Part 39 published on 01/08/12
Defence costs not properly added to common expenses.
The Condominium Corporation had incurred costs defending claims brought in Small Claims Court by one of the owners against the Corporation. The Claims were to enforce compliance with the Corporation’s alleged obligations respecting landscaping and financial disclosure. The Small Claims Court dismissed the Claims but had not made any award of costs. The Corporation then registered a lien in the amount of its actual defence costs, relying upon provisions in the Corporation’s Declaration.
The Court held that the lien was not valid. The Court found that the wording of the provisions in the Declaration did not cover the defence costs in question, and therefore did not allow the Corporation to add those costs to the owner’s common expenses. The Court also found that s. 134(5) of the Condominium Act, 1998 did not apply to allow the Corporation to add its defence costs to the owner’s common expenses.
The Court considered two paragraphs in the Declaration: Article XIX (respecting indemnification) and Article XXIII (respecting recovery of costs). The Court said:
I find that Article XIX is not applicable to the present case as there has been no loss, or damage or injury to the common elements caused by any act or omission of Ms. Pearson. In addition, this provision does not give the Corporation the express right to add any such amounts to a unit holder’s common expenses and to collect the amount by registering a lien. Therefore I find that Article XIX does not give the corporation authority to place a lien on the title to the Unit for obtaining legal advice related to Pearson’s enforcement Actions.
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Section XXIII of the Declaration deals with all costs charges and solicitors charges and refers to costs as between a solicitor and his client scale. The context of the Article relates to recovery of costs for legal proceedings taken against an owner by the Corporation.
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The principle underlying this provision in the Declaration is that the remaining condominium unit holders should not have to pay for the Corporation’s legal expenses, where a unit holder has failed to comply with his or her obligations and the Corporation is required to take legal action and incur legal expenses to enforce compliance. Under those circumstances, the Article states that such costs may be added to and recovered in the same manner as a default in obligations to contribute towards the common expenses of the Corporation. However, in the circumstances before me, the Corporation didn’t take action to enforce compliance with the Act, Declaration or bylaws, but rather Ms. Pearson took action against the Corporation. Further, no order for costs was obtained by the Corporation.
On a plain reading of Article XXIII, it does not provide for indemnification against all legal expenses incurred by the Corporation in relation to any unit holder. Further, Article XXIII does not state that if the Corporation is a defendant in legal proceedings, it may simply claim full indemnification for its legal costs incurred in defending (as between a solicitor and his client), whether costs are awarded or not and whether or not the Corporation was successful.
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If the Corporation had obtained an award of costs in the Actions commenced by Pearson to enforce her rights under the Declaration, then the Corporation could recover the costs awarded plus additional costs it incurred and they could be added to the common expenses pursuant to s.134(5) of the Act. However, the Corporation did not recover any award of costs and so is unable to rely on this section. If a unit owner commences frivolous actions against a corporation, it should seek an award of costs and possibly damages, if any are incurred, from the Court.