Why The CAT Should Award Legal Costs, Part 3: Problematic Self-Representation By Boards Or Managers, And Scandalous Allegations By Unit Owners
As we pointed out in our 2 previous articles (here and here), the Condominium Authority Tribunal of Ontario (the “CAT”) should be awarding legal costs to parties when they are successful in their litigation. Since Condominium Managers should not be representing their condominium corporation clients at the CAT, that role either falls upon the Board members or the condominium’s legal counsel.
A) CONDOMINIUM MANAGERS CANNOT REPRESENT CLIENTS AT CAT
The courts of this province have ruled that a property manager cannot legally represent their client in Tribunal proceedings, without a proper license from the Law Society of Ontario (see our previous article here for a more detailed discussion).
On a practical level, this prohibition makes sense. Not only are Condominium Managers not usually trained in legal advocacy or administrative law, Condominium Managers are not typically insured to take on that type of role either. Managers are also stretched thin enough as it is, and likely do not have the time or energy to devote to advocating for their condominium client in a 24/7 online forum like the CAT’s online dispute resolution (“ODR”) portal.
Furthermore, it is often the Condominium Manager who first responded to a unit owner’s Request for Records and provided the Board’s Response to same. Most condominium Boards have delegated the record-keeping and record-disclosure role to their Condominium Manager. Yet it is precisely that Board’s Response, and the condominium’s failure to disclose the records requested, that causes the unit owner to seek the Tribunal’s intervention in the first place.
To then direct the Condominium Manager to represent the condominium corporation in the CAT proceeding and essentially defend their actions in responding to the Records Request – or to cover-up their own failures to fully comply with the complex requirements of the Condominium Act, 1998, S.O. 1998, c. 19 (the “Act”) and its various regulations thereto – puts the Manager in an awkward and potential conflict-of-interest position. If, for example, the proper course of action is for the condominium corporation to admit to the CAT that the Manager made an error in the Board’s Response to the Request for Records, the Condominium Manager who made that initial error and who now represents the condominium in the CAT may not be so keen to truly “promote and protect the best interests” of the condominium corporation over-and-above their own (despite being required to do so by Section 13 of the Code of Ethics Regulation under the CMSA).
B) BOARD MEMBERS SHOULD NOT REPRESENT CONDO AT CAT
This also applies to self-managed condominium corporations who do not employ a professional, licensed Condominium Manager. In fact, in a self-managed condominium, the party who issued the Board’s Response to the Request for Records is the exact same party who will now have to defend the condominium at the CAT – namely the Board, if the Board directs a Board member to represent the condominium at the Tribunal. Board members are most often volunteers with no expertise in legal advocacy, and with even less formal training in condominium law than Condominium Managers. Moreover, a Board member’s D&O policy may not provide coverage to them in the event of an error or omission made during the Board member’s advocacy on behalf of the condominium at the CAT.
Instead, condominium corporations should be hiring independent legal counsel to represent the condominium at the CAT. Lawyers and paralegals are trained in legal advocacy, have dedicated professional insurance coverage, and have the time and energy to devote to each case given that litigation is their full-time job; this is precisely what lawyers and paralegals have been practicing every day and have spent years honing.
The problem of Managers and Board members representing condominium corporations at the CAT has been demonstrated in what appears to be a trilogy of cases (so far) by the Tribunal; all involving Peel Condominium Corporation No. 389 (“PCC 389”) and its Board President, Azza Nefzaoui. Ms. Nefzaoui also appears to have been providing property management services without a license from the Condominium Management Regulatory Authority of Ontario (the “CMRAO”).
Ms. Nefzaoui is the sole director of Manifold PRO Management and Consulting Services Inc. (“Manifold PRO”), whose registered office address appears to be a unit of PCC 389. According to the CMRAO, both Ms. Nefzaoui and Manifold PRO are currently facing charges before the court under Section 34 of the Condominium Management Services Act, 2015, S.O. 2015, c. 28, Sched. 2 (the “CMSA”), for the unlicensed provision of condominium management services.
