Strata Lawsuits that Have Not Been Voted on by Owners

ARE LAWSUITS STARTED BY A STRATA THAT HAVE NOT BEEN APPROVED BY OWNERS UNLAWFUL?

The Strata Property Act permits a Strata to sue as a representative of all owners or on behalf of one of more owners only if it is authorized by a resolution passed by a ¾ vote at a general meeting. However, if the Strata begins a lawsuit before getting authorization it is not void and Owners can approve it retroactively.

This is important because sometimes a Strata becomes aware of a potential lawsuit close to the expiration of a limitation period. In that situation, the ability to start a lawsuit may be removed if the Strata has a general meeting which requires 21 days notice (see our article explaining this requirement). When there is urgency because of a limitation period, it is usually a good idea for the Council to pass a resolution to commence the lawsuit (but not serve it on any defendants) and then schedule a general meeting for Owners to approve the lawsuit. If the Owners approve the lawsuit then it can continue and if the Owners do not approve the lawsuit it can be withdrawn.

WHY DOES A STRATA LAWSUIT NEED OWNER APPROVAL?

The most likely reason that Owner approval is required for starting a lawsuit is that there are cost consequences if the lawsuit is not successful. The usual rule in BC Supreme Court and the Court of Appeal is that the successful party in a lawsuit is entitled to the payment of its legal costs (based on rates set by the courts) from the unsuccessful party. If a Strata starts a lawsuit that is unsuccessful then there could be a judgment against the Strata for a payment of the legal costs of the defendant. This judgment, because of the Strata Property Act, is a judgment against all the Owners and it is a basic principle of justice that if you are going to have a court order against you that you get to know that you are subject to an order from a court.

IS AN UNAPPROVED STRATA LAWSUIT VOIDABLE OR VOID?

The Court of Appeal explained that an unapproved lawsuit is voidable and not void because the Strata Property Act is for the benefit of the Owners and not for the benefit of someone that could be sued by the Strata. In this context, voidable means that the lawsuit is withdrawn if Owners do not approve it after it has been filed.

Essentially, if a lawsuit was void that would mean that a defendant would be free from the consequences of their actions because of the non-compliance with the requirement of the Act. This could be a disservice and disadvantage to Owners.

IS COUNCIL ACCOUNTABLE IF THEY START AN UNAPPROVED STRATA LAWSUIT?

In the same decision is which the Court of Appeal explained why a lawsuit was voidable instead of void it also said that there could be consequences for members of the Council that commenced the lawsuit.

The Court of Appeal explained that members of Council are required to act honestly and in good faith in the best interests of the Strata and that “it is no likely that a reasonably prudent person…would bring an action in contravention of the Act.”

If the Council contravenes the Strata Property Act it requires a resolution passed by a vote in favour by ¾ of the votes cast to commence an action against them. We suspect that, except in the most egregious situations, the Owners would not pass a resolution to commence a suit against the Council to recover the legal fees spent on starting a lawsuit without a resolution from the Owners.

IT IS THE STRATA COMMUNITY AND NOT THE COUNCIL THAT DECIDES TO CONTINUE A STRATA LAWSUIT

As with so many things, it is the Strata Community that is the best protection against unauthorized or unapproved actions by a Council. If there is a robust Strata Community, the Council can anticipate whether there is support for a lawsuit and if the Council can explain its reasoning for starting an unapproved lawsuit (as an example, the requirement to file a claim before a limitation period) then the Strata Community will respect and understand this exercise of discretion and not seek to impose any consequences on the Council.

In contrast, we have seen situations where a Council has acted unilaterally without any reasonable expectation of support from the Owners. In fact, we know of a situation where a Council, on its own initiative, started a petition for a court to order the appointment of an  Administrator on the basis that the Strata could not be managed by the Owners!