Monday, December 29, 2014

The duty to perform a contract honestly and in good faith will now be implied as a term of a contract; this will likely apply to condominium corporation bylaws

The way in which the common law will look at contracts has changed dramatically with the decision of the Supreme Court of Canada in Bhasin v. Hrynew 2014 SCC 71.  The Honorable Justice Cromwell, concurred with by the Honourable Chief Justices McLachlin, Lebel, Abella, Rothstein, Karakatsanis, and Wagner, has found that the duty to perform a contract honestly and in good faith will now be implied as a term of contracts and will, subject to very careful drafting, not be precluded by an entire agreement clause.  This will likely be applicable to all condominium corporation's bylaws which have been determined by the Court to be a contract among owners.


What follows are quotes from this ground breaking case which will be a welcome relief to many contracting parties frustrated by what are alleged to be dishonest dealing motivated by male fides; two paragraphs, [33], [74] and [86], summarize the new obligations:


"[33] In my view, it is time to take two incremental steps in order to make the common law less unsettled and piecemeal, more coherent and more just. The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations."   

“[74] There is a longstanding debate about whether the duty of good faith arises as a term implied as a matter of fact or a term implied by law: see Mesa Operating, at paras. 15_19. I do not have to resolve this debate fully, which, as I reviewed earlier, casts a shadow of uncertainty over a good deal of the jurisprudence.  I am at this point concerned only with a new duty of honest performance and, as I see it, this should not be thought of as an implied term, but a general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance. It operates irrespective of the intentions of the parties, and is to this extent analogous to equitable doctrines which impose limits on the freedom of contract, such as the doctrine of unconscionability.”


“[86] The duty of honest performance that I propose should not be confused with a duty of disclosure or of fiduciary loyalty.  A party to a contract has no general duty to subordinate his or her interest to that of the other party. However, contracting parties must be able to rely on a minimum standard of honesty from their contracting partner in relation to performing the contract as a reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests."


Justice Cromwell reflected on three circumstances which historically have attracted the duty of good faith and unpin the manner in which the Court will impose this duty; at paragraph 47 and 48:


[47] “By way of example, Professor McCamus has identified three broad types of situations in which a duty of good faith performance of some kind has been found to exist: (1) where the parties must cooperate in order to achieve the objects of the contract; (2) where one party exercises a discretionary power under the contract; and (3) where one party seeks to evade contractual duties (pp. 840_56; Inc. v. Canada (Attorney General) (2006), 215 O.A.C. 43, at paras. 49_50).


[48] While these types of cases overlap to some extent, they provide a useful analytical tool to appreciate the current state of the law on the duty of good faith."


Justice Cromwell then went on to make it clear that this obligation will apply to real estate contracts and will be applied to prevent contracting parties who regret a bargain from reneging on the bargain:


"[49] The first type of situation (contracts requiring the cooperation of the parties to achieve the objects of the contract) is reflected in the jurisprudence of this Court. In Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072, the parties to a real estate transaction failed to specify in the purchase_sale agreement which party was to be responsible for obtaining planning permission for a subdivision of the property. By law, the vendor was the only party capable of obtaining such permission. The Court held that the vendor was under an obligation to use reasonable efforts to secure the permission, or as Dickson J. put it, “[t]he vendor is under a duty to act in good faith and to take all reasonable steps to complete the sale”: p. 1084."


"[51] This Court’s decision in Mason v. Freedman, [1958] S.C.R. 483, falls in the third type of situation in which a duty of good faith arises (where a contractual power is used to evade a contractual duty). In that case, the vendor in a real estate transaction regretted the bargain he had made. He then sought to repudiate the contract by failing to convey title in fee simple because he claimed his wife would not provide a bar of dower. The issue was whether he could take advantage of a clause permitting him to repudiate the transaction in the event that he was “unable or unwilling” to remove this defect in title even though he had made no efforts to do so by trying to obtain the bar of dower.  Judson J. held that the clause did not “enable a person to repudiate a contract for a cause which he himself has brought about” or permit “a capricious or arbitrary repudiation”: p. 486. On the contrary, “[a] vendor who seeks to take advantage of the clause must exercise his right reasonably and in good faith and not in a capricious or arbitrary manner”: p. 487."


Justice Cromwell makes it clear that commercial parties reasonably expect what he referred to as a basic level of honesty and good faith in their commercial dealings:


"[60] Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm’s length and are not subject to the duties of a fiduciary, a basic level of honest conduct is necessary to the proper functioning of commerce. The growth of longer term, relational contracts that depend on an element of trust and cooperation clearly call for a basic element of honesty in performance, but, even in transactional exchanges, misleading or deceitful conduct will fly in the face of the expectations of the parties: see Swan and Adamski, at §1.24." 


