September 13, 2022 - By Victor Yee

Condos are Stuck Between the Victim and the Violator Due To Chilling Effect of CAT's No-Costs Presumption

 

With the January 1^st 2022 expansion of the Condominium Authority Tribunal (the “CAT”) into disputes over noise and other nuisances, the CAT has quickly become the default venue for many day-to-day condominium enforcement matters.  In addition to the CAT’s jurisdiction over pets, vehicles, parking, and storage disputes, the Tribunal is now where most condominium corporations can expect to escalate their enforcement matters to – instead of the Ontario Superior Court of Justice or private Mediation/Arbitration.

However, the CAT’s default no-costs regime means that currently, the CAT is not inclined to award even a successful condominium with its full legal costs of enforcement.

Whenever the CAT declines to award full costs, that has a chilling effect on condominiums throughout the province.  Many Boards consequently refuse to enforce against any violation that falls within the CAT’s jurisdiction, because they simply don’t have the budget for a sudden increase in unrecoverable legal expenditures.  Even having the Condominium Manager send out an email to the violating unit owner might trigger said owner to bring their own CAT Case against the condominium; for example, in Douglas v. Simcoe Condominium Corporation No. 148, 2022 ONCAT 20 (“Douglas”), the Manager’s compliance email to the unit owner about their tenant’s parking led to the owner filing a successful CAT Application against the condominium, and the CAT awarded $2,524.47 against the condominium for causing the tenant to terminate their lease early.

As a result, condos stop enforcing the rules of their community against violators, out of fear that the violator might suddenly take the condominium to the CAT; and even if the condominium is entirely successful in defending their enforcement in the CAT, the condominium is still out-of-pocket for several thousands of dollars in irrecoverable legal fees since the CAT rarely awards full costs.

This chilling effect on communal enforcement throughout Ontario ignores or minimizes the very real effects that violations have on everyday people living in condos; consider, for example, the E.R. nurse living next door who suffers nightly noise disturbances from the violator’s unit, or the cancer patient who suffers daily odour intrusions from a smoking neighbour.

Those victims may themselves bring a CAT Application against the condominium corporation, for failing to enforce compliance against the violator.  So condos are stuck in a catch-22:

• If they enforce against the violator, they’re out-of-pocket for their legal fees even if they win at the CAT;
• If they don’t enforce against the violator, they could get sued by the victim and then be out-of-pocket anyway for monetary damages and/or their legal fees to defend against the victim’s lawsuit.

Recently, in Toronto Standard Condominium Corporation No. 1791 v. Franklin, 2022 ONCAT 96 (“Franklin”), the CAT held:

“… enforcing compliance – which includes, at times, litigating – is part of “doing business” for a condominium corporation. Not all issues of non-compliance will or should result in a condominium being awarded the full or even partial legal costs associated with enforcing their rules. This is the kind of activity for which unit owners contribute to the common expenses. Consistent with this, the Tribunal’s Rule 48.1 is clear on the fact that “[t]he CAT generally will not order one Party to reimburse another Party for legal fees or disbursements (“costs”) incurred in the course of the proceeding.”” [emphasis added]

But the on-the-ground practical reality for non-profit condominiums in Ontario is that when it comes to setting the annual zero-based budget every year, the Board has no concrete idea what to set the line item for legal expenditures at.  Given that it takes only $25 for a unit owner to file an online CAT Application with the 24/7 portal, we have seen condominium corporations with $0 in legal expenditures for several years, all of a sudden have to spend more than $15,000 due to an unexpected CAT Application by a disgruntled owner. Even if that CAT Case is entirely frivolous, the CAT’s refusal to award full legal costs to the successful condominium throws an unanticipated wrench into the Board’s budget-setting.

With the cost of living increasing everywhere in Ontario, across multiple line items in both condominium budgets and personal budgets, the CAT’s reluctance to award full costs against a particular violator is having a very real impact on the everyday lives of law-abiding condo dwellers.

 

CAT Finds That The History of Priors Actually Mitigates – not Exacerbates – Costs Award

In Franklin, the condominium corporation (as represented by our office) brought a CAT Application against a unit owner who had continued to violate the community’s rules regarding noise disturbances, after years of non-compliance.  The CAT ultimately found that the unit owner was in violation of the noise provisions, and ordered the unit owner to comply.  However, the CAT declined to award the condominium with its full legal costs of $17,796; instead, the CAT awarded $3,700 to be paid by the unit owner within 30 days.

The unit owner himself had asked the Tribunal to award him with $21,652 for his own legal costs incurred with his own paralegal.  His paralegal only joined the CAT Case in the online Stage 3 Hearing, not the Stage 1 Negotiation or Stage 2 Mediation phases that the condominium’s counsel had participated in – so the unit owner’s own legal costs for his paralegal in the Stage 3 Hearing was significantly higher than the condominium’s legal costs for its lawyer.

