



COURT OF APPEAL FOR ONTARIO

CITATION: Durham Condominium Corporation No. 45 v. Swan, 2015 ONCA 590

DATE: 20150901

DOCKET: C59938

Doherty, Pepall and Huscroft JJ.A.

BETWEEN

Durham Condominium Corporation No. 45

Applicant

(Respondent)

and

Leslie Arthur Swan

Respondent

(Appellant)

Howard Wright, for the appellant

Timothy Duggan, for the respondent

Heard:  July 2, 2015

On appeal from the order of Justice Alexander Sosna of
    the Superior Court of Justice, dated January 18, 2013.

ENDORSEMENT


I



[1]

The appellant is a unit owner in and a former director of the respondent
    condominium corporation. He appeals, with leave, from a costs order made
    against him in the context of an application brought against him by the
    respondent.

[2]

The respondent sought costs on a full indemnity basis in the amount of
    $198,880.92, or on a partial indemnity basis in the amount of $126,855.22. The
    appellant asserted that he was indemnified against costs and submitted that none
    should be ordered. The application judge, Sosna J., ordered the appellant to
    pay costs of $45,000 to the respondent on a partial indemnity scale, inclusive
    of taxes and disbursements.

[3]

For the reasons that follow, we would allow the appeal and return the
    matter to the application judge for reassessment in accordance with the
    instructions set out below.


II



[4]

The respondent brought an application seeking the following orders under
    the
Courts of Justice Act
, R.S.O. 1990, c. C.43:

a)

A declaration that the appellant is a vexatious litigant;

b)

A declaration that the respondents Board of Directors has the authority
    to enter into contracts for third party management of the condominium;

c)

A declaration that the present property management
    company contract with MCD Enterprises (MCD) is binding; and


d)

An injunction prohibiting the appellant from having any
    contact with the respondents Board of Directors, MCD, and its principal,
    Catherine Debbert
.

[5]

The respondent also sought the following relief under the
Condominium
    Act, 1998,
S.O. 1998, c. 19:

a)

A declaration finding that the appellant, as a
    Director with the condominium corporation, failed to carry out his duties and
    exercise the care and diligence required of that office; and

b)

An order that the appellant remove, at his
    expense, the satellite dish installed on the common elements appurtenant to his
    unit and to restore, at his expense, the common elements to the condition they
    were in prior to the installation of the satellite dish.

[6]

The appellant brought a cross-application in which he sought the
    following orders:

a)

A declaration that Tammy Goan and Letitia Wise
    breached their duty of care as Board members of the condominium corporation;

b)

The removal of Goan and Wise from the Board;

c)

His reinstatement as Director and President of
    the Board;

d)

The appointment of an interim Director pending a
    meeting to elect new Directors; and

e)

Return of all documents held by MCD to the condominium
    corporation.

[7]

The application judge dismissed the respondents application that the
    appellant be declared a vexatious litigant and denied its application for an
    injunction barring the appellant from having any contact with the board of
    directors, MCD and its principal, but made several findings against the
    appellant. He found that the respondents board of directors had the authority
    to enter into contracts for third party management of the condominium; that the
    property management contract entered into by the board with MCD Enterprises was
    binding; and that the appellant failed to exercise the care, diligence and
    skill that a reasonably prudent person would exercise in carrying out his
    duties as a director of the condominium.

[8]

The appellants cross-application was dismissed in its entirety.

[9]

The key issue in dispute is whether the appellant is entitled to be
    indemnified for the costs and expenses he has incurred in the litigation. The
    relevant provisions of the
Condominium Act
provide as follows:

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.  1998, c. 19, s. 37 (1).

38. (1) Subject to subsection (2),
    the by-laws of a corporation may provide that every director and every officer
    of the corporation and the persons heirs, executors, administrators, estate
    trustees and other legal personal representatives may from time to time be
    indemnified and saved harmless by the corporation from and against,

(a) any liability and all costs,
    charges and expenses that the director or officer sustains or incurs in respect
    of any action, suit or proceeding that is proposed or commenced against the
    person for or in respect of anything that the person has done, omitted to do or
    permitted in respect of the execution of the duties of office; and

(b) all other costs, charges and
    expenses that the person sustains or incurs in respect of the affairs of the
    corporation.  1998, c. 19, s. 38 (1).

(2) No director or officer of a
    corporation shall be indemnified by the corporation in respect of any
    liability, costs, charges or expenses that the person sustains or incurs in or
    about an action, suit or other proceeding as a result of which the person is
    adjudged to be in breach of the duty to act honestly and in good faith. 
    1998, c. 19, s. 38 (2).

