Kicking directors off the board
Condominium Plan No. 882-2999, 2013 ABQB 684
Rod Stagg and Greg Stokowski Plaintiffs/Applicants and
The Owners: Condominium Plan 882-2999, Sunreal Property Management Ltd.
and Wayne Herve Defendants/Respondents
Court of Queen’s Bench of Alberta
Docket: 1201 06002
Date: 19 November 2013
Justice W. A. Tilleman
Mr. Stokowski, as a member on the board of directors of the corporation
and acting as a duly delegated agent of the condo corporation, spent
$14,527.31, a $10,000.00 deposit for the purchase of a new hot tub and
$4,527.31 for related equipment. The Board then failed to reimburse him.
The board then would not approve and post the correct version of a
board meeting’s minutes. The board went on to have Mr. Stokowski
removed from the board.
Mr. Herve, a board member stated on a few occasions that he “dared” the
Applicants to “come after the Board”, as then the Board would be
obliged to enter into a lawsuit where the Applicants would lose
The Applicants then sued the board asking for compensation for the
$14,527.31 Mr. Stokowski spent on the condo’s behalf and that the board
approve the proper board meeting minutes.
The courts appointed an Investigator who stated that the board had
acted in bad faith and that the proper minutes were not the one’s the
board had approved and posted.
The board made it worse for themselves when they mislead the owners on
the status of the Investigator’s report and blamed the Applicants for
the need of a $500 per unit special assessment to pay their legal bills.
Finally, the board ignored the advice of their property management
company to settle and avoid further litigation.
The parties finally settled in the Applicants favour.
The Applicants asked for solicitor-client costs on a full indemnity
basis in the amount of approximately $75,000. The Applicants also
request the Respondents bear the full cost of the Investigator’s Report.
The Applicants also argued that as a matter of precedent, it would send
the wrong message to condominium corporation boards if the end result
of this case was that the Applicants had to bear the prohibitive legal
fees they expended in order to recover $14,527.31—money that was
properly spent by them and would encourage the “I dare you” attitude.
The judge awarded the Applicants full costs.
He also ordered that the Investigator’s Report be filed with the Court
and made available to all parties, with the cost of the Report being
borne by the Corporation.
The Report and the Judgment should be specifically provided to all of
the unit owners in the Corporation without charge, as they are the
beneficiaries of this information.
Gordon vs YRCC No. 818
Ontario Superior Court—Newmarket
Court File No: CV-12-110220-00
21 August 2013
Justice J.R. McCarthy
Stanley Gordon was a director of his condo corporation from May of 2006
to November 2011. He was removed as a director as the result of an
ethics review held by the Board on 21 November 2011.
#9 states that a director shall cease to be qualified to be a director
and shall be deemed to have resigned from the board of upon
the happening of certain events. One of those events is if the director
violates the director’s code of ethics on three occasions over the
course of the director’s term unless determined otherwise by a court.
Mr. Gordon asked the court to declare that his removal from the condo
corporation’s board on 21 November 2011 was invalid together with a
declaration that Article 6.03(c)(x) of bylaw No. 9 is invalid as it is
contrary to section 33 of the Act.
As well, he requested an order to be re-instated as a director of the
The corporation brought a counter-application seeking:
|a declaration that the bylaw
article is valid,
|a declaration that the Mr.
Gordon resigned as director of the corporation following the ethics
review on 21 November 2011,
|an order upholding the
determination of the ethics review, and
|or declarations or findings that
Mr. Gordon breached the standard of
care of a corporate director, failed to act honestly and for other
findings of fact.
The judge found that the article of Bylaw No. 9 of the corporation is
entirely consistent with subsection 56(1) of the Act. It deals directly
with qualification, resignation or removal of a board member. It is not
inconsistent with any other section of the Condominium Act.
Justice McCarthy agreed with the corporation’s lawyer that
33(1) and 51(a) of the Act are merely permissive; they indicate how a
director may be removed in the absence of a bylaw dealing with removal
before a term and do not prevent a bylaw being passed by which a
director may be removed.
It is clear from the letter from the corporation’s lawyer to Mr. Gordon
dated 11 November 2011 that the board in advance of the hearing had
already made a determination of ethical violations. The relevant
excerpt from that letter reads as follows:
The owners’ will
The judge was of the view that Bylaw No. 9 expresses the desire of the
majority of the unit owners that a director should be disqualified from
holding office upon the happening of any number of events. One of those
events would be a conclusion by the board of here violations of the
director’s code of ethics.
The code of ethics was adopted by and agreed to by the members of the
Three violations of the code of ethics would have the same effect of
disqualifying a director as if the director became an undischarged
bankrupt, was convicted of a criminal offence, or ceased to own a
The ethics review calls for a procedure to be followed. That procedure
calls for an ethics review preceded by certain preliminary steps of
notification. The procedure is to be the same as that used by the board
to decide all corporate matters, except to ensure fairness, it permits
the subject director to be present at the board meeting and to be
heard. The board is then expected to determine the matter and render a
It was the judge’s decision that he should accept the board`s decision
unless it had acted capriciously or unreasonably and that the
principals of procedural fairness and natural justice cannot be ousted
from such an ethics review.
While the review may not require findings, it must certainly involve
considerations of some modicum of evidence. Indeed, in the present
case, the board relied upon witness statements.
That being the case, the board was, in the judge's view, required to
adhere to some minimal standard of procedural fairness and the basic
standard of procedural fairness and the basic principles of natural
justice. Not to do so would be unreasonable and capricious.
