NPPE: Law book notes

In previous posts, we had a series of discussions about NPPE, you can find them here,

NPPE: IMPORTANT, Case History Summary from the Book of CANADIAN PROFESSIONAL ENGINEERING AND GEOSCIENCE PRACTICE AND ETHICS

NPPE: Study Notes and Material of Ethic and Professionalism
NPPE: Introduction to National Professional Practice Exam (NPPE) with notes
NPPE: Sample Questions for Ethics

Here, we are looking at some summaries for the law book, Practical Law of Architecture, Engineering, and Geoscience

Terminology

Litigation:                   A lawsuit

Plaintiff:                      In civil litigation: party making the claim in lawsuit

In criminal matters: plaintiff is usually the crown

Defendant:                  The party defending the action against who the claim was made (in criminal matters, the defendant is the accused)

Appellant:                   Party appealing decision of a lower court

Respondent:                Party trying to uphold the decision of a lower court that is being appealed

Privity of Contract:     Legal relationship between parties to a contract

Creditor:                      A party to whom an amount is owing

Debtor:                        Party that owes an amount to a creditor

Indemnification:         Promise to compensate or reimburse another party for loss incurred

CANADIAN LEGAL SYSTEM

Common Law	“Judge made law” Courts apply legal principles established in previous court decisions that involve similar fact situations  (“theory of precedent”) Supreme Court of Canada (highest rank), Court of Appeal of the province Classified into two groups – “Public” or “Private”
Public Law	Rights & obligations of government (i.e. criminal law & constitutional law)
Private Law	Rights & obligations of individuals or private organizations (i.e. contracts and torts)
Statute	Codification of the law as the legislature determined at the time of  enactment

BUSINESS ORGANIZATIONS

(Sole Proprietorships, Partnerships, & Corporations)

Sole Proprietorship	Individual carries on business by and for himself
Partnerships	2 or more people conducting business together to profit
Corporation	Entity unto itself, distinct from it’s shareholders (owners) “where it can be established that the limited liability characteristic of a corporation is being used to protect an individual perpetrating a fraud, the courts will refuse to recognize the separate identities of the individual and corporation.”

Personal Guarantees	When setting up the banking arrangements for the corporation, the incorporator is often required to sign a personal guarantee for satisfactory credit terms
Tax Considerations	Canadian controlled private corporation (CCPC) receives small business deduction on taxes Overall, corporation pays less tax than sole proprietorship or partnership
Partnership Agreement	Should be made when a partnership is formed Describes management responsibilities of each partner Each partners share of profits/losses/contribution to working capital Provisions for dissolution Basis for withdrawal or expulsion of partners
Limited Partnership	Consists of one or more general partners and one or more limited partners (a partner can limit his/her liability) Limited partners liability to amount contributed A limited partners name can’t be used in name of partnership Only general partners transact business (if limited partner gets too involved or uses name in title, may be liable as general partner)
Private Corporations	# of shareholders < 50 right to transfer shares is restricted
Public Corporations	Shares are offered & distributed to the public

Shareholders	“Owners of a corporation” Elect the directors of the corporation
Board of Directors	Supervise management of corporate affairs & business Elect or appoint officers
Officers	Provide day to day business management

TORT LIABILITY – (Private Law)

Tort	Private or civil wrong or injury, one that involves negligence and that may arise independently of contract Examples: Automobile accidents, transport of hazardous cargos, sale of unsafe products, negligent performance of professional services Purpose: “Compensate the victims of torts”
Principles of Tort Law	To satisfy the court that compensation should be made, the plaintiff must substantiate that: the defendant owed the plaintiff a duty of care the defendant breached that duty by their conduct the defendant’s conduct caused injury to the plaintiff ** All 3, must be satisfied in order for the plaintiff to succeed
Standard of Care	Court applies a standard based on the premise that engineers have a duty to use reasonable care and skill of engineers of ordinary competence. “Where one person relied on the special skill and judgment of another and when the second person knew of that reliance, the second person was duty bound to take reasonable care in exercising the special skill.”
Strict Liability	Liable if something goes wrong, even if not negligible A manufacturer may be strictly liable for any damage that results from the use of the product even though the manufacturer wasn’t negligible in producing it (in the U.S., not Canada yet)
Vicarious Liability	If an employee commits a tort in the course of employment, the employer will be vicariously liable for the damage caused.  (Employer has “deeper pockets”)
Concurrent Tortfeasors	More than one party liable in a tort action
Products Liability	Where the plaintiff can establish that damage resulted from appropriate use of the product, the defendant manufacturer must persuade the court that considering the state of the industries technological advance at the time, the manufacturer could not have foreseen the defective nature of the manufactured good.  (Otherwise, liability will arise).
Standard of Care & Duty to warn	A manufacturer must warn the consumer of dangerous potential of the product by appropriate labelling
Economic Loss	Tort Matter: Economic loss result from negligently given advice Products Liability Matter: Reluctance to extend liability for economic loss in absence of physical injury
Defamation	“Untrue statements to damage reputation” (Libel: written, Slander: spoken)
Occupiers’ Liability	The occupier of property must exercise the required standard of care to ensure the safety of individuals coming onto that property
Nuisance	Undue interference with the comfortable and convenient enjoyment of the plaintiff’s land

