R. v. K-Tech Building Systems Inc. and Stanley Kondrotas
Court Information
Citation: 2012 ONCJ 219
Court: Ontario Court of Justice, Brampton, Ontario
Judge: Quon J.P.
Date of Judgment: April 13, 2012
Trial Dates: March 9 and 10, 2011; November 23 and 24, 2011
Parties
Prosecutor: Her Majesty The Queen In Right Of Ontario As Represented By The Ministry Of Consumer Services
Defendants:
- K-Tech Building Systems Inc.
- Stanley Kondrotas
Counsel:
- C. Glaister, for the Ministry of Consumer Services
- J. Forget, for the defendants
Charges
The defendants were jointly charged with five offences under the Consumer Protection Act, 2002:
Engaging in an unfair practice by making a false, misleading or deceptive representation to a consumer on or about October 4, 2006, contrary to s. 17(1) and s. 116(1)(b)(ii)
Engaging in an unfair practice by making a false, misleading or deceptive representation to a consumer on or about July 5, 2007, contrary to s. 17(1) and s. 116(1)(b)(ii)
Engaging in an unfair practice by making an unconscionable representation to a consumer on or about October 4, 2006, contrary to s. 17(1) and s. 116(1)(b)(ii)
Failing to provide a contract to a consumer prescribed by regulation on October 4, 2006, contrary to s. 22 and s. 116(2)
Failing to provide a refund payment to a consumer within 15 days of being given notice of cancellation of the consumer agreement on or about October 30, 2007, contrary to s. 96(1) and s. 116(1)(b)(viii)
Facts
Background
Bonnie Engel had a long-held dream to build a cottage on her property located by the Madawaska River in the Township of South Algonquin, Ontario. She and her husband, David Boomer, had owned the property for approximately 22 years and spent 20 years paying off the mortgage. They saved money to eventually build their dream cottage.
The Agreement
On October 4, 2006, Bonnie Engel entered into a written purchase agreement with K-Tech Building Systems Inc. to construct a 900 square foot cottage on her property for $47,770 (including GST). The agreement required K-Tech to:
- Manufacture or fabricate engineered wall panels in their factory
- Order windows, doors, roof shingles, roof trusses, and other building materials
- Transport materials to Engel's property
- Erect and complete the cottage according to Ontario Building Code specifications
Engel was responsible for:
- Obtaining a building permit
- Arranging and paying for a concrete foundation to be constructed by another contractor
- Making six installment payments totaling $47,770
Payments Made
Engel and her husband paid K-Tech a total of $56,194.18 upfront, consisting of:
- $42,993 toward the purchase price
- $13,201.18 for extras and upgrades
All cheques were cashed by K-Tech.
Delays and Excuses
Although the cottage was envisioned to be started and completed in August 2007, K-Tech continually delayed:
- Engel obtained her building permit on June 13, 2007
- The concrete foundation was poured on June 27, 2007
- Engel was ready by late July 2007 for construction to begin
On July 5, 2007, Stanley Kondrotas informed Engel that if she made the fifth installment payment early, her job would receive priority. Engel made a $5,700 priority payment on July 13, 2007, but no materials were delivered and no construction commenced.
Cancellation and Refusal to Refund
By October 2007, Engel became concerned about K-Tech's financial viability and delays. On October 11, 2007, her lawyer sent a letter to K-Tech:
- Notifying K-Tech that Engel was cancelling the agreement
- Treating the delays as a breach of contract
- Demanding a full refund of $56,194.18
Stanley Kondrotas responded on October 18, 2007, refusing to refund the money, claiming it was a custom-ordered cottage and that K-Tech's policy did not permit refunds for custom orders.
K-Tech's Financial Collapse
In the first week of December 2007, K-Tech's landlady locked them out of their premises at 1169 Lorimar Drive, Mississauga for arrears in rent ($12,000 per month). K-Tech eventually went bankrupt, and its assets were sold at fire sale prices.
Civil Judgment
Engel sued K-Tech and Kondrotas in Superior Court. On February 15, 2008, Justice Herold granted a default judgment against both defendants for $60,965.86 plus $1,979 in costs, with interest at 6% per annum.
Complaints and Investigation
David Boomer filed an online complaint with the Ministry on November 22, 2007. Bonnie Engel filed a complaint on March 10, 2009. Following investigation, the Ministry charged both defendants on November 17, 2009.
Engel's Subsequent Success
Despite the setback, Engel hired another contractor, Paplinskie Contracting Ltd., to build her cottage. Construction began in September 2008 and cost approximately $85,984.92. Engel now has her dream cottage, though she essentially paid twice for it.
Key Issues
Have the defendants been charged under the wrong statute?
Does the Ontario New Home Warranties Plan Act apply to the transaction?
Is K-Tech a "builder" under the Ontario New Home Warranties Plan Act?
Does the Consumer Protection Act, 2002 apply to the transaction?
Is the proposed cottage "goods" under the Consumer Protection Act, 2002?
Is the transaction exempted as involving "real property"?
Did the defendants commit the actus reus of the five offences?
Have the defendants proven the due diligence defence?
