Requesting an inspector


The Condominium Act is self-policing. This means that the Ministry of Consumer Services does not intervene if there is a dispute between the board and an owner, or between groups of owners, or between a director against the majority of directors.

These complaints are to be heard, at the parties own costs, by a mediator, an arbitrator or a judge.
Part IX—Enforcement
If an owner, a group of owners, or one or two directors, comes to the conclusion that the board is not acting in the best interests of the corporation and that the condo is in crisis and that they are unable to unseat the board, then they usually make an application for the courts to appoint an administrator.

Inspector
What is commonly overlooked is Section 130 of the Act, the court appointment of an inspector. After an election, a new board may determine that they require the services of a court appointed inspector and there has been times when a court appointed administrator came to the same conclusion.

Upon application by an interested party, the Superior Court of Justice may make an order appointing an inspector to:
(a)
investigate the items that the developer is required to give to the condominium's board.
(b)
investigate the corporation’s records.
(c)
investigate the affairs of persons who receives money on behalf of or for the benefit of the corporation.
(d)
conduct an audit of the accounts and records.

The court may make the order if it is satisfied that the application is made in good faith and that the order is in the best interests of the applicant.

Contents of order
(4)  In the order, the court:
(a)
shall require the inspector to make a written report within a specified time to the applicant for the order and to the corporation on the activities that the order requires the inspector to perform; and
(b)
may make an order as to the costs of the investigation or audit or any other matter as it deems proper.

So the court gives directions to the inspector and specifies when it expects to receive a written report on the inspector's findings. The court can also specify what party will pay the inspector's costs.

The inspector's powers
Myrtle Sousé:
[doing a crossword puzzle]
What's a six-letter word meaning "embezzlement"?
Mrs. Hermisillo Brunch: Prison.
From the W.C. Field's movie "The Bank Dick".

The inspector has the powers of Section 33 of the Public Inquiries Act to assist his investigation or audit. These are very strong powers indeed.



The inspector, depending on the powers the court gives him, may:
1.
Require any person by summons to give evidence on oath or affirmation at the inquiry
2.
Require any person by summons to produce in evidence at the inquiry such documents and things as the person or body conducting the inquiry may specify
3.
Examine all the relevant corporation records.
4.
Examine relevant computer files and e-mails.
5.
Examine relevant bank account records.

Witnesses are protected
An employer shall take no action against an employee, acting in good faith, has disclosed information either in evidence or otherwise to the inspector.

Any person who takes adverse employment action against an employee is guilty of an offence and on conviction is liable to a fine of not more than $5,000.00

How to apply for a court appointed inspector
First of all, the applicant needs to satisfy the judge that an inspector is necessary. To do that the applicant must:
1.
Have sufficient evidence of the probability that the corporation is being harmed and is in danger due to negligence, or worse, and that an inspector is required to investigate and report on his findings.
2.
Show that the application is being made in good faith.
3.
Show that more obvious avenues such as going to small claims court to get access to the corporation records, requisition meetings and elections to the board of directors failed or were too impractical.
4.
Show that there is evidence of fraud, mismanagement of funds and election or financial irregularities.
5.
There has been no audited financial statements and /or no AGMs.

Then the applicant must inform the judge the name of a qualified person who has agreed to be appointed the inspector by means of an affidavit stating the inspectors qualifications and the rate for his billable hours.

The applicant will need to retain a qualified and experienced lawyer to assist in making an application.

Who can apply?
An owner, or group of owners, a mortgagee, or a group of mortgagees may apply for an inspector.

An application for an inspector may also be made by one or two of the corporation's directors. Their application would receive consideration because:
1.
Most likely they will have been privy to the decision-making that lead to the accusations of financial mismanagement, fraud or the majority of directors acting in bad faith.
2.
A director has a responsibilities to the corporation and to all owners that may be greater than his obligation to keep the board's decisions confidential, if they were dishonesty or improperly made.

Grounds for an application
The judge must be convinced that there is a legitimate requirement for an inspector. Not all applications meet this test.

In a case between Jordan vs DCC #23, Justice D. S. Ferguson rejected Mr. Jordan's request for an administrator and an inspector for the following reasons:

The Applicant alleged fraud but adduced no evidence capable of supporting the allegation

 He alleged improper charging for repairs but the evidence he relied on had no probative value.

He made allegations about unsigned financial statements. His affidavit evidence was misleading and the allegation had no merit.

He made allegations about a reserve fund study and claimed the circumstances showed mismanagement. The evidence did not show mismanagement.

In summary, the Applicant made nine allegations which he contended showed fraud, mismanagement and carelessness. He failed to prove the facts concerning eight of the allegations and the facts on the remaining issue were not really in dispute. He failed to prove any fraud, mismanagement or carelessness.

Appointments
Other applications succeeded in getting an inspector appointed. They include:

YCC #25
In 2005, a group of owners of YCC #25, an Etobicoke townhouse condo corporation requested a court order to hold an owners' meeting as they had not had an AGM, had no elections or seen any financial statements for the previous five years. In addition to ordering a meeting, the court appointed an inspector to investigate YCC #25’s records and investigate the affairs of Bert Joyal, the previous president of the board.

The Audit Report of 04 March 2005 indicated “serious deficiencies in the accounting records and the system of internal controls”. The inspector  reported to the court that the condo corporation was was in very serious financial troubles as the $2 million that was raised to repair the garage was gone, the garage repairs were not done and the utility bills went unpaid.

The judge was asked to extend the scope of the inspector’s investigation to include other individuals. An administrator, Andrew Atrens, was appointed to manage the condominium's affairs

Lagoon City
In 2008, an owner in a time share condo known as Lagoon City in Brechin, Ontario applied for the appointment of an inspector to investigate the condo's financial affairs, in particular the actions of the president and treasurer of the condominium corporation at that time.

The inspector found irregularities and money deposited in the wrong accounts. The inspector's report lead to the money being deposited in the correct account and the election of a new president and treasurer.

Channel Property Management
Jim Bezemer was appointed the administrator of MTCC #710 in the summer of 2010. When he discovered irregularities in work contracts he obtained a court order appointing him as inspector. During his subsequent investigation, Bezemer discovered that Channel Property Management stole $1,142,552.18.

Inspector's report
The inspector shall give a full report to the applicant, the board of directors and the court. The owners will be send a summary of the report and will be able to inspect the full report.

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