Court File and Parties

COURT FILE NO.: 3004/11
DATE: 2012-11-20
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: QUTUB SYED and SAIF SYED, Plaintiffs

AND:

SGH INVESTMENT INC., Defendant

BEFORE: FITZPATRICK J.

COUNSEL:
Mark Hartman, Counsel for the Plaintiffs

Antonio Conte, Counsel for the Defendant

HEARD: November 16, 2012

ENDORSEMENT

[ 1 ] The defendant SGH Investment Inc. (“SGH”) brings a motion for an order for security for costs against the plaintiffs, Qutub Syed and Saif Syed (together “Syed”) for this action.

[ 2 ] At the commencement of this motion, a preliminary issue was raised by counsel for the plaintiffs. This matter was last before me on October 26, 2012. I adjourned the motion that day to provide the defendants an opportunity to file further materials with respect to the anticipated costs of the action. This issue/adjournment arose from the defendant’s counsel attempting to file a “Proposed Bill of Costs for Security of Costs” at the start of the hearing. This proposed Bill of Costs had not previously been provided to the plaintiffs’ counsel or put into any affidavit or other material filed with the Court. Not surprisingly, plaintiffs’ counsel objected to the filing of the proposed bill of costs and opposed the adjournment.

[ 3 ] For the reasons set out in my endorsement of October 26 th , I granted the defendant’s request for an adjournment specifically to allow the defendant the opportunity to “serve its affidavit setting out the anticipated costs details” and to allow the plaintiffs any desired response and cross-examination arising out of that further affidavit. The defendant instead filed a supplementary motion record that addressed the cost details but also provided further information/documentation directed to the substantive issue (i.e. the overall merits of the security for costs motion).

[ 4 ] Today, plaintiffs’ counsel objects to the supplementary motion record being relied upon to the extent that the supplementary materials address anything other than the cost details for which the adjournment on October 26 th was granted. In the circumstances, I asked counsel for the defendant whether he was prepared to argue the motion today with the Court relying only on that part of the supplementary materials that address the cost issue (i.e. paras. 1 to 10 of the affidavit of Sudhir Madan sworn October 23, 2012) or whether defendant’s counsel wanted the Court to rely on the non-costs details set out in the supplementary materials, which in turn would likely involve argument for an adjournment to allow plaintiffs’ counsel to respond to the non-costs detail set out in the supplementary materials along with any possible examination. In response to this query, defendant’s counsel indicated he did not want an adjournment of the motion today and requested the Court to proceed on the basis that only paragraphs 1 through 10 of the affidavit of Mr. Madan sworn October 23, 2012 would be considered and that the Court would disabuse its mind to the balance of that affidavit. On that basis, both counsel were prepared to argue the motion and it proceeded today.

[ 5 ] SGH seeks its order for security for costs pursuant to rule 56 of the Rules of Civil Procedure . More specifically, SGH relies upon rules 56.01(1)(a) and (e), which provides as follows:

56.01(1) The court, on motion by the defendant or respondent in a proceeding may make such order for security for costs as is just where it appears that,

(a) the plaintiff or applicant is ordinarily resident outside Ontario; and/or

(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent.

[ 6 ] On the face of the pleadings and the limited affidavit material directed to the case merits, I am satisfied that the Claim is not frivolous or vexatious. The Claim is for an improvident sale for $2.5 million at auction in the context of a previous, proximate offer for $3.5 million, appraisals significantly in excess of the $2.5 million sale price and criticisms of the efforts made by the auctioneer, including as to failure to contact the party who made the previous $3.5 million offer to attend the auction, limited overall marketing of the property and auction, holding the auction in a rural setting and the limited number of registered bidders present for the auction (ie. 1). I see nothing frivolous or vexatious in these allegations. Accordingly, I am not satisfied that SGH has met the threshold to obtain a security for costs order pursuant to rule 56.01(1)(e).

[ 7 ] There is no argument between the parties that Syed are ordinarily resident outside Ontario. The affidavit of Qutub Syed, sworn August 3, 2012, advises he is a resident of Maryland. As such, SGH has satisfied rule 56.01(1)(a) and met its initial threshold to seek an order for security for costs. Having met that threshold, I must consider any other relevant factors for purposes of deciding what order, if any, for security is just in this case.

[ 8 ] In an exchange between counsel at January, 2012, Syed advised that the plaintiffs had property in Ontario with sufficient value to satisfy any costs order that might be made in this action. However, these properties were sold in or about April, 2012 by power of sale by the first mortgagee (TD Bank) such that the plaintiffs no longer have assets in Ontario.

