Winnipeg Condominium Corporation 479 v Date:, 2020 MBCA 66

Citation: Winnipeg Condominium Corporation 479 v Date: 20200622 520 Portage Avenue Ltd et al, 2020 MBCA 66 Docket: AI19-30-09266 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Marc M. Monnin Madam Justice Janice L. leMaistre Madam Justice Karen I. Simonsen BETWEEN : winnipeg condominium ) Corporation 479 ) R. L. Tapper, Q.C. and ) K. M. Coutts (Applicant) Respondent ) for the Appellants ) - and - ) T. A. McMahon ) for the Respondent 520 portage avenue ltd. and ) HART MALLIN ) J. D. H.

King ) for the Intervener (Respondents) Appellants ) ) Appeal heard: - and - ) December 20, 2019 ) thomas g. frohlinger ) Judgment delivered: ) June 22, 2020 Intervener ) On appeal from 2018 MBQB 197 simonsen JA [ 1 ] 520 Portage Avenue Ltd., the developer of a condominium building (the Developer), and its principal, Hart Mallin (Mallin), appeal a decision of an application judge transferring ownership of the parking area in the condominium building from the Developer to Winnipeg Condominium Corporation 479 (the Condominium Corporation). [ 2 ] Upon the creation of the Condominium Corporation, the Developer retained ownership of the parking area as a unit (the parking unit).

Then the Developer, while still in control of the Condominium Corporation, leased the parking unit to the Condominium Corporation (the parking lease). [ 3 ] The application judge found that the Developer had failed to disclose to purchasers of units of the Condominium Corporation the status of the parking area as a unit, and the Developer’s ownership of that unit. He determined that the Developer had caused the unit owners to reasonably believe that the parking area was a common element of the Condominium Corporation. He therefore concluded that the Developer had breached a fiduciary duty owed to the unit owners.

He declared the parking unit to be a common asset of the Condominium Corporation, and ordered that title to same be vested in, or transferred from the Developer to, the Condominium Corporation (the judgment). Following from this conclusion, he declared the parking lease to be null and void. [ 4 ] The intervener, Thomas G. Frohlinger (Frohlinger), holds three registered mortgages against the parking unit. Although Frohlinger was initially counsel for the Developer, another lawyer represented the Developer before the application judge.

Frohlinger did not appear at the hearing of the application, and neither counsel nor the application judge addressed his mortgages. [ 5 ] Counsel for the Condominium Corporation advised this Court at the appeal hearing that the Winnipeg Land Titles Office (WLTO) will not accept the judgment in its current form, without a specific indication as to whether the encumbrances against the title to the parking unit are to remain or be removed. Grounds of Appeal [ 6 ] Although a number of grounds of appeal are set out in the notice of appeal, the Developer essentially asserts that the

application judge erred by: 1. failing to direct that the application proceed to a trial; 2. misapprehending the evidence and/or erring in his application of the law to the facts when he found that there was insufficient disclosure regarding the parking unit and the parking lease; 3. concluding that the Developer owed a fiduciary duty to the Condominium Corporation, and that the Developer had breached that fiduciary duty; and 4. ordering transfer of the parking unit to the Condominium Corporation without accounting for the mortgages that were registered against the title to the parking unit. [ 7 ] Frohlinger was granted intervener status on this appeal to argue that “the application judge ‘erred in law in ordering that the Parking Unit be transferred to (the condominium corporation) without accounting for existing mortgages registered against the Parking Unit”’ ( 2019 MBCA 83 at para 23 ).

The Facts [ 8 ] On August 16, 2004, the Condominium Corporation was created when the Developer filed a Condominium Plan (the Plan) and a Condominium Declaration (the Declaration) with the WLTO. The Plan and the Declaration were filed pursuant to The Condominium Act , RSM 1987, c C170 (the former Act ), as repealed by The Condominium Act , CCSM c C170 at

section 309, which Act came into force on February 1, 2015 (the current Act ). [ 9 ] The Plan depicts a four-storey building at 520 Portage Avenue, Winnipeg, with 19 units. At present, the condominium building has 11 residential units (there were originally 12 but two were amalgamated) and seven commercial units.

The parking area in the condominium building has seven parking spots. [ 10 ] The Developer says that it marketed the project as a zero-commute building, meaning that, because it was downtown, unit owners could get to work without the necessity of owning a car; that is why parking spots were not attached to each residential unit. The condominium units were marketed to people who did not own cars, although they were not solely targeted to such people.

The commercial tenants did not have access to the parking area and were not allocated parking spaces, as these were made available only to the residential unit owners. [ 11 ] At the time the Declaration and Plan were registered, the Developer entered into the parking lease with the Condominium Corporation. Mallin signed the parking lease on behalf of both parties. The parking lease required the Condominium Corporation to pay annual rent of $10,000 for the first three years, with increases thereafter for its 10-year term.

The parking lease also included an option for the Condominium Corporation to purchase the parking unit for $167,000 within the first five years. [ 12 ] Frohlinger, who was legal counsel to the Developer, says that he became “involved with the [condominium building] as a minority investor after the project was underway.” In 2006, he registered a mortgage in the amount of $500,000 against the title to the parking unit, which was intended to secure both monies he had advanced to the Developer as an investor and his legal fees.

