LawAnswer1[1]

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Part "B" - Engineering Law and Professional Liability

Definitions

1. Common Law

It is judge-made law establishing legal principles based "on previous court decision and

case precedents, as opposed to law 'statutes' passed by legislative assembly or

parliaments. All provinces except Quebec use common law.

2. Statutory Holdback

This is a term which occurs mainly in construction contract. The purpose of it is to ensure that subcontractors are paid by the main contractor responsible for the construction project. The percentage holdback and the time period for its retention are governed by its provincial legislation. In Ontario percentage holdback is 10% and the time period for its retention is 45 days. If no claims are filed by the subcontractors within the specified time period, then the holdback may be paid to the contractor. If a claim is filed, then the owner must not pay the holdback until the dispute is settled through negotiation or otherwise.

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Law. The legal claim of one person upon the pThe legal claim of one person upon the pThe legal claim of one person upon the pThe legal claim of one person upon the property of another person to secure the roperty of another person to secure the roperty of another person to secure the roperty of another person to secure the

payment of payment of payment of payment of a debt or the satisfaction of an obligation.debt or the satisfaction of an obligation.debt or the satisfaction of an obligation.debt or the satisfaction of an obligation.

3. Liquidated Damage/ Penalty clause Contracts often contain provision whereby a party to a contract is required to pay the prescribed damages likely to result from the non-performance of the contract. These pre-estimated damages are called liquidated damages. A liquidated damage clause in a contract may be used to limit liability.

4. Five Essentials of a Binding Contract

For a contract to be binding and enforceable, five elements must be present: a) Offer and acceptance b) Mutual intent to complete the contract c) Consideration d) Capacity of the contract. e) Lawful purpose, legality

If any one (or more) of the essential elements is not present in a contract, then the

contract is not formed and such a agreement is not enforceable.

5. Secret Commission

It is a reward, benefit or advantage of any kind (commission, bribe, kick-back) resulting from the secret agreement related to business affairs. Offering and accepting secret commission is an offence under the criminal code of Canada, Section 338. A professional engineer who offers and accepts is also subject to charges under Regulation 941/90, Section 72 and 77.

6. Contract Rectification

A court order used to correct an obvious common mistake. The party applying for the order must persuade the court that the written contract is inconsistent with the terms agreed upon by the parties because of secretarial or recording mistake.

7. Director's Duty of Care

Every director and officer of a corporation in exercising power and discharging duties shall:

a) act honestly and in good faith with a view to the best interest of the corporation; b) exercise the care, diligence and shill that a reasonably prudent person would

exercise in the comparable circumstances.

8. Gratuitous Promise ;

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A valid contract must involve a 'consideration' that induces each party to complete the contract. A contract made without consideration is a gratuitous promise. This occurs most often when amendments are made to a contract. It is not legally binding and may be revoked at any time before its acceptance. It may be enforceable under equitable estoppel if there is clear inequity.

9. Duress Duress can be defined as threatened or actual violence or imprisonment used as a means of persuading a party into a contract. Such a contract induced by intimidation is voidable. Any agreement executed under duress is not an offer willingly made and accepted and therefore is not a binding contract.

10. Parol Evidence Rule

'Parol' means 'oral' or 'verbal'. When a condition or term is agreed by a contract parties verbally but is not included in the written contract, this condition or term is not a part of the contract.

The contract law rule that precludes evidence of the omitted condition is called 'Parol Evidence Rule'.

11. Defamation

Tort of defamation is further divided into two classifications

Slender

It is the act of damaging the reputation of the plaintiff by untrue statements made, publicly verbally by the defendant.

Libel

It is the act of damaging the reputation of the plaintiff by untrue statements made publicly in writing by the defendant.

12. Vicarious Liability

'Vicarious' means acting for other. Vicarious liability occurs when a person is acting as an agent of another person. For example, the courts usually agree that an employer is vicariously liable for the negligent actions of an employee. The employer provides compensation because he is presumed to be in a better position than the employee.

13. Misrepresentation

A misrepresentation is a false statement of truth (that is lie). There are two types of misrepresentation:

Innocent Misrepresentation An innocent misrepresentation is a false statement made by a person who knows that it is true.

Fraudulent Misrepresentation A fraudulent misrepresentation is a false statement made by a person who knows that it is false.

If a contract is based on either type of misrepresentation, the person who was deceived can reject the contract. In addition, if the misrepresentation is fraudulent, the deceived person may claim compensation for any costs resulting from the contract and can sue for damage.

14. Ontario Human Right Code

The Ontario Human Right Code is of general application to all persons in Ontario. It establishes that every person has a right to equal treatment with respect to employment. The Code prohibits employment discrimination based on:

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-Race -Ancestry -Place of origin -Skin color

. -Ethnic origin -Citizenship -Creed -Sex -Sexual orientation -Age -Maritalstatus -Family status -Record of offences and handicap

15. Specific Performance

To remedy a contract dispute, the court, where applicable, may require to a party to a contract to perform a contractual obligation. This remedy is called specific performance. This occurs most often in cases where a single specific act will end the dispute. For example, in a disputed land sale, the judge may order the sale to be completed (the sale is the specific performance). A breach of contract for the sale of a unique item of personal property (e.g. an antique automobile) may also result in a court award of specific performance. Injunction: An injunction is a court order that prohibits or restrains a party from the performance of some act, such as breach of contract.

16. Rule of Contra Proferentem -

The rule tries to ensure that contracts are written clearly and unambiguously. The rule states that where a clause in a contract is written ambiguously, the clause will be interpreted against the party that wrote the clause, it is therefore important to avoid ambiguities.

17; Undue Influence

Undue influence is similar to duress but usually less drastic and occurs in different circumstances. It occurs when one party to a contract exerts a dominating effect on the other party. It is not common in business but occurs occasionally in family matters.

For example, if a contract should be created between family members, it is not uncommon for older members to dominate younger members. A contract may be repudiated if it can be shown that the parties had unequal bargaining positions and undue and influence was exerted when the contract was created.

18. Concept of Discoverability

Tort cases must begin within a specific time limit. The limitation .period varies significantly, depending on the type of lawsuit and other factors (two years from the discovery or ought to have been discovered by a reasonably diligent person or maximum 15 years). If the plaintiff delays past the limitation period, rio action may be taken. However, when does the limitation period start-on the construction date or on the date when the damage is discovered? The Supreme Court of Canada ruled in a 1984 decision (City of Kamloops ys Neilsen) that the limitation period in tort begins when the damage is first discovered (or "ought to have been discovered by a reasonably diligent person). This concept of discoverability was extended from tort cases to contract cases in a 1985 case (Consumers Qlass), when the court of Appeal ruled that in cases, where a breach of a duty of care occurs, whether in contract or tort, the limitation period does not begin until after the plaintiff discovers (or ought to have discovered) the damage. This extension has not been tested before the Supreme Court.

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19. Quantum Meruit

It may apply in the situation when certain services have been requested and performed, but that no express agreement was reached between the parties as to what payment would be provided in returned for the services. In such situation, the court will award payment to the party performed the service based on Quantum Meruit i.e 'as much as reasonably deserved' for the time spent and materials supplied.

20. Frustration of Contract/Discharge by Frustration

At times, without default by either party to a contract, changing circumstances may radically change the obligation of the parties. If this happens, the contract will have been "frustrated", and is discharged by such frustration. The doctrine of frustration will be -applied by a court only where exceptional circumstances, where discharge by frustration is the only practical and reasonable solution.

21. Contract A

The contract that deals with tendering phase (contract of irrevocability) is called Contract

A. The owner's request for tenders constitutes an offer and that a contract A is formed

when the owner's offer is accepted upon submission of each bid.

22. Equitable Estoppel The principle of "equitable estoppel" states that if one party of a contract makes a gratuitous promise (promise without consideration) which effectively amends the terms of the contract and if the second party relies on that promise, then the first party may be stopped from reverting to the original terms of the contract. A court will permit equitable estoppel only to avoid an obviously unfair result.

