Date: 19990805 Docket: A991371 Registry: Vancouver IN THE SUPREME COURT OF BRITISH COLUMBIA Oral Reasons for Judgment Mr. Justice B.M. Davies Pronounced in Chambers August 5, 1999 BETWEEN: MARCO POLO PROPERTIES LTD. PETITIONER AND: THE OWNERS, STRATA PLAN LMS 1328 RESPONDENT Counsel for the Petitioner: J. Bleay Counsel for the Respondent: J.G. Mendes H.D. Neun L. Ridgway Introduction [1] The respondent's 194-unit condominium development in Surrey, British Columbia has become what is commonly known as a "leaky condo" development. The project was developed by the petitioner in 1994 and the petitioner still owns 24 units in it. [2] At its annual general meeting on February 18, 1999, a majority of the respondent's owners passed a budget resolution requiring that each unit owner pay a proportionate share of a $2,467,000 assessment intended to fund the repair of the waterproof envelope of the buildings comprising the project. That payment was required to be made in one lump-sum payment due on April 1, 1999. Issues [3] The petitioner challenges the validity of this budget resolution, raising three issues for determination: Firstly, did the repair assessment require the approval of 75 percent of the unit owners in the development by way of a special resolution, rather than a mere majority by ordinary resolution; Secondly, do the respondent's bylaws and the Condominium Act, R.S.B.C. 1996, c.34 (the "Act") allow a requirement that the amount assessed for the repair of the building envelope be paid in one lump-sum payment, rather than by equal monthly instalments; and Thirdly, were the respondent's actions in assessing the repair assessment oppressive and unfairly prejudicial to the petitioner under section 42 of the Act? Background [4] The respondent's condominium development is comprised of a 16-story high-rise containing 128 units known as Grandview Court, and a 66-unit 4-story wood frame structure known as Parkview Court. [5] The development has suffered from water ingress since it was completed in 1994. The petitioner and the contractor which built the development attended to annual repairs of the leaks from 1994 to October of 1998. Since that time the respondent strata council has been spending monies on temporary repairs and other measures to mitigate water ingress and damage. [6] In May of 1998, the respondent retained R.D.H. Building Engineering Limited (R.D.H.) to investigate the project's water ingress problems. R.D.H.'s report on Grandview Court was delivered in September 30, 1998. Among other things, it stated: Evidence found during our investigation, coupled with reports of water ingress into suites, indicates significant moisture problems with the building envelope of Grandview Court.... [I]t is our opinion that even with ongoing and extensive maintenance, acceptable long-term performance of current wall and window assemblies is unlikely. [7] R.D.H.'s report on Parkview Court was delivered on October 19, 1998. It stated, among other things, that: Our investigation, and problems reported by owners, clearly indicate significant problems of water penetration. Deterioration of sheathing and framing, resulting from rain penetration has occurred in several areas of the building.... Deterioration of structural members, such as balcony joists, is a serious condition and compromises the life safety of occupants. Such damage must be repaired as a matter of urgency. And further that: Remedial work to date appears to have been carried out but on a piecemeal basis. While this work may have, at least temporarily, corrected some of the problems it does not address fundamental issues of wall design and should not be viewed as a viable long-term solution. [8] On October 21, 1998, the respondent retained Levelton Engineering Limited, another engineering company specializing in building envelope repairs, to provide a second opinion. On November 13, 1998, Levelton Engineering Limited delivered a report, which concluded: Levelton believes that the investigation performed by RDH was in general accordance with good practice. Levelton agrees with RDH that the deterioration of the wall assembly will be progressive and that water ingress problems will become more serious as time goes on. Based upon the data contained in [the Grandview report] it is therefore Levelton's opinion that aggressive intervention such as described in the recommendations section of the RDH report is warranted. [9] Following receipt of those reports, the respondent's strata council convened extraordinary general meetings on November 16, 1998 and December 19, 1998 at which special resolutions were proposed for an assessment of sufficient funds in the amount of approximately $2.4 million to complete the remedial work determined as being necessary by R.D.H. under a Plan B option. Those resolutions each failed to obtain the approval of 75 percent of the unit holders. The petitioner voted all of its units against the assessments on both occasions and was joined by some other unit holders in so doing. [10] When the respondent held its annual general meeting on February 18, 1999, its council once again proposed a special resolution for an