In 2007, after the original investor became unhappy with the progress of the project and wanted to be repaid, Frohlinger assumed his two mortgages that had been registered against the titles to all units, including the parking unit; those mortgages, in the amounts of $1,000,000 and $1,500,000, had been registered in December 2003 and December 2004 respectively. [ 13 ] As the units were sold, the mortgages registered in 2003 and 2004 were paid down through the sale proceeds. Although Frohlinger is unable to quantify the amount currently owing on these mortgages, he says that it exceeds $400,000.

He indicates that he and the Developer have agreed that he would accept as payment in full the fair market value of the parking unit, plus the parking fees which (as I will explain) are currently held in trust.

He estimates the value of the parking unit at less than $200,000 and the parking fees to total approximately $60,500, as at June 2019. (The City of Winnipeg, however, assessed the value of the parking unit at $1.00 in its 2015 Property Assessment Notice.) [ 14 ] In about March 2006, management of the condominium building was transferred from the Developer to Colliers Pratt McGarry and, in October 2012, management was transferred again to Linden Real Estate Services Inc.

Between January 2005 and January 2012, the Developer and one of its property managers issued to unit owners a number of Disclosure Certificates and Status Certificates under the former Act that touched upon parking . [ 15 ] In September 2008, a board of directors comprised of unit owners was elected and the Condominium Corporation took over the residential management contract. At a special meeting of owners on August 27, 2009, the option to purchase the parking unit pursuant to the parking lease was rejected. Later, on May 7, 2010, the Developer terminated the parking lease for non-payment.

Since then, various rental arrangements for the parking stalls have been made. Some monies are held in trust pending the outcome of this litigation. Litigation Background [ 16 ] In May 2010, a statement of claim was filed by four individual unit owners seeking a declaration that the parking unit was a common element of the Condominium Corporation and an order to transfer ownership of the parking unit from the Developer to the Condominium Corporation.

That action has not advanced past the examination for discovery phase. [ 17 ] In May 2015, the Condominium Corporation filed the notice of application that is the subject of this appeal, seeking relief virtually identical to that sought in the above action. [ 18 ] At the hearing before the application judge, the Developer brought a preliminary motion under Manitoba, Court of

Queen’s Bench Rules, Man Reg 553/88 (the QB Rules), r 38.09(b), for an order directing that the application proceed to trial, principallyon the basis that there was a substantial dispute of fact. The Developer argued that a number of key facts were in dispute, includingwhether a copy of the parking lease was provided to all of those who originally purchased units in the Condominium Corporation.

The Application Judge’s Reasons for Decision [19] The application judge dismissed the Developer’s motion for an order directing that the application proceed to trial,determining that any credibility issues could be decided on the affidavit evidence.

He found that a copy of the parking lease had beenprovided to all of the original unit purchasers at the time of purchase (at para 13). [20] The application judge then identified the three issues before him, two of which related to whether the Developer hadbreached a fiduciary duty owed to the unit owners, and the third being whether the “actions of the respondents amount to improperconduct under the current provisions of The Condominium Act” (at para 22).

Because he found that a fiduciary duty had been breachedand ordered the remedy sought by the Condominium Corporation on that basis, he did not address the third issue (see para 43). [21] With respect to the issue of fiduciary duty, the application judge summarised the applicable law (at paras 28-29): A principle that one can derive from the case law is that the contractual relationship between a developer and unit purchasers is governedby the applicable legislation, the condominium declaration and the disclosure and status certificates.

Where the language in thedeclaration is clear there will be no overarching fiduciary duty arising out of the relationship, as was the case in Peel CondominiumCorp. No. 505 v. Cam-Valley Homes Ltd. (2001), (ON CA), 53 O.R. (3d) 1 (Ont. C.A.), and Peel CondominiumCorp. No. 417 v. Tedley Homes Ltd. (1997), (ON CA), 35 O.R. (3d) 257 (Ont. C.A.). However, if on a reasonableinterpretation of the language of the declaration the declarant intended a reasonable purchaser to believe or justifiably assume thatsomething is a common element, the declarant will be required to convey the unit to the corporation.

The following paragraphs from Simcoe [Simcoe Vacant Land Condominium Corporation No 272 v Blue Shores Developments Ltd, 2015ONCA 378] set out the principle: 60 Newrey [York Condominium Corp No 167 v Newrey Holdings Ltd (1981), (ON CA), 122 DLR (3d) 280 (OntCA)] was invoked in Middlesex Condominium Corporation No. 67 v. 600 Talbot Street, London Ltd. (ON CA),[1998] O.J. No. 450, 37 O.R. (3d) 22, which also concerned the conveyance of a Superintendent's suite.

The principle in Newrey wasaffirmed at para. 39, where Rosenberg J.A. said: To summarize, Frontenac [Frontenac v Joe Macciocchi & Sons (1975), (ON CA), 67 DLR (3d) 199 (Ont CA)] andNewrey Holdings stand for the proposition that with respect to the common elements, the declarant is bound not to prefer its interestsover those of the group of unit owners. Where the reasonable

interpretation of the evidence is that, notwithstanding the registered title,the declarant intended a reasonable purchaser to believe or to justifiably assume that the superintendent's suite was a common element oran asset of the corporation, the declarant will be required to convey the unit to the corporation. If this constituted a departure fromestablished contract and real property law, it was a departure required by the exigencies of condominium ownership. 61 He concluded at para. 41: To protect both the purchaser and the declarant the test surely must be an objective one.

