Law Section – Chapter 1 – Canadian Legal

System
History:
• Provinces and territories in Canada are considered “common-law”
• Legal system is based upon the English common-law system
• For certain cases, they already had solutions to resolve the conflicts that arose.
o The system based on this system is called the “common-law”
• As time progressed, this system was becoming inadequate, because of variations
in the court cases.
• When a situation arose where the common-law system could not solve a case,
special appeals were made to the English monarch
• If the monarch decides that the case requires the monarch’s input to resolve the
case, a solution more “equitable” is provided, rather than the common-law
approach.
• Eventually, the English “courts of equity” were developed as a separate court
system, as opposed to the common-law system
• Definition of equity: Spirit of fairness, justness and right dealing… grounded in
the precepts of conscience.
• The two systems were than combined, and an improved law system was
developed to provide remedies based on both the common-law precedent solution,
and on equitable principles. This combined system is now known to be the
common-law system known today in Canadian law

The theory of the precedent:

• When deciding the outcome of a case, the courts apply legal principles that were
established in previous court decisions which involved similar circumstances that
arose. This is denoted as the theory of the precedent
• The courts also dispense “equitable relief”, which introduces flexibility in the
decision-making process
• It is possible to come to a decision that is away from the case precedents, in order
to reflect society’s values at the present time.
• These departures are very slow to evolve, and the reason behind this is because of
how the legal system is structured.

The common law:

• Major source of law is “judge-made law” – Court decisions that establish legal
principles

Legislation:
• In addition, there is legislation: Statutes (laws enacted by a legislative body) that
are established by elected legislatures
 • Statutes may be questioned in court cases. If this is the case, it’s up to the court to
decide if a statute applies for a particular case
• The wording of the statute may also be interpreted at the time of the case
• When statutes are created, regulations under these statutes are also law bidding.
• It is important that engineers comply to both provincial and federal statutes, and is
aware of amendments to previous statutes and new ones

Federal and Provincial Powers:

• Under the Constitution act, the federal government and the provinces have the
authority to create these statutes (enact legistlation)
• What the federal government decides for statutes and what the provincial
governments decide are described in Sections 91 and 92 of the Constitution act.
• Section 91 is for federal governments, and 92 is for provincial governments
• Section 92 grants the provinces certain exclusive powers.
• Section 91 decides on specific matters that fall within the Parliament of Canada,
and makes laws for the Peace, Order and good Government of Canada.
• This applies only to those things that are not in Section 92
• Section 92 is more for matters of a provincial nature, like property rights
• There may be times where it is debatable as to which authority a statute’s
jurisdiction lies in
• If someone decides to challenge this, the party has to convince a court that the
statute is beyond the authority of the government that was responsible for
enacting it.
• Before the Canadian Charter of Rights and Freedoms, courts would say that the
jurisdiction of certain statutes for the government that enacted it was beyond its
authority.
• However, the courts could not void a law just because it offended civil liberties
• Canadian courts adaopted the British “doctrine of Parliamentary Supremacy”
• This meant that the courts could not question any statute, even if it was one that
offended civil liberties.
• Theoretically, all of the rights of the citizens of Canada could be removed by the
government if it desired
• The Charter of Rights and Freedoms was then enacted to provide everyone with
certain rights and with certain fundamental freedoms
• Section 52(1) of the Charter states that courts now have the power to rule that
statues can be invalid if they violate the rights guarenteed by the Charter
• Section 33 indicates that it can expressly override certain provisions of the
Charter, but is used sparingly.

Federal and Provincial Court Systems

• The most persuasive precident is usually the recent decision made by the most
highest level of court
• Hierarchy of Decision Making:
o Supreme Court of Canada (Nation-wide)
o Court of Appeal (Provincial)
 • Precidents from other common-law jurisdictions (like other provinces) can be
followed as well
• The court system within each of the provinces are generally the same, since they
follow the British court system
• Ontario Court of Justice can be split up into two divisions:
o General Division
o Provincial Division
• General Division deals with large claims and federal criminal matters. Small
Claims court falls into this as well
• Provincial Division deals with domestic matters (except divorce), and criminal
matters involving inside the province
• Province is divided into 8 regions, each with a regional senior judge for each of
the General and Provincial divisions. The Ontario Court of Appeal is the final
Court of Appeal for the province
• Federal courts, like the Federal Court of Canada, are concerned with federal
matters like patents, trademarks and copyrights
• The Supreme Court of Canada is the final appeal court for Canada

Public and Private Law:

• Public law deals with the rights and obligations of the government, and
individuals and private organizations
• Criminal law and constitutional law are examples of Public law
• Private law deals with the rights and obligations of individuals or private
organizations
• Examples of these involve contract law and tort law

Basic Terminology:
• Litigation – A lawsuit
• Plantiff – The party that is suing, or making the claim in the lawsuit. In criminal
cases, the plantiff is usually the Crown
• Defendant – The party that is defending against the claims in the lawsuit. The
defendant is also known as the accused in criminal matters
• Appellant – Party that is appealing the court decision made by a lower Court
• Respondent – Party seeking to maintain the court decision made by this lower
Court
• Privity of Contract – Describes the legal relationship between the parties that are
in a contract
• Creditor – A party whom an amount is owing
• Debtor – A party that owes an amount to the creditor
• Indemnification – A promise to directly compensate or reimburse another partify
for a loss or cost that took place. This is similar to a guarentee. The difference
here is that indemnity rights can be exercised directly.
 Law Section – Chapter 2 – Business
Organizations
Basic Forms:
• Three basic forms of business organizations:
o Sole proprietorship
o Partnership
o Corporation
• Sole proprietorship is an individually owned business. The person who owns the
business gains the profits of the business and personally incurs any business
losses of the business
• Partnerships are associations of persons who are in the business together for a
profit. These people share the profits and losses personally.
• One advantage of a partnership is that there is strength in numbers, and combining
the talents of many people is an advantage
• The risk, however, is that the partnership may incur huge debts, where the
partnership business may be unable to pay
• Corporations are entities that can be described as “fictitious persons”
• The corporation itself owns its assets and incurs its own losses, or gains the
profits
• It can sue or be sued in its own name. A shareholder of a corporation can contract
with, or sue that corporation

The independence of the corporate entity:

• The existence of a corporation is a separate entity, and is apart from its
shareholder-owners
• The corporation’s liabilities are of its own, and not of the shareholders.
• Individuals can then turn to a corporation, rather than a sole-proprietorship or
partnership, for their personal assets are not targeted by business creditors

1897 Case in England – Saloman vs. Saloman & Co. Ltd.

• Saloman was a leather merchant.
• Eventually he incorporated a company which consisted of himself and his family
o He sold the business
• Saloman held the majority of the shares personally as part payment of the sale of
his business. He also acquired certificates of debt from the corporation to
evidence the corporation’s indebtedness.
• Eventually, the business experienced difficult times and went into bankruptcy
• A lawsuit resulted. The issue here was since Saloman had certificates of debt
from the company, his personal assets would not be targeted, and was not
personally liable since his company was incorporated.
• The English Court of Appeal was of the opinion that Saloman incorporated the
business with limited liability to escape him being personally liable
 • On appeal, the House of Lords recognized Saloman’s corporation as a separate
and distinct entity from himself, and he had no intent to deceive of fraud.

• However, if it can be shown that this limited-liability status is being used for the
protection of an individual when the person is clearly involved in fraud, the courts
can reject this status and hold the individual personally accountable.

1972 Case in Ontario – Fern Brand Waxes Ltd. vs. Pearl

• Defendant was a director, officer and accountant to the Plaintiff, Fern Brand
Waxes Ltd.
• The defendant used his position to transfer unauthorized funds
• The loan was established by the plaintiff, and was made to two companies that
were controlled by the defendant
• Part of these funds were used to pay for shares for Fern Brand Waxes Ltd.
• The court determined that this payment for shares was not a proper payment of
shares for Fern Brand Waxes Ltd.
• The court stated that the defendant should not be allowed to profit from this
breach of trust
• In this case, the limited-liability status that the two companies have as a
corporation should not shield the defendant
• The companies were used to divert funds for his own purposes

1973 Case in Saskatchewan – Nedco Ltd. vs. Clark et al.

• Nedco Ltd. was a wholly owned subsidiary (part of a larger company) of Northern
Electric Company Ltd. Employees of Northern Electric went on strike and
picketed at Nedco Ltd.
• In order to restrain the Northern Electric employees, the court had to decide
whether to consider Northern Electric Company Ltd. and Nedco Ltd. as separate
entities
• The court viewed this as not being separate entities, because Northern Electric
Company Ltd. actually controls, directs and dominates Nedco Ltd.
• Because of this, they are not able to restrain the workers, for they are part of the
company that is suing. If they weren’t, they would be trespassing and would be
subject to restraining

Duration of Partnerships and Corporations:

• Unless otherwise provided, a partnership is terminated by the death of bankruptcy
of one of its partners.
• A corporation has perpetual existence, as long as the corporation follows the
governing statute
• Also, no steps should be taken to dissolve the corporation.
• The death of a shareholder does not have the effect of dissolve the corporation

Effect of Personal Guarentees:

• A shareholder is not theoretically liable for the debts of the corporation
 • However, the limited-liability characteristic of a corporation is often substantially
reduced, or does not exist in practical terms
• Example: If banking arrangements for the corporation are set up, the incorporator
is required to sign a personal guarentee in exchange for satisfactory credit terms
• The incorporator who signs this guarantee is now personally obligated to the bank
for the debts of the corporation to the extent of this guarentee.

Exceptions to the Salomon Principle:

• If you associate corporations with the same person, or group, that is running the
corporation, this is an example of the misconception of the limited-liability
characteristic that exists
• If fraud exists, there’s an exception as well

Engineering Corporation:
• Engineers are allowed to incorporate and carry on a business of engineering as a
corporation

Partnership Agreement:
• Organizations, such as corporations, are also allowed to enter into partnerships as
well
• Each corporate partner’s assets are at risk in this case

Limiting Partnership Liability:

• Most of the common-law provinces have passed statutues that allow a partner to
limit his or her liability
• Limited partnerships are allowed. They are like partners, where they are
responsible for the debts of the business, but the limited partner’s liability is
limited to the amount that the limited partner has contributed, or has agreed to
contribute
• A limited partner has to be sure that his or her name is not used in the name of the
partnership
• If this happens, the limited partner may be responsible for a debt that exceeds
their contribution to the business
• Limited partners can examine the state of the business, and can advise on its
management, but should not have major involvement
• If they do, they will be perceived as regular, or general partners.

Incorporation:
• Corporations are formed in several ways
o Created by statutes in legislatures
o Created by the Canada Business Corporations Act, the Business
Corporations Act of Ontario, or similar statutes
• Federal and Provincial corporations can extend their business nationally
• Licenses are required when extending the business beyond the province of origin
Private and Public Corporations:
• Private corporations: Closely held
• Public corporations: Shares are offered and distributed to the public
• Private company:
o Right to transfer shares is restricted
o Number of its shareholders is not more than fifty
o Invitation to the public to subscribe for its securities is prohibited

Shareholders, directors and officers:

• Shareholder: Owners of the corporation
o They receive share certificates to show they have ownership
o They elect the directors of the corporation
• Directors: There is a board of directors of the corporation, and they look after the
corporation’s affairs and business
• Officer: Elected or appointed by the corporation’s directors
o Usually provide the day-to-day business management

Shareholders’ agreements:
• Agreement that commonly covers things like who is entitled to nominate
members of the board of directors
• It can also contain agreements about not communicating trade secrets of a
company, or to ensure that future issuings of shares do not dilute the respective
percentage holdings of the companys’ shareholders
• Importance of this agreement, example:
o Three people incorporate a company
o Each person takes 1/3 of the shares of the company without entering a
shareholders’ agreement
o Let’s say there’s a falling-out between the people.
o Now let’s say that two of these three people join forces
o The third person now may be unable to elect a representative to the board
of directors of the company.
o That shareholder may also be booted off as an officer of the company, and
might lose his or her status as an employee
o This person might be able to get legal help if this happens.
o To prevent this from happening, a shareholders’ agreement should be
created

The director’s standard of care:

• Directors and officers are expected to carry out a certain standard of care with
their responsibilities
• These people should act honestly and in good faith in the best interests of the
corporation
• The person should exercise care, diligence, and skill where a reasonably prudent
person would also do the same thing in that person’s position
Disclosure of conflicts:
• Directors must disclose any personal interest in any contract or transcation where
the corporation is directly involved
• The director cannot vote in approval of any such contract
• If the directory doesn’t disclose any interest in the contract, they are potentially
accountable to the corporation or to its shareholders for any profit that results in
this contract or transaction

Joint venture:
• Is a partnership limited to one particular project
• Joint venturers must ensure that the scope of this partnership is limited to one
project only
• This is in order to protect the assets of the joint venturers as partners in the project
• Each of the joint venturers should indemnify each of the other joint adventurers
for liabilities that may arise due to negligence.
 Law Section – Chapter 4 – Tort Liability
• Tort generally refers to a private, civil wrong, or injury, which involves
negligence
• These things can arise independent of contracts that are created
• As such, tort liability can be created even for those people who are not on the
contract
• Examples: No contracts exist between someone driving a car, and someone
who receives that accident, or someone who was transporting dangerous
explosives and someone who sustains injuries when an explosion happens
• Even services that were performed for free (without a contract) has the
potential of tort liability if the services were performed with negligence

Fundamental Purpose:
• Purpose of tort law is to compensate victims of torts
• Punishment of those who are negligent is not the purpose of tort law
• However, if the negligent actions fall under the Criminal Code of Canada,
punishment must be made
• To make sure that funds are available to compensate victims of torts, engineers
involved in designing should obtain professional insurance coverage
• If the engineer does not have this coverage, the engineer must tell his or her client
of such a case, and must acknowledge this disclosure
• Insurance coverage does not cover all aspects of engineering, like pollution and
nuclear hazards

Principles of Tort Law:

• To convince the court that compensation should be made when a tort has taken
place, the plaintiff must show that:
o The defendant owed a duty of care
▪ A reasonble degree of care was owed; reasonable meaning the
same degree of care a reasonable person would have made
o The defendant breached that duty in their conduct
▪ Failure to give this reasonable degree of care resulted in injury or
damage to the plaintiff
o The conduct caused the injury to the plaintiff
▪ As a result because of this fault, the injury was incurred. This
must also be reasonable as well.
• If any one of these is failed to be shown in court, the claim by the plaintiff will
not succeed

Engineer’s Standard of Care:

• Standard of care made by the engineer is a significant factor in tort action
• Example: Let’s say a court has to decide whether an engineer has been negligent
when providing services
 • The court has to have some standard set and figure out from this standard whether
the engineer was negligent
• This standard is based on the idea that engineers have a duty to use reasonable
care and skill of engineers who have ordinary competence
• This reasonable care is measured by the set professional standards of the
particular branch of engineering that is focused on at the time these services were
offered

1974 case in Ontario – Dominion Chain Co. vs. Eastern Construction Co. Ltd. et al.
• Faulty construction of a large factory roof took place
• Court made a statement that an engineer is liable for incompetence which results
in damages to the employer
• If the engineer omits things that an ordinary engineer would not omit, that person
is liable

Case - Ramsay and Penno vs. The King

• Ramsay and Penno sued the Crown involving the flooding of lands
• They accused the Crown of negligence in the design and construction of certain
dams
• Court said that even though this was a mistake, engineers are expected to have
reasonably competent skill, and are not perfect
• As long as they exercise reasonable care, as a normal prudent engineer would, and
they reflect the scientific knowledge that they learned at the time, that’s all they
can really do
• Circumstances like this are rare, where the court can be persuaded that the error
that is questioned by the court doesn’t amount to negligence.
• Arguments that support this position might involve references to technology that
was less sophisticated at the time the service was offered
• As such, the argument is supported that the engineer did all that he or she could
do at this point in time.
• Because of this fact, as years progress, and technology advances, old technology
grows out of date, and this particular argument could potentially be used
• As such, limitation periods were introduced to circumvent this

• Section 72 of The Regulations under the Professional Engineers Act of Ontario

defines negligence to be the following:
o An act or omission in the carrying out of the work of an engineer who fails
to maintain the standards that a reasonable and prudent engineer would
uphold in the same situation
• The court uses the definition of negligence and the examples it provides in
figureing out if a duty of care was breached
• Expert testamonies from other expert engineers also help in figuring this out as
well
Development of Tort Law:

1932 Case, England House of Lords – Donoghue vs. Stevenson

• Products liability for tort law
• Plaintiff became ill when drinking ginger beer
• Friend of the plaintiff gave him this ginger beer
• The ginger beer had a decomposed snail in the bottle
• House of Lords determined that the ginger beer manufacturer was under legal
duty to the consumer, to take reasonble care to ensure that the ginger beer was
free of any defect to cause an injury to health
• Importance: No contract existed between the plaintiff and the manufacturer

1963 Case, England in House of Lords – Hedley Byrne vs Heller & Partners Ltd.
• Plaintiffs were advertising agents and asked their bankers to look into the credit
rating of a company in which they had business dealings with
• These bankers made inquiries of this company to other bankers for the company
that was being inquired on. These bankers that were being inquired on were the
defendants
• The defendant bankers negligently reported that the company’s financial status
was fine, and there was nothing to worry about
• However, the defendant bankers said that this advice on the company’s credit is as
is, and will assume no responsibility
• The plaintiff then proceeded to do business with the defendant, using the advice
the defendant bankers gave
• The plaintiff lost 17,000 GBP when dealing with the company
• The House of Lords said that since there was a disclaimer, the defendant is not
liable to provide compensation to the plaintiff for the financial loss that was
incurred
• House of Lords said that when one person relied on the special skill and judgment
of another, and when this second person knew of this reliance, the second person
is to take reasonable care in exercising this special skill.

1994 Ontario case – Wolverine Tube Inc. vs. Noranda Metal Industries Ltd. et al.
• Noranda asserted a claim against an environment consultant
• Noranda claimed that negligence took place when carrying out environmental
compliance audits and liability assessments on certain properties Noranda was
thinking of selling
• The consultant who did these audits had a disclaimer, which stated that he made
his best judgmment with the information available at the time of the audit
preparations. If a third party uses the report, the consultant does not take
responsibility for damages
• Noranda decided that it was all good, and sold the properties to Wolverine Tube
• Wolverine had no dealings with the consultant, and the consultant wasn’t aware
of the sale until 5 years later, when the lawsuit commenced
 • Noranda advised Wolverine that it could rely on the audits, and they don’t need
its own environmental consultant to review the property
• Damages resulted, and the consultant was not liable for damages as well, due to
his disclaimer.

