Quorum oh Quorum

Post by: Meghan MacDonald

We have noticed lately that it is becoming difficult to obtain the required quorum of unit owners at condominium turnover meetings.  The purpose of the turnover meeting is for the Declarant of the condominium to hand over control of the condominium to the unit owners and in particular, elect a new board of directors to replace the directors appointed by the Declarant.  This meeting must take place once the Declarant ceases to own a majority of the units in the condominium pursuant to Section 43 of the Condominium Act, 1998.

This lack of attendance at turnover meetings by unit owners may be due to the fact that more and more condominium units are being purchased by investors who are not as concerned about the day to day operations of the condominium as the owners who live in the condominium.

In order to have a valid meeting, there must be a quorum at the meeting.  Quorum simply means the number of owners that must be present in person or represented by proxy at the meeting.  For meetings of owners, this is usually 25%.  In some cases this threshold is varied by by-law so you should be sure to confirm this with legal counsel but for the purposes of this blog, we will assume quorum is 25%. If quorum is not achieved, the meeting is not valid and any actions taken at the meeting are of no force or effect.

Once you have obtained quorum, you may think that your problems are over.  Sadly, this is not the case.  The Condominium Act has another requirement that can cause significant headaches.  This is the requirement that all questions proposed for consideration of the owners at a meeting of owners must be determined by a majority of the votes cast by owners present at the meeting in person or by proxy.

What does this mean?  We think that the wording of the Act means, with respect to the election of the new board, that every director must be elected by a majority of the votes cast at the meeting.

For example, if we have 40 units in a condominium we need 10 unit owners represented in person or by proxies to achieve quorum.

Applying the requirement for a majority vote and assuming just 10 owners are present in person or by proxy, for a director to be elected in this example, he or she needs to obtain 6 votes.  That means at least 6 owners must be present in person or 6 proxies allow their proxy to vote for that person or there is some combination thereof.  If the proxies each name different candidates it may be difficult to get a majority of those present in person or by proxy to vote in favour of the same candidates.

As one can see, there are some fairly significant hurdles to getting the new board elected.  We think that simply putting directors in place by acclamation where the number of candidates equals the number of vacant positions may not be supported by the Act.  James Davidson has a good article on that point.

If a new board is not elected at the turnover meeting of a phased condominium this could affect the Declarant’s ability to register a subsequent phase of the condominium.

What is apparent is that all efforts must be made to encourage owners to attend meetings of owners.  Further, proxies must be solicited from those owners who will not attend and that there is consensus on the directors to be elected in order to achieve the majority vote.  Legal counsel can assist with this process.

We hope that in the proposed amendments to the Condominium Act the requirements for quorum at turnover meetings is relaxed and some of the issues with respect to voting are clarified so that lack of quorum and issues of majority voting even if there are only enough candidates to fill the vacant positions can be avoided because it’s important for the condominium board to be turned over to the unit owners as soon as possible.  The unit owners and not the Declarant should be managing the affairs of the condominium once a majority of the units are sold.

Board Members Behaving Badly Results in Personal Liability

Part 2 of 2: Professionals’ Opinions Make the Difference Between Payment and Protection

Post by: Khiam Nong

In a recent post, we outlined the cases of two condominium boards of directors who were chastised quite thoroughly by judges of the Superior Court for failing to fulfill their obligations to carry out their duties in a good faith manner.  In the case of Middlesex Condominium Corporation No. 232 (“MCC”), the Board brought two court proceedings in an attempt to forestall the unit owners’ rights to replace the Board.  In Boily v. Carleton Condominium Corporation (“CCC”), the Board ignored not only the will of the unit owners, but also a court order to construct the condominium’s courtyard to reflect its original design.  The members of the two Boards were adjudged personally liable for their actions and ordered to pay legal costs in MCC and construction costs in CCC.

Pursuant to subsection 37(1) of the Condominium Act, 1998 (the “Act”) directors and officers of corporations have a statutory obligation to carry out their duties (i) honestly and in good faith; and (ii) with the care, diligence and skill that a reasonably prudent person would in the circumstances.

While subsection 38(1) of the Act provides that directors and officers of corporations may from time to time be indemnified and saved harmless from liability incurred in the course of carrying out their duties, that protection is not afforded to those who do not act in good faith.

However, directors and officers should be aware that subsection 37(3) of the Act provides a mechanism by which directors and officers can maximize their chances of ensuring the protection built into the Act.  Subsection 37(3) provides:

Liability of directors

(3)  A director shall not be found liable for a breach of a duty mentioned in subsection (1) if the breach arises as a result of the director’s relying in good faith upon,

(a) financial statements of the corporation that the auditor in a written report, an officer of the corporation or a manager under an agreement for the management of the property represents to the director as presenting fairly the financial position of the corporation in accordance with generally accepted accounting principles; or

(b) a report or opinion of a lawyer, public accountant, engineer, appraiser or other person whose profession lends credibility to the report or opinion.

It may not always be financially feasible, necessary or reasonable for Boards to seek the advice of professionals in every situation.  However, in light of subsection 37(3), it is clear that clear professional advice should always be sought out whenever a Board proposes to take a controversial course of action or one that may have significant financial implications.

If directors and officers can demonstrate to a court that they relied in good faith on the opinions of the appropriate professionals, it may mean the difference between a court imposing personal cost consequences and a court granting the protection built into the Act.  In our opinion it would be an unexpected result for a court to find directors personally liable for costs if the directors have honestly and in good faith relied upon clear professional advice.  To do otherwise would frustrate the intention of this part of the legislation, which is to encourage the seeking out of professional advice before acting.

In the case of MCC, both judges noted the former Board’s failure to file evidence that the members of the former Board relied in good faith upon the opinion of a lawyer.  Mr. Justice Carey stated the following:

I have no evidence that the Board relied on legal advice in their actions.  I can only conclude that their legal counsel were instructed to take the steps they did.

His further statement below is somewhat of a concern and may provide some doubt on the protection offered by subsection 37(3).  He stated further:

The Board ultimately is responsible for their own decisions and cannot on these facts hide behind either their counsel or the Enerplan report.

This comment is with respect to an engineer’s report (not the legal advice provided to the Board).  It appears the Board may have been interpreting the report to reach conclusions not supported by the engineer’s report.  This highlights the need for professional advice to be clear in order to trigger the subsection 37(3) protection.

Mr. Justice Bryant stated:

Counsel for the members of the old Board did not file any evidence that the members of the old Board relied in good faith upon a report or opinion of a lawyer.

The statements of both judges suggest that the unfortunate outcome suffered by the directors and officers of MCC may have been avoided had they presented evidence to show that they relied on clear legal advice.

The best way for directors and officers to demonstrate that they took such a course is to present reliable evidence that they sought out and relied upon clear and unequivocal professional advice.  Boards must ensure that such advice is obtained in the form of written opinions and reports.  In court, documentary evidence will always serve as stronger evidence than oral evidence.

If the professional advice is not clear or is equivocal, the provider of the advice should be requested to clarify their opinions and recommend an unequivocal course of action.

If it is not possible to get clear and unequivocal professional advice on a proposed course of action, the Board must either decide to abandon the proposed course of action or accept that if the Board does proceed, the individual Board members may not be afforded the protection of subsection 37 (3).

Directors and officers must also be careful not to “shop” for the opinion that they want nor should they appear as though they are “shopping” for the opinion that best suits them.  It may be reasonable to obtain a second opinion on an issue, but if the second opinion supports the first opinion, seeking a third opinion will likely be viewed negatively by the courts if the third opinion contradicts the first two opinions and is relied upon by the Board in support of subsection 37 (3) protection.