a breach of the Agreements.
[345] The Hotel also alleged breaches related to 250’s failure to provide certain financial information and a list of leasehold improvements at Petros. I accept Mr. Dash’s evidence that the Hotel had access to 250’s financial systems. Indeed, all Food & Beverage transactions went through 250’s POS system to which the Hotel had access. Mr. Dash’s evidence was that no further financial reports were ever requested.
[346] As for the list of leasehold improvements, a list for Maxx’s was provided in February 2019. It was conceded that one was not provided for Petros as when it was originally requested in January 2019 Petros was not yet complete. 250 received no further follow up requests or any Notice of Breach.
[347] I do not find that the failure to provide financial information or a list of leasehold improvements constitutes a breach of the Agreements. There was evidence that the information was not requested or if it was (in the case of the Petros leasehold improvements) there was no follow up. I infer that the long delay in the Petros opening contributed to the miscommunication on this issue.
[348] The Hotel complained that 250 breached the Agreements by failing to conduct repairs and maintenance. The evidence revealed disagreements about who was responsible for certain repairs including maintenance for general wear and tear. In the end, I rely on the provision in the Agreements that the Hotel could charge back such repairs to 250 if required and they routinely did so. There was no evidence that 250 refused to pay such chargebacks. I do not find that this can be found to be a breach of the Agreements when the Hotel had its own remedy for this alleged default which it regularly utilized.
[349] Another breach related to an alleged failure by 250 to abide by operational standards by failing to deal with customer complaints. As outlined above, there was contradictory evidence on this issue, with the Hotel alleging that 250 ignored complaints and 250 claiming they did their best to follow up. I have already concluded above that the Hotel was so new, with revenue and occupancy so far below other Hotels in the CompSet, it is impossible to lay the blame of all customer dissatisfaction at the feet of 250. Of course, there were many positive reviews of both the Hotel and the Restaurants which the Hotel chose not to refer to in its evidence.
[350] The Hotel alleged that 250 breached the Agreements by instructing its staff not to cooperate with Hotel management. Mr. Eliopoulos did not deny that he had told his staff not to take instructions from Hotel management. That is because those instructions often contradicted the instructions from 250 management. It is therefore understandable why such an instruction may have been given.
[351] Interestingly, Mr. Paravolos’ evidence was that he felt that 250 cooperated well with the Hotel given the glitches with the Hotel opening. Also, Ms. Ross similarly testified that 250’s leadership cooperated well with the Hotel and that their leadership team were all professionals.
[352] There were also the regular Senior Leadership Team meetings at which management from both the Hotel and 250 were present. The Minutes of those meetings in evidence demonstrate a good level of cooperation and professionalism.
[353] I find that this issue arises once again from the fundamental difference in management styles as between the Hotel and 250. This led to suspicions, accusations and misunderstandings which were interpreted by both sides as a lack of cooperation. I therefore do not find that this can be characterized as a breach of the Agreements.
[354] The Hotel also alleged that 250 had breached the Agreements by failing to conduct itself in compliance with applicable laws including employee harassment. This alleged breach permits the Court to explore its concerns with the allegations related to the behavior of both Mr. Kallan and Mr. Eliopoulos. Mr. Kallan is alleged to have acted in a rude and homophobic manner towards Mr. Park and a TD conference attendee. He also felt he had an unfettered right to comment on 250’s employees.
[355] According to Mr. Park, Mr. Kallan insisted that a certain employee of Skybar be fired because he was a “prick.” Mr. Kallan was also directed to a letter of complaint from Parkdale Legal Services regarding a former 250 employee, Ms. Evelina Tihomirova. Mr. Kallan had requested that Ms. Tihomirova be “relocated” due to a mole on her face. Mr. Kallan also requested that a 250 employee be removed from Maxx’s because “he looks like an idiot” and “we should not have people like this in my hotel.”
[356] Mr. Kallan’s evidence was that he was permitted to relocate employees temporarily pursuant to s. 4.13 of the FBA. His position was that he was entitled to do this until the condition was “dealt with” and that it was not personal. He was just being helpful.
