Nightclub developer hit with $20M lawsuit
Investors allege fraud and breach of contract
`It's a fishing expedition,' president says
Jul. 28, 2006. 01:00 AM
STAFF REPORTERS
Robert Cribb and Raju Mudhar
A prominent Toronto nightclub developer has been slapped with a $20 million suit by investors alleging fraud, conspiracy, breach of contract and fraudulent misrepresentation.
Hingson Corp., which operates downtown nightspots Eight, Eight Below, Banzai Sushi and Fez Batik and was planning a super club in the entertainment district, had its corporate records seized last Friday by a court-appointed receiver, the Star has learned.
Hingson Corp. president John Cheong said his office was visited Friday by a court receiver who demanded the company's financial documents. He said he co-operated.
In a notice of motion filed in court July 21, investors Century Services Inc. and Clairvest Group Inc. allege Hingson principals Fred Bain, Roberto Bustamante and Cheong, along with a list of companies operated by the three, are responsible for $19.6 million in damages and another $1 million in punitive and exemplary damages.
The allegations haven't been proven in court. Officials with Century Services and Clairvest declined comment.
In an interview, Cheong denied the allegations, including a claim that he transferred assets to his wife and mother "to avoid judgment by the plaintiffs."
"I deny all the allegations," he said in an interview in his office at the renovated Fez Batik. "It's a fishing expedition."
Investors also claim in their notice of motion that Bain and Bustamante received $345,000 in November 2005, which was "fraudulently converted" to Bain's personal use including the purchase of a home in downtown Toronto.
Bain said Wednesday he had not yet been served with a copy of the notice of motion. But he said any allegations of misusing company funds to purchase a house are false.
"I did buy that property but with money I've taken as my pay. If I use my pay to buy a property, that's my choice."
Bustamante said in an interview he knows nothing about the allegations and that all the companies named in the notice of motion, including Bustamante Holdings Corp., are controlled by Cheong.
The aggressive legal action by Hingson investors comes amid a string of corporate defections and alleged unpaid bills for the nightclub kingpin.
Cheong's partnership with Bain and Bustamante ended recently following a "bad" split, said Cheong, who declined to provide details.
Bain says he left his partnership because "I just didn't like the business practices."
Cheong's former creative visionary, Peter Gatien, a veteran of the New York club scene, left the company in early June over growing concerns with how Hingson Corp. was handling the planned opening of Circa, a massive club slated to open this fall in the former Playdium/Lucid building on John St.
After lengthy construction delays, Gatien, who holds the lease on the property, went solo.
Gatien says he didn't know about any financial allegations being made by investors when he left the company.
"Am I beyond shocked? No," he said in an interview. "(Cheong and Bain) embarrassed me on a couple of occasions where we planned positive events only to have to go back on our hands and knees (because of delays in opening) to repair relationships ...
"I got to a point where I wasn't going to start bringing anybody in. I felt it would expose them to getting harmed. Obviously, I had no confidence and a total lack of faith in their ability to complete this project."
Cheong says the break-up was based on competing values and visions for Circa.
"I thought the philosophy between Hingson values and proposed Circa values ... were not consistent. ...I just think that their way of operating, the acts and show is not what I envisioned and not what I envisioned in the beginning.
"What I wanted to see was a club that showcased art and would be available for corporate events and mostly be available for charity events ...
"I still believe that he was going to make this club an artsy thing ... but there are other aspects of his programming ... (like) the transsexual and transgendered scene, I don't think it's part of the Hingson portfolio ... Circa might still be okay, but it's not okay for me."
Court records reveal other legal claims for unpaid bills by contractors.
One suit, filed in court in March by a construction firm, alleges more than $17,000 in work done at Eight was not paid for by Cheong and New World Engineering Corp., a company that lists Cheong and Bain as sole directors in corporate filings.
The principal of the numbered company claims a further $15,000 in damages.
In a statement of defence, Cheong and New World Engineering claim the construction firm was "submitting timesheets overstating the hours worked" and that the work done "was inadequate and not completed in a timely manner."
In a $60,000 counterclaim, Cheong and New World claim the principal of the company was not licensed as a contractor with the city.
The matter is still before the courts and none of the allegations have been proven.
But in the meantime, Cheong and Bain may have lost the lawyer representing them in the case due to non-payment, court records show.
In a sworn affidavit, lawyer Ari Kulidjian of Kulidjian and Associates alleges that his former clients "have failed to make any payments towards their outstanding account ... There has been a breakdown of the solicitor and client relationship such that Kulidjian and Associates can no longer act as solicitors of record for the defendants."
Cheong could not be reached for comment on the lawyer's affidavit.
Also in March, Commute Homes, an interior decorating firm, filed suit against Hingson Entertainment Corp. claiming damages of more than $21,000 for unpaid furnishings at Eight Below.
In a statement of defence, Hingson denies the allegations, saying the installation of chairs, mirrors and lamps at the nightclub was "faulty" and that the company was not a licensed contractor. Hingson filed a countersuit claiming $35,000 in damages.
In its written reply, Commute Homes says it doesn't require a licence to install furniture and that Hingson never complained of any problems with its work.
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