Back to Basics: What Must a Corporation do Before they Sue?

October 3, 2019 | Caleb Edwards

Once created, a condominium corporation functions as a ‘legal person.’  It has certain rights and can do various acts under the law.  These rights are governed by Ontario’s Condominium Act, 1998 (the “Act”). At various points in the life of a condominium corporation, it may find that it is required to commence legal action.  So what must a corporation do before they sue? This is governed by Section 23 of the Act.

Subsection 1 of Section 23 gives the condominium corporation the right to “commence, maintain or settle an action for damages and costs.”  This right to sue is limited to:

(a) situations in which there has been damage to common elements, the assets of the corporation or to individual units, or

(b) there is a contract involving the common elements or a unit.

Subsection 5 gives other parties the right to sue the corporation, but only for “any matter relating to the common elements or assets of the corporation.”

The Act is explicit that the corporation can sue based on a contract even if the corporation was not a party to the contract and it can sue for damages to individual units.  This creates a situation where a corporation can bring a claim for damages even though an individual unit owner might also have a claim for damages.  Courts have found that the provision is intended to allow the corporation to protect the interests of the collective body of individual unit owners.  This does not prevent an individual unit owner from suing, but they must do so based on some problem or aspect that is unique to their unit or situation.

Conversely, there is no right to sue the corporation on a matter relating to an individual unit.

This right of the corporation to sue is subject to a requirement that the corporation disclose what it is doing.  Subsection 2 requires the corporation to give written notice to owners before it sues anyone unless either:

(a) the action is to enforce a lien or compliance with the Act, declaration, by-laws and rules, or

(b) the action is commenced in Small Claims Court.

In other words, before taking any major step on behalf of the corporation or on behalf of individual unit owners, the corporation must let its unit owners know what it is about to do. This provision has teeth.  If the corporation commences an action without the proper notice, even if it wins, the decision can be rendered null and void.

There are times in the courts where a corporation may bring a claim as a counterclaim or against a third party when the corporation itself has been sued.  Because the corporation is not commencing an action, these generally do not fall under the notice requirement.  The same considerations apply when an insurance company is subrogating a claim on behalf of the corporation.

Finally, Section 23, subsection 6 provides that a judgment against the corporation for the payment of money is a judgment against each owner at the time of judgment for a portion of the judgment determined by the proportions specified for the common elements.  This provision ensures that a corporation cannot be ‘judgment proof.’  Instead, a successful litigant can look to each of the owners to recover his or her costs.

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