LIMITATION PERIODS

Tort actions & actions for breach of contract, must be commenced with in a prescribed time period from the time the cause of action “arose”  (usually 6 years)

In contract, unless specified, the time period is 6 years (but extended to 20 when contract is signed under seal.  (Can apply “discoverability” concept in the contract if no limitation period is included in the contract).

PROOF

Civil Proceedings (i.e. tort & contract)	Plaintiff must prove the case against the defendant by persuading the court on the “balance of probabilities” that facts are as alleged and the defendant should be held liable
Criminal Proceedings	Accused person must be proven guilty “beyond a reasonable doubt.” (This is a higher degree of proof, than “balance of probabilities”).
Expert Witness	Permitted to express opinions with respect to his/her area of expertise.  (Non-expert witnesses can only express facts of the case).

CONTRACTS

To be binding and enforceable, five elements must be present:

Offer Made & Accepted	Offer: Promise made to someone (the offeree) by someone else (offeror).  (Acceptance must be clearly communicated) Irrevocable Offer: Offeree might want to ensure an offer will not be revoked before they can accept it.  (Consideration necessary in order for irrevocable offer to be binding) The Option Contract: The right to accept an offer is preserved until the offeree chooses to exercise the option (offeror is thus precluded from revoking the offer) Revoking an Offer: Not effective until offeree actually receives notice Timing & Accepting an Offer: Mail: Acceptance is effected when posted Telegram: Communication is effected when message is delivered to telegraph operator Otherwise: Acceptance of offer effected when received by offeror. Governing Law: The law of the place where the acceptance of the offer becomes effective is applicable (unless otherwise agreed upon)
Mutual Intent to enter into the agreement	Letter of Intent: “Agreements to agree” rather than well defined agreements – (Not enforceable by courts).
Consideration	Cause, motive, price or impelling influence that induces a contracting party to enter into a contract.  (Courts not concerned with adequacy of consideration, unless conditions amounting to undue influence, duress or fraud exist) If consideration not present, no contract is formed unless the document is sealed (i.e. gratuitous promise) Corporate Seal: Mechanical device used to imprint Personal Seal: Small red adhesive wafer An irrevocable offer w/o a seal or consideration is simply a gratuitous promise, it is not binding. Equitable Estoppel:  Concept that can be applied to prevent a party to a contract from enforcing its strict contractual terms where doing so would produce an unfair and inequitable result. (i.e. unable to meet a deadline due to WWII).
Capacity to Contract	“All parties must have the necessary capacity to contract” Under-age, intoxication, lunacy… Personnel must have proper authority to do so
Lawful Purpose	“A contract will not be enforced if the purpose of the contract is unlawful.”

Statue of Frauds	Stipulates that certain types of contracts must be in writing to be enforceable.  (Relevant to the engineer, are): Contracts relating to interest in lands (i.e sale of lands) Agreements not to be performed within the space of 1 year from the making thereof Guarantees of indebtedness (loan)
Misrepresentation	“A false statement of assertion of fact” Innocent Misrepresentation: false assertion made by a party who doesn’t appreciate that the statement is false Remedied by rescission of the contract Fraudulent Misrepresentation: a statement made       (1) knowingly or (2)w/o belief in its truth or             (3) recklessly, careless whether it be true or false Deceived party is generally entitled to rescind the contract & to claim compensation
Duress	If a contract is induced by means of intimidation – (it is voidable).  Such intimidation is called “Duress” Economic Duress:  being coerced into making contract b/c no alternative available (i.e. financially)
Undue Influence	One party to a contract dominates the free will of another party (to such an extent as to be able to coerce the dominated party into an unfair agreement)
Mistake	Courts will intervene to provide relief to a contracting party that has made a mistake in contract only in rare circumstances Rectification: “Common Mistake” – contracting parties have clearly reached an agreement by have recorded the provisions of the agreement inaccurately in a written contract – (one of the parties can apply for an order of rectification) Unilateral Mistake: Mistake made by only 1 party ** An Offeree cannot accept an offer that he knows has been made by mistake and that affects a fundamental term of a contract **
Contract Interpretation	Parties to a contract sometimes dispute the meaning of part of the contract, some disputes are even referred to the court. Liberal Approach: takes into account the intent of the parties, may lead to much speculation on that intent Strict Approach: focuses on the precise words of the agreement, in the extreme, relying on dictionary Implied Terms: Occasionally, parties to a contract overlook the inclusion of an obvious term.  (Where it is clearly reasonable to do so, courts may give business efficacy to an agreement through “implication of terms”

