Legal

April 12, 2019 Published by Toronto and Area Chapter - By MEGAN MOLLOY, JULIA WHITE

Decisions From the Ontario Courts: Archaic Solicitors Act Fails and War in the Muskokas

From the Spring 2019 issue of the CCI Toronto Condovoice Magazine. Temedio v. Niagara North Condominium Corporation No.6

Temedio v. Niagara North Condominium Corporation No.6, 2018 ONSC 7214

For decades, individuals seeking determination of liability for legal accounts have faced an obscure and sometimes mystifying obstacle: the Solicitors Act, 1990. The purpose of the Solicitors Act and the assessment process is to regulate the legal profession and protect the public in their dealings with solicitors, largely in relation to legal fees. However, those that have found themselves navigating this process will likely agree with Justice Nordheimer that "the Solicitors Act fails to provide lawyers or clients with a clear route to the determination of a client's liability for payment of accounts." The Solicitors Act uses archaic language extracted from 19th century English legislation, and the procedure in relation to assessment is largely uncodified and thus elicits confusion. As a result, lawyers and Judges alike have been calling for its reform since at least 1973. Temedio provides a refresher on this somewhat arcane process.

Condovoice previously wrote about the 2017 Temedio decision, where an application was commenced by NNCC 6 against Temedio seeking that her tenants cease creating noise disturbances and demonstrating aggressive behaviour against its staff. NNCC 6 had first attempted to obtain Temedio's cooperation by having its solicitor issue letters demanding that her tenants' effect their compliance, but received no response. As a result, NNCC 6 proceeded to Court and successfully obtained an order that both Temedio and her tenants comply with its rules. Temedio subsequently sought leave to appeal the decision, but her motion was denied by the Court.

In 2018, Temedio commenced an application under the Solicitors Act for an assessment of the legal bills paid by NNCC 6 to its solicitor in relation to the previous compliance issues and litigation between the parties. Temedio also sought an interlocutory injunction preventing NNCC 6 from enforcing a lien it had registered on her unit to collect the legal fees pending the assessment, as well as to transfer the assessment to Toronto from St. Catherines. NNCC 6 sought the actual legal costs it had incurred pursuant to s. 134(5) of the Condominium Act, 1998.

Under the Solicitors Act, a client (or the person liable to pay a solicitor's bill) may apply for the assessment of delivered accounts in various circumstances: a) upon requisition from the registrar, within 30 days of delivery (provided that there are no special circumstances and the retainer is not disputed). There is no distinction between paid and unpaid accounts (s. 3(b)); b) after 12 months of delivery, if special circumstances are shown. Again, there is no distinction between paid and unpaid accounts (s. 4); or c) within 12 months after payment on showing "special circumstances" (s. 11). With respect to accounts which have been rendered within 12 months but remain unpaid, there is a gap in the legislation. However, the Court has established that it retains inherent jurisdiction to order an assessment.

Temedio took the position that she was "entitled" to an assessment of NNCC 6's legal costs, arguing that, as condo liens are enforced in the same manner as a mortgage, she was akin to a mortgagor, and that the provisions of the Mortgages Act, 1990 (which provide an automatic right to an assessment), should apply. The Court disagreed, finding that this position was inconsistent with the purpose and intent of s. 134(5) of the Condominium Act, which was to shift the financial burden of obtaining compliance orders from the condo and innocent unit owners to the unit owner whose conduct necessitated the obtaining of the order.

The Court held that Temedio was not "entitled" to an assessment; rather, she had to establish special circumstances. The sole ground advanced by Temedio in support of special circumstances was that the legal fees seemed excessive on their face.

Temedio had previously challenged the reasonableness of NNCC 6's legal fees in relation to the compliance letters in 2015, but had failed to take steps to have the accounts assessed at that time. The Court found that Temedio failed to establish special circumstances that would warrant assessing those accounts almost three years later.

