Executive Summary: Key Legal and Evidentiary Issues

• Central dispute concerns whether full indemnity costs are appropriate when improper conduct is found without intentional misconduct, bad faith, or litigation misconduct

• The condominium corporation's arbitrary reduction of repair scope and failure to meaningfully engage with the unit owner's concerns constituted improper conduct under section 67 of Alberta's Condominium Property Act

• Full indemnity costs are reserved for exceptional cases involving reprehensible, scandalous, or outrageous conduct—criteria not met here

• Standard of review on appeal from an Applications Judge's costs decision is correctness, though judicial restraint should be exercised

• The "social contract" argument in condominium disputes does not create a blanket entitlement to solicitor-client costs for successful owners

• Partial indemnity at 50% of assessed fees was deemed appropriate given the Board's conduct necessitated litigation despite lacking egregious misconduct

The flood damage and initial response

In February 2021, Chris Gnyra's condominium unit in northwest Calgary experienced flooding that damaged his hardwood flooring and other areas. Mr. Gnyra was not at fault for this incident. The condominium corporation's Board retained 24/7 Restoration Ltd. to assess the damage, resulting in an original repair quote of $21,378.00. The Board authorized 24/7 to proceed with repairs in March 2021. Mr. Gnyra, who has mobility restrictions, wanted to have additional accessibility renovations done at his own expense, which resulted in delay in proceeding with the flood-related repairs.

The dispute over hardwood floor damage

In December 2021, Tim Martin of 24/7 attended at Mr. Gnyra's unit to discuss the work to be done and reinspected the hardwood floors. He formed the opinion that they might no longer have water damage and had possibly returned to their pre-loss condition. In February 2022, Mr. Martin re-attended at the unit and advised Mr. Gnyra that a revised quote was being issued. Soon after, 24/7 provided the Board with a revised quote of $7,610.45, which did not include replacement of the hardwood floors. Mr. Gnyra denied that his floors had repaired themselves. The Board refused to honour the Original Quote. In February 2022, Mr. Gnyra retained Ridge Construction Inc., with which he had no prior relationship, to assess the damage. Ridge provided an updated quote of $30,134.00, which included replacement of the hardwood floors. Mr. Gnyra provided the Ridge Quote to Karys Hughes of the property management company, who disregarded it as it did not contain any information with respect to the existing condition of the floors, and simply provided a price for their replacement.

Second flooding and litigation

In November 2022, there was another flooding incident that caused damage to Mr. Gnyra's unit. Again, Mr. Gnyra was not at fault for this incident. There were areas of overlapping damage with the 2021 flooding incident. 24/7 provided a quote of $2,924.76 to complete all of the repairs. In January 2023, the Board wrote to Mr. Gnyra to advise of its position that the only repairs needing to be completed to satisfy the Board's obligations were those contemplated in the 2022 Quote. On February 6, 2023, Mr. Gnyra filed an Originating Application seeking a declaration that the Board had engaged in improper conduct under section 67 of the Condominium Property Act. He sought costs to repair the damages to his unit, general damages, damages for loss of enjoyment, and legal costs incurred from having to commence an insurance claim under his own policy.

The Applications Judge's decision

The Applications Judge heard Mr. Gnyra's application on January 23, 2024 and gave oral reasons for her decision on February 22, 2024. She found that Mr. Gnyra reasonably expected that the repairs would be performed in accordance with the Original Quote and that the scope of the work would not be changed without consultation with him. While she did not find that reducing the scope of work was improper conduct by itself, the way it occurred was "arbitrary" and "unfairly disregarded Mr. Gnyra's rights." She found there was insufficient investigation when Mr. Gnyra disputed that the floors had repaired themselves, and no follow-up evaluation of the damage. Mr. Gnyra's views as to the state of the hardwood were "simply disregarded out-of-hand." While the Applications Judge found that the Board's actions were not "intentional" and that there was no "bad faith," its conduct amounted to improper conduct within the meaning of section 67 of the CPA. She declined to award damages for loss of enjoyment of property based upon inadequate evidence, and declined to award general damages for mental distress, noting they were not supported by medical evidence and were too remote. She awarded full indemnity costs, stating "that is the only way, in my view, justice can be served in this case because he had to pursue his rights legally for these repairs that otherwise he was being offered $2,900." The costs were assessed by the review officer at $31,687.82, of which $26,320.00 were fees.

The appeal on costs

The condominium corporation appealed solely on the issue of whether the Applications Judge made an error in awarding full indemnity costs. Justice A.L. Froese, applying a correctness standard while exercising judicial restraint, found that full indemnity costs were not appropriate in this case. The Court noted that full indemnity costs awards are exceptional and rare, typically reserved for cases involving fraud, positive misconduct, reprehensible or scandalous conduct, or litigation misconduct—none of which were present here. The Court rejected the argument that a "social contract" in condominium matters creates a blanket entitlement to solicitor-client costs for owners who succeed in condominium disputes.

Ruling and outcome

The appeal on the award of full indemnity costs in favour of Mr. Gnyra was allowed, and the Applications Judge's costs award was set aside. Justice Froese awarded Mr. Gnyra costs at 50% of his assessed fees, totaling $13,160 for fees, plus taxable disbursements of $3,248.40, plus non-taxable disbursements of $641.00, plus GST. The Court acknowledged that Mr. Gnyra was substantially successful on the application and that had the Board not failed to communicate and engage with Mr. Gnyra, the litigation may have been avoided. However, the conduct of the Board did not rise to the level of being reprehensible or scandalous. The determination of final repair costs and any further costs awards were left for resolution after the third-party expert assessment ordered by the Applications Judge, or by a trial judge if a trial is required.