• Before the Hedley Byrne case, tort law provided relief where damanges to person
or property had been incurred
• The Hedley Byrne case was used to expand the score of tort damages to include
financial loss when advice was negligently given, where the person who gave this
advice knew or should have known, that their skill and judgment was being relied
on
• Hedley Byrne case has been used in many tort cases that involved engineers

1979 Manitoba case – Trident Construction Ltd. vs. W.L. Wardrop and Assoc. et al.
• An engineer provided services to a company that hired him, on a project that
involved creating a sewage disposal plant
• Engineer was held liable by the contractor because the design was unsuitable
• The contractor who hired this company had no contract with the engineer, who
provided services for this company
• The court concluded that it was his fault either way:
o a) If what they wanted was perfectly fine, and his design was crap, he’s at
fault
o b) If what they wanted was nonsense, and his design was crap, he failed
to report that what they wanted was nonsense, and breached the duty of
care accordingly

1983 Ontario case - Brown & Huston Ltd. vs. The Corporation of the City of York et al.
• Consulting engineers omitted certain important information in a soils report and
ground-water levels
• The contract between the contractor and the consulting engineers involved
constructing a underground pumping station
• The contractor wanted to personally examine the conditions he would encounter
during this construction, but the engineers said that it wasn’t necessary.
• The engineers omitted this important information, and the contractor bid on the
job, assuming there was no water problem.
• The court concluded that the plaintiff was partly negligent, because they didn’t
ask for the soils report, and also didn’t learn the precise meaning of what the
engineers meant on the info they provided
• The consulting engineers were still liable
• The damages were split 25% to the plaintiff and 75% to the defendant

1983 Ontario case – Unit Farm Concrete Products Ltd. vs. Eckerlea Acres Ltd. et al.;
Canama Contract Ltd. vs. Huffman et al.
• A contractor had a contract with an owner to design and construct a barn that was
to be placed over a manure pit
 • Contractor succeeded in bringing action against an engineer who was employed
by the Dept. of Agriculture of Ontario.
• The plaintiff contractor was allowed to rely on the advice of the defendant
engineer employed at this dept. and not a consulting engineer
• From time to time over the years, the plaintiff relied on the advice of the
defendant engineer
• The contractor and this engineer never personally met to discuss plans, and only
talked through the phone
• A copy of these plans was left on the engineer’s desk
• The engineer did not thoroughly look over the plans, and said that he liked the
plans and should keep up the good work
• The court said that the plan had two deficiencies, established by expert engineers
who testified
• The walls of the manure pit fell because of these deficiencies
• The defendant engineer argued that he didn’t know he was being consulted for
advice
• The court said that when being held responsible for negligence, it’s not what you
feel or think, but it’s what you’re doing to make the other person feel or think the
way they felt at that time.
• By writing that statement, it sounded like he was acting as a consultant, and made
it sound like he was sought for advice
• The contractor was also to blame for this as well, for the contractor had failed to
comply to the standard of care that a reasonable designer and builder would have
as well in these circumstances.
• The contractor should have also made it clear on the plans that the engineer was
being sought after for advice
• The end result was that they were both equally responsible, 50% damages for both
• The court also noted that, like in Hedley Byrne, if the engineer disclosed that he
was not responsible for damages, he could have avoided being liable all together
• This was appealed to the Ontario Court of Appeal, and they stated that the
engineer made it look like he was being consulted, and increased liability to 75%
the engineer, and 25% the contractor

1988 Saskatchewan Case – SEDCO and Hospital Laundry Services of Regina vs. William
Kelly Holdings Ltd. et al.
• SEDCO leased a newly constructed building to Hospital Laundry Services
• SEDCO had a contract with an architect who was responsible for designing the
building
• This architect then contracted with mechanical engineers, who are the defendants
• The mechanical design was fault, with lots of defects, and especially the cooling
system
• Hospital Laundry Services won its tort claim against the mechanical engineers
• The engineers knew that the building was to be for one tenant, and that they knew
that the comfort of the workers was a major consideration in the design
 • They knew, or ought to have known, that the faulty design of the cooling system
would produce high temperatures in the building, and would drop worker
productivity, which resulted in financial loss to Hospital Laundry Services
• This economic loss was recoverable, especially where there was a breach of the
duty of care, where it dealt with the health and safety of an individual

1993 Canada case – Edgeworth Construction Ltd. vs. N.D. Lea & Associates Ltd.
• An engineering firm that prepares drawings and specifications can be liable for
tort to a contractor, even if there was no contract created between these two.
• The BC Court of Appeal said that the engineering firm had owed no duty of care
to the contractor
• The Supreme Court of Canada overruled this decision.
• The contractor essentially lost money on the project due to errors in the
specifications and the construction drawings, which is why this decision was
overruled

1995 Canada case – Winnipeg Condominium Corporation No. 36 vs. Bird Construction
Co. Ltd.
• Confirmed the 1993 Canada case above, where contractors, as well as architects,
engineers, and subcontractors who take part in the design and construction of a
building, also owe a duty of care and are liable to tort.
• If it can be shown that a failure was forseeable, and there was ways to prevent this
failure, these people are liable for tort.
• This case involved a building that was originally completed in 1974, and was
converted to a condo in 1978
• In 1983, the condo corporation’s directors become concerned about the masonry
work on the exterior of the building
• They hired consultants from the company who built the building, and offered the
opinion that the building was structurally sound
• In 1989, a portion of the building fell to the ground
• As such, these consultants and the construction company was liable for damages

Strict Liability:
• So far, tort cases have only concentrated on who’s at fault, and not on
compensating injured parties
• For example, workers’ comp recognizes that fault is not necessary if
compensation is provided
• Employers are expected to make contributions to the employee if an employee
negligently injures themselves
• For product liability cases in the US, a manufacturer for equipment may be liable
in tort from the use of this equipment, even if there were no defects in producing
this equipment
• Canadian products-liability law hasn’t adopted this “strict liability” concept, but is
well on its way.
Vicarious Liability:
• An employer is vacariously liable for the negligent performance of an employee.
• If an employee commits tort when he or she is employed, the employer will be
vicariously liable for the damage caused
• This concept looks like it has a huge onus on the employer, but it is consistent
with tort law, where the purpose of tort law is to compensate the injured party.
• The employer is assumed to be the one compensating, for it is usually assumed
that the employer is in a better position to do so than the employee

1972 England case - Dutton vs. Bognor Regis United Building Co. Ltd.
• Foundations were laid by the builder of a house
• These foundations were found to be inadequate to carry the load of the building
• Damage resulted because of this inadequacy
• The house was built on rubbish deposit, and the foundations should have been
deeper to withstand the pressure of the settling.
• Building by-laws required that the building’s foundations be approved before the
construction is continued.
• The inspector failed to give a proper instruction before giving his approval
• The building company that employed this inspector was held liable by the buyer
of the house for this inspector’s negligence
• The inspector was also responsible for negligence, for he failed to perform his job
properly

• Employees are also potentially liable for tort (as mentioned above)

1974 BC Case – Northwestern Mutual Insurance Co. vs. J.T. O’Bryan & Co.
• Northwestern asked its agent to remove a certain risk from its insurance policy
• This practice is standard in the insurance industry
• The employee of the agency negligently assured to Northwestern that the policy
was deleted
• The company relied on this assurance made by the employee
• Later on, Northwestern was required to pay compensation for this risk.
• With respect to Hedley Byrne, both the employee and the agency were negligent
and were liable.
• The employee owed a duty of care to the insurance company and was personally
liable
• Even though vicarious tort does exist here, the employee can be liable
• To protect employee engineers, a corporation providing engineering services
should make sure that professional liability insurance covers both the corporation
and its employees

Concurrent Tortfeasors:
• It’s possible that more than one party can be liable in tort
• Everyone involved are called concurrent tortfeasors
1979 BC Case – Corporation of District of Surrey vs. Carrol-Hatch et al.
• Architect designed a new police station for the owner
• The architect hired a firm of engineers to perform structural design services
• The building eventually underwent a lot of structural changes because of
settlement problems with the land it was being built on
• These problems could have been avoided if soil tests were performed first
• When doing preliminary tests and examining two shallow test pits, the engineers
had recommended to the architect that more deep soils tests had to be taken
• The architect rejected the recommendation
• The engineers went ahead and submitted a soils report with only the preliminary
tests only, and not the deep soils tests
• Both the architect and the engineers were liable to the owner
• 60% for the architect and 40% for the engineer
• They both breached their duty to warn the owner that additional soils tests need to
be taken

Products Liability:
• When the plaintiff can establish that damage has clearly resulted from using their
product appropriately, the defendant manufacturer can be liable
• In rebuttal, the defendant manufacturer must show the court that at the state of
society’s technological standpoint at the time, the manufacturer was not able to
foresee the defective nature of the goods manufactured
• Awareness of products liability is important for engineers who are engaged in
manufacturing or sales
• See the Donoghue vs. Stevenson case (ginger beer)

Standard of Care and Duty to Warn:

• For some products, there may be a risk of injury.
• A manufacturer must warn the consumer of any dangerous potential of the
product with appropriate labelling

1976 Alberta Case – George Ho Lem vs. Barotto Sports Ltd. and Ponsness-Warren Inc.
• Plaintiff was an experienced hunter
• Purchased a shot-shell reloading machine that wasn’t defective at all
• If it was operated in accordance with its clear instructions, the machine wouldn’t
do any harm, and would make only normal shot-shells
• The plaintiff also received personal instruction on how to use the machine, but did
not follow these instructions, and did not follow the instruction manual
• He used the machine the wrong way, and mismanufactured some shot-shells.
• When he used them, his gun burst on firing, and it injured the plaintiff
• The machine was manufactured by one defendant, and sold to the plaintiff by the
other defendant
• The plaintiff claimed that the defendants had breached their duty of care by not
adequately warning the plaintiff of the possibility of mismanufacturing shot-shells
 • The court said that he was given adequate instructions for using the machine and
did not follow these instructions
• The plaintiff lost his case

1971 Canada case – Lambert vs. Lastoplex Chemicals Co. Limited et al.
• Plaintiff was a consulting engineer and was a mechnical engineering graduate
• Him and his wife owned a home and the plaintiff was doing some repairs
• He bought two one-gallon cans of fast-drying lacquer sealer manufactured by one
of the defendants
• The plaintiff wanted to use this sealer to seal a parquet floor
• This floor was to serve as the flooring for his recreation room at home
• This room was located in the basement of the house,
• This room was separated from the furnace and utility room by a plywood wall and
fireplace
• There was a door opening, but no door at the north end between the two rooms
• In the furnace and utility room, there was a natural-gas furnace and natural-gas
water heater
• Both of these had pilot lights
• The cans of lacquer sealer had caution notices on their labels
• The plaintiff read the notices, and then started to use the lacquer sealer
• However, during the use of this sealer, one or both of the pilot lights in the
furnace and utility room came into contact with the lacquer sealer fumes
• There was an explosion and damage when the fire reached one of the half-full
cans of lacquer sealer, and this can was open
• The labels on the containers had three separate warnings stating that the product
was inflammable
• These warnings were viewed as inadequate when viewed by the court
• As a reference, warnings from a competitor that manufactured lacquer sealer,
stating that any furnaces, pilot lights, or open flames and spark producing devices
must be eliminated in or near the working area
• The defendant failed to state this on their warning label, and the court found in
favour of the plaintiff
• The defendant failed to warn a reasonable user that using the product near pilot
lights is very dangerous

Economic Loss:
• Economic losses can potentially occur if expert advice is negligently given
• In products-liability matters, it is very unlikely to compensate individuals for
negligence when physical injury does not exist
• An exception of this statement comes from the following case:

1973 Canada Case – Rivtow Marine Ltd. vs. Washington Iron Works et al.
• Court decided that economic loss caused by using a defective product can be
recoverable
• Plaintiff chartered a logging barge
 • This barge was fitted with a crane that was manufactured by one defendant,
Washington Iron Works
• This crane was distributed in Canada by another defendant
• Washington Iron Works had also manufactured a second crane, and was virtually
identical to the one on the logging barge that was chartered by the defendant
• This second crane was installed on a similar barge, but tehn collapsed
• The crane operator was killed
• Very serious structural defects were found in the crane chartered by the plaintiff
• These defects were similar to those that were later found to caused the death of
the crane operator
• The defendants were aware for some time that the cranes were subject to
cracking, because the design was negligent
• It was established in the court that the defendants were negligent and should have
taken necessary steps to wan the plaintiff of the potential danger and repair of the
crane
• The defendants breached their duty of care to warn the plaintiff
• As such, the manufacturers were liable to the plaintiff in negligence for the
economic loss because of their failure to warn
• In other words, since the crane is now undergoing repairs, the defendants are
liable for the economic loss that results in that crane not being in service

1977 BC case – MacMillian Bloedel Ltd. vs. Foundation Co.

• The defendant’s worker negligently damaged an electric cable that supplied
electricity to the office building of the defendant
• This damage interrupted the supply of electricity to the building
• As a result, the plaintiff was unable to continue its operations, and the employees
were sent home for the day
• The plaintiff sought to recover the amount of salaries and wages paid to the staff
due to this loss of time in work
• The court concluded that the defendant should have foreseen this economic harm
that was done on the plaintiff
• The court said that if economic loss was suffered by the plaintiff because the
defendant was negligent, this loss would be compensated
• However, the court was not satisfied that the salaries of the employees’ should be
compensated, which was a direct result of the defendant’s negligence. There
could have been other ways to get back on its feet
• Also there was no previous record of economic loss solely due to negeligence, so
the plaintiff’s action was dismissed
• The court said that it was willing to award damages for economic loss, only if
there was proof that such loss did exist due to negligence

1977 Federal Court case – Bethlehem Steel Corporation vs. St. Lawrence Seaway
Authority
• Limitations on when the compensation of economic loss can be awarded have
been put in place.
 • Court stated that when there has been no damage to a person or property, and the
person claiming this damage might have some slight interest, the right to claim for
pure economic loss is very limited
• Ship ran into a lift bridge over a canal
• The ship destroyed the bridge, and blocked the canal
• Shipping through the canal was delayed for several days due to this blockage
• Court found that the owner of the ship that struck the bridge was liable
• When the time came to distribute the funds to compensate the plaintiff, the
validity of two particular claims became an issue.
• One of the claimants asked for the loss of profits for two of its ships. These ships
were delayed for about two weeks due to the blockage
• The other claimant asked for the cost of shipping certain cargo to Toronto
• This cargo was supposed to be unloaded in Toronto, and then shipped to Europe
• Neither claim was allowed
• With respect to Rivtow Marine, the Rivtow Marine case only allowed
compensation due to economic loss because there was physical harm to the
property of the claimant
• There was no such harm or threat of harm to these claimants, so the claim of
purely economic loss was denied.

1982 English House of Lords Case – Junior Books Ltd. vs. Veitchi Co. Ltd.
• This case was an exception and extended economic loss to a negligent
subcontractor
• A floor was negligently laid and was defective
• This floor, however, did not cause danger to health or safety of any person, and
did not risk damage to any other property that belonged to the owner
• The House of Lords pointed out that the defendant subcontractor was a specialist
and his skill and knowledge was relied on.
• There was no contract established between the owner and the subcontractor
• The House of Lords noted that the relationship was slightly short of an actual
direct contractual relationship
• Damage caused to the owner was a direct and foreseeable result of the
subcontractor’s negligence in laying the defective floor
• The subcontractors were in breach of duty of care owed to the reasonable care
• Subcontractor was held liable for the consequences of the breach, including the
costs of replacing the floor, storage of books during the carrying out of this fixing
up, and removal of machinery to make this renewal work possible
• Lost profits due to business disturbance lost wages and overhead costs were also
paid out to the plaintiff.

1990 Canada Case – CNR Co. vs. Norsk Pacific Steamship Co.
• Log barge (tugboat) had negligently collided with a bridge owned by Public
Works Canada
• This bridge was used by CNR to cross the Fraser River
 • Court claimed that there was sufficient “proximity” between the plaintiff and the
defendants to justify liability.
• Even though the bridge was owned by Public Works Canada, the tracks to and
from the bridge were owned by CNR.
• Court said that the captain of the tugboat should have seen the economic loss that
would result from this damage
• CNR would have to reourte traffic during repairs
• CNR was closely linked to Public Works Canada that the damage caused to their
bridge would also cause harm to CNR
• Given this “sufficient proximity”, CNR was allowed to recover from its economic
loss
• Economic loss is recoverable, as proven by the Winnepeg Condomium case for
physical damage was performed

Other Relevant Torts:

• There are many different classifications of torts. Some of these torts are relevant
to engineers, and these include:
o Tort of defamation, further divided into libel and slander
• This means that the reputation of the plaintiff is damaged by untrue statements
made by the defendant
• Libel means that it’s written
• Slander means that it’s verbally said
• If statements that damage a reputation are actually true, no liability arises
• There is also occupiers’ liability
o The occupier of a property must exercise the required standard of care to
ensure that individuals’ safety is ensured when they are on that property.
• Duty of care interestingly extends to trespassers, but they are not treated the same
way as are those for business reasons or as guests
• Guests must be safeguarded against the dangers the occupier is aware of
• Higher duty is owed to those who come onto the property with business reasons
• Occupier is under an obligation not to deliberately harm a trespasser
• There is also the tort of nuisance
o Basically this means that the land of the plaintiff should be enjoyed with
comfortableness
o 1972 BC Supreme Court decided that Newman et al. vs. Conair Aviation
Ltd. et al. where the defendant, who was the aviation company, sprayed
insecticide and it drifted onto Newman’s lands. Damages were awarded.
o 1974 et al. vs. Drury Construction Co. Ltd. Ontario case decided with
with the plaintiff. Blasting operations by a contractor resulted in cracks
opening up in the granite bedrock. These cracks allowed material in a
barnyard to escape into the waters feeding the plaintiff’s well. Contractor
was liable
Law Section – Chapter 5 – Limitation Periods
• Statutes have been set up so that tort actions and actions due to breach of contract
must start within a certain time limit after the tort, or harm, or damage, took
place. These are called limitation periods
• This action can take place anytime within this time limit
• If this action takes place after this time limit, no tort compensation can be
claimed. This action is called “statute barred” if you do this.
• For tort actions in Ontario, it’s generally six years from the time the cause of
action arose
• When you’re dealing with contracts, unless the contract specifies the time limit,
it’s generally six years, but can be extended to 20 years where the contract is
signed under seal
• There are other statutes that talk about other limitations
• Section 46 of the Professional Engineers Act of Ontario says that if an action is
done against a member, licensee or holder of a certificate of authorization for
damanges done when this person performed his or her engineering services, this
tort action must be done within 12 months after the services were provided
• The court can extend the time limit if it’s within reasonble grounds

1980 Ontario Case – Attorney General of Canada vs. Libling et al.

• The court had to consider all of the details of the case
• The case was filed too late.
• The defendant engineers said another engineer was responsible for some roof-
design problems
• There were attempts to correct this roof problem.
• This other engineer who is to blame said that he was not told of the problem for
almost 11 years
• He also had no records of the design
• As such, because of this, they did not extend the limitation period

• In any case, the professional engineers act allows the extension of the limitation
period, only when the circumstances are appropriate
• This act actually does not use “from the time the cause of action arose”. They use
“the time when the services were performed”
• The time when the cause of action arose might not be when the contractor
performs the work… it could be many years later when deficiencies due to the
contractor result
• This claim could also be made by someone who did not even have a contractual
agreement with the original contractor, say, the next buyer of a house originally
bought by someone who had a contract with the original contractor
• As such, the liability of the contractor can potentially be extended for a long time
 • When both the engineer and contractor are responsible for any deficiencies, a
court might extend the limitation period against the engineering pursuant to the
PE act of Ontario
• This matter of extended limitation periods is a matter of controversy against
professionals engaged in the construction industry
• English courts have decided that the limitation period should start only when the
damage is apparent, and when the plaintiff first discovers it, or should have with
reasonable diligence.
• So the plaintiff can’t just ignore it for a period of time, then claim a tort.

1976 English case – Sparham Souter et al. vs. Town & Country Developments (Essex)
Ltd. et al.
• Case involved negligence with the construction of a building
• They said that action against the plaintiff due to negligence must be performed
once the damage has been detected, not before
• It’s either that, or he or she could have detected it by reasonable skill or diligence
(so someone can’t just leave the damage there once it’s been done, then sue later)

1976 Ontario case – Dominion Chain Ltd.

• Roof failure was caused by negligent construction actions by the contractor
• Roof failure was also caused by negligent performance of the engineering firm
hired by the contractor
• The decision made by this case departed from what was previously done in
Canadian courts, where the limitation period starting right when the services were
done
• The decision made by this case said that it was siding with the English courts
definition, where the limitation period can be extended, and action against the
plaintiff should be done when the damage has been detected, not when the
services are complete
• As such, the defendant can be liable for services performed more than six years
before the defect is discovered

1981 Ontario Case – Robert Simpson Co. Ltd. vs. Foundation Co.
• This case rejected the English courts definition
• Case involved accused negligence in design, manufacturing and installing of
certain ceiling anchors
• Case also involved negligent statements where the defendants assured the plaintiff
that the materials and method of construction was adequate
• As such, a reasonable person should have seen that these materials and the
method of construction was inadequate
• Therefore, the damage was performed when the anchors were installed, and the
limitation period stood at six years
• However, this decision was reversed when it was appealed in the Ontario High
Court, siding with the English courts definition
1981 Ontario Case – Viscount Machine and Tool Ltd. vs. Clarke
• This case also sided with the English courts definition
• The six-year limitation period during which a tort action should commence not
when the act was done, but when the damage is discovered
• This was more than six years after the service had been negligently performed
• However, there was a decision made in the English House of Lords Decision a
year later, and it complicated this case

1982 House of Lords Case – Pirelli General Cable Works Ltd. vs. Oscar Faber and
Partners
• This case overruled the decision made in the Sparham-Souter case, where damage
occurs not when the damage could be detected with someone of reasonable skill
and diligence, but whenever it starts
• This case involved the construction of a chimney about 160 ft. high
• Chimney was made of precast concrete
• The concrete used for the refractory inner lining was partly made of a relatively
new material, called Lytag
• This material was unsuitable for constructing this chimney
• Cracks developed, and eventually, the chimney had to be taken down and
replaced
• The court said it was hard to figure out when the damage actually occurred
• Court said that new legistlation is desireable to remedy this subject
• They overruled the Sparham-Souter decision
• The Sparham-Souter decision, in this court, said that this would be unfair to the
defendant.
• This could lead to an investigation of facts many years after their occurrence

1984 Ontario Case – City of Kamloops vs. Nielsen et al.

• This case did not encorporate the Pirelli precedent in this case
• Court confirmed that the plaintiff was able to retrieve damages from the defendant
• The inspector, one of the defendants, on the construction of a house that was to be
bought by a purchaser failed to enforce a stop-work order during consturction
• Inspector had issued a stop-work order because the foundations had not been
constructed in accordance with the approved plans
• At this time, the owner of the house, another defendant, did not comply with the
stop-work order
• The construction was completed without the stop-work order
• After the house was finished, the foundations subsided
• No occupancy permit was issued, but a plumbing permit was issued about 8
months after the stop-work order was issued (which didn’t go through)
• About 2 years after the house was finished, it was sold to the plaintiff
• Plaintiff discovered that the foundations had subsided
• Judge found the owner is 75% liable, and the municipality is 25% liable
• The 25% is due to economic loss to the plaintiff, which was the cost of
reconstruction plus ancillary expenses
 • As such, limitation periods can vary significantly, depending on the nature of any
claim or lawsuit
• This also depends on who is being accused of tort
• Legal counsel should be sought if there is any doubt
• Traditional approach for our courts is to determine which breach of contract
action applies
o 6 years for simple contracts
o 20 years for contracts under seal, unless there’s another limitation period
specified in this kind of contract