Even though the courts of Ontario have long used the other side’s quantum of their own legal costs as a yardstick to measure the reasonableness of the successful side’s request for legal costs, the CAT nevertheless decided that the long acrimonious history between the parties actually signaled that less legal costs should be awarded to the condominium – not more.

In Franklin, the condominium corporation had previously defended against an unsuccessful HRTO Application brought by Mr. Franklin against the condominium and its then-Manager, alleging racial discrimination against him: Franklin v. Malvern Condominium Property Management, 2017 HRTO 94.[1]  The condominium also successfully defended against a Small Claims Court action brought by Mr. Franklin against the condominium and its then-Manager, for charging back his unit for a water leak incident: Franklin v. Malvern Condominium Property Management, 2018 CarswellOnt 18113.[2]

This particular owner had even been charged with Criminal Harassment of the condominium’s Board President, and with Dangerous Operation of Motor Vehicle, after an incident in the condominium’s underground parking garage where the unit owner hit the President with his vehicle while the President was in the garage performing inspections.[3]

Even with respect to the noise disturbances themselves, the condominium submitted evidence to the CAT that the complaints about noise disturbances emanating from the owner’s unit dated back to June 3^rd 2018 and spanned several years.  Prior to filing the CAT Application on February 8^th 2022, the condominium’s counsel issued multiple legal enforcement letters to the unit owner, including one that specifically identified the noise disturbances as emanating from his TV.  The CAT was also given evidence that when a neighbour knocked on his door to ask him to turn his TV volume down, the unit owner instead turned the volume up.

As part of the condominium’s previous enforcement efforts against the unit owner, the parties entered into a written Compliance Agreement – prior to anyone knowing that the CAT would be created and take over noise disputes on January 1^st 2022 – which explicitly required the unit owner to comply with all of the provisions of the Condominium Act and the condominium’s governing documents, otherwise the condominium could charge back 100% of its enforcement costs to the owner’s unit.  This Compliance Agreement was even negotiated between the condominium’s lawyer and the unit owner’s own lawyer at the time, and the broadness of that explicit requirement in the Compliance Agreement included the noise provisions in the condominium’s governing documents.

Yet despite all of this prior history, the CAT found that: “… there is a very high level of acrimony not just between the two parties in front of me, who have a history of legal disputes between them, but also between Mr. Franklin and his neighbours.”  Instead of seeing this prior history of intransigence as an exacerbating factor that warranted a higher costs award, the CAT took the “long history of continuing conflict with Mr. Franklin and what may very well be a legitimate concern over other behaviors by Mr. Franklin” as a mitigating factor, which apparently distinguished the case from the CAT’s 100% costs award in York Condominium Corporation No. 229 v. Rockson, 2022 ONCAT 46 (“Rockson”).

 

CAT Ignores Indemnity Clauses in Governing Documents

In addition to the written Compliance Agreement signed by the unit owner with the assistance of his own legal counsel, the condominium’s governing documents explicitly contained multiple indemnity clauses in the Declaration which stipulated that the condominium’s costs of enforcing against a breach of the governing documents were 100% recoverable against the violating unit, as well as a similar full indemnity clause in the Rules regarding noise.

For example, Article 2.2 of the Declaration explicitly stipulates:

“… any losses, costs or damages incurred by the Corporation by reason of a breach of any provision of this Declaration, or in any By-laws or Rules in force from time to time by any Owner, or by members of his or her family and/or their respective tenants, invitees or licensees shall be borne and paid for by such Owner and may be recovered by the Corporation against such Owner in the same manner as common expenses.”

As we’ve written about previously (here and here), such a widely-drafted indemnity clause in the Declaration allows the condominium to recover its legal costs of enforcement on a full indemnity basis against the violating owner’s unit.

Paragraph 4(g) of the “CAT Practice Direction: Approach to Ordering Costs” effective January 1^st 2022 states that one of the factors that the Tribunal considers when making a costs award is the condominium’s governing documents.

As the CAT noted in Metropolitan Toronto Condominium Corporation No. 736 v. Verstova, 2022 ONCAT 1 (“Verstova”), it would be “neither fair nor reasonable” for a unit owner to avoid having to pay for the full costs of their own violations, when said unit owner was aware of the indemnity provisions in the condominium’s governing documents.  In Franklin, not only was the unit owner statutorily obligated under Section 119(1) of the Condominium Act to comply with indemnity provisions in the governing documents, but he acknowledged in his signed Compliance Agreement that he would comply with the same.

Yet the CAT ultimately ignored these indemnity clauses in the condominium’s governing documents, and instead awarded only a lump sum of $3,500 in legal costs plus the $200 in CAT filing fees.

