Court File and Parties

COURT FILE NO.: CV-17-579334 DATE: 20180808 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Catharine Patricia Patterson, Applicant AND: York Condominium Corporation No. 70 and Olena Myronyuk, Respondents

BEFORE: Pollak J.

COUNSEL: Michael Spears and Puja Walia, for the Applicant Megan Mackey, for the Respondents

HEARD: June 1, 2018

Endorsement

[1] This is an application pursuant to s. 134 of the Condominium Act, 1998, S.O. 1998, c. 19, brought by the Applicant, Catharine Patricia Patterson. The Respondents are York Condominium Corporation No. 70 and Olena Myronyuk.

[2] The Applicant has been a townhouse owner in the corporation since 1984 and was a member of the Board of Directors from July 24, 2013 until January 26, 2016.

[3] The Respondent, Ms. Myronyuk, has been a townhouse owner in the corporation for 14 years, and has been a member of the condominium’s Board of Directors since January 2016.

[4] The Applicant alleges that starting in January 2016 the Respondents have not taken the proper steps to fulfill their obligations pursuant to the Act and that they have not acted in good faith or with any diligence, even though the Applicant has repeatedly requested them to do so. She alleges that as of the date of the Application hearing, significant action is needed to “secure financial well-being of the corporation, protect the physical integrity of the condominium property and to comply with the Act.” It is argued that because the present Board of Directors has not fulfilled their obligations pursuant to the Act, specific mandatory orders and intervention from this Court are required.

[5] The Applicant requests declarations that YCC 70, its Board of Directors, and Ms. Myronyuk have failed to perform their respective obligations under ss. 17(1), 17(2), 17(3), 27(1), 45(2), 85(1), 90(1), 90(2), 93 and 94 of the Act. The Applicant sought orders requiring compliance with the same sections. Additionally, the Applicant sought the following specific orders:

(a) an order forthwith removing Ms. Myronyuk as a member of the Corporation’s Board of Directors and from the office of Treasurer; (b) an order that YCC 70 take immediate steps to increase common expense contributions payable by the owners by a minimum of 14%, in accordance with the recommendation found in the June 1, 2016 investigative audit report of Eagle Audit Advantage Inc., a consultant retained by the Corporation, and as also set out in the December 13, 2015 Notice of Future Funding of the Reserve Fund, with Cash Flow Table attached distributed by the Board; (c) an order that YCC 70 take immediate steps to fully fund the Corporation’s reserve fund, in accordance with the requirements of the Act and the July 1, 2014 opinion of the Corporation’s independent auditor, as well as the 2015 Notice of Reserve Funding; (d) an order that YCC 70 take immediate steps to repair the deteriorating underground parking garage as well as complete all necessary work to replace the leaking roofs of the townhouse units; (e) an order that YCC 70 hold its AGM each year by no later than June 30, as required by s. 45(2) of the Act; (f) an order that the Respondents pay to the Applicant her costs of the application on a substantial indemnity basis; and (g) such further and other relief as is fair and equitable in the circumstances.

[6] The Respondents submit that although there have been problems in the past when the condominium was not properly managed, the directors have retained a new property management company with expertise in managing older and troubled condominium corporations. As of August 2017, they submit, the necessary action has been taken to remedy the problems that had been caused by the previous mismanagement of the corporation. The Board has hired qualified professionals to start the process of the major repairs that are needed and that the condominium is properly being managed. The townhome owners do not have any issues with the way in which their affairs are currently being managed. Further it is submitted that the allegations with respect to the personal Respondent are unfounded as she is one elected board member of five. It is submitted that there is no evidence that the personal Respondent has personally breached her duties as a director.

[7] The Respondents focus on the submission that it is the Board that is elected to manage the affairs of the corporation and that the courts should not substitute their own judgment for those of the Board. The Board must act fairly, reasonably and in good faith, and exercise the care, diligence and skill that a reasonably prudent person would in comparable circumstances. It is submitted that on this Application there is no evidence that the Board has not done so.

[8] The Applicant, however, submits that there is an exception to the Business Judgment Rule where, as in this case, there is evidence that Board decisions were not reasonable and where directors have otherwise breached the standard of care set out in the Act: 3716724 Canada Inc. v. Carleton Condominium Corporation No. 375, 2016 ONCA 650, 77 R.P.R. (5th) 1.

[9] The Applicant has made significant allegations of impropriety, improper motivation and harassment against the Respondent Ms. Myronyuk and the corporate Respondent. Notwithstanding all of these serious allegations, it is not necessary for the Court to consider these allegations to resolve the dispute between the parties as it relates to the present Application, pursuant to s. 134 of the Act and Rule 14.05 of the Rules of Civil Procedure, R.S.O. 1990, Reg. 194. It is important to note that to determine the merits of these allegations, it would be necessary for this Court to order a trial of an issue. The conflicting evidence cannot be dealt with by this Court on an Application.

[10] With respect to the substantive issues on this Application, the complaint of the Applicant is that the specific recommendations of experts hired by the Board when she was a member from 2014 to 2016 to alleviate the financial difficulties the corporation was encountering were not continued by the subsequent Board. The Applicant relies on the recommendations as outlined in three reports:

(i) the Eagle Audit Advantage Inc. (the “eagle report”) dated June 1, 2016, which recommended increases in the maintenance fees of 16%; (ii) the Best report dated September 2014, which recommended immediate repair of the parking garage; and (iii) the Tremco Roofing Canada report (the “Tremco report”), dated February 17, 2015, which recommended repair of the townhouse roofs.

