The Good, the Bad, and the Ugly

By Tony Bui and Andrea Lusk of Gardiner Miller Arnold LLP

“Serving as a condo director is a thankless job” is arguably the biggest trope in condominium living.

It’s easy to see why – the overwhelming majority of condo directors in Ontario are unpaid volunteers who are expected to make all executive decisions for their  community. We frequently see directors and boards unfairly criticized by quick-to-judge owners who themselves wouldn’t step up to the plate and take on these responsibilities.

With great power comes great responsibility: not all directors act rationally, reasonably or in their condo’s best interests. What do we make of those rogue directors who stir up conflict at every turn, disseminate confidential information and otherwise publicly criticize the board? This Q & A provides a broad overview of condo directorship and the pitfalls to avoid.

What is the role of a condo director/board? Condo directors are elected or appointed to serve on their condo’s board of directors. Boards are the heart and brain of a condominium: as the Condominium Authority of Ontario notes, boards play a critical role in nurturing strong and vibrant communities by making sure the condo’s obligations are being met. It’s important to recognize that the Condo Act’s default premise is that no one director can make decisions on behalf of the board: a quorum of the board must agree to these decisions. However, save for a narrow list of issues that require consent/approval from owners, a board has significant authority over a condominium’s operations.

How are condo directors protected? In carrying out their duties, the Condo Act requires condo directors act honestly, in good faith and demonstrate and use the same care, diligence and prudence as a reasonable person in similar circumstances. The Act does not hold directors liable provided the directors meet their standard of care; many condo insurance policies provide coverage for condo directors. In most (but not all) cases, directors will be spared from personal liability if they reasonably act on the advice of a qualified professional (ex. lawyer, manager, engineer, architect. etc.).

Similarly, there is a common law doctrine of the “Business Judgment Rule”. This rule recognizes that directors are not experts in every matter that arises and that they will not make the right decision every time. By extension, board decisions will be given considerable deference from the Courts: as representatives elected by the unit owners, directors are better placed to make judgments about the owners’ interests and to balance the competing interests engaged than the Courts are.

How are condo directors liable? Directors who are beyond the pale of reasonableness – for example, instigating fights with fellow board members, refusing to comply with governing documents, releasing confidential information to the owners – may be held personally liable for breaching their standard of care. If such breaches cross over into oppressive conduct, such directors may be on the hook for penalties or costs.

How are directors removed from the board? There are two main ways directors can be removed under the Condo Act. The first is when their term is up; the second is where owners requisition meeting and a majority of all owners, not just those present, vote for their removal. 

There is another avenue that is rarely used but has been upheld by the courts. If a condo’s by-laws contain a removal mechanism under certain situations (ex. the director misses a certain number of consecutive board meetings, sues the corporation or breaches a prescribed Code of Ethics), they could be “deemed” to have resigned from the Board. 

There is debate about whether this goes too far or holds potential for abuse. As a caution, boards holding their own “ethics review” must do so with procedural fairness, in good faith and act reasonably, failing which the process is open to judicial review, likely creating more problems than a board intends to resolve with needless litigation and costs.

What can a director do if they do not agree with the rest of the board? Suppose you are a director and you are fundamentally opposed to a decision that the rest of the Board is in favour of. What can you  do?

Putting aside which side is right/wrong in this scenario, remember two important principles despite any personal disagreements: first, directors are bound by the decisions/resolutions passed by a proper quorum of the rest of the board; second, boards function as a team where everyone should have the same goal of acting in the condo’s best interests.

Disagreements and differences in opinion are common and reflect diversity within a board. But how these disagreements are communicated can be the difference between healthy discourse and escalating conflicts.

Dissenting directors should communicate their disagreements in a respectful and civil manner; they can insist their objections be reflected in meeting minutes. This is the proper approach. It is inappropriate for any director to disclose confidential board business with other owners, publicly criticize the board or defame the board under any circumstances.

Such behaviour is not only disruptive within the board, but it does not inspire confidence amongst the rest of the owners who in turn may inject themselves into the conflict.

One bad apple ruins the bunch

In Balingall v. CCC 11, a leading case on this point, the Court noted:
A reasonably prudent director of a condominium corporation, attempting to meet his responsibilities as a director, would not undermine Board decisions, mislead unit owners as to the Board’s responsibilities and their efforts to meet those responsibilities, encourage unit owners to distrust the Board, undermine the legal advice from the Corporation’s legal counsel, mislead unit owners as to what that advice entailed, provide his own legal advice to unit owners, and on one occasion post to his personal website legal advice received by the Board without the consent of the Board. 
A reasonably prudent director, acting in good faith, would not make the Board dysfunctional, would not promote antagonism and dissent on the Board, and would not threaten other Board members.  A reasonably prudent director would not put his own economic interests ahead of the legitimate interests of all categories of unit owners. 
A reasonably prudent director would seek a compromise that respected the disparate, but legitimate, interests of all unit owners in the context of the community established by the Corporation’s Declaration, By-laws, and Rules.

When will directors be held personally responsible?

Directors have been found personally responsible (and faced monetary penalties and contempt orders) for intransigence and failure to seek legal advice.  In a particularly egregious case, directors were personally pay $100,000 back to the condo for renovation work they approved in the face of an owners’ challenge and against a court order. 

Though that amount was later reduced to $7,500 on appeal, the directors could not be indemnified by their condo because those directors did not act in good faith, took a narrow and self-serving view, and failed to seek legal advice or further direction from the court before proceeding with their own renovation plans.

In another extreme case of oppressive conduct from an individual director – the Court concluded there was self-dealing, lack of financial disclosure, charging the condo legal fees for personal matters, failing to declare conflicts, refusing to produce records despite being court-ordered to do so, and implementing an invalid by-law – the conduct complained of was so bad that the Court actually terminated the condominium corporation, noting:

Where, as here, it is clear that a director is the motivating force behind the oppressive conduct, he or she should be held personally liable. To hold otherwise in the present case would result in the oppressed minority owners being denied their costs or making [the condo] liable for those costs. The latter result would be particularly inequitable, as it would perpetuate [the director’s] practice of having [the condo] pay the legal costs associated with defending his oppressive conduct.… it is difficult to imagine a more dysfunctional condominium corporation. It is clear from the evidence…that the corporation could not continue. In these circumstances, termination was the most just and equitable order.

Our main takeaway for anyone living in a condo (directors and owners alike) is almost always the same: be reasonable. We appreciate that condos are often a seen as a person’s home, sanctuary and most valuable asset, which makes it difficult to stomach disagreements about how one can use their condo. But that is no excuse for misconduct.

Condo governance is a democracy. Directors serve at the will of owners, but owners must also step up to serve on the board if they have concerns or complaints about how their condo operates.

To learn more about what Gardiner, Miller, Arnold LLP can offer you, your business and condominium, go to: www.gmalaw.ca