Justice Cromwell also suggests that the duty of honesty and good faith leads to the conclusion that contracting parties should have “appropriate regard” for their contracting parties “legitimate contractual interests and makes it clear that this duty is distinct from a fiduciary duty.  Justice Cromwell makes it clear that it is not okay to lie or mislead contracting parties but such obligation does not create a duty of disclosure:


“[65] The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While “appropriate regard” for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith. This general principle has strong conceptual differences from the much higher obligations of a fiduciary.  Unlike fiduciary duties, good faith performance does not engage duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first.”


“[73] In my view, we should. I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step. The requirement to act honestly is one of the most widely recognized aspects of the organizing principle of good faith.”


The Bhasin case will have far reaching implications.  It will be interesting to see how creative lawyers try to limit the scope of the duty of good faith without suggesting that dishonesty is contemplated by the contracting parties.  I query if much of the attempt to exculpate such obligations may simply be unenforceable as against public policy in light of Bhasin.  More significantly litigating parties and their litigators will add this to their pleadings and it will create potential liability even in the face of the well drafted contracts often foisted upon less powerful contracting parties.

Monday, August 25, 2014

Miller Thomson Condominium Law -  Senior Living in Condominiums: 7 Things that Condo Corporations Need to Know Right Now - by Karen Phung, Toronto

The article above which is repeated below was published by Ms. Phung in July of 2014.   Ms. Phung's comments are very insightful and fore warn of the possible difficulties which may arise in Ontario in respect of the aged and as a consequence of the imposition of Ontario's human rights legislation.  A review of Alberta law continues to reflect that human rights legislation does not apply to condominium corporations.  Notwithstanding this Alberta's Human Rights Commission continues to assert that it does and this article sheds light on the need for a proactive approach to what could become a pressing issue.  I have repeated the article in full and linked to the article above.  Thanks to Ms. Phung.  

