2014-01-05

Nov 2010

LAW AND ETHICS IN

ENGINEERING PRACTICE
(CEN 800)
FACULTY OF ENGINEERING AND APPLIED
SCIENCE
RYERSON UNIVERSITY

A2G: 1196343v7

HOW IS THE LAW APPLICABLE

TO ME?
Gas Fired Power Project

Project Management
Civil
Electrical
Mechanical
Computer
Aerospace
Industrial

Complex Contractual Arrangements

2014-01-05

COURSE OUTLINE

Canadian Legal System

Business Organizations
Torts
Contracts
Security for Payment
Bonds and Performance Guarantee
Lien Legislation
g
Agreements
g
Consulting/Construction
Insurance
Intellectual Property
Alternate Dispute Resolutions

2014-01-05

CANADIAN LEGAL SYSTEM

Based
B d on English
E li h Common
C
Law
L
Equity
Common Law

Theory of Precedent
Basis of Predictability
Apply Legal Principles Established in Previous
Court Decisions
Factual Distinctions and Equitable Relief Provide
for Flexibility

CATEGORIES OF LAW
Common Law
Judge Made

Legislative
Government-Made codification of existing
common law or enactment of new law
Federal
Provincial
Municipal

Statutes are Supplemented by Regulations

Theory of Precedent

2014-01-05

JURISDICTION BETWEEN
FEDERAL AND PROVINCIAL
GOVERNMENTS
Parliamentary Supremacy
British North America Act 1867
S#91 Federal Jurisdiction
S#92 Provincial Jurisdiction

Ultra Vires

JURISDICTION BETWEEN
FEDERAL AND PROVINCIAL
(
)
GOVERNMENTS (contd)
Constitution Act, 1982 and Charter of Rights
and Freedoms
Guarantees Fundamental Freedoms
Constitution is Supreme Law
Reduced Effect of Parliamentary Supremacy
Reasonable Limits
S#33 Override

2014-01-05

COURT SYSTEM
HOUSE OF
LORDS

Criminal - 1933
Other - 1949

SUPREME COURT
OF CANADA

LEAVE REQUIRED

FEDERAL COURT
OF APPEAL
B.C.

FEDERAL
COURT

ALBERTA

-PATENTS
-TRADEMARKS
-COPYRIGHT
COPYRIGHT

ONTARIO COURT
OF APPEAL
DIVISIONAL
COURT
COURT
OF ONTARIO

SUPERIOR COURT OF JUSTICE ONTARIO COURT OF JUSTICE

(6 People
on Jury)

Criminal

Family

(12 People on Jury)

Provincial
Offences

SMALL CLAIMS COURT

-maximum of $25,000

COURT PARTICIPANTS
Original Trial
Plaintiff
Defendant

Appeals
Appellant
pp
Respondent

2014-01-05

CIVIL COURT CASE PROCESS

Issue Statement of Claim (Plaintiff)
Respond with Statement of Defence
(Defendant)
Discoveries
Documents
Oral

Trial

BUSINESS ORGANIZATIONS
Corporation
Share Capital
Non-Share Capital

Partnership
General
Limited Liability

Sole Proprietorship
Unlimited Liability Company

2014-01-05

SALOMON V SALOMON & CO. LTD.

1897 HOUSE OF LORDS
MR. SALOMON

MRS. SALOMON

LOAN
SECURED

SON SALOMON

SALOMON & CO. LTD.

MATERIAL
SUPPLIER

UNSECURED
CREDITORS

MATERIAL
SUPPLIER

Issue: Did Mr. Salomon rank before the Unsecured Creditors by virtue of being a secured Debenture Holder?
House of Lords recognized Salomons Corporation as a separate and distinct entity from himself there
was no evidence of intent by Salomon to deceive or defraud.

FERN BRAND WAXES LTD. V PEARL

1972 ONTARIO COURT OF APPEAL
PEARL
(DIRECTOR, OFFICER &
(DIRECTOR
ACCOUNTANT OF FERN)

CO#1

CO#2

FERN BRAND
WAXES LTD.
- Pearl transferred unauthorized funds to 2 companies controlled by him by loaning them monies from
Fern Brand.
- Some of the funds were used to purchase shares in Fern Brand Waxes Ltd.
- Court stated that the Defendant should not be allowed to profit from his breach of trust.