1) Mehta v. PCC 389 – April 7th 2020
In Surinder Mehta v. Peel Condominium Corporation 389, 2020 ONCAT 9 (“Mehta”), a unit owner accused the PCC 389 Board members of receiving financial compensation for their services. The unit owner requested various records from PCC 389, including contracts or agreements that PCC 389 has or had with management companies and any members of the Board. PCC 389, represented by Ms. Nefzaoui acting as the President of the Board, refused to disclose the majority of the unit owner’s requested records.
Ms. Nefzaoui represented PCC 389 throughout all 3 stages of the CAT process: 1) the negotiation stage between the parties, 2) the mediation stage with a Tribunal mediator, and 3) the adjudication stage with a Tribunal member. However, at the outset of the Stage 3 Adjudication, the unit owner requested that Ms. Nefzaoui should not represent PCC 389 due to her role as the Board President and the unit owner’s concerns about the management of the condominium.
Although the Tribunal ruled that Ms. Nefzaoui could continue acting as PCC 389’s representative in the CAT proceeding, in our view PCC 389 did itself a disservice by not retaining separate legal counsel to represent the condominium’s interests in this CAT proceeding and the 2 others that followed.
Ultimately, in Mehta the Tribunal ordered PCC 389 to pay the maximum amount of penalty allowed under Section 1.44(3) of the Act; namely, $5,000. This is the first, and so far only, case where the Tribunal has ordered the maximum $5,000 penalty against a condominium corporation.
At paragraph 16 of Mehta, the Tribunal ruled that although it is unfortunate that according to Ms. Nefzaoui, PCC 389’s Auditor suffered a heart attack and thus the annual audit was deferred, PCC 389 could have worked with a different accountant in the same company or hired a different accounting company to perform the annual Audit. Accordingly, the Tribunal held that PCC 389 failed to keep adequate record of its Audit, and had no “reasonable excuse” for refusing to provide this requested record to the unit owner. However, what perhaps was not pointed out to the Tribunal – and what could have been easily addressed by a condominium lawyer well-versed in the Act – is that the role of the Auditor is appointed by the owners at the Annual General Meeting, and cannot be simply switched to someone else by the Board mid-stream (unless the Auditor themselves submit a formal resignation or otherwise vacates their role).
At paragraph 21, the Tribunal noted that Ms. Nefzaoui asserted that no Board Meeting Minutes exist because no formal Board Meetings are held by PCC 389 – instead, because PCC 389 is a self-managed condominium, the Board simply deals with PCC 389’s business every day. According to the CAO’s Public Registry entry for PCC 389, the condominium corporation consists of at least 498 units, and is comprised of only four (4) directors including Ms. Nefzaoui. Yet it was Ms. Nefzaoui’s own assertion to the CAT that because the Board is essentially acting like a day-to-day management company for PCC 389, Minutes could not be kept of the business that the Board transacted apparently every day. The Tribunal consequently ruled that this was not a tenable argument, and that PCC 389’s failure to keep adequate Board Meeting Minutes amounted to an unreasonable refusal under the Act.
At paragraph 30, the Tribunal also found it incredulous for Ms. Nefzaoui to assert that no AGM Minutes existed because no AGMs were held since 2014.
Finally, in what appears to be one of the most striking aspects of this case, the Tribunal held at paragraphs 37 and 38:
“Throughout the hearing, PCC 389 took the position it is a self-managed corporation and thus does not have agreements with any condominium management company. This position was reinforced in Ms. Nefzaoui’s testimony where she states, “I am also testifying that PCC 389, self-managed corporation, does not have an agreement with any entity to receive property management services.” However, on cross-examination, Ms. Nefzaoui admitted that the management company “Manifold” had been appointed by the Board to “keep the office open and manage day to day items.” This clearly contradicts her earlier testimony. It was further revealed during cross-examination that Manifold is owned by Ms. Nefzaoui.
In denying that a property management company was contracted to oversee the day-to-day affairs of the building and then providing testimony to the contrary, Ms. Nefzaoui’s testimony only served to obscure the issue. Given the evidence, I accept Mr. Mehta’s submission that PCC 389 does have a contract with a property management company – specifically Manifold - and that this contract has been withheld without a reasonable excuse”. [underlining added]
If PCC 389 had instead hired an independent legal counsel to represent it at the CAT, then PCC 389 could have avoided this conflict-of-interest, its legal representative would not have simultaneously served as a witness for PCC 389, and its legal representative would have better prepared PCC 389’s witnesses for their testimony. In the very least, PCC 389’s independent legal counsel would have recognized that to repeatedly assert that PCC 389 was “self-managed” but then to produce testimonial evidence to the contrary, is a significant blow to PCC 389’s credibility and its counsel could have avoided such a death knell for its case.