• This “traditional” approach of our courts was eroded by the following case

1985 Ontario Case – Consumers Glass vs. Foundation Co. of Canada

• For cases based on breach of duty of care, either in contract or tort, if the
limitation period is not specified in the contract, it doesn’t begin until the plaintiff
discovers the damage, or should have discovered it if he had a reasonable state of
mind and diligence
• This case actually uses the “discoverability” concept arising from tort cases to
contract cases, because duty of care is involved, which is a tort issue
• This case involved both the design and construction obligations that relate to a
warehouse in 1963
• This roof then collapsed in 1981
• There wasn’t anything in the contract that described anything with limitation
periods (actually, no contract was issued for this)
• The defendants said that the relevant limiation period in this contract had already
expired, and that the action was statute barred
• However, this roof fell, and this is a tort issue
• The plaintiff had the right to both sue concurrently in both tort and in contract
• Because of this, the discoverability concept was endorsed, even if contractual
relationships existed

Supplementary information – Limitations Act of 2002:

• Basic two-year limitation period: Basic limitation period runs from two years
from the date the claim is discovered, whether in tort or contract
• Ultimate 15-year period: Limitation period of 15 years starting from the date that
the act or omission of the claim took place (so not the discoverability concept!)
o As such, there could be claims that are not barred under the basic
limitation period, but are barred by this ultimate period
• No contracting out: New act says that these new limitation periods apply, even if
there are contracts that exist that say otherwise.
o However, Access to Justice Act, 2006 says that contracts made after
October 16, 2006, they can change the limitation periods set out in the act
just described
o As such, they can change the basic two-year limitation period, or change
and suspend the ultimate 15-year period
 Law Section – Chapter 6 – Proof
The Burden of Proof:
• In court proceedings, like actions of tort or contract, the plaintiff must generally
prove the case against the defendant
• The plaintiff must persuade the court on a “balance of probabilities” that the facts
are as what the plaintiff states they are, and that the defendant should be held
liable
• In certain criminal proceedings, the accused person must be proven guilty beyond
“a reasonble doubt”
• A court may be faced with conflicting testimony from witnesses
• The court must decide which of the witnesses is more credible

Engineers as Expert Witnesses:

• Engineers are often asked to appear in court as expert witnesses
• Engineer often plays a vital and persuasive role
• Expert is allowed to express opinions with respect to their area of expertise
• The witness must restrict his opinion in this area, and is not usually allowed to
express opinion otherwise
• Expert witness is either with the plaintiff or defendant
• Expert witnesses are subject to cross-examination from the other side
• Preparation is important here, and the expert witness should understand the issues
in the lawsuit
• He or she should be aware of the scope of questions that could be reasonably
asked
 Law Section – Chapter 7 – Contracts
• It’s important for an engineer to understand the essential elements of a contract
• For a contract to be binding and enforceable, five things should be present:
o An offer is made and accepted
o Mutual intent must be present to enter into the contract
o Consideration must be present
o The capacity to make this contract must be present
o A lawful purpose must be present

• Within these five things, and with respect to the contract rules that courts have
deevloped, parties choose terms and conditions to define the nature of this
agreement between them
• Contracts consist of benefits and obligations between the parties involved
• Agreements are established by choice, or through negotiation
• The law will enforce things in a valid contract
• The law will not be enforced to impose contract terms more favourable than those
created between the parties
• Parties can always alter an existing clause in the contract by mutual agreement,
only if the this amendment is within the bounds of the five things

Assignment of Rights:
• Benefits in a contract can be assigned to a third party by one of the contracting
parties in the contract, without the consent of the other party
• If contracting parties wish to limit such assignment rights, they should say this in
the contract.
• That is, written consent should be sought before such assignments are done.
 Law Section – Chapter 8 – Offer and
Acceptance
• Offer: Promise made by one person, to another
• Person who made the promise is the offeror
• Person who receives the promise is the offeree
• These kinds of offers may involve promises to supply certain goods or services on
certain terms
• Not all contracts must be in writing. Offers may be communicated verbally
• However, just to be on the safe side, and for evidence, these offers should be
made in writing
• Until offers are accepted, they can be withdrawn by the offeror, unless it says in
the offer that it will not be withdrawn
• The offer is “on the table” for a period of time. After this time, the offer is
withdrawn
• If the offeree doesn’t accept all of the terms in the offer, and wants to change
some of the things in the offer in order to accept it, no contract is formed
• This is actually a counter-offer, made by the offeree, thus making that person the
offeror
• Acceptance of an offer must be clearly said
• Business offers are made subject to very specific terms
o Example: A business might offer to supply a specified machine at a set
price
o This offer might contain a statement where acceptance of the offer can be
made during a limited time period (a proviso)
o This offer might also say that acceptance must be communicated in
accordance with the terms of the price

Irrevocable Offers:
• An offeree might want to be sure that an offer is not withdrawn by the offeror
before the offeree can accept it
• This is called an irrevocable offer. This means that an offer is made for a period
of time and cannot be retracted during this time.
• This kind of situation normally occurs in the tendering (offering) process, for
example
• Upon instructors from the owner, bidders submit offers (or tenders) that have
been made irrevocable for a specific period of time
• In any point in this period, the offer may be accepted, and a contract will be
formed
• Contract consideration is necessary. This means that irrevocable offers are
submitted under seal, for these offers to be binding

The Option Contract:

• This is another way of keeping an offer open for a certain period of time
 • The right to accept an offer is kept, until the offeree decides whether or not to
accept or reject
• As such, the offeror is not allowed to revoke the offer
• The Option Contract says that something of value must be provided at the time of
entering into this agreement, in order to make this kind of contract enforceable
• This can be an advantage in many business situations
• Person might want to buy a particular business, but may not be willing to make a
firm offer until reviewing its financial and other records
• In order to prevent the owner from selling the business until this investigation is
competed, the prospective buyer may be able to persuade the owner to enter into
an option agreement
• For an agreed price (usually substantially less than the total price of the business),
the owner is obligated to only sell to the buyer for a certain period of time
• The owner can only sell with respect to the terms specified in the option
agreement
• This specific time limit is mentioned in the option agreement.
• If a decision is not reached by the time this limit expires, the option agreement
expires

Manner of communications:
• Timing:
o Acceptance an offer:
▪ Law has developed general “rules” to specify when
communications are effective
▪ Many different ways to communicate
▪ Mail could be used as a way to communicate. An acceptance is in
effect when the mail is posted. Whoever is the earliest gets the
offer
o Revoking an offer:
▪ General rule is that cancelling an offer is not effective until the
offeree receives such notification
▪ Complications can arise… let’s say an offeror might decide to
revoke their offer
▪ The revocation is made through mail, but the letter takes a few
days to reach the offeree
▪ In the meantime, the offeree has written that they accept, but hasn’t
received this mail
▪ In this case, the acceptance is valid
▪ Therefore, in order to revoke an offer, you should do it as quickly
as possible, by telephone for example
• Governing Law:
o Also a rule that relates to the determining of which laws applies to a
contract
o General rule is that the law of where the acceptance of the offer has taken
place is the one that applies, unless otherwise stated
 o Example: Equipment supplier located in Ontario has provided a quote by
mail to a customer located in New York
o Equipment seller should say in the quotation that any contract resulting in
accepting this offer will be governed by Ontario.
o Supplier will thus avoid saying that the law of New York applies to the
contract

1983 Nova Scotia Case – The Queen et al. vs. Commercial Credit Corp. Ltd.
• Decision confirms that the rule says that acceptance is effective when the
acceptance has been mailed
• Confirms that the rule also applies where acceptance is made by courier
• Offer of conditional sales was prepared by the defendant, and was acting as an
agent for the parties to the contract
• Parties to the contract were located in Nova Scotia
• Offer was sent by courier to the offeree, and the offeree was located outside Nova
Scotia
• Acceptance was made by courier
• As such, the acceptance was made outside of Nova Scotia, and therefore, the laws
of Nova Scotia did not apply

The Battle of the Forms:

• An equipment seller usually attaches to its quotes, certain terms and conditions
apply that will determine the selling of the product
• These terms and conditions may describe warranty rights, terms of payment,
governing law, etc.
• The offeree usually does not accept the offer, but wants to modify the terms,
which is thus a counter-offer
• Engineers should be careful in that the acceptance of an offer, or counter-offer,
aren’t made without a clear understanding of the terms and conditions mentioned
in the offer
• As a rule, terms and conditions mentioned in an accepted counter-offer will be of
precedence, except when the person is examining the counter-offer doesn’t like
some of the terms and conditions
 Law Section – Chapter 9 – Intent
Mutual Intent:
• The engineer should make sure that any contract specifies the agreement between
the parties on all essential terms

Letters of Intent:
• Letters of intent in business is very common practice
• Businesses use the letter to express interest with proceeding with a particular
transaction
• This is usually on the basis of further negotiation, or subsequent agreement
• Sometimes, these letters are clearly agreements to agree.
• These agreements to agree do not constitute enforceable contracts
• The courts will not enfoce this agreement, and it’s not an agreement at all

1976 Ontario Case – Bahamaconsult Ltd. vs. Kellogg Salada Canada Ltd.
• There were omissions in a letter of intent relating to the sale of the shares of a
company
• Parties wanted to draw a further agreement, but the letter of intent was only used
to spell out the mechanics of the transfer of shares, and of closing the sale
• The document did not contain essential terms
• The parties were not able to agree upon these terms in this subsequent agreement,
there was no enforceable contract
• The court noted that both parties had referred to the document as a letter of intent
• Essential terms were missing: These terms could only be agreed on by further
negotiation of the parties

• A letter of intent that doesn’t contain all essential terms is not an enforceable
contract
• Letters of intent, however, serve a useful purpose
• These may establish terms for negotiation, and it can create some moral
obligation between the parties to continue to negotiate in good faith
• To the inexperienced, the letter of intent can present considerable difficulties
• A letter of intent could constitute an agreement, if it has more detail
• Engineers should be cautious when presented with letters of intent
• They should consult lawyers if in doubt as to the true nature of the letter
• Drafting of contracts should be left to lawyers
• Engineer can greately simplify the contract prepartion process by listing
negotiated business terms with the other parties
• It’s good to seek legal advice when negotiating significant terms when drafting
contracts
 Law Section – Chapter 10 - Consideration
• Consideration is an essential part of an enforceable contract
• Consideration is the cause, motive, price, or impelling influence that motivates a
party to enter a contract
• Consideration can be described as exchanging something of value between parties
in a contract
• A promise made by an engineer to design a structure in exchange for payment is
an example of consideration
• As such, each party in a contract promises something to the other party
• Payment of money isn’t essential: Consideration can also consist of an exchange
of promises, and each promise is something of value
• Courts aren’t normally concerned with consideration, except in particular
circumstances
• Example: If the contract was entered in conditions with undue influence, duress
or fraud, the courts will provide relief
• If consideration isn’t present in the form of promises or something of value, no
contract is formed unless the contract is sealed
• Two kinds of seals:
o Mechanical device that imprints seals on paper
o Small red adhesive wafer
• This is recognized as a substitute for consideration
• Seal meant that it’s a clear indiciation that the promisor intends to be bound by
their promise
• This means that if there’s a seal affixed, there’s a promise that the things said in a
contract will be enforced
• You can use this, or you can do exchanging of things of value
• Seal use is important in tendering procedures
• Tenders submitted by bidding contractors are irrevocable for a specific period of
time
• Such an offer withou consideration, or a seal, is said to be gratuitous and not
legally binding
• Offeror may revoke the offer at any time before its acceptance
• If the offeror promises to hold an offer open for a specified period of time,
separate consideration is required for this promise of the offer not being revoked
to be binding
• This consideration is usually achieved with a seal

Equitable Estoppel:
• What if a party makes a gratuitous promise, or a promise without consideration?
• Should they be entitled to escape the contract’s moral obligations?
• These obligations are strictly on a moral basis, and aren’t legally binding, but it
can still raise questions
1963 Canada Case - Conwest Exploration Co. Ltd. et al. vs. Letain
• Option agreement was in place relating to certain mining claims owned by the
person who created the agreement (optionor)
• This option agreement had a time limit
• The optionee had to take some steps by a due date to be entitled of the option of
acquiring the mining claims due to this agreement
• Before the agreement’s expiry, the optionor became aware that the optionee could
not be able to fulfill his obligations by the expiry date
• Optionor implied that the due date was actually extended
• This promise, however, was not accompanied by consideration, and was not
strictly binding
• After that, the optionor went back on his word and insisted that the original expiry
date must apply.
• The Supreme Court of Canada said that it’s inequitable if the optionor were to
enforce the original expiry date
• Optionor is therefore estopped from reverting back to the original date

• For contract law, consideration (or a seal) must be present to make an amendment
to a contract enforceable
• Otherwise, this amendment is simply a gratuitous promise
• The above case is an example where if the terms of a contract were amended
without consideration, there may be relief to the party that relies on this promise.
• This relief may be provided and is called “promissory” or “equitable
estoppel”.
• Court will only apply this concept to avoid an obviously inequitable result

1968 Canada Case – John Burrows Ltd. vs. Subsurface Surveys Ltd. et al.
• Plaintiff wanted to enforce the terms of a promissory note
• Payment was to be made of $42,000 over 9 years and 10 months, payable the first
of every month untl it’s done
• It also said that the payer can change the principal owed for the particular month
within 30 days notice
• If after 10 days that one installment was due and the payment didn’t come, the full
amount would be owed
• Even though payments were paid late, the holder of the note didn’t enforce all of
the terms
• 11 payments were made more than 10 days after they were due
• Parties eventually had a falling out
• When one of the payments was 36 days overdue, the holder decided to insist on
the default clause and request the total amount of what was left of the note, and
the falling out was probably the reason why the plaintiff called the default clause
• The defendant decided that the plaintiff should be equitably estopped from
enforcing this clause
• They argued that the holder of the note was contradicting the agreement between
the two parties
 • The default clause had not been enforced several times (as mentioned above)
• The defendants protested and did not want the plaintiff to be entitled to the full
amount, and should be equitably estopped.
• The plaintiff accepted these payments without any protest and without invoking
the default clause.
• Because of this acceptance, he should not be entitled to the default clause,
because he didn’t enforce it when he should have
• Court said that equitable estoppel here can’t be invoked, unless there’s some
evidence that one of the parties entered into negotiations and tried to lead the
other party to think that the contract wouldn’t be enforced.
• The evidence here says that it doesn’t show that the plaintiff entered into any
negotiations with the defendants, and lead them to think that the plaintiff had
agreed to disregard that part of the contract.
• Court allowed the plaintiff to honour the note

1979 Ontario Case – Owen Sound Public Library Board vs. Mial Developments Ltd. et
al.
• Breach of contract happened
• A construction contract was created, and payments to the architect (hired by the
contractor) were to be made by the owner 5 days after an architect’s certificate
has been presented
• If the owner fails to pay the the sum to the contractor within 7 days, the contract
created would be terminated between the contractor and owner.
• The architect said that payment was due
• After, the parties agreed upon certain action, and the owner assumed that the due
date of payment was extended
• Instead of making a payment, the owner requested the contractor to have a
corporate seal of one of its subcontractors to the document
• This seal was to support the architect’s certificate
• Contractor went to get this seal
• Payment date passed, but the contractor didn’t obtain the corporate seal
• Contractor wanted to terminate the contractor because payment was overdue
• Court of Appeal concluded that the contractor’s conduct to get the corporate seal
had led the owner to believe that the time limit was extended untilt he
subcontractor’s seal had been affixed to the document
• Court held that the owner’s assumption was reasonable
• Contractor was therefore estopped from invoking the termination rights to the
contract
• Contractor was attempting to take advantage of the owner’s contractual default,
but the default had been induced by the contractor’s conduct.

• If an engineer forgoes any particular contractual rights, the engineer may be faced
with the argument that the engineer should be estopped from reverting to those
rights that he or she waived
• The success of this argument will depend on the circumstances of each case
 Law Section – Chapter 11 - Capacity
Minors:
• In order for a contract to be enforceable and binding, all parties have to be capable
in their own mind to enter into a contract
• Under the common law, not everyone has this capability or “necessary capacity”.
• A contract with a minor is enforceable by the minor, and not of another party,
unless it can be seen that the contract concerned of something that was necessary
for the minor (food, clothing, shelter, etc.), or if it is approved by the minor
• Age of Majority is 18 in Ontario, Manitoba, Saskatchewan, Alberta and PEI
• Age of Majority is 19 in Nova Scotia, New Brunswick and Newfoundland
• Age of Majority is 19 in BC, but the Infants Act of the province prevnts the
ratification or approval of a contract made by a minor
• This means that a contract made by a minor will generally be unenforceable, even
if the minor approves the contract after they have reached the age of majority.

Drunks and Lunatics:

• Contracts entered into by lunatics or drunks are enforceable by the lunatic or
drunkard, and not enforceable by the other party on two conditions.
• Other party of the contract had to be aware of the state of drunkeness or insanity
• Incapacitated party must refuse (repudiate) the contract within a reasonable period
of time
• Anyone who claims to have signed a contract under this state will obviously have
had some difficulties
• It may be emphasized that the person was drunk when entering the contract
• It must be shown that the other party appreciated that the individual was drunk

Corporations:
• The engineer must make sure that it is within the powers of the corporation who
made the contract to carry out what is stated in the contract
• If this is clearly beyond the power of the corporation to enter into the contract, the
contract isn’t enforceable.
• The statutes used to create corporations state that the contract drawn up must be
within the powers of the corporation
• During negotiations, it should be stated on the contract that the corporation has
the power to the terms and conditions in the contract and has the necessary
capacity to do so, and can be liable if they don’t live up to the contract
• Reliance upon representatives of a corporation is appropriate in business dealings

1856 English case - Royal British Bank vs. Turquand

• Corporation is bound by the acts of its officials, given that these acts are within
the actual, usual, or apparent scope of the officials’ authority.
• The party dealing with the corporation also has no knowledge of the contrary and
there are no suspicious circumstances or prohibitions in the corporation’s public
documents
• If there’s doubt about the authority of an official acting on behalf of the
corporation, inquiries should be made, including a review of the corporation’s
public file
• This file includes all of the charter documents and listing of its directors and
officers
• This document is kept by the appropriate government department of each
corporation.
 Law Section – Chapter 12 – Legality
Contrary to Statute Law:
• Contract will not be enforced if the contract’s purpose is against the law
• If it’s contrary to any statute, it’s considered illegal and void
• Many examples that are contrary to statutory law:
o If contract is contrary to provisions of the Bankruptcy Act of Canada
• Ex: If someone is transferring property to another party, and this
person becomes bankrupt within a year before it’s transferred, the
transfer is void
• Also, if within 3 months before bankruptcy where a party transfers
property to a creditor where the person is given this creditor
preference over other creditors, this is also void.
o If a contract is contrary to the provincial workers’ compensation
legislation, it’s void
o If a contract is contrary to the provisions of the Competition Act of
Canada
• Ex: Contract might involve bid-rigging
o Contract provides for a waiver of lien rights
o Contract for services where the part to perform services is required to be
licensed following a statute, or by-law
• What this is meant by this is that failure to have a license to
perform services will mean that they do not have the right to
perform these services, but this can vary

Case for last example – 1958 Ontario Court of Appeal – Kocotis vs. D’Angelo
• Electrician (plaintiff) is claiming payment for work done and material supplied.
• Electrician was not properly licensed as an electrical contractor pursuant to local
law
• The court decided that the contract work was illegal, because the by-law states
that only licensed electricians can perform this kind of work
• Electrician’s claim was denied

1974 Ontario case – Construction Inc. vs. Lepofsky

• Case involved unlicensed building contractor
• As such, the contract was illegal and unenforceable

1979 Ontario case – Monticchio vs. Torcema Construction Ltd.

• Case represented a departure from the precedents
• Plaintiff was a drain contractor and wanted payment for his services
• Plaintiff was not a licensed drain contractor, and the contract had the potential of
being illegal
 • However, court said that this was not a complete defense in the contractor’s claim
for payment
• By-law required that only the contractor be licensed
• It didn’t prohibit the sale of material, so the court figured that the contractor ought
to be paid at least for the material
• Judgment also claimed that a claim for payment for services on a time basis might
succeed, even if the contract were void

Contrary to Common Law:

