Canada: Unlicensed Contractor Given Stiff Penalties For Not Following Regulations

Last Updated: August 15 2017
Article by Colin Flynn

A Calgary contractor was recently sentenced to 6 months in jail and ordered to pay nearly $300,000 in restitution after being found guilty of offences under the Fair Trading Act (the "Act").

The sentence was handed down to a numbered company that operated as a contractor, and to the individual operating the numbered company (the "Individual"). The heart of the matter centered on licensing requirements for prepaid contractors.

It was admitted that neither the numbered company, nor the Individual, held a prepaid contractor's license as required by section 104(1) of the Act, that money was not refunded after cancellation of the contracts as required by section 31(2) of the Act, and that the contracts used by the contractor did not meet the requirements of section 35 of the Act. The Individual was also found guilty on several counts of misleading customers, contrary to section 6(4) of the Act.

Background

The numbered company operated as a one man operation, and fell victim to disorganization and delay. At trial, the Individual stated that before forming the numbered company to operate as a contractor, he operated as a contractor personally, and so would hire subcontractors to complete the work, while the Individual performed all sales and management work and supervised job sites.

The Individual declared personal bankruptcy and started the numbered company after the bankruptcy proceedings. Payment for projects was sought up front from customers of this new company, triggering the requirements of section 35 of the Act. Section 35 of the Act requires that written direct sales contract include:

  • The names and addresses of the parties to the contract
  • The salesperson's name
  • A description of the goods or services to be provided
  • A statement of cancellation rights that conformed with the requirements of the Act
  • An itemized price for the goods or services
  • The total amount of the contract, the terms of payment
  • The completion date of the services
  • The signatures of the parties to the contract

The numbered company's written contracts did not meet those requirements.

A total of six families were affected by the poor organization of the numbered company and the Individual. Money was paid in advance to the numbered company, and constant delays and poor workmanship issues affected each of the six jobs. Once delays became apparent and the customers demanded return of the funds they had paid (pursuant to s. 31(2) of the Act), the money paid was not returned. In fact, even more money was requested by the Individual to finish the jobs.

Liability

At trial it was found that the Individual was the person who represented the numbered company in its dealings with each customer. He had met with all of them, viewed the proposed projects, discussed the families' construction/renovation wishes, calculated costs, provided estimates, offered contracts, promised labour, equipment, tools and materials, and had frequent conversations and meetings concerning the projects.

Section 165(1) of the Act states that when a corporation commits an offence under the Act or its regulations, every principal, director, manager, employee or agent of the corporation who authorized the act or omission that constitutes the offence, or who assented to acquiesced in or participated in the act or omission that constitutes the offence, is guilty of the offence - whether or not the corporation has been prosecuted for the offence.

The Individual was considered an employee or agent of the numbered company. The trial judge noted that he represented and conducted all the day to day operations of the numbered company. Wherever the evidence proved guilt on the part of the numbered company, the Individual was found personally guilty as well. The numbered company and the Individual were found guilty of failing to be licensed, failing to comply with the prepaid contract requirements of the Act, failing to refund money after cancellation, and misleading customers.

In addition, the Individual's mother was listed as a director of the numbered company, and provided financial support to the numbered company. She was also found personally guilty in regard to the offences of entering into prepaid contracts without being so licensed. The trial judge found that she had both knowledge that the numbered company was engaged in prepaid contracting, and a legal duty to comply with the structural requirements of doing so.

Larger Implications

This decision is a reminder that failing to comply with the applicable statutory requirements can expose a contractor to consequences in addition to those that normally result from being sued for breach of contract. In this case the numbered company and the Individual were both ordered to pay restitution of nearly $300,000, and the Individual was sentenced to 6 months in jail.

The Individual's personally liability is significant. In most cases where one carries on business through a corporation, only the corporation is liable for its failure to comply with the terms of a contract. This protects the personal assets of the shareholders of the corporation, such as their homes, cars, and back accounts, from being exposed if the corporation is liable for breach of contract.

In this case, the fact that the Individual is personally liable for the restitution ordered means that the homeowners are entitled to attempt to collect the restitution by taking steps to seize and sell any property belonging to the Individual, including his house, vehicles, bank accounts.

Care must be taken to ensure that a company or individual engaging in prepaid contracting work is properly licensed, and that the documentation used by any such business complies with the applicable statutory requirements as well.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Colin Flynn
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