Directors Found To Be In Contempt Ordered To Pay $96,000 In Legal Fees

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http://www.condoreporter.com/Capture%203.PNGWe previously blogged about the Boily case involving a dispute between some owners and the directors of a Condominium complex in Ottawa.  This dispute revolved around the proposed alteration of the condominium’s courtyard.  Last March, a judge found the corporation and the directors in contempt of a prior court order and ordered them, for a second time, to reinstate the courtyard to its prior configuration and appearance at the directors' personal cost.  

This week, the same judge ordered the directors to pay, personally, in excess of $96,000 in legal costs. 

 

The Court concluded that the board's 

stubborn refusal to accept the Applicants' success set them on a path of deliberate and continual contempt that should attract a costs award on a substantial indemnity basis. The Moving Party should not have to bear the costs of those actions.

Background facts leading to the order of contempt

This dispute goes back to 2011, when the board of directors proposed to do significant changes to the appearance and configuration of the condominium’s courtyard. Some owners objected to such extensive modifications, being of the view that they constituted a “substantial change” requiring the approval of 2/3 of the owners. The Board was of the view that it was only maintenance work, not requiring any approval or, at most, the approval of 50% of the owners.

In June of 2011, the concerned owners obtained an injunction preventing the board from proceeding with this work until a court ruled on the proposed changes. Shortly after this ruling, the board and these owners reached a settlement by way of which the design and appearance of the courtyard would be submitted to a 2/3 vote of the owners. The board lost that vote at the owners’ meeting but then took the position that there was no agreement. A week later, a judge ordered the directors and the corporation to reinstate the courtyard as it existed and ordered significant costs against the directors personally.

Unfortunately, despite this court order the directors went ahead with the work and implemented many elements in contravention of the 2011 order. In March of this year, a judge found the directors and the corporation to be in contempt of the prior court order and ordered the directors to pay, personally, the costs of reinstating the courtyard as it existed in 2011. For more on this, we invite you to review our blog on the March decision.

Cost Order Against the Directors

Unsurprisingly, to get to this point, both sides incurred significant legal and professional fees. To avoid having the other owners pay any of the fees incurred by both sides, the owner who brought the motion for contempt, sought to have his fees paid by the directors personally and also sought an order forcing the directors to reimburse the corporation their own legal fees. Indeed, the evidence filed in court indicated that approximately $106,000 had paid out of the reserve fund towards the Respondents own professional and legal fees. The concerned owners argued that this was contrary to section 93(2) of the Condominium At, which provides that the reserve fund must be used solely for the purpose of major repair and the replacement of common elements or assets of the corporation.

This week, in its most recent decision in this matter, the court ordered the directors to personally pay more than $96,000 in costs. In his decision, the judge found that this was one of those rare and exceptional cases where the directors’ conduct was worthy of sanction deserving of a costs award on a substantial indemnity basis. He wrote:

[34] The Respondents [...] seized upon the use of the word "courtyard" in my endorsement as an excuse to do what they always intended to do before these proceedings were even commenced. I will not reiterate the findings that I made against them in my decision other than to note that I found that "The Respondents breached the order wilfully and deliberately,-" and that "The Respondents acted neither honestly and in good faith, nor as a reasonably prudent person [...] The Respondents adopted a narrow and self-serving interpretation of my order and chose to reinstate elements that they preferred, despite the decision of this court".

As for the funds the board took out of the reserve fund to pay their legal and professional fees to defend this matter, the Judge left it to a majority of the unit owners to decide whether they wished to subsidize the Board's contempt. Unless the other owners do anything about it, the board’s legal fees will therefore be imposed on all owners. The judge did, however, order that none of these fees be allocated to the owners having brought the proceeding as they should not have to subsidize the board’s contempt.

The directors and the corporation are appealing both the finding of contempt and the decision on costs. In their Notice of Appeal the directors are also seeking, in the alternative, an order imposing on all of the owners (rather than on themselves alone) the costs of reinstating the courtyard and the podium.

These decisions, irrespective of the appeal's result, provide a very expensive cautionary tale for all condominium directors demonstrating the importance of meeting the standard of care imposed on condominium directors in section 37 of the Condominium Act.  This is particularly important when dealing with controversial issues. 

Furthermore, although trite to say so, the board has no discretion to not comply with court orders! Failure to do this can have dire consequences.

Topics:  Board of Directors, Contempt, Fees, Legal Costs, Penalties, Personal Liability

Published In: Business Organization Updates, Civil Procedure Updates, Civil Remedies 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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