• A contract that violates laws from statutes is contrary to statute law
• A contract that violates law against public policy is contrary to common law
• Contracts may contain clauses that are against public policy
• Example: Contract that contains restrictive clauses against trade
• Court assumes that initially, any agreement against trading is against public
policy, and is void
• However, if a party would like to enforce such an a restrictive clause is able to
overcome the court’s initial presumption
• The party in question must prove to the courts that the restrictive clause is, in fact,
reasonable and doesn’t adversely affect public interest
• Example: Contract for buying a business
• Purchaser may want the seller to make a clause not to compete with another
purchaser in another smaller business in a specified area, over a specified a period
of time.
• This kind of agreement is called a “non-competition” agreement
• Person who wants this kind of agreement has to persuade the courts that this is a
reasonable agreement between the parties and public interest would not be
adversely affected
• Reasonable can depend on the geographical area and in terms of what time period
the contract is established
• If the court isn’t persuaded that the terms are reasonable, the restrictive clause will
not be enforced
• Engineers often encounter restrictive clauses in employment contracts
• These contracts may attempt to restrict the employee after leaving employment
• Courts will apply reasonableness and public policy to figure out whether non-
competition clauses in employment contracts are reasonable
• Courts are very reluctant to enforce restrictive clauses that would limit the former
employee’s ability to earn a living, but this will depend on the particular
circumstances
Law Section – Chapter 13 – The Statute of Frauds
• Contracts can be verbal or written
• Written contracts can be created through correspondence
• A contract can also be created in part by correspondence, and part by discussions
between the parties
• Agreement between parties is best done by a single written contract that clearly
lays out the details
• This agreement may be essential in order for a contract to be enforceable
• Statute of Frauds (of the various common-law provinces) says that certain
types of contracts must be in writing in order for them to be enforceable
• Various contracts are referred to in the Statute of Frauds. Those most likely
relevant to an engineer are:
o Contracts relating to interests in land
o Agreements that should not be performed within the space of a year from
the creation of the contract
o Guarantees of indebtedness
• Contracts relating to ownership or leasing of land must be written in writing to be
enforceable
• Contracts for construction of buildings should be in writing, and cannot be
performed within one year of the contract being created
• A written contract for construction is preferable over an oral contract
• Contract between an engineer and a client doesn’t have to be made with regards to
the Statute of Frauds
• Contract of guarantee should also been in writing to be enforceable
• Indemnification: Doesn’t have to be writing to be enforceable
• It’s advisable to put both guarantees and indemnifications in writing

Derivation of Statute:
• A Statute of Frauds is enforced in each of the common-law provinces in Canada
• Statute is derived from the English Statute of Frauds
• One purpose of this original statute was to address concern about property
interests
• Statute was developed to prevent property interests being lost through fraudulent
statements about oral agreements to express property interests

Unenforceable contracts not void:

• Though a verbal contract may be unenforceable because of Statute of Frauds, it
won’t be treated as void
• Courts will recognize its existence of these for certain purposes
 • Example: If someone doesn’t honour a verbal agreement to pass over property.
Courts will not permit these people to retain the deposit cheque
• Verbal agreement will be recognized so that the deposit is recovered from the
party who gave it

Desirability of Written Form:

• Obvious problem with a verbal agreement: Difficult to accurately describe the
terms of the contract.
• This can be avoided by ensuring that all contracts are in written form
 Law Section – Chapter 14 – Misrepresentation,
Duress, and Undue Influence
Misrepresentation:
• A misrepresentation is a false statement, or a false assertion of a fact
• When misrepresentation is made to influence a party to enter into a contract, that
party in question can apply to the court to have that contract nullified
• Court will treat a contract as void at the option of the party being misled
• When a contract is nullified, or rescinded, it is cancelled, or set aside
• An innocent misrepresentation is a false statement made by a party who wasn’t
aware that it was actually false
• Fraudulent misrepresentation is described as a statement made:
o Knowingly
o Without belief in its truth
o Recklessly, careless of whether it being true or false
• Courts say that if someone makes a careless statement, he or she has no real belief
in the truth of what they say
• If a person enters a contract and is deceived by a misrepresentation, remedies are
available
• Choice of remedy depends on what kind of misrepresentation took place:
Fraudulent or innocent
• Innocent misrepresentation is remedied by rescinding the contract
• The deceived party must repudiate the contract within a reasonable length of time
• Deceived party is also generally entitled to receive compensation for damages
• Fraudulent misrepresentation is remedied by rescinding the contract, claim
compensation and can also sue for damages for deceit
• The Hedley Byrne case established potential liability for a negligent
misrepresentation or negligent misstatement.

Misrepresentations in Engineering Specifications:

• If engineering plans and specifications contain misrepresentations, contract may
be entitled to rescind the construction contract

1908 England Case - Township of McKillop vs. Pidgeon and Foley

• Defendant contractor had submitted its bid for a construction contract based on a
price estimated by an engineer
• Later, contractor discovered that more digging (excavation) had to be done than
estimated, approximately 16% more work.
• Because of the error in the specifications, the defendant terminated the contract
• After, the defendant sued for breach of contract
 • Court concluded that 16% more work was too much, and would practically
deprive the contractor of any profit out of the contract
• Judge said that contracts state that architects’ or engineers’ estimates are not
binding upon the property owner
• Errors in estimate should not entitle the contractor to any further money, and
contractors occasionally fail when attempting to sue in these cases
• However, judge said that due to the quote made by the engineer, he entered into
this contract based on this quote
• Judge said that no deceit was involved, and a mistake had arisen from an innocent
misrepresentation in the bidding documents
• Defendant contract was entitled to repudiate the contract

Duress:
• If a contract is entered into by means of intimidation, or by force, it is voidable
• This kind of intimidation is called duress
• Duress: Threatened or actual violence or imprisonment used as a means of
persuading a party to enter into a contract
• Duress must be directed at the contracting party, or a close relative
• Court can provide equitable relief

Mutual Finance Co. Ltd. Vs. John Wetton & Sons Ltd.
• Family member had forged a previous guarantee
• When attempting to get a second guarantee, disclosure of this fake guarantee
came up
• At this time, the party threatening disclosure knew that the father of the forger of
the document was in ill health
• Disclosing this information would shock the father, and it could possibly kill him
• This guarantee was held to be unenforceable

Economic Duress:
1993 British Columbia Case – Gotaverken Energy Systems Ltd. Vs. Cariboo Pulp &
Paper Co.
• Contract involved to fit a recovery boiler into a pulp mill
• Contract agreed for a price of roughly over $26M to put this boiler in place
• This boiler was to be implemented on a “turnkey” based schedule, meaning that
the boiler would be put in place during one of the mill’s shut down periods
• Contractor was to work 2 11-hour shifts, 7 days a week.
• After the contractor had been paid more than $24M, problems had developed
• Problems led to work interruptions threatening the contractor with substantial
losses
• Gas outs occurred, and left some of the contractor’s personnel hospitalized
 • Owner admitted responsibility for the work stoppages caused by the gas outs and
compensated the contractor
• Contractor threatened to reduce the work schedule to 37.5 hours a week, unless
the owner agreed to make changes to the contract
• These changes meant that the fixed price contract of $26M that was originally
created was to be changed to a time and material based contract
o Contractor would now charge based on the amount of time spent, and the
amount of material used

• This change in work schedule would cause severe economic loss to the owner
• Court concluded that economic duress was involved in order to persuade the
owner to make this change into the existing contract in order to keep the mill
afloat
• Economic duress in this case would mean that you are forced into entering into a
contract in order to keep your business afloat
o Failure to do this would result in severe economic loss, so you have to do
it to save your business
• Court said that such pressure to the owner was not legitimate, and this change to
the contract was not valid, for it was entered under economic duress
• Contractor, however, did not recover the full amount in the lawsuit.
• It did recover a substantial amount on extra things under the original contract

• This case shows an interesting illustration in applying the concept of duress in a

commercial contracting application
• Exceptional circumstances are required to sustain the argument of economic
duress
• For example, at the time of being coerced into making a contract, no alternative
course of action was available
o Ultimately, this party in question had to make this contract, or suffer
severe economic loss
• The Gotaverken Energy case supports the fact that such a contract created under
economic duress is not valied

Undue Influence:
• Undue influence is similar to duress, but arises in less drastic circumstances
• This occurs when one party in a contract dominates the free will of the other party
and coerces the dominated party into an unfair agreement
• In this case, the dominated party is entitled to be relieved of their obligations to
the contract
• Undue influence is an equitable concept, and is not frequent in business situations
 • This allows family members, like a husband and wife, or parent and minor child,
to repudiate a contract where bargaining positions are unequal and undue
influence occurs

Law Section – Chapter 15 – Mistake

• This subject is often encountered in connection with submission of bids during the
construction tendering process
• Common law has recognized that it may be equitable to provide some relief if a
mistake is made by one or both parties to a contract
• This kind of relief is very rare and only happens in certain circumstances

Rectification:
• If parties on a contract reached an agreement, but what is said in the written
agreement is inaccurate, a common mistake has occurred.
• One of the parties in the agreement can apply for a rectification to the court
• This order is used to correct an obvious common mistake
• The party who is applying for this rectification must persuade the court that the
contract in writing isn’t consistent with what was agreed amongst the parties
• This mistake has to be of a secretarial or recording nature

Unilateral Mistake:
• This is a mistake made by only one party in the contract.

1960 BC Case – Imperial Glass Ltd. Vs. Consolidated Supplies Ltd.

• Contractor (offeror) used the wrong figure when calculating the price at which the
contractor would supply some items
• The offeree was aware of this mistake, and the offeror was not told of this mistake
• The offeror was not lead to make this mistake in any way by the offeree
• Court was satisfied that the offeree’s conduct was not fraudulent.
• This kind of conduct might be open to question on moral, or ethical grounds, but
the court wouldn’t relieve the contractor on his mistake

• Subsequent decisions in Ontario courts held that a contractor may be compensated

due their unilateral mistake in some cases

1977 Ontario case – Belle River Community Arena Inc. vs. W.J.C. Kaufmann Co. et al.
• When the defendant contractor submitted a bid, they forgot to copy a figure from
the summary sheet
• The defendant contractor’s bid was then $70K lower than intended, making the
total bid price to be $641,603.
 • The bid was submitted under seal, and was allowed to be withdrawn (irrevocable)
for 60 days.
• When the contractor discovered his mistake, he tried to withdraw the bid
• There wasn’t any disagreement that an error was made
• However, the plaintiff refused to allow the contractor to withdraw his bid.
• After a month of the defendant being informed of his mistake, the plaintiff tried to
accept the contractor’s bid
• Plaintiff refused to allow the contractor to withdraw his tender (bid)
• Court said that the plaintiff did not create a formal contract between themselves
and the contractor that contains the terms and conditions of what was to be
constructed
• Therefore, the plaintiff didn’t technically obtain a refusal from the contractor to
enter into the contract
• Plaintiff entered into a contract with another tenderer and sued the defendant for
the difference of amounts between the two tenderers.
• Before deciding, the court looked at the Imperial Glass case and said that the
mistake for the Imperial Glass case was that it used the wrong price in the
calculation
• In this particular case, the mistake consisted of forgetting to copy a figure into the
overall bid
• The court was in favour of the contractor.
• The plaintiff later appealed, and they still were in favour of the contractor
• Principle established: Offeree cannot accept an offer that they know a mistake
has been made, and that it affects a fundamental term in a contract
• The offeror did not intend to make this mistake, and this was not an offer that was
intended to be made, and the offeree knew that, and made the offeror aware that a
mistake was made
• This situation would have been different if the offeree had not known that
the bid contained a mistake

1979 Ontario Case – Ron Engineering et al. vs. The Queen in right of Ontario et al.
• Bid deposit cheque of $150K was paid with a tender submitted to the defendant,
The Water Resources Commission
• Tender concerned work to be done for the Commission in North Bay
• Tender contained a mistake that was similar to the one in the Belle River case: An
amount was omitted from the final price
• This omitted amount was $750,058, leaving the bid at $2,748,000
• Contractor was unable to contact the Commission before the tenders were open
• After about an hour after the opening of these tenders, contractor spoke to the
Commission
 • Telegram arrived the following morning
• There wasn’t any doubt in terms of how genuine the error was
• Next highest bidder had tendered a price of $3,380,464
• Trial judge found in favour of the defendant
• Contractor then appealed the decision, and the appeal court found in favour of the
contractor
• In 1981, Supreme Court of Canada set aside the appeal court’s decision
• This court pointed out that there was a contract relating to tender arrangements,
and was separate from the contract itself
• This mistake wasn’t communicated to the Commission at the time of tender
submission, and didn’t affect the contract relating to tender arrangements
• A portion of that contract says that if a tender is withdrawn before the
Commission considers all of the tenders, or when they withdraw it right before, or
after they want to choose this tender, the Commission can retain the tender
deposit, and can accept any tender, get new ones, negotiate a contract, or not
accept any tender.
• As such, the contractor was required to lose his deposit
• Therefore, the mistake was relevant to the tender agreement contract, and not the
contractual obligation.

1982 Alberta case – Calgary vs. Northern Construction Company Division of Morrison-
Knudsen Company Inc. et al.
• Involved a clerical error of $181K on a tender price of $9,342,000
• When the defendant contractor refused to execute the contract, the owner sued for
the difference between the contractor’s tender price, and the second lowest bid
price and was $9,737,000
• Court applied the Belle River case and distinguished this from the Ron
Engineering case
• Similarities between this case and Ron Engineering are:
o Contractor’s error in completing the tender was clerical in nature
o Error was not apparent on the face of the tender (meaning it was
undetectable unless you took a very good look at it)
o Error was promptly reported to the owner by the contractor
o Error was an honest one, and was committed unwillingly. Conduct of the
contractor was free from improper and dishonest motive
o Formal tender was irrevocable with the stated time period
o Contractor didn’t wish to withdraw his tender at this time
• Dissimilarities between this case and Ron Engineering are:
o City of Calgary accepted the contractor’s tender
 o Clause with respect to tenderers in this case had no similarities to the
clause mentioned in the Ron Engineering case
• Court used the Ron Engineering case and held in favour of the owner
• Contract was caught by its clerical mistake
• In this case, the court pointed out that the Ron Engineering case showed that
when a tender is submitted, a contract is formed that precluded the contractor
from withdrawing their bid
• The Supreme Court of Canada agreed that the contractor was governed by the
Ron Engineering case and was unable to avoid the consequences of its clerical
and honest error in the circumstances of this case
Law Section – Chapter 16 – Tendering Issues
– Contract A
• In the Ron Engineering case, the Supreme Court of Canada confirmed a very
significant new principle in the law of tendering in Canada
• Now, there are two separate contracts that arise in the tendering process
• First one is Contract A, which is the contract of irrevocability, which deals with
the tendering phase
• The second contract is Contract B, which is the construction contract itself.
o This is formed when the bid is accepted and the construction phase begins
• The owner’s requests for tenders on a construction project constitutes an offer,
and a Contract A is formed when the owner’s offer is accepted when a bid is
submitted
• Previously, each bid was regarded as an offer, and the award of the construction
contract means that the offer is accepted
• Now, when a bid is submitted on an irrevocable basis, a Contract A is formed.
• There can be many Contract A’s that can be formed, but the second contract, the
construction contract, Contract B, is formed when the selection of the winning
bid is performed
• The Contract A concept is advantangeous to an owner where a contractor has
made a mistake in the tendering documents, like omitting something
• However, this concept may prove to be a disadvantage in the contract negotiation
process
• Creating Contract A’s with many bidders, where each have their own pecularities
of their tendering packages, may place the owner in a difficult position if they
choose to negotiate with any of the bidders that isn’t equally applicable with
respect to the other bidders
• If this is the case, the owner may risk breaching the Contract A concept
• As a result, owners can draft their instructions to bidders to provide as much
flexibility as possible in dealing with other bidders
• The Contract A concept provides grounds for contractors to complain and take
issues regarding the bidding process
• If another bidder receives more advantageous opportunities to negotiate with the
owner, prior to the contract being awarded, this would give rise to issues

1984 Ontario Case – Ben Bruinsma & Sons Ltd. vs. Chatham
• Number of tenders were submitted.
• As such, a number of Contract A’s were formed
• After, the owner deleted an item from the tender package
• As such, a bidder other than the original low bidder become the new lowest
bidder
• The original owner then sued for damanges for breach of Contract A
 • The tender package did not specify that the item could be deleted, and the
Contract A was in fact breached

• When putting a tender package together, it’s suggested that you make it as
flexibile as possible from the owner’s perspective
• Example: Allow the owner the right to delete items, the right to make changes,
and the right to overlook mistakes
• You may want to include the right to negotiate the terms of the contract as well
• Also, Contract A does state that you don’t necessarily have to accept the lowest of
all bids, or in fact, any bids need to be accepted
• However, an owner should be careful to limit the conditions of the bids depending
on each project
• If the owner tries to introduce conditions that are viewed as unfair by potential
bidders, some contractors may refuse to bid, or submit very high bids in response
to the owner’s aggressive contracting approach

1981 BC Case – Peddlesden Ltd. vs. Liddell Construction Ltd.

• Subcontractor submitted a bid together with a bid bond for masonry work
• This combined bid was used by the general contractor
• However, the subcontractor made a mistake  The subcontract did not seal its
bond
• Subcontractor was going to put its seal on afterwards. Also the bonding company
was also willing to confirm that the bond is enforceable
• However, the general contractor had the work performed by another contractor
because of the missing seal
• Subcontractor brought an action against the contractor and sued for damages
• Court said that the general contractor was obligated to use the subcontractor it had
used with its bid with the owner
• Court said that the mistake was a mere omission, and could have been corrected
without affecting the rights and obligations between the parties involved
• Subcontractor was found in favour

1987 Canada Case – Mawson Gage Associates Ltd. vs. R.

• Subcontractor made an estimate based on plans received directly from the owner
• Subcontractor’s bid was filed with the general contract
• However, several pages of the specs of this project were missing from the tender
details provided to the subcontractor
• This omission was made in error by the owner
• General contractor and the owner were notified of the mistake
• The subcontractor repeatedly attempted to resolve the problem, but wasn’t able to
do so
• Couldn’t contact them, so he signed and completed the work.
• Subcontractor then sued the owner in tort for losses in negligent misrepresentation
• Subcontractor succeeded in court
1986 Alberta Case – Gloge Heatin and Plumbing Ltd. vs. Northern Construction
Company Ltd.
• Subcontractor had called the contractor regarding the bid minutes before the
tenders closed
• General contractor included the subcontractor’s tender and filed its own tender
• Subcontractor made a serious mathematical error
• Subcontractor advised the contractor of the error
• The owner refused to allow the contractor to adjust its tender, and the
subcontractor refused to perform its services
• Another subcontractor instead decided to perform, for an extra $340,000
• General contractor successfully sued the original subcontractor
• The court confirmed that telephone bids are just as binding as written tenders
• Subcontractor could only have taken away its bid prioer to the close of the general
contract bidding
• Subcontractor’s bid was irrevocable for the same time period as the general
contractor’s

Forest Contract Management Ltd. vs. C & M Elevator Ltd.

• Contract requested a quote from the subcontractor and submitted a lump sum
proposal
• Contract between the owner and the contractor was finalized
• Subcontractor had left out one elevator in its estimate
• Contractor called the owner and attempted to withdraw its bid
• Owner then retendered, and claimed against the contractor for breach of contract,
and sued for the difference between the original and the newly accepted bid
• Court found that contractor was in breach of the contract and owner was awarded
damages
• This is consistent with the Contract A laws. The bid is irrevocable once placed

Westgage Mechanical Contractors Ltd. vs. PCL Construction Ltd.

• Subcontractor can be disadvantaged where the owner and general contractor
negotiate different terms before the owner awards the contract to the general
contractor
• In this case, negotiations occurred between the owner and the lowest three
tenderers who submitted bids
• However, the subcontractor was not consulted
• As a result, the terms of the contract were changed
• This resulted in a reduced price, and a reduced completion time
• The subcontractor was not consulted during these negotiations and it refused to
alter the original estimate
• When the work was awarded to a different subcontractor, the original
subcontractor sued
• Court pointed out that changing the terms of this contract actually stands as a
counter offer, and this released the general contractor’s commitment to the
original contractor
1989 BC Court Case - Chinook Aggregates Ltd. vs. Abbotsford (Municipal District)
• Municipality invided bids on a gravel crushing contract
• Municipality didn’t state that they preferred local contractors
• BC Court held that the “lowest contractor, or in fact any contractor, doesn’t have
to be accepted” policy didn’t override the implied duty to accept the lowest bidder
• Court found the owner had to adhere to the established custom of accepting the
lowest bid, unless the tender documents say that the bids would be evaluated
on other criteria

• Ontario courts have not followed this decision

1989 Ontario Case - Megatech Contracting Ltd. vs. Regional Muncipality

• Plaintiff’s bid was the second lowest bid
• Lowest bid failed to follow the tender guidelines
• This lowest bid did not name certain proposed subcontractors
• Lowest bidder was actually awarded, and the second lowest bidder, the plaintiff,
sued for breach of contract
• The court dsmissed the action stating that the municipality had the flexibility, as
set out in the tender package, to award the contract to the lowest, or any tenderer

1992 Ontario Case – Acme Building & Construction Ltd. vs. Newcastle (Town)
• Plaintiff was the lowest bidder for a new municipal centre in Newcastle
• Next lowest bidder had specified a much earlier completion date and also
nominated local subcontractors for more of the work  23% compared to 18%
declared by the plaintiff
• Town Council concluded that this would save them $25K in rent because of the
early completion date
• This was more than the difference in the tender prices
• The council also preferred the higher bid because more local subcontractors were
working on the project
• Plaintiff argued that such a consideration should have been made clear
• Court upheld the policy that you don’t have to accept the lowest contractor, or in
fact, any of them.