The Tribunal found, based on the evidence Ms. Nefzaoui provided, that PCC 389 was not sufficiently aware, understood, or took seriously its legal responsibilities to maintain proper records and provide owners with the records they are entitled to under the Act. Accordingly, the Tribunal found that “a penalty at the top end of the scale is warranted”, and levied the maximum penalty of $5,000.
2) Mehta v. PCC 389 – April 13th 2020
In Surinder Mehta v. Peel Condominium Corporation No. 389, 2020 ONCAT 10 (“Mehta #2”), PCC 389 did not respond whatsoever to the unit owner’s formal Request for Records. PCC 389 did not participate in the CAT proceeding, and thus the Tribunal only received and considered the evidence and submissions of the unit owner.
The Tribunal ultimately found that the unit owner was entitled to most of the records he sought, and ordered PCC 389 to pay an additional $1,500 penalty – on top of the $5,000 penalty the CAT previously awarded against PCC 389 in Mehta.
On at least one main point, independent legal counsel retained by PCC 389 to represent it in the Mehta #2 proceeding could have assisted the Tribunal. At paragraph 19 of the Mehta #2 decision, the Tribunal struggled with the question of whether the bids by contractors for common element renovation projects are part of the records that condominium corporations are required to keep. The CAT decided not to address the issue altogether, due to the absence of any submissions from either the unit owner or PCC 389 regarding that topic.
However, a well-versed condominium lawyer could have advised the Tribunal that most condominiums’ procurement processes involve sealed bids, most contractors do not want their bids to be disclosed to the public, and that to order a condominium corporation to disclose its sealed bids could have a chilling effect on contractors willing to bid on condominium projects.
While we cannot guarantee that the involvement of legal counsel for PCC 389 could have mitigated or even wholly avoided the monetary penalty that the Tribunal levied against the condominium, the proper development of the common law should be of concern to the Tribunal as a whole – and that in order to effectively pursue that goal, the CAT could benefit from, in the very least, not discouraging the involvement of professional legal counsel.
3) Naqvi v. PCC 389 – April 29th 2020
In Syed Razi Haider Naqvi v. Peel Condominium Corporation No. 389, 2020 ONCAT 11 (“Naqvi”), another unit owner submitted a formal Request for Records to PCC 389, seeking the List of Owners and Mortgagees that the condominium is required to maintain under Section 46.1(3) of the Act (often called an “Owners List”). PCC 389, again represented by Ms. Nefzaoui, refused to disclose the Owners List, on the grounds that the unit owner had a purported history of disseminating private information on social media (which Ms. Nefzaoui failed to provide evidence to the Tribunal of) and on the grounds that PIPEDA applied (the Tribunal ultimately ruled that it did not).
On March 16th 2020, Ms. Nefzaoui requested an adjournment of the CAT adjudication to April 6th 2020, ostensibly due to the ongoing COVID-19 pandemic. The Tribunal granted the adjournment, but noted that Ms. Nefzaoui appears to have been physically present inside PCC 389’s Management Office during the adjournment period.
At paragraph 8 of Naqvi, the Tribunal noted that Ms. Nefzaoui did not re-join the CAT proceeding on April 6th 2020, and in fact failed to respond to multiple follow-up messages sent to her via the online portal and via telephone from CAT staff. Accordingly, the Tribunal continued the proceeding without PCC 389’s representative, and considered the closing submissions of the unit owner alone.
At paragraph 15 of the ruling, the Tribunal found that although Ms. Nefzaoui asserted that the unit owner had a history of circulating private information on social media, and may use the Owners List for commercial or criminal activities, Ms. Nefzaoui failed to provide any details to support such assertions. Because the unit owner had checked-off the tickbox in the Request for Records form that affirmed his Records Request was solely related to his interests as an owner (i.e. not for commercial or criminal activities), the Tribunal accepted the unit owner’s affirmation at face value.