If the declarant caused the purchasers to assumethat the superintendent's suite was a common element, and if a reasonable purchaser would make such an assumption, a matter ofinterpreting the disclosure documents, this is sufficient to overcome the registered title. [22] Applying that law to the facts, the application judge concluded that the Developer had breached a fiduciary duty owedto the Condominium Corporation because the disclosure it provided would have led a reasonable purchaser to believe that the parkingunit was part of the common area of the Condominium Corporation. [23] In the result, the application judge declared the parking unit to be a common asset of the Condominium Corporation andstated that “this court grants a vesting order to that effect” (at para 41).

Ancillary to that conclusion, he found the parking lease to be nulland void. He went on to direct that title to the parking unit be transferred to the Condominium Corporation, and the judgment reflectsthat language. [24] As I have said, the mortgages that were registered against the title to the parking unit were not addressed by counsel orthe application judge. The Condominium Act [25] The former Act prescribed no requirement for a declaration to include a description of the common elements or to

disclose what units were retained by the developer. Under the current Act , both obligations exist. Section 13(1)(

e) sets out the requirement to include a description of the common elements and section 13(1)(

m) requires disclosure of units that are retained by the developer. [ 26 ] Under the former Act , there was, however, a provision requiring a developer to provide to a prospective purchaser a statement in the prescribed form (being a Disclosure Certificate under the Condominium Forms Regulation , Man Reg 173/98 , since repealed ), indicating the “parking arrangements that apply”, failing which no agreement to purchase a unit would be enforceable against a purchaser (section 8(1.1)(c)(i)). [ 27 ] The notice of application seeks relief pursuant to sections 223 and 225 of the current Act , but makes no reference to a breach of fiduciary duty.

Nonetheless, breach of fiduciary duty was the focus of counsel’s submissions before both the application judge and this Court.

The Condominium Corporation indicates that a request for relief based on the common law of fiduciary duty would not have been necessary if the more comprehensive disclosure requirements under the current Act had been in force at the material time. [ 28 ] Sections 223(1) and 225 of the current Act state: Order—compliance or contravention 223(1) A unit owner, a condominium corporation, a declarant, an owner-developer, an occupant of a proposed unit or a holder of a registered instrument in respect of a unit may apply to the court for an order under this

section to remedy a contravention of any provision of this Act or the corporation's declaration, by-laws or rules. Order—improper conduct 225(1) A unit owner, condominium corporation, buyer of a proposed unit, holder of a registered instrument in respect of a unit, declarant or owner-developer who reasonably believes that improper conduct has taken place may apply to the court for an order under this section. Meaning of “improper conduct ” 225(2) In this section, “improper conduct” means (

a) the conduct of the condominium corporation's business affairs in a manner that is oppressive or unfairly prejudicial to the applicant or that unfairly disregards the applicant's interests; (

b) the exercise of the board's power in a manner that is oppressive or unfairly prejudicial to the applicant or that unfairly disregards the applicant's interests; or (

c) the conduct of the declarant or owner-developer with respect to the applicant or a purchaser or prospective purchaser in a manner that is oppressive or unfairly prejudicial or that unfairly disregards the interests of any of them. Contents of orders 225(3) If the court is satisfied that improper conduct has taken place, the court may make one or more of the following orders: . . . (

f) any other order the court considers appropriate. Standard of Review [ 29 ] The application judge’s decision to proceed by way of application rather than a trial involved an exercise of his discretion. An appellate court is not to intervene in a discretionary decision unless the judge misdirects himself or his decision is so clearly wrong as to lead to an injustice (see Perth Services Ltd v Quinton et al , 2009 MBCA 81 at paras 25 , 28). [ 30 ] On the substantive issues, the applicable standard of review depends on the nature of the question in issue. Questions of law are reviewed for correctness.

Questions of fact, including inferences drawn from the evidence, are reviewed on the standard of palpable and overriding error. Questions of mixed fact and law, including the application of a legal standard to a set of facts, are also reviewed only for palpable and overriding error, unless an extricable or severable legal error from the factual determination is evident, in

which case deference is not owed and the correctness standard applies (see Housen v Nikolaisen, 2002 SCC 33). Fresh Evidence [31] The application judge had before him only

Part 1 of the Plan. The Developer seeks to admit as fresh evidence onappeal Parts 2 and 3 of the Plan. Given the consent of the Condominium Corporation to the admission of this evidence, and that it formspart of a document that is central to the dispute, I would agree that it is admissible in the interests of justice (see Palmer v The Queen, (SCC), [1980] 1 SCR 759).

The Positions of the Parties Application vs Trial [32] The Developer contends that this matter should have proceeded to a trial because that would have allowed witnesses,beyond the representatives of the parties who provided affidavits on the application, to testify. For example, the individual who sworethe affidavit on behalf of the Condominium Corporation purchased her unit in May 2010; it would have been important to hear evidencefrom original purchasers.

