1.10 CANADIAN CASES

 

 

1.10.1 Alkok v. Grymek

Location: Canada

Court:

Year: 1968

Importance: a quantum meruit award for damages

Details:

• A construction contract was formed and it was agreed that certain payments would be made at various dates in the project, as an architect certified work, and that subcontractors had been paid.

• Some of the subcontractors had not been paid, there were defects, and the work was delayed.

• As a result the owner terminated the contract, and hired replacement contractors.

• In the resulting lawsuit the court found that the contractor had not violated the essential terms of the contract. This did not warrant a discharge, and the contractor received an award for work done (quantum meruit).

 

 

1.10.2 Amber Size & Chemical Co. Ltd. v. Menzel

Location: ?

Court:

Year: ?

Importance: sets principle for trade secret protection

Details:

• In a ruling the court stated - ex-employees should not divulge secrets given in confidence (this may only be implied), or take advantage financially.

• The four test questions were,

- was there some secret process known and used.

- did the employee know that it was a secret.

- did the employee know the secret.

- has the knowledge been misused since leaving the company.

 

 

1.10.3 Application of Erickson/Massey

Location: British Columbia

Court:

Year: 1971

Importance: an example of a lien for design-supervise services.

Details:

• An architect had prepared plans.

• He had applied to a court for a lien. This was refused.

• He then supervised the construction of the building.

• In appeal the lien was granted.

 

 

1.10.4 Armbro Materials and Construction Ltd. v. 230056 Investments Limited et. al.

Location: Ontario

Court:

Year: 1975

Importance: an example where a lien was allowed for an engineer.

Details:

• An engineer had prepared plans for subdivision roads, sewers, and water mains, with the condition that the plans had to be approved by local officials. The contract also called for supervision.

• The plans were approved, but financial constraints halted the project.

• The engineer applied for a lien.

• The court granted the lien saying that the plans were tied to the land, and constituted an improvement. This was differentiated from architects plans that are somewhat independent of the land.

 

 

1.10.5 Attorney-General of Canada v. Libling et. al.

Location: Ontario

Court:

Year: 1980

Importance: the limitation period for starting an action was challenged

Details:

• There were roof design problems.

• Attempts had been made to correct problems with the roof.

• The engineer that had designed the part of the roof in question had not been contacted about the problem for 11 years, and no longer had his records.

• The court heard all of the details but decided not to extend deadline.

 

 

1.10.6 Bahamaconsult Ltd. v. Kellogg Salada Canada Ltd.

Location: Ontario

Court:

Year: 1976

Importance: an example of a letter of intent

Details:

• A letter of intent about stock shares was issued.

• This letter discussed a sale of shares, and indicated that transfer of the shares, and finalizing of the sale were all that was left.

• Disagreement resulted in the sale not going through.

• In a lower court this letter of intent was upheld as a contract, but a higher appeal overturned the decision and ruled that certain elements were missing.

 

 

1.10.7 Beaufort Realties (1964) Inc. and Belcourt Construction (Ottawa) Limited and Chomeday Aluminum Co. Ltd.

Location: Canada

Court:

Year: 1980

Importance: another example of a fundamental breach

Details:

• A contractor had failed to pay a subcontractor.

• In court the contract was shown to have a clause that waived the subcontractors right to apply a lien.

• The court ruled that the failure to pay was a fundamental breach, and that the subcontractor would not be held to the lien waver.

• This was upheld in the supreme court.

 

 

1.10.8 Belle River Community Arena Inc. v. W.J.C. Kaufmann Co. et. al.

Location: Ontario

Court:

Year: 1977

Importance: a unilateral mistake was upheld

Details:

• The contractor had prepared a bid and incorrectly transferred a figure lowering the bid by $70,000 to $641,603.

• The irrevocable bid was submitted under seal.

• Upon discovering the mistake there was an attempt to withdraw the bid. Both sides acknowledged there was an error, but he was not allowed to withdraw the bid.

• When the plaintiff who had asked for the bids found out about the mistake, he attempted to accept the bid.

• When unable to accept the bid, another subcontractor was contracted and the original contractor sued for the difference in bids.

• The court rejected the suit saying that the motives of the plaintiff were less than honorable. And, the plaintiff had not formally accepted the contractors bid by returning it.

• The court also pointed out that trying to profit by the mistake of another was a key element in the decision.

 

 

1.10.9 Bethlehem Steel Corporation v. St. Lawrence Seaway Authority

Location: Canada

Court:

Year: 1977

Importance: economic losses can only be claimed if some physical damage has occurred

Details:

• A ship ran into a bridge over a canal. The bridge was destroyed and the canal was obstructed for several days.

• In a lawsuit the ship owner was found negligent, and paid damages to the court.

• Two claims for damages were rejected. One being a request for lost profits for a ship. Another being the cost of shipping product across land to Toronto for subsequent shipping. Both were rejected because they were purely economic losses.

 

 

1.10.10 Brennan Paving Co. Ltd. v. Oshawa

Location: Ontario

Court:

Year: 1953

Importance: an example of an engineer given the power to certify

Details:

• An engineer was contracted for a construction project. One of the duties was to certify payment certificates.

• The court concluded that the certificates are valid if the engineer has acted in an independent and judicial manner.

 

 

1.10.11 British Reinforced Concrete Engineering Co. Limited v. Lind

Location: England

Court:

Year: ?

Importance: the company owns the patent when it is within the scope of the employees work

Details:

• The court ruled that the employer owned a design because the draughtsman was instructed to do the design.

 

 

1.10.12 Brown & Huston Ltd. v. The Corporation of the City of York et. al.

Location: Ontario

Court:

Year: 1983

Importance: engineers may be liable for negligence in report preparation

Details:

• Consulting engineers had been hired to prepared a soils and ground-water-level report, but had neglected to include some important information.

• A contractor was then hired to construct an underground pumping station. The contractor was required by the contract to personally examine the site for conditions to be encountered during construction.

• Based on the incomplete report, the contractor did not expect a water problem, and underbid on the job.