It is no secret that Canada’s population is aging.
We have all heard the news that more and more baby-boomers (born between 1946 and 1965) are retiring, or will be retiring, in the coming years. Right now, one in seven Canadians are over the age of 65. In 20 years, that number will increase to one in four. We also know that dementia, one of the most widespread mental health illnesses affecting this generation, is also on the rise. But what impact, if any, do these issues have on condominium corporations?
Here are 7 things condominium corporations need to know about Canada’s aging population, and how seniors are impacting the condominium landscape:
(1)   The number of seniors living in condominium buildings will increase
It is common for seniors to downsize their homes after they retire. The kids have moved out, there is more time to travel, and there is no longer a need (or a desire) to own and maintain a house.
Living in a condominium building is appealing to seniors because they come with fewer responsibilities and greater convenience. Seniors can rely on others for maintenance, repair and security services. Access to amenities is faster and more convenient. Limiting one’s living space to a single floor and accessing an elevator makes it easier for those with sight, strength or balance problems to reduce their risk of injury. Condominium corporations can therefore expect a growing number of seniors purchasing units with a view to enjoying these benefits. This also means that the number of condominium owners suffering from age-related mental health illnesses will also increase.
(2)   Seniors are living longer and more independent lives, which may translate to greater issues for condominiums
Not only is Canada’s population aging, but seniors are also living longer and more independently (i.e., preferring to live on their own rather than with family members or in a care facility). Furthermore, a number of seniors have no children or other family members to care for them in their later years.
A desire for independence, combined with an inevitable decline in physical and cognitive functioning, may translate into greater problems for condominium corporations including access issues (i.e., to one’s own unit and amenities), the undesirable use of the common elements (such as monopolizing or loitering), unhealthy dependency on property managers, and illness and/or abandonment. Condominium corporations need to be mindful of the kinds of issues that may arise when dealing with live-alone unit owners with age-related challenges.
(3)   Condominiums have a duty to accommodate physical impairments and mental illnesses to the point of undue hardship
Physical impairments and mental illnesses (including dementia), constitute disabilities under section 10 of theOntario Human Rights Code. Condominium corporations therefore have a legal obligation to accommodate these disabilities to the point of “undue hardship”. What constitutes “undue hardship” will depend on the individual facts and circumstances of each case.  
Those belonging to the baby-boomer generation are known for their strong views of how they expect to live their lives after retirement. Their expectations about independence will bring increased demands on condominium corporations to respond to accommodation requests so that they may maintain a certain lifestyle and level of freedom.
Corporations may have to allow certain changes to be made to an individual unit, or to modify the common elements to accommodate a unit owner’s disability. This may include installing accessibility ramps or sound-proofing rooms. In all cases, however, it means that Corporations must respond to all accommodation requests in a meaningful and timely manner. Who pays for these accommodations may not always be easily ascertainable.
(4)   Seniors with dementia and other mental illnesses may impact the way condominiums deal with compliance matters
Dementia may not only impact a person’s memory and cognitive functioning, but it may also impair his or her day-to-day behaviour and conduct in the community. A unit owner who suffers from dementia may wander into another owner’s unit without realizing it. He or she may cause noise, demonstrate aggressive or disruptive behaviours, and may also exhibit other inappropriate conduct such as hoarding.
However, enforcing compliance with the Act and the condominium’s governing documents as against a person suffering from an age-related mental health illness is not as straightforward as enforcing against the habitual smoker or the music blaster from down the hall. There are laws that protect individuals with disabilities (in particular, the Human Rights Code), which may mean that strict enforcement may not be possible (or legal) in all situations. Although there is no one-size-fits-all solution to accommodation issues, condominiums must ensure they are meeting their obligations to avoid human rights complaints.
(5)   Condominiums need to establish who is responsible for paying for the accommodation
Condominium corporations will have to determine who is responsible for paying the bill for alterations or modifications that result from accommodation requests. Does the corporation pay the bill out of its operating or reserve fund, or can the amount be charged back to the unit in the same manner as common expenses? Under what circumstances should the corporation levy a special assessment?
Whether a condominium corporation can charge back the cost incurred for accommodation is determined on a case-by-case basis and largely depends on the nature of the request and what the condominium documents provide. Typically, if accommodation is made to a resident’s own unit and is for his or her exclusive use, it will be the unit owner’s responsibility to pay. If the accommodation requires a change to a non-exclusive use common element, such as installing a front entrance ramp, the corporation may have to foot the bill.
(6)   Condominiums need to be proactive, not reactive
Condominiums should adopt a proactive rather than reactive approach to these impending issues. Below are some things that condominium corporations should be doing right now:
  • Establish and implement appropriate policies and procedures for dealing with residents who have age-related disabilities that may need accommodation
These policies should include protocols for information-gathering, submitting accommodation requests, responding to accommodation requests, obtaining consents, and involving third party professionals where necessary. The corporation’s lawyer should be consulted about the best way to draft and implement these policies, keeping in mind that these policies may change over time.
  • Encourage early disclosure of health-related needs and requests for accommodation
The Corporation could create a standard form for recording this information. Senior residents should also be required to provide management with up-to-date contacts in the event of an emergency and in case consent is needed. This way, the corporation will be in a better position to anticipate problems and respond accordingly. This information could be included in the Owner’s and Tenant’s Information forms, in those buildings which use them.
  • Know your resources
There should be a protocol in place for contacting the appropriate family member, third party medical professional, or the police. There are a number of resources available to condominium corporations and their residents (including Community Care Access Centers, Mobile Crisis Intervention Teams, and Geriatric Mental Health Services). Condominiums should also take steps to familiarize themselves, senior unit owners and their families of these community resources in cases of emergency or non-emergency.
  • Encourage small changes that will have a big impact on resident safety
Making small changes to a senior resident’s unit may have great impacts on their safety and day-to-day living. Some examples include installing safety rails in the shower, applying non-slip mats in the tub, and using fire-safe appliances with automatic shut off features.
  • Document everything
Corporations need to implement a protocol for maintaining a detailed and consistent record of all accommodation requests and the Corporation’s response to those requests. Such a record will be important to demonstrate the Corporation’s efforts to comply with its legal obligations.
(7) The time to prepare is now
Condominium corporations should not wait to establish and implement the appropriate policies and procedures for dealing with these issues. As we move into a time where the demands on condominium corporations is becoming greater than ever before, condominiums should be prepared to deal with these issues head on, and with the confidence that the right systems have been put in place.

Yes you can keep your cats even though you do not have written consent; a small movement towards applying Administrative Law principles in condominium law

In the recent Alberta case of Condominium Plan No. 7621302 v. Stebbing,  Master W.S. Schlosser addressed the application of administrative law in context of a dispute over 2 cats.  Though not technically applying administrative law principles to his decision they were discussed in obiter or in passing:

Master Schlosser came to a practical solution of finding a breach for failure to obtain consent but then relieved the owner from forfeiture (an equitable remedy), without stating so and stayed the enforcement of the Order until the cat passed on:

The message is clear to condominium corporations: be consistent with the application of bylaws and do not withdraw implied consent without affording owners some ability to participate in an administrative process.  In light of the Government of Alberta's proposal to create an Administrative Board to hear condominium disputes the comments of Master Schlosser could be prescient.