[357] Evidence from other 250 witnesses described Mr. Kallan as aggressive and threatening. Mr. Park, in particular, felt threatened by Mr. Kallan who told him that 250 had to hire more management or he would “kick them out.” Ms. Ross was present at a meeting when Mr. Kallan announced that once 250 had finished the leasehold improvements he would be terminating their contract. Mr. Park also reported that Mr. Kallan referred to Mr. Eliopoulos as a “drunk” and “crazy.”
[358] Mr. Kallan denied these allegations and was supported in this by Mr. Lambert and Ms. Racco who described him as an excellent person to work for and far from homophobic.
[359] Mr. Eliopoulos did not come through this trial unscathed either. He was described by Mr. Kallan as prone to exaggeration and unprofessional. It did not seem to be a secret that Mr. Eliopoulos regularly swore in front of his employees. Mr. Eliopoulos conceded that he told Mr. Lambert to “fuck off” more than once. He did not respect Mr. Lambert. Mr. Lambert’s evidence was that Mr. Eliopoulos’ permissiveness instilled a culture in 250’s management which led to complaints by employees.
[360] In summary, I find that both Mr. Eliopoulos and Mr. Kallan acted inappropriately at times. Frankly, neither of them is in a position to complain about the other. I find that, at times, neither of them were in compliance with the expected conduct of principals of their respective businesses and that any alleged breaches of the Agreements in this regard should be given no weight.
[361] Given all of the above, I find that the termination of the Agreements was unlawful for the following reasons:
a. The Hotel was not entitled to keep the event deposits which it then used to leverage concessions from 250 and contributed to 250’s financial difficulties;
b. The Hotel owed 250 money as of the day before the termination;
c. The Hotel had an obligation to assist 250 with the CECRA Program. Its position on the issue of revenue was not reasonable.
d. The Hotel’s own actions contributed to 250’s inability to pay rent.
e. The list of alleged breaches in the July 2, 2020 termination letter was groundless.
ISSUE #2 – WAS THE TERMINATION OF THE AGREEMENTS IN BAD FAITH?
A. The Harlo Negotiations
[362] There can be no doubt that the Hotel undertook the negotiations with Harlo with no intention of advising 250 that it was doing so. Its employees were told not to discuss the negotiations. The Hotel’s position is that it had no choice but to undertake negotiations because 250 had never responded to its February 27, 2020 letter. I find this position to be a ruse intended to justify the Hotel’s secretive and intentional steps to rid itself of 250 commencing in March 2020.
[363] While it is true that 250 did not respond to the February 27, 2020 letter until June, it continued to provide services at the Hotel based on the statement in that letter that the Hotel preferred that 250 remain as its food & beverage operator. It was open to the Hotel to advise 250 that since no response had been received it intended to embark on negotiations with a new operator. That would certainly have provoked a response from 250.
[364] Specific examples of “business as usual” conduct on the part of the Hotel included communication such as the email on May 1, 2020 from Matt Black to Mr. Park discussing a marketing plan and communication strategy for the reopening.
[365] In fact, 250 continued to provide services and planning a return to the Hotel after its closure as late as the morning of July 2, 2020 when the termination letter was received. At no time did the Hotel disabuse 250 of the fact that they would not be returning to the Hotel. In fact, the Hotel’s actions in June 2020 could be described as bordering on cruel. 250 was continuing to hire new management staff in accordance with the Hotel’s demands and the Hotel knew this yet did not reveal its plans. Further, on the day the LOI was signed with Harlo (June 4, 2020), Mr. Lambert sent a demand letter to 250 requesting payment of all arrears of rent.
[366] On two occasions in June 2020 (June 12th and 26th) 250 formally advised the Hotel that they wanted to stay on and hoped to engage the support of the Hotel in obtaining rental relief through CECRA. The Hotel again did not reveal its intentions even up to the last minute when Mr. Lambert engaged in email correspondence with Mr. Park about the NHL Bubble.
