Legal sparring begins after sale of lucrative pub sours.
One of the Donnelly Group’s latest projects has been halted by rejection and the ambitious, fast-growing hospitality firm has landed in a nasty bar fight with The Winking Judge.
The two companies reached a deal last year for $1.35 million (inclusive of a $150,000 deposit) that was to see the English-style pub at 888 Burrard close and be reborn as a renamed Donnelly Hospitality Management Ltd. (DHM) outlet.
But the handshake went south during a flurry of last-minute phone calls and legal huddles in November over who really owned the watering hole.
DHM resurrected an old court case and worried Michael Gould didn’t actually own The Winking Judge.
He insisted he has been the principal or sole operator for many years, it was profitable, and that it “pays him a not insignificant annual income.”
Gould said he wanted to sell and buy a business closer to his Pender Harbour home.
But when the Donnelly transaction soured, he claimed in B.C. Supreme Court that DHM had failed to meet the conditions of their agreement and he was justified in walking away with the deposit or, alternatively, damages.
Donnelly said it had been trying to acquire The Winking Judge since before 2012, investing significant time, effort and money as no similar venue with such potential has been available in the last decade.
“I’ve been a fan of The Winking Judge for a long time, enjoying many pints with friends and family before or after movies,” Jeff Donnelly said last fall after he appeared to have acquired it. “Mike and his team did a great job of building a great neighbourhood pub, and we’re looking forward to keeping its grounded and approachable nature intact.”
The pub’s location in the Theatre District, he said, was strategically significant in relation to its competitors — it enjoyed busy pedestrian traffic, particularly from the Scotiabank Theatre across the street, as well as nearby hotels and residences.
Several years ago, Donnelly realized the benefit of associating with theatre and cinemas and since then has sought opportunities to advance that marketing strategy.
The company now has several nightclubs, pubs and barbershops in the entertainment centres of Toronto and Vancouver.
The Winking Judge’s assets — the lease and the liquor licence — were particularly valuable.
In 2008, the Liquor Control and Licensing Branch issued it a Class-2 Liquor Primary License, a permit to operate a smaller venue (under 150 seats) with less onerous requirements.
Although it was relatively easy to obtain a new Food Primary License, it was much more difficult to obtain a licence like The Winking Judge’s that permitted the sale of alcohol until 2 a.m. every night.
To Donnelly’s knowledge, there were no other such licences available in the Theatre District or nearby and there had been none since he began looking 10 years ago.
Even if there were comparable premises available in the area, the licensing requirements would not permit the issuance of another Class-2 license nearby.
Then-B.C. Supreme Court and now-Court of Appeal Justice Patrice Abrioux explained in a recent pre-trial ruling that Donnelly had reached a sale agreement with Gould on Aug. 27.
It was subject to a series of conditions.
On Sept. 27, both parties declared those conditions satisfied, waived and removed, and from that point, if DHM did not complete the transaction, it would forfeit the deposit, Abrioux said.
On Oct. 30, the parties agreed to extend the completion date 24 hours to Nov. 1.
At about noon on Nov. 1, Donnelly’s lawyers threw a wrench into the works by raising a 2011 judgment involving Gould and the original corporate structure of The Winking Judge.
That case revolved around the genesis of the pub — originally a cafe — and the complicated and tangled ownership involving a half-dozen people including Gould’s father, Simon, and a handful of numbered companies.
Abrioux said “as a result of Simon Gould’s conduct in the fraudulent conveyance action and thereafter, Michael Gould and his father have not been on speaking terms for several years.”
“Specifically, Michael Gould asserts that he advised the Donnelly Group’s representatives that he purchased the right to enforce the judgment, and therefore was in a position to convey title to the assets.”
DHM denied that its representatives ever discussed “the content or effect of any particular legal judgment, or that Michael Gould purchased the right to enforce the judgment.”
From Nov. 1 through Nov. 5, the two parties and their lawyers had numerous interactions to try to complete the deal.
On Nov. 6, Gould ended it because of DHM’s alleged failure to close the transaction on Nov. 2.
On Nov. 7, DHM replied that it was ready, willing and able to complete the transaction, and the next day unconditionally tendered the purchase price.
The money was returned.
Gould maintained DHM should have been aware of the existence of the 2011 judgment in the course of its due diligence inquiries. Regardless, he said it was either satisfied by or waived the conditions by Sept. 24.
He re-opened the pub Nov. 9 and said he had since received an informal offer to buy it that was considerably greater than $1.35 million.
DHM countersued and obtained an injunction from Abrioux to protect the assets, hoping the court will ultimately order the transaction completed.
None of the claims have been proven in court and the litigation continues.
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