Executive Summary: Key Legal and Evidentiary Issues

• Strata unit owners (respondents) attempted to recover their litigation costs as tort damages in negligence against the strata corporation within the same proceeding.

• A longstanding legal rule prohibits parties from claiming costs of a proceeding as damages in that same proceeding, as established in Cockburn v. Edwards and subsequent authorities.

• The chambers judge erred by failing to apply the restrictive principles governing recovery of pure economic loss in negligence, omitting reference to key Supreme Court of Canada precedents such as Maple Leaf Foods.

• Respondents argued a legislative gap in the Strata Property Act justified implying a statutory entitlement to costs, but the Court found no legitimate basis to read such a provision into the statute.

• Related petitions against the 2020 Council Members were dismissed in separate proceedings, with a court finding the council members had honestly believed they had authority to act.

• The Court of Appeal allowed the Strata's appeal and dismissed the respondents' negligence claim as disclosing no cause of action.

Background and the strata property dispute

This case arises from a protracted governance dispute over strata property located on Wharf Street in Victoria, B.C., comprising 57 strata lots and common property. The Victoria Regent Hotel Ltd. ("VRH") operates the Victoria Regent Hotel out of the Strata through a rental pool in which many strata owners participate. The respondents — Sylvie Rochette, Jim Tennant, and Laura Podgorenko — are strata owners who do not participate in the rental pool; they either live in their units or rent them to long-term tenants. VRH leases certain common property from the Strata for its operations.

The original petition and conflict of interest allegations

In September 2019, the respondents commenced proceedings by way of a petition seeking personal remedies against the then-members of the Strata council (the "2019 Council Members") under the conflict of interest provisions (ss. 32–33) of the Strata Property Act, S.B.C. 1998, c. 43. The respondents alleged that these council members had ousted members from the council who did not participate in the rental pool and then failed to safeguard the interests of all owners while disregarding their own position of conflict. The petition named both the individual council members and the Strata corporation as respondents. On October 26, 2019, the Strata held a special general meeting, the result of which is disputed. The appellant maintains that the Strata passed a resolution to renew a common area lease with VRH for a period of three years, while creating a committee to study "the parameters of a potential lease renewal"; the respondents say no resolution was passed to authorize these steps. On December 4, 2019, the 2019 Council Members resigned from council. On January 25, 2020, a new council was elected; one of the elected members resigned in April 2020, while the other four remained on council for the rest of 2020 (the "2020 Council"). On July 28, 2020, the 2020 Council approved a renewal of the common area lease with VRH at a rent of $10,788 per annum (the "July 2020 Lease"). In November 2020, this was replaced with a three-year lease agreement, which provided an annual rent of $27,000. In January 2021, the Strata and the 2019 Council Members entered into an agreement whereby the 2019 Council Members agreed to pay $10,000 to the Strata and in exchange the Strata agreed to release them from any liability for damages they may be ordered to pay to the Strata (the "2021 Release").

The evolution of claims and procedural history

The respondents filed an amended petition in September 2020, adding the allegation that the 2019 Council Members had breached their fiduciary duty to the Strata and were personally liable to pay damages to the Strata. In March 2021, the respondents sought to add members of the 2020 Council as respondents, to transfer the proceeding to the trial list, and to file a notice of civil claim. The 2019 Council Members applied to have the proceeding struck or dismissed based on the 2021 Release. On September 2, 2021, MacDonald J. issued reasons (2021 BCSC 1752) dismissing the 2019 Council Members' application to strike, dismissing the respondents' application to add the 2020 Council members as parties, ordering that the proceeding be referred to the trial list, and granting leave to the respondents to file a notice of civil claim. The notice of civil claim was filed on October 29, 2021. The only relief sought against the Strata was an order "that the defendants are jointly and severally liable to pay to the plaintiffs the plaintiffs' costs assessed on a solicitor and own client basis." In September 2023, the Strata applied to strike the notice of civil claim on the basis that it did not disclose a cause of action against the Strata as the respondents only sought to recover costs. On September 21, 2023, Associate Judge Harper issued reasons (2023 BCSC 1657) dismissing the application. She agreed with the Strata that the facts supporting a claim for damages were not properly pleaded; however, she was satisfied that the error could be rectified by an amendment to plead a claim in negligence against the Strata. On October 20, 2023, the respondents filed an amended notice of civil claim advancing allegations of negligence against the Strata. In March 2024, the respondents signed a consent order dismissing the proceedings against the 2019 Council Members in their entirety without costs to any party (the "Consent Dismissal Order") and filed a Further Amended Notice of Civil Claim (the "FANOCC"), removing all allegations against the 2019 Council Members and leaving the Strata as the only remaining defendant.

The negligence claim and its four allegations

The FANOCC pleaded that the Strata had a statutory obligation to manage and maintain the common property and common assets of the Strata for the benefit of owners, and to properly investigate complaints of malfeasance and misfeasance on the part of persons having authority to act for the Strata. The FANOCC advanced four allegations in negligence: (a) the Strata was negligent in filing a response to petition opposing the relief sought when it knew or ought to have known that the 2019 Council Members were in a conflict of interest (the "Response to Petition Claim"); (b) the Strata knew or ought to have known that it had no authority to renew the lease with VRH on July 28, 2020 (the "Lease Claim"); (c) the Strata knew or ought to have known there was no authority to enter the 2021 Release (the "Release Claim"); and (d) the Strata intentionally provided misleading information to the court, obligating the respondents to apply to transfer the proceeding to the trial list (the "Misleading the Court Claim"). It is common ground that any "damage or loss" suffered by the respondents consists entirely of their legal costs in pursuing this litigation.