2014-01-05

LIMITED PARTNERSHIP
PARTNER #1

PARTNER #2
SHAREHOLDERS

49.5%

GENERAL
PARTNER
CORPORATION
1%
PARTNERS

49.5%

LIMITED
PARTNERSHIP

NON DISTINCT TYPES OF

BUSINESS ORGANIZATIONS
Joint Venture
Consortium

2014-01-05

CONSIDERATIONS IN SELECTING
A BUSINESS ORGANIZATION
Duration
Simplicity/Complexity
Taxes
Canadian Controlled Private Corporation
(
(CCPC)
)

Liability
Separate Identity

CONSIDERATIONS IN SELECTING
A BUSINESS ORGANIZATION
(cont d)
(contd)
Personal Guarantees
Property Ownership
Registrations

2014-01-05

CORPORATIONS

Articles of Incorporation/Letters Patent

Jurisdiction of Incorporation
Objects
By-laws
R l ti
Resolutions
Public vs. Private

CORPORATIONS (contd)
Participants

Shareholders
Directors
Officers
Employees

10

2014-01-05

DIRECTORS AND OFFICERS

DUTIES
Manage the Corporation
Act honestly and in good faith
In best interests of corporation
Exercise the care, diligence and skill that a
reasonably prudent person would exercise in a
comparable circumstance

GLOBAL CONSIDERATIONS

Form of Business Organization

Political Risks
Foreign Legal Systems
Licensing Requirements
Fi
Financial
i l Risks
Ri k
Contract Forms

11

2014-01-05

SECURITY OF PAYMENT AND

PERFORMANCE

Bonds
Letters of Credit
Guarantees
Subcontractor Default Insurance

Bonds
guarantee by a surety that contractor will
perform obligations
not insurance
bonding company will seek compensation
from contractor
Contractors shareholders usually provide
guarantees

12

2014-01-05

Types of Bonds
Bid Bond
forfeited if Contractor fails to enter contract

Performance Bond
guarantees to owner that contract will be
performed

Labour
L b
andd Material
M t i l Payment
P
t Bond
B d
guarantees payment to subcontractors and
suppliers

BONDING RELATIONSHIP
OWNER

EQUIPMENT INDEMNITY
SUPPLIER AGREEMENT

BOND
SURETY
(BONDING
CO )
CO.)

SUBSUPPLIER

13

2014-01-05

Letters of Credit

More common outside of Canada

May be close to a blank cheque
Usually affect contractors credit capacity
Often referred to as Performance
Guarantees in international work
Guarantees

LETTER OF CREDIT
OWNER
LETTER OF
CREDIT
AGREEMENT
BANK

EQUIPMENT
SUPPLIER
SUBSUPPLIER

14

2014-01-05

GUARANTEE
OWNER
GUARANTEE
PARENT
COMPANY

EQUIPMENT
SUPPLIER
SUBSUPPLIER

CONSTRUCTION LIEN ACT

Lien
Holdback -10%
Trust Provisions
Priority of Mortgages

15

2014-01-05

Time

Substantial
Performance

Substantial Performance

Two Part Test

1.

the work must be ready for the purpose intended (the

Qualitative Test)
2. the cost of completing incomplete items and
rectifying known defects must be less than an amount
calculated as:
a)) 3% off the
h fi
first $500,000
$500 000 off C
Contract Price,
P i plus
l
b) 2% of the next $500,000 of Contract Price, plus
c) 1% of the remainder of the Contract Price

(the Quantitative Test)

16

2014-01-05

EXAMPLE
Contract Price = $3,500,000
$3 500 000
Quantitative Calculation:
3% of $500,000 = $15,000
2% off $500,000
$500 000 = $10,000
$10 000
1% of 2,500,000 = $25,000
$50,000

45 days

TIME

Sub Perf.

Publication of the
Certificate of Sub Perf.

17

2014-01-05

TIME

Sub Perf.

Completion

COMPLETION
The completion of incomplete items and
rectification of known defects is less than
the lesser of:
1) $1,000
2)) 1%
% of the C
Contract Price

18

2014-01-05

45 days
Sub Perf

TIME

Completion

Owners Questions
How much input does the owner wish to
have in the design of the project?
Is the owner interested in a unique design or
one that will be relatively generic?
Is the completion date of the project critical
to the
h owner??
Is overall cost critical to the owner?

19

2014-01-05

Owners Questions (contd)

How experienced is the owner?
How risk adverse is the owner?
Does the owner have its own in-house
administrative staff?
Are there performance guarantees that are
important to the owner?
How is the project being financed?
Is there any equipment that has a long lead
time for delivery?

Owners Questions (contd)

Are there particular designers, equipment
suppliers or trade contractors that the owner
wishes to utilize?
How much construction experience does the
owners consultant have?
Will the
h owners
expectations
i
require
i
unique construction experience?

