Appellate Courts Weigh in on Business Judgment Rule – 2.0.

Friedrich v. Metropolitan Toronto Condominium Corporation No. 1018, 2019 ONCA 216

Introduction

Friedrich v. Metro Toronto C.C. No. 1018, 2019 ONCA 216, stems from an incident of vandalism in a common element parking garage. The case began in the Small Claims Court and made its way up to two appeal courts. The issue involves a unit owner who disagreed with the decisions made by the Board of Directors. Much like the case of Patterson v. York C.C. No. 70, 2018 ONSC 3735 (see our December 11, 2018, article), the Courts are reluctant to impose their own decisions over those of a condominium’s board and will continue to apply the ‘Business Judgement Rule’ when unit owners challenge the reasonable decisions of a board of directors.

Facts

The unit owner was a resident of the Condominium, which contained a common element parking garage. The Board of Directors determined that the security system required upgrades and changed the existing telephone-entry system to a motion-sensing system and hired a licensed security company to monitor it. The security company implemented protocols that provided for active rounds every two hours. Despite the upgraded and increased security, the unit owner’s vehicle was vandalized. The unit owner then commenced an action against the Condominium in the Small Claims Court claiming the Board was negligent in its decision.

The Small Claims Court judge determined that although a board of directors owes a duty to exercise reasonable care of the common elements, the Board here made a judgement call to change the security system and the increased security protocols implemented met that duty. As the unit owner had failed to show that the Board’s decision fell below the standard of care, deference was owed to the Board and the action was dismissed.

The unit owner appealed the decision to the Divisional Court (that hears appeals from Small Claims Court). The Divisional Court agreed with the lower court’s decision and, that absent evidence the decision was unreasonable or that it foreseeably caused the owner’s loss, there was no breach of the standard of care and the Board’s decision would stand. Justice F.L. Myers of the Divisional Court aptly stated in part, “Under the Condominium Act, 1998, the Board’s business judgement is entitled to deference. It was open to the Appellant to prove the Board’s decision was unreasonable…”.

Again, the unit owner appealed; this time to the Court of Appeal (Ontario’s highest court). The Court of Appeal ultimately dismissed the appeal on the basis that it did not meet the standard for leave to appeal; being that the issue was not of public importance and of broader significance than to the case at hand. Despite that, the Court of Appeal cited the Divisional Court’s ruling that the Board’s business judgement is entitled to deference; costs were awarded to the Condominium.

Bottom Line

The Divisional Court’s statement, and the Court of Appeal’s reiteration, that, “[u]nder the Condominium Act, 1998, the Board’s business judgement is entitled to deference,” further strengthens the proposition that, absent blatant unreasonableness, board’s decisions will not be second-guessed by the courts. Although boards should always strive to be reasonable when making decisions concerning the common elements and assets of a condominium, their mandate is now clear. Boards are the parties elected by the ownership at large to make just these sorts of decisions and the courts will not interfere absent strict proof of unreasonableness.

Written by Christopher Mendes, edited by Robert Mullin.