 

CAT Practice Direction Was of No Assistance Either

In addition to the indemnity provisions in the governing documents, the indemnity clause in the signed Compliance Agreement, and the unit owner’s long history of problematic behaviour, the condominium also relied on the in-CAT conduct of the unit owner and his paralegal representative during the Stage 3 Hearing to argue that a higher costs award should be given in Franklin.[4]

Paragraph 3(a) of the CAT’s Practice Direction states that another factor which the Tribunal may consider when awarding costs is, “Whether a party or representative’s conduct was unreasonable, for an improper purpose, or caused a delay or expense” [emphasis added].  As indicated by the operative word “or” in that paragraph, the CAT is not required to find that the unreasonable or improper conduct in the Stage 3 Hearing actually caused additional delay or expense to the other side – merely that the conduct was unreasonable or for an improper purpose.  The courts of Ontario have held that awarding the successful party with their legal costs is intended to not only indemnify the successful litigant for their legal costs spent in litigation, but also to discourage or punish inappropriate behaviour by the other side during the conduct of the proceeding.

Paragraph 3(f) of the CAT’s Practice Direction provides yet another factor for the Tribunal to consider when deciding costs: “Whether a Party has failed to follow or comply with a previous order or direction of the CAT” [emphasis added].

During the CAT Stage 3 Hearing, the unit owner repeatedly switched his paralegal in-and-out as the Primary Representative in the online portal, so that the unit owner could make his own unfounded accusations – including, on June 18^th 2022, the unfounded accusation that the condominium’s counsel was trying to malign him because he is “black” (which was an accusation that the unit owner had previously levied in his dismissed HRTO Application).  The CAT repeatedly directed the unit owner to cease from such switching back-and-forth in the portal; on March 23^rd 2022 at 8:20 AM, on March 23^rd 2022 at 1:52 PM, on March 30^th 2022 at 12:37 PM, on April 22^nd 2022 at 1:24 PM, and on June 20^th 2022 at 2:40 PM.

The courts of Ontario have also held that where a unit owner makes false allegations of a scandalous nature (such as accusing opposing counsel of racism) which are not supported by any evidence, the condominium is entitled to a higher costs award.[5]

The CAT's Decision in Franklin even stated that their deliberation on costs is to be “guided by the Tribunal’s “Practice Direction: Approach to Ordering Costs””.  Yet despite this stated acknowledgment, it does not appear that paragraph 3(a) and paragraph 3(f) of the Practice Direction were actually applied in Franklin.  The Tribunal held that most of the “delay or expense” was borne by the CAT Member themselves and not the condominium’s counsel – even though paragraph 3(a) of the CAT’s Practice Direction does not stipulate that the additional delay or expense must be borne by the other side in order to attract a higher costs award.  The Tribunal’s Decision also did not reference the scandalous allegation of racism made by the unit owner himself in switching back-and-forth with his paralegal, which were repeated violations of the CAT’s explicit directions to refrain from doing so.

 

Light At the End of the Tunnel?

Ultimately though, the CAT in Franklin did lay the groundwork for the condominium’s further enforcement against the unit owner in the future if necessary.  By ordering that the unit owner must “immediately comply” with the noise provisions in the condominium’s governing documents, the condominium can now escalate its legal enforcement efforts to the Ontario Superior Court of Justice if the unit owner violates the noise provisions again – and recover 100% of its legal costs there.

At paragraph 31 of the CAT’s Decision in Franklin, the Tribunal warned:

“Having now been ordered to comply with the noise provisions in the governing documents, should TSCC 1791 be required to pursue further litigation to resolve the issue of noise emanating from his unit, Mr. Franklin risks being held liable for potentially substantial legal costs.”

As per our previous article (here), the Superior Court has held that where a party is required to enforce a previously-issued CAT Order against the violator, the Superior Court can award 100% full indemnity legal costs against the violator.  The Superior Court is not hampered by the CAT’s default presumption against awarding legal costs – and in fact, the Superior Court’s default starting point is that costs should be awarded in favour of the successful party.

Our case of Tharani Holdings Inc. v. Metropolitan Toronto Condominium Corporation, 2020 ONSC 189 (“Tharani”) was the first – and perhaps still the only, to date – publicly reported case of a CAT Order being enforced in the Superior Court.  In Tharani, Justice Sanfilippo held that, in the Superior Court:

“The general principle is that, absent special circumstances, “costs follow the event” … the discretion not to award costs to a successful party “should be exercised sparingly” and the general rule that a successful party is entitled to costs “should not be departed from except for very good reasons”.” [emphasis added]

The Superior Court also held that:

“I accept the Applicant’s submission that I should exercise my discretion to order costs on a full indemnity basis … An award of costs on a full indemnity basis makes clear that there are ramifications for failing to comply with the Tribunal’s Order … and is consistent with the principles underlying section 134(3)(b)(ii) of the Act.” [emphasis added]

Section 134(3)(b)(ii) of the Condominium Act authorizes the Superior Court to require the violating unit owner to pay 100% of the legal costs incurred by the condominium corporation in the litigation.  The Superior Court also has the power to order the forced sale and/or vacature of the violator’s condominium unit – whereas the CAT does not.

That might ultimately be the saving grace for condominiums, in this era of ever-increasing budget line items and the ease by which a condominium can suddenly find themselves hauled before an online Tribunal that, more often than not, declines to award full costs.