[367] In Bhasin v. Hrynew, 2014 SCC 71, 3 S.C.R. 494, the Supreme Court of Canada set out the duty of honest performance in contract. This duty applies to all contracts and includes an obligation to correct a false impression created through that party’s own actions. A case on point is C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 10 B.L.R. (6th) 1. In this recent Supreme Court case, the court dealt with a condominium corporation that terminated a winter maintenance agreement with Callow but did not inform Callow at the time. Callow continued working and thought it would be receiving a two-year extension of its contract. Given this expectation, it performed summer maintenance work without charge. The condo corporation then terminated the contract. Callow sued for breach of contract claiming bad faith. The trial judge was satisfied that the condo corporation actively deceived Callow. The Court of Appeal set aside the trial decision on the basis that the deception related to a new contract not yet in existence and was therefore not directly related to the winter maintenance contract. The Supreme Court set aside the Court of Appeal’s decision and reinstated the decision of the trial judge.
[368] The Supreme Court tackled the question of whether the duty of good faith in Bhasin included inaction as well as outright lies. The Court concluded that it did, and that one can be misled through action or through inaction by failing to correct a misapprehension caused by one’s own conduct (para. 90).
[369] It is clear in this case that the Hotel knew that 250 intended to stay on and continue with its contract. Despite this, it continued with serious negotiations with Harlo even to the point of making staff introductions (Mr. Laksmono). The process was kept entirely secret from 250. The fact that the Hotel continued to communicate with 250 as late as the morning of July 2, 2020 as if nothing had changed was, I find, a breach of the duty of good faith in contract by way of misleading by inaction.
[370] I do not accept the Hotel’s argument that active misrepresentation is required. Callow is clear that inaction in failing to correct a misapprehension is a breach of the duty of good faith. The Hotel was well aware that 250 retained staff who were actively preparing for a July reopening and subsequently the possibility of the NHL bubble.
[371] Further, like in Callow, the Hotel was aware that 250 was continuing with its recruitment of management personnel as per the Hotel’s demands and that staff such as Mr. Park were working hard towards ensuring that when the Hotel re-opened in July 2020 it would be able to offer food & beverage services. In fact, staff of 250 were excited about the prospect of servicing the NHL Bubble. The Hotel never advised them of the fact that they had no intention of keeping 250 on for servicing the NHL Bubble.
[372] The Hotel submits that they were under no obligation to advise 250 that they intended to bring in a new operator when 250 was in breach of its lease.
[373] The Hotel is clearly under the impression that because 250 had not (in its view) adequately responded to the February 27, 2020 letter and because it was in arrears of rent, the Hotel could choose any course of action without repercussion and without consultation with 250. That is a flawed course of action which does not account for the Hotel’s duty of good faith to 250.
[374] The Hotel argues that, in any event, the lease is clear that the Hotel is entitled to retain the fixtures once they are installed in the Hotel. The Hotel argues that 250’s arguments related to damages in relation to it having been deprived of the use of its equipment is untenable because the lease was properly terminated and the equipment then belonged to the Hotel.
[375] The fact that the lease stipulates that any capital improvements belong to the landlord upon termination of the lease does not disentitle 250 to reliance damages. 250 was deprived of the use of that equipment which it installed in reliance on the Agreements. The Hotel’s termination of the Agreements without notice created chaos for 250 and its employees.
B. Could 250’s Intentions Have Been Misinterpreted?
[376] In February 2019, Mr. Eliopoulos wrote to Mr. Kallan expressing 250’s desire to “stay in partnership with PGH and move forward in a positive direction.” The negotiations were not always positive, and by March 2019, 250 was asking that their differences be arbitrated.
[377] The Hotel was busy in 2019 and things between the parties settled somewhat until the “gratuity crisis” in November 2019 sparked further negotiations concerning an agreement about staffing and gratuities. Those negotiations were often heated because of the issue of withheld deposits and by February 2020, 250 stated on two occasions in writing that it wanted to dissolve the Agreements. This led to the Hotel’s February 27, 2020 letter about which there was much evidence at trial and much discussion in this judgment.
[378] The contents of the February 27, 2020 letter bear examination again. In that letter the Hotel stated:
We would prefer that you remain as Operator and Tenant in the hotel, and focus on creating and sustaining a culture and management structure that enables you to perform the services at the level required. This has always been our objective. However we are open to discussions if you insist…We request that you provide us for our review any specific proposals that you may have with respect to the requested dissolution of the contracts.