Discharge of Contacts	Performance: when all parties to a contract have completed their respective obligations, the contract is at an end Agreement to Discharge: if parties to a contract agree to cancel or terminate the contract on mutually agreeable terms and conditions Discharge Pursuant to Express Terms: utilizing provisions (in a contract, if they exist) that allow any or all parties to terminate the contract upon occurrence of certain events Discharge by Frustration: changing circumstances (w/o default by either party) may radically change the obligations of the parties to a contract.  If this happens, contract will have been “frustrated” and is discharged by such frustrations.
Breach of Contract (Contract CAN contain exemption clause; however, the doctrine of fundamental breach may still be applied – in which case, the exemption clause would render “ineffective”)	If a party fails to perform obligations specified in the contract, then the defaulting party has breached the contract Condition: An obligation, essential or vital to the contract.  (Breach of Condition, will allow for contract to be discharged) Warranty: An obligation that is not essential to the contract.  Can also be used to mean “guarantee.” ** Breach of either Condition or Warranty will entitle non-defaulting party to damages** Remedies: Non-defaulting party is entitled to damages for losses incurred as a result of breach of contract Direct Damages: example is where an owner awards a contract to the lowest bidder who then refuses to perform & thereby immediately defaults.  The owner then awards the contract to the next lowest bidder.  The direct damages the owner has suffered are equal to the amount by which the 2nd lowest bidder exceeds the lowest bidder. Indirect Damages: Consequential to the breach (i.e. damages for “lost profits” caused by a plant S/D).  Also referred to as Special or Consequential Damages Duty to Mitigate: Party that suffers loss through breach of contract, must take reasonable steps to mitigate or reduce the amount of damages suffered. Quantum Meruit:  Compensation awarded (money) – as much as is “reasonably deserved” for the time spent and materials supplied.
Repudiation	When one party to a contract expressly tells the other party that they have no intention of performing contractual obligations, the declaring party has “repudiated” the contract Non-defaulting party can either ignore the breach, (in which case the contract continues), or assume the contract has been discharged by repudiation, (in which case they may claim damages against the defaulting party)

AGREEMENT BETWEEN CLIENT & ENGINEER

“The degree of care, (required by an engineer), is an implied term in a contract.  An engineer is liable for incompetence, carelessness, or negligence that results in damages to the client.”

Agency Relationship	If an engineer exceeds the cope of his or her authority, the engineer may be liable to the principal for damages resulting from the engineer’s actions.
Remuneration	If an engineer is retained by a client to perform services, and undertakes to do so without agreeing with the client on the amount of remuneration to be received, the law implies that the engineer shall be paid a reasonable amount for services on a “quantum meruit” basis.
Estimated Fee	When an engineer enters into a contract with a client, he or she should cautiously estimate, if required and appropriate, the amount of the engineer’s total fee.  The engineer should also emphasize to the client that the quoted total fee is only an estimate.
Limiting Liability by Contract	“Reasonable approach would be to limit the engineer’s potential liability to the extent of his or her professional liability insurance coverage.

DUTY OF HONESTY

“When engineer enters into contact, he assumes a duty of care in performing services.”

Duty of engineer:  “To act with absolute honesty”

Where fraud is involved:        Contract may be repudiated & damages awarded for the tort of deceit.  (Fraud is a criminal offense, and is punishable on conviction, by imprisonment for up to 10 years)

 Other Convictions can result in fines & imprisonment

CONSTRUCTION CONTRACTS

Engineer not normally a party to a construction contract; (usually has a separate contract with the owner).

Engineer not normally a party to a construction contract; (usually has a separate contract with the owner).