The chambers judge's decision

The Strata applied to strike the FANOCC and dismiss the action pursuant to R. 9-5(1)(a)(b) and (d) of the Supreme Court Civil Rules, B.C. Reg. 168/2009. The chambers judge applied the two-stage duty of care analysis mandated by the Supreme Court of Canada in Cooper v. Hobart, found no sufficiently analogous precedent to establish the existence or non-existence of a duty of care, and conducted a full analysis of foreseeability and proximity. He found it self-evident that it was reasonably foreseeable the respondents would incur legal costs as a result of the impugned actions of the Strata, and concluded it was not plain and obvious that the respondents and the Strata were not in a sufficiently proximate relationship to ground a duty of care. At the second stage, he cited Granville Savings and Mortgage Corp. v. Slevin for the proposition that damages for negligence may include legal costs. He drew a distinction between claims for costs flowing from conduct that negligently harmed the legal interests of the other party, giving rise to the necessity for further litigation, and claims for costs arising from the conduct of the other party in the course of litigation. He declined to strike the Lease Claim and the Release Claim, finding they fell into the first category. However, he struck the Response to Petition and Misleading the Court Claims, finding those were claims for costs arising from conduct in the course of litigation — "the very essence of what costs awards are intended to address."

Related proceedings against the 2020 Council

In separate proceedings, the respondents filed a petition in February 2022 (the "2022 Petition") alleging that members of the 2020 Council breached the conflict of interest provisions of the Strata Property Act in failing to disclose conflicts of interests surrounding the July 2020 Lease and entering into the 2021 Release. The 2022 Petition was dismissed by Harvey J. in reasons issued on January 26, 2024 (Rochette v. McGuire, 2024 BCSC 112). Justice Harvey found that the petitioners failed to establish that members of the 2020 Council acted in conflict with their duties to the Strata in entering into the July 2020 Lease, and that the petitioners did not prove dishonesty or want of good faith by any of the members of the 2020 Council in relation to the 2021 Release. An appeal was quashed on the basis that subsequent events, including the Consent Dismissal Order, rendered the appeal moot (2025 BCCA 149). A second petition brought by owners other than the respondents (the "Coyle Petition") advanced substantially the same allegations and was dismissed by Saunders J. on the basis that its duplicative nature amounted to abuse of court process (Coyle v. McGuire, 2024 BCSC 1875), with the Coyle petitioners ordered to pay special costs. The Coyle petitioners' appeal was also dismissed as moot (2026 BCCA 70), with Groberman J.A. observing that the petitioners had "treated this litigation throughout as a flexible proceeding that can be endlessly adapted to meet their changing views of the case" and concluding it would be "counterproductive to expose the parties (including the Strata Corporation) to what could be massive additional legal expenses simply to determine whether or not they are entitled to an indemnity."

The Court of Appeal's ruling and outcome

The Court of Appeal, in a unanimous decision written by Madam Justice Horsman and concurred in by Justice Griffin and Justice Fleming, allowed the Strata's appeal and dismissed the respondents' action. The Court held that the negligence claim was plainly and obviously not legally sustainable because it ran counter to the longstanding rule — established in Cockburn v. Edwards (1881), 18 Ch. D. 449 (C.A.) and affirmed in subsequent authorities — that a party to court proceedings may not recover their costs of those proceedings from any other party to them except by an award of costs. The Court noted that this rule does not necessarily extend to the costs of other proceedings, as illustrated by Granville Savings, but found this exception irrelevant in this case. The respondents' first argument — that they could not seek costs against the Strata under the ordinary costs rules because the original pleading contained no claim against the Strata other than costs — was found to illustrate the folly of the negligence claim; the Court observed that the respondents could have, at the outset, brought a petition under ss. 164–165 of the Strata Property Act seeking orders to prevent or remedy unfair acts by the Strata, and had they done so and been successful, they would have been entitled to costs. The respondents' second argument — that a legislative gap in the Strata Property Act justified implying a statutory entitlement to costs — was also rejected; the Court found no statutory basis for an award of costs to the respondents under the Act and no legitimate basis to effectively read such a provision into the statute. Additionally, the Court found that the chambers judge erred in his duty of care analysis by failing to assess the claim through the restrictive principles governing pure economic loss in negligence as articulated in 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, and Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63. The claim did not fall within any of the three categories where pure economic loss may be recoverable in negligence: (1) negligent misrepresentation or performance of a service; (2) negligent supply of shoddy goods or structures; and (3) relational economic loss. The Strata corporation was the successful party, with the appeal allowed and the action dismissed as disclosing no cause of action. No specific monetary amount was awarded, as the proceeding concerned whether the Strata should pay the respondents' legal costs — a remedy the Court determined was not available through a negligence claim in the same proceeding.