assessment of sufficient funds to carry out the remedial work proposed by R.D.H. under Plan B. Council had determined that the work must be immediately undertaken for the present well-being of the development and to avoid future repair cost increases. Council also proposed an ordinary resolution which would make the same repair costs payable in one lump-sum payment as part of the respondent's annual budget for 1999-2000 if the special resolution failed to obtain the approval of 75 percent of the unit holders. [11] The February 18, 1999 special resolution failed to obtain the required 75 percent approval of unit holders. The petitioner voted against that special resolution as did seven other unit holders. One unit holder abstained, while 86 voted in favour. The ordinary resolution was then proposed and passed, with 86 unit holders voting in favour, seven against, and 25 abstentions. [12] Since April of 1999, the respondent has received reports of fungal contamination in several areas of the development. The evidence establishes that such contamination may pose a serious health hazard to the occupants of the development, increasing the urgency of the remedial work to repair the building envelope as proposed by R.D.H. [13] On May 17, 1999, the petitioner filed this petition challenging the validity of the repair assessments against it. No repairs have been undertaken, pending determination of the issues raised by this petition. Discussion and Analysis ISSUE 1: Did the repair assessment require the approval of 75 percent of the unit holders in the development by way of a special resolution, rather than a mere majority by ordinary resolution? [14] The petitioner says that the repairs deemed necessary by R.D.H. are "unusual and extraordinary expenses" which may only be funded through assessments approved by special resolution under section 49 of the Act or by payments from the "contingency reserve fund" required to be established and funded by each strata corporation under section 35(1)(b) of the Act. [15] The respondent says that in the special circumstances of this development the contemplated repairs are not "unusual or extraordinary expenses". It says they are expenses of a nature which have historically been required annually so that they need not be funded by the contingency reserve fund. It also says that it is not the amount of the costs of repairs which determines whether a repair is unusual or extraordinary, but rather the nature of the repairs as an ongoing annual item of cost to these owners. It says further these repairs are urgent and that prudence dictates that remedial measures which will alleviate future repair and maintenance costs can be undertaken as an annual budgetary item. The respondent also says that it is mandated by the Act to carry out such repairs and that the will of the majority ought not to be defeated by a self- interested minority so as to preclude the majority from acting responsibly, in accordance with its legal obligations under the Act. [16] It is common ground that there are insufficient funds in the respondent's contingency reserve fund to undertake the repairs and that the establishment of a fund sufficeint to do so in the future would take many years unless special levies are made, which special levies would also require special resolutions under section 4 of the Regulations to the Act. [17] The applicable sections of the Act relating to the submissions of the parties are sections 1, 14, 34(1)(d), 35, 40, 49, 116(b), (d) and (f), and 128(1) and (11). Those sections provide as follows: [18] Section 1: 'Contingency reserve fund' means a fund for the expenditures, other than annual, of the strata corporation for repair, maintenance, and replacement of the common property, common facilities and other assets of the strata corporation, including if applicable, without limiting this definition, the roof, exterior of the buildings, roads, sidewalks, sewers, heating, electrical and plumbing systems, elevators, laundry and recreational facilities. Section 14: Subject to this Act, the strata corporation is responsible for the enforcement of the bylaws, and the control, management and administration of the common property, common facilities, and the assets of the corporation. Section 34(1)(d): A strata corporation must do all of the following: (d) keep in a state of good and serviceable repair and properly maintain common property, common facilities and assets of the strata corporation. Section 35: (1) A strata corporation must do all of the following: (a) establish a fund for administrative expenses sufficient for the control, management and administration of the common property, for the payment of premiums on policies of insurance and for the discharge of other obligations of the corporation; (b) establish a contingency reserve fund not exceeding an amount calculated in the manner set by regulation and determine the annual levy for the contingency reserve fund; and the levy must, if the amount of the reserve is less than 25% of the total annual budget of the strata corporation, be not less than 5% of that budget; and the strata corporation must hold the fund as