The Business Judgment Rule

Patterson v. YCC No. 70
File number:  CV-17-579334
Date:  08 August 2018

Ms. Patterson sued YYC No. 70 and Olena Myronyuk, the treasurer, alleging that starting in January 2016 they had not taken the proper steps to fulfill their obligations as directors and that they have not acted in good faith or with any diligence, even though Ms. Patterson has repeatedly asked 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.

The Applicant sought the following specific orders:
an order forthwith removing Ms. Myronyuk as a member of the Corporation’s Board of Directors and from the office of Treasurer;
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;
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;
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;
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;
an order that the Respondents pay to the Applicant her costs of the application on a substantial indemnity basis; and
such further and other relief as is fair and equitable in the circumstances.

The Respondents submit that:

there have been problems in the past when the condominium was not properly managed, however the board hired a new management company with expertise in managing older and troubled condominium corporations.

as of August 2017, 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 professionals to start the process of the major repairs that are needed and that the condominium is properly being managed.

the owners do not have any issues with the way in which their affairs are currently being managed.

there is no evidence that the personal Respondent has personally breached her duties as a director. She is one elected board member of five.

the Board was elected to manage the affairs of the corporation and that the courts should not substitute their own judgment for those of the Board.

there is no evidence on this Application that the common expenses need to be increased.

The judge relied on the Business  Judgment Rule.
"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.

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."

It seems certain that Ms. Patterson will be paying the Respondents' legal costs as well as her own. At the time this was written, the exact amount is unknown.

Ms. Patterson and a second director were removed from the board in January 2016 by a requisition of the owners when the board raised the monthly expenses by 14.96%. Two other directors resigned.

It seems that the major repairs were not started until the corporation was served with this Application. (At the time of writing, the townhouse roofs have been repaired and the very expensive underground garage repairs have been started.)

The respondents have a good point. The majority of owners support the current board.

That support is dependent on the monthly expenses staying low. The judge wrote: " decisions have been made by the current Board regarding further increases in common expenses."


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