[10]

The
    respondent adopted By-law No. 1 in furtherance of the s. 38(1) authorization.
    Section VI(13) of this by-law provides as follows:

Every director or officer of the Corporation and his
    heirs, executors and administrators and estate and effects respectively, shall
    from time to time and at all times be indemnified and saved harmless out of the
    funds of the Corporation from and against:

a) all costs, charges and expenses whatsoever
    which such director or officer sustains or incurs in or about any action, suit
    or proceedings which is brought, commenced or prosecuted against him for or in
    respect of any act, deed, matter or thing whatsoever made, done or permitted by
    him in or about the execution of the duties of his office;

b) all other costs, charges and expenses which he
    properly sustains or incurs in or about or in relation to the affairs thereof;

except for dishonest or fraudulent act or acts.

[11]

The
    application judge criticized the appellants conduct. He found that the issues
    raised in the respondents application and the appellants cross-application
    were contentious largely because of the appellants numerous challenges to the
    law and facts, and rejected the appellants submission that he was a
    well-intentioned whistleblower as self-serving and groundless. The
    application judge found that the appellants inflexible and strident
    interpretation of the duties of the Board put the proper management of the
    condominium at risk, and that throughout he conducted himself in an
    inflexible, confrontational, dogmatic and counterproductive manner.

[12]

In
    the key passage concerning the availability of indemnification, the application
    judge stated, at para. 16 :

On these findings Swans submission that DCC 45 has the
    statutory and contractual duty to indemnify him for his costs pursuant to
    Section 37(1)(a) of the
Condominium Act
because as a Director, he
    acted honestly and in good faith is dismissed. This submission fails to
    recognize this courts findings that Swan as a Director failed to exercise the
    care, due diligence and skill that a reasonably prudent person would exercise
    in comparable circumstances. Given Swans confrontational inflexibility and
    misguided assessment of his duties as Director, Swan failed to meet this
    standard and rendered the Board dysfunctional.

[13]

In
    this court, the appellant argues that he enjoyed full indemnity and that his
    claim to indemnification should not have been rejected. The respondent argues
    that the application judge correctly concluded that the appellant had breached
    s. 37(1) of the
Condominium Act
as a whole. Alternatively, the
    respondent submits that indemnification is available only if a director is
    properly carrying out the business of the condominium in the execution of his
    obligations as a director, and the appellant was not doing so. The respondent submits,
    further, that indemnification is not available for an action brought by the
    appellant.

[14]

This
    court is at a significant disadvantage in dealing with this matter. Neither
    party in this case took out a judgment following the application judges
    decision, and during oral argument there was considerable uncertainty as to
    nature of the judgment that would have issued.

[15]

Nor
    is it clear how the application judge set the figure of $45,000, or what that
    figure covers. Neither the judges reasons nor the parties costs submissions indicate
    how much of this amount is attributable to the respondents application or the
    appellants cross-application.

[16]

The
    main difficulty, however, is that the application judges decision on the
    applicability of the indemnity provided by the respondents by-law is
    ambiguous. It is not clear whether the application judge made a finding of bad
    faith, negligence, or both. The two matters appear to have been conflated.  Although
    the application judge clearly finds that the appellant failed to comply with s.
    37 of the Act, (para. 46 of his reasons for judgment), it is not clear whether this
    conclusion was triggered by s. 37(1)(b) or s. 37 (1)(a) and (b).

[17]

If
    the appellant were found to have acted in bad faith  dishonestly or
    fraudulently, in the language of the by-law  he would be disentitled to the
    protection of the indemnity (in so far as it otherwise applies). By contrast, a
    finding of negligence alone would mean that the appellant was protected by the
    indemnity (again, in so far as it otherwise applies).

[18]

The
    appellant invited this court to substitute an alternative costs award, but it
    is not possible to do so on the information before the court. Accordingly, the
    appeal is allowed and the costs order is set aside. The matter is remitted to
    the application judge to determine the following:

1.

the applicability of s. 37(1)(a) and (b) of the Act and the by-law to
    the facts of this case;

2.

whether, and the extent to which, the indemnity applies;

3.

the quantum of costs and expenses, if any, covered by the indemnity; and

4.

the breakdown of the costs as between the application and the
    cross-application.

[19]

The
    appellant is entitled to costs on this appeal of $6,000, inclusive of taxes and
    disbursements, regardless of the outcome of the case before the application
    judge. Should the application judge determine the appellant is entitled to
    indemnification for the costs of this appeal on a dollar for dollar basis, this
    amount ($6,000) will be deducted (assuming it has been paid by the respondent).
    Should costs be awarded to the respondent, the costs payable to the appellant
    on this appeal ($6,000) will be set off against the costs awarded by the
    application judge.

Doherty J.A.

S.E. Pepall J.A.

Grant Huscroft J.A.


