An Ontario court has ordered that landlords of the defunct Hudson's Bay Company should be reimbursed $2.4 million in costs incurred during the company's unsuccessful attempt to sell leases to B.C. billionaire Ruby Liu. The court has placed a hold on the payment, however, pending the resolution of all other creditors' claims, noting that the landlords' reimbursement may not be prioritized.
Key Takeaways
- An Ontario court has awarded $2.4 million in costs to Hudson's Bay landlords.
- The costs stem from the landlords' opposition to HBC's failed attempt to sell leases to Ruby Liu.
- Payment of the awarded costs is currently paused until HBC's other creditors are settled.
- The judge deemed the cost award "unprecedented" but warranted due to the unique circumstances.
The Lease Sale Dispute
The legal battle began when Hudson's Bay Company, which became insolvent and closed all its stores last year, sought to sell 25 leases for former HBC and Saks stores to Ruby Liu for $69.1 million. Liu intended to open a department store with entertainment and dining facilities in these locations. The landlords, including major real estate companies like Cadillac Fairview, Oxford Properties, and Ivanhoé Cambridge, opposed the sale, arguing that Liu's business plan was insufficient.
Last year, a court blocked the sale, agreeing with the landlords' assessment. Following this decision, the landlords sought to recover the significant costs they incurred in fighting the proposed lease transfer. These costs included preparing extensive court documents and participating in numerous hearings.
Landlords' Arguments and Court's Decision
The landlords argued that they should be compensated for their expenses, especially since they had previously proposed a settlement that they believed would have saved all parties money. This settlement would have involved the landlords taking back their leases and covering the costs of removing store fixtures and signage. However, they claim HBC refused this offer, demanding $29 million instead, which led to the settlement's failure and the subsequent pursuit of the Liu deal.
In her March 10 decision, Judge Jessica Kimmel stated that the cost award was not intended to punish HBC or its lenders but to indemnify the real estate companies for the expenses incurred due to the retailer's failed strategy. "Awarding costs encourages parties in future cases to be thoughtful about litigation strategies, to embrace and fully explore alternatives to litigation, and to make concerted efforts to resolve disputes consensually via settlement," Kimmel wrote.
Unprecedented Award and Future Implications
While courts typically do not award costs in creditor protection cases, Judge Kimmel described this situation as "unprecedented" and therefore warranted an "unprecedented costs award."
Despite the ruling in favor of the landlords, the judge did not determine whether these awarded costs should take precedence over claims from HBC's other major lenders. These lenders also opposed the landlords' request for costs and are seeking to recover funds from HBC's remaining assets. The judge noted that "All of that will be an issue for another day."
This situation highlights the complex financial and legal challenges faced by companies in creditor protection and the potential for significant legal costs to be incurred by various stakeholders.
