Condominium Plan No, 2015 ABQB 751

Court of Queen ’ s Bench of Alberta Citation: Condominium Plan No 8222909 (Water's Edge) v Belas, 2015 ABQB 751 Date: 20151126 Docket: 1203 12256 Registry: Edmonton Between: The Owners: Condominium Plan No. 8222909 Operating As Water's Edge Plaintiff - and - Geeta Belas, David Drebert, Adrianne Drebert, Del King and Nicole King Cynthia Ewanus, Christepher Kaye, Anna M. Muze, Starcycle Management Inc., Ji Youl Yoon and Michiko Yoshikawa, 1598358 Alberta Ltd. Defendants _______________________________________________________ Reasons for Judgment of W.S.

Schlosser , Master in Chambers _______________________________________________________ [ 1 ] This is an application for relief in a foreclosure action based on unpaid special assessments levied against the Defendant Condominium owners. There is a counterclaim based on the corporation’s alleged neglect of the townhouse units. [ 2 ] The central issue is whether the claim should be stayed pending determination of the counterclaim. This issue can be

approached in a number of different ways. Facts [ 3 ] The Water’s Edge Condominium complex consists of a High-rise Tower and ten Townhouse units. The Tower and the Townhouses are physically separate. You would not know that the two are part of the same condominium plan. [ 4 ] The Tower developed problems with the exterior siding. There were escalating special assessments to deal with issues in the Tower: $25.00 per unit factor in 2008; $25.00 per unit factor in 2009; $112.50 per unit factor in 2010 and $976.20 per unit factor in 2012.

The latter special assessment required the Townhouse owners to pay amounts exceeding $40,000.00 each; one of the nightmares of condominium ownership. [ 5 ] The Townhouse units got no direct benefit from these assessments. Maintenance of the Townhouse units was allegedly neglected over this period, causing them to decline in value. [ 6 ] The Townhouse unit owners are seeking a divorce as part of relief sought in the counterclaim. They want an amendment to the Condominium Plan to sever the Townhouse units and create a separate plan.

Alternately, they want the By-laws changed to alter the basis of assessment. [ 7 ] The Townhouse owners are very much like minority shareholders in this situation. They do not have the votes to pass a resolution to change the By-laws. Law [ 8 ] Section 39(1) of the Condominium Property Act , RSA 2000, c. C-22 and the By-laws empower the Condominium Corporation to raise funds in proportion to the unit factors, or, on another basis if provided for in the By-laws, (section 39(1)(c)). [ 9 ] The Plaintiff’s position on the claim is unassailable. It is entitled to

summary judgment on the claim for outstanding special assessments. [ 10 ]

Section 39 of the Condominium Property Act permits the filing of a caveat. The charge created by the caveat may be enforced in the same manner as a mortgage (section 39(8), (9)). That, and

section 39 of the Law of Property Act, RSA 2000, c. L-7, gets us to where we are now in the foreclosure action. [ 11 ] Foreclosure actions for unpaid condominium fees are not infrequent. Typically, the requirement for an affidavit of value, mandated by Rule 9.30, is waived and, for the purposes of a redemption order, the action is treated as if it were an action for foreclosure on a mortgage under

section 41 of the Law of Property Act . [ 12 ] The factors to be considered when adjusting the statutory redemption period of six months are as follows: Redemption time 41(1) The time to be fixed for redemption by the order nisi in an action for foreclosure of a mortgage and the time to be fixed for redemption by the order for specific performance in an action on an agreement for sale shall, (a) … (

b) in the case of land other than farm land, be 6 months from the date of the granting of the order.

(2) In an action coming under subsection (1), the Court on application may decrease or extend the period of redemption having regard to the following circumstances: (

b) when the action is in respect of a security on land other than farm land, (

i) the ability of the debtor to pay, (ii) the value of the land including the improvements made on it, (iii) whether the land has been abandoned, (iv) the nature, extent and value of the security held by the creditor, (

v) the earning capacity of the debtor, and (vi) whether the debtor's failure to pay was due to temporary or permanent unemployment or other conditions beyond the control of the debtor.

(3) Nothing in this

section applies to an order to which the consent of the debtor has been obtained. [ 13 ] The Court is permitted to adjust the redemption period up or down depending on the application of these factors. As noted, however, the charge is being enforced in the same manner as a mortgage, but it is not a mortgage.