1991 Saskatchewan Case – Kencor Holdings Ltd. vs. Saskatchewan

• Tender documentation included a clause that allowed the Minister of Transport to
“refuse to accept any tender, waive defects or technicalities, or accept tenders that
he considers to be in the best interests for the province”
• Court said that this clause was too vague to mean anything
• Court said that the government was not justified in rejecting the lowest bidder
• ***Court felt that the government should be forced to state the criteria on how it
makes its decisions, just to be sure that they’re not simply abusing their power***
• Court said that they are liable for the lowest bidder’s loss of profit
1994 Alberta Case – North American Construction Ltd. vs. City of Fort McMurray
• Invitation for bids followed this notice:
o The owner reserves the right to reject any or all tenders or to accept the
tender deemed most favourable in the interests of the City of Fort
McMurray
• Accompanying this notice, the instructions for bidders was provided:
o The owner reserves the right to accept or reject any, or all of its tenders,
and to waive irregularities and formalities at his discretion
o The lowest tender will not necessarily be accepted
• Three bids were submitted
• Contract was awarded to a bidder whose price was higher than the bpalintiff’s bid
• Plaintiff sued the City of Fort McMurray for breach of Contract A
• Court found in favour of the City, because the court said that the notice stated that
it doesn’t have to accept the lowest qualified bidder.
• The notice was very easy to understand, and was not ambiguous or unclear.
 Law Section – Chapter 17 – Contract
Interpretation
• Parties that are involved in a contract sometimes dispute as to the meaning of the
part of the contract in question
• Such disputes can be settled in court
• Court looks at the wording of the part in question, and interprets this to determine
its most reasonable meaning
• Court may refer to dictionary definitions and to the intent of the parties who
entered into the contract
• Once the court determines the interpretation, the parties are bound to this
interpretation
• Two approaches to interpretation of contracts
o Strict approach – Focusses on the precise words in the agreement
o Liberal approach – Takes into account the intent of the parties
• These two approaches point to the importance of clear and careful contract
wording

1989 Canada Case – Hunter Engineering Company vs. Syncrude Canada Ltd.
• This shows that the strict approach in interpreting contracts are favoured,
provided that the term in question isn’t an unlikely possibility between the parties
involved
• Not all Supreme Court judges, however, favour this strict approach
• When interpreting the contract, the court may listen to witnesses
• Witnesses may testify as to how they interpret the contract and can also discuss
the contract’s subject matter
• Court may be required to judge the credibility of the witnesses
• It’s preferred that you create a contract with clear and concise language in order to
avoid ambiguous statements and minimize the need for court interpretation

Rule of Contra Proferentem

• This rule states that when a contract is ambiguous, it will be construed or
interpreted against the party that drafted the provision
• What this means is that when a contract isn’t very clear, it will be interpreted in
favour of those who didn’t create that clause.
• This rule provides a convenience basis upon which to strike down a poorly
drafted and ambiguous document

Parol Evidence Rule:

• A contract should contain all the terms agreed between both parties
• Problems can occur when terms are agreed verbally, but are not written down on
the contract
• If a condition is agreed upon verbally, but isn’t included in the contract, by
default, the condition isn’t part of the contract
 • This is called the parol evidence rule
• This makes sure that all of the agreed terms and conditions are on the final
contract
• There are, however, exceptional circumstances for which courts will not always
apply this rule
• Example: If it can be shown that a contract was to be effective only if an agree-
upon condition were to occur, then this rule won’t be applied

Pym vs. Campbell

• Contract concerning shared ownership of a machine was entered into
• During financial negotiations, parties agreed the creation of contract for the rights
to the invention would be made only if:
o The invention would have to be approved by two engineers
• This was not mentioned in the written contract
• Two engineers were approached but only one liked the invention
• Second engineer didn’t like the invention
• Defendants contended that the condition for the creation of the contract was not
met, and no contract was formed
• Court ruled in favour of the defendant, because in actuality, no contract was
formed between the two parties. The contract would only be formed if it met the
condition that the invention was approved by two engineers, and it failed to get to
this step
• The parol evidence rule applies to evidence that is outside the written contract
before the contract is finalized
• There are only exceptional cases where evidence that is outside a contract will
affect a contract
• However, parties in a contract are free to mutually alter the terms of a contract
after it’s been signed, and making sure that the essential terms are still existent in
the contract

Implied Terms:
• Sometimes, parties to a contract forget to put an obvious term into a contract
• When it is clearly reasonable to do so, the courts may make an additional
agreement between the parties based on this obvious term, and is called an
implication of terms

The Moorcock Case

• Plaintiff was the owner of a steamship called the Moorcock
• He paid for space at the defendants’ wharf and jetty on the Thames river
• When the Moorcock was docked, there was heavy tide, and the Moorcock settled
on a ridge of hard ground and was damaged
• Plaintiff argued that the managers of the wharf were responsible to ensure that his
vessel would remain safe while it was docked, since he paid for the space
• The wharf managers, in their defense, said that there were no provisions in the
contract to ensure the vessel’s safety, and did not foresee that damage could arise
 • The court ruled in favour of the plaintiff
• The judge ruling the case said that by looking at the agreement between the
parties, the wharf managers were in a position where they knew that there was a
risk of damage to the ship, and would be in the best position to judge the safety of
the vessel.
• Thus brings the implication of terms up, where they were under an obligation to
ensure the ship was safe to complete a transaction, even if it wasn’t explicitly said
in the contract.

1973 Nova Scotia Case – Markland Associates Ltd. vs. Lohnes

• Building contract in question implied several things, since there was an absence
of express terms
o Materials and workmahsip should be of a proper standard or quality
o The work was to be carried out in a proper and workmanlike manner
o Work and materials, when completed and installed, would be fit for the
purposes intended
o Work would be completed in a reasonable time frame, and without
significant delay
• This was not mentioned in the contract, but was implied, due to the fact that these
terms are obvious, and any other construction contract would follow such
regulations

1961 Ontario Case – Pigott Construction Co. Ltd. vs. W. J. Crowe Ltd.
• Court had to figure out whether implying a term into a contract was valid
• They used earlier decisions to figure this out, like the Moorcock

1983 Ontario Case – G. Ford Homes Ltd. vs. Draft Masonry (York) Co. Ltd.
• Involved the supply and installation of two circular staircases
• Court decided that the contract implied the staircases would comply with the
requirements of the Ontario Building Code, even though it did not express it in
the written contract, but this is an obvious term that must be enforced
• The subcontractor, who is the plaintiff, who creates and installs staircases, was
hired to do this service
• The plaintiff’s representatives attended the homes in question, but declined an
opportunity to review the architectural plans
• These plans clearly indicated the right clearance to comply with the building
code.
• Instead, the defendant took some measurements, and offered a selection of
staircases to the contractor
• The subcontractor installed these stairways, but they didn’t comply with the
building code, because the head room was 1.5” shorter than the specified
minimum
• Building inspector said the staircases had to be replaced
• Subcontractor commenced a lawsuit to sue for damages to recover the cost of
supplying and installing these stairs
• Court said that the subcontractor was an expert in the manufacturing and
installation of stairs, and they said they should be fully aware of the requirements
and the building code.
• Court said that it was also reasonable in this case to rely on the subcontractor to
supply and install the staircases in accordance with the building code, and would
be unrealistic to come to any other conclusion.
o In other words, they should have known that these were short to begin
with
• Court said that the contract would not be able to be completed without implying
this term, and installing these staircases are in fact a violation of the building code
• Therefore, the plaintiff’s claim was denied
• The Moorcock precedent applied here.
 Law Section – Chapter 18 – Discharge of
Contracts
• There are many ways to accomplish the discharge (the termination) of a contract

Performance as a means of discharge:

• When all parties to a contract have completed their respective obligations, the
contract is terminated
• If any of the obligations in the contract remain unfulfilled, the contract is still in
effect
• Some contracts have obligations where they continue beyond the initial
performance and payment for services and materials
• Example: If equipment falls under warranty, defects are repaired as per the
contract

Agreement to discharge:
• Parties to a contract are always free to add onto the contract
• As such, they can also agree to terminate the contract upon mutually agreeable
terms and conditions

Discharge Pursuant to Express Terms:

• It’s preferable in a contract to include clauses where any or all of the parties can
terminate the contract when certain events happen
• Example: Contract might terminate when one of the parties becomes bankrupt
• Construction contracts often have a termination clause where if an engineer
determines that a contractor has failed to complete the work properly, or
substantially comply with the requirements of a contract, the engineer can
terminate the contract

Discharge by Frustration:
• At times, changing circumstances can radically change the obligations of the
parties to a contract
• If this happens, the contract will have been frustrated, and is discharged from
such a frustration
• However, this concept cannoy be applied just because the current situation makes
the performance of the obligations more bothersome than before
• This concept will only apply in exceptional circumstances that wasn’t
contemplated by the parties involved, and only when discharge by frustration is
the only practical and reasonable solution

1917 English Case – Metropolitan Water Board vs. Dick Kerr and Company, Limited
 • Contract was entered on July 1914 for construction a reservoir over a 6 year
period
• However, because of the war, the contractor was ordered to cease work in 1916
by the Ministry of Munitions
• Because of the war, it changed the contractor
• When the contract resumed, it was a different contract than that which had been
entered into
• House of Lords said that the contract is to be discharged by frustration in this case
• Equipment supply agreements and construction contracts often contain a force
majeure provision
• This provision states that the time of completion for a project will be extended in
the event of war, riot, insurrection, flood, labour dispute, or other events that are
beyond the control of either party
• The contract for this case contained such a provision
• Plaintiff said that they should simply increase the time it’ll take to finish the
project
• However, House of Lords did not apply the force majeure provision, because the
wartime circumstances were an exceptional case

1956 English Case – Davis Contractors Ltd. vs. Fareham Urbna District Council
• Completion of a building contract was delayed due to the scarcity of labour
• Contract required the contractor to build 78 houses within a period of 8 months
• Because of the labour shortage, 22 months were needed
• House of Lords didn’t accept the argument that the contract was frustrated
• This just simply rendered the performance of the contract more onerous than
expected

1963 Manitoba Case – Swanson Construction Company Ltd. vs. Government of

Manitoba; Dominion Structural Steel Ltd., Third Party
• Contractor was forced to work in winter conditions rather than summer conditions
• This was because the work site wasn’t available soon enough, and the availability
was delayed until the winter time
• Contractor argued that the contract was frustrated
• Court refused this and said that in many building contracts, some dleay in
performance may occur
• Contractor should have adjusted its bid accordingly due to the weather conditions
 Law Section – Chapter 19 – Breach of Contract
• If a party fails to perform its obligations laid out in a contract, then that party has
breached the contract
• The innocent party is entitled to certain remedies
• The particular remedy will depend on the nature of the contract breach, and the
terms of the contract
• Example: Breach of contract may entitle the innocent party to sue for damages
that resulted from the breach
• The innocent party may be entitle to discharge the contract because of the breach
• An obligation in the contract that is essential, or vital, to the contract is called a
condition
• An obligation in the contract that isn’t essential is called a warranty
• Breach of a condition may entitle the innocent party to be entitled to damages
• However, it’s only when a breach of a condition is vital to the contract that it can
be considered to be discharged
• Warranty has several meanings
o Could be used to describe a minor term of a contract, or it could mean a
guarantee
• A guarantee in this could mean that a equipment supplier will ensure that the
performance of their equipment is to standard, and if it breaks down, the supplier
will fix its defects

Ontario Case – Piggot Construction Co. Ltd. vs. W.J. Crowe Ltd.
• Court said that breach, no matter what form, entitles an innocent party to sue for
damages, but it doesn’t mean that the contract is discharged
• Contract was under an obligation to proceed as quickly as possible
• He was also obligated to provide temporary heating for the buildings during
construction
• Court said that neither of these facts were regarded as fundamental terms in the
contract, or conditions
• Therefore, a breach of either provision could not be regarded as a good reason to
discharge the contract
• Construction contracts now have a special condition, where if the engineer
determines that the contractor’s performance is poor, the contract can be
terminated by the owner

Repudiation:
• When one party to a contract tells the other party that they have no intention of
performing their obligations in the contract, the party who says this has
repudiated the contract
 • The party who wants to repudiate do not have to express their intentions verbally,
but might indicate by their behavior that the obligations in the contract won’t be
performed
• The innocent party can either ignore the breach, meaning that the contract
continues, or they can assume that the contract has been discharged by
repudiation
• If the innocent party treats the contract as discharged in this case, then they can
claim damages from the party who repudiated the contract

Remedies:
• An innocent party is entitled to damages for losses incurred as a result of a breach
of contract
• This party is entitled to a quantum meruit remedy (will be discussed later)
• The party is also eligible for remedies called specific performance, or injunction
• Courts must determine the amount of damages as a result of the breach of contract
by using precedents, and long established principles

1854 English Case – Hadley vs. Baxendale

• If a contract was entered into under special circumstances, and these special
circumstances were communicated between the parties at the time the contract
was made, then these circumstances will be taken into account when determining
damages resulting from a breach
• Plaintiffs operated a mill
• Plaintiffs asked the defendants, who were carriers, to deliver a broken crank shaft
to its manufacturer for repairs
• Through the negligence of the defendants, the shaft’s delivery was delayed
• Crank shaft was essential to the mill’s operation, but the plaintiffs didn’t
communicate the importance of the crank shaft to the defendants
• Plaintiffs sued the defendants for lost profit during the delay period
• Court noted that the defendants weren’t told that the lost profits resulted from the
delay of the delivery of the shaft

Direct and Indirect Damages:

• Direct damages  Example:
o Owner receives 3 bids from 3 contractors on a project
o Owner awards the contract to the lowest bidder
o Lowest bidder refuses to perform, and is now liable for damages
o Owner then awards the contract to the next lowest bidder
o Damages suffered by the owner is the difference in price from the second
lowest bidder and the lowest bidder
o Lowest bid was the contract price the owner originally agreed on
 o As such, damages are the extra cost beyond the original contract price
• Indirect damages  Damages that are consequential to the breach, and might
include damages for lost profits
• These damages are often referred to as special, indirect, or consequential damages
o Example: Plant shutdown resulting from a contractor failing to perform
services properly, which affects the overall operation of the plant
o Example #2: Outside contractor working in a factory cuts a power line
that interferes with the operation of the plant
o Example #3: Fine that is levied against a plant owner as a result of the
contractor’s negligence with an environment protection statute
• Contracting parties often try to limit the extent of damages for which they might
be responsible
• These kinds of limitations may be placed in the contract, for example, the contract
might state that the manufacturer will not be responsible for indirect or
consequential damages that arise

Duty to Mitigate:
• When a party suffers a loss through a breach of contract, they must take
reasonable steps to mitigate (reduce) the amount of damages suffered
• Plaintiff is expected to behave in a reasonable manner in mitigating damages
• If the plaintiff doesn’t mitigate, this will be taken in account when determine the
damage award

Penalty Clauses:
• Contracts often contain clauses where if a certain event occurs, a party is required
to pay for damages
• Example: If the contract is not completed by a certain date, a party is liable for
damages
o However, the parties must make an attempt to estimate the amount of
damages likely to occur from this kind of breach when creating the
contract
o If not, then the courts will not honour these kinds of provisions
• In contracts, these kinds of pre-estimated damages are called liquidated damages
and these are common in equipment supply and construction contracts
• A court will not enforce a penalty clause that doesn’t represent a genuine pre-
estimate of damages

Quantum Meruit:
• Let’s say that certain services have been requested, and they were performed
accordingly
 • However, there wasn’t an express agreement between the parties as to what
payment would be provided in return for these services
• In this situation, the court will award payment by implying that the party who
performed these services will be paid at a reasonable amount
• The amount that is determined is on the basis of quantum meruit
o This basically means that they will be paid “as much as is reasonably
deserved” for the time spent and materials supplied
• Quantum meruit may apply in other situations
o Example: Contract might expressly provide for payment, however, if the
party repudiates the contract, and the innocent party treats the contract as
discharged, quantum meruit may apply

1968 Canada Case – Alkok vs. Grymek

• Defendant owner had repudiated a construction contract with the plaintiff
• Contract said that the owner would pay the contractor a fixed amount, with
respect to an agreed upon schedule for completing various parts of the work,
when the architect has made sure that payments to the subcontractors have been
made
• Contractor failed to make sure that the architect paid the subcontractors
• Also, the owner and architect complained about defects in the construction, and
the construction was delayed
• Owner terminated the contract and engaged other contractors to finish up the
building
• Court determined that the contractor’s failure to make sure the architect paid the
sub-contractors didn’t amount to a breach of an essential term in the contract
• Breach didn’t justify the owner’s termination of the contract
• The evidence of defective workmanship or delay also didn’t concern the root of
the contract
• Courts decided that the defendant’s repudiation wasn’t justified, and the
contractor succeeded by recovering for the work done on a quantum meruit basis

Substantial Compliance:
• A contractor may comply with the terms of a contract, but fail to comply with a
minor aspect of the contract’s provisions
• As such, the contractor will be paid whatever the contract price was, minus the
cost of damages caused by such a failure
• This principle is called substantial compliance
• For this to apply, the facts must state that the contract deficiencies are minor, and
doesn’t greatly affect the contract overall

1951 Ontario Case – Fairbanks Soap Co. Ltd. vs. Sheppard

 • Court had to decide whether the contract was entitled to payment for equipment
that was supplied and installed
• Contractor has substantially complied with the terms of the contract: There were
minor defects, which were fixable with a negligible sum of money
• The trial judge concluded that the person did the work accordingly, and should be
paid that much, minus the damages caused by the defects

Specific Performance and Injunction:

• To remedy a contract dispute, the courts may, where appropriate, require a party
in a contract to perform a contractual obligation
• This remedy is called specific performance
• Example: This is most often granted when land sales come into play
o Courts presume that when someone in a contract is about to buy some
land, and the contractor is breached by the seller, an award of money
won’t be enough
o The vendor will be required to give the land, in accordance with the
agreement of purchase and sale
• Another example could be an antique
o A vendor who sells an antique will be required to sell the item to the
buyer, because this item is very unique, where a sum of money will not be
adequate for the purchaser
• If the courts have to supervise the performance of an obligation, specific
performance will not be granted
• Therefore, a breach of a contract for engineering services and so on do not result
in the specific performance clause to be in effect
• An injunction is a court order that restrains a party from performing some act,
like a breach of contract
• Court will not grant this remedy if the contract contains a negative covenant
• A negative covenant is a promise not to do something
• Example: In non-competition agreements, a promise not to compete for a specific
period of time within a defined geographical area is a negative covenant
• A court might order an injunction to restrain a party from breaching a convenant
 Law Section – Chapter 20 – Fundamental Breach
• Fundamental breach means that if breach of contract happens that is so
fundamental, it permits the innocent party to terminate the contract, and in
addition, sue for damages.
• An exemption clause is a provision where contracting parties may limit the extent,
either entirely or partly, of liability that arises when a breach of contract results
• The fundamental breach concept may be applied to a contract that contains an
exemption clause
• What this means is that this concept will render the exemption clause to be
ineffective if a fundamental breach of contract results

Harbutt’s Plasticine Ltd. vs. Wayne Tank and Pump Co. Ltd.
• Contract was entered for designing and installation storage tanks for stearine,
which is a type of greasy wax
• This was one of the main ingredients for plasticine
• As part of the contract, the contractors designed a plastic pipeline wrapped with
electrical heating tape
• This pipeline was going to be used to liquefy the stearine to transfer it from one
point to another
• The plastic pipe become distorted under the heat, and sagged and cracked.
• The stearine then escaped from the pipe and ignited
• The plaintiff’s factory was thus completely engulfed in fire
• The trial judge concluded that the contractor was in fundamental breach of
contract
• The trial judge said that the system that the contractor designed was completely
inadequate for the use of transferring liquid stearine
• The contract contained a provision that the contractor’s liability for damage and
accidents was limited to 2,300 pounds
• The court said that because of this fundamental breach, the contractors were not
entitled to rely on this clause, and they were to pay for the cost of reinstating the
entire factory, which amounted to 170,000 pounds

• This precedent was applied in Canadian courts between 1970 and 1980, but this
precedent was overruled in England

1980 English Case – Photo Production Ltd. vs. Securicor Transport Ltd.
• They stated that the whole foundation of the Harbutt’s Plasticine case was
unsound
 • A security contract was entered between a manufacturer, plaintiff, and a security
company, the defendant
• During a night patrol at the factory, one of the employees of the security company
started a fire
• Fire spread out of control and destroyed the factory and its contents, valued all
together at 615,000 pounds.
• The contract contained an exemption clause that limited the security company’s
liability.
• However, there wasn’t any negligence found in this case
• The trial judge said that the defendants were allowed to rely on this exception
clause
• Court of Appeal reversed the decision made by the trial judge and used the
Harbutt’s Plasticine precedent
• House of Lords overruled this decision and said the defendants were allowed to
rely on the exception clause

• Fundamental breach concept has been applied in Canada

1979 Ontario Case – Murray vs. Sperry Rand Corporation et al.

• The seller of a farm harvester wasn’t allowed to rely on his disclaimer clause in
his contract with the buyer
• Court said that this disclaimer clause in the contract would not protect the seller
against a breach of a fundamental term in the contract