As well, the Developer argues that limitations and delay could have been considered if the application wasconverted to an action. [33] The Condominium Corporation says that the decision to proceed by way of application was a discretionary one, whichis entitled to deference. The decision is not clearly wrong, nor did it lead to an unjust result.

Fiduciary Duty—Transfer of Title [34] Relying on Peel Condominium Corp v Cam-Valley Homes Ltd (2001), (ON CA), 196 DLR (4th)621 (Ont CA) (Cam-Valley), the Developer says that the duty owed by a developer to unit owners of a condominium is limited to thedisclosure obligations prescribed by statute—and that it complied with all of the requirements of the former Act. [35] Furthermore, even if an overarching duty is owed in some circumstances, the Developer asserts that the applicationjudge erred in concluding that such a duty was owed and breached in this case.

The Developer says that the record does not support afinding of any intention on its part to treat the parking unit as a common element, considering all of the documents (in particular, thePlan) and its provision of a copy of the parking lease to each of the original condominium unit owners.

Rather, the evidence establishesthat the Developer disclosed to the unit owners that it retained ownership of the parking unit, and that it did not lead them to reasonablybelieve that the parking area was a common element. [36] The Developer notes that it was inherently reasonable for it to maintain ownership of the parking unit given the zero-commute nature of the property and the fact that many purchasers may not have wanted or needed parking.

The documents it providedwere clear; this is particularly so given the additional pages of the Plan now before this Court on appeal. [37] The Developer also says that it did not engage in “improper conduct” under section 225(2) of the current Act. [38] The Condominium Corporation takes the position that the application judge did not err in law or in fact, and that there isno basis for appellate intervention.

Intervener Issues—Mortgages [39] Frohlinger asserts the application judge erred by making a vesting order or ordering the transfer of title to the parkingunit without a full hearing on the merits of, and accounting for, his mortgages. He maintains that he did not appear before theapplication judge because the notice of application, of which he was aware, did not seek an order removing his mortgages. [40] Frohlinger further contends that, if the judgment is upheld and title to the parking unit is transferred to theCondominium Corporation, the transfer should be subject to his mortgages.

They are validly registered in the WLTO. One mortgagethat he assumed was registered before the Declaration and the Plan. All three were either registered or assumed by him prior to theissuance of the statement of claim and the filing of the notice of application. They have not been declared invalid.

Fundamentally,Frohlinger argues, relying on the principle of nemo dat quod non habet, that a person (the Developer) cannot transfer title (to theCondominium Corporation) which it does not have (see Bank of Montreal v Innovation Credit Union, 2010 SCC 47 at para 51). [41] The Condominium Corporation submits that the issue of Frohlinger’s mortgages is a new one raised for the first time onappeal and should not be entertained by this Court. If this Court does decide to address the issue, the Condominium Corporation arguesthat Frohlinger was, or should have been, aware that his mortgages might be extinguished.

He was initially counsel for the Developer inthe action and, in that capacity, conducted examinations for discovery and was served with the notice of application. The CondominiumCorporation further submits the judgment properly has the effect of discharging the mortgages because, given the application judge’sdecision, the parking unit was never owned by the Developer, so it never had authority to grant a security interest to Frohlinger. [42] The Developer generally supports Frohlinger and says that the judgment was made improperly because it fails toaddress the encumbrances on the title to the parking unit.

Analysis and Decision Application vs Trial

[43] Exercising his discretion, the application judge determined that there were limited facts in dispute, and certainly nonethat he was unable to decide on the affidavit evidence before him. While an application generally cannot proceed on contested facts (seeGarwood v Garwood Estate, 2007 MBCA 160), this dispute turned largely on the

interpretation of documents. Indeed, the applicationjudge found the only significant factual issue in favour of the Developer—namely, that it had provided a copy of the parking lease to theoriginal unit owners. To the extent that the Developer was of the view that additional evidence was necessary, it could have tenderedaffidavits from other individuals or sought leave to call viva voce testimony (see r 39.03(4) of the QB Rules).

Furthermore, it was opento the Developer to argue that the application was barred by laches, but that was not pursued. [44] In my view, the application judge, in deciding to proceed by application, did not misdirect himself, nor was hisdiscretionary decision so wrong as to amount to an injustice.

Fiduciary Duty—Transfer of Title [45] The common law has long recognised ad hoc fiduciary relationships, arising from the specific circumstances of a case. (See, for example, Frame v Smith, (SCC), [1987] 2 SCR 99; Lac Minerals Ltd v International Corona Resources Ltd, (SCC), [1989] 2 SCR 574; Alberta v Elder Advocates of Alberta Society, 2011 SCC 24; and Filkow et al v D’Arcy &Deacon LLP, 2019 MBCA 61 at paras 63-66.) [46] The Supreme Court of Canada has not written on fiduciary duties in the context of developers and individualcondominium unit owners.