[ 9 ] In response to the SGH motion herein, Syed takes the position that the plaintiffs have sufficient assets in a reciprocating jurisdiction to answer a judgment for costs. More specifically, Qutub Syed, in his affidavit sworn August 3, 2012, states that he is the “president and 100% owner of Sunview Inc. a Texas Corporation”. Mr. Syed further attests to Sunview Inc. (“Sunview”) owning a 22 unit apartment/2 unit retail building located in El Paso, Texas (the “Proposed Property”).

[ 10 ] Based on the materials before me on this motion, I consider the following to be the relevant factors for my consideration on this motion:

(a) the plaintiffs are residents of the State of Maryland, United States of America;

(b) the plaintiffs are presently involved in other litigation in Ontario that potentially exposes them to costs orders in addition to any that may be made in this action;

(c) the plaintiff, Qutub Syed is a 100% shareholder in Sunview, which is a corporation incorporated/located in the State of Texas, USA;

(d) the Proposed Property is registered to/owned by Sunview (ie. not one of the plaintiffs personally) and located in the State of Texas, USA;

(e) the Stewart Title Report attached to the affidavit of Qutub Syed sworn August 3, 2012 confirms that the Proposed Property has been owned by Sunview Inc. since 1994;

(f) the appraisal dated July 8, 2011 for the Proposed Property suggests a market value by income capitalization of $960,000 or, alternatively, a market value by sales comparison approach of $880,000. This appraisal was done for the Bank of Texas presumably in anticipation of financing for Sunview;

(g) the above noted appraisal notes the highest/best use for the Proposed Property is for apartments;

(h) the documentation attached as exhibits to the August 3, 2012 affidavit of Qutub Syed confirm that the property taxes for 2011 have been paid for the Proposed Property;

(i) the exhibits attached to the affidavit of Qutub Syed sworn August 3, 2012 confirm the only outstanding mortgage/monetary lien affecting the Proposed Property is a mortgage payable to the Bank of Texas with a balance outstanding as at July 23, 2012 of $553,000; and,

(j) the exhibits attached to the affidavit of Qutub Syed sworn August 3, 2012 confirm that there are no outstanding judgments, tax liens or pending bankruptcies against Qutub Syed or Sunview.

[ 11 ] In addition to the above considerations, I have reviewed the materials before me with respect to the merits of the claim. Given that we are only at the pleading stage, without the benefit of full discoveries on the merits having taken place, I am not in any position to reasonably assess the strengths or weaknesses of the case for either side such as to allow me to comment meaningfully on the merits. Accordingly, the merits are a neutral consideration on this motion.

[ 12 ] It is well established law that a foreign plaintiff can defeat an order for security for cost by establishing they have exigible assets in a reciprocating jurisdiction sufficient to meet an award for costs (see: Uribe v. Sanchez, [2006] O.J. No. 2370 ). In this case, counsel for Syed has filed a Brief of Authorities that includes excerpts from the Maryland Courts and Judicial Proceedings Code and the Texas Civil Practice and Remedies Code confirming that both the State of Maryland and the State of Texas would recognize a “foreign” judgment. Stated another way, both the State of Maryland and the State of Texas have reciprocal enforcement such that any judgment for costs in Ontario could be enforced in either state.

[ 13 ] The fundamental issue on this motion is whether the Proposed Property located in the State of Texas is exigible such that SGH, armed with an Ontario judgment for costs, could easily enforce that judgment against Syed (see: Smallwood v. Sparling (1983), 42 O.R. (2d) 53 and Liu v. Daniel Executive (Canada) Holdings Corp.). My analysis in that regard involves two parts: whether the Proposed Property is evidenced to have sufficient value to satisfy any potential cost judgment and whether that cost judgment can be easily enforced.

[ 14 ] Respecting the value of the Proposed Property registered to Sunview, I have the appraisal attached to the August 3, 2012 affidavit of Qutub Syed suggesting a minimum fair market value of $880,000 as at July 8, 2011. There is no contradictory evidence to suggest that the fair market value is otherwise than as suggested by the appraisal. As noted above, the appraisal was prepared for the Bank of Texas in anticipation of financing.

[ 15 ] Not surprisingly, and as is typical with such appraisals, the appraisal report includes a number of “general underlying assumptions and conditions”. SGH’s counsel references several of these assumptions/conditions and on this basis alone speculates that the appraisal is unreliable. I am not prepared to reject the appraised value on the basis of these general assumptions/conditions with related speculations.

[ 16 ] The appraisal is produced for the very purpose of establishing a fair market value and, in this case, done so for a lender to rely on to determine what credit it may extend to Sunview. SGH has not provided the Court with any evidence to suggest the appraisal is unreliable and/or the fair market value suggested by the appraisal is inaccurate. Accordingly, I accept that the Proposed Property has a fair market value at July 8, 2011 of at least $880,000.

