An Ontario court has ordered that landlords of Hudson’s Bay Company be reimbursed for $2.4 million in legal costs tied to the retailer’s failed attempt to transfer leases to B.C. billionaire Ruby Liu. The decision represents a rare and “unprecedented” move within creditor protection proceedings, where such cost awards are not typically granted.
However, while the court ruled in favour of the landlords, it has also paused the distribution of funds. The decision leaves open the possibility that the awarded amount may never be paid, depending on how creditor claims are ultimately prioritized.
Court Emphasizes Fairness in Hudson’s Bay Lease Dispute
Justice Jessica Kimmel stated that the ruling was not intended to penalize Hudson’s Bay Company or its lenders, but rather to ensure that landlords are indemnified for the costs incurred while responding to the retailer’s legal 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 in her March 10 decision.
She further noted the exceptional nature of the case, stating, “this was an unprecedented situation, and I consider an unprecedented costs award to be warranted.”
Background on the Ruby Liu Lease Proposal
The legal dispute stems from Hudson’s Bay Company’s effort to sell 25 leases for former Hudson’s Bay and Saks OFF 5th stores to Ruby Liu for $69.1 million. The proposed transaction was part of a broader strategy to generate funds for creditors following the company’s insolvency and closure of all stores.
Liu’s plan involved transforming the acquired locations into a new department store concept that would incorporate entertainment and dining elements. In addition to the 25 leases, she had secured leases for two other former Hudson’s Bay and an OFF 5TH properties located in malls she owns.
The court ultimately blocked the transaction, agreeing that Liu’s business plan did not provide sufficient certainty for the properties in question.
Landlords Push for Cost Recovery
A group of major Canadian landlords, including Cadillac Fairview, Oxford Properties, Ivanhoé Cambridge, Primaris Management, QuadReal Property, Morguard Investments, and KingSett Capital, spent months opposing the lease transfer. Their efforts involved preparing extensive court documentation and participating in hearings.
Following the rejection of the Liu deal, the landlords sought to recover a portion of their legal expenses. They argued that they had attempted to reach a settlement earlier in the process, which could have minimized costs for all parties involved.
The proposed settlement would have seen landlords take back control of the leases in September and assume responsibility for removing store fixtures, furniture, and signage. According to the landlords, Hudson’s Bay Company declined the offer and instead requested a $29 million payment, preventing a resolution and leading to further litigation.
Hudson’s Bay Arguments and Court Considerations
Hudson’s Bay Company opposed the landlords’ request for costs, arguing that awarding such payments could discourage other insolvent companies from pursuing restructuring strategies. The retailer also contended that any award, if granted, should be nominal.
The company further noted that during the period in which it sought court approval for the Liu deal, landlords received nearly $15 million in rent from otherwise vacant properties.
Despite these arguments, Justice Kimmel determined that the landlords were entitled to reimbursement for a significant portion of their expenses.
Uncertainty Around Payment Priority
While the court awarded $2.4 million to the landlords, the issue of payment priority remains unresolved. Hudson’s Bay Company continues to face competing claims from other creditors, including lenders who have also sought access to the company’s remaining assets.
Justice Kimmel acknowledged that determining how the funds will be distributed is a separate matter that has yet to be decided.
“All of that will be an issue for another day,” she said in her ruling.
Broader Implications for Canadian Retail and Real Estate
The Hudson’s Bay landlords costs decision introduces a notable precedent within Canadian insolvency proceedings, particularly for retail and commercial real estate stakeholders. The ruling signals that courts may be more willing to compensate landlords for extraordinary legal efforts when faced with complex restructuring proposals.
At the same time, the uncertainty surrounding payment underscores the financial constraints facing large retail insolvencies. With multiple creditors competing for limited funds, even successful legal claims may not translate into actual recovery.
For landlords, retailers, and lenders alike, the case highlights the importance of negotiation and early settlement efforts when navigating high-stakes restructuring scenarios within Canada’s evolving retail landscape.