• The court determined that the contractor was 25% negligent in not requesting the missing information.

• The engineers were found 75% liable for their negligence.

 

 

1.10.13 Calax Construction Inc. v. Lepofsky

Location: Ontario

Court:

Year: 1974

Importance: an example of the legal capacity to contract based on licenses

Details:

• An unlicensed building contractor was unable to enforce a contract because without the license they did not have the legal capacity to enter into the contract.

 

 

1.10.14 Calgary v. Northern Construction Company Division of Morrison-Knudsen Company Inc. et. al.

Location: Alberta

Court:

Year: 1982

Importance: a case that was not allowed a dismissal for unilateral mistake

Details:

• A clerical error on a bid of $9,342,000 left out $181,000

• The next highest bid was $9,737,000

• When the bid was accepted, the contractor refused to carry out the work.

• The next highest bid was accepted and the first contractor sued.

• The court chose not to apply the unilateral mistake principle because the contract had been accepted and there was no deposit forfeit escape clause.

 

 

1.10.15 City of Kamloops v. Nielsen et. al.

Location: Canada

Court:

Year: 1984

Importance: the supreme court upheld [Sparham Souter] and rejected [Pirelli]

Details:

• Houses were being built with improper foundations

• The building inspector noticed the deficient foundations and issued a stop work order. This order was ignored and the building inspector did not enforce it.

• A plumbing permit was issued 8 months later.

• 2 years after the stop work order had been issued the house was finished and sold (an occupancy permit was never issued).

• The new owner discovered that the foundation had subsided, and sued.

• It was found that the city was 25% liable and the builder 75% liable for damages (costs involved with repair of the house, etc.).

• Part of this case involved the limitation date. The court upheld the [Sparham Souter] case and rejected Pirelli.

 

 

1.10.16 Conwest Exploration Co. Ltd. et. al. v. Letain

Location: Canada

Court:

Year: 1963

Importance: the application of equitable estoppel to allow a gratuitous promise.

Details:

• A time limited option contract was used to allow exploration before mining claims were Pursued.

• The contract stated that certain actions were required by a certain date to acquire mining claims.

• It became obvious that the tests would not be complete by the expiry date, and the owner implied that an extension would be allowed. (In effect this was a gratuitous promise).

• Later the owner held to the strict wording of the contract and enforced the expiry date as written.

• The supreme court agreed that enforcing the original contract strictly would be inequitable, therefore the contract was “estopped”, effectively allowing the extension, even though there was no consideration.

 

 

1.10.17 Corporation of District of Surrey v. Carrol-Hatch et. al.

Location: British Columbia

Court:

Year: 1979

Importance: an example of concurrent tort-feasor

Details:

• An architect had been hired to design a new police station.

• The architect hired an engineering firm to do the structural design.

• The engineers dug two shallow test pits and recommended deep soils tests to the architects. The architect rejected the recommendation and the engineers submitted a soils report to the owner based on the shallow test pits.

• The building was built, and eventually it settled causing damage.

• The architect was found 60% liable, and the engineer 40% because they had failed to inform the owner that more soils tests were required.

 

 

1.10.18 Croft Construction Co. v. Terminal Construction Company

Location: Ontario

Court:

Year: 1959

Importance: an engineers power to certify binding amounts, even with mistakes

Details:

• A construction contract stated that an engineer would calculate the values of payments to the contractor.

• The court ruled that the engineers figures would stand (even with mistakes) as long as there was no fraud or bad faith on the engineers part.

 

 

1.10.19 Dabous v. Zuliani et. al.

Location: Ontario

Court:

Year: 1976

Importance: negligence in inspection can lead to liability

Details:

• An architect contracted to design then supervise the construction of a house.

• During the construction a metal chimney was placed too close to wooden joints.

• The architect noticed the metal chimney problem, and ordered the problem corrected.

• A second similar chimney was installed and covered over before inspection. The architect did not ask to have the chimney exposed for inspection.

• After occupation the metal chimney caused the wood to catch fire, and caused damage.

• In court the architect was held liable because of a duty of care to inspect.

 

 

1.10.20 Davis Contractors Ltd. v. Fareham Urban District Council

Location: England

Court:

Year: 1956

Importance: a failed bid for discharge by frustration

Details:

• A construction contract was made to build 78 houses over 8 months.

• After 56 houses were built the contractor determined that the labor shortage was great enough to prevent completion.

• In the resulting suit against the contractor the court ruled that although the contractor overlooked the labor shortage and as a result is in an unfortunate situation, but of his own making. Therefore it refused to discharge the contract on the grounds of frustration.

 

 

1.10.21 Demers et. al. v. Dufresne Engineering et. al.

Location: Canada

Court:

Year: 1977

Importance: an engineer has a duty to direct contractors when obvious problems exist

Details:

• A contractor built a caisson (?) for a bridge pier, but did not use enough reinforcing steel.

• An engineer was able to see the construction method, but did not comment. His representative did add a small amount of vertical reinforcement.

• After completion the caisson failed and had to be replaced at a cost of $1.4 million.

• In the resulting court case the engineer was assumed to have approved the method by remaining silent. There was also implied consent because of the reinforcement added.

• The engineer was found 50% liable because of the implied approval.

 

 

1.10.22 Derry & Peek

Location: England

Court:

Year: ?

Importance: contract was rescinded because of fraudulent misrepresentation

Details:

• Fraudulent misrepresentation is defined as, made “(1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false.”

 

 

1.10.23 Dominion Chain Co. Ltd. v. Eastern Construction Co. Ltd. et. al.

Location: Ontario

Court:

Year: 1974, 1976

Importance: makes an engineer liable for negligence without a limit, also an example of joint and several liability

Details:

• Dominion Chain entered into contracts with an engineer and a contractor to construct a factory.

• Years after construction the improperly constructed roof began leaking.

• The owner sued, but the judge found the contractor was exempted by a clause in the contractors contract.