At paragraph 21 of Naqvi, the Tribunal held:
“In this case, I find that the Respondent’s reasons for refusing to provide Mr. Naqvi with the requested Record of Owners and Mortgagees to be without merit. Ms[.] Nefzaoui provided no detail to support her testimony that Mr. Naqvi had inappropriately circulated and/or failed to safeguard personal information. And, by failing to return to the proceeding after its adjournment, she denied Mr. Naqvi the opportunity to cross-examine her on these allegations.”
Generally speaking, in order for a unit owner’s proceeding to arrive at the 3rd stage where a Tribunal member adjudicates their dispute and issues a public decision, that proceeding must first undergo the 1st and 2nd stages of negotiation and mediation. Although this author is not aware of what may have transpired between the parties in Naqvi during the first two stages, an effective legal counsel can usually obtain a settlement during the first two stages so that the proceeding is not required to reach the third stage – or, in the very least, is able to narrow down the scope of issues that must be adjudicated by the Tribunal member.
For example, if the Respondent condominium received legal advice indicating that their position in the litigation was untenable, then the condominium’s legal representative could have advised the Stage 3 Tribunal member at the very outset of the adjudication stage that the condominium is entirely willing to provide the Owners’ List in accordance with its legal obligations under the Act – and that therefore, the only issue left for the Tribunal member to briefly consider is whether a monetary penalty and/or the unit owner’s filing fees should be awarded.
In our experience as litigators at all levels of courts and tribunals in Ontario, adjudicators of all stripes – whether judges or Tribunal members – are often highly appreciative of the condominium’s efforts to concede certain grounds and make their decision-making job easier. More often than not, that can lead to a more favourable outcome for the conceding party.
C) GOING FORWARD: LEGAL COSTS SHOULD BE AWARDED
With the COVID-19 pandemic forcing our society to look at ways to migrate matters online so as to avoid the risk of in-person infection, and Ontario’s court system currently looking at more ways to transition more towards electronic means of filing and communication, the need for the online CAT to get things right is even more pressing.
With the Ontario government’s recent announcement that the CAT’s jurisdiction will be expanding on October 1st 2020 to include disputes regarding pets, vehicles, parking, storage, and chargebacks in relation to same, the CAT’s role as a wholly-online Tribunal will be even more important. Such disputes are likely even more contentious than the records disputes currently within the CAT’s jurisdiction, and will likely require even more evidence to be presented, legal arguments to be heard, and specialized condominium law knowledge to be utilized. Accordingly, the need for competent legal representation for both unit owners and condominium corporations alike will be even more apparent.
Yet the Tribunal’s existing Rules of Practice prohibit any party – whether it be a successful unit owner bringing a meritorious claim against a condominium corporation, or a condominium successfully defending against a frivolous claim by a unit owner – from recovering their legal costs absent exceptional circumstances. As we previously discussed (here), this discourages parties from hiring professionally-trained advocates to fight for their legal rights. There is little business incentive for paralegals or junior lawyers to step into this new CAT practice area, since they cannot advise their potential clients that they may be able to recover even a portion of their legal costs at the CAT. Even the Small Claims Court awards a successful party with their legal costs of up to 15% of the total damages at issue in the lawsuit.
1) Scandalous Allegations by Unit Owners
Most recently, in Lagan v. Carleton Condominium Corporation No. 331, 2020 ONCAT 30, the CAT declined to award any legal costs whatsoever to the condominium corporation, who was represented at the Stage 3 Adjudication by highly-competent counsel who specializes in condominium law in Ottawa. The condominium’s legal counsel was not even seeking her full legal costs of $12,980.88 against the unit owner, but rather was only seeking $7,500 as a costs award.
The CAT denied the condominium’s request for legal costs, citing Rule 33.1 of the CAT’s Rules of Practice, which state that the CAT will not award legal costs “unless there are exceptional reasons” (discussed in greater detail here). This overall no-costs-recovery rule in the CAT’s Rules of Practice is still in force as Rule 46.1 currently, and will remain in force even with the CAT’s update to its Rules of Practice effective September 21st 2020.
However, in this case of Lagan, the unit owner made several false and unproven allegations against the condominium, such as accusing a Board member of fabricating an email, and accusing the Condominium Manager of deliberately falsifying records with an “intent to deceive”. His false allegations significantly prolonged the total length of the CAT proceeding, and necessitated further evidence to be called upon by the condominium to disprove his false allegations.
