LAW LIGHTS Proxies at Condo Meetings By John A.A. Deacon, BA, LLB

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1 LAW LIGHTS Proxies at Condo Meetings By John A.A. Deacon, BA, LLB Introduction Proxies Provide Power While owners meetings at condominium properties should be focusing on proper operation and maintenance, it is often a game of politics the politics of power and control. The most important tool in political battles at condominium owners meetings should be the law and the truth, but is more often the power provided by proxies. A proxy is nothing more than a limited power of attorney, given by a unit owner to another person, to exercise his/her democratic rights at a condominium owners meeting to attend, act (participate in discussion, move motions, etc.) and vote on matters properly coming before the meeting. This article will discuss problems with the collection, registration and exercise of proxies in the condominium owner meeting context, the attempt by the Ontario legislature to resolve perceived problems in the Condominium Act, 1998 and its regulations and forms, options to boards and owners in resolving the problems and remaining abuses. Every condominium corporation has at least one meeting per year of condominium owners. All condominium corporations have to a greater or lesser extent experienced the use or misuse of proxies at such meetings. As a result, I anticipate that my comments and views expressed in this article will be highly controversial and are certainly subject to debate and disagreement until various aspects are clarified by case law or further legislative intervention. The Perceived Problem with Proxies Before May 5, 2001, there was a perceived common abuse of proxies in the condominium context. Generally, the most serious concern related to election and removal of directors. The Ministry of Consumer and Business Affairs, and subsequently the various government committees and institutions responsible to prepare legislation amending the Ontario Condominium Act, heard many stories of competing groups collecting proxies, making door-to-door misrepresentations and particularly soliciting blank signed proxies, and later filling in the blanks to benefit their group without regard to the intent or lack of intent of the owner signing the proxy. Sometimes it was the board seeking re-election, other times a group seeking the removal and replacement of directors. Other problems have been identified. The issuance of general proxies valid for all meetings of owners until revoked could be re-used by the named proxy year after year without the knowledge of the owner, unless that owner attended the meeting. Another issue was that many mortgage documents included a general assignment to the owner s mortgagee of the right to vote. A case could be made that with such an assignment, the owner could not vote. If the mortgagee did not vote, there could be no vote counted for that unit. (This problem was simply resolved by the new subsection 48(4) of the Condominium Act, 1998). It was obvious that new statutory restrictions were needed to control abuses.

2 On the other hand, proxies were essential for a number of reasons, such as ensuring adequate attendance to pass bylaws (vote of the majority of all units). Unit owners with good reasons for their inability to attend meetings should not be deprived of the right to vote. It is also reasonable to allow unit owners to exercise their right to assign their vote to a spokesperson for a particular cause. Accordingly, a balanced response was necessary. The Legislative Solution Where the prior Condominium Act had simply permitted votes by proxy, the Condominium Act, 1998 included a number of new provisions, notably in section 52, which deals with the method of voting, and Regulation 48/01 that permits condominium unit owners to use proxy documents set out in Forms 8, 9 and 10. The main clarifying provisions in the legislation include: That a proxy shall be for a particular meeting of owners (52(4)); That a proxy for election or removal of a director shall state the name of the directors for and against whom the proxy is to vote (52(5)); That a proxy may be in the prescribed form (52(6)); and That the corporation shall retain all proxies registered at a meeting as a record of corporation for 90 days following the date of the meeting. Although the proxy forms in regulation 48/01 are optional, they were clearly drafted with a view to resolving some abuses. For example, each proxy form includes a specification of not only the day and date, but also the time of day the proxy is signed. In addition, a place for insertion of the name(s) of directors to be removed and elected are clearly specified including boxes to mark whether the owner giving the proxy is in favour of or against removal of named directors. These forms are now in common use in many condominium corporations and are collected at the registration table before an owners meeting and counted as a proxy/ballot when the vote is tallied. Options Cognizant of the problems and proposed resolutions, a number of options are available to boards of directors of condominium corporations and to unit owners to minimize proxy abuse. Virtually all boards of directors include a proxy form with the notice of meeting delivered or mailed to all unit owners. This proxy form could specify requirements for its validity, such as requiring the initials of the signing owner beside the candidate for whom the proxy is instructed to vote. Unfortunately, in my view, without a reasonably worded condominium bylaw, properly enacted and registered, the board cannot prohibit alternative proxy forms, provided they are in compliance with the law. Accordingly, a form attached to the notice of meeting by a board of directors (or a group of requisitionists who call a meeting pursuant to section 46), will not compel all owners to use that form. Adding additional safeguards into the proxy form accompanying the meeting notice will not force every owner to comply with that procedure. It would still be open for a dissident group to prepare, distribute and solicit proxies in an alternative form for the specified meeting. As indicated in the previous paragraph, it is open for a condominium corporation to pass a bylaw, pursuant to paragraph 56(1)(p) of the Condominium Act specifying requirements for a proxy to be acceptable for registration at an owners meeting. The bylaw would clearly have to be reasonable, but could, for example, require an owner s initials for