1980 Canada Case – Beaufort Realties (1964) Inc. and Belcourt Construction (Ottawa)
Limited and Chomedey Aluminum Co. Ltd.
• Case involved the effect of a waiver of lien clause signed by the subcontractor,
Chomedey Aluminum
• Court found that this clause was an exemption clause
• Contractor failed to pay the subcontractor, and was in fundamental breach of the
subcontract
• Supreme Court of Canada said that the question of whether such a clause applied
when there’s fundamental breach was determined according to the true meaning
of the contract
• In determining the true meaning of the contract, the court decided the clause can’t
apply
• Ontario Court of Appeal pointed out that it wouldn’t be fair and reasonable for the
subcontractor to continue to be bound by its waiver of lien rights
• The contractor deliberately refused to perform its basic payment obligations under
the subcontract
1989 Canada Case – Hunter Engineering Company Inc. vs. Syncrude Canada Ltd.
• This is the leading case where an exemption clause can be upheld
• Syncrude, the defendant, had contracted with Hunter, the plaintiff, and later with
Allis Chalmers, for the supply of gear boxes to drive the bucket wheel conveyer
belts that transported sand to Syncrude’s oil extract tar sands plant at Fort
McMurray
• Contracts said that Ontario law was to apply
• After the gear boxes were put in service, bull gears inside the gear boxes failed
• Syncrude had the gear boxes rebuilt, and sued Hunter and Allis Chalmers for the
corst
• The express warranties in the contracts had expired, and they weren’t any good to
Syncrude
• However, the implied warranty of fitness, as contained in the Ontario Sale of
Goods Act applied, and had been breached by Hunter and Allis
o The gears broke down right after they were put to work
• Hunter was held liable on this basis
• As for Allis Chalmers, the warranty clause in their contract denied the application
of all other warranties, including statutory warranties
• As such, the only way Allis could be liable is if the exemption clause didn’t
apply, by the fundamental breach concept
• Courts concluded that Allis wasn’t liable and enforced the exemption clause
• Clear and direct exemption clauses found in contracts negotiated between parties
of relatively equally bargaining power have been upheld
• Canadian court emphasis now is to look carefully at the wording of each contract,
even when fundamental breach has happened, and resolve matters according to
the true intention of the parties at the time the contract was created
• If the clause is clear and direct, it will be enforced, unless it is unconscionable.
 Law Section – Chapter 21 – The Agreement
Between Client and Engineer
• Contract between a client and engineer must include all essential contract
elements
• Contract between a client and engineer will not usually specify the standard of
care that is expected of an engineer
• Contract will simply state that the engineer provides engineering services in
connection with a particular project
• Document may outline the scope of the services, but won’t specify the degree of
care that is required by the engineer
• This degree of care is an implied term in the contract
• Standard of performance expected of an engineer in contract is the same standard
as seen with tort law, unless otherwise specified in a contract

The Agency Relationship:

• When entering into a client-engineer agreement, engineer usually enters into an
agency relationship
o Client is the principal
o Engineering is the agent
• As an agent, the engineer must be careful to act only within his or her authority as
agreed upon with the principal
• If the engineer exceeds this scope of authority, engineer may be liable to the
principal for damages from the engineer’s actions
• Example: If an engineer acts as an agent on behalf of a client to negotiate the
terms of a construction contract, the engineer should seek the client’s approval of
all terms before confirming acceptance
o However, if the client allows the engineer to act on client’s behalf, then
that’s fine

The Engineer’s Remuneration:

• The client-engineer agreement should be in writing
• Contract should clearly outline the nature of the project, the services that are
required, the basis of payment, and general terms and conditions acceptable
between both parties
• If an engineer is retained by a client to perform services, and does them without
agreeing on the amount of pay to be received, the law applies the quantum meruit
concept, where they’ll be paid a reasonable amount for their services
• A suggested schedule of fees, published by the PEO for example, should provide
a reasonable basis on determining these fees
Estimated Fee:
• When an engineer enters into a contract with a client, the engineer should
cautiously estimate the amount of the engineer’s total fee, only if required and
appropriate
• Engineer should also emphasize to the client that the quoted total fee is only an
estimate
• Issue of discrepancies between estimates and final costs has been encountered in
courts

1979 Ontario case – Kidd vs. Mississauga Hydro-Electric Commission et al.

• A consulting engineer estimated the cost of his support staff to be $5K
• Actual cost of the support staff was $14,447.
• Consulting engineer brought an action to recover the full cost of the support staff
• Court said that the engineer’s client was entitled to rely on the engineer’s
expertise in making the estimate
• Court said that even though the engineer couldn’t give an accurate estimate, he
was an experienced engineer
• Also, since the actual cost is almost three times as much as the estimate, the client
should be entitled to rely on the estimate
• If no figure was mentioned, quantum meruit would have applied, but there was an
estimate, and it was very inaccurate

Standard-Form Engineering Agreements:

• Recommended forms of agreement for engineering services between a client and
engineer, and between engineers and other consultants are available from
associations like PEO.
• Standard-form engineering agreements available today have been carefully
developed
• Forms set out very good basic contract formats
• Some require more detail of completion than others with respect to the project, the
description of services provided and the engineer’s fee for their services
• General terms and conditions set out in these forms cover things like the
contractual relationship between the parties
• Additional terms to the standard form may be necessary
• Standard form contract may not suffice all the time
• Each contract should be tailored so that it accurately represents the agreements
between the parties

Limiting Liability by Contract:

• Any contract must take the fundamental breach concept into account
 • There should be provisions where the engineer limits, to some extent, their
liability for damages from performance of engineering services
• Sometimes, these clauses aren’t pleasing to a client, and you could lose a potential
client if the provision is very unacceptable
• More reasonable approach would be to limit the engineer’s potential liability to
the extent of their professional liability insurance coverage
• If this approach is taken, the client should be aware so they can assess the
appropriateness of the coverage

Engineer’s compliance with the law:

• Engineer who provides services must comply with common-law principles
relating to tort and contract
• Also, they must comply with all statutes and regulations applicable to the type of
engineering services offered
• Engineer is expected to have a reasonable knowledge of the statutes and
regulations that apply for their services that are offered
• They should also be aware of requirements by looking into federal and provincial
laws relevant to the services they’re offering
• There are many statutes and acts that span every type of engineering service
offered
• Also, there are many codes and building regulations with which the engineer
needs to comply with
• When fulfilling a contract, the engineer must comply with all applicable laws, and
failure to do so will have some serious repercussions, both to the engineer, and to
the client
 Law Section – Chapter 22 – Concurrent Liability
in Tort and Contract
• Unless otherwise stated in a contract, standard of care expected of an engineer
when performing services in a contract is the same standard of care as seen in tort
• Because of this overlap, this raises the question of whether an engineer can be
liable in both breach of contract and tort
• Consequences for being sued under both categories can be devastating
o Example: Measure of damages for breach of contract may not always be
the same when measuring damages done in tort
o Also, limitation periods may differ in contract than in tort

1967 Ontario case – Schwebel vs. Telekes

• Case was against a public notary who was accused of negligence when acting on
behalf of the plaintiff for buying a home
• Ontario Court of Appeal concluded that the plaintiff’s action wasn’t in tort, but in
contract
• Court noted that the duty of care arose by virtue of a contractual relationship, and
no other relationship existed apart from this relationship
• Court said that the duty of care concerned was of a contractual relationship
• When breach of contractual duty has taken place, the limitation period is six
years from the breach of duty, rather than from the time the breach was
discovered

1976 Ontario case – Dominion Chain Co. Ltd. vs. Eastern Construction Co. Ltd. et al.
• In tort, the limitation period starts when the damage is first detected, not
when the services were performed
• Questions may also arise with respect to the liability of concurrent tortfeasors
• Dominion Chain entered into separate contracts with a contractor, and with an
engineer
• They were both taking part into constructing a factory
• Factory roof developed very serious leaks 5 years after construction
• Dominion Chain initiated an action against both the contractor and the engineer
• Trial judge dismissed against the contractor because of an exemption clause in the
contract, which limited the contractor’s liability
• Dominion Chain, in the contract, waived its right to make claims against the
contractor after the guarantee period expired
• Even though the contractor wasn’t liable to the owner by contract, the judge said
that the damage to the roof done by negligence and was done through tort
• Therefore, the contractor was liable for 75% and the engineer for 25%
 • Section 2 of the Negligence Act of Ontario says that if two parties are found at
fault or negligent, they are jointly and severally liable to the person who has
suffered the damage
• If there is an absence of any contract, each is liable with respect to how much they
are at fault
• An engineer or a contractor may be liable in tort, as well as in contract

1986 Canada Case – Central Trust Co. vs. Rafuse

• This case was involving solicitors
• The issue here was whether or not a lawyer could be liable to a client in tort, as
well as in contract for damages for failing to meet the appropriate standard of care
• Supreme Court concluded that the solicitor could be liable in tort as well as in
contract
• Tort liability exposed the solicitor to the tort limitation period of six years from
“discoverability”

1988 Case – B.C. Rail Ltd. vs. Canadian Pacific Consulting Services Ltd. et al.
• Design deficiencies existed that related to an overhead contact system in a tunnel
for electrically powered locomotives
• This resulted in tort and contract
• Contract expressly provided that the services were to be performed with
reasonable skill, care, and diligence
• Contractor was bound to ensure that its subcontractors performed to the same
standards
• The design of this overhead contact system was subcontracted
• Subcontractor carried out no testing or data gathering inside this tunnel, and
didn’t request copies of underlying reports
• It was also not communicated that a huge volume of water that was leaking
through the tunnel rock, or the presence of sulphur compounds
• Within 14 months, extensive damage to the contact system in the tunnels was
discovered
• This water produced a very humid atmosphere that produced stress corrosion and
caused cracking damage
• Owner brought an action for damages for breach of contract and negligence.
• Failure to gather the necessary data was regarded as a clear breach of duty of care
imposed by the contract
• Owner was entitled to recover the reasonable costs of redesigning and rewiring
the system, as well as the cost of future replacement and wire

1993 BC Case – B.G. Checo International Ltd. vs. British Columbia and Power
Authority:
• Case involved a contract to install transmission lines
• Term of the contract stated that right of way had to be cleared and was expressly
stated in the contract
• This was a negligent misrepresentation in the tender documents
• The right of way had not been adequately cleared
• It was proven that B.C. Hydro knew before tenders were closed that the contractor
hired to clear the right of way hadn’t been done properly
• Court held that B.C. Hydro had a duty to tell the tenderers that the right of way
hadn’t been cleared, and was negligent for not doing so.
• As such, B.C. Hydro was sued and found concurrently liable in contract and in
tort
Law Section – Chapter 23 – The Duty of Honesty
• When an engineer enters into a contract, they assume a duty of care in performing
services
• It is also implicit that the engineer act with absolute honesty
• The penalties for dishonesty are quite severe
• Where fraud is concerned, a contract may be repudiated and damages may be
sought after claiming for tort, or deceit
• Also, fraud is a criminal offence, and upon conviction, the person can be
convicted and sent to prison for up to 10 years
• Engineer is usually retained as the agent of the client
• Relationship of trust exists between an agent and his or her principal (client).
• Section 426 of the Criminal Code deals with the violation of the principal-agent
relationship. This section deals with bribes and kickbacks, or secret
commissions
• A conviction for taking secret commissions can result in imprisonment
• Various sections of the Criminal Code, and sections of other statutes, provide
sanctions to deal with dishonesty
• These include fines and imprisonment, and they stress how honesty and integrity
in Canadian business dealings is important
• Engineer should also be aware that, under section 121 of the Criminal Code, it’s
an offence for a gov’t employee to accept any gift from a person who has dealings
with the same government, unless the head of the employee’s government branch
confirms in writing.
• It’s also an offence to give a gift that would benefit the employee if the person
giving the gift has dealings of any kind with the same government
• This is punishable by imprisonment of up to five years.
 Law Section – Chapter 24 – Construction
Contracts
• Engineer is not normally part of a construction contract
o Engineer usually has a separate contract with the owner, the client
• Under this separate contract, the engineer may prepare plans and specs to assist in
the bidding process, and to also delegate the construction contract between the
owner and contractor
• As the administrator, the engineer may make decisions of major significance to
the rights and obligations of the owner and contractor
• Example: Many construction contracts state the engineer interprets the provisions
of the contract, and be the judge of performance with respect to what’s laid out in
the contract
• Engineer usually gives enough time for the parties to reach a decision, and at
worst case, get a higher authority, like the courts, to decide the final outcome
• The way in which an engineer should carry out his or her decision-making powers
has been the subject of many court decisions
• Some examples of how an engineer acts as administrator with this authority
granted by both the owner and contractor are:
o Prepping payment certificates
o Inspecting the progress of construction and reject work if it doesn’t
comply with contract documents

1953 Ontario case – Brennan Paving Co. Ltd. vs. Oshawa

• Court considered the conduct performed of an engineer who acted as an agent for
the owner
• Engineer also acted as a certifier for payment certificates
• Court said that as a certifier, the engineer is required to act prudently, and in an
unbiased manner
• Engineer should not act as agent on behalf of the owner in this case

1960 Canada Case – Kamlee Construction Ltd. vs. Town of Oakville

• Construction contract stated that the decision of the engineer shall be final and
binding in terms of interpreting the specs of the material and workmanship of the
project
• Contractor disagreed with the decisions made by the engineer
• Battle of wills developed between the engineer’s reps and the contractor’s reps
• Supreme Court of Canada said that the contractor wasn’t entitled to repudiate the
contract because of the engineer’s conduct
• Under this kind of contract, courts concluded that the engineer is required to act
judicially, and make decisions using his or her own best judgment
• These decisions shouldn’t be affected, even though they are being paid by the
owner
1959 Case - Croft Construction Co. vs. Terminal Construction Company

• Parties in the contract agreed that payment to the contractor would be based on
the engineer’s calculations
• Court said that the engineer’s figures would govern the payments, even if the
engineer made an honest mistake
• Court said that engineer was owing a duty of care, and the engineer wasn’t out to
deceive people

1974 House of Lords Case – Sutcliffe vs. Thackrah

• Architect acted as owner’s agent in prepping payment certificates, and was under
a duty to the owner to exercise care
• Architect was therefore liable to the owner for negligent over-certification, unless
they could show that the architect was simply acting as an arbitrator
• Architect wasn’t able to show this, and therefore he was liable for any loss due to
this lack of skill or diligence
• House of Lords said that immunity from being liable is only granted to an
arbitrator
• Because he was acting as a certifier on behalf of the owner, he wasn’t able to
escape liability
• Therefore, when an engineer is given the authority to make decisions that are final
and binding between the parties in a construction contract, the engineer has to act
prudently and fairly, even though they are being paid by the owner
• In acting “judicially”, the engineer must act independently of the owner
(principal), and in good faith

Certificates Fraudulently Prepared:

• Grant, Smith & Co. vs. The King case was about certificates prepped by an
engineer in collaboration with a drilling contractor in an attempt to charge more
than necessary and overstate rock quantities
• Certificates were set aside in courts

Inspection services:
• When administering a contract, an engineer normally acts as an inspector as well
• In doing this, the engineer must carry out their duties competently, and should
demonstrate a reasonable amount of skill
• Unless the contract says otherwise, the engineer will be expected to inspect all
significant steps of construction
• This inspection must be personally done by the engineer, or by representatives of
the engineer who he or she has deemed competent
• The courts expect high standard from professionals
1976 Ontario case – Davous vs. Zuliard et al.
• Architect entered into a contract for designing and supervising the construction of
a house
• During construction, a metal chimney was installed too close to wooden joists
• This oversight eventually resulted in fire damage to the house
• Court considered the architect’s inspection of the chimney installation
• They were installing the chimney, and the architect said it was too close, and
directed them on the proper procedure
• Later, a prefabricated fireplace came in to be installed, but it arrived late and they
were in a rush to put the fireplace in because of some urgency to complete the
building, and there was some gyprock in the way of the chimney
• Court said that the architect should have suggested to move some of that gyprock
out of the way to examine the chimney, but it would have cost too much
• As such, they should have been made sure that the chimney was properly
installed, and the architects were found liable

The Engineer’s Advice to the Contractor

• In a construction contract, the engineer is normally expected to inspect, rather
than supervise the work methods of the contractor
• Most construction contracts passes over complete control of construction to the
contractor
• With respect to tort laws, the engineer may be expected to advice a contractor in
situations where the contractor is relying on the engineer’s expertise
• Engineer must be extremely careful when doing this because this may give to a
damage claim when making a difficult judgment call
• Some contracts have the engineer approve the contractor’s work methods.
• In this case, the obligations of the engineer are more clear

1977 Canada Case – Demers et al. vs. Dufresne Engineering et al.

• When constructing bridge piers, the contractor failed to use enough vertical
reinforcing steel in constructing a caisson
• Caisson exploded under pressure and had to be rebuilt costing $1.4M
• Supreme Court of Canada held that the engineer was 50% liable
• This exploded because of the work method performed by the contractor
• Engineer was aware of this incorrect method of doing the work, and if he wasn’t,
he should have been because a prudent and reasonable person should have
• Also, since the engineer remained silent, he implicitly accepted the work method,
which caused the accident
• By failing to offer guidance to the contractor, the engineer was also liable

Contract Administration:
• Engineer should ensure that the construction contract is issued out according to its
terms
• Very often, contracts are prepared in a manner that is contrary to some of its terms
 • An example is when payment dates are overlooked, or parties may ignore certain
requirements that were said in a contract
• The conduct of the parties during construction may not be the same as outlined in
the contract when it was signed
• If contract “extras” proceed without written authorization, a party may be
equitably estopped from denying that it has waived its contractual rights
• Engineer should have records regarding how the contract was signed and
negotiations were conducted
• They may be asked to recollect events in case court claims arise

Drawings and Specifications:

• One of the most important services provided by an engineer on a construction
project is prepping conceptual and detailed drawings and specs to describe the
work
• Engineer’s drawings and specs will be the basis of the contractor’s prices
• The engineer’s client will rely on the plans and specs as well
• During construction, disputes frequently arise as a result of incomplete or
ambiguous drawings
• It’s surprising how often an owner and a contractor begin construction without
detailed drawings and specifications
• This is because they try to speed up construction, usually to avoid high costs, and
to take advantage of weather conditions
• This might reflect the best intentions, but it can lead to disputes

1979 Manitoba Case – Trident Construction Ltd. vs. W.L. Wardrop and Assoc. et al.
• Court displayed a sympathetic attitude to the contractor, when an engineer had
failed to specify a proper design
• Judge considered whether a potential disaster might have been detected if the
contractor had investigated, or reworked the engineer’s design
• Judge said that since there’s very little time between the engineer submitting his
work, and submitting a bid to the owner, the contractor relies on the engineer’s
expertise
• Because there’s little time, the contractor cannot check the drawings to submit the
bid, so he relies on the engineer
• The engineer should be sure that the drawings are not ambiguous and very
detailed

The Tendering Process:

• When contractors submit bids, the acceptance of any one of these bids constitutes
a contract between the successful contractor and owner
• As the owner’s agent, the engineer is usually involved in prepping the tendering
documentation
• The Information to Tenderers package is released by the owner, and it usually
includes a general description of the nature of the project, plans and specs, bid
deposits, etc. etc.
 • Also, the package normally says that the lowest bidder may not necessarily be
accepted
• Tender is a contractor’s offer to complete construction described in the bid’s
submission
• Important to include a form of the construction contract that the owner is prepared
to sign that makes up the documents delivered to the contractor prior to bid
submission

Types and Forms of Construction Contracts

• Under common law, parties have the right to choose their terms and conditions
• Therefore, there aren’t any prescribed formats for construction formats
• However, there are certain types of contractual agreements and contract formats
that are used in industry
• Some of these formats have been reduced to standard forms
• Parties should closely examine a proposed standard form to determine if it reflects
the agreement they wish to express
• Some examples of the different types of contracts
o Stipulated-Price or Lump-Sum Contract:
▪ This gives the owner knowledge of the total price to pay for the
completion of the project
▪ Must make sure that detailed plans and specs form the basis of a
contractor’s price
▪ This can produce some risk: Additional costs may arise due to
weather problems, etc.
▪ If a contractor has submitted an unreasonably low price, they may
try to cut costs and look for opportunities to claim extra
compensation
o Unit-Price Contract:
▪ Used when projects are difficult to predetermine quantities
▪ Bids are submitted on the basis of price per unit item
o Cost-Plus Contracts:
▪ A) Cost Plus Percentage: This type of contract provides
compensation to the contractor for costs incurred. Also provides a
reasonable percentage to cover the contractor’s overhead and
profit. Usually used on large scale projects
▪ B) Cost Plus Lump-Sum Fee: This is like the cost-plus percentage
agreement, but the contractor doesn’t receive a percentage of the
contractor’s costs
▪ C) Cost Plus Lump-Sum Fee plus Bonus: Contractor is provided
with an incentive to reduce costs. For every dollar saved on an
agreed estimated total cost, contractor may receive additional
compensation of an agreed-upon percentage of the saving.
o Guaranteed Maximum Price plus Bonus
▪ This incorporates an incentive to the contractor to effect savings on
a cost-plus project
 ▪ Contractor receives a fixed fee, and an agreed-upon percentage of
savings
o Design-Build Contracts:
▪ This type of contractor, the contractor arranges to obtain the
necessary engineering design services to finalize the design detail
▪ Work often proceeds on a cost-plus-bonus basis
▪ This is used when the owner does not have professionals to verify
the construction work done, but they have the right to their own
representative
▪ The owner’s representative can double-check the services provided

Project Management:
• The design-build contract is often used in connection with projects that are
organized in a project management style
• Owner usually enters into a contract with a project manager
• Project manager acts as the owner’s agent, and acts on the owner’s behalf to
arrange for professional design services, and to hire contractors to complete the
construction
• Project manager usually has experience and the contacts necessary for speed up
the design, tendering and construction stages
• The project manager receives a fee for acting on the owner’s behalf
• This fee is included with the addition of the contracting cost and the design cost,
where the owner would incur this cost in any case
• Project manager simplifies the construction process for the owner
• Hiring a project manager may lead to cost savings on the project

Prime Contract and Subcontracts:

• When the owner enters into a construction contract with a general contractor, the
general contractor enters into subcontracts with various trade contractors
• A contractual relationship, called a privity of contract, exists between the owner
and contractor, and a privity of contract exists between the contractor and any of
the subcontractors
• However, no privity of contract exists between the owner and any of the
subcontractors
• To ensure consistency, the terms and conditions in the contract between the owner
and contractor should be included in the contracts between the contractor and any
of the subcontractors
• The engineer-administrator can make sure that smooth contractor administration
exists by making sure the general contractor is consistent in the head contract
(between owner and contractor), and all of the subcontracts.

