A partnership that simmered, boiled -- and then exploded

Hank Kates, billed as the chartered accountant to the stars, must be regretting the day he introduced David Mirvish and Harry Stinson.

The two prominent Toronto businessman -- one a theatre producer, the other a well-known real-estate developer -- have become adversaries in a high-profile legal fight over a landmark condo development in the heart of the city.

Now Mr. Stinson is fighting to retain his reputation and Mr. Mirvish is fighting to recoup millions of dollars. Hundreds of employees and investors in the condo project are among those hanging in the balance.

"This has been the hardest thing I've ever done," Mr. Stinson said of his decision to put two companies under his control into bankruptcy protection. "This is humiliating."

The dispute continues to ramp up. Yesterday, the board of directors of the condo corporation at the condo-hotel development at One King Street West authorized a $30-million suit against Mr. Mirvish's companies, according to the condo board's chairman, Bob Verdun. The suit also names engineers and architects involved in the project, as well as the City of Toronto, said Mark Arnold, the lawyer who is acting for the condo board.

Mr. Verdun said that the board, of which Mr. Stinson is a member, is seeking $20-million to fix alleged deficiencies in the building and $10-million in damages because condo buyers were not properly informed that the Ontario Securities Commission had ruled the original form of the sales agreement violated securities law.

The companies that have sought court protection from their creditors are Stinson Hospitality Inc. and Dominion Club of Canada Corp. They went to court after repeated efforts by Mr. Mirvish's companies to collect on debts. At the heart of the matter is an $11.8-million mortgage on a portion of the project.

Mr. Stinson is anxious to pay Mr. Mirvish back, "but not necessarily in the same kind of time frame that Mr. Mirvish's advisers would like," said the developer's lawyer, Arthur Jacques.

Word that companies under Mr. Stinson's control are in court protection has "caused people to panic in other projects I'm involved in," he said yesterday.

At an extraordinary late-afternoon news conference, Mr. Mirvish's lawyer, Jeffrey Carhart, said that although Mr. Mirvish's companies have the main secured debt owed by Mr. Stinson's companies, he learned of the proceeding only after it had started and that he rushed to court without his robes to get it postponed until at least the last week of the month.

Mr. Mirvish detailed a deteriorating business relationship with the developer who originally brought him into the condominium project, which Mr. Mirvish's companies eventually took over and built.

The impresario said he could not wait to defend himself in court, as only Mr. Stinson's side of the story had reached the press.

"Harry has never failed to disappoint me in every promise he has ever made," Mr. Mirvish said. "This was not the type of relationship that built confidence, ultimately we reached a point [where there were]serious irregularities and concerns with this project, that the courts will have to examine very carefully."

As Mr. Stinson tells it, he was a man with a vision to build a world-class icon at the corner of Yonge and King Streets, a mix of residential and hotel units, as well as other amenities. Mr. Mirvish was the man with the necessary money and business connections, who initially believed in the vision, but let it fall apart as he realized the size of the expensive undertaking, Mr. Stinson suggests.

"What happened, unfortunately, was like a frog boiling slowly," Mr. Stinson said. As the temperature got higher and higher, and Mr. Mirvish realized the extent of the extremely high-end project he was involved in, he sought to gain control and put his own people in charge, Mr. Stinson said.

And "over time it became apparent to me that David's directive to keep an eye on costs was being pursued with more zeal than appropriate." The fight over how much to spend on the project was what drove a wedge between the two business partners, Mr. Stinson said. "He who has the gold makes the rules."

Mr. Stinson said he has "called and called David and e-mailed and written, and I have been rebuffed constantly. It's sad."

In court documents, Mr. Stinson said his relationship with the Mirvish Group and its representatives, including Mr. Kates, "evolved unfortunately into one of a chilly and distrustful nature."

According to court filings, Mr. Stinson's companies own about 42,000 square feet of freehold space in a heritage Toronto-Dominion building, and some of the facilities, such as front desk area and freight elevator, used by the hotel that leases units from condo owners.

Mr. Mirvish said he gave Mr. Stinson the mortgage on the properties on Feb. 3, 2006, and that after Mr. Stinson defaulted when it was due June 30, 2006, it was extended twice.

It was finally due Feb. 28, but Mr. Stinson sought court protection on Feb. 27, in what he described a pre-emptive strike to avoid payment, he said.

"We've come to this step now of seeking a legal time out," Mr. Stinson said. "We dearly would love to put this thing back on the rails."

There are 572 condo units in the building, of which 540 have been sold, while 32 units and three penthouses are still owned by Mirvish companies. Only about 10 per cent of the units are occupied by owners, while most of the remaining units are rented by the hotel.

Stuart Smith, an 18th-floor condo owner who has lived in the building from the beginning, said last might that while his wife and he feel it is "a fantastic hotel and awesome building," they have experienced problems, both large and small, that they have not been able to get the builder to fix.

"There are still things that need to be corrected because they weren't done properly the first time," he said, such as bathroom door handles that do not work and a heat pump that breaks down although it is less than two years old.

Bob Clark, chairman of the Ontario Club, said last night that he feels as if the club, which has to vacate its premises in Commerce Court by March 31, is "caught between two raging elephants." He said other downtown clubs have offered his club use of their premises until it can find new space.

Mr. Stinson attempted to turn the main banking hall of the old building into a private club, and when that failed he entered into an agreement whereby the Ontario Club, a venerable Toronto institution, was to move to One King West.

Mr. Mirvish said Mr. Stinson had never produced a business plan for the lease to the Ontario Club, which was for $1 a year for the first three years, and was renewable for 99 years.

Mr. Stinson said yesterday he doesn't want this to drag on like a soap opera. "We would desperately love to get a phone call from Mr. Mirvish saying, 'Okay boys, let's talk.' "