• The judges ruling included statements that,

- an engineer is “responsible if he does or omits to do his professional undertakings with an ordinary and reasonable degree of care and skill,” (Marston, pg.29)

- an engineer “ought not to undertake the work if it cannot succeed, and he should know whether it will or not.” (Marston, pg.29)

- liability is “not limited to the amount of remuneration which under the agreement the architect or engineer was to receive, but are measured by the actual loss occasioned...” (Marston, pg.30)

• In the ruling the judge ruled that the fault for the damages were 25% the engineer and 75% the contractor (not liable). But, because the engineer was the only one left in the suit that he would be responsible for 100% of the damages.

• A court of appeal released the contractor because they were not joint tort-feasors. But, the court of appeal did state they could be liable in tort and contract.

• The supreme court also relieved the contractor of responsibility, based on contractual obligations alone.

 

 

1.10.24 Donoghue v. Stevenson

Location: England

Court:

Year: 1932

Importance: makes a manufacturer responsible to the eventual consumer of the product

Details:

• a bottle of ginger beer containing a decomposed snail was consumed, leading to an illness. This bottle of ginger beer was not purchased by the consumer, but was given to him by a friend. He Sued.

• The court rules that even though there was not privity of contract between the plaintiff and the defendant, a duty of care was owed to the plaintiff.

 

 

1.10.25 Dutton v. Bognor United Building Co. Ltd.

Location: England

Court:

Year: 1972

Importance: established the responsibility of employers for employee actions - vicarious liability

Details:

• A contractor built a foundation for a house. The foundation was on top of a rubbish deposit, and should have been deeper.

• As required by local by-laws, a building inspector was to approve the construction after appropriate inspection. The inspector did not object to the improper foundation.

• After the house was in use, and had been resold, the foundation settled and the house was severely damaged.

• The local building authority was sued (not the inspector) and found liable for the damages.

 

 

1.10.26 Englewood Plumbing & Gas Fitting Ltd. v. Northgate Development Ltd. et. al.

Location: Alberta

Court:

Year: 1965

Importance: allowed a lien for design work

Details:

• An architect was allowed to file a lien although he had not done any work on the property.

 

 

1.10.27 Fairbanks Soap Co. Ltd. Sheppard

Location: Ontario

Court:

Year: 1951

Importance: an example of substantial compliance

Details:

• A contractor supplied and installed equipment, but there were a few small defects (fixed at a small cost).

• The resulting lawsuit lead to a decision that the contractor had substantially complied and should be paid for work and materials supplied.

 

 

1.10.28 Fern Brand Waxes Ltd. v. Pearl

Location: Ontario

Court:

Year: 1972

Importance: the distinct nature of a corporation disappears when being used fraudulently

Details:

• the defendant, a director, officer and accountant of the corporation had made an authorized transfer of funds.

• these funds were used as a loan by the corporation as a loan to two other companies controlled by the director.

• some of the loaned money was used to buy shares in the corporation. (The court ruled this inappropriate).

• The court rules that the 2 other corporations had been used as instruments of the director, that the director had breached his trust, and that the companies could not shield his personal conduct.

 

 

1.10.29 Ford Homes Ltd. v. Draft Masonry (York) Co. Ltd.

Location: Ontario

Court:

Year: 1983

Importance: an example of an implied term

Details:

• a construction contract included the supply and installation of two staircases, but neglected to include a requirement that they meet the Building Code.

• A representative of the company visited the site, but turned down an offer to review architectural plans, which specified a minimum clearance.

• Based on measurements, a variety of staircases were suggested by the representative.

• The final staircase did not meet the minimum clearance in the building code, and was ordered replaced.

• The resulting lawsuit found that if the Building Code was not mentioned in the contract and the staircase was improperly designed thus being illegal, it would make the contract for an illegal action, therefore by implication the staircase would have to conform to the building code.

 

 

1.10.30 General Electric Company, Limited v. Fada Radio, Limited

Location: ?

Court:

Year: 1929

Importance: indicates patents must be novel and have use

Details:

• Basically stated that there must be some creative content, no matter how small. This includes alterations. They also focus on the concept of an improvement.

 

 

1.10.31 GeorgeHo Lem v. Barotto Sports Ltd. and Ponsness-Warren Inc.

Location: Alberta

Court:

Year: 1976

Importance: a manufacturer can be held liable if the consumer is not adequately warned about dangerous uses of a product

Details:

• Lem bought a machine for reloading used shotgun shells. The machine had clear instructions on how to load the shells. He also received personal instructions on the machine.

• When using the machine Lem did not follow instructions, and as a result produced some dangerous shells.

• One of the shells caused Lem’s gun to burst, causing personal injury, and as a result he brought a lawsuit against the manufacturer and distributor.

• The court found that a high standard of care to prevent misuse was present, and found Lem fully responsible for his own injuries.

 

 

1.10.32 Grant Smith & Co. v. The King

Location: ?

Court:

Year: ?

Importance: fraudulent engineers certificates are set aside

Details:

• An engineer presented a certificate that had been prepared in collusion with a drilling contractor.

• In a lawsuit the certificates were ruled invalid because of the fraud.

 

 

1.10.33 Hadley v. Baxendale

Location: England

Court:

Year: 1854

Importance: established principle of remedies for damages

Details:

• A part in a mill was broken, and needed to be repaired.

• It was given to couriers for transport to the manufacturer.

• Not knowing of the urgency of the delivery the couriers delayed.

• The resulting delay meant that the mill was inoperative for a prolonged period and business was lost. As a result the courier was sued.

• The court said that the lack of notice about the urgency meant that the term for urgency had never been part of the “contract”, and therefore could not have been breached.

• The court also said that if there had been a breach of the contract, then the mill owner would have been due any losses that might have reasonably been expected at the start of the contract.

 

 

1.10.34 Halverson Inc. v. Robert McLellan & Co. et. al.

Location: Canada

Court:

Year: 1973

Importance: ruling that a contract overrides a tort

Details:

• An engineer was to modify a winch system.

• As a result of problems, the engineer was sued for negligence.

• The court ruled that the contract in the suit replaced the tort.