23. Consequential Damages It is also called Special or Indirect damages. It is best illustrated as consequential to the breach and might include damages for lost profits caused by a plant shut-down resulting from a contractor failing to perform services properly and thereby affecting the overall operation of the plant. For example, Power line cut by contractor that results in loss. Fine imposed to owner as a result of non-compliance with environmental protection statue.

24. Repudiation When one party to a contract expressly tehs the other party that, he or she has no intention of performing contractual obligations, the declaring party has 'repudiated' the contract. The defaulting party needs not express verbally, but might indicate by his or her conduct. The non defaulting party can either ignore the breach or discharge the contract.

25. Duty to Mitigate / Mitigation of Damage

A party that suffers a loss through a breach of contract must take reasonable steps to mitigate or reduce the amount of damages suffered. The Plaintiff is expected to behave in a reasonable manner in mitigating damages. If the plaintiff does not, that conduct will be taken into account when the court is fixing the damage award.

26. Exemption Clause

An exemption clause is a provision in a contract whereby contracting parties may limit the extent, in whole or in part, of liability that arises as a result of breach of contract.

27. Substantial Compliance

A contractor might substantially comply with the terms of contract, yet fail to comply with some minor aspect of the contract provisions. The contractor, will be entitled to be paid the contract prices less the cost of damages caused by any such failure.

28. Force Majeure

Force majeure clause usually provides that time for completion will be extended in the events of war, riot, insurrection, flood, labor dispute, or other events that arise beyond the control of either party.

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29. Breach of Contract y If a party, to a contract fails to perform obligations specified in the contract, then the

defaulting party has breached the contract.

30. Concurrent Tortfeasors

At times tort concurs to produce the same damage. It is possible for more than one party

to be liable is such a tort action. The defendants are called to be concurrent Tortfeasors.

31. Consideration

It is essential component of an enforceable contract. It is something of value that is exchanged by contracting parties. A promise made by an engineer to design a structure in return for the payment of a fee is an example of a'situation where consideration exists.

If the consideration is not present in the form of mutual exchange of something of value,

no contract is formed unless the document is sealed.

32. Concurrent Liability

Party to a contact may be liable in both contract and tort. Damages in tort may be

different than damages arising out of contract.

33. ADR

ADR means Alternative Dispute Resolution, which includes arbitrations. Engineer is

involved in arbitration. Arbitration is less costly, less protracted and less public than

litigation. It is common approach. .

34. Joint Venture It is a partnership limited, to one particular project. The joint venture agreement includes a clear definition of the scope of the venture, the obligations of the parties and the manner in which revenues and costs are to be shared.

35. Performance Bond

It is a contract where the bonding company indemnifies the obligee (the owner) against loss arising from trje principal's (the contractor) failure to perform his contractual obligations.

The indemnity is limited to the face amount of the bond. '

36. Bid Bond

It is a contract where the bonding company indemnifies the obligee (the owner) against loss arising from the principal's (the contractor) failure to enter into formal contract if his bid was accepted.

The indemnity is limited to the face amount of the bond.

37. Labor and Material Bond

It is a contract where the bonding company indemnifies the obligee (the owner) against loss arising from the principal's (the contractor) failure to pay the claim for labour and materials by the suppliers and sub-contractors whose contracts are with the principal.

38. Implied Term If parties to a contract overlook the inclusion of an obvious term, court may allow for implied terms, where reasonable. For example, a statement like a person cannot see in night time, it implies that he or she can see in day time.

39. Purpose of Tort Law The purpose of the tort law is to compensate the party sustaining loss as a result of negligent act or omissions. The potential for tort liability can arise even when there is no contractual "relationship between plaintiff and defendant. It is not to punish criminals, which is covered under the criminal code.

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40. Principles of Tort Law In order to obtain compensation, the plaintiff must prove that the defendant:

a) owed a duty of care b) breached that duty by careless conduct and c) the conduct caused the injury or damage

If any one of these three essentials aspects of a tort action is not substantiated to the satisfaction of the court, the plaintiff will not succeed.

41. Occupier's Liability

The occupier of the property must exercise the required standard of care to ensure the safety of individuals coming on to the property.

42. Tort of Nuisance

Designed to alleviate undue interference with the comfortable and convenient enjoyment of plaintiffs land, for example, environmental issues like pesticide spray coming into unintended land.

Some Questions and Answers of the Previous Examinations Part 'B" -

Engineering Law and Professional Liability

Tort Law

Dec/2005

Q 1: A manufacturing company retained an architect to design a new plant. The manufacturer, as client, and the architect entered into a written client/architect agreement in connection with the project. The purpose of the plant construction was to enable the client to expand its manufacturing and warehousing facilities.

The structural design of the plant was prepared by an engineering firm which was retained by the architect, A separate agreement was entered into between the architect and the engineering firm to which the client was not a party.

The engineering firm turned the matter over to one of its employee, a professional engineer with experience in structural steel design who proceeded to complete the structural design of the plant. The client had informed the architect that the second floor of the plant was to be used for manufacturing and warehousing purposes and that forklift trucks would be extensively used in both the manufacturing and warehousing sections on the second floor. The architect passed this information on to the engineering firm. The. employee engineer designed a steel frame and specified that the second floor was to be concrete-steel composite, consisting essential of concrete poured onto a steel deck, and containing a light steel mesh. The steel deck, concrete thickness and steel mesh specifications were specified in the Engineer's design and were taken from the design tables which the engineer located in his firm's library and which had been published by a company which manufactured and supplied trie steel deck.

The construction of the plant was completed shortly after manufacturing commenced- at the plant, severe cracks appeared in the concrete on the second floor. After two months of the operation the floor cracked and broke up so badly that the plant had to be shut down and a remedial floor slab, heavily reinforced with reinforcing bar, was poured on the top of the damaged second floor.

The design of the remedial floor slab was carried out by another consulting engineering firm. After completing its investigation of the cause of the failure of the second floor, the second engineering firm stated that, in its opinion the engineer who had designed the second floor had used design tables from the steel deck manufacturer which were 12 years Out of date and had also failed to use the tables that the engineer obviously ought to have used knowing that the floor was intended for manufacturing and forklift truck loading. The second consulting

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engineering firm concluded that the depth of concrete and size of steel mesh in the floor initially designed resulted in the floor that might have been appropriate for the design of an office or apartment building but not for manufacturing and warehousing purposes.

What potential liabilities in tort law from the preceding set of facts? In your answer, state the essential principles applicable in a tort action, and apply these principles to the facts. Indicate a like outcome of the matter.

A 1: Tort Principles: The purpose of the tort law is to compensate the party sustaining loss. It is not to punish criminals, which is covered under the criminal code. In order to obtain compensation, the plaintiff must prove that the defendant:

owed a duty of care

breached that duty by careless conduct and the conduct caused the injury or damage.

Potential Tort Liabilities: In this case, the employee engineer owed a duty to the architect to provide adequate design for the requirement. 'Adequate' means completely satisfies the requirement, fully tested, without flaws, and properly documented. The design was inadequate (it was not appropriate for this type of floor where forklift trucks would be extensively used)

However, the architect owed a duty of care to the client (manufacturing company) to verify that the designs are accurate and acceptable. It is assumed that the employee engineer mentioned the using of design table published by steel deck manufacturing company. Where the floor slab has special use and some design table was used in designing that slab, the architect should verify whether the design table is appropriate for designing of that type of floor slab.

In assessing the relative responsibilities, judge would likely differ in the precise proportions. But in my opinion, the employee engineer would likely be found to be about 80% liable for the floor damage and the architect would likely to be about only 20% liable.

Where the claim is in tort, the employee engineer and architect are "concurrent tortfeasors". The engineering firm is "vicariously liable" for the act of its employee engineer.

April/1993 Q 2: Gas Master Limited is a designer and manufacturer of small engine-driven

equipment with a factory in Ontario. It produces lawnmowers, snow ploughs and portable gasoline-powered electrical generator.

A consumer, "C", purchased a gasoline-powered lawnmower manufactured by GasMaster from a retail hardware store, the Hardware Club Limited, which is an authorized dealer of GasMaster. The model which "C" purchased included a written manufacturer's warranty that the unit would be free from defects and deficiencies for a period of one year from the date of purchase.

