Executive Summary: Key Legal and Evidentiary Issues

• Whether an arbitral award described as “final” and “final and binding” could nonetheless be appealed under s. 45(1) of the Arbitration Act, 1991.
• Interpretation of s. 111 of the Condominium Act, 1998 and whether statutory termination “terminates an agreement” in its entirety, including a liquidated damages clause.
• The validity and survival of article 27 of the Management Contract (liquidated damages for early termination) following a statutory termination under s. 111.
• Characterization of the Condominium Act as consumer protection legislation and the requirement to interpret s. 111 generously in favour of unit owners.
• The arbitrator’s reliance on case law (including Abdool and Weller) and unproclaimed amendments, and whether this led to an error of law in treating statutory termination like a contractual breach.
• Allocation of costs on the appeal, including whether Lee Management should bear the Condominium’s partial indemnity costs after its liquidated damages award was set aside.

Background and parties
The dispute arose between Waterloo Standard Condominium Corporation No. 744 (the Condominium) and its former management company, Lee Management Solutions Inc. (Lee). The developer (declarant) entered into a Management Contract with Lee on December 15, 2022, just one day before control of the condominium corporation was turned over to the unit purchasers. About a year later, on December 12, 2023, once a board elected by the unit owners was in place, the Condominium terminated the Management Contract under s. 111 of the Condominium Act, 1998. Lee did not contest the Condominium’s statutory right to terminate, but claimed it was nonetheless entitled to a substantial payment under the contract.

Management contract and termination dispute
The Management Contract contained a liquidated damages clause in article 27, which provided that if the contract was terminated early, Lee would receive an agreed sum representing the balance of the contract term. Lee claimed liquidated damages of $151,628.76, calculated as the amount payable over the remaining term of the Management Contract. The contract also contained an arbitration provision and, in a schedule, wording that any arbitrator’s decision would be “final and binding.” The later stand-alone arbitration agreement between the parties referred to the arbitrator making a “final award,” and its recitals mentioned an award that would be “final and binding,” but the operative clauses did not clearly exclude appeals or other remedies under the Arbitration Act, 1991.

Arbitration and award
The parties submitted their dispute to arbitration. The arbitrator identified a threshold issue: whether termination of the Management Contract under s. 111 of the Condominium Act extinguished Lee’s contractual right to liquidated damages, or whether article 27 survived the statutory termination. The arbitrator concluded that s. 111 allowed the Condominium to terminate the management services, but not to escape the termination provisions in article 27. On that reasoning, he treated the situation similarly to a contractual early-termination scenario and awarded Lee $151,628.76 in liquidated damages, reflecting the balance of the contract term. He also reasoned that consumer protection concepts should not be applied so as to let a party resile from an “otherwise valid agreement” on unfair or capricious grounds, and he found no evidence of inequality of bargaining power between the developer and Lee.

Application for leave to appeal under the Arbitration Act, 1991
The Condominium applied to the Ontario Superior Court of Justice under s. 45(1) of the Arbitration Act, 1991 for leave to appeal the arbitral award on a question of law. Lee objected, arguing that the arbitration clause and the arbitration agreement made the award “final and binding” and thereby barred any appeal. The Court rejected this position. It held that, particularly once s. 111 had been properly applied so as to terminate the Management Contract in its entirety, the “final and binding” language in that contract could not oust rights otherwise available under the Arbitration Act. The operative sections of the arbitration agreement did not clearly remove appeals on questions of law, and paragraph 21 of that agreement even contemplated court proceedings related to the arbitration or the award. In the absence of explicit language excluding appeal rights, the Court found that the statutory appeal mechanism remained available.

Legal test for granting leave and the question of law
The Court then considered whether the statutory test for leave to appeal in s. 45(1) was satisfied. It held that the agreement did not deal with appeals on questions of law; that the issue raised—whether s. 111 “terminates an agreement” in a way that extinguishes a liquidated damages clause—was a question of law; that a significant monetary amount was at stake and the matter was important to the parties and the unit owners; and that resolution of the legal question would significantly affect their rights. The Court also noted that the interpretation of the phrase “terminate an agreement” in s. 111 had not previously been addressed by the courts, making the issue of wider importance. Leave to appeal was therefore granted.