 

 

1.10.35 Harbutt’s Plasticine Ltd. v. Wayne Tank and Pump Co. Ltd.

Location: England

Court:

Year: 1970?

Importance: an example of fundamental breach

Details:

• A contract was prepared for the design and construction of storage tanks for stearine wax. Liabilities were limited to 2,300 pounds (approx $5,000).

• A plastic pipeline to carry the wax was wrapped with a heating element to allow the wax to flow in a liquid state.

• When put into use the pipe warped, cracked and ruptured. Wax spilled on the floor and ignited. The resulting fire destroyed the factory.

• The judge ruled that the design was so unsuitable that the contract was breached, and the liability limit did not apply. The damages awarded were 170,000 pounds.

 

 

1.10.36 Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.

Location: England

Court:

Year: 1963

Importance: this allows professionals to be sued for negligently given advice

Details:

• Byrne asked a bank to look into the credit status of another company that they were doing business with.

• The bank then contacted another bank (Heller) that did business with the company.

• Heller reported that their financial position was favorable, but also stated that their advice was “without responsibility”.

• Based on their advice, Byrne did business with the company and lost 17,000 pounds.

• The court rules that the bank would have been liable, if not for the disclaimer.

 

 

1.10.37 Imperial Glass Ltd. vs. Consolidated Supplies Ltd.

Location: British Columbia

Court:

Year: 1960

Importance: an unsuccessful attempt to argue for a unilateral mistake

Details:

• During bid preparation an incorrect figure had been used for certain material suppliers, entirely because of mistakes by the bidder.

• It was obvious to the offeree that the bidder had misestimated.

• The mistake was not overturned.

 

 

1.10.38 Jackson et. al. v. Drury Construction Co. Ltd.

Location: Ontario

Court:

Year: 1974

Importance: an example of a tort of nuisance

Details:

• A contractor was blasting.

• The blast opened fissures in the bedrock allowing barnyard materials to seep into a well.

• The court awarded damages to the farmer.

 

 

1.10.39 John Burrows Ltd. v. Subsurface Surveys Ltd. et. al.

Location: Canada

Court:

Year: 1968

Importance: an example where equitable estoppel was disallowed

Details:

• A promissory note (a contract) was,

“FOR VALUE RECEIVED Subsurface Surveys Ltd. promises to pay John Burrows Ltd. or order at the Royal Bank of Canada the sum of forty-two Thousand Dollars ($42,000.00) in nine (9) years and ten (10) months from April 1st, 1963, payable monthly on the first day of May, 1963, and on the first day of each and every month thereafter until payment, provided that the maker may pay on account of principal from time to time the whole or any portion thereof upon giving thirty (30) days’ notice of intention prior to such payment.

In Default of payment of any interest payment or installment for a period of ten (10) days after the same became due the whole amount payable under this note is to become immediately due.

Subsurface Surveys Ltd. [signed by president]”

• Some payments were made more than 10 days late, but the contract was not strictly enforced.

• One interest payment was 36 days late (the parties had fallen out of favor with each other) and it was decided to call in the notice using the default clause, and Subsurface Surveys Ltd. was notified.

• In a resulting lawsuit it was claimed that the previous late payments were an implied modification of the contract and that an equitable estoppel was warranted.

• The court ruled that the indulgences taken by the plaintiff in making late payments were not evidence that the defendant intended to negotiate new contractual terms.

 

 

1.10.40 Junior Books Ltd. v. Veitchi Co. Ltd.

Location: England

Court:

Year: 1982

Importance: claims for economic loss may be extended to those with no contracts

Details:

• A floor was laid improperly, but was of no danger.

• Although the installer was a subcontractor (note no contract existed between them) the court found that he had a duty of care to provide skillful work. As a result the court found him liable for economic losses, and any repair costs.

 

 

1.10.41 Kamlee Construction Ltd. v. Town of Oakville

Location: Canada

Court:

Year: 1960

Importance: an example of an engineers power of certification

Details:

• An engineer was contracted for a construction project. The construction contract stated that the engineer had the final decision on the interpretation of the specifications and the quality of work.

• During the work the contractor disagreed with one of the engineers decisions, and the relationship between the partys was reduced to petty bickering.

• In the resulting lawsuit the court ruled that the engineers decisions would stand, provided he acted in a judicial manner and without influence from the owner.

 

 

1.10.42 Kidd v. Mississauga Hydro-Electric Commission et. al.

Location: Ontario

Court:

Year: 1979

Importance: an example of an engineers duty of care when preparing estimates

Details:

• A consulting engineer estimated the cost to do a study.

• When done, the engineer realized that the $14,447 for support staff was much higher than the $5,000 allowed in the estimate.

• In a lawsuit to recover the difference the court ruled against the engineer stating that the work was entered into based on the estimate (there were also no disclaimers given). And, the result was so far out of line that it implied the engineer had not properly estimated.

 

 

1.10.43 Kocotis v. D’Angelo

Location: Ontario

Court:

Year: 1958

Importance: improper licences can set aside a contract because of legality

Details:

• An electrician had done work and supplied materials. But, against local bylaws did not hold the required electrical contractors licence.

• Seeking payment a lawsuit arose.

• The judge stated that the purpose of the license was supposed to maintain quality on larger projects, and that by not having a license the electrician was clearly not legally capable of entering into the contract.

 

 

1.10.44 Lambert v. Lastoplex Chemicals Co. Limited et. al.

Location: Canada

Court: Supreme

Year: 1971

Importance: the high standard of care requires that all users are assumed to be idiots

Details:

• Lambert, a mechanical consulting engineer, purchased two cans of sealant for his basement floor.

• He read the labels before starting. These 3 labels indicated repeatedly that, among other horrible things, the product should be kept away from flames, fire, heat or cigarettes. Ventilation was also listed as essential.

• Lambert was using the sealant in his basement when a pilot light in an adjoining room started an explosion and a fire in an open can of sealant.

• In the resulting lawsuit another can of sealer made by a competitor had a warning label that also mentioned pilot lamps and more.