"C" was quite satisfied with the lawnmower and used it for a number of years. The lawnmower required no maintenange except for a yearly oil change. After five years of use, the lawnmower's blade required sharpening. "C" turned the lawnmower over and.used a wrench to loosen the nut which secured the blade to the drive shaft of the engine. As "C" was loosening the nut, "C" inadvertently rotated the blade one full turn and the engine started as a result.

d) e)

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"C" sustained serious injuries as a result of engine starting, including serious cuts to the hands, the loss of a thumb, and a concussion caused when the wrench "C" was using was hurled at "C's" head by the spinning blade. "C" also sustained property damage when the wrench broke a window after hitting "C" in the head.

After an investigation, it was determined that "C" failed to read the maintenance section in the owner's manual which was provided with the lawnmower. The owner's manual contained the following sentence in regular size print:

"The spark plug should be disconnected before any maintenance is performed on

this unit"

No other safety warnings were given. Had "C" disconnected the spark plug before attempting to remove the blade, it would have been impossible for the engine to start.

Discuss what claims "C" any make in the circumstances.

The consumer "C" could make a claim for damages against the manufacturer under tort law. For the claim to be successful, all three principles in a tort action must be proven by the plaintiff. The 3 principles are: .

a) a duty of care b) a breach of that duty c) resulting loss or damages

Here, the consumer "C" would have to be proved that the manufacturer failed to exercise a duty o care. The manufacturers owe a duty of care to consumers to ensure that no defects will give injury during the regular use. The repair made by the consumer "C" was carried out without following the manual provided. But it should have been carried out according the instruction mentioned in the manual. Since the manual instruction or the safety was ignored, the consumer would not prove the failure of the manufacturer to exercise a duty of care. As a result, in my opinion, the consumer is unlikely to collect damages.

The manufacturer would probably claim the warning to "The spark plug should be disconnected before any maintenance is performed on this unit" is clear and unambiguous. Even though, the designer of the machine would have obligation under the code of ethics to review the accident and see the machine can be made safer. This can be done in different ways, such as a) improve warning on the manual or machine b) using the larger print for warning c) re-designing the machine so that spark plug can not be removed without

removing the blade.

Aug/2006, April/2002, Aug/2000, Sept/1998 Q 3: An information technology firm assigned to one its junior employee engineers the

task of developing special software for application on major bridge designs. The employee engineer had recently become a professional engineer and was chosen for the task because of the engineer's background in both the construction and the "software engineering" industries. The resulting bridge software package was purchased and used by a structural engineering design firm on a major bridge design project on which it had been engaged by contract with a municipal government. Unfortunately, the bridge collapsed in less than one year after completion of construction. Motorists were killed and injured. ■

The resulting investigation into the cause'of the collapse concluded that the design of the bridge was defective and that the software implemented as part of the design did not address all of the parameters involved in the scope of this particular bridge design. The investigation concluded that although the design software would suffice for certain type of structures it was not appropriate in the

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circumstances of the particular subsurface conditions and length of span required for this particular application. The investigators' report also indicated that the design software package was not sufficiently explicit in warning users of the software of the scope of the design parameters addressed by the software. The investigators' report also stated that even an experienced user of the software might reasonably assume that the software would be appropriate for application on the particular project and that too little attention had been paid to ensuring that adequate warnings had been provided to software users of the limitations on the application of the software.

What potential liabilities in tort law arise in this case? In your answer, explain what principles of tort law are relevant and how each applies to the case. Indicate a likely outcome to the matter.

A3:. Tort Principles: The purpose of the tort law is to compensate the party sustaining loss. It is not to punish criminals, which is covered under the criminal code. In order to obtain compensation, the plaintiff must prove that the defendant:

a) owed a duty of care b) breached that duty by careless conduct and

c) the conduct caused the injury or damage.

In this case, the software engineer owed a duty to the structural engineer to provide adequate software. But the software had a flaw or inadequacy (no appropriate for this type of bridge) and the inadequate documentation concealed that flaw. The inadequate software was a factor in the poor design and subsequent failure of the bridge.

However, the structural engineer owed a duty to the client (the municipal government) to verify that the results obtained by the software are accurate and . acceptable. Where independent validation of the software does not exist, the engineer must establish and conduct suitable tests to determine whether the software performs what it is required to do. If such test had been carried out, the flaws in the software would most likely have been detected. The bridge collapse can therefore be traced back to the failure to carry out the software tests.

In assessing the relative responsibilities, the judge would likely differ in precise proportions. In my opinion the structural engineer would likely be 80% responsible for the collapse of the bridge and the software engineer would be 20% responsible.

Where the claim is in tort, the structural engineer and software engineer are "concurrent tortfeasors". The information, technology firm and the structural design firm are "vicariously liable" for the act of their employee engineers.

A city in northern Ontario retained an architect to design a new police station. The architect then retained an engineering firm to perform structural design services in. connection with the project.

In performing soils investigations, the engineering firm's employee, who, is licensed as a Professional Engineer, examined two shallow tests pits and recommended to the architect that proper deep soils tests be taken. However, the architect rejected the engineer's recommendation, informing the engineer that expensive soils tests were,not part of the owner's budget for the project.

The engineer submitted a "soils report" to the city on the basis of the superficial examination of the shallow test pits. Neither the architect nor the engineer indicated to the owner that engineer had recommended to the architect that a more thorough subsurface investigation be undertaken.

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The design of the police station was completed and the building was constructed in accordance with the project drawings and specifications.

Within twelve months of completion of the engineering design services the new police station "settled" very badly on one side and extensive remedial foundation work was/necessary to correct the settlement problem.

A second consulting engineering firm investigated the reason for the settlement problem, and concluded that construction should never have proceeded without . the more detailed and thorough subsurface investigation which the original project engineer had recommended to the architect. Answer the following questions: i) Explain the basic tort law principles ii) What potential tort liabilities arise from the preceding set of facts? hi) Indicate a likely outcome of the matter.

Tort Principles: The purpose of the tort law is to compensate the party sustaining loss. It is not to punish criminals, which is covered under the criminal code. In order to obtain compensation, the plaintiff must prove that the defendant:

a) owed a duty of care b) breached that duty by careless conduct and c) the conduct caused the injury or damage.

Potential Tort Liabilities: The following potential tort liabilities arise by applying the essential principles to the given facts: i) Both the -architect and the employee engineer had a duty to ensure a

satisfactory design. ii) That duty was breached because the engineer knew that the soils tests were

needed, the architect disregarded the engineer's advice, the soils tests were not made and the design was adequate.

iii) The damage resulted from their conduct: the building settled very badly on one side, which would not have happened if the soils tests had been made before the design was made.

Likely Outcome: In a trial for damages, the architect and the employee engineer would likely both be considered liable for the damages, and would have to pay for the repairs, A similar case is cited in the law text book. The trial judge apportioned the fault as 40% to the engineer and 60% to the architect for the repair cost.

As the claim is under the tort law, the architect and the employee engineer are the "concurrent tortfeasors" and the engineering firm is "vicariously liable" for the negligent act of its employee engineer.

An owner/developer (the "owner") entered into a contract with an architectural firm (the "architect") for design and contract administration services in connection of a ten storey commercial office building.

The building was designed to be entirely surrounded by a paved podium concrete deck used for parking and driving, and the design provided for a parking area below the deck. The podium deck was divided by construction joints and expansion joints placed to allow thermal expansion of the concrete as the temperature changed. The land on which the building was located sloped towards a river so the lower parking deck was designed to be partially open to outside.

The architect engaged a structural engineering firm (the "engineer"), as the architect's sub-consultant on the project. The engineering firm, in its agreement with the architect, accepted responsibility for all structural aspects of construction, and also specifically

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acknowledged responsibility for the design of the paved podium concrete deck and the parking area below.

Upon completion of the design and the tendering process, the owner entered into a

contract for the construction of the project with an experienced contractor who had

submitted the lowest bid.

Unfortunately, within two years following construction, a significant numbers of leaks

occurred in the podium deck which resulted in water leaks in the lower parking garage.