However, provincial appellate courts, particularly the Ontario Court of Appeal, have found that such a dutyexists in limited circumstances, with the focus being on whether, on an objective analysis, there was a common intention between adeveloper and a condominium corporation that property was intended to be a common element of the condominium corporation. [47] The duty was articulated in the Ontario decisions of Frontenac v Joe Macciocchi & Sons (1975), (ONCA), 67 DLR (3d) 199 (CA); and York Condominium Corp No 167 v Newrey Holdings Ltd (1981), (ON CA), 122DLR (3d) 280 (CA) (Newrey), leave to appeal to SCC refused, 1981 WL305060. [48] In Frontenac, a dispute arose over the ownership of the superintendent’s suite in a condominium building.

Thedeveloper retained ownership of the suite, but individual condominium owners had assumed that the suite was a common element andsought a declaration to that effect. There were three opinions in Frontenac but, like Rosenberg JA in Middlesex Condominium Corp No87 v 600 Talbot Street London Ltd (1998), (ON CA), 156 DLR (4th) 587 at para 32 (Ont CA), I conclude that theprinciple underlying the majority judgments can be found in the reasons of Brooke JA.

Overturning the decision of the trial judge, hereviewed the context and all of the surrounding circumstances and concluded that the individual unit owners reasonably believed, basedon representations made by the developer, that the suite was a common element. He therefore ordered title to the suite conveyed to thecondominium corporation. [49] Similarly, in Newrey, the issue was whether the janitor’s suite, registered as a unit by the developer, was intended to bea common element of the condominium corporation.

The trial judge was not persuaded on the evidence that the parties shared acommon intention that the janitor’s suite would be a common element, but the Court of Appeal held that it was in as good a position todraw inferences from the documents and the conduct of the parties.

After considering all of the evidence, it concluded that the evidenceestablished a common intention of the parties to consider the janitor’s suite a common element, which was sufficiently strong toovercome the developer’s title to that unit, and it ordered the conveyance of the suite to the condominium corporation. [50] Another issue in Newrey was whether the developer was entitled to the proceeds from the sale of some parking spaces. There was no dispute that the parking spaces formed part of the common elements.

The issue was whether the developer was permittedto dispose of those spaces prior to the registration of the declaration, and keep the proceeds of the sale. In concluding that the developerwas not entitled to deal with a common element, the Court spoke about the fiduciary relationship that exists when a developer begins tosell units of a condominium project (at p 289): . . . I do not think the position of the owner-developer remains unchanged after he starts to sell units. I think that at that point he hascommitted the character of the project to that of condominium under the Act and declaration.

I think he has also placed himself in afiduciary relationship to the unit purchasers not only with respect to their units but also with respect to the interests appurtenant thereto. He therefore holds the property in trust for the unit purchasers, present and prospective, and for the condominium corporation which willcome into being upon registration of the declaration.

I believe he is under a duty to protect the interests of all unit owners, present andprospective, and cannot put his own interests in conflict with theirs even although he himself continues to be an owner as long as anyunits remain unsold. [51] The principles in Frontenac and Newrey were applied in Manitoba in the early decision of Winnipeg CondominiumCorp No 37 v 255 Wellington Crescent Ltd, 1984 CarswellMan 354 (CA). In that case, the declaration made clear that the caretaker’ssuite was a common element of the condominium corporation.

The developer retained ownership of the unit, intended to mortgage it,keep the proceeds, and then transfer title to the condominium corporation. It proceeded to take title to the unit and a mortgage wasregistered. The trial judge concluded that the certificate of title was not conclusive, and found that the declaration was not clear as towhether the developer could mortgage the suite. He declared that the condominium corporation was entitled to ownership of the suitefree and clear of the mortgage.

That decision was upheld on appeal, with this Court indicating that the developer had to accept fullresponsibility for the unclear declaration (see para 5). [52] The Newrey approach was applied by the Ontario Court of Appeal in Peel Condominium Corp No 417 v Tedley HomesLtd, 1997 CarswellOnt 2998 (Tedley); and Middlesex. On the particular facts in each case, relief was denied in Tedley and a conveyancewas ordered in Middlesex.

[ 53 ] In Tedley , the distinguishing feature was that the disclosure statement, given to each purchaser, explicitly specified that the condominium corporation was under a duty and obligation to purchase the units in question from the developer. [ 54 ] Middlesex , once again, concerned the ownership of the superintendent’s suite.

The suite was registered as a unit by the developer, but the condominium corporation sought a declaration that it formed part of the common elements and a conveyance order and damages pursuant to section 52(5) of the Condominium Act , RSO 1990, c C26 (the Ontario Act ) , which provided specific remedies for a false or misleading disclosure statement. [ 55 ] Rosenberg JA, writing for the Court, thoroughly reviewed and summarised the law respecting intention and disputed property within a condominium’s boundaries, as set out in Frontenac and Newrey .

As quoted and adopted by the application judge in his reasons, Rosenberg JA wrote (at para 39): To summarize, Frontenac and [ Newrey] stand for the proposition that with respect to the common elements, the declarant is bound not to prefer its interests over those of the group of unit owners. Where the reasonable

interpretation of the evidence is that, notwithstanding the registered title, the declarant intended a reasonable purchaser to believe or to justifiably assume that the superintendent's suite was a common element or an asset of the corporation, the declarant will be required to convey the unit to the corporation.

