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May 11, 2012
Posted in Condo Litigation

When will a condominum board's decisions be reviewed by the courts?

Discretionary Tools: How your Condominium Can Make Expert Decisions

A board of directors in a condominium corporation is routinely required to make difficult decisions.  While it is generally accepted that boards have discretion when making decisions, those who disagree with those decisions have increasingly turned to the courts in an attempt to fetter a board’s discretion.

While the threshold for usurping a board's discretion is a high one, there are steps that boards can take to ensure that their decisions will be upheld, if challenged. In the BCE decision in 2008, the Supreme Court of Canada unanimously re-affirmed a principle of corporate law called the "business judgment rule"

The "business judgment rule" means that a court should not interfere with a decision of a board of directors merely because the court itself would not have made the same business choice in the circumstances, so long as the board acts in good faith in performing the function which they were elected to perform. Thus, rather than making the best possible decision, a board of directors will be protected so long as they make a decision which falls within a reasonable range of alternatives.

While a board may have considerable discretion as to the content of a decision, the best way for a board to protect itself is to employ a strong decision-making process. In this regard, decisions should have the following qualities, which will allow them to benefit from the protections of the business judgment rule:

1) An Informed Decision - where appropriate, a board should obtain professional or expert advice in the form or a written report or opinion. In other cases, a board may make an informed decision by considering the input of a committee that is created to study and make recommendations regarding a particular decision.

2) A Range of Reasonable Alternatives - the board should consider and discuss a variety of options and the relative costs and benefits associated with each option, before making a decision. The board may want to record the fact that such a discussion was held in the minutes of the meeting.

3) A Formal Vote - all decisions must be made by a vote of the board during a duly called meeting of directors where a quorum is present.  If the board meets informally and decides on a course of action, that decision must be regularized at the next board meeting.

4) A Valid Purpose - a vote of the board should be recorded in a written resolution, which should include a preamble that sets out a valid purpose.  The goal that is to be achieved, or problem that is to be rectified, should be evident from a plain reading of the resolution.

5) The Best Interests of the Condominium Corporation - the preamble to the resolution should explicitly state that the board is of the view that the decision is in the best interest of the condominium corporation.

A decision which is (1) informed, (2) considers a range of reasonable alternatives, (3) is formally recorded, (4) serves a valid purpose, and (5) is, in opinion of the board, in the best interests of the condominium corporation, will protect your board from problems before they happen.

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