[379] 250 took no substantive action in response to that letter. Their position was that the letter did not need a response so long as it intended to continue to provide services at the Hotel. The Hotel relies on this lack of response as significant and deliberate, while 250 thought nothing of it.
[380] While the Hotel waited for a response to that letter, things carried on as usual. In early March 2020, Mr. Laksmono and Mr. Dash worked on a reconciliation by swapping out amounts owed by each to the other. This included 250’s March rent.
[381] On March 10, 2020, Ms. Adele Gutman sent an email to Mr. Galanis encouraging 250’s commitment to hire more managers.
[382] On April 19, 2020, Mr. Lambert wrote to Mr. Galanis advising 250 that its position that it would not pay rent while the Hotel was shut down was untenable but that 250 had an obligation to engage your landlord to explore options. The letter refers to options such as government loans and subsidies.
[383] By June 2020, 250 confirmed in writing that it wanted to stay on. This led to the June 17, 2020 without-prejudice discussions between Mr. Kallan and Mr. Eliopoulos and later the termination letter on July 2, 2020.
[384] As mentioned above, while these negotiations were ongoing, 250 continued to plan for an intended hotel opening in July, continued with its hiring of management staff and requested help with its application to CECRA.
[385] It is understandable that the Hotel may have been confused about the messaging from 250 and what its true intentions were but, overall, I find that its actions post-February 2020 could not amount to any form of repudiation of the Agreements. Certainly the Hotel’s actions could not be found to be an acceptance of the repudiation as the Hotel permitted 250 to think it would be resuming normal operations in July 2020.
[386] In summary, I find that termination of the Agreements was done in bad faith for the following reasons:
a. The Hotel permitted 250 to believe that it was “business as usual” all the while negotiating with Harlo with a clear intention to replace 250.
b. The Hotel terminated the Agreements without notice which had drastic and foreseeable consequences including compensation for 250’s 200 employees who were working at the Hotel at the time.
c. The Hotel’s reliance on 250’s lack of response to the February 27, 2020 letter to justify all of its actions is disingenuous.
DAMAGES
[387] The ordinary measure of damages in tort is reliance damages. The ordinary measure of damages for breach of contract is expectation damages. Where the contract has been unprofitable (as in this case), the claimant may elect to claim reliance damages which amount to wasted expenditures which the claimant would not have incurred had it known the contract would have been breached: PreMD Inc. v Ogilvy Renault LLP, 2013 ONCA 412 at para. 66.
[388] Reliance damages are limited in two ways. First, they are limited to expenses that are “truly wasted”: PreMD at para. 67. Second, they are limited to recovery of the plaintiff’s expectancy interest; that is, the claimant cannot be put in a better position than it would have been had the contract been performed. The defendant bears the onus of showing that the injured party would not have recouped the expense even if the defendant had met its obligations under the contract: PreMD at para 70. Therefore, the Hotel bears the onus to show that 250 would not have recouped its expenses even if it had not terminated the contract.
[389] Generally, it is thought that expectation and reliance damages are mutually exclusive. However, there is the possibility of claiming for both so long as they do not overlap: Ticketnet Corp. v. Air Canada, 1997 CanLII 1471 (ON CA), 154 D.L.R. (4th) 271 (Ont. C.A.).
[390] As will be set out below, while there may not be overlap of the two types of damages in this case, expectation damages are too difficult for the Court to assess given the level of uncertainty in the exercise of that assessment.
[391] The more reliable approach is to grant reliance damages based on a review the evidence related to the cost of 250’s investment, as the Court is more easily able to put 250 back into the position it would have been in had it not entered into the contract at all.
A. Expectation Damages - Lost Profit for the Remainder of the Lease
Plaintiff’s Expert
[392] Mr. Prem Lobo (“Mr. Lobo”) of Cohen Hamilton Steger & Co. Inc. provided an expert report for 250 outlining the financial losses suffered by 250 as a result of the alleged improper termination of the Agreements by the Hotel.
[393] Mr. Lobo’s qualifications were not contested by the Hotel. Mr. Lobo is a qualified CA, CPA, CBV and fraud examiner. He has experience in loss quantification in court proceedings and has prepared reports for the food and beverage, manufacturing, real estate and pharmaceutical industries. He has testified as an expert in Ontario, Quebec and Eastern Caribbean Courts.