Delay and Interference Claims:

• Claims on account of delay may result when inquiries from the contractor are not
properly answered
• Contractor may be required to delay construction until a reply has been received
 • Claims of interference result when works of subcontractors overlap, or when a
project isn’t well co-ordinated
• The engineer-administrator should make sure that the responses to contractors’
enquiries are provided quickly to minimize delay and interference claims

Compliance with Notice Provisions:

• For contractors to be granted time extensions, or other relief due to unforeseeable,
or excusable delays, it’s usually done with given written notice within a specified
time stated in the contract
• As a general rule, courts haven’t been very forgiving. They strictly interpret
clauses in a contract that require timely notice on such events

1977 Case – Corpex Inc. vs. Canada

• Excavation took place that a construction contractor took, with a contract with the
Crown, to build a dam
• After project was finished, contractor brought an action claiming for the costs
incurred due to mistaken information provided by the Crown’s engineers
regarding the nature of the soil
• Also, they were claiming for the costs resulting from delays and disruptions
• These delays resulted by the work performance done by the owner’s engineer
• The Supreme Court allowed this claim of delay, because there was no notice
provision
• In terms of the nature of the soil, the contract allowed for reimbursement of
additional expenses, which was conditioned on written notice of the claim being
provided by the contractor within 30 days after encountering the soil conditions
• Since the contractor didn’t provide this notice, and waited until the contract was
finished, the contractor’s claim in this case didn’t succeed
• Contractor was assured of gaining back the additional costs, only if it complied
with the notice provisions
• The contractor didn’t, so they lost that right to be compensated accordingly

1988 BC Case – Doyle Construction Co. vs. Carling O’Keefe Breweries of Canada Ltd.
• Considered a contractor’s claim for impact costs incurred by the contractor, as a
result of the owner’s delays, interference, and changes of the work sequence
• Contractor said that it couldn’t figure out the cumulative impact cost until the
construction finished, and when the claim was finally made
• Court said that the contractor’s claim was rejected, because they failed to comply
with the terms of the contract to make claims for damages in writing within a
reasonable time frame, after the first observance of such damages

1986 BC Case – Acme Masonry Ltd. vs. Byrd Construction Ltd.

• Subcontractor entered into a subcontract with the defendant general contractor
who was building a court house
 • Because of labour unrest and the unavailability of certain materials, the
performance of subcontract was delayed by several months beyond the original
schedule
• Subcontractor accepted a revised schedule, but gave notice in writing that it was
going to make a claim beyond the amount of subcontract due to the delays
• In the subcontract, the subcontractor was required to set its claim fully in writing
within a reasonable time, after first noticing the damages, and no later than the
time of issuance of the final certificate
• BC Court said that the subcontractor had written a notice the contract that it was
claiming for additional costs
• The subcontractor’s claim was statute barred, because it failed to submit the
detailed claim before the date of the final certificate
• “Notice” of the notice wasn’t enough. The notice had to be provided on time

1987 BC Case – W.A. Stevenson Construction (Western) Ltd. vs. Metro Canada Ltd.
• Plaintiff was a general contractor for building a portion of the Vancouver LRT
system
• Construction contract with the defendant developer stated that 6 milestone
completion dates were to be met within the overall contract time, and an agreed
completion date was set for the whole contract
• Contractor brought an action against the developer, claiming $4.6M in damages
for breach of contract
• They were claiming that the construction had been delayed for not being given
full access to the construction site, and were then forced to accelerate construction
to maintain the tight schedule
• Court found in favour of the contractor
• Court said that developer failed to provide the contractor with the unobstructed
workspace called for in the contract
• They failed to provide time extensions to which the contractor was entitled due to
the obstructed workspace
• Departing from the strict construction of notice provisions, the courts said that
written notice of delays and extra claims didn’t bar the contractor’s recovery,
even though there wasn’t any written notices done up
• Court determined that constructive notice of the contractor’s problems was given
to the developer in the form of miscellaneous written communications, and
detailed minutes of meetings
• Therefore, this constituted as a formal communication between the parties, and it
was sufficient to constitute notice, even though the formal procedure wasn’t
followed
• As such, this opens the door to contractors where in circumstances of a particular
project, complying with strict notice requirements shouldn’t be a requirement to
recovery

Departures from Traditional Contracting Approaches:

• When using standard-form contracts, some projects may depart from traditional
contract arrangements
• For example, the popular “fast-track”, or phased-construction approach, where
construction proceeds on certain portions of the project, while other portions are
still being designed
• This often involves the services of a construction manager who coordinates the
project, and also might do some construction work
• Engineers play a key role on projects implementing these non-standard new
approaches.
 Law Section – Chapter 28 – Arbitration and
ADR
• Lawsuit may not always be the best way to resolve a dispute between parties,
especially those of a technical nature
• Disputes can also be resolved by a somewhat less formal procedure, called
arbitration
• Arbitration has developed to provide an alternative that is geared to be less costly,
less protracted, and less public than lawsuits
• Arbitration is now a common approach to resolving disputes
• This is also part of alternatives on approaches of Alternative Dispute Resolution
(ADR) on engineering projects
• Engineer is often involved in arbitrations
• Engineer may act as an expert witness as well
• Arbitration of disputes of a technical nature are very sensible, because if brings
the case before an arbitrator who is already familiar, at least in a general sense, of
the technical nature of the subject matter in the dispute
• Provisions for arbitration are generally included in construction and engineering
contracts
• Sometimes, contracts provide that arbitration is mandatory, and cannot pursue a
lawsuit
• Also, sometimes contracts may say that arbitration will take place, upon the
approval of both parties

Appointment of Arbitrator:
• Some contracts describe the manner in which an arbitrator is appointed, and detail
the procedure that governs arbitration
• Example: Arbitration clause may state that each party to the dispute appoints a
representative arbitrator, and that these arbitrators shall appoint a chair, creating a
three-person arbitration board
• This could also state that if the two arbitrators can’t reach an agreement about
who to appoint chair, the court can decide

The Arbitration Act:

• Engineering and construction contracts usually stated that arbitration will be
governed by a provincial arbitration statute
• This is typically the statute of the province that governs the interpretation of the
contract
• Act deals with the appointment of an arbitrator, or arbitrators
• It governs a set of rules for conducting arbitration, unless the parties agree that
some other rules will apply
• Arbitration Act limits the circumstances in which courts can interfere with
arbitration process, or review the arbitration award
 • Prior to January 1, 1992, arbitration awards in Ontario could be reviewed by
judges
• These reviews and appeal procedures gave the unsuccessful party the opportunity
to prolong the dispute, and delay have to pay the successful party
• Arbitration Act now limits the range of cases where the arbitration award can be
impeached (appealed)
• The arbitration act should help reduce the hazard that an arbitration hearing will
merely be treated as something that will require more expenses, and to be taken to
court
• Arbitration act also provides a better basis for a dispute to be finally resolved, and
enhances the integrity of the arbitration process
• This is done by placing the common law rule in the act where an arbitrator shall
be independent of the parties, and shall act impartially
• Arbitration Act allows arbitrators now have the same jurisdiction to award
prejudgment and postjudgment interest as courts have
• Arbitration Act expands the scope of remedies that arbitrators can grant, such as
granting equitable remedies like injunctions and specific performance

New Approaches to respond to Dispute Resolution Difficulties on Construction

Projects:
• ADR has proven to be a recognized alternative for resolving disputes, mainly
because the cost and the amount of time devoted to litigation is not preferable

Partnering on Infrastructure and Construction Projects:

• Partnering is currently a commonly used term and concept that is intended for the
need of improved attitudes amongst people in the construction industry to
emphasize teamwork on projects
• It is a concept that is aimed at promoting cooperation amongst all project
participants
• Partnering educates all participants on a project on the benefits that can be
obtained by working cooperatively as a team
• This kind of cooperative attitude should help in resolving project disputes at the
earliest stage as possible

Project Neutral:
• This approach involves the appointment of a project neutral, typically an
independent professional experienced in the construction industry
• This person stays on top of developments on the project and offers advice and
decisions on an unbiased basis
• The project neutral may be retained to help out in resolution of disputes between
parties
• Also, the project neutral could be authorized to make binding decisions with
respect to certain issues and disputes
Mediation:
• People in the construction industry look more for mediation, or conciliation, as an
important step in achieving a negotiated settlement of disputes
• To be successful, parties to mediation need to perceive some advantage to
resolving the dispute through a negotiation process
• This involves an impartial mediator who doesn’t act as an arbitrator or judge, but
is there to provide guidance to the parties, and acts as a “go-between” in
communicating proposed settlement positions
• It’s up to the parties in the contract to settle their differences
• Difference between litigation and arbitration and other forms of dispute resolution
is that litigation and arbitration result in a judgment that is binding
• In mediation, it’s up to the parties to work out their differences
 Law Section – Chapter 30 – Lien Legislation
• A lien is a property right which remains attached to an object after it has been
sold. This object, however, is not completely paid for. Once complete payment
has been made, the property right is released.
• You can think of this as a hold or claim which one person has on the property of
another as a security for some debt, or charge. **Collateral**
• Every engineer in construction should be aware of provincial legislation that
creates certain lien rights and that require amounts to be held back from
contractors until a specified time.
• In construction, this applies to paying the cost of getting something constructed
• You can also think of this as paying the contractor only a percentage amount of
the cost of building the structure
• Once the contractor finishes the task, you release the rest of the funds
• This is to make sure that the contractor has enough to get started with building the
structure, but you don’t pay them all of it so they won’t take off and not get your
building done

Differences in Provincial Lien Acts:

• General purpose of builders’, construction and builders’ lien acts of the provinces
is the same
• However, differences arise from province to province
• For example, calculation of how much to hold back from the total cost, and the
time of releasing the rest of these funds varies from province to province
• How much you hold back is defined as the percentage holdback
• Until any lien is filed, or until the owner is given notice in writing that a lien is
claimed, an owner is protected if he or she retains the required percentage
holdback of the value of the work done
• If an owner releases the holdback too soon, the owner may have to pay additional
funds to satisfy the lien claimants
• Therefore, knowledge and compliance with the applicable lien act is very
important

Persons entitled to Lien rights:

• Construction Lien Act of Ontario provides that anyone who supplies services or
materials as an improvement for an owner, or contractor, or subcontract is
entitled to a lien.

Rights against owner where no contract exists:

• Construction lien rights exist
• Privity of contract normally exists between an owner and general contractor, but
not between an owner and subcontractor
• Therefore, lien rights provide the subcontractor with a cause of action directly
against the owner
 • Without liens, the subcontractor would be limited in an action for breach of
contract against the contractor
• Lien statutes were designed to have some form of protection for parties who don’t
have a privity of contract with the owner directly under the statute
• They also provide a means of resolution for payment disputes that arise during
construction projects

Effect of Lien:
• When an owner receives notice of a lien claim, the owner is obligated to keep the
holdback amount, and the amount of the lien claim.
• What is meant by keep the holdback amount, is to ensure that there are funds set
aside that sum up to the holdback amount
• When it’s time, the holdback amount is released to the person filing the lien claim
• If the owner doesn’t comply with the requirements to hold back, and a lien is
filed, this means that the owner must pay additional funds to satisfy the lien claim
• Engineer may be required to file a lien claim
o Example: Engineer may be authorized to do so by a contractor in
connection to a particular project

Ontario Construction Lien Act:

• Major aspects of the Ontario Construction Lien Act that are of interest to
engineers include:
o A) The holdback amount: Amount of the holdback is 10% of the price of
services or material as they are supplied
▪ This act creates two holdbacks
▪ The first holdback is for work or services performed, before it’s
certified that the contract is almost completely performed
▪ The second holdback is for finishing the work
▪ Since there are two holdbacks, lien claimants who want to make a
claim for work done before the contract is finished, and when it’s
finished have to make separate lien claims
o B) Release of holdback: Holdback may be released when all tasks that are
subject to the lien have either expired, or have been satisfied, discharged,
or provided for by payment in court
• There isn’t an obligation to release holdback at a certain time
under the Act
• However, obligation to release holdback funds is usually covered
in the construction contract or subcontract
• The Act provides the certification or completion of a subcontract,
in order to allow the release of holdbacks related to a certified
completed subcontract
o C) Certification of Substantial Performance:
• Statutory provisions exist that deal with certification or declaration
of almost completing the contract’s requirements, or substantial
performance, and for certification of completion of a subcontract
 • These are the two trigger points that figure out when holdbacks can
be safely paid out, and when lien rights will expire
• Substantial performance can come in many forms:
• I) When an improvement has been made, or a substantial
part of the project is completed and is ready for use
• II) When the improvement to be made is capable of being
completed, or if there is a known defect, but costs a fraction
of the original contract price to fix
• The Act defines the term completed when the price of completing
the project, or correct a known defect is not more than 1% of the
contract price, or $1000, whichever is the least
o D) Damages for non-certification:
• If an engineer doesn’t certify substantial performance, the engineer
may be liable for damages
• Act states that anyone who is required to certify substantial
performance and fails to do so within a reasonable time limit, even
though there isn’t a doubt that the contract is substantially
performed, will be liable to anyone who suffers damages as a result
• Also, a certifier who fails to deliver this certificate to the owner
and contractor within seven days of certification will also be liable
o E) Who May Lien:
• Any person who supplies services or materials to an improvement
will have a lien upon the property interest of the owner
• If the construction hasn’t started, anyone who supplies designs,
plans, drawings or specs that enhance the value of the land is
entitled to a lien
• Architects, however, don’t have lien rights, so they claim the entire
amount of their services without any holdbacks
o F) Prohibition against waiver of lien rights: The act says that agreeing to
wave lien rights is void
o G) Limits on Amount of Lien Claim
• Lien may be claimed only for the price of services and material
supplied prior to the time of the claim
• This is in order to reduce exaggerated lien claims
• Also, anyone who makes a fictitious or outrageous claim is liable
to any person suffering damage as a result
o H) Preservation of Lien Claims
• Preservation here means to describe the method of claiming a lien
• The act allows 45 days. When the 45 day period starts depends on
the circumstances.

The Trust Fund:

• Trust obligations are included in the act
• Example: Contract states that the owner must pay the contractor a certain sum
when an authorized person, like an engineer, certifies so
 • This sum constitutes a trust fund in the hands of the owner, for the contractor’s
benefit, and no part of this trust fund can be used by the owner except in
accordance with trust-fund provisions of the Construction Lien Act
• Trust-fund provisions also extend to amounts received by contractors and
subcontractors
• These amounts are subject to a trust for the benefit of those supplying services or
materials
• In the event of non-payment of trust monies, and where lien rights have expired,
an action under the trust-fund provisions to recover misappropriated trust funds
may provide a remedy

Engineer’s rights to lien claims:

• Engineers’ entitlement to lien claims is now confirmed by statute, provided that
the services enhance the value of the project

1971 BC Case – Application of Erickson/Massey

• Architect prepared plans for a building, and also supervised its construction
• Court held that he was entitled to a lien under the Mechanics’ Lien Act of BC,
even though he was an architect
• Earlier decision stated that he wasn’t entitled to claim for a lien
• However, the earlier decision was different. The architect actually supervised as
well as making plans. He wouldn’t be entitled to a claim if he just made the plans
• However, just supervising doesn’t mean that you are entitled to a lien in all
provinces

1965 Alberta case – Englewood Plumbing & Gas Fitting Ltd. vs. Northgate Development
Ltd. et al.
• Architect was allowed to file for a lien claiming payment for his services in
prepping plans, although the architect didn’t perform any supervision duties with
the construction

1975 Ontario case – Armbro Materials and Construction Ltd. vs. 230056 Investments
Limited et al.
• Engineer had prepped plans for sewers, water mains, and roads in a subdivision
• Plans had to be approved by municipal authorities
• Engineer was also kept to supervise the construction of these services
• Approval of the municipality was obtained, but the construction didn’t proceed
due to financial reasons
• Engineer made a claim for a lien
• Court stated that the engineer’s plans and the architectural plans were different,
because the engineer’s plans increased the value of the land, and was entitled to
his claim for lien.
 Law Section – Chapter 32 – Regulatory
Aspects and Ethics
• Each province and territory in Canada has enacted legislation to govern the
practice of professional engineering
• The engineer should become acquainted with the applicable legislation in the
province that they’re practicing in

Purpose of Legislation:
• The purpose of legislation for governing engineering is to regulate the practice of
professional engineering to protect the public interest
• The regulations under the Professional Engineers Act of Ontario respond to the
objects of the PEO by addressing a wide range of matters

Definition of Professional Engineering:

• Professional engineering is defined in the various provincial statutes
• The practice of professional engineering, as defined in section 1 of the
Professional Engineers act of Ontario is the following:
o Any act of designing, composing, advising, reporting, directing, or
supervising wherein the safeguarding of life, health, property, or where the
public welfare is concerned, and requires the application of engineering
principles, but does not include practising as a natural scientist

Professional Engineer’s Seal:

• In all common-law jurisdictions of Canada, a professional engineer is required to
stamp drawings and specifications with their seal
• This seal is issued by the professional association, and it indicates that the
engineer is a registered professional engineer
• It is important that each engineer closely controls the use of this seal and ensure
that it’s only used when appropriate
• Improper use of this seal in Ontario can result in disciplinary proceedings and
very hefty fines for individuals, corporations and partnerships
• Section 53 of the Professional Engineers Act states that every engineer with a
license, temporary license, or limited license who provides to the public a service
that is within the scope of professional engineering, they will sign, date and affix
their seal to every final drawing, spec, plan, report or other document prepared or
checked by the engineer as part of the service before it’s issued
• Part of the definition of professional misconduct is defined as signing or sealing a
final drawing, spec, plan, report, or other document not actually prepared or
checked by the practitioner

Partnerships and Corporations:

 • The regulatory provincial common-law statutes define that a partnership or
corporation may be granted a certificate of authorization, which grants them to
practice professional engineering
• These professional engineering services must be practiced under the responsibility
and supervision of a licensed professional engineer, and complies with the
applicable provincial statute and regulations accordingly

Disciplinary Hearings:
• Regulatory statutes authorize what disciplinary action may be taken against
members of the association for professional misconduct
• Disciplinary hearings are performed by the Discipline Committee
• They determine the allegations of professional misconduct or incompetence that
the engineer is accused of and determine a method of disciplinary action
• Disciplinary action may result in reprimands, suspensions, fines, and cancellation
of membership and licenses
• These decisions can be appealed in the courts, in accordance with the provisions
of the applicable regulatory statute

Penalties:
• The offense provisions of the statutes that regulate engineering impose penalties
of various kinds, depending on what the situation is
• The penalty for practising professional engineering without a license, or when
holding oneself as an engineer without being properly licensed includes a fine of
not more than $25K for the first offence, and for each subsequent offence, a fine
of not more than $50K

Certificates of Authorization:
• Professional engineering membership alone doesn’t qualify engineers to offer
services to the public, or engage in the business of providing services to the public
• These services the services that are within the realm of professional engineering
• A certificate of authorization is also required
• Applicants for certificates of authorization, including individual members,
partnerships, and corporations, must meet the requirements and qualifications
pursuant to the Professional Engineers Act
• All holders of certificates of authorization must have professional liability
insurance, subject to certain exceptions stated in Section 74 of the regulations
• Certain circumstances are exceptions to being insured, such as situations
involving nuclear hazards
• Written authority from the client for professional engineering services to be
performed without insurance is also an exception

Overlapping in the scope of engineering and architectural practices

• The term professional engineering is broadly defined by the regulatory statutes
• Occasionally, the broad definitions lead to confusion
 • One of these confusing moments is the distinction between the functions of an
engineer and an architect

1939 BC case – Rex vs. Bentall

• A professional engineer from BC had planned and supervised the construction of
a theatre
• He was convicted for unlawfully practising as an architect