The contract specifications had called for a specific rubberized membrane to be installed for the purpose of waterproofing the podium deck. However, during construction, at the suggestion of the roofing subcontractor and without the knowledge of the owner, at. the suggestion of the roofing subcontractor and without the knowledge of the owner, another asphalt membrane product specified. Neither,.the engineer nor the architect objected to the substitution when it was suggested. The roofing subcontractor had suggested. The roofing subcontractor had suggested the substitute membrane because it was more readily available and would speed completion of construction. The design engineer and the architect took the position that they would rely on the subcontractor's recommendation.

During the investigation into the cause of the leaks, another structural engineering firm provided its opinion that the rubberized membrane as specified in the contract was a superior product to the substituted membrane; that the substituted membrane was brittle and could fracture or crack under certain circumstances, particularly on podium decks with expansion joints; that the winter temperatures had contributed to the breakdown of the substitute membrane should not have been used over expansion joints on a dynamic surface podium deck. The second engineering firm also expressed the opinion that the designers ought to have .taken into account the non-static nature of the deck that featured these expansion joints and should not have accepted the substitute membrane.

Ultimately, to remedy the leaks, the substitute membrane had to be replaced by the

rubberized membrane originally specified in the contract.

What potential liabilities in tort law arise in this case? In your answer, explain what principles of tort law are relevant and how ach applies to the case.

A 5: Tort Principles: The purpose of the tort law is to compensate the party sustaining loss. It is not to punish criminals, which is covered under the criminal code. Under tort law, there is.no need to exist the contractual relation between the plaintiff and the defendant. In order to obtain compensation, the plaintiff must prove that the defendant:


Potential Tort Liabilities: In this case, all four parties had a duty of care to provide an adequate podium deck roof membrane which would perform well under colder temperature which satisfies the first principle.

All four parties had to verify before using the substituted membrane which satisfies all requirements specified in the contract, but they did not verify it. As a result, a number of leaks occurred in the deck which shows the breach of duty of care.

There was resulting damage or loss, since the substitute membrane had to be replaced by the rubberized membrane originally specified in the contract.

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In assessing the relative responsibilities, judge would likely differ in the precise proportions. But in my opinion, structural engineer (40%), architect (20%), experienced contractor (20%) and subcontractor (20%) are liable for the damage.

Where the claim is in tort, all parties are "concurrent tortfeasors". The structural engineering firm is "vicariously liable" for the act of its structural engineer.

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Some Questions and Answers of the Previous Examinations Part *BM.-

Engineering Law and Professional Liability Fundamental Breach

April/1993 Ql: Prime Engineering Inc. ("Prime") is a company engaged in the business of supplying

heavy equipment used in the oil exploration and drilling industry. Prime became aware that Conventional Oil Company Ltd. ("Conventional") required a contractor to design, manufacture supply and install specialized gear boxes. The gear boxes would be used to drive a number of bucket wheel conveyor belts that transported sand at Conventional^ oil extraction tar sands plant in. Alberta. Prime decided to tender on the Conventional contract.

In order to tender on the contract, Prime set out to purchase the gear boxes. Prime was contacted by a representative of Machine Works Ltd., a. company which manufactured similar equipment. After visiting Conventional's site and examining the conveyors, the representative of Machine Works became familiar with the requirements of the gear boxes. MachineWorks represented to Prime That MachineWorks would be able to design and manufacture the specialized gear boxes and that the gear boxes would be suitable for the purpose intended. On the basis of these representations, MachineWorks and Prime entered in to a contract. MachineWorks agreed that if Prime were successful in its tender to Conventional, MachineWorks would, provide the equipment for a price of $300,000. The contract also contained a provision limiting MachineWorks' total liability to $300,000 for any loss, damage or injury resulting from MachineWorks' performance of its service under the contract.

Based on the information provided by the MachineWorks' representative, Prime prepared and submitted its tender to Conventional. Conventional accepted the tender and entered into a contract with Prime for the gear boxes.

The gear boxes were installed at Conventional's site by employees of Prime according to MachineWorks' installation procedures. Shortly after the gear boxes were put into service, main gears inside them failed. As a result of these failures, the conveyors were damaged and it was impossible for Conventional to operate its conveyors. MachineWorks made several unsuccessful attempts to correct the gear boxes.

In order to meets its obligations under the Conventional contract; Prime hired another supplier to correct the defects in the gear boxes. For an additional $400,000 Prime was able to correct the problem by replacing the gear boxes with gearboxes manufactured by another company and by repairing the damage to the

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conveyors. The total amount which had been paid by Prime to MachineWorks

prior to discovering the defect was $250,000.

Explain and discuss what claim Prime can make against MachineWorks in the circumstances. Would Prime be successful in its claim? Why? In answering, please include a summary of the development of relevant case precedents.

A 1: This is a case of "fundamental breach" of contract. The contract included an exemption clause i.e. limiting liability to $300,000 for any loss, damages or injury. Now, issue is that whether the exemption clause is enforceable or not and what amount of claim can be made.

As per English precedent and "fundamental breach doctrine" concept, an exemption clause is unenforceable in the circumstances of a fundamental breach (Harbutt's Plasticine case). Subsequently, the fundamental breach doctrine was officially overruled in England (Photo Production case). But in Canada, it is not officially overrules. The Supreme Court of Canada has strong preference (Hunter vs Syncrude case) on not to follow the fundamental breach doctrine, rather to follow the reasoning of the U.K. courts that overruled the doctrine in applying the "true construction - approach". Accordingly, Canadian courts no longer automatically disregard a clause limiting liability in the circumstances of fundamental breach of contract. The court will look at the wording of the contract and determine whether or not both parties had intension of applying the limiting liability provision in the contract on the circumstances of fundamental breach of contract that had ultimately occurred.

The basic principle in calculating damages for breach of contract is that damages must "flows naturally from the breach" which means that the damages should cover the reasonable consequences which would be normally foreseeable. In this case, the original contract price was $300,000 and MachineWorks' total limiting liability was also $300,000. The total cost incurred was $650,000 ($250,000 + $400,000). Accordingly, damage amounting to the excess was $350,000 ($650,000 - $300,000).

As per decision of the Supreme Court of Canada in Hunter & Syncrude, the clear wording of the provision limiting liability would stand, even in the circumstances of fundamental breach and Prime would only be able to recover $300,000 from MachineWorks of the $350,000 in damages it sustained as a result of MachineWorks' breach of contract.

Dec/2005, April/2005, April/2002, Sept/1998 Q2: A 30,000,000 contract for the design, supply and installation of a cogeneration

facility was entered into between a pulp and paper company ("Pulpco") and an industrial contractor. The cogeneration facility, the major components of which included a gas turbine, a heat recovery steam generator and a steam turbine, was to be designed and constructed to simultaneously generate both electricity and steam for use by Pulpco in its operations.

The contract provided that the electrical power generated by the cogeheration facility was not to be less than 25 megawatts. A liquidated damages provision was included in the contract specifying a pre-estimated amount payable by the contractor to Pulpco for each megawatt of electrical power generated less than the minimum 25 megawatts specified. Other provisions specified additional liquidated damages at prescribed rates relating to other matters under the contract, including any failure by the contractor to meet the required heat rates or to achieve completion of the facility for commercial use by the stipulated date. However, the contract also included a "maximum liability" provision that limited to $ 5,000,000 the contractors' liability for all liquidated damages due to failure to achieve (i) the specified power output, (ii) the guaranteed heat rate and (iii) the specified

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completion date. The contract clearly provided that under no circumstances was the contractor to be liable for any other damages beyond the overall total of $ 5,000,000 for liquidated damages. Pulpco's sole and exclusive remedy for damages under the contract was strictly limited to the total liquidated damages, up to the maximum of $ 5,000,000. The contract specified that Pulpco was not entitled to make any other claim for damages, whether on account of any direct, indirect, special or consequential damages, howsoever caused.