[394] Mr. Lobo summarizes 250’s losses at page 12 of his report. His conclusions were divided into four separate time periods: past losses from July 2 to December 31, 2020; future losses for the balance of the first initial 10-year term ending in September 2029; and two further five-year extension periods as permitted by the FBA and the Leases. His estimate of the mid-range of losses for the total periods was $11.598M.
[395] Under the FBA, Mr. Lobo separated out the losses into banquet/catering, Skybar, Other Operations (room service and Grab & Go) and Cost Plus Operations (VIP Lounge and staff cafeteria). Maxx’s and Petros were also separate line items.
[396] Mr. Lobo began his analysis by looking to projections prepared for the FBA and the restaurants which were prepared in January 2018. Mr. Lobo described these as projections which had been collaboratively set up by the parties for a four-year period extending to January 2021. He also looked at the 2020 sales budget as prepared in 2019. The 2020 sales budget assumed that 250 would have earned the same amount as Harlo during the NHL bubble, or $2.6M.
[397] Mr. Lobo was asked why he relied on the 2018 projections when they were done prior to the Hotel opening. His view was that they were a reliable source of information because they were prepared collaboratively between 250 and the Hotel prior to the negotiations related to the Amending Agreement.
[398] The “ramp-up” for the Hotel and 250 was originally projected over a four-year period, after which the projections anticipated a mature, stabilized state; however, in December 2019 it was determined by 250 that the ramp-up period would be extended by a year such that projections extended to year 4 (2021) and year 5 (2022).
[399] The abovementioned projections were all made prior to any effect from the pandemic. As such, Mr. Lobo revised the projections and extended them out for a further two years assuming that the ramp-up anticipated for 2020-2022 would be extended to 2022-2024.
[400] In determining a return to normal occupancy and operations by 2024, Mr. Lobo relied on a reopening beginning in the fall of 2021 due to vaccines and an initial growth of 2%, with a growth of 4% in 2022. These projections were based on data economic and industry data related to the pandemic and its effect on sales revenue for the next two years.
[401] In coming to his conclusions about 250’s profitability of Banquet/Catering Earnings for the period of the Agreements, Mr. Lobo used industry statistics, Government of Canada statistics, and comparisons to two of BPNP’s venues, Universal and Paramount. Mr. Lobo used industry standards by way of reasonableness checks with respect to adjustments made to the projections.
[402] Mr. Lobo did not use the 2018 projections in determining future losses for the restaurants as the projections did not include the restaurants. Instead, he used 250’s 2020 and 2021 sales budget, had discussions with 250 about the operation of the restaurants and their marketing plan, and used pricing assumptions for menus in these types of establishments. His calculations also included the two-year effect of the pandemic in 2020 and 2021.
[403] Mr. Lobo applied a risk adjustment contingency to his calculations due to the risk that the food and beverage and restaurant revenue may not rebound as projected as the economy rebounds from the pandemic. He also applied a discount rate to account and adjust for the present value of future losses. Using a formula to calculate 250’s “weighted average cost of capital” (“WACC”), Mr. Lobo considered the cost of equity, the cost of debt, positive factors (such as pent-up demand for events, 250’s long history of operations, and the Hotel’s large event space offerings) and negative factors (such as the Hotel’s lower-than-expected occupancy rate, the poor ongoing relationship between the Hotel and 250, and the limited track record of operations at the Hotel by 250). For each of the five-year extension periods available at the end of the Agreements, he added a further discount rate to account for the possibility of the Agreements not being renewed or terminated prior to their expiry.
[404] Mr. Lobo estimated expenses for the relevant period but made reductions to certain of the fixed costs because of the lower revenue levels. He also included eligible wage subsidies. He did not include any rent subsidies, but that would have further reduced expenses.
[405] In summary, Mr. Lobo calculated that over the total period banquet/catering services would have earned a profit of $11.22M, Skybar $571,00, Petros $1.32M and $586,000 from the VIP Lounge, special events and the staff canteen. Room service and Grab & Go would have lost $1.047M and Maxx’s $1.052M. The total average of the low and high numbers net of the losses was therefore $11.598M in lost profits over the entire period.
