COURT FILE NO.: CV-10-394824
DATE: 20131223
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N :
HITS ENTERTAINMENT INC.
Plaintiff
– and –
ALLAN S.M. ZAAKIR, also known as SHEIK MOHAMED ZAAKIR
Defendant
Nancy J. Tourgis and Eric P. Borzi
for the Plaintiff
M. Olanyi Parsons
for the Defendant
HEARD: November 27, 2013
CHAPNIK J.:
[1] The plaintiff, HITS Entertainment Inc. (HITS Entertainment) moved for summary judgment on its action against the defendant, Allan S. M. Zaakir (Zaakir), under Rules of Civil Procedure, R.R.O. 1990, Reg. 194, R. 20. It also sought summary judgment dismissing the defendant’s counterclaim. The defendant contended that this was not an appropriate case for summary judgment and sought to have the motion dismissed.
the facts
[2] The plaintiff was in the business of providing internet access to hotels. It also had a video on demand (VOD) business, which involved maintaining a collection of licensed movies that hotel guests could remotely access and watch on the television sets in their rooms.
[3] In 2006 the plaintiff agreed to sell its wireless internet and VOD business to the defendant. Although this case is, in essence, a simple action on a debt, the details of the transaction that gave rise to the alleged debt require some explanation.
[4] The sale was to be accomplished by first transferring all of the assets of HITS Entertainment to a new company called HITS Wireless. All of the shares of HITS Wireless would then be sold to the defendant. To that end, the parties entered into the March 9, 2006 agreement under which all the shares of HITS Wireless would be sold to a corporation controlled by the defendant, 1695127 Ontario Inc. (c.o.b. as Tribal World Software) (169/Tribal). The purchase price was $500,000. An initial deposit of $50,000 was to be paid on March 17, 2006, followed by $200,000 on the closing of the transaction and the remaining balance of $250,000 in quarterly payments over the 18 months thereafter. The defendant was given 14 days from and including March 17, 2006 to conduct a due diligence investigation of the business of HITS Wireless.
[5] The defendant duly delivered the initial deposit of $50,000 to his lawyer, in trust, by March 17, 2006. 11 days later, on March 28, 2006, the defendant (on behalf of the purchaser corporation) signed an amending agreement in which he “declare[d] that [he had] completed [his] due diligence and [was] fully satisfied with the result”. The amending agreement also changed the payment terms. An additional $32,000 was added to the purchase price to compensate the plaintiff for certain expenses incurred on behalf of HITS Wireless since the initial agreement was signed. The sum due on closing was changed to $182,000, with the balance of $300,000 to be paid in six quarterly instalments of $20,000 followed by a final payment of $180,000. Post-dated cheques for these payments were to be provided within 30 days of closing.
[6] On April 20, 2006, the defendant paid the plaintiff $232,000 (the $50,000 deposit plus the $182,000 due on closing). On April 24, 2006, all the shares of HITS Wireless were transferred to 169/Tribal. That same day, HITS Wireless guaranteed 169/Tribal’s obligations to the plaintiff and executed a general security agreement in favour of the plaintiff to secure the guarantee. HITS Wireless and 169/Tribal also provided the plaintiff with a promissory note under which they jointly and severally promised to pay the plaintiff the principal sum of $300,000 plus interest. The interest on the outstanding sum was 24 percent per annum. The principal was to be repaid by way of six quarterly installment payments of $20,000, with the first such payment due on July 31, 2006, and a final payment of $180,000 due on January 31, 2008.
[7] After April 24, 2006, the defendant took over operation of the business of HITS Wireless. However, the anticipated payments on the outstanding balance of the purchase price quickly fell into arrears. The parties therefore entered into yet another agreement: the share purchase agreement dated November 15, 2006. The substance of this contract was that the defendant, in his personal capacity, agreed to satisfy the debt owed by Tribal/169 and HITS Wireless to the plaintiff by purchasing it with shares of another one of his corporations, Aztec Resource Development Inc., and providing a personal guarantee to the plaintiff.
[8] The defendant failed to perform his end of the bargain. Eventually, on April 1, 2009, the plaintiff sent the defendant a letter demanding payment of $289,000 plus costs and accrued interest by April 6, 2009. Payment was not forthcoming. Instead, on April 7, 2009, the defendant made the first of many allegations that he or his investors had been defrauded by being induced to invest in a “criminal enterprise”, namely, HITS Wireless.
[9] The plaintiff commenced this action by way of a statement of claim issued on January 11, 2010. The defendant filed a statement of defence and counterclaim on March 17, 2010. He alleged that the plaintiff had breached various implied terms of the agreements and infringed copyright laws, and sought damages of $1 million and the return of the $232,000 paid to the plaintiff in April 2006.
IS THIS AN APPROPRIATE CASE FOR SUMMARY JUDGMENT?
