Court-appointed administration

Owner's request for an administrator denied, but he got partial costs
Questioning an administrator's accounts

2308478 Ontario Inc v YRCC No. 715
Ontario Superior Court of Justice
Docket:  CV-16-550261
Heard:   Justice Grant R. Dow
Date:     09 December 2016

The applicant, Mr. Torok, seeks an order appointing an administrator alleging the existing Board of Directors are not acting in the best interests of the corporation. The defendant opposes the motion.

 The applicant operates under the name Creative Kitchen Gallery Inc. (“Creative Kitchen”) with a show room in Unit 1 of 166 Bullock Drive, Markham, an industrial-retail building with 36 condominium units.

There are five directors, last elected by the 18 different unit owners in November 2013. Steve Torok sought a position on the Board of Directors at that time given his concerns detailed below but was not elected.

 Reasons for judgment
Mr. Torok, focused on two examples on how the respondent Board of Directors had failed to fulfill its statutory mandate to act in the best interests of the condominium corporation. The first is the failure to maintain an adequate reserve fund and maintain the building, particularly the roof. The second is a failure to address parking issues.

In 2012-2014, little or no money was spent doing any capital repairs or maintenance. On January 6, 2014 the applicant reported a water leak and damage which cost $4,359.52. By May 21, 2014, the City of Markham had served a Property Standards Order on the condo corporation regarding the roof. By late 2014 the roof was repaired. Repairing the roof cost $217,600. The draft Reserve Fund Study dated November 17, 2015 indicates more than $3 million is required over the next 30 years and there is a need to raise those funds.

The evidence regarding parking irregularities is based upon observations of double parking, blocking fire routes and unauthorized parking in the visitors lot. This resulted in amongst other things, the inability of the snow removal contractors to properly clear the lot as required.

The inactivity of the Board of Directors through its property manager and failure to properly maintain the property including the reserve fund has changed before this Application was issued on April 5, 2016. The steps taken include:
adoption of the Reserve Fund recommendations to set aside $71,000 for that fiscal year with rate of inflation increases;
repairing the roof.
replacement of the property management company in the fall of 2013;
retaining Ontario Parking Authority to tag illegally parked vehicles in the lot and a security company being retained to conduct weekly visits.

The parties agree the five factors to consider when applying for the appointment of an administrator are:
whether there has been established a demonstrated inability to manage the corporation;

This application would have had greater success had it been returnable in or about August, 2013, that is, before the more recent activity by the respondent Board of Directors to take the steps listed above. Were this the only factor to consider, the judge would not have granted grant the relief sought.
whether there has been demonstrated substantial misconduct or mismanagement or both in relation to the affairs of the corporation;

The applicant's actions, prior to this Application prodded the Board of Directors to begin taking the steps that they needed to take and the more recent attention and activity to the affairs of the Board should not be in their favour. The judge agreed with this position. Were this the only factor to consider, the judge would have been inclined to grant the relief sought.
whether the appointment of an administrator is necessary to bring order to the affairs of the corporation;

The applicant’s position was weakened by not having identified the individual or entity to be the administrator along with their qualifications to do so. Mr. Torok attempted to correct this deficiency by providing a Supplementary Affidavit on November 24 that contained the resumes of two qualified individuals who were willing to be administrators.

It is important to note the current Board of Directors is active and that the financial affairs of the respondent is not one of any significant debt. Further, they have adopted the recommendation of the most recent reserve fund study. Were this the sole factor considered, the judge would not grant the application.
whether there is a struggle within the corporation among competing groups such as to impede or prevent proper governance of the corporation;

The judge interpreted this to be more at the Board of Directors level such that the ability of the Board to make decisions and take necessary steps is being frustrated. That was not the case in this situation before him. Here the Board of Directors has been capable of making decisions and is proceeding with the business of the corporation. The applicant may not be satisfied with or in favour of those decisions (or the speed with which they are being made) but the situation has not reached a point where, in the judge's view, the activity of the Board has stopped or the market value of each unit holder’s investment, including that of the applicant, has been seriously compromised or is about to be seriously compromised. Were this the sole factor, the judge would not grant the application.
where only the appointment of an administrator has any reasonable prospect of bringing to order the affairs of the corporation.

