Court orders that temporarily deprive owners of voting rights can be reconciled with democratic governance of a strata corporation: BC Supreme Court


5 October 2018

By Kevin Zakreski

Norenger Development (Canada) Inc v Strata Plan NW 3271, 2018 BCSC 1690, is the latest proceeding in a long-running dispute between the sections of “a two-building condominium development known as the Richmond Landmark,” which has already featured notable decisions from the BC Supreme Court and BC Court of Appeal. These two decisions had some interesting things to say about the nature and limits of strata-property governance, particularly in a strata corporation with sections created under part 11 of the Strata Property Act. This trend continued in the third decision.

The “central issue” of this third proceeding was “the meaning and scope of s. 165 of the Act,” with a particular focus on these two questions:

  • Does s. 165 authorize the court to override the statutorily-created democratic rights of strata owners to make decisions about their shared spaces and the costs associated with them?
  • If so, to what extent?

These issues were considered against the factual backdrop of a highly dysfunctional strata corporation:

In June 1990, Norenger created the Strata Corporation under the Condominium Act, R.S.B.C. 1979, c. 61, the predecessor to the Act. The Bylaws validly established the Commercial and Residential Sections. However, they were deficient in a number of other significant respects.

Importantly, the Bylaws make it impossible to elect a strata council that complies with s. 25  of the Act. This means that the body responsible for day-to-day governance of a strata corporation has never existed at the Landmark. The Bylaws require a minimum of two representatives from each section to be on the strata council, and require two strata council members to be from each “Section Executive.” Each Section Executive must consist of all that section’s owners if there are less than four owners in a section. As Norenger is the only owner in the Commercial Section (and has always been the only owner) it cannot have two representatives on strata council, and therefore there is no strata council.

The Bylaws also contain ambiguous and/or contradictory provisions with respect to responsibility for the costs of maintenance and repair of various items, including recreational facilities, elevators, and fixtures. The inconsistencies arise because these Bylaw provisions do not advert to the differences between common property and [limited common property], or to the responsibilities of each Section that are set out in other parts of the Bylaws. As a result, there is no mechanism to settle cost allocation disputes.

These conditions led to the appointment of an administrator under section 174 of the act, but even this was unable to break the impasse:

It is now 2018. Little has changed. The Administrator has been in place for seven years. The Landmark is in even greater disrepair than it was in 2015. The pedestrian bridge has been closed as unsafe. Although the parties have been able to agree on some repairs, the impasse and dysfunction commented on in Norenger BCSC  and Norenger CA persist.

Against this backdrohttp://canlii.ca/t/gnq90p, this proceeding turned to a point made in the court of appeal’s decision that “s. 165 might authorize the relief sought.” The administrator, the strata’s residential section, and Norenger each sought orders under this provision.

The court began its analysis by addressing the democratic character of strata-corporation governance:

As the Court of Appeal emphasized in Norenger CA, democratic governance lies at the core of the Act (at para. 63). However, the statute establishes a particular framework within which that governance is exercised, one in which there are checks and balances that promote the underlying goals of the Act in facilitating community living among people with different interests, financial resources, and other life circumstances.

After citing section 52 and section 174, the court characterized section 165 as another example of an “[exception] to the norm of majority rule [that] allow[s] judicial intervention when necessary to protect and promote democratic principles”:

In my view, s. 165 is another such provision. Like the other sections I have mentioned, it is available when owners or other interested persons consider that the strata corporation is not able to function in compliance with the Act, bylaws, regulations, or rules. Where the court agrees that this has occurred, s. 165 empowers a judge to make only and all the orders necessary to allow the strata corporation to resume operating in compliance with the general democratic governance model in the Act and regulations, as tailored to the needs of the particular strata corporation by its bylaws and rules.