[10] This court is required to grant summary judgment if “there is no genuine issue requiring a trial with respect to a claim or defence”: r. 20.04. It must be possible to achieve the full appreciation of the evidence and issues that is required to make dispositive findings on the record before the court. Each side is required to “put its best foot forward” with respect to the existence or non-existence of material issues to be tried: Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1, at paras. 40-58.
[11] In the case at bar, there is no doubt that the plaintiff put its best foot forward. Its affidavit evidence and documentary record was comprehensive. It included every relevant contract and many years’ worth of correspondence relevant to the issues in dispute, all which supported the plaintiff’s version of events.
[12] The defendant, by contrast, resisted this motion on the basis of an affidavit that did not contain a single exhibit. There was no documentary record or any other evidence to support its self-serving allegations.
[13] The defendant claimed that the following were genuine issues that required a trial:
whether there was an unwritten term or “collateral agreement” that required the plaintiff to provide the defendant with licensed movies for the VOD service;
whether the VOD service infringed copyright;
whether there was an implied term that the plaintiff would provide fully functional equipment for the internet system;
whether the defendant is entitled to an equitable set-off; and
whether the defendant’s counterclaim is statute-barred.
[14] According to the defendant, he discovered in May 2007 that the plaintiff had been illegally copying the movies for the VOD service. Moreover, in May 2007, “[Sol] Roter [a director of the plaintiff corporation] confessed that he indeed had been illegally copying movies for the VOD service prior to negotiating the sale of HITS Wireless to me and after selling the same business to me”. The defendant contended as well that Roter undertook to “continue to supply the computer hard drives of movies to me”.
[15] All of these allegations are vehemently denied by the plaintiff. In his responding affidavit, sworn November 1, 2013, Roter refers to this alleged confession as “a complete fabrication”.
[16] In cross-examination of Roter, he was specifically asked about any contracts in effect at the time of sale and he replied:
We provided [Zaakir] with copies of everything. He took … he bought all the assets of the company and he had everything.
And further regarding the sale:
Q. And part of those assets was the video on demand service?
A. Of course. It was all of the assets.
Q. So was it not understood between the parties that HITS Entertainment would continue to provide Mr. Zaakir and HITS movies for the video on demand service?
A. No.
[17] While the moving party bears the evidentiary burden of showing there is no genuine issue requiring a trial for its resolution, the respondent has the onus of satisfying the court that there are material facts to be tried and a real chance of success at trial. In other words, the party resisting the motion must “lead trump or risk losing”. See Royal Bank v. Tie Domi Enterprises Ltd., 2011 ONSC 7297, 38 C.P.C. (7th) 317, at para. 5.
[18] In my view, the allegations of the defendant are spurious, at best. He has produced no evidence to support his bald allegations. He says he knew of the alleged “illegality” in May 2007, yet took no action in respect of it. There is no mention of any of the alleged promises or collateral agreements in the voluminous correspondence between the parties.
[19] The share purchase agreement was executed on November 15, 2006. There is no ambiguity in its terms. There is no mention of the alleged obligation of the plaintiff to continue to provide movies for the VOD business to the defendant. When asked about this in cross-examination, Roter’s responses were clear—the defendant purchased all of the company’s assets, period. Moreover, in 2007, the defendant indicated his satisfaction with the due diligence he had conducted with respect to the company.
[20] In April 2009, the defendant specifically undertook to “honour the agreements”.
[21] I am satisfied that there is no genuine issue in this matter that requires a trial for its resolution. I am able to gain a full appreciation of all the facts and issues necessary to dispose of the matter.
[22] The defendant’s assertions do not raise any issue of credibility for trial. “[A] self-serving affidavit containing bald allegations or denials will not create triable issues”: Royal Bank v. Tie Domi Enterprises Ltd., at para. 30. The divergence in the evidence has been manufactured by the defendant in an attempt to escape from his contractual obligations.
[23] At the end of the day, this is a simple action on a debt. Determining the amount owing is a matter of interpreting a single, relatively simple contract.
[24] Again, no evidence has been produced by the defendant to support his allegations which were raised only after the demand for payment. He has not provided any evidence to support his claim for damages.
LIMITATION OF ACTIONS
[25] The plaintiff also raises the issue of limitations, claiming that the counterclaim is out of time. Though, in my view, the counterclaim has no merit, I will briefly deal with this issue.
[26] The Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, s. 4, provides for a two-year limitation period:
Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
Section 5(1) of the Act defines the date on which the claim was discovered:
A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
[27] In this case, the defendant pleaded that he learned of the alleged wireless problems “in and around” April 2006 and the “illegality” in May 2007. The defendant’s counterclaim based on the alleged misrepresentations and breaches of contract that occurred in 2006 and 2007 was filed on March 17, 2010. It is therefore statute-barred in that the limitation period expired before the defendant issued his statement of defence and counterclaim. See Penn-Co Construction Canada (2003) Ltd. v. Constance Lake First Nation, 2011 ONSC 5875, 11 C.L.R. (4th) 253, aff’d 2012 ONCA 430, 292 O.A.C. 370.