a reserve fund to pay unusual or extraordinary future expenses; (c) determine the amounts to be raised for the purposes set out in this section and notify the strata lot owners of those amounts; (d) raise the amounts so determined by levying contributions on the owners in proportion to the unit entitlement of their respective strata lots in the manner provided for in the bylaws. (2) A strata council must not make expenditures out of the contingency reserve fund without a special resolution, unless the strata council considers that the expenditure is necessary to meet an emergency. (3) Unless otherwise provided in the bylaws, there must be no reduction of the contribution of the owner developer under subsection (1)(d) for strata lots owned by the owner developer. (4) Unless otherwise provided in the bylaws, the contributions levied under subsection (1)(d) become due and payable on the first day of each month. Section 40: If a strata corporation fails to fulfil an obligation under this Act or bylaws, the owner of a strata lot, or a registered mortgagee, may apply to the court for a mandatory injunction requiring the strata corporation to perform the obligation. Section 49: Unless otherwise provided by a bylaw added to Part 5, a strata council must not, except in emergencies, authorize, without authorization by a special resolution of the strata corporation, an expenditure of more than $500 which was not set out in the annual budget of the corporation and approved by the owners at a general meeting. Section 116(b), (d) and (f): A strata corporation must do all of the following: (b) keep in a state of good and serviceable repair and properly maintain the fixtures and fittings, including the elevators, swimming pool and recreational facilities, if any, and other apparatus and equipment used in connection with the common property, common facilities or other assets of the corporation; (d) maintain and repair, including renewal where reasonably necessary, pipes, wires, cables, chutes and ducts existing in the parcel and capable of being used in connection with the enjoyment of more than one strata lot or common property; (f) maintain and repair the exterior of the buildings, excluding windows, doors, balconies and patios included in a strata lot, including the decorating of the whole of the exterior of the buildings. Section 128(1): The strata lot owner's contribution to the common expenses of the strata corporation must be levied in accordance with this bylaw. Section 128(11): At each annual general meeting after the first annual general meeting, the strata corporation must prepare an annual budget for the following 12 month period and, after that, all owners must, subject to subsections (2) and (3), pay a monthly assessment in accordance with their unit entitlement. [19] I am satisfied that in the circumstances of this case the inclusion of the remedial cost to repair the waterproof envelopes of the buildings in this development was properly included in the respondent's annual budget under section 35(1)(a). That section requires that a strata corporation must: establish a fund for administrative expenses sufficient for the control, management and administration of the common property, for the payment of premiums on policies of insurance and for the discharge of other obligations of the corporation. I emphasize "and for the discharge of other obligations of the corporation." [20] In my opinion, included in those other obligations is the respondent's duty to repair, required by sections 14, 34(1)(d), and 116(b), (d) and (f). [21] As to the importance of that obligation to repair, I refer to the decision of this court in Royal Bank of Canada v. Holden [1996], B.C.J. No.2360 (Q.L.) (B.C.S.C.), in which Bauman, J. said (at paragraph 17): The strata corporation has certain essential duties under the Act to maintain common property, common facilities, and assets of the corporation. These are fundamental duties, and I perceive, their execution by the strata corporation is critical to the realization of the condominium concept - that is people living together in individually owned units within a common shell. [22] I do not agree with the petitioner's submission that such repair costs can only be funded through an assessment by a special resolution under section 49 or through the contingency reserve fund. While those are available means of funding, they are not exclusive. [23] The attempts of the respondent's strata council to obtain approval of 75 percent of the owners prior to February 18, 1999 was required under section 49 prior to February 18, 1999, because the repairs had not been addressed as a budgetary item in the 1998-1999 budget. That was not, however, the case on February 18, 1999, when the issue was addressed as a budget assessment. [24] I am also of the opinion that the use of funds from the contingency reserve fund is not mandatory upon the respondent because section 35(1)(b) mandates that those funds be used to create a fund for unusual or extraordinary future expenses. Aside from the practical problem of the contingency reserve fund having insufficient funds to pay for the repairs, the