Unfortunately the contractor's installation fell far short of the electrical power generation specifications (achieving less than 25% of the specified megawatts) and the heat rate specifications provided in the contract. The contractor was paid $ 27,000,000 before the problems were identified on startup and testing. Because of its very poor performance, the contractor also failed to meet the completion date by a very substantial margin. Applying the liquidated damages provisions, the contractor's overall liability for all liquidated damages under the contract totalled $ 4,000,000. Ultimately Pulpco had to make arrangements through another contractor for new equipment items and parts to be ordered and installed in order to enable the cogeneration facility to meet up the technical specifications, with the result that the total cost of the replacement equipment and parts reached an additional $ 15,000,000 beyond the original contract price of $ 30,000,000.

Explain and discuss what claim Pulpco could make against the contractor in the circumstances. In answering, explain the approach taken by Canadian courts with respect to contracts that limit liability and include a brief summary of the development of relevant case precedents.

This is a case of "fundamental breach" of contract. The contract included an exemption clause i.e. limiting liability to $5,000,000 for all liquidated damages. Now, issue is that whether the exemption clause is enforceable or not and what amount of claim can be made

As per English precedent and "fundamental breach doctrine" concept, an exemption clause is unenforceable in the circumstances of a fundamental breach (Harbutt's Plasticine case). Subsequently, the fundamental breach doctrine was officially overruled in England (Photo Production case). But in Canada, it is not officially overrules. The Supreme Court of Canada has strong preference (Hunter vs Syncrude case) on not to follow the fundamental breach doctrine, rather to follow the reasoning of the U.K. courts that overruled the doctrine in applying the "true construction approach". Accordingly, Canadian courts no longer automatically disregard a clause limiting liability in the circumstances of fundamental breach of contract. The court will look at the wording of the contract and determine whether or not both parties had intension of applying the limiting liability provision in the contract on the circumstances of fundamental breach of contract that had ultimately occurred.

The basic principle in calculating damages for breach of contract is that damages must "flows naturally from the breach" which means that the damages should cover the reasonable consequences which would be normally foreseeable. In Pulpco case, the original contract price was $30,000,000 and contractor's total limiting liability was $5,000,000. The total cost, incurred was $42,000,000 ($27,000,000 + $15,000,000). Accordingly, damage amounting to the excess was $12,000,000 ($42,000,000 - $30,000,000).

The huge difference between the actual damage (12 million) and the liquidated damage (4 million) indicates that something unusual happened. Was the remedial works interfered by some unexpected events or the limit liability set unreasonably low? The key question is that whether the limiting value of $ 5,000,000 was a reasonable value which would be normally foreseeable when the contract was signed.

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Canadian cases have allowed enforceability of limited liability clauses. Based on Canadian court precedents limited liability clause is enforced. So, Pulpco could not expect to collect more than $4 million

Scenario 1: If it can be shown that the limiting value was reasonably estimated based on the available information at the time and some unexpected events lifted the extremely high actual damages, then the contract would prevail, and Pulpco could not expect to collect more.

Scenario. 2: If it can be shown that the limiting value was not reasonably .

estimated, then the contract would not prevail and the contractor should take the

responsibilities for the actual damages.

Dec/2006, Dec/2004, Aug/2001 Q 3: Clearwater Limited, a process-design and manufacturing company, entered into an

equipment-supply contract with Pulverized Pulp Limited. Clearwater agreed to design, supply and install a cleaning system at Pulverized Pulp's Ontario mill for a contract price of $800,000. The specifications for the cleaning system stated that the equipment was to remove ninety-eight percent of certain prescribed chemicals from the mill's liquid effluent in order to comply with the requirements of the environmental control authorities. However, the contract clearly provided that Clearwater accepted no responsibilities whatsoever for any indirect or consequential damages, arising as a result of its performance of the contract.

The cleaning system installed by Clearwater did not meet the specifications, but this was not determined until after Clearwater had been paid $720,000 by Pulverized Pulp. In fact, only seventy percent of the prescribed chemicals were removed from the effluent.'

As a result, Pulverized Pulp Limited was fined $60,000 and was shut down by the environmental control authorities. Clearwater made several attempts to remedy the situation by altering the process and cleaning equipment, but without success.

Pulverized Pulp eventually contracted with another equipment supplier. For an additional cost of $950,000, the second supplier successfully redesigned and installed remedial process equipment that cleaned the effluent to the satisfaction of the environmental authorities, in accordance with the original contract specifications between Clearwater and Pulverized Pulp.

Explain and discuss what claim Pulverized Pulp Limited could make against the Clearwater Limited in the circumstances. In answering, explain the approach taken by Canadian courts with respect to contracts that limit liability and include a brief summary of the development of relevant case precedents.

A3: This is a case of "fundamental breach" of contract. The contract included an exemption clause i.e. Clearwater is not liable for any indirect or consequential damages. Now, issue is that whether the exemption clause is enforceable or not and what amount of claim can be made..

' As per English precedent and "fundamental breach doctrine" concept,, an exemption 'clause is unenforceable in the circumstances of a fundamental breach (Harbutt's Plasticine case). Subsequently, the fundamental breach doctrine was officially overruled in England (Photo Production case). But in Canada, it is not officially overrules. The Supreme Court of Canada has strong preference (Hunter • vs Syncrude case) on not to follow the fundamental breach doctrine, rather to follow the reasoning of the U.K. courts that overruled the doctrine in applying the "true construction approach". Accordingly, Canadian courts no longer automatically disregard a clause limiting liability in the circumstances of fundamental breach of

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contract. The court will look at the wording of the contract and determine whether or not both parties had intension of applying the limiting liability provision in ,the contract on the circumstances of fundamental breach of contract that had ultimately occurred.

In this case, the cleaning system was 70% effective, well short of the 98% specified and

not satisfactory to the environmental control authorities. This appears fundamental breach

of contract going to the root of the contract.

The basic principle in calculating damages for breach of contract is that damages must "flows naturally from the breach" which means that the damages should cover the reasonable consequences which would be normally foreseeable. In this case, the original contract price was $800,000 with contractor's no liability. The total cost incurred was $1,730,000 ($720,000 + $60,000 + $950,000). Accordingly, damage amounting to the excess was $930,000 ($1,730,000. -$800,000).

The exemption clause provided in the contract is clear and direct. The Canadian courts have allowed the enforceability limited liability clause. As discussed before the contract would prevail and Clearwater should not take any responsibilities for the actual damages. ^

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Engineering Law and Professional Liability Equitable Estoppel

April/1993, April/2004, Dec/2005 Q 1: A mining contractor signed an option contract with a land owner which provided that

if the mining contractor (the "optionee") performed a specified minimum amount of exploration services on the property of the owner (the "optioner") within a nine month period, then the optionee would be entitled to exercise its option to acquire certain mining claims from the optioner.

Before the expiry of this nine month "option period", the optionee realized that it couldn't fulfill its obligation to expend the required minimum amount by the expiry date. The optionee notified the optioner of its problem prior to expiry of the option period and the optioner indicated that the option would be extended. However, no written record of extension was made, nor did the optioner receive anything from the optionee in return for the extension.

The optionee then proceeded to perform the services and to finally expend the specified minimum amount during the extension period. However, when the optionee attempted to exercise its option to acquire the mining claims the optioner took the position that, on the basis of the strict wording of the signed contract, the optionee had not met its contractual obligations. The optioner refused to grant the mining claims to the optionee.

• Was the optioner entitled to deny the optionee's exercise of the option? Identify the contract law principles that apply, and explain the basis of such principles and how they apply, to the positions taken by the optioner and by the optionee.

A 1: This is a contract law case involving the principles of equitable estoppel and the facts are very similar to Conwest case. The principle of "equitable estoppel" states that if one party of a contract makes a gratuitous promise which effectively amends the terms of the contract and if the second party relies on that promise, then the first party may be stopped from reverting to the original terms of the contract. A court will permit equitable estoppel only to avoid an obviously unfair result.

hi the Conwest case, the courts ruled that the optioner is not entitled to deny the optionee's exercise of the option. Wnen the optionee notified the optioner of the problem and requested the extension, the optioner agreed verbally to the extension. This verbal agreement is a gratuitous promise, since no "consideration"

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or payment was made for the extension. In contract law, an agreement without some consideration is not enforceable.

