In a recent decision, the court analyzed the circumstances under which a condo corporation must notify its owners of its intention to commence a lawsuit.
In most cases, such a notification must be provide before the lawsuit is even commenced. Failure to do so may invalidate the legal proceeding. This can have dire consequences if, in the meantime, the limitation period has expired. Indeed, in such circumstances, it may be too late for the corporation to start over the legal process.
This post is about the requirement of giving notice to owners before the corporation commences a lawsuit.
The specific facts of this case are interesting (for condo geeks) because they raise questions about what constitutes sufficient written notice to owners and when a legal action is actually “commenced”. Is it when a Statement of claim is issued or is it earlier if the condo commences the claim with a prior issuance of a Notice of Action? Indeed, a court action can be commenced either by issuing a Notice of Action or by issuing a Statement of claim. While most legal proceedings are commenced with the issuance of a Statement of claim, we issue a Notice of Action when we don’t have sufficient time to do so and the limitation period is about to expire. A notice of action gives us an additional 30 days to prepare the Statement of claim.
In this case, a condo corporation commenced a legal action against various entities, including its former property management firm, for damages allegedly related to construction deficiencies. The former management firm brought a motion to have the entire action dismissed on the basis that the condo had failed to notify its owners of the lawsuit before it commenced it, as required by section 23 of the Condo Act.
The possibility of commencing the lawsuit was discussed at an owners meeting in December 2015. This was preceded by a written Notice of meeting in November 2015, specifically advising that the corporation’s lawyer would discuss some of the issues which lead to the litigation. [Was that the written notice?] At the meeting, the owners even voted to allow the lawyer to “pursue owner’s rights”. They were told that this would include the issuance of a Statement of claim against the various parties.
The Corporation eventually had a “Notice of action” issued by the courts, on March 11, 2016. [Was this the commencement of the claim?] About a week later, the corporation circulated a package to owners about the lawsuit, which included a copy of the Notice of action and of the draft statement of claim. [If this was the written notice of the corporation’s intent to commence a lawsuit, was it too late?] At another owners’ meeting, the owners voted (again) in favour of the lawsuit. About another week later, the Statement of claim was filed with the court.
What does the Act say?
Section 23 of the Act provides that, before commencing certain legal actions, the corporation must give written notice to its owners of the general nature of the action. However, this section does not apply to all types of litigation.
Indeed, section 23(2) specifically provides that such notice is not required if the legal action:
- Seeks to enforce a lien;
- Seeks to force owners/occupiers to comply with the Act, the declaration, by-laws or rules;
- or if the legal action is in Small Claims court.
It turns out that such prior written notice is also not required if the Corporation is advancing a claim on its own behalf, for instance in cases where it is suing under a contract to which it is, itself, a party. Think for instance of contracts entered into with…. a management firm, as was the case in this court case.
Section 23, according to this decision, is really meant to apply to cases where the corporation is commencing a legal action as a representative (or on behalf) of owners and only when the claim is in respect of damage to common elements, assets of the corporation or individual units or a contract involving common elements or a unit to which the corporation is not a party. Think of a claim advanced by the corporation against the developer for construction deficiencies. In such cases, the condo corporation is not a party to any agreement under which it can sue, but it is advancing the claim on behalf of the owners.
In this case, the court concluded that a section-23 notice was not required since the Corporation was suing the management firm in its own capacity under a contract to which it was a party.
Interestingly enough, it also concluded that, for the purpose of section 23, the legal action was not commenced by the issuance of the Notice of action but rather by the filing of the Statement of claim. As such, if notice to owners was required, it was provided in time. You may recall from the facts above that the corporation circulated the Notice of action to the owners before it filed its statement of claim.
Finally, the court ruled that failure to provide notice to owners would have nullified the legal proceeding, without any possibility of curing this defect. Therefore, had noticed been required, the corporation would have lost its ability to sue the manager.
There can only be one lesson here: when in doubt, notify the owners in writing of the corporation’s intent to commence a lawsuit. This must be done before the lawsuit is commenced. It is clear that failure to do so may result in the claim being invalidated. This is a very serious consequence! The corporation may lose its right to sue.
For whatever it’s worth, I agree with the outcome of the decision but not necessarily with how we got there.
For one thing, I’m of the view that the notification under section 23 is for the benefit of owners, not to protect the defendant. The Defendant suffers absolutely no prejudice whether the owners are advise of the lawsuit or not. Owners should be able to cure the Corporation’s failure to have provided timely notice to owners, perhaps through a vote of owners. After all, the Condo Act is a consumer protection legislation. Also, this Act does not provide for an actual consequence if the corporation fails to notify the owners of a potential claim. Section 23 could not possibly have been meant to protect the defendant.
I also respectfully do not agree with the court’s conclusion that the action is only commenced when the Statement of claim is issued. There can be no doubt that the issuance of a Notice of action is how and when a claim is commenced. The very act of issuing the Notice of Action stops the limitation period from running out. The Rules of civil procedure are clear that this is when the action is commenced.
To explain his rationale of when the claim is actually commenced, the judge indicated that there was no risk of any costs consequence to owners when the Notice of action was issued. That any risk of being hit with costs materialize after the filing of the Statement of claim. We don’t entirely agree with this. There is also no costs consequence to the owners until the Statement of claim is actually served upon the Defendant. This can be delayed by up to 6 months. Still, the commencement of the claim is not delayed pending service.
Finally, and more fundamentally, I’m not even sure I agree that section 23 only applies when an action is commenced by the corporation on behalf of the owners. In fact, the opening paragraph of that section clearly provides that it applies when the corporation commences a claim “on its own behalf and on behalf of an owner”. The claim in this case was saved because it was against the former management firm, which was bound by a contract to which the corporation was a party. What would have happened if the motion to strike the claim had been advanced by the developer? In such a case, the corporation’s claim would have likely been dismissed as it would have been a claim on behalf of owners (and not in the corporation’s capacity). Had the claim been struck on this basis, would the management firm also have been of the hook?
In any event, all is well that ends well for the Corporation, who sees its claim survive another day.