BC Supreme Court releases judgment in long-running commercial-strata dispute

BC Supreme Court releases judgment in long-running commercial-strata dispute

January 14, 2016

BY Kevin Zakreski

The Supreme Court of British Columbia has just released its trial judgment in The Owners, Strata Plan LMS 3259 v Sze Hang Holding Inc, 2016 BCSC 32, marking the latest chapter in a dispute that stretches back to 2001 and that has already generated two decisions from the court of appeal— The Owners, Strata Plan LMS 3259 v Sze Hang Holding Inc, 2012 BCCA 196 and Extra Gift Exchange Inc v The Owners, Strata Plan LMS3259, 2014 BCCA 228.

The case involved a “commercial strata corporation” in the city of Richmond, which was made up of “265 strata lots: 190 lots are for business use, 73 strata lots are parking stalls and 2 strata lots are for signage.” The plaintiff was the strata corporation and the defendants were “owners of two strata lots.”

The court described the nub of their dispute in the following words:

A dispute arose between the parties as a result of, among other things, fines for bylaw violations assessed against the defendants by the Strata Corporation and costs incurred in relation to the removal and storage of various items left by the defendants outside their strata unit. The fines were for failing to keep their stores open during the designated mall hours and for posting notices in their units which were intended to criticize and embarrass the Strata Corporation.

The parties viewed their dispute in radically different terms. For the plaintiff, it was “straightforward debt claim arising from the defendants’ contraventions of the bylaws and for costs related to remedying bylaw infractions.” For the defendant, it was something much darker—“a vindictive and oppressive campaign engaged in” by the plaintiff and the members of its strata council.

In the court’s view, the case was “complicated by the number of legal actions between the parties” and “the level of animosity that developed.” All of this led to a highly detailed judgment running to 270 paragraphs. That judgment tackled four issues:

• Were the plaintiff’s bylaws valid?
• Did the defendants contravene the bylaws and did the plaintiff follow the proper procedure in enforcing its bylaws?
• Was the plaintiff significantly unfair to the defendant in enforcing its bylaws?
• Did the plaintiff breach its fiduciary duty to the defendants?

The court made the following rulings on the issues.

Were the plaintiff’s bylaws valid?

This issue turned on the existence of proxies used to vote on resolutions adopting the bylaws and whether those proxies were improperly obtained. On the first point, the court found on the evidence that “proxies were obtained,” rejecting the defendant’s “contention that they were fabricated or never existed.” On the second, the court considered whether “the plaintiff, through the strata council, obtained proxies by improperly and arbitrarily imposing fines and then waiving the fines which had been incurred by strata owners.” This argument, again, failed on “a consideration of the whole of the evidence.”

The court also considered an argument that “the strata council allowed proxy votes for units which were ineligible to vote due to outstanding fines.” This argument was based not on actual fines, but on the defendants’ inference that the high vacancy rate in the strata property should have resulted in fines being levied against the owners for failing to operate their businesses. The court was reluctant to follow this reasoning. But it did examine the governing statutory provision, section 116 of the Strata Property Act. The court said that it took “the lack of inclusion of fines in s. 116(1) to mean that a strata corporation may not disentitle strata lot owners from voting because they have outstanding fines.”

Did the defendants contravene the bylaws and did the plaintiff follow the proper procedure in enforcing its bylaws?

After a lengthy review of the evidence, the court found that the defendants contravened the plaintiff’s bylaws governing business operation and signage. The court also considered section 135 of the act, which it described as setting out “the minimum procedure required of a strata corporation prior to imposing a fine.” It concluded that the plaintiff had “substantially complied” with the section’s “procedural requirements.”

Finally, the court examined an alleged bylaw infraction relating to removal and storage of the defendants’ property. This led the court to consider section 133 of the act, which gives a strata corporation the power to remedy a contravention of the bylaws. On this point, the court concluded:

The defendants had notice that the plaintiff considered the use of the limited common property a violation of the bylaws but did not take any steps to remedy the action, to dispute the bylaw violation or to retrieve the property. By allowing the costs of storing the items to accumulate, the defendants were wholly responsible for the costs which were incurred.

Was the plaintiff significantly unfair to the defendant in enforcing its bylaws?

This issue called on the court to consider section 164 of the act. After examining the leading judgments on that provision, the court began by looking at the defendants’ entitlement to a remedy under this section. The court held that “an entitlement to a remedy under s. 164 cannot reasonably be interpreted to depend on whether the owner or tenant continues to be an owner at the time the action is commenced.” (The defendants’ strata lots had previously been sold in a court-ordered sale as a result of their non-payment of fines.)

The court then applied a two-part test first articulated in Dollan v The Owners, Strata Plan BCS 1589, 2012 BCCA 44:

1. Examined objectively, does the evidence support the asserted reasonable expectations of the petitioner?
2. Does the evidence establish that the reasonable expectation of the petitioner was violated by action that was significantly unfair?

The court observed that

a strata corporation’s discretion not to enforce the bylaws is limited. In this case, when considered objectively, the defendants, like other owners, had a reasonable expectation that the bylaws would be consistently enforced within the parameters established in the Act.

In this case, the court found that

the actions of plaintiff in exempting certain owners from being open for business while fining other owners in the circumstances outlined above, violated the reasonable expectation of the defendants that the bylaws would be consistently enforced and were, therefore, significantly unfair to the defendants. I consider that the defendants are entitled to a remedy under s. 164 of the SPA. That said, the failure of the defendants to appeal their bylaw violation notices to the strata council when they were given the opportunity to do so is a factor which weighs heavily against the defendants.

I, therefore, restrict the remedy to a proportionate amount of the $108,000 (the amount of fines assessed against the defendants’ units as per the October 22, 2008 Consent Order) that represents the fines imposed for not being open for business, less $15,000 to account for the defendants’ failure to request a hearing with the strata council when they had ample opportunities to do so. In that regard I accept that $83,114 was the total amount of fines levied against the defendants for not being open for business and $44,600 was the total amount of fines for the signage violations, prior to the Consent Order.

Did the plaintiff breach its fiduciary duty to the defendants?

This issue called on the court to consider sections 31 to 33, which are the conflict-of-interest provisions of the act. The court declined to make a finding of a breach, for evidentiary and procedural reasons.

Result

In the result, the court made the following orders:

1. The plaintiff is entitled to judgment in the amount of $17,467.74 plus interest for removal and storage costs incurred in relation to defendants’ contravention of the bylaws for leaving furniture and other items in front of their units.
2. The plaintiff is entitled to judgment in relation to the defendants’ violation of the signage bylaw, based on a proportionate share of the $108,000 attributable to signage, which I calculate at $37,716, plus interest.
3. The defendants are entitled to a remedy in relation to the plaintiff’s significantly unfair action in fining the defendants for not being open for business while exempting other strata owners from fines. The amount of the remedy is restricted to a proportionate share of the $108,000, which is attributable to fines for not being open for business, which I calculate at $70,284, less $15,000 for their failure to request a hearing in relation to the violation notices, for a total of $55,284, plus interest.