Directors Found To Be In Contempt Of A Court Order

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In a previous post,  we reported on the Boily v. CCC 145 case, where a board of directors was ordered to reinstate the prior landscape of the condominium courtyard and to personally pay a substantial portion of the legal costs incurred by the owners involved in this dispute with the board.  Unfortunately, the board of directors did not comply with the court order and the owners were forced to return to court.  In the latest chapter of this saga, the court found the corporation and the board members to be in contempt of a court order and imposed on the directors personally the additional costs to return the courtyard to its prior state.

Boards are usually shielded from personal liability but only if they act honestly and in good faith and if they exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.  In this case, unfortunately for everyone involved, the court concluded that the board did not act in such a fashion and held them accountable for their actions. 

The 2011 Litigation on the Landscape Design

This litigation revolved around the unique landscape of a condominium complex in downtown Ottawa.  In early 2011, the board of directors advised the owners that, in order to repair and waterproof the underground parking garage, it had to demolish and remove the entire landscape above it. The board took this opportunity to propose a significantly different landscape design. The new proposed design involved a different configuration with less greenery, more parking spaces, different hard landscape design, the removal of the unique traffic circle and address sign, and a significantly different limestone veneer cladding of the courtyard wall in lieu of the existing red/brown brick veneer, which matched other surrounding buildings.

Some concerned owners were of the view that the proposed changes constituted a “substantial change to the common elements”, requiring a 2/3 vote from the owners pursuant to section 97 of the Condominium Act. The board was of the view that the proposed modifications were limited to maintenance not necessitating any approval from the owners. The concerned owners retained Rod Escayola of Heenan Blaikie’s Ottawa condo group.

In the context of the litigation that ensued, the board of directors and the concerned owners reached a settlement and agreed to submit the question of the courtyard design to a 2/3 majority vote. The question was submitted to the owners but the board did not receive the 2/3 agreed level of support.  The board having lost the vote, immediately took the position that there was no settlement and sought to maintain the proposed design on a simple majority vote. The concerned owners returned to court for a second time to enforce the agreement, which resulted in the court ordering the board to “reinstate the Courtyard as it existed after the repairs to the garage”. The board members were later ordered to pay a significant portion of legal fees personally.

The Reconstruction

Unfortunately, despite the order, the board deviated from the prior configuration and appearance by restoring a different address sign and a different traffic circle, by installing a lamp post in the courtyard where none existed before and by not reinstalling the three-levelled vegetation on surrounding streets, significantly changing the quantity, colour, shape, size and kind of vegetation surrounding the property.  Some of these new elements were very similar to the board’s proposed landscape design defeated in 2011.  Throughout the reconstruction phase, the board ignored the warnings from the concerned owners and their lawyer and continued reinstating the courtyard in contravention to the order.

Last January, the owners returned to court, for a third time, this time alleging that the board was in contempt of the prior court order and seeking an order to force the reinstatement of the courtyard as it existed.

The board argued that the previous order was not clear, that they had not breached it deliberately or willfully and that the differences in design were the result of events outside of their control.

A Picture is Worth 1,000 Words

As part of their evidence, the owners filed numerous pictures showing the evident differences between the prior landscape and the design implemented by the board.  The following pictures showed what the court qualified as the most “dramatic change” in terms of the appearance of the courtyard and podium.

Courtyard differences.PNG 

The Court Decision

Unfortunately for the board, the court concluded that the prior order was clear and unambiguous and that the board knew all along what it had to do to respect it.  In other words, there was no uncertainty.  The court also concluded that the evidence clearly demonstrated that the board was making conscious decisions about how to reinstate the podium.  According to the court, there was strong evidence of the breach of the order, with the president of the board even admitting that the traffic circle, the address sign, the concrete planters and vegetation were now of a different size, shape, colour, material, kind and/or location.

The court concluded that the board breached the prior order willfully and deliberately, that it did not act honestly, in good faith or as a reasonably prudent person would and that it took a narrow and self-serving interpretation of the order in order to reinstate the elements that they preferred, despite the prior decision of the court. The court repeatedly criticized the board for not having attempted to resolve the disagreement with the owners or their lawyer and for not having sought directions from the court when a further dispute arose with respect to the landscape design as the courtyard was being rebuilt.

Once again the court ordered the corporation to reinstate the landscape as it existed prior to the work on the garage.  However, to avoid penalizing all of the owners, the court ordered that the individual board members personally bear the additional costs, including material and labour, of returning the podium landscape to the 2011 configuration.

The wind is changing with respect to directors’ personal liability, with numerous recent cases finding the directors personally liable for costs.  The directors will only be able to rely on the statutory protection if they act honestly, in good faith and if they exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.  It is also paramount for directors to seek solid legal or professional advice prior to moving forward with contested or unpopular measures or risk facing costly litigation and personal liabillity.

 

Topics:  Board of Directors, Canada, Condominiums, Contempt, Covenant of Good Faith and Fair Dealing, Personal Liability

Published In: Business Organization Updates, Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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