The Dirt: Condo cost rulings tilting away from generous awards

Several court decisions dealing with cost recovery have emanated out of condo land lately. While the ratios vary, the scattering takes on a distinct shape when viewed as a group that’s trending away from generous cost awards for condominium boards that are successful in their litigation against unit owners. While most of these cases arise out of s. 134(5) of the Condominium Act, they also provide valuable insight and guidance to all lawyers on the law of costs.

Subsection 134(5) provides an extraordinary remedy to condominium boards that are ultimately successful in compliance litigation against unit owners. According to the act, if a corporation obtains an award of damages or costs in an order made against an owner or occupier of a unit, the damages or costs, together with any additional actual costs to the corporation in obtaining the order, shall be added to the common expenses for the unit.

Subsection 134(5) ensures that, regardless of the damages or costs the court may award a corporation in a lawsuit against an owner, it will be able to add all other “additional actual costs” to the bill and then secure a lien in respect of the amount owing if the person doesn’t pay. In effect, it amounts to de facto substantial indemnity costs. As such, given a liberal and purposive construction, s. 134(5) can be a powerful and effective tool for condominium corporations in challenging non-compliance with their declarations, bylaws, rules, and agreements.

Alas, “liberal and purposive” aren’t quite the words I’d use to describe the case law on s. 134(5) to date. In the 2005 decision in Metropolitan Toronto Condominium Corp. No. 1385 v. Skyline Executive Properties Inc., the Ontario Court of Appeal considered s. 134(5) and concluded that the “additional actual costs” a condominium corporation could recover and secure a lien for involved only those up to and including the actual enforcement court order (with subsequent cases extending that logic to include the costs of any appeals). It expressly excluded additional actual costs incurred by the condominium corporation in then trying to enforce that court order.

The Court of Appeal repeated Skyline’s strict interpretation in its 2012 decision in Toronto Standard Condominium Corp. No. 1633 v. Baghai Development Ltd., a case in which a condominium corporation was successful in enforcing bylaws and rules regarding common element uses and fended off an oppression claim by the unit owner. The trial judge in Baghai was also critical of the “scorched earth” litigation strategy employed by counsel and the corresponding legal costs sought. The judge suggested s. 134(5) permitted only “full indemnity for its fair and reasonable costs related to obtaining the compliance order.” The Court of Appeal confirmed that s. 134(5) covered only fair and reasonable additional actual costs relating to the compliance order and not additional actual costs relating to the oppression defence but found the trial judge’s analysis of what was fair under the circumstances to be unclear and referred the cost determination back to trial for reassessment on that basis.

This separation and isolation of enforcement costs was also a dominant theme in Harvey v. Elgin Condominium Corp. No 3. In this Superior Court case, the judge, citing Baghai extensively, held that the condominium corporation’s dispute with the unit owner was, all along, an oppression claim and not about a compliance order. Even though the unit owner prolonged the litigation through unnecessary and improper steps, the court wouldn’t allow the condominium corporation to secure a lien for all additional actual costs under s. 134(5).

In Durham Standard Condominium v. Morton, the court awarded $29,000 to the condominium corporation for the additional actual costs of enforcing its rules against large dogs. While seemingly a generous cost award, it fell shy of the $74,000 in additional actual costs allegedly incurred by the condominium corporation in evicting the overweight beast. In so doing, the court focused on another aspect of the Skyline decision: the notion that the costs recoverable under s. 134(5) had to be “actually incurred.”

The most significant of all of these recent condominium cost recovery cases has to be Royal Bank of Canada v. Metropolitan Toronto Condominium Corp. No. 1226. Royal Bank wasn’t a decision dealing strictly with s. 134(5). Instead, it dealt with s. 85(1) that allows condominium corporations to include “reasonable legal fees” in the amount secured by their liens. Nonetheless, the Superior Court expressly considered the two provisions to be analogous and referenced Skyline with approval. Even though not directly on point, Royal Bank is important for all lawyers generally as a seminal decision on the law of costs. In this case, the court was both relentless and quite colourful in its description of the law firm’s performance and at various points in the judgment referred to some of the legal work as “hysteria-non specific activity,” “misguided,” and “cookie cutter work.”

After a lengthy and consistently scathing analysis of the conduct of the litigators and the inadequacy of the accounts they rendered, the court found the legal costs utterly unsustainable. The lawyers, the court found “were not only flogging a dead horse, they were acting as if it would go around the track.”

There’s some talk of expanding the scope of s. 134(5) in the next round of condominium law reform. While I see the logic of expanding s. 134(5) beyond the cost of the compliance order and appeals, it’s unlikely the law will ever allow condominium corporations to recover costs they never legitimately incurred either because they were outrageously inflated or they were never proper costs to incur in the first place.
Even after condo law reform, dead horses still won’t be running around the track no matter how hard the lawyers may flog them.

Jeffrey W. Lem is a partner in the real estate group at Miller Thomson LLP. His e-mail address is [email protected].

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