• The court ruled that the chemical company did not provide sufficient warning and that they were liable. It was also noted that even though the engineer ought to have known of the danger, the chemical company could not count on this.

 

 

1.10.45 MacMillan Bloedel Ltd. v. Foundation Co.

Location: British Columbia

Court:

Year: 1977

Importance: limits of recoverable economic loss

Details:

• Foundation’s employees negligently cut a cable supplying MacMillan’s office building.

• As a result of lost power, the employees were sent home.

• The estimated loss in wages was $48,841.

• The court indicated that the negligence was evident, but the “economic loss” would have been paid anyway. With no other evidence of loss, the case was dismissed.

 

 

1.10.46 Markland Associates Ltd. v. Lohnes

Location: Nova Scotia

Court:

Year: 1973

Importance: an example of implied contract terms

Details:

• The court ruled that a building contract did not clearly state, but implied,

- that the work and materials would be of reasonable quality and meet standards.

- the work was to be conducted in a normal manner.

- the final product would be usable and meet needs.

- the work would be done in reasonable time.

 

 

1.10.47 Metropolitan Water Board v. Dick, Kerr and Company, Limited

Location: England

Court:

Year: 1917

Importance: a discharge by frustration

Details:

• A contract was signed to build a reservoir from 1914 to 1920.

• In 1916 the work was ordered stopped because of the needs for WW-I.

• In light of the delay, the contractor did not want to continue the work.

• The water board wanted the contract resumed (as indicated in a force majeure clause) with the delay included.

• The case was taken to court, and the ruling was that the contract was different than the one entered into and as a result gave a discharge by frustration.

 

 

1.10.48 Monticchio v. Torcema Construction Ltd. et. al.

Location: Ontario

Court:

Year: 1979

Importance: departed from previous decisions that voided contracts because of lack of licenses made contract illegal

Details:

• A contractor (not properly licensed) entered into a contract to install drains.

• After completion, the contractor was not paid and began a lawsuit

• The judge ruled that while a license was required for the contracting work, it was not required for supply of materials. Therefore the supplier was reimbursed for the materials supplied.

 

 

1.10.49 The Moorcock

Location: ?

Court:

Year: ?

Importance: established implied terms in contracts

Details:

• The plaintiff paid for docking space for his boat, the Moorcock.

• As the tide went out the Moorcock settled on hard ground and was damaged.

• The court decided in favor of the defense (dock owner) in the ruling that there was an implied term in the contract that the boat would have been safe at low tide.

 

 

1.10.50 Murray v. Sperry Rand Corporation et. al.

Location: Ontario

Court:

Year: 1979

Importance: an example of fundamental breach

Details:

• A piece of farm machinery was purchased to harvest.

• The machine performance had been much worse than should have been expected.

• In the resulting lawsuit the defendant argued that there was an exemption clause in the contract.

• The court ruled that the supplier has fundamentally not met the obligations of the contract, and because of the fundamental breach it could not be protected by the exemption clause.

 

 

1.10.51 Mutual Finance Co. Ltd. v. John Wetton & Sons Ltd.

Location: ?

Court:

Year: ?

Importance: a contract can be revoked because of duress

Details:

• A family member had forged (criminal) a previous guarantee.

• The forger’s father was ill and might be fatally effected by a disclosure of forgery.

• At this point the forger was threatened with disclosure, unless another guarantee was contracted.

• The court put the second guarantee aside, as it was made under duress.

 

 

1.10.52 Nedco Ltd. v. Clark et. al.

Location: Saskatchewan

Court:

Year: 1973

Importance: the corporate identity is not absolute and can be partially lifted

Details:

• Nedco Ltd. was owned by Northern Electric Company Limited.

• Northern Electric employees went on strike and picketed Nedco

• The court was asked to restrict picketing at Nedco because the two companies were separate entities.

• The court rules that Northern both owned and dominated Nedco, making it effectively part of Northern, and in these certain circumstances, the companies would be treated the same and picketing would be allowed.

 

 

1.10.53 Newman et. al. v. Conair Aviation Ltd. et. al.

Location: British Columbia

Court:

Year: 1972

Importance: an example of a tort of nuisance

Details:

• An aviation company was spraying crops, and the spray drifted onto the plaintiffs land.

• The court awarded damages.

 

 

1.10.54 Northwestern Mutual Insurance Co. v. J.T.O’Bryan & Co.

Location: British Columbia

Court:

Year: 1974

Importance: employees can be held liable in tort suits

Details:

• The Northwestern Mutual Insurance Co. had routinely asked that one of its agents delete a risk from a policy.

• The agent assured Northwestern that it had been deleted.

• Later, it was discovered that the risk had not been deleted and Northern had to pay for the risk.

• The court ruled that both the agent, and their employer were liable for the losses.

 

 

1.10.55 J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co.

Location: Canada

Court:

Year: ?

Importance: draws a line between tort and contract liability

Details:

• Ruled that a tort action could be brought if it was independent of contractual obligations.

• There was special mention of non-performance not being mentioned in a clause.

 

 

1.10.56 Owen Sound Public Library Board v. Mial Developments Ltd. et. al.

Location: Ontario

Court:

Year: 1979

Importance: application of “equitable estoppel” for accepted late payments

Details:

• A construction contract was made that required payments needed to be made by the owner within 5 days of an architects certificate specifying the value of payment.

• The contract also stated that if not paid within 7 days, the contractor could terminate the contract.

• Instead of making one payment promptly, the owner requested the corporate seal of a subcontractor affixed to a document that supports the architects certificate.

• The contractor then indicated he would obtain the seal.

• The contractor did not give the sealed document to the owner, and as a result was not paid within the allowed period.

• The contractor used the strict wording the terminate the contract.

• In the resulting suit the court maintained that the contractor had implicitly lead the owner to believe that the due date (including the termination clause) had been extended. Therefore an “equitable estoppel” of the clause was granted.

 

 

1.10.57 Permutit Co. v. Borrowman

Location: ?