20

2014-01-05

Project Structures
Traditional project structure
Construction management project structure
Contractor/construction manager project
structure
Multi-designers project structure
Engineering, procurement and construction
management (EPCM) project structure
Design/build project structure

TRADITIONAL
Owner

Consultant

Contractor

Sub #1

Sub Consult

Sub Consultant

Sub #2

21

2014-01-05

Advantages of the Traditional

Project Structure
Single
Single point
point responsibility of the
consultant and contractor
The owner can keep its involvement fairly
limited
Easier to acquire a fixed price from the
contractor
t t
Cooperative relationship between the owner
and the consultant

Advantages of the Traditional

Project Structure (contd)
The number of contractor initiated change
orders which affect the price should be
relatively limited
The consultant and the contractor bear any
risks of non-performance of the
subconsultants and the subcontractors,
respectively

22

2014-01-05

Disadvantages of the Traditional

Project Structure
Not conducive to fast-trackingg
Until prices are received from contractors
pursuant to the tendering procedure, the owner is
not fully aware of its final costs
Not conducive to having input from the
contractor during the design
If the project fails to perform in accordance with
the owners expectations, it is necessary to assess
responsibility between the consultant and the
contractor

CONSTRUCTION
MANAGEMENT
C
Consultant
lt t

O
Owner

Trade #1 Civil

Trade #2 Mech

Construction
Manager

Trade #3 Elec

23

2014-01-05

Advantages of the Construction

Management Project Structure
Veryy conducive to fast-trackingg
Because the construction manager is not taking
on any direct liability for the trade contractors,
the construction managers fee does not need to
incorporate any risk with respect to the
pparticular trade contractors
The construction manager can be retained early
in the design development process and provide
very advantageous construction advice during
the design.

Disadvantages of the Construction

Management Project Structure
Because the construction manager does not have
privity of contract with the trade contractors, not
only does the owner not have the advantage of
looking to the contractor as the party with
single point responsibility, but the
construction manager does not have the same
level of control over such trade contractors

24

2014-01-05

Disadvantages of the Construction

Management Project Structure
(contd)
The ultimate cost to be paid by the owner will
not be determined until such time as the last
component of work is tendered for construction
Pursuant to the Occupational Health and Safety
Act, once the owner enters into more than one
contract for the construction of a project, the
owner becomes the constructor

CONTRACTOR/CONSTRUCTION
MANAGEMENT
Owner
Ow
e

Consultant
Co
su

Contractor/Construction
Manager

Sub #1

Sub #2

Sub #3

25

2014-01-05

Advantages and Disadvantage of the

Contractor/Construction
Management Project Structure
Advantages
The contractor/construction manager becomes
involved in the project very early in the design
process
Conducive to fast-tracking
fast tracking

Disadvantage
It may not be possible to seek a fixed price at the
time of retaining the contractor/construction
manager

Diagram #4
Multi-Designer Project Structure
Owner

A hi
Architect

Structural
Engineer
General Contractor

Mechanical
Engineer
Electrical
Engineer

26

2014-01-05

Advantage and Disadvantage of the

Multi-Designer Project Structure
Advantage
Since no one particular designer takes on the
responsibility or liability for all other designers,
the cumulative fees payable to all designers
should be lower than those payable to a single
designer

Disadvantage
Requires the owner to assume overall
coordination responsibilities

Diagram #5
Engineering, Procurement and
Construction Manager Structure
Owner

Prime
Contractor

Engineer/
Construction
Manager

Prime
Contractor

Supplier

27

2014-01-05

Advantage and Disadvantage of the

Engineering, Procurement and Construction
Management Project Structure
Advantage
One entity takes an active role in both the design and
construction of the project

Disadvantage
As is the case in the construction management project
structure, the EPCM party is usually only an agent of
the owner and as such does not take on any direct
liability for the trade contractors or equipment and
material suppliers

Diagram #7
Design/Build Project Structure
Owner s
Owners
Consultant

Owner

Design/
Builder

Consultant

28

2014-01-05

Advantages of the Design/Build

Project Structure
Where time of delivery,
delivery performance or
output of the project is critical to the owner,
single point of responsibility makes one
person responsible for such matters
Conducive to fast-tracking

Advantages of the Design/Build

Project Structure
The designer and the contractor work
together as a team
The single point of responsibility is
important to lenders in project financing
projects

29

2014-01-05

Disadvantages of the Design/Build

Project Structure
It is very difficult to adequately and fully define
th scope off the
the
th design/builders
d i /b ild obligations
bli ti
prior
i
to the design being completed
Price for the design and construction of a project
cannot realistically be determined with precision
until the design is finalized
The designer will no longer have the same interest
in satisfying the owners expectations if those
expectations will result in additional construction
costs to the design/builder.

