Canada: Ontario’s New "Consumer Protection Act": Implications for the Construction Industry

The Ontario government has recently put into law new consumer protection legislation which, in many cases, fundamentally affects the way in which consumers and businesses interact and conduct transactions.

The scope of the new statute is incredibly broad. For the purpose of this update, we have focused on those particular sections of the legislation that may effect the construction industry and individuals operating within it. The statute itself came into force on July 30, 2005 and is titled, somewhat confusingly, the Consumer Protection Act, 2002 (CPA).

The CPA casts a wide net in that, subject to certain exceptions outlined below, every consumer transaction in Ontario is covered by its provisions. A consumer includes any individual acting for a personal, familial or household purpose but does not include a person who is acting for a business purpose. Accordingly, when individuals enter into a transaction with a business for other than a business purpose, they are afforded the protections of the CPA. A concrete example of this would be individual home owners who contract with a construction company for an addition to their home.

The CPA does not apply in respect of certain consumer transactions regulated under securities legislation or financial products or services regulated under other statutes. Furthermore, prescribed professional services that are regulated under statute in Ontario, such as architectural or engineering services, would not be covered by the CPA. Finally, consumer transactions regulated under the Tenant Protection Act and consumer transactions related to the purchase, sale or lease of real property (except transactions with respect to timeshare agreements) are not covered.

Notably, the CPA has a built in "anti-avoidance mechanism" for those individuals who seek to structure certain business transactions in ways to get around the CPA. This mechanism allows a court to consider the substance and form of the transaction to determine whether the CPA should apply to it.

Of particular importance to the construction industry, consumers and suppliers of goods or materials are not allowed to contract out of the procedural and substantive rights provided for under the CPA. In this respect, the CPA grants additional rights to consumers in addition to those provided for at law, such as the right to obtain a refund or cancel a given agreement within particular periods of time. Moreover, where a supplier of goods or services acts in an egregious fashion, the CPA sets out penalties ranging from fines to imprisonment, and potentially the awarding of exemplary or punitive damages in addition to other remedies.

Below, sections of the new legislation are analyzed with particular relevance to construction.

The delivery of a written estimate in situations where the CPA applies now has potentially serious consequences for a supplier of goods or services.

Where an estimate is provided to a consumer, the supplier cannot ultimately charge the consumer any amount that exceeds the estimate by more than 10%, except where the consumer and the supplier agree, preferably in writing, to amend the estimate. Furthermore, if a supplier charges an amount that exceeds the estimate by more than 10%, the consumer may insist that the supplier provides the goods or services at the estimated price. In addition, the supplier is not allowed to cancel or frustrate the contract, even in situations, for example, there has been a price fluctuation in a particular good the supplier had undertaken to provide. The estimate provisions of the CPA further benefit consumers by stating that any ambiguities in a consumer agreement (defined in the Act as an agreement between the supplier and a consumer in which a supplier agrees to supply goods or services for payment) will be interpreted to the benefit of the consumer.

The CPA outlines six specific types of agreements covered by its provisions: future performance agreements, timeshare agreements, personal development services, Internet agreements, direct agreements and remote agreements.

For the purpose of this update, we focus only on direct agreements, which are most applicable to the construction industry. A direct agreement is one negotiated or concluded in person at a place other than the supplier’s place of business or at a market place, auction, trade fair, agricultural fair or exhibition. Conceivably, where an agreement is entered into at a consumer’s place of residence or intended place of construction, these provisions would apply to protect the consumer.

Where a direct agreement is entered into, there is a requirement under the CPA that the agreement be in writing and that a copy be provided to the consumer. A consumer may, without any reason, cancel a direct agreement at any time from the date of entering into the agreement until 10 days after receiving a written copy of it. Furthermore, a consumer may cancel a direct agreement within one year after the date of entering into the agreement if the consumer does not receive a copy of it, and if that copy does not meet the requirements of the CPA.

The regulations prescribed under the CPA set out specific requirements for direct agreements. The agreement must be signed by the consumer and include information such as the name and address of the consumer, the name of the supplier and other relevant details of the contract. (Note that not all of the many requirements are covered here.) Obtaining legal advice should be considered before entering into any significant agreement or before developing a "standard form" contract in respect of a particular business in order to comply with these requirements.

In addition to those areas outlined above, the CPA also provides:

• Protection against unfair business practices including false, misleading or deceptive representations;
• Implied warranties of quality for goods and services for goods provided to consumers; and
• Protection against what is commonly known as "negative option" billing.

At the time of writing, there have been no reported cases decided under the CPA. However, recently, a company was convicted in Brampton, Ontario under an older consumer protection statute, which was identical in certain respects to the CPA. In that case, a contractor failed to provide an adequate form of contract to a consumer who hired a construction company to complete a rear addition to the consumer’s home. The contract ultimately provided by the contractor did not include:

• Notice of the consumer’s right to cancel within 10 days;
• A break-down of which portion of the total cost was attributed to each service; or
• The delivery date for goods and services.

Each of the above details was required under the old legislation (and under the new CPA) for contracts negotiated at a consumer’s house — that is, a direct agreement. The contractor was fined $2,000 as a result of these breaches. Accordingly, contractors and service providers will have to ensure that their consumer contracts meet the requirements of the legislation or they will face penalties and other possible court sanctions.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.