Court:

Year: ?

Importance: a tangible (demonstrable) idea is required for a patent

Details:

• The court said that an idea must be reduced to a definite and useful form before it can be patented.

 

 

1.10.58 Photo Production Ltd. v. Securicor Transport Ltd.

Location: England

Court:

Year: 1980

Importance: an example of a failed fundamental breach (rejected the concept of fundamental breach)

Details:

• A security contract was set for watching a manufacturing company at night.

• During one of the patrols an employee started a fire that destroyed the factory.

• In the resulting lawsuit it was noticed that the security contract contained a clause that specifically exempted liability for (among other things) an employee that negligently starts a fire.

• The court ruled that the exemption clause reasonably predicted the potential loss, and that there was no fundamental breach.

• In effect this overturned the concept of fundamental breach.

 

 

1.10.59 Pigott Construction Co. Ltd. v. W.J. Crowe Ltd.

Location: Ontario

Court:

Year: 1961

Importance: refers to precedents of implied terms in contracts and a breach of a warranty (non-essential) term as grounds for damages, not termination.

Details:

• A construction contract was made, including some minor terms requesting expeditious work, and to provide heat during winter.

• The plaintiff argued that the two minor conditions had not been satisfied, and so the contract should be discharged.

• The court said that the breaches had not prevented substantial performance, and therefore are not a reason to discharge the contract, but are grounds for payment of damages.

• The court also stated that they would not imply terms into a contract unless it was obvious they should be there.

 

 

1.10.60 Pirelli General Cable Works Ltd. v. Oscar Faber and Partners

Location: England

Court:

Year: 1982

Importance: reverses the precedent set in [Sparham Souter]

Details:

• A chimney 160 feet high was built using precast concrete.

• An inner lining of a new material was used. The material was not suitable and cracks developed and the chimney had to be replaced.

• They stated that the period of limitation started from the date the damage occurred. They said that legislation is required, and that the Sparham-Souter decision may lead to unfairly long limitation periods.

 

 

1.10.61 Pym v. Campbell

Location: ?

Court:

Year: ?

Importance: parol evidence rule exception

Details:

• An agreement for sharing the ownership of a machine was made.

• Two individuals had agreed that invention ownership rights would be purchased, but an unwritten condition was that it would be approved by two engineers first.

• When consulted only one of the two engineers approved of the invention.

• As a result the case went to trial.

• The judge ruled that because of the condition, the contract had never been entered into, effectively sidestepping the parol evidence rule.

 

 

1.10.62 The Queen et. al. v. Commercial Credit Corp. Ltd.

Location: Nova Scotia

Court:

Year: 1983

Importance: example of mail/courier for a contract and governing law

Details:

• An offer of conditional sale was prepared by Commercial Credit as an agent to the parties in the contract.

• The offer was sent out of Nova Scotia to the offeree. And the acceptance returned by courier.

• Commercial Credit attempted to apply the Installment Payments Contract Act of Nova Scotia, but this was disallowed because the contract was made outside the province.

 

 

1.10.63 Ramsay and Penno v. The King

Location: ?

Court: ?

Year: ?

Importance: recognizes mistakes as separate from negligence

Details:

• the crown was sued alleging that poor dam design lead to flooding of lands

• the statement said that engineers are “not infallible, nor is perfection expected, and the most that can be required of them is the exercise of reasonable care and prudence in light of scientific knowledge at the time, of which they should be aware...” (Marston, pg. 30)

 

 

1.10.64 Regina v. Margison and Associates, Limited

Location: Ontario

Court:

Year: 1955

Importance: recognizes the legal overlap of engineers and architects duties

Details:

• An engineering firm was charged with acting as architects

• In reviewing the acts the court found too much overlap to distinguish between the duties of the engineers and the architects.

• The court ruled that clients should be free to contract who they wish.

 

 

1.10.65 Rex v. Bentall

Location: British Columbia

Court:

Year: 1939

Importance: an engineer can be convicted for doing architectural work

Details:

• An engineer had prepared plans for a theatre and then supervised construction.

• He was later convicted of practicing as an architect.

 

 

1.10.66 Rivtow Marine Ltd. v. Washington Iron Works et. al.

Location: Canada

Court:

Year: 1973

Importance: economic losses caused by a defective product can be recovered

Details:

• Rivtow chartered a barge that had a crane manufactured by Washington (a U.S. company)

• An identical crane manufactured by Washington had been used in a similar situation before, and it had collapsed. An investigation determined that there were structural defects in the crane Rivtow had chartered that were similar to those in the crane that had collapsed.

• The defendants were previously aware that design problems left the cranes prone to cracking, but they did not warn the plaintiff or attempt repairs.

• As a result of the failure to warn, the defendants were found liable for economic losses while the crane was being repaired.

 

 

1.10.67 Robert Simpson Co. Ltd. v. Foundation Co.

Location: Ontario

Court:

Year: 1981

Importance: upheld the time of action principle of [Sparham Souter]

Details:

• Some ceiling anchors were negligently designed, manufactured and installed. These were also misrepresented as adequate.

• More than 6 years after the work the problems were detected, therefore the court was asked to consider the limitation from the detection of damages.

• A lower court rejected the Sparham Souter principle, but a higher court heard an appeal that accepted the limitation period started when the damage was detected.

 

 

1.10.68 Ron Engineering et. al. v. The Queen in right of Ontario et. al.

Location: Ontario, Canada

Court:

Year: 1979, 1981

Importance: an example of the unilateral mistake principle

Details:

• A bid was submitted to The Water Resources Commission, along with a deposit cheque of $150,000.

• It was discovered before the tenders were opened that a bid of $2,748,000 was low by $750,058.

• An hour before the tenders were opened the contractor informed the commission, and also sent a telegram to the commission which arrived the following morning to tell them of the error.

• The next higher bid was $3,380,464 making the mistake obvious, but the bid was accepted.

• A lower court maintained the contract.

• An appeal lead to a successful overturn allowing the contract to be dismissed because of a unilateral mistake.