While the judge concluded that the actions of this Board of Directors has been substandard in the past, he would also note the evidence that they were elected by the unit owners in November, 2013 for a three year term and he was provided a copy of the Notice of Annual General Meeting to proceed on December 6, 2016. Were this the only factor to consider, he would not have granted the relief sought.
Overall, while the judge would not consider one factor to be more or less important than another and that one factor could overwhelm the rest, it was his conclusion that this application should be and is dismissed. However, it should also be stated that it is dismissed without prejudice to a new and further Application on new and additional evidence in order to ensure the activity and attention to the best interests of the unit holders continues rather than any resumption of the inactivity noted in 2011-2013.

Counsel for the applicant submitted a bill of costs totalling $35,499.72. If successful, counsel sought costs on a substantial indemnity (90%).

This compared to the respondent’s bill of costs totalling $17,617.64. The judge also reviewed, with the consent of applicant’s counsel, the respondent’s formal offer to settle of July 5, 2016 proposing settlement on a without costs basis (that the application be dismissed) until July 12, 2016 with partial indemnity costs to be paid to that date and substantial indemnity costs thereafter. The offer also required execution of a full and final release if accepted subsequently and was open for acceptance until the commencement of the hearing.

It seems clear the efforts of the applicant resulted in the Board improving its performance and fulfilling its obligations to act in the best interests of the unit holders. Further, the judge noted that the legal costs of the respondent will no doubt be partially borne by the applicant through its payment of common elements fees. Not only does section 131 of the Courts of Justice Act provide discretion to determine by whom and to what extent costs shall be paid but rule 57.01(2) specifically provides for awarding costs against a party that has been successful. As a result, the judge awarded and fixed costs payable by the condo corporation to the applicant in the amount of $2,500 inclusive of fees, HST and disbursements.

What do I make of this?
This is an extremely interesting judgment for the following reasons:
The owner failed to get an administrator but he was awarded token costs equalling 7% of his total legal costs.
The owner was given leave to return to the courts to apply for an administrator if the board backslides in it's duties to maintain the property.
The judge took into consideration the market value of each unit holder’s investment and whether that had deteriorated.
The judge concluded that the actions of Board had been substandard in the past. (I know of dozens of boards who do no better and many far worse.)
Mr. Torok's legal costs were twice as high as the corporation's.
Each owner, including Mr. Torok, will need to pay an average of $550 per unit for the corporation's legal costs.

York Condominium Corp. 42 v. Hashmi
Justice D. M. Brown
Court File No.: 06-CL-6587
Heard: January 30, 2013

This hearing is interesting, as it appears that the condo corporation, that was under court-appointed administration for six years, has issues with its former administrator’s accounts. Asking to cross-examine Andrew Atrens seems to be an unusual request.

Justice Brown attached a form to assist any owner who wishes to object to Atrens’ accounts.

The former Administrator (Andrew Atrens) was discharged following the October elections by operation of the order of Justice Newbould made August 2, 2012. The Administrator sought directions concerning its motion to pass its accounts for the period from June 1, 2011 until its discharge on October 2, 2012.

The Administrator’s motion will be heard on April 22, 2013. Although a full day has been set aside for the motion, I question whether that amount of time will be required.

If any interested person intends to object to any aspect of the accounts submitted by the Administrator, that person must serve the Administrator with a Notice of Objection and file the Notice with the Court no later than Friday, March 22, 2013. The notice of objection must contain the information set out in Schedule “A” to these Reasons.

If a person does not serve and file a notice of objection by March 22, 2013, that person will not be permitted to raise any objection or make any submissions at the April 22, 2013 hearing.

Mr. Fulton (the condo’s lawyer) stated that YCC No. 42 might wish to cross-examine the Administrator on its accounts before the hearing. It is not the usual practice of the Court to permit the out-of-court examination of a court-appointed officer such as an administrator or receiver. I will not permit any out-of-court examination of the Administrator, and I leave it to the judge presiding at the April 22, 2013 to determine how any questions may be asked of the Administrator about his accounts.

Schedule “A”:  Information which must be included in any notice of objections to the administrator’s accounts

[1] Identify the precise location in the Accounts where the item can be found
[2] Cross-reference to the specific document in one of the Document Briefs

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