Construed in this way, s. 165 is not anti-democratic. While the 3/4 majority requirement for changes to the bylaws and the unanimity requirements for the Unanimous Resolutions reflect the legislature’s view that such matters are especially important, statutory voting rights are not absolute. Specifically, they cannot be exercised in a manner that causes the Strata Corporation to contravene the Act, regulations, bylaws and rules. This is because it is the Act (including s. 165), regulations, bylaws and rules which comprise the strata community’s “democracy.”

The need for judicial intervention by making appropriate orders under s. 165 is underscored by the facts in this case. The Landmark has never functioned as a democracy in compliance with the Act. For its first twenty years, it was akin to a “benevolent dictatorship” run by Norenger seemingly without dispute. However, when the Residential Section owners asserted their democratic rights to disagree, the Strata Corporation became dysfunctional, and Norenger sought the appointment of an Administrator. As the Court of Appeal determined, the Administrator could only exercise the powers of the Strata Corporation, which do not include abrogating voting rights. The evidence satisfies me that the Administrator has used every power available to him to establish a framework for democratic governance for the Landmark. He has not succeeded. There is no prospect that any changes to the Bylaws and cost allocation formula will be approved by votes that satisfy the 3/4 approval and unanimity requirements of the Act.

It would be ironic and, in my view, contrary to the purposes of the Act to interpret s. 165 to preclude recourse to the courts in these circumstances. That would mean that Norenger’s failure to create bylaws consistent with the democratic governance model established by the Act could never be changed. If s. 165 authorizes the abrogation of voting rights at all, this case calls for such a remedy.

As I have explained, interpreting s. 165 as empowering the court to abrogate voting rights if appropriate in limited circumstances is not “anti-democratic” or contrary to the purposes of the Act. The Commercial Section’s democratic rights are important but they are not absolute. If they are exercised in a manner that prevents the Strata Corporation from complying with the Act, by preventing the adoption of bylaws that would bring the Strata Corporation into compliance with the Act’s democratic governance model, s. 165 is available as a remedy.

***

I conclude that s. 165(c) can abrogate voting rights, including requirements for approval by special majority or unanimity, where doing so is “necessary to give effect to an order” made under s. 165(a) or (b). Applying the principles outlined in Strata Plan LMS 4385, in cases such as Chorney v. Strata Plan VIS770, 2011 BCSC 1811 (CanLII); Strata Plan NW 499 v. Louis, 2016 BCCA 494 (CanLII); and Campbell v. Strata Plan NW1018, 2014 BCSC 2058 (CanLII), and in light of the importance of those rights, the court must be careful to ensure that an order affecting voting rights is no more than truly necessary to bring the strata corporation into compliance with the Act.

In view of this conclusion, the court made orders extending the appointment of the administrator, approving new bylaws, and adopting new formulas for determining a strata lot’s share of a contribution to the operating fund, the contingency reserve fund, or a special levy. The court also ordered that “the Strata Corporation must stop contravening the Act by”:

  • Failing to manage and maintain the common property and common assets of the Strata Corporation for the benefit of the owners;
  • Failing to repair and maintain building components; and
  • Allocating expenses to owners contrary to the bylaws and the Act.

In addition to these general comments on strata-corporation governance, the court also made the following observations on the powers of a section:

The subsections of s. 194(2) do not expressly refer to the other sections of the Act that relate to the powers conferred by s. 194(2). For example, s. 194(2)(a) does not expressly refer to the sections governing operating and contingency reserve funds (ss. 9598). It is clear from the language of ss. 190(1) and 194(2) that the other provisions of the Act relating to the matters listed in s. 194(2) are intended to govern a section’s exercise of those powers in the same way that they would govern the strata corporation’s exercise of those powers in a strata corporation that does not have sections. Otherwise, the sections of a strata corporation would effectively be exempt from limitations on their powers that the legislature deemed necessary for the strata corporation as a whole.

It follows from this that, when applied to a strata with sections, s. 72 does not prohibit allocation to a section of responsibility for the repair and maintenance of common property that relates solely to that section.


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