SET OFF
[28] In the counterclaim, the defendant seeks to set off payments made to the plaintiff by third party investors against his personal debt to the plaintiff. His claim in that regard is legally flawed.
THE PLAINTIFF’S ENTITLEMENT UNDER THE SHARE PURCHASE AGREEMENT
[29] It remains to determine the precise sum that the plaintiff is owed under the share purchase agreement. The share purchase agreement was the only one of the contracts discussed above to which the defendant, in his personal capacity, was a party. Since only the defendant has been sued and not any of the corporations through which he conducted business, it is only the terms of the share purchase agreement that could found a right to recovery by the plaintiff in this action.
[30] The plaintiff has avowed that it is claiming only the amount it is entitled to under the share purchase agreement, and that no other evidence is required for this court to make a dispositive finding.
[31] The following were the essential terms of the agreement:
[Zaakir] has completed [his] due diligence, is fully satisfied with the result, and is prepared to purchase the Debt, in the total amount of $289,000 (hereinafter the “Purchase Price”), from [HITS Entertainment] with common shares of Aztek.
The Aztek shares are being valued at $0.40 cents [sic] per share and the Purchase Price will be satisfied by the transfer to [HITS Entertainment] of 722,500 common shares.
[Zaakir] guarantees that [HITS Entertainment] will receive at least $209,000 of value by March 1, 2008 in the form of any combination of;
a. gross proceeds from the sale of shares of Aztek, and
b. the market value of any unsold free and clear shares of Aztek held by [HITS Entertainment].
[Zaakir] shall pay to [HITS Entertainment] any shortfall as a Penalty by no later then [sic] January 15, 2008 [sic; must have been intended to be March 1, 2008 at the earliest]. The obligation of [Zaakir] to have [HITS Entertainment’s] shares released from escrow and the right of [HITS Entertainment] to sell its shares as it sees fit shall be unaffected by the calculation and payment of the Penalty, if any.
Time shall be of the essence of this agreement.
[32] The total amount claimed by the plaintiff was $550,000. That sum is a combination of the $209,000 penalty and the value of the promised 722,500 shares at $0.40 per share ($289,000), for a total of $498,000, plus estimated interest on the $289,000 at the rate specified in the guarantee (prime+8%, or 10% assuming a 2% prime rate) from March 1, 2008 (the date payment was to be received under the share purchase agreement) to the date of commencement of the action, which equals $52,000.
[33] The $52,000 claimed as interest based on contract is not recoverable. There is no interest provision in the share purchase agreement. The plaintiff’s calculation instead refers to the interest rate in a guarantee given by HITS Wireless to the plaintiff—a guarantee to which the defendant in his personal capacity was not a party. As well, the penalty clause is vague as to details and tied to shares of a company without any valuation for that purpose. The plaintiff’s claim based on the penalty clause must fail.
[34] The debt that Zaakir agreed to purchase with a personal guarantee and a fixed valuation of shares was “in the total amount of $289,000”. The plaintiff’s demand for funds owing served upon Zaakir in April 2009 demands payment of $289,000 plus costs and accrued interest by April 6, 2009. In its pleading, the plaintiff specifically claims in the alternative, $289,000 in damages. In April 2009 the defendant undertook to honour the agreements which would include the share purchase agreement dated November 15, 2006. The amount of $289,000 is recoverable as a debt owed by the defendant to the plaintiff.
[35] Judgment shall issue in favour of the plaintiff for the sum of $289,000 plus pre-judgment interest in the amount of $33,776.88 and post-judgment interest from the date of this order in accordance with the Courts of Justice Act. The defendant’s counterclaim is dismissed.
COSTS
[36] The plaintiff has submitted a Bill of Costs, claiming costs of $42,643.01 on a full indemnity scale, $38,341.25 on a substantial indemnity scale, and $28,745.05 on a partial indemnity scale, including disbursements and HST. I would award costs for the action and the motion on a substantial indemnity basis since the defendant’s defence and counterclaim were meritless and based on entirely unsubstantiated allegations of illegal conduct against the plaintiff. "The cost sanction should be imposed sharply and firmly ... at any stage in the proceedings when unsupported and unproven allegations of fraud and dishonesty are put forward": Bargman v. Rooney (1998), 30 C.P.C. (4th) 259 (Ont. Gen. Div.), at para. 20.
[37] A provision in the share purchase agreement also provided for substantial indemnity costs. I find the amount claimed by the plaintiff to be fair, reasonable and within the reasonable expectation of the parties. Rounding off the amount claimed, I order costs in favour of the plaintiff payable by the defendant in the all-inclusive sum of $38,000.
CHAPNIK J.
RELEASED: December 23, 2013
COURT FILE NO.: CV-10-394824
DATE: 20131223
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N :
HITS ENTERTAINMENT INC.
Plaintiff
– and –
ALLAN S.M. ZAAKIR, also known as SHEIK MOHAMED ZAAKIR
Defendant
REASONS FOR JUDGMENT
CHAPNIK J.
RELEASED: December 23, 2013