• The supreme court held the position that the construction contract could be overturned, but the tender contract meant that the deposit had to be forfeit, as described in a forfeit clause.

 

 

1.10.69 Royal British Bank v. Turquand

Location: England

Court:

Year: 1856

Importance: Only the appropriate officials in a company have the capacity to contract

Details:

• A corporation must observe contracts if the contracts were entered into normally, by a normally authorized employee/official, and the corporations records are in order.

 

 

1.10.70 Salomon v. Salomon & Co. Ltd.

Location: England

Court:

Year: 1897

Importance: recognition of a corporation as a distinct entity

Details:

• Salomon had been a leather merchant and boot manufacturer for a number of years.

• he incorporated a company and sold his business to it.

• the shareholders were Salomon and his family. Salomon was the majority shareholder, having received shares as part of his payment for the business, as well as debentures constituting security.

• all of the requirements for incorporation were met and the business was solvent.

• eventually the business became insolvent and was sued - Salomon claimed he should be satisfied ahead of the unsecured creditors by holding a secured debenture.

• In the court of appeal the corporation was viewed as a scheme only for limiting liability, and putting Salomon ahead of the creditors.

• But, the House of Lords upheld Salomon’s corporation as properly formed, and a distinct entity, with no evidence of deception or fraud.

 

 

1.10.71 Schewebel v. Telekes

Location: Ontario

Court:

Year: 1967

Importance: an example of the contract overriding tort

Details:

• A notary public was to act for an individual in purchasing a home.

• The notary public was sued for negligence.

• The court ruled that the relationship between the two was contractual and thus the limitation is counted from the date of the breach or duty, and not discovery.

 

 

1.10.72 Sealand of the Pacific Ltd. v. R.C. McHaffie Ltd. et. al.

Location: British Columbia

Court:

Year: 1973

Importance: an example of a contract over a tort

Details:

• An architect had failed to determine the properties of an experimental material.

• The court ruled that the contract would overrule the tort and awarded damages.

 

 

1.10.73 Sparham Souter et. al. v. Town & Country Developments (Essex) Ltd. et. al.

Location: England

Court:

Year: 1976

Importance: sets the start of the limitation period to when damage occurred

Details:

• A building was negligently constructed.

• Some time later damage resulted and the law suit was allowed.

• The guideline is that the damage is said to have occurred when it should be obvious or detected by a reasonable level of skill or diligence.

• This decision was later overturned by a higher court, but it was used as the basis for other decisions. [XXXX]

 

 

1.10.74 Sutcliffe v. Thackrah et. al.

Location: England

Court:

Year: 1974

Importance: negligently prepared certificates make the certifier liable

Details:

• An architect was to prepare payment certificates.

• The court ruled that the architect had a duty of care when preparing certificates. And, if an overpayment was made without just cause, the architect was liable. The only just reason for overpayment would be the architect acting as arbiter.

 

 

1.10.75 Swanson Construction Company Ltd. v. Government of Manitoba; Dominion Structural Steel Ltd., Third Party

Location: Manitoba

Court:

Year: 1963

Importance: an example of a failed bid for discharge by frustration

Details:

• A bid was prepared for work, assuming the work was to be done in the warm summer months.

• The contract was accepted, but the work was delayed to the winter months.

• In court the contractor argued that the delay should constitute grounds for a discharge by frustration.

• The court did not discharge the contract saying that the delay was an event that might be reasonably expected during construction, and should have been considered in the bid.

 

 

1.10.76 Re Thomas Hackett

Location: Nova Scotia

Court:

Year: ?

Importance: the decision of an arbitrator can be overturned when improper

Details:

• A contract had stated that arbitration would be used without using the court system.

• The court overruled this point saying that a dispute can always be taken to court.

 

 

1.10.77 Township ofMcKillop v. Pidgeon and Foley

Location: ?

Court:

Year: ?

Importance: a contract was rescinded for innocent misrepresentation

Details:

• An engineer prepared plans and specifications for bidding.

• A contractor prepared a bid on the job based on the engineers plans and specifications.

• The specifications were found to underestimate to work significantly.

• As a result the contractor terminated the contract, and a lawsuit was initiated.

• The court concluded that the estimate was grossly in error (more than allowable by a disclaimer clause) and that because of the error, the contractor had entered into the contract.

• The court allowed the contractor the right to rescind the contract.

 

 

1.10.78 Trident Construction Ltd. v. W.L. Wardrop and Assoc. et. al.

Location: Manitoba

Court:

Year: 1979

Importance: Hedley Byrne decision applied to engineering, improperly prepared drawings and specifications leave an engineer liable

Details:

• An engineer designed a sewage disposal plant

• A contractor (no contract existed between the engineer and contractor) was to build the plant based on the engineers design.

• The contractor found the design unsuitable as a result the contractor brought a lawsuit against the engineer for his losses.

• The engineer was found liable for the design because he owed a duty of care to the contractor that would eventually build the plant.

• The judge specifically noted that contractors are so pressed for time preparing tenders that they could not be expected to check the engineers designs.

 

 

1.10.79 Unit Farm Concrete Products Ltd. v. Eckerlea Acres Ltd. et. al.; Canama Contracting Ltd. vs. Huffman et. al.

Location: Ontario

Court:

Year: 1983

Importance: an engineer can be liable for advice given without a fee

Details:

• A contractor was hired to construct a barn over a manure pit.

• In the past the contractor had used advice given by an engineer working for the government to assist farmers with plans.

• The contractor discussed the plans for the barn on the phone, and dropped the set on the engineers desk. The two did not meet, but he superficially reviewed the set and wrote a note “Good set of plans. I like the detail. Wish I could spend that amount of time on each project. Keep up the good work.” The engineer and the contractor never met to review the plans for the barn.

• The contractor assumed that the plans were adequate and built the barn.

• As a result of design deficiencies the manure pit walls failed.

• The court rules against the engineer (and Crown) noting that “good plans” was an implied approval and that the plans had been properly reviewed. There was also recognition that the contractor had been asking for advice.