1955 Ontario Case – Regina vs. Margison and Associates, Limited

• Engineering firm was charged with representing itself as an architect
• Court examined both the Professional Engineers Act and the Architects Act to
decide whether the project was essentially one for an engineer, or for an architect
• However, neither act provided the court with definitions that are specific enough
to distinguish between the two professions
• The action against the engineer in the firm failed
• Court said that they were not able to find something that would enable the Court
to draw a line between the two professions in this project

Background to changes in Ontario Legislation:

• In Ontario, the Professional Engineers act includes clauses to simplify the “scope-
of-practice” dispute between professional engineers and architect
o In other words, there are clauses in the Professional Engineers act that
ensure that there can be a distinction between professional engineers and
architects
• These provisions describe the nature of construction projects that can be designed
by engineers alone, architects alone, or both
• These provisions were worked out by PEO, and the Ontario Association of
Architects (OAA)
• Two provisions were made, and an agreement was reached
• First premise: Engineers should confine their professional activity to the practice
of engineering, and the same for architects
• Second premise: A client is free to select the prime consultant of the client’s
choice
• A joint practice board, composed of three engineers, and three architects,
appointed by the PEO and OAA was created
• This board would be authorized to make recommendations to the PEO and OAA
and to handle complaints that are interprofessionally related
• Section 47 of the Professional Engineers Act of Ontario now provides for a joint
practice board and are authorized to recommend the issuance of licenses
• Firms are now entitled to practise both professional engineering and architecture
• However, if there is a dispute arises between an architect and a professional
engineer, they may refer the matter to the joint practice board and they will deal
with it further
Litigation vs. Disciplinary Matters
• In order for a professional engineer to be liable for tor remedies, or for seeking
damages for breach of contract involving a duty of care, the damages have to have
been caused by the engineer’s negligence, whether the lawsuit is in tort or
contract, or both
• In other words, damages caused by a negligent engineer is required for the
defendant engineer to be liable in such a lawsuit
• This prerequisite, however, is not required for disciplinary action against the
engineer under the Professional Engineers act
• Disciplinary proceedings under the Professional Engineer’s Act proceed in the
form of allegations of professional misconduct, or incompetence
• As such, section 72 of the Regulations under this act sets out definitions of
negligence and an extensive list of what is defined as professional misconduct
• Negligence is defined as: An act or an omission in the carrying out of the work of
a practitioner that constitutes a failure to maintain the standards that a reasonable
and prudent practitioner would maintain in the circumstances
• This definition is tied to the duty of care that a court would apply in a lawsuit,
determining if a professional engineer was negligent
• The disciplinary process under the Professional Engineer’s act describes
situations where a negligent professional engineer can be charged, even where
damages haven’t been a consequence of the engineer’s negligence, or omission
• Example: When it can be shown that a professional engineer had negligently
prepared drawings and specs, the professional engineer could face disciplinary
hearings, even though construction of the building by these drawings didn’t take
place
• Professional engineering is a self-governing regulation
• The disciplinary process provides sanctions that can be applied independently of
any lawsuit
• This is important for maintaining professional standards, and to ensure that public
interest is served and protected

Code of Ethics:
• Code of Ethics under the Professional Engineers act of Ontario provide for high
standards of duty, conduct, and integrity
• These high standards are extremely important from a technical perspective for
professional engineers, for they are guardians of public safety
• Professional engineers must respect and implement their codes of ethics as
professionals, performing their services to the public, employers, clients,
colleagues, the profession and themselves
• Section 77 of the Professional Engineers Act lays out PEO’s Code of Ethics
• The code contains standards of conduct designed to protect the public
• Important: Review the Code of Ethics document… it’s included with the
package, and will be provided on the exam
• The code of ethics focuses on the importance of desirable characteristics that
engineers understand, like fairness, loyalty, honour and integrity
• This also describes that the safety of the public is paramount
• Code of Ethics also emphasizes the protection of confidential information of
employers and the dissolving of conflicts of interest
• When an engineer reviews the work of another engineer, the other engineer is to
be notified
• The responsibility of the engineer to their profession is to maintain the
profession’s honour and integrity
o To maintain this, the engineer may be required to testify to expose
dishonest or unethical conduct by a colleague
• Section 72 lays out the definitions of professional misconduct, and should be
reviewed, and they are also provided on the exam
• Failure to take action to safeguard life, health, property, or the safety of welfare is
within the scope of professional misconduct, and negligence
• Failure to warn an employer of the consequences to be expected from a proposed
deviation of work, are called “shortcuts”, and are not recommended
• The engineer must stay alert to such developments and issue appropriate warnings
accordingly
• The Code of Ethics describes what is defined as a “conflict of interest”
• These demonstrate circumstances where there is a potential for the engineer to
inappropriately gain on a personal basis
• These include taking secret commissions, bidding as a contract on a portion of the
project where the engineer is providing these services, acting as a supplier to a
project on which the engineer is engaged, and contracting outside the scope of
the engineer’s employment, without telling the client.
 Law Section – Chapter 33 – Industrial
Property
• Rights that relate to patents, trademarks, copyrights and industrial designs are
sometimes called industrial property rights
• These statutes describe things as obtaining patents of invention, registering
trademarks copyrights, and industrial designs

Patents of Invention:

Definition:
• The Patent Act defines an invention as “any new and useful art, process, machine,
manufacture or composition of matter, or any new and useful improvement in any
art, process, machine, manufacture, or composition of matter”

What may be patented:

• What can be patented?
• The definition above is a broad one
• An idea by itself isn’t patentable: This idea must be reduced to something
physical

Permutit Co. vs. Borrowman

• Court case involved patents
• Court said that it isn’t enough for someone to say that an idea came to mind
• They must have reduced it to a definite and practical shape before they say they
have invented a process

1929 case – General Electric Company Limited vs. Fada Radio, Limited
• Court stated that patentable inventions must have two characteristics: Utility,
and novelty
• These characteristics must result when applying this invention in terms of its
ingenuity and skill
• Discovery of something that may be altered to produce a new result will not
qualify for a patent
• One must show that ingenuity has been applied to discovering this invention to
produce a novel and useful method or result
• A patent may not be obtained when an application to a patent of the same
invention has already been filed, or the invention has been in public use, or
disclosed to the public

Term of Patent:
• The duration of when the patent is in effect is 20 years from the date of
application for the patent
 • If a particular invention has been granted a patent, no other valid patent can be
granted with respect to that invention

Assignment and Licensing of Patent Rights:

• The value of a patent is enhanced when patent rights are assigned to others, where
this assignment is done in writing
• The owner of a patent can assign part, or all of the patent rights, in whole or in
part, to someone
• Patent rights can also be licensed on an exclusive or non-exclusive basis
• Usually, there’s a royalty fee that is charged, based on the percentage of sales of
the patented product
• Assignment of a patent right must be registered by the Patent Office
• Otherwise, it will be void, and unenforceable against a subsequent person that is
assigned a patent right

Infringement of Patents:
• The owner of an issued patent has the right to use, or license, the patented
invention
• Infringement of a patent entitles the owner of the patent to claim all damages that
were sustained by such an infringement
• Also, damages to any of the owner’s licensees (those people who were granted
patent rights by the owner) are entitled to damages by this infringement
• To recover damages, court action may be brought
• Courts will have to decide whether the patent is valid, and the defendant has
attempted to take credit for the plaintiff’s invention
• If the court decides in favour of the plaintiff, the inventor may obtain an
injunction to restrain the defendant from any further infringement
• Also, the inventor may recover any damages that he or she can prove were
incurred as a result of the infringement

Assignment of Patent Rights by Employee Engineer:

• Generally, it is the inventor who is entitled to apply for a patent
• The engineer may be requested by their employer to execute an agreement that
assigns to the employer, some or all of the patent rights, that an engineer may be
entitled to during the course of their employment
• In general, in the absence of a contract, the invention of an employee does not
become the property of the employer, even though it was made in the employer’s
time, materials, and at the expense of the employer
• There is an exception to this rule. If the employee is expected to apply his or her
ingenuity and inventive faculties during the course of employment, this is an
exception
• Therefore, if an engineer is employed to invent, and produces a patentable
invention during the course of their employment, the patent belongs to the
employer
 • However, these patent rights extend only to inventions that arise during the course
of employment

British Reinforced Concrete Engineering Co. Limited vs. Lind

• A drafter in an engineering drafting office must use his abilities of skill and
inventive faculty that he may possess.
• Withholding these abilities means that he is not performing his duty to his
employer accordingly
• He is paid to make the best design that he is capable of doing
• Usually, any work that comes out of employment, where the person is required to
use his or her inventive ability will belong to the company, unless that work is
outside of the jurisdiction of the workplace
• The court said that the defendant was a person who was getting a small wage, and
they saw that the fruits of his brains and labour shouldn’t belong to his employer
• However, this person was hired for this purpose, and to get over the difficulties
that arise when solving these difficulties with the business

Trademarks
• A trademark is defined as a mark that is used by a person for the purpose of
distinguishing wares or services manufactured, sold, leased, hired or performed
by this person from those manufactured, leased, hired, or performed by others
• A trademark may be registered according to the Trademarks Act in connection
with wares and/or services
• The registration of a trademark gives the owner exclusive right to use the
trademark throughout Canada in associate with the services covered by the
registration, unless shown to be invalid
• An essential feature of a valid trademark is its distinctiveness
• The trademark must distinguish goods of one manufacturer from another
• Manufacturers must not deceive the public
• A trademark registration that ceases to be distinctive may be cancelled

When trademarks are registrable

• The trademarks act lists certain words and marks that may be registered as
trademarks
• A trademark can be registered if it isn’t:
o A word that is simply the name or surname of a person who is living or
has died in the past thirty years
o If it’s clearly descriptive of the quality or character of the services
o If the name is used in connection of the services that are offered
o Confusing with a registered trademark

Licensing:
• The trademarks act allows a trademark to be used by third parties
• In order to maintain the distinctiveness of a licensed mark, third parties must be
licensed under the authority of the trademark owner
 • The trademark owner is allowed to have direct, or indirect, control of the
character or quality of the services provided by the licensee
• If a trademark is used by a licensee, the packaging, advertising of materials must
include a notice of identity of the trademark owner, and the existence of the
license

Duration of Registration:
• Trademarks act states that registrations are effective for a period of 15 years
• Registrations may be renewed for unlimited subsequent periods of 15 years each
• Trademark registration may be cancelled if the owner stops using the trademark

Infringement:
• A person who infringes a valid registered trademark by using the same, or
confusing mark, may be restrained from using the mark
• That person may also be liable for damages that resulted from infringing that
mark
• Forgery of a trademark, with intent to deceive or defraud the public is an offence
under the Criminal Code of Canada, and is punishable by fine and imprisonment
for up to 2 years

Passing off:
• Owner of an unregistered trademark may sue a defendant who uses the same or
similar mark in a passing off
• Plaintiff must show the mark is identified with the plaintiff’s services in the
relevant market place
• The defendant’s use of the name or a similar mark is causing customers to
purchase from the defendant, when they are mistaking the defendant to be the
plaintiff
• Remedies for passing off are the same as where the owner of a registered mark
has their mark infringed

Copyright:

Definition:
• Copyright means the sole right to produce, or reproduce work, or any substantial
part thereof in any material form whatever
• It conveys sole right to perform the work or any substantial part thereof in public
• If the work is unpublished, copyright conveys sole right to publish the work, or
any substantial part of it
• Copyright doesn’t protect designs applied to useful articles that are mass
produced

Terms of Copyright:
• Copyright exists for a term that equals the life of the author, and a period of 50
years after the author’s death, unless stated otherwise
Registration of Copyright:
• The Copyright Act states that an author, or author’s legal representatives, or an
agent, may apply for the registration of a copyright at the Copyright Office
• Registration is not essential to copyrighting
• However, registration of a copyright in a work may help the owners in obtaining
damages for infringement
• This also protects people from claims of other people who state that the original
parties of the copyright infringed on the copyright

Ownership of Copyright:
• First owner of the copyright is the author of the work
• Owner of the copyright is allowed to assign the copyright in whole, or in part
• The assignment must be in writing to be effective, and may be subject to
territorial, and timing limitations

Moral Rights:
• The creator of the work where a copyright exists has also moral rights associated
to it
• Moral rights include the right to be identified as the author by name or
pseudonym, or the right to remain anonymous
• Also, the right to the integrity of the work is granted
• The right to integrity is infringed if the work is altered in any matter, or used in
association with a product, service, cause, or institution
• Such use affects the honour or reputation of the author
• Remedies for infringing moral rights are the same as copyright infringement
• Moral rights may be waived, but cannot be assigned, and this must be done in
writing

Engineering Plans:
• Copyrights in engineering plans generally belong to the engineer who created the
plans, or to the engineer’s employer if the plans were created in the course of such
employment
• If an engineer preps plans for a client, the client is not allowed to reproduce the
engineer’s plans or repeating their design in a new structure without consent of
the engineer, unless otherwise agreed

Industrial Designs:

Definition:
• Industrial Design means any features of shape, configuration, pattern, or ornament
that are applied to finished articles and appeal to, and are judged solely by the
eye, where the articles are multiplied by an industrial process
• Only these designs that are ornamental or aesthetic in nature, as opposed to
functional, qualify for protection under the Industrial Design Act
 • Mechanical construction of an object doesn’t form part of the design, and neither
does the method of manufacturing
• Construction and method of manufacturing are purely functional
• In order to qualify for protection, design must meet the tests of novelty and
originality
• Application to register the design must be done within one year of publication

Term:
• The author who registers an industrial design is granted an exclusive right to use
the design for a term of 5 years
• The term is subject to renewal for an additional 5 years

Assignment:
• Designs are freely assignable
• Assignment must be made in writing
• The author may license others to make, use, or sell the design during the term of
its statutory protection

Employees:
• Rights to any design made by an employee in the course of employment belongs
to the employer

Registration:
• To register a design under the Industrial Design Act, an author must submit their
drawing and description of the design in duplicate with a fee, to the appropriate
government office
• Registration will be refused if it looks like the design is identical or closely
resembles another design that is currently in use, or previously registered

Trade Secrets:
• A patent of an invention provides monopoly rights for a limited period, which is
the term of the patent
• Once an invention has been patented, its subject matter is no longer private
• Full details of the invention are made public, and are placed in “public domain”
• When the patent expires, the invention may be freely used by others
• Limited term of patent protection causes some concern
o It can be difficult to enforce a patent
• To avoid these problems, inventors don’t obtain patent protection, but rely on
trade secret protection

Nature of a trade secret:

• Trade secrets, or confidential information has been defined as the following:
o Trade secret may consist of a formula, pattern, device, or compilation of
information which is used in one’s business
 o This gives the person an opportunity to obtain an advantage over
competitors who do not know, or use it
o This can be a formula for a chemical compound, a process for
manufacturing, treating or preserving materials, a pattern for a machine, or
other device, or a list of customers
• This definition describes valuable information acquired in a business enterprise,
like marketing and manufacturing techniques, organization methods, and
technical data
• Patent law does not effectively protect much regarding trade secrets
• Most of these elements are in fact unpatentable
• Trade secret protection is the only available legal remedy for unauthorized use of
such information
• Someone who wishes to be successful in suing for unauthorized disclosure, or use
of a trade secret must be able to show two things
o 1) The information was indeed “know-how”, meaning that the necessity
of ensuring this information to be secret must be shown
o 2) The secret information was communicated to the defendant in situations
where a duty of confidentiality was implied
• Only confidential information, not general knowledge, will qualify for trade secret
protection
• If the person having knowledge of this trade secret voluntarily discloses the secret
without restrictions, or otherwise fails to take reasonable steps to ensure that the
secrecy of the information is maintained, the protection will be lost
• Disclosure of a trade secret must be strictly confined to a limited group of
persons, like employees, or potential licensees
• Failure to do so will render the confidential nature of the trade secret to be lost
• To figure out whether certain info has the quality of being secretive, the courts
have looked at the following factors:
o 1) Extent to which the information is known outside the business
o 2) Extent of measures taken to guard the secrecy of the information
o 3) Value of the information to competitors
o 4) Amount of effort or money spent to develop the information

Employees:
• Common law recognizes the right of an employer to restrain a former employee
from making improper use of trade secrets
• The employer has the right to damages for profits resulting from such an improper
use

Amber Size & Chemical Co. Ltd. vs. Menzel

• Case involved an ex-worker attempting to disclose trade secrets that were
communicated to that person during employment
• Court decided that the ex-worker was restrained from attempting this disclosure
Duty of Confidence:
• Between an employer and employee, it is implied as a contractual term that the
employee will not disclose confidential information of the employer
• This obligation continues, even after the employment is terminated
• However, the employee may use any ordinary working knowledge and general
experience acquired in one job to the next job
• Sometimes, it’s difficult to distinguish between ordinary working knowledge or
trade secrets
• In general, courts have shown extreme reluctance to restrain an employee from
using their skills in the next job
• Clear and convincing evidence of confidentiality is required when an employer
accuses breach of confidentiality by a former employee
• Obligation of confidence also exists where the owner of a trade secret discloses
this secret to another business for a specific purpose
• When negotiating for a licensed use of a trade secret, the party that uses or
discloses a trade secret in breach of confidence may be restrained form using the
trade secret
• They may also be liable to pay the owner damages, or the profits earned by the
party using the trade secret
• Third parties who learn about the trade secret from a party breaching this duty of
confidence may have similar liability
 Law Section – Chapter 36 – Laws relating to
Employment
Federal Laws:
• Federal labour legislation governs labour relations and employment matters where
industries and undertakings of an interprovincial, national, or international nature
are concerned
• Canada Labour Code is the most significant federal statute
• This code covers general areas of employment law, like hours of work, overtime
pay, minimum wages, holidays, vacations, etc.
• Another portion of the code covers the safety of employees, like allowing an
employee to refuse work if it is known to be unsafe
• Another portion of the code covers relations between unions and employers

Canada Pension Plan:

• Employer is required to deduct from an employee a percentage of the employee’s
earnings that are pensionable, and give it back to the federal government, together
with an amount contributed by the employer

Unemployment Insurance:
• Employer is required to deduct and give unemployment insurance premiums to its
employees where the work in an insurable work environment
• Employer is also required to pay a premium on behalf of its employees

Employment Equity:
• Employment Equity Act was passed, which promotes equity and non-
discriminatory practices in the workplace.
• This includes steps to reasonable accommodate members of certain target groups

Provincial Laws:
• Each province has their own provincial labour laws
• These deal with relations between trade unions and employers, labour standards,
worker’s compensation, occupational health and safet and so on

Provincial Statutes – Ontario:

The Employment Standards Act:

• This act establishes the minimum terms and conditions of employment
• This was designed to protect non-union employees, but all employees are
covered, with certain limitations
• Act lays out maximum hours of work, payment for overtime, minimum wages,
holidays, vacations with pay, etc.
 • Act also states that when an employer sells a business or part of a business, and
the vendor’s employees are kept by the purchaser, the employees are not out of a
job because of the sale
• The Act only sets out the minimum requirements
• Any term or condition of employment included in a written or oral contract of
employment that provides a greater right, prevails over the minimum required
stated in the Act
• Act does not affect an employee’s civil remedies against an employer
• Common law might provide an employee with a greater period of notice of
termination from their employment than the Act
• Common law states that the period of notice depends upon the employee’s
position, length of service age, and experience
• Employer might terminate an employee with respect to the Act, but the employee
can still sue the employer at common law
• Employee might claim that they’re entitled to more notice
• For management and professional employees, the period of notice for terminating
the employee’s employment will likely exceed the statutory minimum
• Generally, managers and professional employees are entitled from 3 to 24 months
notice

1961 Ontario case – Lazarowicz vs. Orenda Engines Limited.

• 49 year old engineer with three years service was awarded the equivalent of three
months salary for not being told in advance of his termination

1979 case – Blakely vs. Victaulic Company of Canada

• 54 year old engineer became the senior officer of a Canadian subsidiary of a US
company
• He was asked to move to the US after 24 years of service with the company in
Ontario
• Employee treated the direction to move as a construction dismissal
• He sued and recovered 21 months salary instead of a reasonable notice of
termination

Workers Compensation Act:

• This act provides for an employer-financed accident fund for medical aid, and for
loss of earnings
• Fund also compensates permanent or partial disability caused by personal injury,
accident, or illness resulting from employment

Health Insurance Act:

• Ontario government has established health insurance for all residents of Ontario,
called the Ontario Health Insurance Plan (OHIP), and is funded by Employer
Health tax, paid by the employer
Smoking in the workplace:
• Smoking at work is prohibited, except in areas used by the public or designated
smoking areas

Human Rights Code:

• This establishes that every person has a right to equal treatment with respect to
employment, without discrimination due to race, ancestry, place of origin, colour,
etc.
• Code further establishes that every employee has the right to be free from sexual
harassment in the workplace

Occupational Health and Safety Act:

• Act provides that a health and safety committee is required at most workplaces
where 20 or more workers are employed
• This gives employees the right to refuse work where the employee has reasonable
cause to believe that the machine, or device used, or the workplace where the
employee is working is unsafe

Ontario Labour Relations Act:

• Every person is free to join a trade union of his or her own choice, and to
participate in its lawful activities
• This Act provides for the certification of unions, and it places constraints upon
what an employer may and may not do when faced with a union-organizing
campaign