Is this an abuse of process?
Legal Analysis
Part A: Applicable Legislation
The Ontario New Home Warranties Plan Act
The court examined whether the Ontario New Home Warranties Plan Act applied to the transaction. The Act provides warranty protection for new homes constructed by registered builders.
Definition of "Home": A "home" under the Act means a self-contained one-family dwelling but does not include "a dwelling built and sold for occupancy for temporary periods or for seasonal purposes."
The court found that although the proposed cottage would have been built to year-round standards under the Ontario Building Code, K-Tech did not meet the definition of a "builder" because:
- K-Tech was not contracted to perform all the work and supply all materials
- Engel was responsible for hiring and paying for the concrete foundation contractor
- K-Tech was not registered with the Tarion Warranty Corporation
- The proposed cottage was not enrolled for warranty protection
- The agreement made no reference to the Ontario New Home Warranties Plan Act
The court concluded that K-Tech's reliance on the Ontario New Home Warranties Plan Act was a tactical argument to shield itself from Consumer Protection Act liability, not a genuine position held at the time of contracting.
The Consumer Protection Act, 2002
The court found that the Consumer Protection Act, 2002 applied to the transaction because:
Definition of "Goods": "Goods" means "any type of property." This broad definition includes:
- Items not yet manufactured at the time of agreement
- Components for constructing buildings
- Property that will become attached to land after completion
The proposed cottage was "goods" because it was property to be manufactured and supplied by K-Tech.
Not "Real Property": The transaction did not involve the sale of real property because:
- No land was sold to Engel
- The cottage was not yet built or attached to land when the agreement was cancelled
- The wall panels and materials were moveable property
- Only after completion would the cottage become real property by operation of law
Future Performance Agreement: The agreement was a "future performance agreement" under s. 1 because delivery and performance were not made when the parties entered the agreement.
Cancellation Rights: Under s. 26(2) of the Consumer Protection Act, 2002, because the agreement did not specify a delivery or commencement date, Engel could cancel at any time before delivery or commencement if K-Tech did not deliver or commence performance within 30 days after October 4, 2006.
Therefore, Engel's right to cancel crystallized on November 3, 2006, and she could cancel at any time thereafter.
Refund Obligation: Under s. 96(1), once Engel cancelled the agreement, K-Tech was obligated to refund all payments within 15 days. Under s. 79(1) of Ontario Regulation 17/05, this refund had to be made within 15 days of receiving cancellation notice.
Part B: Actus Reus of the Offences
Count #4: Failure to Provide Future Performance Agreement with Prescribed Requirements
Finding: GUILTY
The agreement failed to include the requirements set out in s. 24 of Ontario Regulation 17/05, specifically:
- No date or dates for delivery, commencement of performance, ongoing performance, or completion of performance
Stanley Kondrotas testified he prepared the agreement himself to be "simple to understand" by copying clauses from other companies' agreements. He did not have a lawyer review it for compliance with statutory requirements.
The court found this was a strict liability offence, and the defendants failed to establish the due diligence defence because they did not take reasonable steps to ensure compliance.
Count #5: Failure to Refund Payment Within 15 Days
Finding: GUILTY
K-Tech received Engel's cancellation notice on October 11, 2007 (via fax from her lawyer). The 15-day refund period expired on October 26, 2007. K-Tech failed to refund any amount.
Stanley Kondrotas testified that:
- K-Tech's policy did not permit refunds for custom-ordered cottages
- He would only refund if he could sell the custom panels to someone else
However, the Consumer Protection Act, 2002 does not permit such policies to override statutory refund obligations.
The defendants failed to establish the due diligence defence because:
- Stanley Kondrotas did not seek legal advice about refund obligations
- He did not set aside funds to cover potential refunds
- He did not ensure compliance with the 15-day requirement
Count #1: False, Misleading or Deceptive Representation Regarding Materials and Completion
Finding: GUILTY
The defendants represented that K-Tech would:
- Purchase, order, or fabricate materials and components
- Load, pack, brace, and arrange delivery
- Erect and complete the building in good and workmanlike order according to specifications and the Ontario Building Code
These representations were false because:
- K-Tech could not have delivered or commenced construction within 30 days (roof trusses take 6-8 weeks to manufacture; roof shingles were not even ordered)
- Stanley Kondrotas testified that roof trusses would not be ready until October 26, 2007
- Roof shingles had not been ordered at all
The defendants failed to establish the due diligence defence because:
- They did not have all materials ordered or available by November 3, 2006
- They did not take reasonable steps to ensure readiness to perform
- Stanley Kondrotas's testimony was inconsistent and evasive
Count #2: False, Misleading or Deceptive Representation Regarding Priority
Finding: GUILTY
On July 5, 2007, Stanley Kondrotas represented that Engel would receive priority if she made an early payment. Engel paid $5,700 on July 13, 2007, but:
- No materials were delivered between July 13 and October 11, 2007
- No construction commenced
- There was no evidence of other projects that Engel received priority over
The defendants failed to establish the due diligence defence because:
- The representation was false
- Stanley Kondrotas's testimony about Engel wanting to delay construction contradicted Engel's emails constantly pressing for a start date
- The hand-drawn map to Engel's property was in Stanley Kondrotas's file, contradicting his claim that they had no directions
Count #3: Unconscionable Representation
Finding: NOT GUILTY
The prosecution had to prove that Stanley Kondrotas knew or ought to have known on October 4, 2006, that Engel would be unable to receive a substantial benefit from the representation that K-Tech would fulfill its obligations.