Regarding the legal fees incurred for NNCC 6's compliance application, given the complexity and length of the proceeding, as well as the volume of materials filed, the Court determined that, on their face, the fees did not seem excessive to the point of raising special circumstances. Moreover, as Temedio was an active participant in the litigation and had incurred similar legal costs to NNCC 6, she was very aware of the steps taken by counsel and the corresponding costs.

However, in relation to the legal fees for the motion for leave to appeal the compliance decision, the Court found that NNCC 6's fees (over $50,000) were excessive for what should have been a straightforward motion. In light of its concerns, the Court was satisfied that Temedio had established special circumstances.

The Court ordered an assessment only with respect to the legal fees associated with the motion for leave to appeal. Both Temedio's motion for an injunction and to have the assessment transferred to Toronto were dismissed.

Author's Note: This case serves as a refresher on the circumstances in which assessments of solicitors' accounts can be sought by a third party. While it appears that, on its face, the excessiveness of an account is not a ground in and of itself to justify special circumstances, it is important to keep in mind that public confidence in the administration of justice requires the Court to intervene where necessary to protect the client or third party's right to a fair procedure for the assessment of a solicitor's bill. Similarly, while the intent of s. 134(5) of the Condominium Act is to protect innocent unit owners from financial burden of obtaining compliance orders, counsel must keep in mind that, notwithstanding indemnification provisions, s. 134(5) of the Act does not provide license to spend the condo's money with impunity, and in certain circumstances, accounts that have an air of exorbitance may be assessed.

Noguera v Muskoka Condominium Corporation No 22, 2018 ONSC 7278

MCC 22 is a 20-unit condo located near the waterfront in Muskoka. While Muskoka is known for its relaxing qualities and calming atmosphere, the environment at MCC 22 during the Noguera case appears to have been anything but.

Noguera purchased a unit at MCC 22 in 2014, and subsequently became a member of the condo's Board of Directors. In 2016, the unit directly beside Noguera's went up for sale. Noguera and his wife planned to retire at the condo, and Noguera wanted to purchase the neighbouring unit so that he could join the two units together to create one large unit. As this alteration would constitute a change to MCC 22's common elements, Noguera emailed the Board, proposing that he be permitted to make an opening between the two units. If approved, he would make an offer on the neighbouring unit.

Both Noguera and his neighbour were Directors at the time the proposal was considered by the Board in March 2016. Noguera's neighbour indicated that he had a conflict of interest (the sale of the unit was contingent on this approval), and left the meeting. Noguera remained for the discussion (had he also left, the Board would have lost quorum), but abstained from voting on the proposal.

The Board eventually voted to approve the proposal, subject to the following conditions: 1) Noguera would cover all costs; 2) the alteration would not affect the use and enjoyment of adjacent unit owners; 3) the alteration would not affect the symmetry of the building; 4) the alteration would not affect the condo's budget; and 5) that all necessary engineering & Town approvals would be obtained before work was started. The Board also insisted that: 1) if Noguera was ever to sell, the wall separating the units was to be returned to its original state; and 2) the two units could never be sold as one unit.

Although a request was made that MCC 22's property manager provide Noguera with an agreement under section 98 of the Condominium Act for execution, that item was not part of the resolution, was not minuted, and was not pursued by the property manager as no other unit owner had ever been required to enter into such an agreement. Thus, although Noguera had approval, the alterations were not technically authorized additions to the common elements as not all requirements of section 98 had been met.

Noguera purchased the adjacent unit and proceeded with his proposed alterations, which included significant changes such as the creation of openings on both the first and second floors of the units, as well as the removal of a kitchen.

In 2017, a new Board president was elected, and the relationship between Noguera and the Board begin to decline. In the summer, the new president advised Noguera that he could not use MCC 22's lakeside path based on (unproven) allegations that he was looking into the windows of other units. In November 2017, the Board discussed whether Nogeura should halt his renovations until he had executed a section 98 agreement. Noguera complained that several other owners had also made changes to the common elements, but it was apparently not the prior practice of MCC 22 to enter into section 98 agreements. Ultimately, Noguera agreed to execute a section 98 agreement, but advised he would not stop construction in the circumstances.

