Construction projects involve many participants and each of those participants may have a claim against other participants. Developers, immediate and subsequent purchasers, contractor and subcontractors, consultants: they are all potential plaintiffs.
So one of the main issues in construction law is: who can be a plaintiff against what defendant and for what relief?
This issue becomes more complicated with condominiums, and in particular the common elements in the condominium building. The developer may have sold units to purchasers, but generally speaking it is the condominium corporation that is responsible for, and can sue for relief relating to, the common elements. Can the purchaser of a condominium unit sue the developer for relief in respect of the common elements? In 1420041 Ontario Inc. v. 1 King West Inc., the Court of Appeal for Ontario has recently answered Yes to this question, provided that the relief is directly related to the unit owner’s enjoyment of his or her unit.
The numbered company purchased eight units in a condominium complex to be constructed by 1 King West in Toronto. The purchase contract provided for the exterior doors, windows and walls of the units to be installed in a way to meet the specific requirements of the numbered company, even though those elements were part of the common elements of the building.
After occupancy became available, the numbered company sued for damages relating to the faulty installation of these and other elements in the units it had purchased. The condominium corporation also sued for damages relating to the common elements. It brought the action on behalf of itself and the individual unit holders, including the numbered company, and the action was against the developer, construction manager, general contractor, architect and engineers. The numbered company did not opt out of that action. The condominium corporation settled that action.
The developer brought a motion to stay or dismiss the numbered company’s action relating to the common elements, on the basis that only the condominium corporation could assert any claim relating to the common elements. While the Divisional Court agreed with the developer, the Court of Appeal reversed that decision and held that the numbered company had the status to bring its claim relating to the common issues.
The dispute largely turned on the meaning to be given to section 23(1) of the Ontario Condominium Act, 1998 (the Act). That section states that the condominium corporation “may”, on its own behalf and on behalf of unit owners, commence, maintain or settle an action relating to the common elements or the individual condominium units, and may do so even though it is not a party to the contract in respect of which the action is brought.
The Court of Appeal held that section 23(1) of the Act does not deprive the condominium unit holder from suing for relief relating to the common elements. The purpose, history and permissive language of that sub-section did not support a legislative intent to take away the unit holder’s claim. Even though the Act created a proprietary regime in which the condominium corporation has a dominant role, that regime does not eliminate the contractual regime arising from the contract made by each unit purchaser with the developer.
Moreover, the logic of the developer’s position would be that the unit holder has no claim even with respect to the unit itself, since section 23(1) says that the condominium corporation has the right to sue both in respect of the individual units and the common elements. This latter proposition was absurd, in the Court’s view.
The Court of Appeal held that, unless the Act explicitly takes away the contractual right of the condominium unit holder, the Act should not be interpreted to do so. Since section 23(1) contained no such express language, the Court held that the enactment did not have this effect.
The Court also held that the authority of the condominium corporation to bring its own action would not lead to a multiplicity of proceedings since the corporation’s action would necessarily be in relation to what the Court called a “problem that affects the condominium community as a whole.” The individual unit holder’s action would have to be “to pursue a remedy that is contractually unique to the unit or that deals with some other unit-specific wrong raising a discrete issue relating to common elements immediately pertaining to the unit.”
The Court also held that the condominium unit holder would not effectively make a double recovery – one through the condominium corporation and the other in its own action. The recovery by the corporation would only be for its own claim, not for the unit holders’ claims, since the wording of section 23 makes it clear that it is only the corporation’s interest that the corporation can recover by way of judgment. If there was any risk of double recovery, the court could deal with that issue by staying the unit holder’s claim to that extent.
There are at least three conclusions or concerns that arise from this decision.
First, this decision contains a firm statement by the Court of Appeal that contractual rights will not be annulled by statutory regimes in the absence of clear language to that effect. Since building contracts are surrounded by statutory regimes – such as construction lien and building code legislation – it is well that the Court of Appeal has re-emphasized this principle.
Second, this decision will necessarily give rise to a very careful analysis of claims in respect of common elements. Will it be difficult or impossible to separate claims that are “unique to the unit” or “unit specific” as opposed to those that pertain to the condominium “community” as a whole? One can foresee that there may be multiple motions, at the time of pleadings or by way of summary judgment, to sort out the two sorts of claims. In addition, when a settlement is made, either by the condominium corporation or the unit holder, then care will have to be taken to determine exactly what is being settled and paid for.
Finally, the decision makes no mention of the “class action” aspect of this dispute. The condominium corporation’s action was on behalf of unit holders, as well as itself. The numbered company unit holder did not opt out of the condominium corporation’s action. The condominium corporation settled that action as it was entitled to do. Should the numbered company have opted out of the action, or have done something at the time of the settlement? Apparently not, because the corporation’s claim and settlement was only in respect to the “community’s” claim in respect of the common elements, not the unit holder’s “unique” claim.
If this is so, then the right of the condominium corporation to bring an action on behalf of unit holders may be quite different than the class action regime contained in the Ontario Class Proceedings Act, 1992. The latter regime contains certification and settlement approval procedures intended to govern and protect the rights of class members. Now that it is established that both condominium corporations and condominium unit holders have claims in respect of the common elements, similar rules and protections may have to be adopted by the parties to condominium litigation.
Building Contract – Claim for Damages – Condominium – Common Elements
1420041 Ontario Inc. v. 1 King West Inc, 2012 ONCA 249
Thomas G. Heintzman O.C., Q.C., FCIArb June 21, 2012