Another interesting lesson emerges from Jeffers v. YCC 98, the slander of title case we reported about earlier this year.

After dismissing the plaintiffs’ lawsuit at trial, the court ordered the plaintiffs (the unit owners) to pay about 50% of the legal costs incurred by the defendant condo corporation and the co-defendant bank.

Unsatisfied with that costs award, the condo made further submissions about why it should recover 100% of its legal costs from the unsuccessful unit owners. In support of that request, the condo relied on an offer to settle it had made during the litigation and also section 134(5) of the Condo Act, which provides as follows:


Addition to common expenses 
134(5) 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 and the corporation may specify a time for payment by the owner of the unit.  

In response to these arguments, the court made a further ruling on costs last week. Justice Low concluded that the offer to settle did not represent a significant offer of compromise that would justifying a greater degree of costs indemnity. More interesting, however, is the court’s ruling on section 134(5):

[10] I am not persuaded that s. 134(5) of the Condominium Act, 1998 applies in this case to require substantial or complete indemnity costs to be awarded to the defendant.

[11] This was a case brought by the plaintiffs for slander of title. It was not an application by the Condominium Corporation for an order enforcing compliance with any provision of the Condominium Act, the declaration, the by-laws, etc.

[12] Section 134(5) has to be read in the context of s. 134 as a whole. Accordingly, although the Condominium Corporation obtained a dismissal with costs, the order was not one which arose from an application to obtain an order to enforce compliance.

[13] In Metropolitan Toronto Condominium Corp. No. 1385 v. Skyline Executive Properties Inc., Doherty J.A. drew the distinction between costs of obtaining the order (which include defending the order obtained on appeal) and costs of enforcement. Costs of enforcement are not engaged by s. 134(5).

[14] In my view, the fact that the cause of action asserted by the plaintiff calls into question the correctness of the defendant’s earlier conduct in enforcing its rights by registration of a lien does not bring the proceeding within the terms of s. 134.

[15] For the foregoing reasons, I would not raise the level of indemnity from partial to substantial or full indemnity in favour of the defendant Condominium Corporation.

We agree with the court’s ruling that section 134(5) applies only to applications for compliance orders under section 134(1). We wonder, however, whether the result might have been different had the court considered section 85(1) of the Condo Act, which provides:

Lien upon default
85. (1) If an owner defaults in the obligation to contribute to the common expenses, the corporation has a lien against the owner’s unit and its appurtenant common interest for the unpaid amount together with all interest owing and all reasonable legal costs and reasonable expenses incurred by the corporation in connection with the collection or attempted collection of the unpaid amount. [Emphasis added.]

It is also not clear whether the court might have ruled differently had it considered the typical indemnity clause contained in most condo declarations that require unit owners to make good for any loss or cost to the condo that results from an owner’s act or omission.

Leaving these additional issues aside, we think that the court’s award of partial costs makes good sense here. Granting condominium corporations 100% legal cost recovery in all cases where unit owner plaintiffs are unsuccessful at trial would remove the important incentive to make a genuine effort to settle cases on a compromise basis at an early stage. The power of the court to award costs is intended to enforce the positive obligation on all parties to take positive steps to try and settle their cases. The award is an exercise of the court’s discretion to reward a party that made sincere efforts to settle a case and to penalize a party that did not.

While the court had previously found that the plaintiffs’ expectations about their rights were unrealistic in this case, it might also be said that the condo corporation’s expectations about the right to recover all of its legal costs were equally unrealistic.