Parties seeking costs awards from the CAT must understand that the Tribunal has the discretion to award costs: even if a party is entirely successful on their claim, there is no guarantee it will receive its full costs, if any. In January 2022, the CAT published a practice direction which informs the public how the CAT will exercise its discretion based on the common principles of proportionality, reasonableness and nature of the parties’ conduct.
Though the practice direction aims to provide clarity on the Tribunal’s discretion to award costs, a recent CAT decision leaves us with less certainty than we hoped.
A condo started a CAT application against a unit owner for repeatedly violating its noise and nuisance provisions by playing loud music at all hours. The owner told the property manager that the loud music was intended to drown out violent sounds from an adjoining unit, but that owner otherwise did not participate in the CAT hearing. In their absence – and on the basis of the condo’s evidence – the CAT held the owner was in violation of the condo’s Declaration and Rules.
In seeking full indemnity costs from the owner, the condo relied on three different – albeit overlapping and similar – indemnity provisions in its Declaration and Rules. The CAT recognized that:
- Despite receiving multiple warnings before the condo brought its application, the owner “has persistently shown a lack of response to overtures to comply”;
- It would be unfair for other owners to be called upon to subsidize the costs of enforcing compliance against another owner; and
- The condo’s legal fees were overall reasonable.
Despite these findings, the CAT only awarded the condo 50% of its legal fees.
A positive highlight of this decision – Reasonableness is the prevailing principle
Although the condo’s noise/nuisance prohibitions in its governing documents were worded such that the noise/nuisance could be “in the opinion of the board or the manager”, the CAT held that the exercise of this discretion must still be reasonable. We commonly see unfettered language like this but the CAT held that “bald assertions by a manager would not suffice in the absence of valid objective evidence assessed in good faith”.
This is critically important and it reinforces the spirit of fairness embedded in the Condo Act.
Lingering confusion – Making sense of indemnification provisions, Amlani and the CAT
Returning to costs and indemnification, the CAT missed the mark. In awarding only 50% of the condo’s legal fees, it noted that the documents submitted by the condo “suggest some challenges in the owner’s life situation”.
We are sensitive to the host of potential issues that could affect how or why an owner might behave the way they do. Even in the face of crystal-clear breaches, issues such as mental illness, disability or other personal matters often call for sensitivity, discretion and accommodation from the condo. But on this point, the Tribunal’s decision does not elaborate on what these challenges were or how the CAT weighed them. For the CAT to make a discretionary decision to reduce the condo’s entitlement, its decision needs to be better articulated to allow the public to appreciate the Tribunal’s reasoning.
The CAT also suggested that the indemnity provisions “did not expressly refer to compliance costs” and that “one provision of the Declaration only spoke to costs relating to damage to property”. It isn’t clear how much weight the CAT gave this in coming to its decision, but one of the Declaration provisions and the Rule the condo relied on was sufficiently broad to capture “any losses, costs or damages incurred by the Corporation by reason of a breach of any rules and regulations”.
In my view, the CAT overlooked the broad reach of the condo’s indemnity provision. It overemphasized whatthe costs relate to(i.e. compliance or common element damage) rather than why the costs were incurred(i.e. by reason of an owner’s breach).
The CAT’s discussion on the drafting forces us to revisit the Amlani saga. I am a vocal supporter of the Amlani decisions (see here and here) and I will always emphasize that the case law is clear that condos can only seek compliance-related costs pursuant to a court order (or an order from an arbitrator or Tribunal such as the CAT) and this cannot be circumvented through deft drafting of an indemnity provision. The problem I anticipate is that by distinguishing “costs related to the common elements” and “costs generally” in an indemnification clause, the CAT invites crafty lawyers and condo boards to continue overstating the drafting of an indemnification provision. How an indemnity provision is drafted is important with respect to what costs can be recovered (i.e. compliance costs, costs relating to physical damage, any costs, etc.) but it cannot change how those cost are recovered: compliance costs are only recoverable once a breach has been proven in court, CAT or arbitration and costs are awarded accordingly.
There’s no denying the work the CAT has done – and continues to do – in providing justice and fairness in the condo community. Since expanding its jurisdiction to capture nuisance issues, the CAT has done a great job at issuing decisions that are legally-principled and balance corporation and owner interests. But of course, there’s always room for improvement, especially as it relates to costs.
With clearer decisions and less hesitation to award costs against owners who breach the governing documents, the CAT has the potential to move from the final arbiter of justice to the preeminent deterrent for non-compliance.