A few years ago, the Ontario Superior Court of Justice, also in Ottawa, in the case of Carleton Condominium Corporation No. 396 v. Burdet, 2015 ONSC 1361, explicitly ruled that:
“Unproven allegations of fraud, bad faith, misconduct against another party, wanton, scandalous and vicious charges or improper conduct during the litigation have been considered sufficient reason to award costs on a scale of substantial indemnity […]
A cost award on the basis of full indemnity is exceptional but is justified where a party has unsuccessfully alleged dishonesty, illegality, and conspiracy or where the allegations or conduct by a party are “reprehensible, scandalous, or outrageous” [citations omitted]”. [underlining added]
The Superior Court’s ruling in Burdet was upheld by the Ontario Court of Appeal, and the unit owner’s appeal from that appellate ruling was further denied by the Supreme Court of Canada.
Yet despite the long history of case law from the courts of Ontario confirming that where a litigant makes false allegations against the other party of fraud or fabrication of evidence, a costs award is warranted, the CAT in Lagan still declined to award legal costs to the condominium corporation. Even if the CAT found that the Condominium Manager’s failure to produce the CCDC record to Mr. Lagan in a timely manner warranted its ruling that the condominium must pay a $150 penalty to the owner and the owner’s filing fees of $200, the CAT could have – and in our view, should have – awarded at least some of the legal costs sought by the condominium, due to the owner’s own scandalous allegations of fraud and fabrication of evidence.
The courts of Ontario have long held that the reason why such scandalous allegations, if unproven by the alleger, justify an “exceptional” costs award is because the victim of such false allegations can suffer damage to their reputation and allegers should not carelessly throw around allegations of fraud and dishonesty.
In Lagan, the owner’s false allegations of fraud against a licensed Condominium Manager may very well impact not only her reputation, but also her ability to renew or maintain her license with the CMRAO.
The CAT in Lagan even found that the unit owner’s “unwillingness to accept [the Condominium Manager’s] explanations and his attribution to her of an intent to deceive suggest he has some antipathy towards her”, but noted the owner represented himself throughout the CAT’s 3-stage process. Yet in Burdet, the unit owner represented himself throughout all 3 stages of his litigation against the condominium as well – in the Ontario Superior Court of Justice, the Ontario Court of Appeal, and in the Supreme Court of Canada – and all 3 levels of court agreed with the Superior Court’s finding that exceptional reasons existed to award the condominium with its legal costs.
Nevertheless, the CAT in Lagan declined to award legal costs to the condominium, on the basis of the CAT’s overall no-costs-recovery rule in its Rules of Practice.
2) Not Just Condos, but Unit Owners Too
Even where a unit owner is successful in his CAT application and the Tribunal finds that the owner’s Request for Records was entirely valid, the CAT does not typically allow the owner to recover his legal costs against the wrongful condominium. Instead, the unit owner is forced to spend thousands of dollars hiring legal representation to obtain an Order from the Tribunal compelling the condominium to comply with its legal obligations, without any adequate compensation for his costs. More often than not, the unit owner’s legal costs will exceed the $5,000 penalty cap at the CAT; and thus, not even a maximum penalty award by the CAT will cover his legal costs.
If the current amendments to the Condominium Act, 1998 are truly intended to be “protecting condominium owners” (as per the title of the Protecting Condominium Owners Act, 2015, S.O. 2015, c. 28), then unit owners should not be discouraged from hiring competent legal representation to hold their condominium corporations to account.
3) Opportunity for Change
The CAT’s Rules of Practice should be revised by the Condominium Authority of Ontario’s Board of Directors, so that costs are more routinely awarded to a successful party – regardless of whether the successful party is a condominium corporation or a unit owner.
With the mass resignation of 4 of the 7 CAO Board members and the consequent appointment/election of new Board members, the CAO is at a crossroads and can take this opportunity to finally recognize that both unit owners and condominium corporations are hampered by the CAT’s overall no-costs-recovery rule.
Both unit owners and condominium corporations, as well as the larger judicial system as a whole in terms of the proper development of the law, stand to lose when advocates are shut-out from the Tribunal.
All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.
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