Legal

March 23, 2022 Published by South Alberta Chapter - By David Cumming

The Litigation Committee Or, Why You Shouldn’t Have All Owners Vote On A Settlement Proposal

From the Winter 2022 issue of the CCI South Alberta CCI Review

I recently heard a story where a file a lawyer-friend of mine inherited had a Condominium Corporation continuing litigation against a Developer against their will. Some time ago the Developer had offered a settlement proposal, and this proposal had been put to the owners for a vote. The Board tended to think it was a good idea to accept the settlement proposal, but the owners rejected it. Now they are reluctantly continuing the litigation after spurring the chance to pocket some money and put this behind them.

Condominium Boards may think that it is fair that the owners should get a voice in accepting or rejecting any settlement proposal, particularly a settlement in an action against and developer or contractor involving expensive repair of deficiencies. After all, each owner is a shareholder in the Corporation and the result of the litigation affects their interests. However, I’m here to tell you that this is a bad idea. Unless you live in a very small condominium project such as a four-plex, only a small sub-set of owners should handle all matters dealing with any litigation.

To understand why, consider the following scenario:

The Condominium discovers that there is building envelope leaking issues that is going to require remediation in the amount of approximately $1 million. They sue the developer over these deficiencies, and during the litigation the developer offers a settlement of $600,000. If this is put to the owners, they might feel that this unfair and well under what they should be entitled to. After all, the remediation is going to cost them a million dollars, and it was the developer’s fault. Why should they settle for any less than that?

Depending on the case, there may be several answers to this question. There might be issues with a limitations period such that the developer might have a complete defence to the claim and is not liable for anything. The developer being a shell company with no assets and have of insurance limits that are well under the amount of the claim, making collecting upon a judgment an issue. There might also be an issue with the Corporation not taking reasonable steps to mitigate the damage by conducting repairs sooner, as if they did so the cost of repair would be much less. Last, even if the Corporation has a very strong case, it is going to take years of costly litigation including questioning, hiring experts, and trial before they can get a Judgment. In short, there may be several reasons why it might be a good idea for a Corporation take this offer, but those reasons might be complicated and require a fair bit of work to understand.

The above should illustrate that deciding whether to make or accept a settlement offer, or take any steps in a lawsuit, requires the weighing of several factors. You’ll need to have a comprehensive understanding of all the facts, be able to assess the risks, and even delve into legal concepts which might be difficult to understand (if you ever want to feel needlessly confused, just Google “doctrine of pure economic loss”). That is not to say this is an impossible task; in my experience most Condominium Board members can get a good intuitive grasp of the legal issues if they are explained to them properly and if they have the chance to ask questions. It is one thing, however, to have this discussion with a small group of Board members who are up-to-date on the status of the legal action; it is quite another to try and impart this information to a large group of owners who may or may not know the history. The conversation simply isn’t going to go well if it takes place in a large group.

My typical recommendation to Condominium Corporations when dealing with big litigation matters like building deficiencies is to appoint a litigation committee of three members. The Board should delegate to this committee unfettered discretion to settle matters and make decisions in the litigation. The litigation committee members can focus on the litigation and should not be expected to contribute to other Board business to the same extent as the remaining members, who should be expected to pick up a little of the slack given the commitment that the litigation committee may entail. I find three to be the ideal number as there’s always a tie-breaking vote if decisions have to be made, and it is small enough so that if each member takes the time to familiarize himself or herself with the action and the issues they should be able to make informed decisions when the time comes.

This is not to say that the ownership shouldn’t be apprised of the litigation. I recommend giving status reports to the owners when each major step occurs in the litigation and a general update on the status at each AGM (being careful not to give away any strategy or privileged information as you have to assume that the opposing side may get their hands on the report). However, the major decisions in the litigation should not be put to the ownership at large, and the best response to any owner who is taking a very close interest in the litigation would be to invite them to put their name forward at the next AGM to be a Board member and volunteer their services for the litigation committee.