The Battle Rages On…

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A few years ago I wrote about a case that had dragged on for over six years.  It involved a former director and a condominium. The director took various steps without legal authorization from the board, including terminating the manager and commencing a legal action against the property management company and its president. The director also commenced an action against the condominium and accepted service of his own claim so the other directors were not aware of the claim. This was all within 4 months of being elected by the owners. Not surprisingly, the owners requisitioned a meeting to remove him. That didn’t stop him. He started 5 legal actions in 2010, all of which were dismissed with costs. He appealed, which was also dismissed.

In the same year the condominium commenced an application against the former director claiming that he failed to carry out his duties to the condominium. It also requested an order that he remove a satellite dish that he installed and that the court declare him a vexatious litigant. The director brought his own application against the condominium claiming oppression. He sought reinstatement to the board. His application was dismissed. The condominium was partially successful in its application. The director was found to have breached his duties to the condominium, but was not declared a vexatious litigant. The condominium was awarded partial indemnity costs of $45,000 (of the close to $200,000 it requested). The director appealed.

The Court of Appeal allowed his appeal and ordered it back to the application judge because the decision was not clear as to the issue of whether the director was entitled to be indemnified by the condominium. Specifically, while he was found to have breached his duties, it was not clear if the judge found the director to have acted negligently, in bad faith, or both. This determination is key when analyzing a director’s right to be indemnified as described in the Act:

Not for breach of duty

(2) No director or officer of a corporation shall be indemnified by the corporation in respect of any liability, costs, charges or expenses that the person sustains or incurs in or about an action, suit or other proceeding as a result of which the person is adjudged to be in breach of the duty to act honestly and in good faith. 1998, c. 19, s. 38 (2).

The application judge released an endorsement confirming his original award of costs in the amount of $45,000. The judge found that a director was not entitled to indemnification if he was acting in bad faith or simultaneously in bad faith and negligent, but would be entitled to indemnity if they were merely negligent. The judge found the director’s actions to be “deliberate, deceptive, dishonest, and in bad faith.” As such, he was not entitled to be indemnified by the condominium.

Again, the director sought leave to appeal the second cost award and the initial decision on the application. He was granted further time to bring a motion for leave to appeal. His motion for leave was eventually dismissed.

On February 28, 2013, the condominium gave notice to the director that it was registering a lien for $225, 841.81 (most of which represented legal costs!). The condominium agreed not to enforce the lien while the director’s appeals were pending and while the condominium assessed its former lawyers’ accounts. The condominium later claimed the amount owing was $134,064.80 after it successfully assessed the former lawyer’s accounts.

The director commenced a legal action against the condominium seeking to be indemnified for his costs as a former director. He sought an order vacating a lien registered against his unit by the condominium. The condominium made a motion for summary judgment of the director’s claim.

The court found that the director’s claim could not continue as the claim was previously decided by the application judge. Specifically, the language in the previous orders was sufficiently clear to suggest that the director was found to have acted in bad faith and breached his duties, which meant that he was not entitled to be indemnified by the condominium. Furthermore, he waited for three years to commence the action after the condominium refused his indemnification claim so he was not able to proceed with his claim due to the two-year limitation period.

The court reviewed the director’s request that the lien be vacated. The court found that the language in ss.134(1) and (5) of the Act (which speak to additional actual costs incurred in obtaining an order) were sufficiently broad to cover all sorts of compliance matters, like an allegation that a director had not complied with his duties to the condominium, and was not restricted to situations where unit owners were violating the rules or misusing the common elements. Furthermore, the court found that the condominium was entitled to its costs even though the original judgment included declaratory relief (i.e. that he breached his duties) and not an order (i.e. that he remove the satellite dish, which had been removed by the hearing date).  Notwithstanding these comments, the judge was concerned that the condominium’s lien claim included improper amounts (i.e. costs not related to compliance) so he ordered the lien vacated from the owner’s unit. The judge ordered the condominium to recalculate the amount owing and provide the director with an updated statement, discharge the original lien, and register a new lien for the proper amount.

If you want to read the latest in the saga it is available on CanLii –

Anyone believe that this is the end of this battle? I wouldn’t put money on it…