In a recent decision, the Ontario Court of Appeal has confirmed that condo corporations must advise owners of their intention to commence a lawsuit but, reversing a 37 year old legal precedent, it has injected some flexibility in how courts will deal with a corporation’s failure to comply with this obligation.
The facts of the case
In this case, a condo corporation commenced a legal action against various entities, including its former property management firm, for damages related to construction deficiencies. The former management firm brought a motion to have the 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 first judge hearing the motion concluded that the notice required under section 23 did not apply because the claim being advanced was pursuant to a contract (the management agreement) and did not strictly deal with damages to common elements. The first judge also concluded that, even if the notice requirement did apply, the corporation had provided sufficient and timely notice in any event (by providing notice after the Notice of action was issued but before the Statement of claim was filed). The result is that the judge refused to quash the lawsuit and allowed it to continue.
We blogged on this last spring. You will note from our prior blog that, while we agreed with the end result, we did not necessarily agree with how the judge got there. Turns out that our editorial commentary was right on the nose!
What does the Act say?
Section 23 of the Act provides that, before commencing certain legal actions, condo corporations must give written notice to its owners of the general nature of the action. This requirement applies to legal actions with respect to damages to common elements, assets or units or with respect to contracts involving the common elements even if the corporation is not a party to the contract.
There are some exceptions to this notice requirement when 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.
Decision of the court of appeal
In a rare decision, a panel of 5 judges (most appeals are heard by three) concluded that a notice to owners was required but that, in this case, the corporation’s failure to provide such notice was not fatal.
While the Condo Act does require condo corporations to provide notice to owners before commencing a claim (in certain circumstances), the Act does not stipulate what are the consequences of failing to do so. More importantly, the Court of Appeal recognized that this protection is for the benefit of the owners; not the opposing party. Indeed, the Condo Act is a consumer protection legislation. The purpose of the notice to owners is to ensure the owners know that their corporation is about to sue on their collective behalf. It protects the owners by ensuring they are aware of this important decision.
Allowing the opposing party to escape liability on the basis of a procedural defect would not assist the owners. It would assist the defendants. The Court of Appeal concluded that this could not have been the intended objective of the legislation.
This does not change the requirements under the Act. Condo corporations continue to have an obligation to provide notice to the owners before it commences certain court actions. But courts will have more flexibility to determine the effects of a failure to do so. In such cases, the court will look at the extent of any non compliance (in this case, multiple notices were eventually provided to owners and they had actually authorized the lawsuit) and any prejudice suffered… presumably by owners.
Do provide notice to the owners, before commencing a lawsuit, pursuant to section 23 (unless your lawsuit falls into one of the exceptions identified above).
At the risk of sounding like a self-serving suggestion, corporations should consult with their legal counsels prior to commencing a lawsuit.