If this constituted a departure from established contract and real property law, it was a departure required by the exigencies of condominium ownership. [ 56 ] In Middlesex , Rosenberg JA also determined that neither Frontenac nor Newrey required proof of reliance by the purchaser of a condominium unit, and wrote (again as adopted by the application judge at para 29) (at para 41): . . . To protect both the purchaser and the declarant the test surely must be an objective one.

If the declarant caused the purchasers to assume that the superintendent's suite was a common element, and if a reasonable purchaser would make such an assumption, a matter of interpreting the disclosure documents, this is sufficient to overcome the registered title. . . . [ 57 ] Rosenberg JA concluded that any reasonable purchaser would assume, based on documents produced by the developer, that the superintendent's suite was part of the common elements (see para 40). He further held that, unless the statutory disclosure scheme set out in

section 52 of the Ontario Act demanded a contrary result, the developer would be required to convey the superintendent’s suite to the condominium corporation. He then stated that, although an aspect to the disclosure requirements under the Act was to assist in resolving disputes about what assets and common elements were included in the purchase price, and section 52(5) provided the statutory remedy of damages resulting from improper disclosure, there was nothing in the legislation which indicated that the Legislature intended to abrogate existing common law rights.

Thus, he found that section 52(5) simply provided an additional remedy to the Frontenac / Newrey common law remedy (see paras 49, 51). Ultimately, he ordered the developer to convey the superintendent’s suite to the condominium corporation. [ 58 ] In the present appeal, the Developer argues that the law, as outlined in Frontenac and Newrey , changed when, in Cam- Valley , the Ontario Court of Appeal took a different approach, and significantly limited the duty owed by a developer to unit owners.

The developer in Cam-Valley marketed that condominiums would be built in different phases in a valley, which was promoted as a “woodland community” (at para 7) with an outdoor recreational area as its centerpiece. The developer contemplated the outdoor recreational area being built and eventually conveyed to the condominium corporations as a shared common element once all five condominium phases were completed.

Subsequently, due to changes in the real estate market, the developer announced an intention to build more condominiums on the lands instead of the outdoor recreational area and, without notice, razed the forest on the lands. The documentation reserved to the developer the right not to build the recreational area at all and further provided that only if the outdoor recreational area was built did it have an obligation to convey the lands. The trial judge rejected the condominium corporations’ request for a transfer of title, finding that the facts did not support a remedy under the Newrey principles.

However, on the basis of what she found to be an overarching fiduciary duty owed by a developer to condominium corporations, she permanently enjoined the developer from developing the lands for residential purposes (despite that relief not having been requested). [ 59 ] Finlayson JA, writing for the majority in the Court of Appeal, agreed with the trial judge’s application of the Newrey principles and her assessment that the evidence did not support a finding that the developer intended the purchasers to believe that the outdoor recreational area was to be built and the lands conveyed to the condominium corporations, nor would a reasonable purchaser make that assumption (see paras 26-27). [ 60 ] Finlayson JA went on to consider the trial judge’s decision to order a permanent injunction, which had been granted on the basis of a breach of good faith and fair dealing owed to a prospective purchaser arising from the developer relying on obscure and unclear provisions in documents to defeat the reasonable expectations of a purchaser.

He concluded that a developer’s good faith obligation or duty is to carry out the terms of the agreement for purchase and sale and deliver whatever title the contract between the parties calls for. This obligation is circumscribed by the documentation required by the Ontario Act . The purchaser is protected by the statutory requirements for disclosure (see para 43). [ 61 ] It is noteworthy that Finlayson JA did not take objection to the principles in Newrey and Middlesex , but distinguished the case before him on the basis that this was not “a straightforward designation of common elements” (at para 31).

And his comments about the limited scope of the fiduciary duty were made in the context of his addressing the injunction, which he considered to be an undesirable remedy for all parties (see para 45). [ 62 ] Subsequent decisions of the Ontario Court of Appeal have continued to recognise the principles outlined in Newrey . [ 63 ] Metropolitan Toronto Condominium Corporation No 1250 v The Mastercraft Group Inc , 2009 ONCA 584 , considered the issue of whether a lease for HVAC equipment was null and void as the subject matter of the lease was a common element.

The Court affirmed the applicability of Newrey , noting that “ [i]f the HVAC equipment is included in the common elements, the fiduciary duty described in [ Newrey ] that is owed to present and prospective unit purchasers extends to that equipment” (at para 38) . The Court determined that the HVAC equipment were fixtures and therefore part of the common elements. A breach of fiduciary duty was found on the basis that the developer had breached its trust obligation to unit owners by selling the HVAC equipment and subsequently leasing it to the condominium corporation for its own profit.

The Court declared the lease null and void.

[ 64 ] Also instructive is the decision in Simcoe Vacant Land Condominium Corporation No 272 v Blue Shores Developments Ltd , 2015 ONCA 378 . In that case, the disclosure statements given to the purchasers provided for the conveyance to the condominium corporations of a clubhouse, which was part of a large condominium project, within 120 days after the developer was no longer the registered owner of any of the lands in the project. Before the developer had sold all of the lands or units, it granted a mortgage to a third party over the title to the clubhouse.

The Court determined that the condominium corporations were not entitled to a declaration of ownership of the clubhouse. The disclosure statements, incorporated by reference into the individual purchase and sale agreements, clearly indicated that the developer would retain ownership of the clubhouse until all residential condominium units were sold, and did not create an executory contract.

