A recent case from Ontario has established that consumer protection legislation applies to consumer construction contracts in that province. The case, which is discussed below, is not an appellate case and as such is not binding on Alberta courts. However, there is precedent in Alberta of the court finding that Alberta’s Consumer Protection Act predecessor legislation applies to construction contracts where the party commissioning the construction is an individual rather than a business (i.e., a “consumer”).[1]

The purpose of the Alberta Consumer Protection Act (the “Act”) is to protect consumers from unconscientious suppliers of goods and services,[2] which purpose is achieved in part through the Act’s provisions addressing “unfair trade practices.” Complaints can be made under the Act in respect to unfair trade practices as well as other listed areas (including prepaid contracting) by submitting a complaint to Service Alberta via its Consumer Complaint Centre. After the complaint is submitted, Service Alberta’s Consumer Investigation Unit (“CIU”) will assess the complaint and advise of the outcome, which could include an investigation, referral to an appropriate agency, or an advisory letter to the business. If the complaint is advanced to an investigation, the complainant will be contacted by an investigator and may be required to provide further information. At the conclusion of the investigation, the investigator may issue a warning, make recommendations for actions (such as license suspension, director’s order, or administrative penalty), or file charges in court.

The Act, the Courts and Construction Disputes

Section 6(2)(e) of the Act provides that it is an unfair practice for a supplier in a consumer transaction or a proposed consumer transaction to charge a price for goods or services that is more than 10%, to a maximum of $100, higher than the estimate given for those goods or services. This section does not apply if the consumer consents to the higher price or if the consumer requires additional or different goods or services and agrees to amend the estimate in the consumer agreement.

Patel v WG Housing Ltd. (City Core Developments Ltd.)

In Patel v WG Housing Ltd. (City Core Developments Ltd.)[3] (“Patel”), the Alberta Court of Queen’s Bench applied section 6(2)(e) in the context of a residential construction contract. The plaintiff had entered into a residential construction contract with the defendant contractor. The contract included an estimate of the total cost of the construction. The cost of construction exceeded the estimated cost.

One of the plaintiff’s arguments was that the defendant breached section 6(2)(e) of the Act because the defendant had charged a price that was more than 10%, to a maximum of $100, higher than the estimate it had provided.

The Court interpreted the $100 reference in section 6(2)(e) as a ceiling.[4] Based on this interpretation, an unfair practice will result if:

  • the price is $100 or more over the estimate, even if it is not 10% higher than the estimate; or
  • the price is less than $100 over the estimate, but more than 10% higher.[5]

The Court acknowledged that this interpretation resulted in a low threshold, especially when applied to large contracts; however, it found that this issue was better addressed at the remedies stage. In particular, the Court can exercise its discretion and choose not to grant a remedy in cases involving larges estimate where exceeding the estimate by more than $100 is almost certain.[6]

Since the difference between the estimated cost and the actual cost was greater than $100, the Court in Patel concluded that the defendant breached section 6(2)(e) of the Fair Trading Act, the predecessor to the Act.[7] The Court had already awarded the plaintiff damages for breach of contract, so it did not make an additional order for a remedy due to the defendant’s breach of the Fair Trading Act.

Following Patel, the Alberta courts have subsequently reaffirmed that the Fair Trading Act applies to construction contracts. Most recently, the Ontario Superior Court applied its consumer protection legislation in the context of a construction contract in The Fifth Wall Corp. v. Tonelli[8] (“Tonelli”).

The Fifth Wall Corp. v. Tonelli

In Tonelli, the Ontario Superior Court confirmed that construction contracts between consumers and suppliers are governed by consumer protection laws. The defendant homeowners in Tonelli entered into a cost plus residential construction contract with the plaintiff contractor. The contract contained an itemized budget, which listed a specific dollar amount for each cost-coded item. The costs exceed the construction budget.

Section 10 of Ontario’s Consumer Protection Act provides that a supplier cannot charge the consumer an amount that exceeds the estimate by more than 10%, unless the consumer agrees to the amended estimate of price, or the consumer requires additional or different goods or services. The defendant homeowners argued that this provision applied to their contract such that the plaintiff contractor could not charge an amount that exceeded the estimated budget by more than 10%.

The Court held that Ontario’s Consumer Protection Act and more specifically section 10 applied to the cost plus residential construction contract. It concluded that the defendant homeowners were “consumers” for the purposes of Ontario’s Consumer Protection Act, and that the residential construction contract was a “consumer transaction” and “consumer agreement.”

The Court found that there was insufficient evidence to determine whether the budget constituted an “estimate” under section 10, and whether the defendant homeowners agreed to the amended cost estimates. Accordingly, the Court did not comment on what unfair practices remedy it would have awarded. However, this case is significant because it reaffirms that consumers can seek recourse from the courts under consumer protection laws when the cost of their projects is unexpectedly higher than 10% over the estimate (or $100 over the estimate under Alberta’s legislation) from their contractor.

Takeaways

Parties to construction contracts in the residential sector, or other non-business related sectors, should remember that it is not just the Prompt Payment and Construction Lien Act, or a business obligation to a client, which governs disputes when construction goes wrong. If a purchaser of construction services is found to be a “consumer” within the meaning of the Act, the contract at issue will be governed by the Act – and, as held by the Court in Patel, the Court has considerable discretion to remedy any unfair practices it finds under the Act. It should be noted that there is limited guidance in the jurisprudence on what those remedies might look like and whether or not those remedies would be distinct from those granted for breach of contract. In addition to potential judicial remedies, a complaint by consumers may also result in investigations by CIU.

Contractors can avoid allegations of unfair trading practices or otherwise breaching the Act by obtaining appropriate legal advice, and implementing prudent contracting and project management practices. The issues addressed by these cases can be mediated against by taking care to estimate as accurately as possible, clearly setting out input costs in the estimate, and building in disclaimers where costs will be inputted later in construction. As no one can predict the future, open and contemporary discussions of increases in price as or before they occur, plus confirmation of acceptance of the change in writing, are also beneficial. Taking these steps will also assist you in avoiding and responding to potential complaints.

If problems on a contract occur, proactively seeking legal advice from lawyers (such as Miller Thomson LLP’s team of construction lawyers) can also help stave off allegations of unfair practices or assess whether a consumer has been a victim of an unfair practice during construction.

[1] As defined in the Consumer Protection Act, RSA 2000, c C-26.3 at s 1(1)(b).

[2] Davies v. 1194913 Alberta Ltd., 2008 ABPC 368 at para 16.

[3] 2012 ABQB 734.

[4] Patel at para 173.

[5] Ibid at para 173.

[6] Ibid at para 174.

[7] Ibid at para 175; note that Patel was decided under the Alberta Fair Trading Act, which has since been replaced by the Act. However, the relevant provisions in the Fair Trading Act appear in the Act with the same wording.

[8] 2022 ONSC 6590