Hal Shea, Joseph Vergnano, Dale Ludwig, v. Joanne Ludwig, 2015 BCSC 1377

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Shea v. The Owners, Strata Plan KAS 1436, 2015 BCSC 1377 Date: 20150618 Docket: S118743 Registry: Vancouver Between: Hal Shea, Joseph Vergnano, Dale Ludwig, and Joanne Ludwig Petitioners And The Owners, Strata Plan KAS 1436 Respondent Before: The Honourable Mr. Justice D.M. Masuhara Oral Reasons for Judgment In Chambers Counsel for the Petitioners: A.J. Chang Counsel for the Respondent: M.D. Fischer Place and Date of Trial/Hearing: Vancouver, B.C. June 12 and 18, 2015 Place and Date of Judgment: Vancouver, B.C.

June 18, 2015 [ 1 ] THE COURT: The petitioners agreed to discontinue this proceeding on October 2, 2012, the eve of the hearing of this petition. Terms of the agreement included that each party reserved the right to argue costs, but that Rule 9-8(4) did not apply; and that the respondent strata corporation would not rely upon it or the cases that applied that rule. A consent order reflecting the foregoing was made by Justice Gerow on October 3, 2012. [ 2 ] The background to this matter is that the petition was filed December 21, 2011.

The essence of the relief sought was for an order that the strata corporation pay at least $3.1 million for the rehabilitation or repair of the building envelope of The Lagoons, which is a concrete high-rise tower and low-rise wood-frame structure in Kelowna. The amount arises from reports of building envelope consultants, RDH Building Engineering and Morrison Hershfield.

In the alternative, the application was that an administrator be appointed to perform the duties of the strata corporation and strata council in relation to the repair and remediation of the building envelope and related components. [ 3 ] It is common ground that the building envelope was in need of remediation. Water ingress had occurred and repairs were required. However, the dispute amongst the owners revolved around the scope of the remediation repair and the costs for The Lagoons. [ 4 ] Mr.

Shea was a council member and president of the strata council between 2009 to 2011, and that council recommended a course of action, programs, or alternatives based on the reports that were received from the consultants. The cost was in the order of $3.1 million. The options were rejected by the owners. [ 5 ] The council was replaced by a new slate in July 2011. The new council requested, and received, further reports and recommendations. The petitioners, not satisfied with the progress, filed their petition as mentioned on December 2011.

Further reports were circulated from a company that was retained by the council, Spratt Emanuel Engineering Ltd. (“Spratt Emanuel”). The Spratt Emanuel report recommended aggressive maintenance and targeted repairs. The petitioners saw the recommendations as inadequate and did not address the specific water ingress problems, particularly of Mr. Shea and, as I understand, certain other owners. The petitioners did not accept the recommendations of Spratt Emanuel. [ 6 ] However, at a special meeting, the recommendations, including the scope of the work, were approved.

The amount was for $1.9 million, and included a contingency for $230,000. The petitioners amended their relief on September 24, 2012, to seek certain specific work be done immediately or, alternatively, as part of the repair program currently contemplated by the respondent. [ 7 ] Once the owners voted to pursue the Spratt Emanuel recommendations, the respondent made a settlement offer to the petitioners on April 3, 2012. This April settlement offer provided that, if the petitioners discontinued against the respondent, the

respondent would not seek costs against the petitioners and the petitioners would be free to reimpose proceedings against the respondent at a later date. [ 8 ] The petitioners were not satisfied with the repairs to their units. This first settlement offer was not accepted by the petitioners and they continued pursuing the relief they claimed. [ 9 ] A further special levy created to cover additional expenses identified in the tender and bid process was approved on September 28, 2012, and brought the total approved funding to $2.340 million. [ 10 ] It is clear that the petitioners, in particular Mr.

Shea, pressed for different repairs than what the owners were willing to approve, and he voiced his opinions throughout. [ 11 ] Following the approval for the further special levy, a second settlement offer was communicated to the petitioners on August 1, 2012. The offer provided the following: (

a) the respondent will conduct all the Spratt Emanuel repairs and all further repairs, as outlined in the tender and bid process; (

b) as set out in the Spratt Emanuel repairs, any unit, including any unit owned by the petitioners, that requires additional work, including window replacement, would be repaired; and (

c) the petitioners would withdraw the petition on a without costs basis and sign a full and final release. [ 12 ] This second settlement offer was rejected by the petitioners. [ 13 ] As mentioned, the petitioners and respondents did not come to an agreement as to the terms of discontinuance until the day before the hearing. Also as mentioned, the terms of this final settlement were that the petitioner would file a discontinuance, and that the relief sought in the petition and the response, except for costs, would be discontinued.

