Toronto Standard Condominium Corporation No. 1703 v. 1 King West Inc. (Ontario Supreme Court of Justice)

The condominium corporation started a lawsuit against the condominium’s developer.  The lawsuit contained various claims, including claims asserted on behalf of the unit owners.  One of the claims asserted on behalf of the unit owners was for a declaration that the developer had failed to comply with a ruling of the Ontario Securities Commission relating to the sales of the units (and for damages resulting from this non-compliance).  The Court ruled that the condominium corporation did not have authority to assert this claim under Section 23(1) of the Condominium Act. 

Section 23(1) states as follows: 

23.  (1)  Subject to subsection (2), in addition to any other remedies that a corporation may have, a corporation may, on its own behalf and on behalf of an owner,

         (a)    commence, maintain or settle an action for damages and costs in respect of any damage to common elements, the assets of the corporation or individual units; and

         (b)    commence, maintain or settle an action with respect to a contract involving the common elements or a unit, even though the corporation was not a party to the contract in respect of which the action is brought.  

The Court’s reasoning included the following:

 “Both parties appear to be agreed that the word “damage” contained in sub-paragraph (a) of paragraph 23(1) of the Act, refers to physical damage,.” Metropolitan Condominium Corporation No. 858 v. Tornat Construction Inc., 1994 OJ#476

• “The question then becomes whether or not the present action has been brought “with respect to a contract involving the common elements or a unit”.”
• “Unquestionably for the acquisition by the owners of each unit there has been a separate contract of Purchase and Sale.  However as was made clear in the Commission’s Ruling, each purchaser was entitled but not required to enter into a contract to participate in the rental management pool.  Each such agreement was the subject matter of a separate agreement.  The only connection between it and a corresponding purchase of the related unit is that acquisition of the unit entitled the purchaser to become a participant.  The two appear to me to be severable, the one for the acquisition of realty and the second to be a form of investment.”
• “The pleading makes no reference to a contract but rather is based upon the directions of a government established regulatory body made to the plaintiff (sic-should read defendant).  Unquestionably the plaintiff (sic-should read defendant) has an obligation to follow and implement the instructions of the Commission but that obligation is owed to the Commission and to individual unit owners.  It is not, in view, owed to the corporation.”

[Editorial Notes: 

1.          I am not sure that I agree with this decision.  I don’t see why the claims in question were not claims “with respect to a contract involving the units” (namely the sales contracts), as set out in Section 23.  It seems to me that the ruling of the Commission was essentially a condition or added obligation relating to those sales contracts.  The Commission’s ruling served only to benefit or protect original purchasers of units in the condominium. 

2.         The decision is under appeal to Ontario’s Court of Appeal.]