Court File and Parties
2017 ONSC 2004 Court File No.: CV-14-518666 Date: 20170405
Ontario Superior Court of Justice
Between:
ECOCONCEPTS MANAGEMENT SERVICES INC. Plaintiff – and – PEEL CONDOMINIUM CORPORATION NO. 260 and PEEL CONDOMINUM CORPORATION NO. 257 Defendants – and – LORRAINE TREMBLAY, NEIL DIXON, GLORIA DUGUAY, GERRY PICKERING and AGNES OAKLEY Third Parties
Counsel: Matthew Wise, for the Plaintiff Mark H. Arnold and An Nguyen, for the Defendant Peel Condominium Corporation No. 260 Sean McGarry, for the Third Parties
Heard: February 2, 2017
Reasons for Decision
JUSTICE W. MATHESON
[1] The plaintiff and the third parties each move for summary judgment as against the defendant Peel Condominium Corporation No. 260 (PCC260). The plaintiff is the former property manager for PCC260, and the third parties are former board members of PCC260. In short, these proceedings arise from discord within the condominium giving rise to a change in the board membership, the termination of the plaintiff’s management contract and related disputes. Serious allegations are made, including the alleged fabrication of documents.
[2] The second defendant, Peel Condominium Corporation No. 257 (PCC257), shares some facilities with PCC260. No relief was sought at trial as against this party, which has not participated in these motions and apparently has not been served with the statement of claim.
[3] I conclude that the merits of these proceedings cannot fairly and justly be determined on these motions, and that an attempt to carve out discrete issues and grant partial summary judgment gives rise to an unacceptable risk of inconsistent findings of fact. The motions are therefore dismissed.
Events giving rise to litigation
[4] PCC260 is a condominium corporation known as the “Ritz Towers” located in Brampton. The plaintiff, EcoConcepts, is a company that provided condominium management services to PCC260. Its principal, Leonora Frangella, provided those services to PCC260 both through EcoConcepts and other management businesses for several years leading up to the events at issue.
[5] The plaintiff and PCC260 entered into an agreement dated December 1, 2010 (“the 2010 Agreement”) for the provision of management services to PCC260 for a three-year term. The annual fee was $113,000 (HST included). This agreement could be terminated at any time by either party on 60 days’ written notice.
[6] By 2013, the plaintiff’s management of PCC260 had become a source of significant discord. Some unit holders were very unhappy with Ms. Frangella. There was open opposition to Ms. Frangella. However, the then board of PCC260 (the “old board”) was satisfied with the plaintiff’s services.
[7] In 2013, opponents of the old board formed an advocacy organization called The Home Owners’ Association in order to mobilize support and effect change. An attempt to remove the old board in mid-2013 did not succeed. However, at PCC260’s annual general meeting in July 2014, several members of the board were replaced and a new board took over at PCC260.
[8] Before the above change in governance, the plaintiff’s contract was due to expire. She was concerned that a new board controlled by the Home Owners’ Association might terminate her contract. In late 2013, Ms. Frangella approached the old board, expressed her concerns, and requested a new, longer-term contract.
[9] There is considerable dispute about the events surrounding the entering into of the new agreement. The new agreement, dated December 1, 2013 (“the 2013 Agreement”) was for a five-year term and a similar annual fee, although now increasing annually. Most significantly, the agreement had a different termination clause. The clause that is the focus of this litigation provided that on terminating the agreement, PCC260 was required to pay out the remainder of the five-year term. That clause provided as follows:
XIV TERMINATION
- During the term of the Agreement or any extended term, either party may at its option, without cause, terminate this Agreement subject to the following: a. In the event that the Corporation wishes to terminate the Agreement, it shall provide the Manager with sixty (60) days’ written notice and payment in full of the Manager’s compensation for the remaining months of the term of this agreement. [Emphasis added.]
[10] Thus, upon early termination, this clause provided that the plaintiff was entitled to payment in full for the balance of the term regardless of how much of the five-year term remained. The plaintiff did not request this very generous termination provision. It was unilaterally inserted by PCC260, then acting through the old board.
[11] PCC260 submits that the 2013 Agreement was not properly authorized by the old board and that the termination fee is not enforceable.
