Business Judgment Rule Protects Canadian Condo Boards That Observe Best Practices

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Condo Boards in Canada can breath a sigh of relief in that Canada’s highest Court has finally held that the “Business Judgment Rule” can apply to protect condo boards. Read the Canada v. Carleton Condominium Corp. Decision.  Where the rule applies, the high Court held that courts in Canada should give deference to the condo board’s decision. The Court noted that the Canadian Condominium Act makes directors responsible for managing the affairs of the condominium corporation, and requires them to do so honestly and in good faith, while exercising the care, diligence and skill of a reasonably prudent person in comparable circumstances.

Christy Allen of Ottawa’s Nelligan O’Brien Payne law firm has acknowledged that “We are seeing a steady growth in the number of oppression cases brought by owners against condominium corporations, and these cases are including more and more claims about unfair decision making by boards.”  It is essential for condo boards to make sure they are adopting and effectuating best practices or otherwise, they are exposed.  In order to take advantage of the Business Judgment Rule protection condo board members must consistently employ best practices in governance like keeping proper minutes, satisfying legal record keeping requirements, corralling board member emails and records so that when eventually called upon, the Board will be ready to meet the requirements of the Business Judgment Rule and protect the organization and its members.

According to the high Court, the applicable standard  is whether the directors acted honestly and in good faith and exercised the care, diligence and good faith a reasonable and prudent person would in comparable circumstances.  If Boards are able to establish this, they will be insulated from liability under the Business Judgment Rule.

The Court noted in the particular case under consideration, the condo board established that it acted honestly and in good faith and was transparent about the nature of its concerns. Neither the board’s competence, nor the process leading up to the decision was impugned.  Thus, the Business Judgment Rule applied to protect them.



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