The parties each reserved the right to argue costs. [ 14 ] The petitioners agreed that, other than the costs hearing and any adjournment of it, the proceeding would not be continued, recommenced, or any other similar proceedings commenced prior to January 1, 2014, without consent of the parties or with leave of the court, if the court is persuaded the repairs from the tender and bid process, as recommended by Spratt Emanuel, are not proceeding as directed by the ownership within a reasonable time or the respondent does not commence work by May 2013. [ 15 ] The parties are now here to argue the matter of costs. [ 16 ] The applicant owners seek, in descending order: (

a) special costs; (

b) increased costs; (

c) double costs; (

d) double costs of proceeding from the date of the respondent's second settlement offer of August 2012; or (

e) costs of the proceedings determined at Scale B. [ 17 ] The respondent petitioners argue that there is no basis for the court to make a reasonable determination of costs in the absence of a hearing or judgment on the merits. Alternatively, the respondents argue that they are entitled to costs as they were the successful party or the substantially successful party. [ 18 ] A key aspect of the discontinuation agreement and consent order was the express term that Rule 9-8(4) would not apply to this proceeding.

The rule states: Subject to subrule (2), a person wholly discontinuing an action against a party or wholly withdrawing his or her response to civil claim filed in response to a notice of civil claim of a party must pay the costs of that party to the date of service of the notice of discontinuance or the notice of withdrawal, as the case may be, and if a plaintiff who is liable for costs under this subrule subsequently brings a proceeding for the same or substantially the same claim before paying those costs, the court may order the proceeding to be stayed until the costs are paid. [ 19 ] It is acknowledged that the applicant here is precluded from obtaining costs that would otherwise normally accrue to it in the context of a discontinuance under the Rule. [ 20 ] Another key aspect is that the agreement to the discontinuance of both the petition and the response, in effect, precludes a determination of the merits by the court.

As a result, no determination is available to discern substantial success by one party or the other. [ 21 ] These aspects remove the usual factors which would apply to determining entitlement to costs. [ 22 ] The essence of the facts behind the applicant's argument for costs is that waiting until a day before the hearing to agree to discontinue was unreasonable, given that the expert report, expenses, and substantial legal expense were incurred in the two months prior, and similar settlement offers had been rejected soon before those expenses were incurred. [ 23 ] Within this argument are suggestions that Mr.

Shea, who was a member of the strata council at a point when the recommendations and reports were received, was in a conflict of interest and should not have participated in the voting by council or any other steps taken by it in regards to remediation. It is also argued that the petition was wrongfully motivated and was a thwarting of the democratic process of the owners. It is argued that the filing of the petition was a continuation of Mr. Shea's efforts to improperly supress the reasonable engineer-approved and less-expensive repair option.

[ 24 ] The applicants are critical of the petitioners in that they did not withdraw the petition when it became clear that the corporation was taking steps to conduct approved repairs that were considered by multiple engineering firms to be suitable repairs; that they rejected reasonable settlement offers; and that experts had conducted investigations and generated reports geared to respond to the petition proceedings.

The applicants assert negative characterization of the petitioners' conduct and their unreasonableness in the context of all the work that had been done by the experts and the strata council with respect to remediation or rehabilitation of The Lagoons. [ 25 ] It is argued that, in the end, the petition accomplished nothing but increased expense and wasted efforts. [ 26 ] The petitioners have contested the negative allegations and submit that their conduct was justified. They have made various submissions and deposed various points that, in their view, support their position.

They also argue that they were substantially successful and that a rehabilitation was conducted greater than that which was originally proposed by the council. There is also evidence there were continued problems with respect to rehabilitation, in that water ingress problems were not entirely repaired, but ultimately, after some time, they did pass the water ingress tests. [ 27 ] I have sympathy for the strata corporation. However, conflicts between owners is common to this court's list of disputes.

They can be likened at times to high-conflict family law disputes, where the character and the motivation of the opposing parties are attacked. [ 28 ] In reviewing the dynamics of the case, it is unfortunate that what happened here has led to the investment of resources which could otherwise have been better used.

But the strata corporation, having agreed to remove the dispute from being adjudicated on its merits, as well as having agreed to remove the operation of the rule which provides for the entitlement to costs for a discontinuation, in my view faces a very high hurdle to demonstrate an entitlement to costs. [ 29 ] There is no specific guidance which I am aware of for a situation such as this, and no authorities on the point have been provided by the parties. The arguments for a finding of costs for the applicant in this case do not meet the very high test.

Accordingly, the application for costs, special, increased, double or ordinary, is dismissed and each party is to bear their own costs. [ 30 ] That concludes my ruling. [ 31 ] MR. FISCHER: Thank you, My Lord. [ 32 ] MR. CHANG: My Lord, I'd like to speak to the issue of fixing costs for this application. [SUBMISSIONS ON COSTS] [ 33 ] THE COURT: All right, we will set the lump-sum figure, total costs and disbursements, including taxes, at $2,459.45. “The Honourable Mr. Justice Masuhara”