[406] Mr. Lambert did not agree with Mr. Lobo’s projections. His evidence was that it would have been impossible for banquets to do revenue of $4.8M and Skybar $815,000 in 2021 with the current restrictions in place. Mr. Lambert’s view was that even if restrictions were lifted tomorrow, that amount of revenue could not be achieved. He described Mr. Lobo’s projections for Skybar and banquets up to 2025 as “aggressive” and “almost impossible.”
[407] Mr. Lambert was referred to a letter dated January 25, 2019, which he wrote to Mr. Eliopoulos summarizing a meeting which had taken place between the Hotel and 250’s management on January 23, 2020. The letter refers to the Hotel’s view that Skybar should be able to generate $10M+ in revenue annually and banquets should be able to generate $15M in 2019.
[408] On February 3, 2020, Mr. Lambert wrote to 250 about the disappointing revenues for Skybar and banquets in 2019. The Hotel proposed minimum license fees going forward. His revenue estimate for Skybar went down to $5M. He agreed that the $10M estimate in his January 25, 2019 for Skybar was “pie in the sky.” He further agreed that the Hotel’s own revenue forecasts and Mr. Lobo’s projections never went to $5M for Skybar, yet this is what they were demanding from 250.
[409] Mr. Laksmono was also referred to Mr. Lobo’s report. He had prepared a five-year forecast summary for the Hotel in January 2021 based on historical and industry data. He has done these types of forecasts in the past and found that they have proven to be 85-90% accurate.
[410] Mr. Laksmono’s forecast for banquet and catering revenue for the Hotel was $1.1M in 2021, $9M in 2022 and $11M in 2023. He asked to comment on Mr. Lobo’s banquet and catering projection of $4.8M in 2021. He viewed that projection as a huge number and “out to lunch.” His evidence was that the Hotel had $19M in catering and banquet revenue in 2019 and would likely not achieve that number again until 2024 given COVID.
[411] Mr. Laksmono was also asked about Mr. Lobo’s projections for Skybar revenue at $3.2M in 2022. He did not agree and did not feel that number was achievable until 2024. With respect to Mr. Lobo’s projection for Skybar at $5M for 2023, Mr. Laksmono’s evidence was that meant that Skybar had to generate approximately $13,000 in revenue per day. He did not believe that was realistic as Skybar only had 20 days in 2019 in which it generated revenues over $20,000. He also did not believe that Mr. Lobo’s number of $8M for 2024 was viable. He explained that there is a capacity issue at Skybar. The space is limited which means that even at its peak, revenues can only reach a certain threshold.
[412] Mr. Lobo was referred to the Fuller Landau expert’s report filed by the Hotel and dated February 16, 2021. That report concluded that 250 would have had losses of $912,000 between July 2, 2020 to January 31, 2020. Mr. Lobo’s report showed a loss for the period from July 2, 2020 to December 31, 2020 of $72,000. His evidence was that the Fuller Landau report used a seven-month instead of a six-month reporting period, and different assumptions including higher operating and labour costs and rental arrears of $300,000. If he had adjusted his calculations for a seven-month period, he would have calculated a loss of $187,000. He noted that both his report and that of Fuller Landau reported losses during that initial period.
[413] Mr. Lobo confirmed that he applied a contingency factor to the losses during the abovementioned period. He was asked why he would do that when the numbers were in the past and known. His view was that some contingency should be applied for expenses. Mr. Lobo further agreed that if additional rent and rental arrears were added into the loss for that period it could have been as high as $507,000. He agreed that this number also did not include the $611,000 in deposits received by 250.
[414] Mr. Lobo did not opine that these differences in the initial period would change his opinion overall. He noted that he also calculated losses in 2021. However, all industries were forecasted to have increased revenues after 2021 and even during late 2021.
[415] Mr. Lobo was asked why he did not include the liabilities of $10M set out in the KSV report from September 2020. His response was that the scope of his report did not include any comment on the insolvency portion but related solely to incremental cash flows potentially earned by 250. He did account for risk which is not the same as 250’s liabilities.