As well, MacFarland JA, writing for the majority, agreed (see para 129) with Lauwers JA, dissenting in part, that the Newrey line of cases did not assist the applicants because the principles outlined in those authorities applied only to common elements and fixtures (see para 53). Lauwers JA explained that this limitation recognised the parameters set out in Tedley and Cam-Valley (see paras 64-65). [ 65 ] On the basis of the above review and analysis, I would accept and adopt the principles outlined in Newrey .

The common law provides that, where, on a balance of probabilities, it is objectively reasonable to conclude that there was a common intention between the purchasers of a condominium unit and the developer of the condominium project that disputed property would be a common element of the condominium corporation, then the developer will have a duty to convey the disputed property to the condominium corporation, despite title to the disputed property being registered in the developer’s name. [ 66 ] The conveyance remedy established in Newrey is available absent a legislative provision abolishing it.

There is no such provision in the Manitoba Condominium Act (former or current) . [ 67 ] As such, the application judge did not err in his statement of the law about the fiduciary duty owed by a condominium developer to unit owners of the condominium corporation. [ 68 ] In determining whether there is a common intention that property would be a common element, the courts have assessed the matter objectively, considering the entire factual matrix.

As for determining the intention of the developer, the courts have been satisfied with evidence that the purchasers were reasonably led by the developer’s documents and actions to believe that the property would be a common element. [ 69 ] This objective, contextual method of determining intention reflects the general law of determining the intention of parties to a contract. As stated in Angela Swan, Jakub Adamski & Annie Y Na, Canadian Contract Law , 4th ed (Toronto: LexisNexis, 2018) (at para 4.22): . . .

The situations where difficulties [related to intention] arise are . . . those where the offeror’s intentions are either not clear or are at variance with what the offeree understood.

In these situations, the law has had to take an objective view: the question will be, not what the offeror as a matter of fact subjectively intended, but what a reasonable person in the position of the offeree would have understood the offeror to have intended by doing what was done or by saying what was said. . . . (See also ATCO Electric Limited v Alberta (Energy and Utilities Board) , 2004 ABCA 215 at para 77 ; and Matic et al v Waldner et al , 2016 MBCA 60 at para 64 , quoting SM Waddams, The Law of Contracts , 6th ed (Aurora: Canada Law Book, 2010) at para 145.) [ 70 ] The application judge conducted a detailed review of the Plan and the Declaration.

He found that the Plan provides no description of the parking area as a unit and that the parking area was simply described as Unit 1, with no reference to parking. He determined that “[a] prospective purchaser walking through the premises who had the Plan would be able to see that Unit 1 is the parking area, but the Plan diagram does not indicate parking” (at para 31). With respect to the Declaration, the application judge did a careful analysis of the three clauses that touch upon parking.

He concluded (at para 5): Considering only the Condominium Plan and the Condominium Declaration, there is nothing in the language that discloses to prospective purchasers that the parking area will continue to be owned by the Developer and leased to the Condominium Corporation and that the Condominium Corporation had an option to purchase the parking unit from the Developer for $167,000. Neither the Condominium Declaration nor the Condominium Plan indicates that the parking area is one of the units of the Condominium Corporation.

Rather, the language suggests that the parking area is part of the common elements. . . . [ 71 ] Also reviewed in detail by the application judge were the Disclosure Certificates and Status Certificates. He found that they “do not provide disclosure of the ownership of the parking area or that it does not form part of the common elements” (at para 37).

He added that, “Read together with the Condominium Plan and Declaration and based on the Certificates placed in evidence, I find a unit purchaser would be confirmed in his view that the parking area is a common element” ( ibid ). [ 72 ] The application judge also considered the fact that a copy of the parking lease had been provided to the unit purchasers.

He agreed that the parking lease would indicate that the Condominium Corporation was merely a tenant of the parking area, that the Developer was the landlord, and that there was an option by the Condominium Corporation to purchase the parking area from the Developer. However, he noted that the parking lease was not referred to in the Declaration or the Disclosure Certificates and Status Certificates, which instead read as though the parking area was a common element.

Looking at the evidence as a whole, he was satisfied that the case was “governed by the principle set out in the [ Newrey ] case” (at para 40). [ 73 ] While the Developer argues that the application judge misapprehended the documents and improperly weighed the evidence, it has not persuaded me that that there was any misapprehension. The application judge was entitled to interpret and weigh the evidence to decide the facts, and then to determine whether those facts met a legal standard, all reviewable on the deferential standard of palpable and overriding error.

No such error has been demonstrated. [ 74 ] The fresh evidence does not change matters. Although the new pages label certain areas on the Plan as “PARKING” or “PARKADE”, they do not label these areas as a unit. A meticulous review of the Plan would be required to surmise that the area labelled as “PARKING” or “PARKADE” and the area designated as Unit 1 are one and the same.

[ 75 ] To conclude, there is no basis for intervention by this Court with respect to the application judge’s determination that a reasonable unit owner would have been led to believe that the parking unit was a common element of the Condominium Corporation. The application judge did not err in applying the principles in Newrey and concluding that the Developer had breached a fiduciary duty owed to the unit owners—and that title to the parking unit should therefore be transferred to the Condominium Corporation and the parking lease declared null and void.