repairs now needed are not future repairs, they are required imminently and on an urgent basis, and have continued as such on an annual basis since the project was completed. [25] While the Act does contain specific provisions requiring the passing of special resolutions to obtain funding for expenditures deemed necessary by the strata corporation, there is no such specific reference to remedial or repair work which is identified as being necessary as part of the annual budget process required to be undertaken by a strata corporation. I am not prepared to read into the Act such a requirement, notwithstanding the amount of the assessment in issue in this case. In my opinion, unless the Act specifically requires the approval of 75 percent of the unit holders before an assessment can be made, the general democratic principles of condominium living and administration should prevail. [26] In support of this principle, I adopt the following statement of this court in Sterloff v. Strata Plan VR2613 [1994], B.C.J. No.445 (Q.L.), wherein Wilson, J. stated (at paragraph 35): Pursuant to its bylaws, the strata corporation must control, manage, and administer the common property for the benefit of all owners. It seems to me that in carrying out that mandate, the corporation, among other things, must endeavour to accomplish the greatest good for the greatest number. [27] I believe I am also supported in my conclusion that in the absence of a specific requirement for a special resolution, the principles of democracy should apply to the rights and obligations of the owners of units in the strata corporation, by section 40 of the Act which provides that: If a strata corporation fails to fulfil an obligation under this Act or bylaws, the owner of a strata lot, or a registered mortgagee, may apply to the court for a mandatory injunction requiring the strata corporation to perform the obligation. [28] Surely it cannot be the case that if there is a duty to repair a condition of a strata corporation which is dangerous to the health, safety and well-being of an owner or owners; which is enforceable by court order, it must not be open to a reluctant strata corporation to say, we cannot comply with such a court order because a minority of our members refuses to allow us to do so. ISSUE 2: Do the respondent's bylaws and the Act allow a requirement that the amount assessed for the repair of the building envelope be paid in one lump-sum payment, rather than by equal monthly instalments? [29] The petitioner argues that sections 128, 35(1)(d) and 35(4) of the Act require that an annual assessment under section 35 must be paid in equal monthly instalments. [30] The respondent argues that there is no such specific requirement and that a strata corporation should be left free to determine whether a fund such as the one in issue is to be collected at the beginning of the year or at some other time during the year, presumably as the expenditure of the funds becomes necessary. It points to the urgency of the situation in support of the logic of allowing the majority of the owners the discretion to set the date upon which an assessment will fall due. [31] Notwithstanding my sympathy for the immediacy of the problem faced by the respondent, I am persuaded that section 35(1)(d) and 35(4) of the Act must be read to require that the total budgetary items approved in an annual budget under section 35(1)(d), which in this case includes the repair assessment of $2,467,000, "become payable on the 1st of each month", i.e. by monthly instalments. I have no evidence that the respondent's bylaws have amended the statutory bylaws set forth in the Act to provide otherwise. [32] I am satisfied that until such time as there is an amendment to its bylaws, the respondent cannot require payment of the funds assessed under section 35(1)(d) other than by equal monthly instalments. [33] Having said that, however, I am not prepared to say that the assessment against the petitioner of its proportionate share of the repair costs in this case is invalidated by reason of the requirement of a lump-sum payment. The remedy to which the petitioner is entitled is one rectifying the assessment to provide that it may be paid in equal monthly instalments over the one year term of the budget in the same manner as all other assessments approved in the budget by ordinary resolution on February 18, 1999. The petitioner shall, therefore, be immediately responsible for the monthly payments due between February 1, 1999 and August 1, 1999. ISSUE 3: Were the respondent's actions in assessing the repair assessment oppressive or unduly prejudicial to the petitioner under section 42 of the Act? [34] The petitioner argues that in assessing the building envelope repair costs by way of ordinary resolution after having three times failed to obtain the necessary 75 percent approval of the unit holders for that assessment by way of special resolution, the respondent was acting oppressively and that its actions were unfairly prejudicial to the petitioner's interests under section 42 of the Act. [35] Section 42 of the Act provides that: An owner may refer to arbitration or