[416] Mr. Lobo was also directed to projections of future revenue streams as prepared by the Hotel. Those projections showed revenues much lower than those predicted by Mr. Lobo. He explained that the fundamental driver for those numbers was room occupancy. Without proper context he was not willing to rely on those numbers. However, he agreed that if the Hotel’s projections were used, the lost profits would be lowered. He also noted that the Hotel’s projections did not include revenue from either of the restaurants.
[417] Mr. Lobo was asked to use the Hotel projection numbers for the Skybar and banquet revenue for 2023. Using his model and applying his discount rate, he agreed that neither of those outlets would have earned any money until 2023.
Defendant’s Expert
[418] Mr. Bruce Roher gave evidence on behalf of the Hotel with respect to the cash flow or deficiency that would have been incurred or realized by 250 from July 2, 2020 to January 31, 2021 but for the termination of the Agreements. Mr. Roher prepared two reports. His main report dated February 16, 2021 and an Addendum Report dated March 4, 2021.
[419] Mr. Roher is a qualified CPA, Certified Business Valuator, and is also certified in financial forensics. His qualification to testify as an expert and the scope of his testimony was not contested. Mr. Roher has testified many times before the Superior Court.
[420] The period of July 2, 2020 to January 31, 2021 (“the cashflow period”) was chosen as, under current legislation, 250 could not have been evicted until after January 31, 2021 if it had qualified for CECRA.
[421] Mr. Roher originally estimated that 250’s estimated cash flow deficiency during the cash flow period would have been $912,000. In his Addendum Report he revised this number down to $819,000. The revision resulted from changes to the fixed and variable operating expenses and HST.
[422] The deficit included an assumption that 250 was in arrears of rent, additional rent, and billbacks from prior to July 2, 2020. He reviewed a total of 28 documents including the pleadings. Mr. Roher asked for Harlo’s statements of income during the cash flow period and a breakdown of 250’s gross profit by venue from inception to July 2, 2020 but did not receive those documents.
[423] In terms of methodology used, Mr. Roher started with revenue based on 250’s actual 2019 revenue and then deducted various costs including food and beverage, fixed and variable labour, fixed operating expenses, license fees, base rent, additional rent, billbacks owed and rent owed prior to the cash flow period. A wage subsidy was added back.
[424] Mr. Roher explained that food and beverage costs at 29% were calculated using the 2019 variable costs as a percentage of revenue to estimate the 2020 variable costs, industry standards, Government of Canada statistics and the financial statements for two of BPNP’s other businesses for 2019.
[425] Wages were estimated using a similar methodology but removing the variable portion which related to agency labour. Mr. Roher’s calculations included wage but not rental subsidies as he was advised that there was a dispute as to whether 250 met the CECRA criteria.
[426] Mr. Roher made several comments about Mr. Lobo’s report. His view was that Mr. Lobo should have met with the Hotel to understand the assumptions in the Hotel management projections he relied upon. He also felt that Mr. Lobo underestimated the percentage of food and beverage cost at 24%.
[427] Mr. Roher agreed that any deductions from revenue that were incorrect would impact his bottom-line number. He agreed that his expense for wages did not assume any employee layoffs during the cash flow period.
Analysis
[428] It is difficult for this court to accurately determine expectation damages in this case. In T.T.C. v. Aqua Taxi Ltd., 6 D.L.R. (2d), (Ont. Sup. Ct.), Justice Gale grappled with a damages claim by the TTC for damages it alleged it suffered in 1955 due to the defendants operating a water taxi service in Toronto Harbour on the theory that the TTC alone had the right to operate passenger service to Toronto Island.
