The Ontario Court of Appeal recently released its much anticipated decision in the ongoing Boily saga.
You may recall from previous blog posts that the directors of an Ottawa condo corporation were held in contempt of court for violating a court order to restore landscaping to its original state following a construction project. The saga originally began after a group of owners believed that the proposed landscaping work constituted a substantial change which would have required approval of 66 2/3% of the owners pursuant to section 97 of the Condominium Act.
The decision is bittersweet for the condo industry.
Referring to the directors as “stubborn”, “reckless”, and “arrogant”, the Court of Appeal reaffirmed the lower court’s finding that the directors indeed acted in bad faith and in contempt of a court order when it proceeded to renovate outdoor landscaping without the requisite level of approval of owners; a stark reminder that directors, even though they are volunteers and may be trying to improve the condominium, must comply with their duties pursuant to the Act and will be held to a certain standard of care in performance of those duties.
In the previous decision, the directors were ordered to personally bear the costs of restoring the landscaping to its pre-renovation appearance at an estimated cost of $350,000.
Courts are increasingly prepared to protect owners from unnecessary costs incurred by condo corporations that result from the actions of individual owners. The judge in the lower court was adamant that innocent owners should not be penalized for the completely unnecessary actions of reckless directors. Although the scale of the financial consequences for the directors was unprecedented, the lower court referenced the importance of protecting innocent owners from unnecessary costs. The costs were completely avoidable and were incurred as a direct result of the directors’ actions.
Unfortunately for the condo corporation and its owners, the Court of Appeal backpedaled from the lower court’s decision with respect to the responsibility to restore the landscaping. The individual directors must now pay a fine of $7,500 each to the condo corporation; a far cry from the $350,000 estimated cost to restore the landscaping, requiring each owner to personally bear a portion of the $350,000 cost. Only one sentence in the 149 paragraph decision acknowledges the drastic financial consequences imposed on the innocent owners.
The idea of requiring the directors to personally bear the cost of restoring the exterior landscaping appears to have factored heavily in the Court of Appeal’s decision. One of the main considerations was that the cost would deter unit owners from serving on condo boards. In the context of the Condominium Act, however, deterrence should not have factored into the Court of Appeal’s decision making process. This was not a situation where the Board made a mistake and was slapped with a disproportionate penalty, nor was this a situation where the Board acted with any modicum of good faith. The lower court and the Court of Appeal found that the directors acted in bad faith, deliberately, and in contempt of a court order.
Directors who act in this manner should be held accountable and have not earned the protection provided by section 37 of the Act to all directors who act honestly and in good faith. Directors can make mistakes (even really big ones) and be protected by the condo corporation and its insurance. A director’s job is tough. You encounter difficult choices, overcome many challenges, and may be criticized more than appreciated. The one fool proof way to stay out of trouble: act honestly and in good faith and as a reasonably prudent person would in similar circumstances.
The Court of Appeal also opened up the possibility of altering the previous cost award, which imposed costs of $96,000 on the directors personally for the previous contempt motion. Stay tuned for the upcoming decision on the previous cost award in what may be the final chapter in the Boily saga.
Special thanks to David Neligan and Laura Dean for assisting with this article.