may apply to the court to prevent or remedy a matter if the owner alleges (a) that the affairs of the strata corporation are being conducted, or the powers of the corporation or strata council are being exercised, in a manner oppressive to one or more owners, including himself or herself, or (b) that some act of the strata corporation has been done or is threatened, or that some resolution of the owners or a class of owners has been passed or is proposed that is unfairly prejudicial to one or more owners, including himself or herself. [36] Section 43 of the Act grants the court broad powers to remedy conduct which is determined by the court to be oppressive or unduly prejudicial. [37] The petitioner relies upon the decision of this court in Blue Red Holdings v. Strata BR857 (1994), 42 R.P.R. (2d) 49, in arguing that the actions of the respondent in assessing the repair costs by ordinary resolution was procedurally unfair and oppressive to the interests of the petitioner, which was entitled to rely upon the respondent's recognition that a special resolution was required. [38] I do not agree with that argument. In my opinion, the respondent was obligated to seek approval of the repair assessments by special resolutions prior to its February 18, 1999 annual general meeting, because the assessment related to a new expense which had not been adopted by the budget of the previous year. Section 49 applied in that situation unless the repairs were deemed by the respondent's strata council to be required on an emergency basis. [39] While that argument might have been available to the respondent, I do note that the reports of R.D.H. and Levelton at that time had not yet raised the serious health issues related to fungal contamination which is now in evidence. [40] The attempt to pass the repair assessment by special resolution at the February 18, 1999 Annual General Meeting prior to proceeding an ordinary budget resolution vote is more troubling in that it could be viewed as a means of attempting to deny the petitioner a right to rely on a special resolution on a matter of significant cost. I have, however, already determined that the repair assessment under section 35(1)(a) was a valid assessment, and while I have determined that the lump-sum aspect of the assessment is not maintainable, it does not follow that the assessment was oppressive or unfairly prejudicial as against the petitioner under section 42. [41] In Vold v. Strata Corporation No.202 (1993), 31 R.P.R. (2d) 129 (B.C.S.C.) at 134, when considering whether the affairs or powers or acts of a corporation have been exercised in a manner oppressive or unfairly prejudicial, Melvin, J. determined that the court should look at the cumulative effect of the conduct complained of. In this case, unlike the situation in Blue Red Holdings, the majority was not acting in a such manner as to impose obligations upon an owner without reciprocal benefit. The petitioner is not being required to contribute to repairs to any greater extent than any other unit holder for the units which it owns and the petitioner will receive the full benefit of the repairs to each of its units. [42] In my opinion the respondent's attempt to obtain approval by way of special resolution was simply a wise attempt to obtain such approval because of the large amounts in issue, and to attempt to preclude litigation such as this. The assessment by way of ordinary resolution was the legitimate reaction by the respondent to the petitioner's unwillingness to contribute its proportion of the share of the repair costs, and by so doing, thwart the pressing needs of the respondent to protect the health and safety of all of its unit holders and comply with the statutory duty to repair. I see no evidence of procedural bad faith or any attempt to single out the petitioner for unfair treatment. [43] It cannot be said that the cumulative effects of the respondent's actions are prejudicial to the petitioner. The petitioner is simply being required to pay its proportionate share of the cost of remedying an urgent health and safety problem. It will benefit equally with all other owners for those rectification efforts. [44] In addressing this issue of oppression and prejudice as alleged by the petitioner, one cannot help but wonder at the motivation of the petitioner in seeking to preclude these urgent and necessary repairs from proceeding, and by so doing, cause the respondent to be in breach of the duty to repair it owes all owners, including the petitioner, under the Act. Although the petitioner has the right to vote its unit entitlement as it sees fit, I see no basis in this case to interfere with the efforts of a substantial majority of the owners of the project to comply with those obligations which the respondent has for the health and safety of all concerned. Costs [45] The respondent has been largely successful in this matter. The petitioner has been largely unsuccessful. The respondent is entitled to two-thirds of its costs against the petitioner on Scale 3. The petitioner is entitled to no costs. "B.M. DAVIES, J." _________________________________ The Honourable Mr. Justice Davies