However, denial of the option would be inequitable, since the optionee relied on this promise and completed the work. Therefore, the optionee could exercise the "equitable estoppel" to prevent the optioner from reverting to the original terms of the contract resulting in the conclusion that the optioner was not entitled to deny the optionee's exercise of the option.

Sept/1998 Q 2: Arbour Pulp and Paper Company (ARBOUR) entered into a written equipment

supply contract with Recovery Exchangers and Turbines (RECOVERY). According to the agreement, RECOVERY was to design, manufacture and deliver a heat recovery steam generator to ARBOUR's pulp and paper mill in Ontario for a purchase price of 3.5 million. ARBOUR would arrange to install the equipment in its mill as part of a cogeneration system for the purpose of converting steam into electricity.

According to the agreement, RECOVERY was to begin manufacturing the equipment on February 1, 1992 and deliver the finished product to ARBOUR on or before March 30, 1993. The agreement provided that ARBOUR would pay the $3.5 million purchase price in monthly installments over the manufacturing period. The agreement contained the following provision:

"Each installment of the purchase price shall become due and payable by ARBOUR on the last day of the month for which the installment is to be made. If ARBOUR fails to pay any installment within 10 days after such installment becomes due, RECOVERY shall be entitled to stop performing its work under this contract or terminate this contract."

As the work progressed, RECOVERY involved ARBOUR for each monthly installment. Although ARBOUR paid the first installment on time, it was more than 20 days late in paying each of the second, third, fourth, fifth and sixth installments. RECOVERY never once complained about the late payment, "even when ARBOUR apologized for the delayed payments and commented in meetings with RECOVERY that ARBOUR's current cash flow difficulties resulting from the impact of recessionary times, were the reasons for the late payments.

By the middle of September.1992, it became apparent to RECOVERY that due to serious cost overruns resulting from its own design errors and lack of productivity, it would stand to lose a substantial amount of money on the contact by the time the equipment would be completed. Although the installment for August had been invoiced and was due on August 31, 1992, ARBOUR had not yet paid it by September 15, 1992. On September 15, 1992, RECOVERY terminated the contract.

Was RECOVERY entitled to terminate the contract? Explain.

A 2: This is a contract law case involving the principles of equitable estoppel and the facts are very similar to John Burrows Ltd. vs Subsurface Surveys Ltd. The principle of "equitable estoppel" states that if one party of a contract makes a gratuitous promise which effectively amends the terms of the contract and if the second party relies on that promise, then the first party may be stopped from reverting to the original terms of the contract. A court will permit equitable estoppel only to avoid an obviously unfair result.

One Party in a contract can terminate the contract if the other party is not fulfilling their obligations. When ARBOUR failed to make the payments on time, they breached the contract and RECOVERY could have terminated the contract.

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However, when RECOVERY accepted the late payments and did not mention that payments were unacceptable, or give any other warning of dissatisfaction, RECOVERY implied that the lateness was acceptable. RECOVERY cannot later use these payment defaults as the basis for terminating the contract. Although ARBOUR is technically breaching the terms of the contract by paying late, ARBOUR would win a court case based on the principle of "Equitable Estoppel."

Using the principle of equitable estoppel, ARBOUR could stop RECOVERY from terminating the contract because it would not be fair (equitable) for RECOVERY to avoid its responsibility for the cost overruns and design errors because of late payments which RECOVERY (by its actions) had implied were acceptable.

Dec/2006, August/2005, Dec/2004, Dec/2003, April/2003, Dec/2001, Dec/2000, Sept/1997 Q 3: An information technology firm submitted a bid to design and install software and

hardware for an electronic technology process to control the operation of large scale sorting equipment for a major international courier company

The firm's fixed guaranteed maximum price was the lowest bid and the contract was awarded to it. The contract conditions entitled the information technology firm to terminate the contract if the courier company did not pay monthly progress payments within 15 days following certification that a progress payment is due. Pursuant to the contract,, the certification was carried out by an independent engineering firm engaged as contract administrator.

The work under the contract was to be performed over a 5 month period. After commencing work on the project the information technology firm determined that it had made significant judgment errors in arriving at its bid price and that it would face a major loss on the project. Its concern about the anticipated loss was increased further when it also learned that, in comparison with the other bidders, its bid price was extremely low and that, in winning the bid, it had left more than one million dollars "on the table".

Two monthly progress payments were certified as due by the independent engineering firm and paid by the courier company in accordance with terms of the contract. However, after the third monthly progress payment was certified as due by the independent engineering firm, the courier company's finance department asked the information technology firm's representative on the project for additional information relating to an invoice from a subcontractor to the information technology firm. The subcontractor's invoice comprised a portion of the third progress payment amount. The courier company's finance department requested that the additional information be provided prior to payment of the third progress payment.

There was nothing in the signed contract between the information technology firm and the courier company that obligated the information technology firm to provide the additional information on the invoice from its subcontractor. However, the information technology firm's representative did verbally indicate to the courier company's finance department that the additional information would be provided. - .

The additional information relating to the subcontractor's invoice was never provided by the information technology firm

Sixteen days after the third progress payment had been certified for payment, the information technology firm notified the courier company in writing that it was

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terminating the contract because the courier company was in default of its obligation to make payments within 15 days pursuant to the express wording of the contract.

Was the information technology firm entitled to terminate the contract in these circumstances? In giving reasons for your answer, identify and explain the relevant legal principle and how it would apply.

This is a contract law case Involving the principles of equitable estoppel and the facts are very similar to Conwest case. The principle of "equitable estoppel" states that if one party of a contract makes a gratuitous promise which effectively amends the terms of the contract and if the second .party relies on that promise, then the first party may be stopped from reverting to the original terms of the contract. A court will permit equitable estoppel only to avoid an obviously unfair result.

Similar to the Gonwest case, the information technology firm is not entitled to, terminate the contract. When the courier company's finance department requested that the additional information be provided prior to the payment, the information technology firm's representative agreed verbally that the additional information would be provided. This verbal agreement is a gratuitous promise, since no "consideration" or payment was made for the extension. In contract law, an agreement without some consideration is not enforceable.

However, terminating the contract would be inequitable, since the courier company relied on this promise and waited for receiving the information. Therefore, the courier company could exercise the "equitable estoppel" to prevent the information technology firm from reverting to the original terms of the contract resulting in the conclusion that the information technology firm was not entitled to terminate the contract.

Aug/2004, April/2001 Q 4: A newly formed energy company ("NEWCO") decided to investigate the

possibility of developing a liquefaction process to convert coal deposits into oil.

NEWCO entered into a contract with a large engineering firm pursuant to which the engineering firm was to carry out a feasibility study to determine, over a period of eight months and by a specified date, the feasibility of the proposed liquefaction process. The contract between NEWCO and the engineering firm expressly provided that should the feasibility study be completed by the "deadline" date specified and should the results of the study indicate that the liquefaction process proposed by the engineering firm would meet the specified quality and volumes of liquefied oil output, then the engineering firm would be authorized to carry out further work to develop the liquefaction process to operate on a commercial basis, all on terms and conditions clearly set out in the contract between NEWCO and the engineering firm..

The engineering firm undertook the feasibility study and, although the results of the feasibility study appeared promising and in compliance with the parameters specified in the contract with NEWCO, the engineering firm found that it would be unable to complete the feasibility study by the date specified. The president of the engineering firm explained to the president of NEWCO that the engineering firm would not be able to fulfill all aspects of the feasibility, study as required by the specified date. The president of the engineering firm emphasized that whereas the engineering firm would likely be two weeks late in completing its feasibility study obligations, the results of the feasibility study indicated that the liquefaction process would very likely meet NEWCO requirements for commercial production as specified,

22

The President of NEWCO indicated to the president of the engineering firm,

verbally, that the time for completion of the feasibility study would be extended.

The engineering firm completed the feasibility within two weeks after the date specified in the contract.

Subsequently, NEWCO took the position that the engineering firm had not completed the feasibility study in time and, accordingly, that NEWCO was not obligated under the wording of the contract to authorize the engineering firm to carry out further work to develop the liquefaction process on a commercial basis. Instead, NEWCO issued a request for proposals from several firms for the development of the liquefaction process to operate on a commercial basis. NEWCO selected another firm that was prepared to undertake the development of the process for a fee substantially lower than the fee that was to have been paid to the original engineering firm had it completed the feasibility study by the date specified in the contract.