Forms of Contract
Stipulated Price
Unit Price
Cost Plus
Cost Plus Percentage
Cost Plus Fixed Fee
Cost Plus Lump Sum Bonus

Guaranteed Maximum Price plus Share of

Savings

30

2014-01-05

Unit Price
often found in excavation and municipal
servicing contracts
use where quantity of work is not well
defined
defined method of measurement is essential

Cost - Plus
more appropriate where design is not
complete
other situations where significant
uncertainties exist
bonus arrangements
g
mayy provide
p
incentive
to reduce costs

31

2014-01-05

Guaranteed Maximum Price

Hybrid between Stipulated Price and Cost
Plus
plus Share of Savings adds incentive to
reduce costs
design
g must be reasonably
y complete
p

Insurance
1)) Property
ope ty
2) Liability
3) Errors & Omissions
Professional Liability
-

Cap of Limit
Deductibles
Exclusions (i.e., Liability excludes faulty
workmanship and faulty design)

32

2014-01-05

Intellectual Property

Patents of Invention
Trademark
Passing Off
Copyright
I d t i l Designs
Industrial
D i
Trade Secrets

Patents of Invention
Inventions must be
New and useful art, process, machine, manufacture
or composition of matter
Novel
Reduced to something physical/tangible

Term: 20 years from date of application

Patent rights can be assigned to others or used
under a license agreement
Exclusive right to use or license the invention
Can be assigned

33

2014-01-05

Patents of Invention (contd)

Is it the employers invention or the
employees?
l
?
Remedies
Damages sustained by patent holder
Injunction
Recovery of profits obtained by infringer

Trade-mark
Used to distinguish wares or services manufactured,
sold, leased, hired, or performed by someone from
those of others
Owner has exclusive right to use trade-mark
Mark must be distinctive
Registered trade-marks are effective for a period of
15 years: can be renewed for unlimited 15-year
periods
Can be licensed
Remedies
Restraint on future use
Liable for damages

34

2014-01-05

Passing Off
A type of legal action against someone who
uses your trade-mark
t d
k or a similar
i il trade-mark
t d
k to
t
yours
Unregistered trade-mark
You must show that customers purchase from
someone else because they mistakenly believe
that
h they
h are dealing
d li with
i h you
Remedies
Restraint on future use
Liable for damages

Copyright
Subsists in original literary, dramatic, musical,
artistic work, communication signals, sound
recordings, performances
Right to produce or reproduce something;
perform and deliver it in public; publish
Term: life of the author + 50 years
Includes
c udes engineering
e g ee g plans
pa s
Assignment must be in writing
moral rights: right of identification as author,
integrity of the work (i.e., Eaton Centre art)

35

2014-01-05

Industrial Designs
Designs (shape, pattern, ornament) that are
ornamental or aesthetic in nature
Not mechanical construction or method of
manufacture
Design must be novel and original
Term: exclusive right
g to use design
g for 10 yyears
from registration
Assignment must be in writing

Trade Secrets
Formula , pattern, device, compilation of info
used in one
oness business
business, which gives advantage
over competitors, i.e., formula for a chemical
Some rely on this as opposed to patents
Legal action:
Show info was confidential
Show secret information was communicated to the
person at fault in circumstances implying a duty of
confidence
Degree of secrecy

Duty of confidence: employer and employee

36

2014-01-05

Dispute Resolution
1..
2.
3.
4.
5.

Partnering
a t e g Dispute
spute Avoidance
vo da ce
Negotiation
Dispute Review Boards
Mediation
Arbitration
a) Mandatory
b) Binding
6. Private Court
7. Litigation

Mediation
Independent third party attempts to bring
parties together
Very useful if all parties want to settle

37

2014-01-05

Characteristics of Arbitration
Choose the tribunal - may be expert if
desired
May be quicker and cheaper
Less public
Usually binding
Parties must agree to participate and be
bound by decision

Arbitration Agreements
usually a clause in a larger contract
may be a stand alone agreement
agreement should define:
arbitrator(s) - number, identity, qualifications,
how chosen
rules and procedure
timing

38

2014-01-05

Arbitration Act
Philosophy to encourage arbitration
Courts must almost always enforce
arbitration agreements
Rights of appeal are limited
prevents arbitration being simply a delaying
tactic

ADR on International Projects

Arbitration Clauses usual
in Ontario the International Commercial
Arbitration Act applies
provides even less flexibility to courts to
intervene
Contracts encourage non-binding ADR
methods

39