Court’s analysis of statutory termination and consumer protection
On the merits of the appeal, the Court began from the premise that the Condominium Act is consumer protection legislation aimed at protecting condominium purchasers and unit owners. As such, it must be interpreted generously in favour of consumers. Sections 111 to 113 were described, following prior authority, as designed to allow a unit-owner-controlled board to free the condominium corporation from “sweetheart agreements” entered into by a declarant-controlled board that may not be in the corporation’s best interests. Section 111(1) permits the corporation, by board resolution, to “terminate an agreement” for management services entered into before a new board is elected, upon at least 60 days’ written notice under s. 111(2). The Court emphasized that s. 176 of the Act provides that the Act prevails despite any agreement to the contrary, meaning parties cannot contract out of these protections, including the power in s. 111.

The Court held that the arbitrator had misapplied consumer protection principles. By relying on Abdool—a case concerning a unit holder seeking to escape a purchase agreement—and by focusing on the absence of unequal bargaining power between the declarant and Lee, the arbitrator failed to recognize that s. 111 exists to protect unit owners, who never negotiated the management contract at all. The Court found that Abdool was distinguishable and that the arbitrator’s reasoning ignored the core purpose of s. 111: to give a newly elected board an unconditional right to terminate agreements entered by the declarant, for any reason.

Treatment of the liquidated damages clause and reliance on other authorities
The Court considered the meaning of “terminate an agreement” in s. 111. Drawing an analogy to the Ontario Court of Appeal’s decision in Weller, which addressed a consumer’s right to terminate an agreement without being saddled with a contractual monetary penalty, the Court held that the right of termination under s. 111 must likewise be unconditional. If the Condominium remained bound to pay liquidated damages after terminating the contract under s. 111, that would effectively coerce it into continuing with an undesirable agreement and would undermine the consumer-protection purpose of the provision. The Court therefore concluded that statutory termination under s. 111 ends the entire Management Contract, including the liquidated damages clause in article 27.

The Court also held that the arbitrator erred by relying on unproclaimed amendments to the Condominium Act and applying principles from the federal Interpretation Act, which does not govern Ontario legislation. Instead, the correct approach was to interpret the legislation actually in force, informed by Ontario’s Legislation Act, 2006, which states that an amendment does not imply that the prior law was different or incomplete. The arbitrator further erred by conflating a statutory termination under s. 111 with a common-law breach of contract; the former is a distinct statutory mechanism that, by design, overrides contractual allocation of risk such as a liquidated damages provision.

Rejection of arguments based on section 75(2) and commercial certainty
Lee had attempted to rely on s. 75(2) of the Condominium Act, which deals with the declarant’s obligation to cover certain shortfalls in the first-year common expenses budget, excluding shortfalls attributable to termination of agreements under ss. 111 or 112. The arbitrator had treated this as “contemplating” additional expense such as liquidated damages on termination. The Court disagreed. It explained that s. 75(2) does not speak to liquidated damages, but only to expense variances from the budget. In context, it simply means that if, after terminating a developer-arranged management agreement, the corporation incurs higher management costs (for example, by hiring a more expensive replacement manager), the declarant need not fund that particular increase. It does not support the survival of a liquidated damages obligation once the contract has been terminated under s. 111.

The Court likewise rejected the arbitrator’s invocation of “efficiency and security in commercial transactions” to preserve the liquidated damages clause. Management companies that enter into arrangements with declarants are deemed to know that, once control passes to the unit holders, the condominium corporation has a statutory power to terminate under s. 111. Allowing a management company to rely on a liquidated damages clause post-termination would amount to contracting out of s. 111—something expressly barred by s. 176.

Outcome and monetary consequences
Having found that the arbitrator erred in law by holding that article 27 of the Management Contract survived a statutory termination under s. 111, the Court allowed the appeal. It set aside the arbitral award to the extent that it ordered the Condominium to pay $151,628.76 in liquidated damages to Lee. The Court further ordered that the Respondent, Lee Management Solutions Inc., pay the Applicant, Waterloo Standard Condominium Corporation No. 744, its costs of the appeal on a partial indemnity basis, fixed at $14,000 inclusive of HST and disbursements. As a result, the successful party is the Condominium, and the total monetary amount ordered in its favour in this decision is $14,000, with no damages or liquidated damages payable by the Condominium to Lee and no other monetary award granted.