Was NEWCO entitled to deny the engineering firm's right to develop the liquefaction process to operate on a commercial basis? Identify the contract law principles that apply, and explain the basis of such principles and how they may apply to the positions taken by NEWCO and by the engineering firm.

A 4: This is a contract law case involving the principles of equitable estoppel and the facts are very similar to. Conwest case. The principle of "equitable estoppel" states that if one party of a contract makes a gratuitous promise which effectively amends the terms of the contract and if the second party relies on that promise, then the first party may be stopped from reverting to the original terms of the contract. A court will permit equitable estoppel only to avoid an obviously unfair result.

Similar to the Conwest case, NEWCO is not entitled to deny the engineering" firm's right to develop the liquefaction process to operate on a commercial basis. When the engineering firm notified the NEWCO of the problem and requested the extension, NEWCO agreed verbally to the extension. This verbal agreement is a gratuitous promise, since no "consideration" or payment was made for the extension. In contract law, an agreement without some consideration is .not . enforceable.

However, denial of the right to develop the liquefaction process would be inequitable, since the engineering firm relied on this promise and completed the work. Therefore, the engineering firm could exercise the "equitable estoppel" to prevent NEWCO from reverting to the original terms of the contract resulting in the conclusion that NEWCO was not entitled to deny the engineering firm's right to develop the liquefaction process to operate on a commercial basis.

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23


Engineering Law and Professional Liability

Contract A

April/2006, April/2002, Aug/2000 Q 1: An Ontario municipality (the "Owner") decided to update and expand its water

treatment facilities. To do so, the Owner invited competitive tenders from contractors for the construction of the new water treatment facility.

The Owner's consultant on the project designed the facility and prepared the Tender Documents to be gives to potential contractors interested in bidding on the project. The Tender Documents included the Plans and Specifications, the Tendering Instructions which described the tendering procedure and other requirements to be followed by the bidders, the Tender Form to be completed by the bidders, the form of written Contract that the successful contractor would be required to sign after being awarded the contract, and a number of other documents.

According to the Tendering Instructions, each tender bid was remain "firm and irrevocable and open for acceptance by the Owner for a period of 60 days following the last day for submitting the tenders." The Tendering Instructions also provided that each bidder was to include with its tender a certified cheque for $200,000 payable to the Owner as a tender deposit. In addition, the Tendering Instructions contained the following provision describing the circumstances in which the Owner would be entitled to retain the tender deposit:

"The bidder guarantees that if its tender is accepted by the Owner and the Owner does not, for any reason whatsoever, receive the Contract signed by the successful bidder within 7 days after the successful bidder has been presented with the Contractor for signature, the Owner may retain the tender deposit for its own use and may accept any other tender." '

XYZ Contractors Inc. ("XYZ") submitted its tender in accordance with the Tender Documents. Approximately ten minutes after the official time for submitting bids had expired; XYZ discovered that it made a clerical mistake in . preparing its tender. XYZ had mistakenly copied a figure from a calculation sheet. Due to' clerical error, XYZ had omitted an amount of $800,000 from its tender price of $3,300,000. Immediately upon its discovery of the error, XYZ notified the Owner of the mistake and indicated that XYZ wished to withdraw its tender. XYZ and the Owner agreed that clerical mistake was genuine;' however, the Owner refused to permit XYZ to withdraw its tender.

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Within two weeks, the Owner announced that it had awarded the contract to XYZ,

who was the lowest bidder, and presented XYZ with- the contract for execution.

XYZ refused to sign the contract. As a result of XYZ's refusal, the Owner

awarded the contract to the next lowest bidder for a price of $3,600,000.

• What potential liabilities in contract law arise in this case? What would the

Owner be entitled to claim from XYZ?

• Would the Owner be entitled to keep the tender deposit?

• Indicate a like outcome to this matter.

Please provide your reasons and analysis. In doing so, explain the contractual relationship.

A 1: This is a case of Contract A involving the issue of "unilateral mistake" As per Contract A (tendering process), call tender is itself an offer and submission of tender is an acceptance.

Since XYZ was presented with the contract and refused to sign it i.e. breaching the Contract A, then. XYZ is liable lose the tender deposit of $200,000. In addition, the owner may be entitled to sue XYZ for the $300,000 difference between the XYZ and the second lowest price plus any costs which arise through the inconvenience of accepting the next lowest price.

In view of the ruling in the Ron Engineering case, the owner would likely be entitled to keep the tender deposit since XYZ was presented with the contract and refused to sign it and the clause in the tender document stated quite clearly that the deposit was forfeited if the owner did not receive the contract signed by the successful bidder "for any reason whatsoever."

This is not an easy case to predict, although the law favors owner concerning the tender deposit. In view of the circumstances of case (the mistake was an honest clerical error, the contractor informed the owner within 10 minutes after the tender closing time and offered to withdraw its tender before the tenders are opened) I believe that the Belle River precedents would likely be revoked and while the $200,000 tender deposit would be forfeited, XYZ would not be required to pay further damage.

Dec/2006, April/2005, April/2001 Q 2 : An information technology hardware supplier ("BIDCO") submitted a price bid

on a major computer installation project for a large engineering firm, in response to the engineering firm's request for proposals. BIDCO included with its tender, as required, a certified cheque for $100,000 payable to the engineering firm as a tender deposit. -

The request for proposal also provided that if the tender was accepted by the engineering firm and the successful bidder did not execute the contract enclosed with the request for proposal the engineering firm would be entitled to retain the tender deposit for its own use and to accept any other tender.

BIDCO made a clerical error in compiling its tender submission, omitting an amount of $1,000,000 from its tender price of $6,000,000. BIDCO drew the clerical error to the attention of the engineering firm within 5 minutes after the official time for submitting bids had expired. BIDCO indicated that it wished to withdraw its tender but the engineering firm refused to allow it to do so and awarded the supply contract BIDCO.

Was BIDCO entitled to withdraw- its bid? Was the engineering firm entitled to keep the

tender deposit? Please provide your reasons and analysis, explaining the relationship and

indicate a like outcome.

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This is a case of Contract A involving the issue of "unilateral mistake" As per Contract A

(tendering process), call tender is itself an offer and.submission of tender is an

acceptance.

BIDCO was not entitled to withdraw its bid, since BIDCO submitted its bid against the offer of the engineering firm thus forming a contract A which is irrevocable. Now, withdrawal of the tender would be the breach of contract.

In view of the ruling in the Ron Engineering case, the owner would likely be entitled to keep the tender deposit since BIDCO was presented with the contract and refused to sign it and the clause in the tender document stated quite clearly that the deposit was forfeited if the owner did not receive the contract signed by the successful bidder "for any reason whatsoever."

In view of the circumstances of case (the mistake was an honest clerical error, the contractor informed the owner within 5 minutes after the tender closing time and offered to withdraw its tender before the tenders are opened) I believe that the Belle River precedents would likely be revoked and the $100,000 tender deposit would be" forfeited.

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Engineering Law and Professional Liability Disclaiming Clause

Dec/2006, April/2001 Q 1: An engineer engaged as an environmental consultant ("ENGCO") entered into a ,

contract with an owner ("OWNERCO") of a piece of land to conduct and environment compliance audit. OWNERCO was considering selling land.

ENGCO included in its environmental report the following provision:

"This report was prepared by ENGCO for the account of OWNERCO. The material in it reflects ENGCO's best judgment in light of the information available to it at the time preparation. Any use which a third party makes of this report, or any reliance on decisions to be made based on it, is the responsibility of such third party. ENGCO accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made or actions based on this report."

If ENGCO's report contained negligent misstatements, could a third party who had subsequently purchased the land from OWNERCO succeed, in a tort claim against ENGCO? Explain.