[12] There are significant factual disputes regarding the events surrounding the entering into of the 2013 Agreement, especially the old board’s process, including the following:
(i) why the termination clause requiring payment for the balance of the term was included in the 2013 Agreement (without being requested by the plaintiff) and, in that regard, whether the payment was inserted to make it difficult for a new board to remove the plaintiff as the property manager; (ii) whether the 2013 Agreement was properly authorized at a meeting of the old board, including: (a) whether there was a meeting at all, given that the document put forward as the minutes is in a different from the prior forms of minutes and was purportedly not stored with the other minutes, among other things; (b) why the minutes contain more detail and are potentially inconsistent with the handwritten notes put forward as the notes of the meeting, especially given that the person who was said to have prepared the minutes was not at the meeting; (c) why the handwritten notes of the meeting were apparently altered with liquid paper; (d) why the minutes were apparently not approved at a subsequent board meeting; (e) if there was a meeting, what transpired, given the differences between the minutes, the document put forward as the notes of the meeting and the recollection of various board members; (f) whether the old board obtained competitive quotes for property management services and whether they were discussed; (g) whether the old board obtained and relied on legal advice about the above termination clause; (iii) the extent to which Ms. Frangella was personally involved in the old board’s process, which it appears she may have been, and with what effect; (iv) why the 2013 Agreement was not disclosed to unit holders in the ordinary course; and, (v) whether the old board acted honestly and in good faith and is therefore entitled to indemnification for whatever they did or did not do.
[13] There is evidence on all of these issues, sometimes conflicting evidence, sometimes evidence with significant gaps and sometimes evidence from which one party or another asks for significant inferences to be drawn.
[14] After its election in July 2014, the new board discovered the 2013 Agreement. The 2013 Agreement was terminated, and PCC260 has refused to pay the almost half million dollar termination fee.
[15] The plaintiff and PCC260, along with the defendant PCC257, also had a shared facilities agreement. The latest shared facilities agreement was also entered into in December 2013 for a five-year term. That agreement was also terminated by the new board in the summer of 2014. However, it provided for termination on 60 days’ notice or payment in lieu of notice. The amount due, $1,695, has not yet been paid.
[16] There is also a dispute about an agreement with Bristol Contracting to update the corridors at PCC260, entered into shortly before the change of governance at PCC260. There are issues regarding when the contract was signed, when the deposit of almost $200,000 was paid and what transpired at the board meeting including with respect to competitive bids. PCC260 seeks return of its deposit, but has commenced separate proceedings in that regard.
Expert evidence
[17] Among other evidence in response to these motions, PCC260 delivered an expert report from Dean McCabe, the President of Meritus Group Management Inc. and a current Director of and past President of the Association of Condominium Managers of Ontario. Mr. McCabe has twenty years of experience regarding condominium management. In short, he opines that the termination provisions in the 2013 Agreement are “well outside of the norm in the condominium management industry in the GTA.” He further notes that the clause at issue is the most restrictive contract termination provision that he has ever seen in his long experience.
[18] The plaintiff and third parties rely on other agreements entered into by PCC260 that, while different in many respects, have some similarities to the termination provisions of the 2013 Agreement. However, those agreements do not expressly contemplate a termination payment of the magnitude of the provision in the 2013 Agreement.
These proceedings
[19] The plaintiff commenced this action against PCC260 seeking payment of the termination fee under the 2013 Agreement. In particular, the plaintiff seeks the amount of $493,113.61. A claim was also made for $1,695 arising from the shared facilities agreement. Lastly, the plaintiff seeks punitive damages of $75,000.
[20] In response, PCC260 defended the claim and also brought both a counterclaim and a third party claim:
(i) The statement of defence alleges that the 2013 Agreement was not properly authorized by the old board. Further, it challenges the new termination provision, seeking relief against penalties under s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The statement of defence allows for the possibility that the plaintiff is owed a small sum for notice, but seeks equitable set-off of that sum as against amounts claimed in the counterclaim. (ii) The counterclaim seeks rescission of the 2013 Agreement and the shared facilities agreement, as well as damages for breach of contract and negligence, setting out numerous allegations against the plaintiff with respect to the manner in which services had been provided to PCC260. (iii) In the third party claim, PCC260 names five members of the old board as third parties and seeks contribution and indemnity from them in regard to the plaintiff’s claim, among other things.
[21] The third parties have defended and rely on By-law 6.11 of PCC260. That by-law provides that board members (including the third parties) shall be indemnified for claims arising from their board activities unless they were acting in “breach of his or her duty to act honestly and in good faith.” The third parties submit that they were acting honestly and in good faith in respect of all relevant steps taken by them and, therefore, the claim for contribution and indemnity against them should be dismissed. They also claim that if PCC260 does show fraud and succeeds in obtaining rescission of the 2013 Agreement, there would be no claim for contribution and indemnity.