In this case, it is clear that Mr. Gordon was provided with notice of
the hearing on 18 November 2011 through his solicitors. The notice
itself with full particulars was dated on 21 November 2011, the very
day of the hearing.
I find that procedural fairness requires that reasonable notice of such
an ethical review should have been given to Mr. Gordon in advance of
that date. One business day prior to the review date is simply not
sufficient, fair or necessary.
As well it is unclear whether the Mr. Gordon received the witness
statements that the board intended to rely upon. Mr. Gordon and one of
the other directors, said he did not. A third director could not
confirm that these statements were disclosed prior to the review.
Certainly no evidence was tendered to show that an email, memo or
letter was provided to Mr. Gordon attaching the statements or
summarizing their content.
Must be a fair
It is a fundamental principle of natural justice and procedural
fairness that a
person facing the termination of his standing or office, should be made
aware in a fulsome manner of the case which he has to meet. Moreover,
the fact that this was a review of alleged ethical violations which
would impact not only on Mr. Gordon’s standing as a director but also
on the his reputation in the community, required that Mr. Gordon be
provided with some assurance that he would receive a fair hearing.
In this case, it was plain and obvious that Director Rotman was looking
to have Mr. Gordon removed from the board and was seeking to unite the
other board members to effect this removal. Rotman admitted this in
it was made plainly obvious in his emails to the other directors, dated
16 November 2011.
The email dated 18 November 2011 from Rotman to the other directors in
advance of the ethics review contains the following statements:
“I would ask you to limit your questions to the decision at hand, to
act on this information for the purpose of voting that Stan Gordon be
removed from his position as a director of the corporation.”
And this is followed by:
“We must arrive at a decision quickly so that our decision for the
removal of Mr. Gordon can be given to him as quickly as possible when
he returns to the meeting.”
That one of the directors resigned in protest over the manner in which
the review was conducted provides an indication that a person close to
the situation was concerned about the procedure being followed. Any
reasonable person would be.
from the dark agesThe judge stated that it is one of the principles of natural justice
and a key element of procedural fairness that a person who is to be
making the decision should not have predetermined the matter before a
review. At the very least, Director Rotman should have recused himself
from the review and desisted from attempting to influence other
directors who would be participating in the review.
“Your actions clearly establish that you do not act ethically.”
The judge therefore found that the ethics review conducted by the
condominium corporation violated principles of fundamental justice,
natural justice and procedural fairness.
The corporation’s lawyer argued that the court should allow the
determination made at the ethics review since the review was conducted
according to the bylaw.
Alternatively and regardless of any procedural irregularities,
violations of principles of natural justice or procedural fairness,
there exists an ample evidence for the court to conclude that Mr.
Gordon is guilty of at least three ethical violations and is therefore
disqualified as a director.
Justice McCarthy did not agree with the corporation’s lawyer that
deference is in order regardless of his findings of violations of
procedural fairness and natural justice.
don’t want to get involved
The judge was not prepared to substitute his findings for those
made at the review level for the following reasons.
|First, this is not a judicial
review of a statutorily created and
defined administrative tribunal charged with adjudication under a
statute. The standard of review for correctness and errors in law are
not at play in this Application and may not be applicable.
|There are no findings,
conclusions or otherwise made by the board to even review.
|He did not believe that this
court should usurp the powers of the board
entrusted to it by the members of the corporation to conduct a proper
ethics review of its own.
|It would not be an economical
use of the courts resources to embark on such a exercise.
|Even if such an exercise were to
be undertaken, a trial of an issue
would be required since the weighing of evidence and assessment of
credibility might be the only proper context in which to carry out such
The judge emphasized that deference to a decision arrived at by a board
in good faith is one thing; however, deference to violations of
principles of natural justice and procedural fairness is quite another.
The judge granted an order setting aside the disqualification of the
applicant as a director. Leave was granted to the board to conduct a
fresh ethics review within ninety days.
The portion of the application, which sought a declaration that Article
6.03(c) (x) of the bylaws was invalid, was dismissed.
The applicant’s request for reinstatement as a director was denied.
The entirety of the corporation’s counter-application was dismissed.
The court declined to usurp the authority of the board by conducting an
evidentiary review of its own.
This was a case of divided success. The applicant won himself an order
setting aside his disqualification from the board but was unsuccessful
in obtaining the declaration of invalidity of the by-law. The applicant
did not persuade the court that he should be reinstated pending a
further ethics review.
The Board was at liberty to conduct a fresh ethics review of the
Applicant within 90 days, the results of which shall be minuted by the
board. In the event that the board of directors does not conduct a
fresh ethics review after 90 days, Mr Gordon may move for
re-instatement as a director or such other remedy as he may request.
Director Rotman shall not form part of the board for the purpose of any
further ethics reviews of Mr. Gordon.
Neither side was awarded costs. The judge stated:
“While violations of principles of natural justice and procedural
fairness are not trifles, the ultimate relief obtained by the applicant
fell well short of what was sought at the outset. The actual article
under which the ethics review took place, and under which leave to
conduct a fresh ethics review was granted, survived the challenge of
validity. Any reinstatement of the applicant is still dependent upon
the outcome of a legitimate ethics review.
The motion was made necessary by the respondent’s (the board) staging
of the ethics review in circumstances which were, to say the least,
unfair to the point of embarrassing. A failure to disclose the
substance of the case a person has to meet in advance of such a hearing
brings to mind justice from the dark ages. That failure by the
respondent weighs heavily on this court’s mind in considering the
merits of their argument on costs.”
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