[ 17 ] The evidence contained in the affidavit of Qutub Syed sworn August 3, 2012 confirms there is one encumbrance of approximately $553,000 against this property. Accordingly, the evidence before me is that Proposed Property has equity in excess of $300,000.

[ 18 ] SGH estimates the total cost of this action to be approximately $75,997.93 (see affidavit of Sudhir Madan sworn October 23, 2012 at Exhibit ‘A’). The Proposed Property has equity/value in excess of four times the estimated costs of SGH for this action. As a result, I conclude that the Proposed Property has sufficient value to answer any judgment for costs expected in this case.

[ 19 ] Having found that the Proposed Property has sufficient value, I need to consider whether that cost judgment can be easily enforced. During the course of argument on this motion, the Court did express concern respecting the ease by which SGH could enforce any judgment for costs given the plaintiffs are resident in Maryland, the Proposed Property is owned not by the individual plaintiffs but by a corporation owned by one of the plaintiffs (i.e. Qutub Syed owns 100% of the shares of Sunview, which is the owner of the Proposed Property), that the corporate owner of the Proposed Property is incorporated/located in the State of Texas and that the Proposed Property is itself located in the State of Texas. In anticipation of such concerns, Qutub Syed, in his affidavit sworn August 3, 2012, offers the following undertakings:

(a) that Sunview will not sell, further encumber the property or otherwise operate outside the normal course of the business of Sunview during the pendency of the within litigation without the written consent of the defendant or an order of the Court; and

(b) Qutub Syed undertakes not to oppose an application or proceeding for the enforcement and/or execution of a costs order in the State of Texas against himself or Sunview or both.

[ 20 ] In response to the undertakings suggested by Qutub Syed, counsel for SGH expresses concern as to the mechanism/difficulty in obtaining the shares of Sunview that would be required as a practical condition precedent to any enforcement of a judgment for costs against the Proposed Property. Stated another way, SGH counsel takes the position that even with the above noted undertakings the plaintiffs have not established that any costs judgment can be easily enforced against the Proposed Property. I agree.

[ 21 ] In conclusion, I am satisfied that an order for security for costs should be made based on the relevant considerations of this case as set forth above. In particular, I am persuaded such an order is required given the fact that the plaintiffs are non-resident litigants involved in ongoing proceedings in Ontario with potential costs exposure in each action and who do not directly own the Proposed Property but instead own the shares of a non-resident corporation that is the registered owner of that property. In other words, the security for costs order is required given my conclusion that the plaintiffs have not established that any costs judgment can be easily enforced against the Proposed Property.

[ 22 ] The terms of security that I consider just are as follows:

(a) The plaintiffs personally and Sunview will not sell, transfer or further encumber the Proposed Property or otherwise operate outside the normal course of the business of Sunview during the pendency of the within litigation without the written consent of the defendant or an order of the Court;

(b) The plaintiffs personally and Sunview will not sell, transfer or further encumber the shares of Sunview during the pendency of the within litigation without the written consent of the defendant or an order of the Court;

(c) The plaintiffs personally and/or Sunview shall within 14 days provide all shares of Sunview to be held in trust by plaintiffs’ counsel during the pendency of the within litigation. The shares shall immediately be filed with the court should the plaintiffs at any point not be represented by counsel. Counsel for the plaintiffs shall provide written confirmation upon his receipt of the shares, including a photocopy of all such shares, to the defendant’s counsel;

(d) The Proposed Property will be available and enforceable against any costs order made in this action;

(e) The plaintiffs personally and Sunview shall not oppose an application or proceeding for the enforcement and/or execution of a costs order in the State of Maryland and/or the State of Texas against the plaintiffs personally or Sunview or any or all of them; and,

(f) The plaintiffs personally and/or Sunview shall within 14 days pass the appropriate corporate resolution to confirm the terms set forth at subparagraphs (a) – (e). Counsel for the plaintiffs shall provide written confirmation that this resolution has been passed and recorded in the corporate records for Sunview, including a photocopy of the resolution, to the defendant’s counsel.

[ 23 ] If counsel are unable to come to an agreement with respect to the costs for this motion, then I will entertain written submission of not greater than three pages, exclusive of a bill of costs and any offers. Defendant’s counsel shall provide his cost submissions within 5 days of this order. Plaintiffs’ counsel shall provide his cost submissions within 10 days of this order. Defendant’s counsel shall provide any reply to the cost submissions of Plaintiffs’ counsel within 15 days of the date of this order

FITZPATRICK J.

Date: November 21, 2012