[22] The plaintiff has defended the counterclaim, disputing the allegations that Ms. Frangella was negligent in the provision of management services to PCC260 or otherwise breached the 2013 Agreement, among other things.
[23] Both the plaintiff and the third parties have moved for summary judgment. In the substantial record before me, in addition to documentary evidence and affidavits from numerous people, there are examinations/cross-examinations of ten parties/witnesses, as well as the expert report filed by PCC260 with industry evidence regarding the cost of management services for condominiums.
Analysis
[24] Under subrule 20.04(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, summary judgment shall be granted if the court is satisfied that there is no genuine issue requiring a trial with respect to, on these motions, the plaintiff’s claim, the defendant’s counterclaim and the third party claim.
[25] As set out in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 49, there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process: “(1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.”
[26] On a motion for summary judgment, the judge should first determine if there is a genuine issue requiring a trial based only on the evidence before him or her without using the fact-finding powers in subrule 20.04 (2.1). If there appears to be a genuine issue requiring a trial, Rule 20.04 (2.1) permits the motion judge, at his or her discretion, to: (1) weigh the evidence, (2) evaluate the credibility of a deponent, or (3) draw any reasonable inference from the evidence unless it is in the “interest of justice” for these powers to be exercised only at a trial: Hryniak, at para. 66. The motion judge is also permitted to use the expanded powers under Rule 20.04 (2.2) to direct a procedure such as a mini-trial, rather than a full trial.
[27] To defeat the use of Rule 20, the responding party must show that there is a genuine issue that requires a trial. The responding party must put its best foot forward: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, at para. 26, aff’d, 2014 ONCA 878, leave to appeal to SCC refused, [2015] S.C.C.A. No. 97.
[28] If a trial is necessary for some of the claims in any event, it may not be in the interest of justice to use the fact-finding powers in Rule 20 to grant partial summary judgment because of the risk of duplicative proceedings or inconsistent findings of fact: Hryniak, at para. 60; Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438, at paras. 44-45.
These motions
[29] On these motions, the crux of the issue is whether the relevant factual disputes summarized above require a trial. PCC260 submits that a trial is required to determine the validity of the 2013 Agreement, the enforceability of its termination clause, the counterclaim and the third party claim, all of which are related to the facts in dispute.
[30] The plaintiff’s claim requires that two main issues be addressed: (1) whether the 2013 Agreement was properly authorized by the old board, including the extent and nature of the involvement of Ms. Frangella in that process; and (2) whether the termination provision is an unenforceable penalty in any event, and whether PCC260 should be relieved from it under s. 98 of the Courts of Justice Act. The second motion, brought by the third parties, has as its central issue whether or not these former board members acted honestly and in good faith in the course of the events at issue, especially in entering into the 2013 Agreement.
[31] The above issues require a determination of what transpired in the course of entering into the 2013 Agreement and why, among other things. The relevance of the disputed facts is amply demonstrated by the submissions made by the moving parties in their factums. The plaintiff relies on submissions that the old board “duly authorized” the 2013 Agreement. The third party members of the old board accept that the allegations of fabrication of documents, if proved, “clearly amount to dishonesty and bad faith” but strongly submit that the allegations are unfounded.
[32] Under the Condominium Act, 1998, S.O. 1998, c. 19, s. 32, a condominium board cannot transact any business of the condominium except at a meeting of the board where a quorum is present. Further, the “indoor management rule” does not apply to condominium corporations because the Condominium Act is consumer protection legislation: Rogers Cable Communications Inc. v. Carleton Condominium Corp. No. 53, [2005] O.J. No. 921 (S.C.J.), at paras. 6-7. The plaintiff is therefore not entitled to assume that the 2013 Agreement was properly authorized by the old board of PCC260.
[33] There is considerable evidence before me regarding the relevant course of events, focusing mainly on the 2013 Agreement and the board process. Not surprisingly, some of the witnesses do not fully recollect what happened. And some of the alleged issues and inconsistencies put forward by PCC260 are, at best, trivial. However, the issues arising from the allegedly fabricated documentation about a board meeting regarding the 2013 Agreement, including the minutes and notes that have been produced, do give rise to significant factual issues.
