Canceling a decision of the board of directors

Co-owners (or a director) can now take legal proceedings to oppose decisions taken by the ​Board of directors. Article 1086.2 of the Civil Code of Quebec, which came into force on January 10, 2020, allows the court to set aside or, exceptionally, to correct a decision of the board of directors. The proceedings must be initiated within 90 days of the decision of the board of directors. In order to promote stability of the Board’s decisions, the legislator allows to bring such recourses only in certain circumstances

 

Grounds for Annulment or Modification

A co-owner or a director may initiate legal proceedings to sanction the abuse of rights and demand the cancellation or modification of a decision taken by the Board of directors. The causes allowing the intervention of the court are as follows:

  • Bias of a decision;
  • Intent to injure or prejudice the co-owners;
  • Disregard for the rights of co-owners.

Bias in a Decision

A decision of the board of directors is considered biased when it is made in disregard of equity, objectivity or the collective interest, for example, if it unduly favours or disadvantages one or more co-owners. The legislator therefore envisaged that certain decisions could be challenged, for example in a situation where only a limited number of co-owners would benefit, when there is no basis to justify it. This would be the case, for example, when the board of directors grants certain co-owners, without valid reason, an exclusive right to use parking spaces located in the common portion.

Intent to Injure the Co-Owners

In law, intent to injure constitutes the highest level of fault that may be attributed to co-owners at a meeting, because it carries a connotation of bad faith. It consists, for the board of directors, in using its rights without benefit to the syndicate and with intent to injure the individual rights of the co-owners or, at the very least, for a purpose contrary to the collective interest.

Disregard for the Rights of Co-Owners

The terms "disregard for the rights of co-owners" cover a wide range of cases. Thus, a decision made by the board of directors can be canceled or modified when it

  • Exceeds the powers of the board of directors. For example, the board of directors awards a contract to a contractor whose object is to transform or improve the common areas, without the assembly having previously authorized such work;
  • Is oppressive or unfair to a co-owner. For example, a decision whose purpose is to declare a co-owner's dog harmful, without the latter having the opportunity to be heard;
  • Is unreasonable. For example, a decision which aims to release without co-ownership a co-owner who has become a director, for unpaid common charges;
  • Is fraudulent or seriously illegal. For example, a decision to benefit members of the board, or some of them.

Recourse and Competent Tribunal

An application for annulment or modification constitutes the judicial recourse to declare a decision taken by the board of directors null and void or to have it modified. It will be handled by a judge of the Superior Court of Quebec. It is up to one or the other to prove their claims.

The Power of the Tribunal to Intervene

The tribunal may now not only annul, but also, exceptionally, modify a decision of the board of directors which was taken with the intention to harm the co-owners or disregard their rights. However, this power should be exercised with prudence and parsimony. The judge could therefore only exercise marginal control and could not substitute his own assessment of the appropriateness of the decision taken by the board of directors. It is only in the event of a decision deemed abusive that he can substitute his assessment for that of the board.

Deadlines to Act

An application for the annulment of the decision of the board of directors must, under forfeiture, be instituted within 90 days of the date of the meeting. Once the time limit has expired, no further recourse is possible, even if grounds for contestation are subsequently revealed. Thus, a decision that is manifestly irregular will become lawful and will be applicable to all.

Limitations on Recourse

The recourse provided for in Article 1086.2  of the Civil Code of Quebec does not authorize a co-owner to question the merits of a decision of the decision of the board of directors; rather, it is intended to remedy the situations provided for in this article. This recourse should not be used by a co-owner who wants to impose to the board of directors his personal vision of the good management of a co-ownership. Remember that the courts have the inherent power to punish and sanction such abuse by a co-owner.

  WHAT YOU SHOULD KNOW ! ​ When the administrator of a syndicate of co-owners fails to correctly and immediately denounce an acquisition or a contract likely to place him in a conflict of interest, the court, at the request of the syndicate or of a co-owner, may, among other measures, cancel the act or order the administrator to report and remit to the legal person the profit made or the benefit received. This legal remedy, provided for in article 326 of the Civil Code of Quebec, is distinct from that provided for in article 1086.2 of the Civil Code of Quebec. It must be brought within one year of knowing the acquisition or the contract.

WHAT TO KEEP IN MIND :  For a syndicate to avoid being confronted with an action for annulment, the organization of a meeting of the board of directors must take place in accordance with the rules defined in the declaration of co-ownership. It is also necessary to establish, for each meeting, an agenda, an attendance sheet and minutes. In addition, remember that the board of directors must transmit to the co-owners the minutes of any decision taken during a meeting or any written resolution it adopts, within 30 days of the meeting or of the adoption of the resolution. (Article 1086.1 C.C.Q.).
 

 WARNING!​  Only decisions which are biased or abusive are subject to appeal for annulment. Consequently, are not contestable before a judge of the Superior Court of Quebec, the statements appearing in a report which do not create rights, such as the deliberations of the administrators as for the determination of the provisional budget.

 

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