The court found:
- K-Tech had 30 years of experience as a family business
- They had completed cottages on other agreements in the past
- They had three other building projects underway in 2007
- On October 4, 2006, a reasonable person would not have foreseen that K-Tech would be unable to complete the cottage
Although K-Tech was in a precarious position after November 3, 2006 (when Engel's cancellation right crystallized), this did not mean they knew or ought to have known on the date of contracting that Engel would receive no substantial benefit.
Part C: Due Diligence Defence
For strict liability offences (counts #1, #2, #4, #5), the defendants could be acquitted if they proved on a balance of probabilities that they took all reasonable care in the circumstances to prevent or avoid committing the offences.
The "Sword of Damocles": The court noted that because the agreement lacked a completion date, s. 26(2) created a precarious situation for the defendants. After November 3, 2006, Engel could cancel at any time, meaning K-Tech had to be ready to perform at any moment or face cancellation.
Stanley Kondrotas's Credibility: The court found his testimony inconsistent and evasive:
- He claimed all materials were ready, then admitted roof trusses were not manufactured and roof shingles were not ordered
- He claimed they had no directions to Engel's property, then produced a hand-drawn map from his file
- He was evasive about K-Tech's financial difficulties
Failure to Take Reasonable Care:
- No lawyer reviewed the agreement for statutory compliance
- No steps were taken to ensure all materials were ordered by November 3, 2006
- No funds were set aside for potential refunds
- Stanley Kondrotas could have hired other workers to complete the project but chose not to
Corporate Veil: The court rejected the defendants' argument that personal circumstances (Stanley Kondrotas's father's hospitalization, Terry Kondrotas's personal problems) excused K-Tech's performance. K-Tech, as a separate legal entity, could have hired other workers.
Conclusion: The defendants failed to establish the due diligence defence for counts #1, #2, #4, and #5.
Part D: Abuse of Process
The defendants argued that the prosecution was an abuse of process because:
- Engel had already obtained a civil judgment for $60,965.86
- The prosecution was using this proceeding to collect a debt
- A restitution order could result in Stanley Kondrotas's imprisonment
Court's Findings:
Separate Proceedings: The Consumer Protection Act, 2002 expressly permits consumers to bring civil actions under s. 96(6). The existence of a civil judgment does not bar criminal prosecution.
Different Parties: The Ministry of Consumer Services was not a party to the civil proceeding. Engel is a witness for the prosecution, not a party. The Crown acts in the public interest, not necessarily for the complainant.
Timing: David Boomer filed his complaint on November 22, 2007, before the civil judgment was even granted (February 15, 2008).
Restitution is Discretionary: Restitution is part of sentencing and is discretionary. The existence of a civil judgment is merely a factor for the sentencing judge to consider, not a bar to restitution.
No Res Judicata: The doctrine of res judicata does not apply because:
- Different parties are involved
- Different purposes are served (civil recovery vs. criminal sentencing)
- The Crown was not a party to the civil action
Conclusion: The prosecution was not an abuse of process.
Disposition
K-Tech Building Systems Inc.
GUILTY on counts #1, #2, #4, and #5
NOT GUILTY on count #3
Stanley Kondrotas
GUILTY on counts #1, #2, #4, and #5
NOT GUILTY on count #3
Stanley Kondrotas, as an officer and director of K-Tech, was liable under s. 116(3) of the Consumer Protection Act, 2002 for failing to take reasonable care to prevent K-Tech from committing the offences.
Key Legal Principles
Broad Interpretation of Consumer Protection Legislation: The Consumer Protection Act, 2002 must be interpreted broadly to achieve its protective purpose. "Goods" includes items not yet manufactured and property that will become attached to land.
Future Performance Agreements: Agreements without specified delivery or commencement dates create cancellation rights for consumers after 30 days, creating a "Sword of Damocles" for suppliers who must be ready to perform at any time.
No Contracting Out: Parties cannot contractually opt out of Consumer Protection Act provisions. Supplier policies regarding refunds do not override statutory obligations.
Strict Liability Offences: For strict liability offences, the prosecution need only prove the actus reus. The defendant must then prove the due diligence defence on a balance of probabilities.
Officer and Director Liability: Officers and directors of corporations are liable for offences committed by the corporation if they fail to take reasonable care to prevent the offence.
Separate Regulatory Schemes: Multiple regulatory schemes can apply to the same transaction. The existence of one statute does not preclude application of another.
Civil Judgment Not a Bar: A prior civil judgment does not bar criminal prosecution or preclude restitution orders.
Dated at the City of Brampton on April 13, 2012
Quon J.P. Ontario Court of Justice
