The Ontario Superior Court recently restrained a meeting called by unit owners after the condo failed to respond to a duly-filed requisition for calling a meeting to remove directors.
Finding itself in the midst of serious financial trouble and facing stiff resistance by owners after making several tough choices, the board decided in December to apply to the court for the appointment of an administrator. The application was not commenced until three months later, in late March, a few weeks after receiving a requisition by owners to hold a meeting to remove the board.
Because the board did not call a meeting in response to the requisition they received in early March, the owners exercised their right under s. 46(5) of the Condo Act to call the meeting themselves. In the days before the scheduled owners’ meeting, the board brought a motion to restrain that meeting until the application to appoint an administrator could be heard. The motion was heard the day before the meeting and the court released its decision on the day of the meeting.
After assessing the circumstances and applying the legal test for granting an injunction, the court found:
1. There were was a serious issue about whether an administrator should be appointed on account of “the financial problems of the corporation, coupled with the factionalism amongst unit owners and significant governance difficulties”.
2. There may be irreparable harm if the owners’ meeting proceeded. “The holding of a meeting to elect a new board of directors has the potential to add further instability and uncertainty to an already difficult situation.” Further, the owners calling for the meeting (and, presumably, those planning to run for the board) had filed no plan to deal with the financial crisis.
3. The balance of convenience favoured delaying the owners’ meeting. “To permit the meeting to proceed inevitably would only add a further layer of litigation to this dispute and increase legal fees.”
Finding that the legal test had been met, the court granted an injunction restraining the requisition meeting, but ordered a two week “cooling-off period” and gave this helpful suggestion:
I encourage the unit owners to put aside their personal disputes and obvious differences and to use the next two weeks to meet informally to try to come up with a realistic plan to address the real financial problems that are staring them in the face. Hard decisions must be made – either significantly cut expenses, or significantly raise common fees, or both. Inaction is not an option. If the level of distrust amongst the unit owners is too high to permit reaching a solution, then perhaps they should think about appointing an administrator who can make the tough decisions for them. I will give the unit owners two weeks to engage in this kind of “reality check” and to explore a common solution.
While sensible, it is unclear whether the cooling-off period will be beneficial or whether the parties at this condominium could ever solve their own problems. Here are three reasons why I would be pessimistic:
First: The opposing owners might not see reality as the rest of us do. The court noted that the unit owners appeared to misapprehend the role and function of the administrator – They seemed to think that the administrator would follow the wishes of the owners. The court also noted that the owners appeared not to fully appreciate the severity of the financial issues facing their condo. While they opposed the board’s decision to download electrical costs to the units, the owners provided no alternative solution to the looming cash crunch.
Second: Indecision, slow action and poor transparency by the board. While the court had little to say about the board, part of the “distrust” by the opposing unit owners likely came from the board being unresponsive to requisitions, which often gives the appearance of being secretive or uninterested in the owners’ concerns. Similarly, the board’s delay in commencing the application for appointment of an administrator probably allowed the situation to fester, adding more fuel to the conflict.
Third: The desperate situation facing this condo probably arose, in part, from apathy. The most recent AGM, for example, did not proceed because quorum was not met, which seems incredible considering that the condo is almost $5 million in the red and had posted a quarter-million dollar loss in its most recent year-end. Owners being asleep at the switch often leads to catastrophe.
In all the circumstances, it seems wise for the court to have ordered the application appointing an administrator to be heard prior to any vote for removal of directors. It is just regrettable that the animosity between these parties made these steps necessary, adding further woe to a community already in crisis.
See: MTCC 710 v. Unit Owners, 2010 ONSC 1873 (CanLII)