Section 41 applies by analogy but not

by necessity. [ 14 ] There is some evidence about 41(2)(b)(iii); the land is not abandoned. We know the ‘nature, extent and value of the security held by the creditor’; (41(2)(b)(iv)); which is a charge attracting interest at 18% per annum. [ 15 ] Most Condominium fee foreclosures involve unpaid contributions that are relatively modest compared to the value of the condominium itself. In the absence of any other evidence there is virtually always a six month redemption period. Stays and Redemption Orders [ 16 ] At its core, a redemption period is a stay.

It stays the foreclosure action for the redemption time to give the owner a chance to pay-up, refinance or sell. The redemption order also includes a judgment in the form of a declaration of the amount owing. [ 17 ] In Price and Trussler’s Mortgage Actions in Alberta (at page 187), we find: Where s. [41] applies, it is mandatory for the Court to grant the statutory redemption period, unless the facts fall within one or more of the exceptions set out in s. [41(2)]. Grounds other than those set out in s. [41(2)] cannot be considered by the Court .

An order to shorten or lengthen the redemption period is always in the discretion of the Court. (emphasis added) [ 18 ] A redemption order used to be known as an Order Nisi. ‘Nisi’ is Latin for unless. It expresses that an order has validity unless a particular event occurs. Redemption Orders are almost always temporal; but there seems to be no reason in principle that they could not be contingent upon another event (such as resolution of the counterclaim). [ 19 ] In non-Torrens jurisdictions (and in England prior to 1926), title actually transferred to the mortgagee.

Redemption expressed the contractual, or, after the mortgage had matured, the equitable right to get title back into the mortgagor’s name. [ 20 ] Now mortgages are only a charge. The end of a Court–ordered redemption period does not typically end the right to redeem absolutely. An Order for Sale to a third party will extinguish the right to redeem.

However, it is still possible to redeem after an order for foreclosure, or even after an order for sale to the plaintiff. [ 21 ] Redemption Orders, or Orders Nisi, simply provide that something will happen after the redemption period expires: the mortgagor will be in a position to apply for an order for foreclosure, or a judicial sale, unless the mortgage is paid out or brought into good standing. Once the time expressed for redemption has expired the foreclosure proceedings move to the next phase. [ 22 ] In practical terms, the remedy against the land is postponed for a time longer than the redemption period.

This needs to be kept in mind when balancing the effect of a redemption order against the effect of a conventional stay. Conventional Stays [ 23 ] There are a number of (other) ways to stay an Order, or a claim that has been taken to judgment when there is a counterclaim:

section 17 of the Judicature Act , RSA 2000, c J-2,

section 5 of the Civil Enforcement Act , RSA 2000, c. C-15, Rule 13.5 and Rule 1.4(2) (

h) are all possibilities. In this context, section 67(2) (

f) of the Condominium Property Act might also be an option. [ 24 ] In Condominium Corporation No. 0213865 v Uhrik , 2014 ABQB 478 , Master Robertson said: [43] There are a variety of options available when a court addressees a clear claim for debt,

summary judgment is sought, but there is a counterclaim for damages that arise out of either the same, or a related, or an unrelated, incident: (

a) sometimes judgment is granted, and the counterclaim is severed and directed to proceed by way of separate hearing; (

b) sometimes judgment is granted, but stayed, pending the outcome of the counterclaim (former Rule 159(4) as well as Rule 98 specifically provided for this, and current Rule 1.4(2)(

h) maintains the option); or (

c) time is given for the plaintiff by counterclaim to post security for the entire claim, in which case the claim will be stayed, failing which the judgment will become enforceable (for example, Ideal Basic Industries Inc. v. Gill , 47 C.P.C. 195 (B.C.C.A. 1984) . [44] Where it is argued that the

summary judgment should be stayed, whether upon providing security for the plaintiff’s claim or otherwise, some cases say that the American Cynamid test should be employed, such as Desautels Creative Printing Papers Inc. v. Printcrafters Inc ., 1999 CarswellMan 472, [1999] M.J. No. 453 (Man. C.A.) , which requires the court to review: (

a) whether the applicant has an arguable case that the judgment is wrong, (

b) whether the applicant will suffer from irreparable harm if the stay is not granted, and (

c) whether the harm to the applicant from refusing the stay is greater than the harm to the respondent from granting one. [ 25 ] In my view, there is no arguable case here that the claim for the special assessment is wrong and there no irreparable harm. There might be debate about the third point. The bottom line is that the counterclaim would not pass this three part test for a stay.

