Condo directors in Ontario are expected to exercise a certain degree of attentiveness, caution and prudence while carrying out their duties. This expectation is known as the “standard of care” and is set out in section 37(1) of the Condominium Act, 1998, which provides:
37. (1) Every director and every officer of a corporation in exercising the powers and discharging the duties of office shall,
(a) act honestly and in good faith; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
While the wording of this standard of care seems pretty simple, some directors don’t entirely understand what it means. A recent Superior Court case illustrates that some directors don’t understand it at all, or don’t care.
At paragraph 115 in Ballingall v Carleton Condominium Corporation No. 111, Justice Catherine Aitken provides this guidance to help directors understand their obligations and a clear example and description of what directors should never do:
A reasonably prudent director of a condominium corporation, attempting to meet his responsibilities as a director, would not undermine Board decisions, mislead unit owners as to the Board’s responsibilities and their efforts to meet those responsibilities, encourage unit owners to distrust the Board, undermine the legal advice from the Corporation’s legal counsel, mislead unit owners as to what that advice entailed, provide his own legal advice to unit owners, and on one occasion post to his personal website legal advice received by the Board without the consent of the Board. A reasonably prudent director, acting in good faith, would not make the Board dysfunctional, would not promote antagonism and dissent on the Board, and would not threaten other Board members. A reasonably prudent director would not put his own economic interests ahead of the legitimate interests of all categories of unit owners. A reasonably prudent director would seek a compromise that respected the disparate, but legitimate, interests of all unit owners in the context of the community established by the Corporation’s Declaration, By-laws, and Rules.
Justice Aitken went on to find that CCC 111 director John MacMillan breached his obligations as a director under s. 37(1) of the Condominium Act. Specifically, he did not act in good faith in regard to the Board’s obligation to enforce the single family residence restriction in the Declaration in a way that took into account the legitimate interests of all unit owners. The specific findings as to the director’s conduct summarized in the quote above are surprising.
It’s not yet clear what will ultimately flow from the court’s finding that this director breached his standard of care, but things will surely end badly for that individual.
Because the case covers a wide variety of interesting condo topics and is both entertaining and informative, it’s a must-read. And if you’re a condo director doing some or all of the things that the director in this case has done, you’re doing it wrong.
Although we’re not yet half-way through 2015, this may be our winner for the “condo quote of the year” competition. It’s also a strong contender for our annual “top 10 condo cases.”