3 election and removal of directors, initialed confirmation that proxies are dated when executed by the owner, and clarifying that proxies must be registered by a certain time on the date of the meeting, subject to adequate registration facilities being available. A bylaw could also require advance notice to the board of proposed alternative proxy forms utilized by a group, failing which they will not be considered acceptable for registration. As mentioned above, a condominium corporation can streamline its balloting and counting procedures by using proxies received for election for, or removal of, directors as a proxy/ballot. In such a case, the person registering the proxy would be issued a general ballot(s) for voting on other matters, assuming the proxy contains a general authority as well as the specific instructions. Finally, it is useful to permit a power of substitution in a proxy form so that voting cannot be challenged on the basis that an owner has left the meeting, leaving his/her ballot with another owner to complete and cast. Common Abuses Perhaps the most common abuse and the most difficult to police is that a proxy form is obtained by misrepresentation. In any proxy collection campaign, each side of an issue will generally accuse the other of misrepresenting the matter to the owner whose proxy is solicited. Such allegations can range from a simple misstatement of affairs, to a potentially fraudulent misstatement of the potential use of the proxy and purpose of the meeting. Proof of such misstatements is often difficult to obtain (after all, the proxy giver is usually absent from the meeting) and to invalidate a proxy duly executed and in proper form would require clear and unrefuted evidence of duress, frailty, disability or other reason specified within the very restrictive bounds of the Common Law doctrine: Non est factum. Otherwise, if accepted by the meeting chair, only a court order will overturn the result of a vote. It would certainly be good practice for the scrutineers of a vote when the validity of proxies is challenged to record clearly the number of proxy votes cast. Another extremely common challenge in a competitive proxy-collecting situation is the issue of the dating and the revocation of proxies. All three proxy forms in Ontario Regulation 48/01 specify that previous proxies are revoked by signing a new one. Indeed this is standard form on all proxies, and allows the proxy giver to change his/her mind, issuing a subsequent proxy with new instructions. Unfortunately, it is not uncommon for a group soliciting proxies in favour of a particular matter to collect the proxies in blank, and later fill in a date that is either the date of the meeting or immediately before. This has the effect of denying any subsequent proxy resulting from a change of mind, because the registration desk will accept the proxy with the latest date and time as revoking the previous proxy. In my opinion, this constitutes fraud, as it can only be intended to defeat the competing proxy collectors and their right to convince owners to issue a replacement proxy and in fact alters the intent of the proxy document issued. This abuse is very difficult to control. One solution is to include in a proxy a statement by an owner that if he/she should wish to revoke the proxy, the new proxy will have the date specifically initialed by him/her, failing which it is not to be accepted as a revocation. All of this, of course, makes proxy registration difficult, contentious and time consuming. In such circumstances condominium corporations are well advised to commence registration at least one and a half hours before a meeting, making specific arrangements for a multiple proxy

4 registration table and recommending/requiring multiple proxy registration at the early time. Unfortunately, even the clearest safeguards can be defeated by an owner issuing an unrestricted power of attorney. With a power of attorney, the appointed attorney can complete the proxy form him/herself and the requirement for owner initials and printing of names, ticking of boxes, are by-passed with the attorney being authorized to do all of that, provided the power of attorney is delivered with the proxy to the registration desk. Naming Names The last issue I wish to deal with in this article is a real bone of contention. That is the issue of filling in the names of directors to be elected on the proxy form. You will remember that subsection 52(5) of the Condominium Act requires that the proxy form state the names of the directors for and against whom the proxy is to vote. Unfortunately neither the subsection nor the proxy forms in the regulations specify that the owner signing the proxy must enter the names or initial the selection. Some corporations have innocently preprinted onto the proxy form the names of candidates who have provided advance notice of their intention to run for election without changing the wording specified in Forms 9 and 10. The result is that the proxy is instructed by default to vote in the order in which the candidates are named. The solution is that either the names should not be preprinted on the proxy form, or alternatively, the provision in the proxy that the candidates be voted for in the order set out below should be deleted with clear boxes to be marked with a tick, X or initials beside the preprinted names, as well as several blank lines for owners who wish the proxy to nominate and vote for alternative candidates. There remain some problems with the above procedure, including the fact that it must limit the number of boxes marked to the number of vacancies or the unit owner s intent as to order will be unclear. A better practice is to leave the candidate s name lines blank, to be completed by the unit owner signing the proxy who can consult the notice of meeting, which will contain the names of the candidates who have notified the corporation they intend to stand for election. In this manner, the owner can complete a larger number of names than vacancies available in the order of the owner s priority. For example, if there are two vacancies and three candidates names inserted, candidates one and two would be counted unless either of them declined, in which case the third selection would be substituted. What if it is obvious to the scrutineer receiving proxies at the registration table that the names of candidates, or the marks in favour of candidates have not been completed by the owner signing the proxy? While it may have been the intent of the legislature that the owner complete this portion of the proxy, subsection 52(5) only requires that the proxy document state the names of the directors, not who writes in the names or marks the boxes for or against. My review of the law and texts on proxies and corporate procedure has lead me to the inescapable conclusion that the person receiving a signed proxy with blanks is given the general authority to fill in those blanks unless the signatory has expressed a contrary intent. Accordingly, if the names of candidates are written in or typed and photocopied on a preprinted form, or the boxes are marked with a different writing implement, this is not

5 cause for rejection of the proxy at the registration desk unless a reasonable condominium bylaw otherwise provides. It is possible to challenge the validity of such a proxy, but without evidence that the signatory had a different intent, or that a condominium bylaw is breached, or that the proxy is for some other reason invalid, it should be counted. If it is later determined that the proxy was misused, there could be remedies ranging from court challenge to the validity of the election, removal of business transacted, to a fraud investigation. Conclusion There are, no doubt, numerous other proxy issues not covered here. Readers with other problems, solutions, or who may wish to dispute my conclusions or recommendations expressed in this article are invited to write to the editor or directly to me. Perhaps lively debate can help establish a common condominium proxy practice and assist in reducing incidents of proxy abuse. John A.A. Deacon, BA, LLB, is a senior partner in the law firm Deacon, Spears, Fedson & Montizambert. * * Condominium Manager Magazine Fall 2004