[26] There also appears to be a broad equitable jurisdiction to stay, or sever a counterclaim depending on the nature of the claimand counterclaim. In Quinney v 1075398 Alberta Ltd., 2015 ABQB 452, Topolniski, J. said: [19] Equitable set-off is available whether or not the plaintiff's claim and the cross-claim arise out of the same contract, andregardless of whether the claim is liquidated or unliquidated.

It is available where: 1) the defendant shows some equitable ground forbeing protected against the plaintiff's demands; 2) the equitable ground goes to the very root of the plaintiff's claim; 3) the cross-claim isso clearly connected with the plaintiff’s demand that it would be manifestly unjust to allow the plaintiff to enforce payment withouttaking into consideration the cross-claim: Telford v Holt, (SCC), [1987] 2 SCR 193 at 398-99, [1987] SCJ No 53,Algoma Steel Inc v Union Gas Ltd (2003), (ON CA), 168 OAC 89, [2003] OJ No 71. [20] The plea of res judicata applies to every point which properly belongs to the subject of litigation, and which the parties exercisingreasonable diligence might have brought forward at the time.

Therefore, each party must use reasonable diligence to put forward everypoint in his or her favour, otherwise s/he may be shut out from raising that point again: Doering v Grandview (Town), (SCC), [1976] 2 SCR 621, [1975] SCJ No 93. [21] Courts have held that in some circumstances, it is inappropriate to postpone or sever a counterclaim.

Generally speaking, where theclaims are closely related and the counterclaim claims equitable set-off, the entire matter should be heard together: ICF Spry, ThePrinciples of Equitable Remedies, 2nd ed (Sweet and Maxwell, 1980) at 170-171. [22] Otherwise, a decision in the first claim may render part or all of the counterclaim res judicata: Trafford v Marie, [1989] AJ No 483(CA), Bank of Nova Scotia v Agronin, (AB KB), [1989] AJ No 531, 100 AR 187 (QB Master), Alberta (TreasuryBranches) v Opsteen, 2012 ABCA 153, 533 AR 49, Lion Creek Properties Ltd, LLP v Sorobey, 2015 ABQB 223, [2015] AJ No 382. [23] In Whitney v Re/Max of Western Canada

(1982) Ltd, (AB KB), [1996] AJ No 1199 at para 13, 191 AR 321,Master Funduk held that a counterclaim cannot be severed when it raises legal or equitable set-off, as that is a defence, even though it ispled by way of counterclaim. [24] However, a counterclaim dealing with a separate transaction does not raise true set-off, but only procedural set-off, and thereforeadjudication of the claim does not raise res judicata issues in relation to the counterclaim: Royal Bank of Canada v Brattberg (1987),1987 ABCA 55 , 52 Alta LR (2d) 173, [1987] AJ No 262 (CA), leave denied [1988] SCCA No 301. [27] Justice Topolniski went on to say: [115] As well, some of the law cited above on

summary judgment on bills of exchange pending counterclaim supports consideration ofa stay. It appears that the decision in those circumstances is largely discretionary: WestJet v ELS Marketing Inc, 2014 ABCA 372 atpara 4, 13 Alta LR (6th) 181. However, the tripartite test has been applied in relation to stays of

summary judgment pending hearing ofthe counterclaim: Desautels Creative Printing Papers Inc. v Printcrafters Inc., (MB CA), [2000] 4 WWR 575, 138Man R (2d) 309 (CA), Condominium Corp No 0213865 v Uhrik, 2014 ABQB 478 at paras 43-53, [2014] AJ No 890. (emphasis added) Also see Zibrowski v Nicolis, 2012 ABQB 236. [28] The Townhouse owners are essentially aiming for a section 67(2)(

d) remedy, which is an unliquidated claim for damages asopposed to the claim of the Condominium Corporation which is liquidated; though, as mentioned, with in-rem rights. The only set-off inthese circumstances would be equitable and discretionary. [29] In the circumstances, I am going to employ a ‘redemption period’ in its primary function as a stay, rather than one of the otherspecies of stay that exist in this domain. [30] A stay is a discretionary remedy.

Even if I am wrong in rejecting the three part test, there is an overriding consideration. [31] In Don Reid Upholstery Ltd. v Patrie, (1995) (AB KB), 173 AR 223, Veit, J., said (in the context ofopening up a default): However, in the best traditions of the profession, the lawyer for Don Reid Upholstery Ltd. also refers to "Saudi Eagle". In that decision,the British Court of Appeal reminds us that discretion, by definition, rejects rigid rules.