A 1 : . The purpose of the tort law is to compensate the party sustaining loss. It is not to punish criminals, which is covered under the criminal code. The potential for tort liability can arise even where there is no contractual relationship between the plaintiff and the defendant. In order to obtain compensation, the plaintiff must prove that the defendant:


This case is similar to Wolverine Tube (Canada) Inc. vs Noranda Metal Industries Ltd. case. In this case, ENGCO, in its report, provided a disclaiming clause that ENGCO is not responsible for any damages suffered by any third party as a result of decision made or actions based on the report. The wording of the disclaiming clause is clear, simple and comprehensive that ENGCO's disclaimers should be effective to preclude the liability to the third party. Thus, the first concept of the tort law is not applicable.

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In the circumstances- of this case, it is concluded that a third party could not succeed in tort claim against ENGCO as per court decision in the Wolverine case.

April/2006, Aug/2004 Q 2 : A long-established manufacturing company, XYZ Ltd., contemplating the

possibility of a sale of some its properties, retained environmental consulting firm, E Inc., to prepare an environmental compliance audit.

The- Vice-President of E Inc., a professional engineer, responsible for the performance of the environmental compliance audit, turned the matter over to one of E Inc.'s employee who had only recently become licensed as a professional engineer. However, on the basis of previous assignments, the Vice-President had been very impressed by the young engineer's abilities. The Vice-President was also aware that an extremely busy schedule would likely limit the amount of time the Vice-President could spend on the environmental compliance audit and, accordingly, selected the younger employee engineer in the hope that the young engineer's involvement would decrease the Vice-President's supervisory time in connection with the audit.

The employee engineer carried out an environmental compliance audit with respect to each of the properties identified and E Inc. submitted its reports on each property. Included at the beginning of each report was the following qualifying statement:

"This report was prepared by E Inc. for the account of XYZ Ltd. The materials in it reflect E Inc.'s best judgment in light of the information available to it at the time of preparation. Any use which a third party makes of this report, or any reliance on decisions to be made based on it, is the responsibility of such third parties. E Inc accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made or actions based on this report"'

Some time later, XYZ Ltd. sold two of its properties to Acquisition Inc. In negotiating the sale with Acquisition Inc., E Inc.'s report were shown to Acquisition Inc., but Acquisition Inc. had no dealings with E Inc. had no knowledge of the sale to Acquisition Inc. until approximately four years later when Acquisition Inc. commenced a law suit against E Inc. Acquisition Inc. claimed it had commenced the lawsuit in tort against E Inc. because it had encountered hazardous substances on one of the properties and had subsequently obtained the opinion of another environmental consulting firm who confirmed that the report in question by E Inc. contained negligent misstatements which, in the opinion of the second consulting firm, had resulted from E Inc.'s , representatives having spent too little time investigating the property for hazardous substances. Acquisition Inc. claimed in its lawsuit that E Inc. was aware that the report might be shown to prospective purchaser and, accordingly, E Inc. should be responsible for damages arising as a result of reliance by Acquisition Inc. on the negligent misstatements in E Inc.'s report.

What potential liabilities in tort law arise in this case? In your answer, explain what principles of tort law are relevant and how each applies to the case. Indicate a likely outcome to the matter. In your answer indicate if your conclusion would differ if the report by E Inc. had not contained the qualifying statement identified above and, if conclusion would differ, explain why?

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The purpose of the tort law is to compensate the party sustaining loss. It is not to punish criminals, which is covered under the criminal code. The potential for tort liability can arise even where there is no contractual relationship between the plaintiff and the defendant. In order to obtain compensation, the plaintiff must prove that the defendant:

d) owed a duty of care e) breached that duty by careless conduct and f ) the conduct caused the injury or damage

This case is similar to Wolverine Tube (Canada) Inc. vs Noranda Metal Industries Ltd. case.. In this case, E Inc. in its report provided a disclaiming clause that E Inc. is riot responsible for any damages suffered by any third party as a result of decision made or actions based on the report. The wording of the disclaiming clause is clear, simple and comprehensive that E Inc.'s disclaimers should be effective to preclude the liability to the third party. Thus, the first concept of the tort law is not applicable.

In the circumstances of this case, it is concluded that a third party could not succeed in tort claim against E Inc. as per court decision in the. Wolverine case.

If the report by E Inc. had not contained the qualifying statements identified above, then the E Inc. owed a duty of care to the third party for the report satisfying the first concept of the tort law. That duty of care was breached because it was found that the report contained, negligent misstatements regarding hazardous substances satisfying the second condition of the tort law. The damages occurred as a result of reliance by Acquisition Inc. on the negligent misstatements in E Inc.'s report. In a trial for damages, the E Inc. would likely be considered liable for the damages.

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Some Questions and Answers of the Previous Examinations Part *B" -

Engineering Law and Professional Liability Miscellaneous

Dec/2006, April/2001 Q 1: Engineers, as creative professionals, may require industrial (i. e. intellectual)

property protection. Briefly identify 3 types of industrial property protection and the duration of protection provided by each.

A 1: The three types of industrial property protection are the following:

Patent: The term of patent is twenty (20) years from the date of application for the patent.

Trade-mark: The Trade-Mark Act prescribes that registration are effective for a period of fifteen (15) years; registration may be renewed for unlimited subsequent period of 15 years each. It can be cancelled if owner stops using the trade.

Copy-right: The first owner of the copy-right in a work is the author of the work. The owner of the copy-right is entitled to assign the copy right in whole or in part subject to territorial and timing limitations.

Q 2: A professional engineer entered into a written employment contract with a Toronto based civil engineering design firm. The engineer's contract of employment stated that, for a period of five years, after the termination of the employment, the engineer would not practice professional engineering either alone, or in conjunction with, or as an employee, agent, principal, or shareholder of an engineering firm anywhere within the City of Toronto.

During the engineer's employment with the design firm, the engineer dealt directly with many of the firm's client. The engineer became extremely skilled in preparing cost estimates and established a good personal reputation within the city of Toronto.

The engineer terminating the employment contract with the consulting firm after three years, and immediately set up an engineering firm in another part of the City of Toronto. The engineer's previous employers then commenced a court action

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for an injunction, claiming that the engineer had breached the employment contract and should not be permitted to practice within the City limit.

Do you think the engineer's former employers should succeed in an action against the engineer? In answering, state the principles a court would apply in arriving at a decision.

A 2: This case involves an employment contract, and a contract must satisfy 5 conditions (offer/acceptance, intent, consideration, capacity and lawful purpose). The court always assumes initially that that any agreement which restrains trade is against public policy and therefore voids. The employer would be forced to prove that the restriction preventing the engineer from practicing within the City limits for 5 years is a reasonable restraint of trade. Before agreeing to issue an injunction, the court would apply the principles of reasonableness to see whether the time limit (5 years) and location' (city limit) are reasonable restriction on the employee. If the reasons are unreasonable, the court will not enforce the contract. However, everything will hinge on additional details that are not given in the problem and the court's decision could go either way.

Q 3: A contractor, in designing and constructing a shopping centre in 1995, negligently designed and installed certain ceiling anchor. The shopping centre was sold to a new owner in 1999. The inadequacy of the ceiling anchors was not detected until September of 2007 when the new owner undertook significant renovations and discovered that new ceiling anchors and new ceiling had to be installed.

Is the hew owner entitled to recover any damages from the contractors? In your answer, describe the limitation periods during which engineers and contractors can be sued in tort. Explain what the limitation period would be if there was privity of contract between the owner and the contractor.

A 3 : This case is identical to Robert Simpson Co. Ltd. vs Foundation Co. The negligence of the contractor satisfies the requirements of tort law: the contractor has an obligation to the first and subsequent owners of the house to install the , ceiling anchors property, the obligation was not met, and as a result, the new owner (2007) suffered a loss. According to the Limitation Act 2002, enforce from January, 2004 in Ontario, there are two limitation periods; (i) Basic two years limitation period from the date that the claim is discovered and. (ii) Ultimate 15 years limitation period running from the date that the act or omission on which the claim is based took place. Since the damage was discovered in 2007, both the limitation period had not run out.

However, if there had been a contract between the owner and contractor, then the contract would not be applicable under new Limitation Act. The new Act states that the new limitation periods apply despite any agreement to vary or exclude them.