Sections 223 and 225 of the Current Act [ 76 ] Although this appeal is decided on the basis of breach of fiduciary duty, I will comment briefly on sections 223 and 225 of the current Act (without addressing any transitional issues that may arise as a result of the relevant events having occurred in 2004, prior to the current Act coming into force). [ 77 ]

Section 223 provides for a remedy in the event of a breach of the current Act , which, given its requirement for the disclosure of common areas, could address facts similar to those now before this Court. [ 78 ] The language of

section 225 allows for a remedy where there has been “oppressive” conduct. That

section mirrors the language in the

Canada Business Corporations Act , RSC 1985, c C-44 , about oppressive conduct (see section 241(2) ). BCE Inc v 1976 Debentureholders , 2008 SCC 69 , is a corporate law decision interpreting the oppression remedy set out in section 241(2). That case serves as the starting point for the discussion about the oppression remedy in condominium legislation because the Supreme Court of Canada’s guidance in that case has been utilised by several provincial appellate courts when interpreting and applying the oppression remedy contained in provincial condominium legislation.

Some of this case law relates to disputes between the condominium corporation (or its board) and individual unit owners, occurring well after the developer has departed.

There is, however, authority that deals with the issue of disclosure on the part of a developer. [ 79 ] For example, in Toronto Standard Condominium Corporation No 2051 v Georgian Clairlea Inc , 2019 ONCA 43 , the Ontario Court of Appeal recently concluded that a developer’s unsatisfactory documentation effectively hid the true state of affairs with respect to the purchase, sale and mortgage arrangements regarding the HVAC and parking units, and this established that the developer had unfairly disregarded the interests of the unit purchasers and the condominium corporation.

The facts of Georgian Clairlea are distinguishable from those before me. Nonetheless, the Court recognised that a developer may be subject to an oppression remedy if the developer provides purchasers with disclosure documentation that is confusing, inaccurate or insufficiently detailed such that the purchasers’ reasonable expectations are violated and the developer’s actions reflect an unfair disregard of the interests of the purchasers and the condominium corporation.

Intervener Issues—Mortgages [ 80 ] The issue of Frohlinger’s mortgages must be addressed by this Court as the WLTO will not accept the judgment without clarification of the status of the mortgages and any other encumbrances registered against the title to the parking unit (counsel have indicated that they expect resolution with respect to any other such encumbrances). [ 81 ] The notice of application does not specifically seek removal of Frohlinger’s mortgages.

However, given his involvement as counsel for the Developer in the action, one might reasonably expect that, once he saw the notice of application, he would have appreciated the potential issues at play, including the possible removal of his mortgages, and chosen to appear before the application judge to protect his interests.

Regardless, he has now been heard by this Court. [ 82 ] Having heard from him, I am not persuaded that the two mortgages that were registered in 2004 and 2006, after the Plan and the Declaration, should remain on the title to the parking unit or that a further evidentiary record is required to order them removed. The application of the Newrey principles means that a developer has no right to prefer its interests over those of condominium unit owners in dealing with an asset that is a common element of a condominium corporation, whether by transfer, lease or mortgage (see, for example, Wellington Crescent ).

Therefore, once the parking unit became a common element of the Condominium Corporation by virtue of representations made by the Developer in the Declaration and the Plan, the Developer could not mortgage it. [ 83 ] In ordering these mortgages removed, I recognise the surrounding circumstances. Frohlinger was not at arms length from the Developer, since he was both its legal counsel and an investor in the condominium building. As counsel, he was aware of the Declaration and the Plan, having provided a detailed report to the Developer about their terms.

Furthermore, when these mortgages are removed, any amount due thereunder to Frohlinger by the Developer will still be payable, albeit not secured against the parking unit. [ 84 ] I take a different view, however, with respect to the mortgage that was registered in 2003, prior to the Plan and the Declaration. While I appreciate that Frohlinger assumed that mortgage after the Plan and the Declaration had been registered, he nonetheless stepped into the shoes of the original mortgagee.

Without a more complete evidentiary record regarding the mortgage and Frohlinger’s assumption of same, I am not in a position to determine whether it should remain on title.

There is no evidence before this Court as to the relationship between the original mortgagee and the Developer, the terms of the mortgage or the assignment, when the mortgage advances were made, the purpose for which the funds were used, or the amount that remains due under the mortgage. [ 85 ] Therefore, the matter is referred back to the application judge to weigh the positions of the condominium unit owners and Frohlinger and determine whether it is just and equitable for the mortgage registered in 2003 to remain or be removed from the title to the parking unit.

To make his determination, the application judge should craft a process that recognises the principle of proportionality and avoids delay. Conclusion

[ 86 ] For the reasons outlined, I would dismiss the appeal and order the Frohlinger mortgages that were registered in 2004 and 2006 removed from the title to the parking unit. The issue of whether the mortgage registered in 2003 should remain against the title or be removed is referred back to the application judge. [ 87 ] I would award costs in favour of the Condominium Corporation, payable by the Developer. [ 88 ] I would not make any award of costs in favour of or against Frohlinger. JA I agree: JA I agree: JA