When judges say that an applicant must prove thethree things set out above, they are merely using a form of shorthand: they are saying that fairness must always be done and that usuallyfairness requires that these three things be proved. Under R. 158, the court has discretion to do what is just; the most that case law can dois to provide "general indications to help the Court in exercising the discretion". Thus, for example, it is unlikely that a court will setaside a default judgment unless the party applying can show that it has a defence on the merits.

Similarly, a court will be unlikely togrant a motion to set aside a default judgment unless the party applying can demonstrate that they acted promptly to set the judgmentaside once they became aware of the judgment. Our own Court of Appeal has, of course, taken the same approach as the British Court of Appeal. In many different situations, it hasemphasized that the objective of the Rules is to achieve fairness, not blind adherence to mere formalism. In

summary, while we can say what an applicant will usually be asked to demonstrate on a motion to set aside a default judgment, theonly real rule on these motions is that the court’s discretion must be applied judicially. The Counterclaim

[ 32 ] The claim and counterclaim are fundamentally different, but closely linked. As noted, the foreclosure claim is essentially a debt action within rem rights: the counterclaim, is essentially a damages claim.

Section 67 of the Condominium Property Act provides: Court ordered remedy 67(1) In this section, (a) “improper conduct” means (

i) non-compliance with this Act, the regulations or the bylaws by a developer, a corporation, an employee of a corporation, a member of a board or an owner, (ii) the conduct of the business affairs of a corporation in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of an interested party, (iii) the exercise of the powers of the board in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of an interested party, (iv) the conduct of the business affairs of a developer in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of an interested party or a purchaser or a prospective purchaser of a unit, or (

v) the exercise of the powers of the board by a developer in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of an interested party or a purchaser or a prospective purchaser of a unit; (b) "interested party" means an owner, a corporation, a member of the board, a registered mortgagee or any other person who has a registered interest in a unit.

(2) Where on an application by an interested party the Court is satisfied that improper conduct has taken place, the Court may do one or more of the following: a. direct that an investigator be appointed to review the improper conduct and report to the Court; b. direct that the person carrying on the improper conduct cease carrying on the improper conduct; c. give directions as to how matters are to be carried out so that the improper conduct will not reoccur or continue; d. if the applicant suffered loss due to the improper conduct, award compensation to the applicant in respect of that loss; e. award costs; f. give any other directions or make any other order that the Court considers appropriate in the circumstances. ( 3) The Court may grant interim relief under subsection (2) pending the final determination of the matter by the Court. [ 33 ] I acknowledge that Condominium Corporations need cash flow to survive.

The amounts claimed are not insignificant. The defendants will be liable for over $400,000.00 (collectively) as a result of the judgments for unpaid special assessments. I expect these funds are essential to pay the contractors for their work on the Tower. This is reason itself to be cautious about stays in this setting. On the other hand, the choice of a foreclosure remedy prevents immediate relief so while this cash flow consideration weighs into the argument it is not in and of itself determinative.

There is no evidence about whether the Condominium Corporation has borrowing powers. [ 34 ] In terms of the Law of Property Act

section 41 issues, the central issue is the value of the land (41(2)(b)(ii)) and the potential relation between the alleged

section 67 conduct and the devaluation of the units. If neglect of the Townhouse units devalued them, even by a modest percentage, the sum of the harm suffered by these unit owners could easily exceed the total of the special assessments. If I were to refuse a stay or to grant a short redemption period and allow a judicial sale at a price that is depressed owing to the acts or omissions of the Condominium Corporation, I would be allowing the claim itself to be an instrument of harm. The nearest analogy I can think of is giving court sanction to a mortgagee in possession who is allowed to commit waste.

Remedy 1) Judgment is given against the Condominium owners severally for their unpaid condominium assessments. 2) The foreclosure action is stayed and the redemption period is set at 8 months from the date of the Redemption Order, or 30 days from resolution of the counterclaim, whichever occurs first. 3) The list price for the judicial listing, if it gets that far, will have to be proved at the expiry of the redemption period. [ 35 ] The parties may address the issue of costs, which I expect are provided for in the By-laws. Heard on the 30 th day of July, 2015.

Dated at the City of Edmonton, Alberta this 26 th day of November, 2015.

W.S. Schlosser M.C.C.Q.B.A. Appearances: Andrea Willey Duncan & Craig LLP for the Plaintiff Nigel Forster Bishop & McKenzie LLP for the Defendants