• As administrator, the engineer may make decisions of major significance to the rights & obligations of the owner and the contractor.  (i.e. may interpret contract provisions and/or be judge of performance of respective obligations of parties  the contract).
• In acting “judicially,” the engineer must act independently of the owner and in good faith.

                    As long as this is the case, engineers decision will be binding on both parties

                    Negligent certification: engineer may be liable to owner

Engineer’s Advice to Contractor	Consistent with tort law principles, engineer may be expected to advise a contractor in circumstances where contractor is reasonably relying on engineer’s expertise.  Engineer must be extremely careful in doing so as unwarranted interference with a contractor’s work methods may give rise to a damage claim.
Contract administration	Should ensure that contract is administered in accordance with it’s terms.  If to some extent it is administered contrary to it’s terms, “equitable estopple” might arise.
Drawings & Specifications	One of the most important services by engineer is preparation of conceptual & detailed drawings and specifications to describe the work.  Often the basis of contractors prices Client also relies on them
Tendering Process	Engineer usually involved in tendering documentation Contractor making bid may take exception to terms & conditions in owner’s form of contract.  Until owner is prepared to accept revised terms & conditions, no contract is formed.

TYPES & FORMS OF CONSTRUCTION CONTRACTS

Stipulated-Price (or Lump-Sum) Contract	Gives owner benefit of knowing price If details provided after price is tendered, contractor may claim additional compensation for beyond scope of contract
Unit-Price Contract	Used where difficult to predetermine quantities (i.e. excavation project where subsurface conditions difficult to predict in advance Bids submitted as price / unit of item
Cost-Plus Contracts	Cost Plus Percentage Provides compensation to contractor for costs incurred plus reasonable % to cover contractors overhead & profit Often used on large projects when not enough time to do detailed plans & specs., (and/or likelihood in changes of work) Cost Plus Lump-Sum Fee Instead of receiving % of total project cost, contractor receives a fixed amount. No incentive for contractor to increase or decrease costs of project, “owner’s advantage” Cost Plus Lump-Sum Fee plus Bonus Contractor provided with incentive to reduce costs – (receives % of savings, in addition to lump sum)
Guaranteed Max Price plus Bonus Contract	Owner’s advantage; guaranteed max. price feature Contractor’s advantage: receives fixed fee as well as agreed upon % of savings
Design-Build Contracts	“Contractor” obtains engineering design services, to finalize the design detail – (not the owner)

Prime Contract & Subcontracts:

• No privity of contract exists between owner & any of the subcontractors
• General contractor must administer contract with subcontractors – (“privity of contract” exists, between the general contractor & subcontractors).

ARBITRATION AND ADR (“Alternative Dispute Resolution”)

“Arbitration has developed to provide an alternative that is intended to be less costly, less protracted, and less public than litigation.”

Engineer may be party to the dispute, expert witness or arbitrator

Appointment of Arbitrator

Some contracts describe the manner in which an arbitrator is to be appointed and detail the general procedure that will govern the arbitration. Example: each party appoint a rep. & then representatives appoint a chair

“The Arbitration Act”

Contracts usually provide that arbitration will be governed by a provincial arbitration statute, typically statute of province whose law governs the interpretation of the contract. By settling a framework of rules, the Arbitration Act helps to mitigate the costs, delays, “gamesmanship” and uncertainty that could arise if that was left to subsequent negotiation. Limits the range of circumstances in which arbitration award can be impeached. Project Neutral: This approach involves the appointment of a project neutral, typically an independent professional experienced in the construction industry, to stay abreast of developments on the project with a view to offering advice and decisions on an unbiased basis.  (Neg: “extra costs”) Mediation: To be successful, parties need to perceive an advantage to resolving the dispute through negotiation.  (Up to parties to work out their differences – “no binding decisions”).

LIEN LEGISLATION

 “Builders Lien Act” -> Provincial legislation that creates certain lien rights and requires amounts to be held back from contractors until a specified time.

Alberta:   15 % Holdback

                45 days before Holdback can be released.

Until any lean is filed or until the owner is given notice in writing that a lien is claimed, an owner is protected if he or she retains the required percentage holdback of the value of the work done or materials furnished as construction proceeds

Persons Entitled to the Lien Rights	Anyone who supplies services or materials to an “improvement” for an owner, contractor or subcontractor, is entitled to a lien.
Rights against owner where no contract exists	Designed to provide protection for parties who do not have privity of contract with owner – (right to sure owner directly)
Effect of Lien	When owner receives written notice of lien claim, they are required to retain both the holdback amount & amount of lien claim.