[34] The third parties submit that there are innocent explanations for the various issues with this documentation. There may well be. However, considering all the evidence before me, I conclude that the necessary factual findings cannot fairly and justly be made on the written record on these motions.
[35] These factual findings are required not only for the rescission claim but also for the determination under s. 98 of the Courts of Justice Act.
[36] PCC260 submits that if anything could be determined on these motions, it is that the termination clause in the 2013 Agreement is an unenforceable penalty. Certainly, the sum of almost half a million dollars does appear to be out of all proportion to any damages actually suffered by the plaintiff due to early termination of the 2013 Agreement.
[37] At common law, at least historically, courts would not require a party to pay a contractual penalty, on grounds of public policy: Peachtree II Associates – Dallas, L.P. v. 857489 Ontario Ltd. (2005), 76 O.R. (3d) 362 (C.A.), at paras. 22-24, leave to appeal dismissed, [2005] S.C.C.A. No. 420. However, the more recent approach to penalty clauses places more weight on freedom to contract, and leads to an examination of factors relating to unconscionability and equitable principles rather than the strict common law rule: Peachtree, at paras. 32-34; J.G. Collins Insurance Agencies Ltd. v. Elsley Estate, [1978] 2 S.C.R. 916, at p. 937; see also Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809, 93 O.R. (3d) 1, at paras. 37-39, leave to appeal denied, [2009] S.C.C.A. No. 29.
[38] There is also a potential issue about whether or not the termination clause in the 2013 Agreement is a penalty clause at all, rather than a forfeiture clause. If it is a forfeiture situation, there must be a consideration of unconscionability and fairness: Kechnie v. Sun Life Assurance Company of Canada, 2016 ONCA 434, at paras. 18-19. Again, this leads back to the disputed facts surrounding the allegedly misconduct, including the alleged fabricated documents.
[39] There is also what appears to be an unusual situation in this case inasmuch as it was PCC260 (under the governance of the old board) that inserted the new payment obligation into the termination clause, not the plaintiff. Under its new board, PCC260 is now seeking discretionary relief under s. 98 of the Courts of Justice Act and must show why it should not honour its own clause. PCC260 points to the same alleged misconduct of the old board in this regard.
[40] I therefore conclude that availability of summary judgment in favour of PCC260 is also subject to a consideration of the disputed facts.
[41] There are also issues between the parties about the extent to which employment law may apply to this non-employment case, including the duty to mitigate. However, the determination of these issues does not avoid the need to address the above factual issues.
[42] The motion to dismiss the counterclaim is arguably a different matter. Part of the counterclaim seeks damages for breach of contract and negligence against the plaintiff. PCC260’s evidence of damage is scant and conclusory. However, there is factual overlap between the allegations in the counterclaim and the other issues, and a risk of inconsistent findings if that part of the counterclaim is separated from the other claims and decided on this motion. In accordance with Baywood, I conclude that to separately determine that part of the counterclaim would not be in the interests of justice. Similarly, there is potential unfairness in separating the small claim arising from the shared facilities agreement, which was, in any event, the subject of little attention in the argument of the motions before me.
[43] Bearing everything in mind, I conclude that the issues in these proceedings cannot fairly and justly be decided on the record before me.
[44] Under the second step in Hryniak, I may then, in my discretion, use the fact-finding powers under subrule 20.04 (2.1). I conclude that it would not be in the interests of justice to do so. I am not persuaded that it would be fair and just to evaluate credibility or draw inferences from the evidence in the written record that are necessary to decide this matter on the record before me, especially in the face of allegations of fabrication of documents and other dishonesty. I conclude that there are genuine issues that require a trial. Subrule 20.04 (2.2) provides the power to order a mini-trial. I am not satisfied that a mini-trial would be an efficiency in this case given the number of witnesses who would have to testify in any event. The use of these fact-finding powers will not “serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole”: Hryniak, at para. 66.
Disposition
[45] These motions are therefore dismissed. In accordance with Skunk v. Ketash, 2016 ONCA 841, at para. 62, I have specifically considered to what extent I have made determinations of law that are intended to be binding on the parties at trial. I do not intend to make any such determinations. I therefore do not invoke subrule 20.04(4). In accordance with Hryniak, at para. 78, I seize myself of this matter subject to being available on the civil team.
[46] If the parties are unable to agree on costs, any party seeking costs shall make submissions by delivering brief written submissions together with a costs outline by April 20, 2017. Any party from whom costs is sought may respond by delivering brief written submissions by May 11, 2017.