[11] The Applicant’s evidence is that when she was a member of the Board, the Board took proactive steps to address the issues facing the corporation as follows:

• obtaining a reserve fund study update in 2014 in order to assess funds required for major repairs;
• obtaining a comprehensive reserve fund study in 2015 (the 2015 RFS);
• preparing a complete budget for operating and reserve expenses directed at phasing out the operating deficit; and
• creating an “Initial 5 Year Plan” which provided for increases in the Common Expenses (including a 14.29% increase for 2016) and related notices and updates to owners.

[12] She alleges that Ms. Myronyuk and a group of other townhouse owners were opposed to these changes and in particular were opposed to any proposed increases to the common expenses.

[13] The evidence is that on November 16, 2016 the Board approved a 2017 budget and agreed to continue the 14.96% increase adopted by the previous Board with respect to the remainder of 2016.

[14] In December 2016 the Board advised townhouse owners that the 2017 budget had been approved, and that the Board was continuing to discuss cost saving measures. In April of 2017, the Board did not proceed with the increase to the maintenance fees. Finally, on July 18, 2017, the Board told the townhouse owners that it had approved a 0% budget increase for 2017. The Applicant argues that this failure to proceed with the increase in maintenance fees, notwithstanding the clear recommendations of the Eagle Report, is clear evidence of a breach of the Act by the Board.

[15] The Applicant relies on evidence with respect to the repairs that are urgently needed for both the garage and the roofs of the townhouses. Her evidence is that before the commencement of her Application, she received no response from the corporation with respect to her concerns, and there were no steps taken to replace the townhouse roofs.

[16] The corporation, on the other hand, argues that the evidence shows that there are no problems with the management of the common elements and assets of the corporation. Work is being done to complete the necessary repairs, and there is no evidence to support the Applicant’s allegation that the repairs will not be finished as planned. The Respondents rely on the jurisprudence where the courts have considered s. 134 of the Act and submit that there is no evidence on this Application that the Board has violated the provisions of the Act. It is submitted that there is no evidence that the assets of the corporation are in danger or that the Board is mismanaging the Corporation as alleged. The Corporation points out that the Applicant’s submissions are that the management of the corporation is so bad that an administrator should be appointed. The Applicant includes such a court order in the relief requested.

[17] The Applicant is concerned about the failure to adequately fund the Corporation's operating and reserve accounts and relies on the following:

(a) the Respondents acknowledge that the current 2015 RFS is on the verge of becoming outdated and that updated advice is required regarding adequate common expense contributions towards the reserve fund; (b) amounts currently budgeted for future maintenance and repair work is based on, in the Respondents’ own words, management’s “best guesses”; (c) the proposed 2018 Budget effectively ignores the Corporation’s engineers’ recommendations in the 2015 RFS. The 2015 RFS demonstrated that substantial contributions to the Reserve Fund were clearly needed to provide funding for major repairs and replacements. No such contributions appear to have been made. Further, it can reasonably be expected that an updated study will show an urgent need for even greater contributions to adequately fund required reserve expenditures; and (d) the Corporation’s financial statements for the period January 1, 2017 up to February 28, 2018 reveal operating deficits.

[18] In response, the corporation submits that the Eagle Report that the Applicant relies on was arranged and requested by the former property management company which has now been replaced by a management company that specializes in older condominiums. The former management company may have had an interest in influencing the recommendation in the report to prevent its termination. References are made to the report wherein the Board is urged to continue to work closely with the existing management company.

[19] The evidence is that the new property management company assisted the Board greatly with the preparation of a new budget which reflects the condominium’s actual costs. The evidence from the president of the company is that he has over 20 years of property management experience and that the budget the Board has currently prepared is reasonable.

[20] The Respondents argue that there is no financial crisis as alleged by the Applicant because the budget has been updated and implemented, with common expenses being collected and there is no evidence on this Application that the condominium cannot meet its financial needs. Further, it is submitted that notwithstanding the recommendations contained in the Eagle Report, there is no evidence on this Application that the common expenses need to be increased.

[21] The Respondents rely on future plans to ensure the operating and reserve accounts are adequately funded. The evidence is that no decisions have been made by the current Board regarding further increases in common expenses.

[22] I agree with the Respondents’ submissions that it is the Board that is elected to manage the affairs of the corporation and that the business judgment rule applies. The Board is, in my view, in a much better position to make decisions affecting the corporation than this court. Our court should not substitute its own judgment for those of the Board, which has been elected by the unit owners.

[23] Of critical importance is the fact that I cannot find, on the basis of the evidence on the record, that the Respondents have not acted fairly and reasonably, in good faith, exercising the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. Further, I cannot find that court intervention is required as submitted by the Applicant. This Application is therefore dismissed.

Costs

[24] If the parties are unable to agree on costs, they may make brief written submissions to me no longer than three pages in length. The Respondents’ submissions are to be delivered by 12:00 p.m. on August 15, 2018, and the Applicant’s submissions are to be delivered by 12:00 p.m. on August 22, 2018. Any reply submissions are to be delivered by 12:00 p.m. on 27, 2018.

Pollak J. Date: August 8, 2018