In January 2018, Board meetings were held without Noguera, despite the fact that he was still a Director. MCC 22's lawyer then issued a "heavy-handed" letter to Noguera, threatening serious legal consequences if he did not stop construction. A form of a section 98 agreement was subsequently circulated to all owners who had made changes to the common elements. However, the version sent to Noguera contained an additional clause, which specified that if the unit was sold, it had to be returned to its original condition, which included restoring the demising wall between the units, as well as restoring any other related changes (i.e. the kitchen, etc.). The parties' decline in relationship was further exacerbated by the president of the Board, who took steps to undermine Mr. Nogeura with other unit owners, calling him evil and dishonest. In response to a request to do so arising from the discord, Nogeura resigned from the Board.

Noguera subsequently commenced an application under s. 135 of the Condominium Act, asserting that MCC 22's conduct in:1) attempting to retract its permission for the alterations; and 2) presenting a section 98 agreement to Noguera that was much more onerous than the agreements presented to other owners, was oppressive and unfairly prejudicial.

MCC 22 filed a cross-application, which generally asserted that, by participating in the March 2016 Board meeting, Noguera had a conflict of interest, and as a result, there was no quorum present when he received approval to proceed with his alterations. MCC 22 also believed that there ought to have been a section 98 agreement, and argued that the scope of the purported approval was more limited than the changes that were actually made by Noguera. In the event MCC 22 was allowed to retract its prior approval for the alterations, Noguera sought damages of approximately $231,000, which was the total cost he had expended on the work.

In reaching its decision, the Court noted that MCC 22's past practice of failing to require section 98 agreements meant that it was primarily responsible for the circumstances that led to the dispute. After reviewing the scope of the approval granted to Noguera in March 2016, the Court concluded that there was an effective Board approval given for the alterations. Further, as Noguera had disclosed his interest in the alterations at that time, there was no conflict of interest.

The Court went on to determine that, by purporting to require a term in the section 98 agreement that went beyond both its own approval (specifically, the Board sought to direct the removal of other renovations undertaken by Noguera within the units which did not require section 98 compliance at all) and what it had required of other unit owners, the manner in which MCC 22 had treated Noguera was abusive, unfair and prejudicial. The Court found that MCC 22 had wrongly disparaged Nogeura, excluded him from use of common elements (specifically the path), and fostered an atmosphere that made him uncomfortable. As such, the Court held that the requirements of the oppression remedy under section 135 of the Condominium Act were met, and MCC 22 was ordered pay Noguera $10,000 in damages due to its oppressive conduct.

Finally, and while the Court noted that it was not persuaded that all section 98 agreements had to be identical in form and content, the parties were also ordered to enter into a section 98 agreement in the form requested by MCC 22, but which removed the term requiring that Noguera would be forced to undo changes for which no approval was needed in the first place.

Author's Note:
Changes made by owners to the common elements can sometimes go unnoticed for months, if not years, especially in townhouse condo complexes as opposed to high-rise buildings where the units are closer in proximity and are subject to more frequent inspection. This case serves as a good reminder for both unit owners and condos to ensure that the requisite section 98 agreement is in place before changes are made to common elements. Unit owners are prohibited from making additions, alterations, or improvements to the common elements unless, inter alia: a) the Board, by resolution, has approved the proposed addition, alteration, or improvement; b) the owner and condo have entered into an agreement that allocates the cost and sets out the respective duties and responsibilities between the condo and the owner, including the responsibilities for the cost of repair after damage, maintenance, and insurance, of the proposed addition, alteration or improvement; and c) the condo has registered said agreement against the title to the owner's unit. The Act is clear that no agreement is binding until all criteria of Section 98 are satisfied.