[429] The Court noted the following at page 745 in attempting to assess the TTC’s damages;
Although the Courts sometimes appear to be at variance in their approach to the degree of proof required for the assessment of substantial damages, I think they are guided by a consistent principle. The general rule is that the plaintiff must prove sufficient facts to enable the Court to calculate the loss with reasonable certainty. To this must be added the qualification that, where the damages are, by their intrinsic nature, incapable of assessment with any degree of certainty, the plaintiff must prove the facts and the Court will approximate a sum, even although it may be little better than a guess. The case at bar falls within the general rule. There is no inherent difficulty in the nature of the damages themselves. The plaintiff's damage was clearly the loss of the fares which it would have received from passengers who travelled on the defendants' jitney service, and who would otherwise have used the plaintiff's ferries. Accordingly, the plaintiff was required to prove the facts from which the Court could make a reasonable calculation as to the damages suffered, and that was not done. I am satisfied that there was some damage, but the plaintiff has not shown the necessary facts from which I could come to an intelligent conclusion as to what it was. The only alternative would be for me to speculate and that I decline to do. This is not a case where the nature of the damages makes it practically impossible to measure the loss, and even if it was, the plaintiff would not have satisfied the duty on it to prove the facts on which the calculations could be based. That is an obligation which the Court will never assume and if a plaintiff is unable to discharge it, then substantial damages cannot be awarded.
[430] While substantial expert evidence was provided, the difficulty with the experts’ calculations is the degree of uncertainty. A few examples of the Court’s concerns are as follows:
a. While both experts acknowledged the effect of the pandemic on future profits, their estimates may now be inaccurate given the effects of the third wave of the pandemic and the length of time needed for the phasing in of re-opening. Mr. Lobo’s report relied on the Hotel’s assessment that they would be able to re-open venues and host events commencing June 2021. That is no longer realistic. It is simply unknown at this time when restrictions will be lifted to the point where indoor gatherings will permit full banquet and restaurant operation.
b. Mr. Lobo’s calculations assume that the 10-year contract would be fulfilled plus two renewals. That is, one of Mr. Lobo’s assumptions was that the loss period began on July 2, 2020 and extended to March 2038 (September 2039 for Petros). It is this Court’s view that a 20-year relationship with these two entities is not a realistic assumption give the differences in their business models.
c. The profits of 250 were to some degree tied to room occupancy. The projections for occupancy were far lower than anticipated when 250 was at the Hotel and this was a future variable on which Mr. Lobo could not speculate and would also no doubt be affected by economic factors tied to the pandemic recovery period.
d. Mr. Lobo agreed that there would be no profit from either Skybar or banquets until 2023 using the Hotel’s projections.
[431] What the above examples illustrate is that the conclusions of both experts are very dependent on variables which are “incapable of assessment with any degree of certainty”, to borrow the language of the TTC case. The Court cannot be called upon to speculate when the effects of such unpredictable variables as the pandemic (Will there be a fourth wave? Will vaccines work against new variants? When will restrictions be loosened? What will be the long-term effect on the hotel and food & beverage industry?) will force the Court to simply guess at what the future profits of 250 could be. That is not acceptable and indeed contrary to the ratio in such cases as TTC. A more rational and reliable manner of assessing damages is by examining the lost capital which 250 expended in reliance on the performance of its contract.
B. Lost Costs Invested in the Hotel and Other Damages Claimed (Reliance Damages)
[432] The nature of reliance damages tries to put the injured party in the position it would have been had the tort not been committed. Where expectation damages cannot be proven (as in this case), reliance damages amount to wasted expenditures which the party incurred in reliance on the contract.[^2]
[433] 250 claims lost costs invested in the Hotel of $8,965,534.92 as per their revised Reliance Damages brief dated February 25, 2021. Those damages can be broken down into three categories: 1) leasehold improvements including uniforms, 2) bartered goods, and 3) cash losses for 2017, 2018 and 2019 as per their financial statements. 250 provided receipts and cheques verifying the leasehold improvements.
[434] Mr. Laksmono had prepared a spreadsheet in which he calculated that 250 had spent a total of only $4.737M on fixturing the hotel restaurants. This document’s admissibility was challenged at trial as 250’s counsel submitted it was prepared for the purposes of settlement. The Hotel’s position was that it formed part of its schedule of productions and was known to 250 well in advance of trial.
[435] KSV’s First Report dated September 28, 2020 showed leasehold improvements of $6.983M plus accounts receivable and various other amounts for total assets of $8.372M.
[436] Therefore, the floor of reliance damages would be Mr. Laksmono’s estimate of $4.737M, the mid-range would be KSV’s asset assessment at $8.372M, and the highest estimate was 250’s at $8,965,534.92.
[437] The Hotel has counterclaimed for $2M in damages but was only able to substantiate $735,