Condo corporation brings claim against firms

A York condominium corporation is suing Miller Thomson LLP and Goodmans LLP for allegedly acting in a conflict of interest.

Condo corporation brings claim against firms
Christy Allen says lawyers should avoid representing parties involved in the development of a condominium corporation, as well the condo corporation after declaration.

A York condominium corporation is suing Miller Thomson LLP and Goodmans LLP for allegedly acting in a conflict of interest.

The condo corporation is seeking up to $4 million from the two law firms and a number of other defendants for an alleged conspiracy in which unit owners were “duped” into releasing valuable easements on an adjacent property so that it could be sold and developed.

The allegations have not been proven in court.

Jonathan Fine, the lawyer representing the condo corporation says it appears that the law firms, which purportedly were working for the condominium corporation, were in a conflict position because they were either acting for many different parties or were being paid by an opposite party.

“Clearly, it appears as if their loyalties weren’t to the condominium corporation,” says Fine. 

The statement of claim, which was filed in the Ontario Superior Court, said unit owners of the condo corporation were misled by a number of the defendants into believing that they were benefiting from the release of the easements when in fact they were not. It turned out that the only parties benefiting directly or indirectly were some or all of the defendants, the claim said. 

The adjacent property, which was owned by one of the defendants, could not be sold or developed until the easements were released.

The claim said the full extent of the ramifications of releasing the easements was purposely withheld from the condo corporation and unit owners and that the former director who was leading the campaign to release the easements personally benefited from their release. The owner of the adjacent lands sold the property in December 2016 to another one of the defendants for $45 million.

The defendants included three former directors of the condo board, as well as the owner and purchaser of the lands.

According to the statement of claim, one of the former directors received a 15-per-cent interest in another development project being carried out by other defendants in exchange for getting the corporation to release the easements.

The condo corporation alleged some of the defendants acted in their own self-interest as they gained financially to the corporation’s detriment.

The corporation claimed that its expenses increased by approximately $300 per unit per month and the property value of the estate homes built on the units decreased.

The corporation is seeking a declaration that Miller Thomson LLP was in a conflict of interest when it advised it with respect to a number of issues, including the release of the easements.

The condo corporation is also seeking an order setting aside the release of the easements and an injunction barring any further development of the adjacent lands until the court issues a final order on the claim.

According to the statement of claim, Miller Thomson was in a conflict of interest as it acted for the plaintiff, as well as one of the former directors, one of the declarants of the corporation, and the owner of the adjacent lands. The corporation also alleged that Goodmans LLP “purportedly acted for the plaintiff, but in reality, was more concerned with the closing of the purchase and sale of the adjacent land” and was paid by another defendant.

The claim said both firms “treated the overall situation as a closing of a real estate transaction for a favoured client, thereby taking steps to facilitate the closing of the transaction, rather than protecting the interests of the plaintiff.”

Lindsay Everitt, a spokeswoman for Goodmans LLP, declined to comment on the claim  other than to say the firm “believes the allegations against it are completely without merit.” She added that a statement of defence will be filed shortly.

Peter Auvinen, a managing partner of Miller Thomson LLP’s offices in Toronto, Vaughan and Markham, says the firm will not comment “since the matter is before the courts.”

Christy Allen, a founding partner with Davidson Houle Allen LLP, says the main takeaway from the case for lawyers is to avoid representing the parties involved in the development of the condominium as well as the condo corporation after declaration.

“I think this case points to the fact that it’s difficult if not impossible to avoid at least the appearance of conflict — possibly actual conflict, too — when you represent both,” says Allen, who was not involved in the matter.

She says the easiest way of avoiding similar problems is for lawyers to remove themselves from representation at the outset of a dispute and to refer the condominium corporation to independent legal counsel.
She adds that these problems are inevitable because when a condo corporation is created, there are often issues between the corporation and the declarants. She says the issues are resolved without the need for legal involvement in the vast majority of cases.

“[B]ut in some cases, those problems escalate and, as legal counsel, you’re going to want to make sure that you’re not in a position where the issue has escalated and you’re representing both parties on the opposite sides of a conflict,” she says.

The condo corporation also claims the two firms were negligent.
The statement of claim said Miller Thomson failed to properly advise the plaintiff and misrepresented a number of issues to the court.

The corporation claimed the firm failed to disclose to the court that the adjacent lands had been sold conditional of the release of the easements and that the release afforded the owner of the lands a significant profit.

A for Goodmans, the claim said the firm was negligent as it also failed to advise the plaintiff to obtain a valuation of releasing the easements as well as on a number of other issues.

Fine says lawyers need to understand who their client is, what their mandate is and where their loyalties are.

“When you’re in a situation where there is a conflict or a potential conflict, it should be readily apparent to a law firm and you need to make some hard decisions, even if it means you have to give up a retainer because of it,” he says. “Putting yourself in a conflict situation is a dangerous thing for lawyers to do, and it certainly doesn’t serve the client, which is really the whole objective.”

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