• An appeal court then found liability 75% for the engineer and 25% for the contractor.

 

 

1.10.80 Viscount Machine and Tool Ltd. v. Clarke

Location: Ontario

Court:

Year: 1981

Importance: example of a limitation from the date of discovery

Details:

• A negligent land survey was done, but not discovered until a few years later.

• The judge allowed the limitation period to be from the date the damage was discovered.

 

 

1.10.81 Willard’s Chocolates Ltd. v. Bardsley

Location: ?

Court:

Year: ?

Importance: an employee may use an employers time and equipment to create an invention, but the employee owns the patent unless stated otherwise in the contract

Details:

 

 

1.10.82 GLOSSARY

 

actus reas - proof that a criminal defendant did all the things leading to a crime.

appellant - a party that is appealing a criminal or civil decision in a lower court.

caveat emptor - buyer beware.

consideration - something of value which must be given by the offerer to make a contract valid.

creatures of statute - created by a statute (e.g. PEO act) and able to exercise powers defined in statute.

creditor - is owed money by a debtor.

cross-examination - examining the other parties witness.

debtor - owes money to a creditor.

defendant - in criminal court, the defendant has been accused of a criminal act. In civil cases the defendant has been accused of wrong doing causing “injury”.

examination in chief - examining your own client.

expert evidence - a witness cannot give an opinion but an expert witness can.

Force Majeure - a force that interrupts the normal conduct of business, and as a result is a cause for delay, such as floods, wars, etc. There are typically clauses in contracts to cover these cases.

general damages - pain and suffering from the result of negligence.

guarantee - A promise of performance if all other avenues fail. For example if an insurance firm guarantees bill payment by a company, and the company fails to pay, the company must be pursued before the insurance company.

indemnity - A promise of performance. Consider the example of the insurance firm (see guarantee) that indemnified the debts of a company. If the company fails to pay their debts, the insurance firm can be approached without pursuing the company first.

leading questions - these questions are allowed during cross-examination only.

litigation - a civil lawsuit.

mens reas - a guilty mind.

non est factum - it is not his deed. This is a plea whereby a defendant either alleges that he did not execute the deed in question, or that he was laboring under a mistake as to its nature, when he executed the same.

onus of proof - in criminal court the prosecution is obliged to show through a balance of probabilities that the weight of evidence is against the defendant.

options contract - keeps a contract open for extension.

plaintiff - those that have made charges or brought a lawsuit. In the criminal courts this is often the crown, in the civil courts this is the injured party.

privity of contract - the legal relationship between two or more parties in a contract.

propriety of contract - this describes the legal relationship between parties in a contract.

resipsa loquitur - self evident.

respondent - a party that is arguing that a decision of a lower court be upheld. They oppose and appeal.

special damages - lost income, special care, equipment and other loses resulting from negligence.

stare decisis - a binding decision.

statute - these over-rule all levels of common law in all courts.

ultra-vires -

victim impact statements - these statements about the personal effects of crime can have an impact on the sentencing of a criminal.

 

 

1.10.83 OLD PPE QUESTIONS FOR PEO

 

The following questions are from old PPE (Professional Practice Examinations) collected over the years. These exams are not copyrighted, but credit for their development and distribution belongs to the PEO. Each candidate will typically receive one copy of a (complete) recent examination paper which will show common test formats and rules. In constructing this list of questions I wanted to give a good set of practice problems, without encouraging method studying, so I have not indicated which questions are repeated, or which year they appeared in.

 

If anybody has got additional examination questions not included here, I would appreciate a copy so that they may be added to the list. The dates of the previous tests included are,

May 2, 1987

September 12, 1987

May 14, 1988

September 10, 1988

April 29, 1989

September 9, 1989

April 28, 1990

September 8, 1990

April 27, 1991 (Ethics only)

December 14, 1991

April 25, 1992

September 5, 1992

September 4, 1993

April 23, 1994

September 7, 1996

April 26, 1997

September 6, 1997

April 25, 1998

August 21, 1999

December 17, 2005 (law only)

 

With thanks to the following people,

D. Chang

A. Mahmud

 

1.10.83.1 - Law Questions

 

1. Define the following terms

a) Fraudulent misrepresentation

b) Vicarious liability

c) Gratuitous promise

d) Parol evidence rule

e) The 5 legal essentials of a binding contract

f) Libel

g) Secret commission

h) Common law

i) Quantum meruit

j) Defamation

k) Innocent misrepresentation

l) Frustration of contract

m) Specific performance

n) Performance bond

o) Joint venture

p) Discharge by frustration

q) Mitigation of damages

r) Exemption clause

s) Limitation period

t) Concurrent tort-feasor

u) Bid bond

v) Slander

w) Consideration

x) Duress

y) Labor and material payment bond

z) The purpose of the holdback under the Construction Lien Act.

aa) Undue influence

bb) Letter of intent

cc) Cost-Plus construction contract

dd) Fraudulent misrepresentation

ee) Joint venture

ff) Contract ratification

gg) Statutory holdback

hh) Contract A (in tendering)

ii) Consequential damages

jj) Rule of contra proferentem

kk) Directors duty of care

ll) Duty to mitigate ,

mm) Indirect damages

nn) Contra proferentem

oo) Piercing the corporate veil

pp) Liquidated damages

qq) True construction approach

rr) The “liberal” approach to contract interpretation

ss) Alternative dispute resolution (“ADR”)

tt) Concurrent tortfeasors

 

2. 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 employees, 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 a concrete-steel composite, consisting essentially 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 design tables which the engineer located in his firm’s library and which had been published by a company which manufactured and supplied the steel deck.

The construction of the plant was completed and shortly after manufacturing commenced at the plant, severe cracks appeared in the concrete on the second floor. After two months of operation the floor cracked and broke up so badly that the plant had to be shut down and a remedial slab, heavily reinforced with reinforcing bar, was poured on 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 he obviously ought to have used knowing that the floor was intended for manufacturing and forklift truck loading. The second consulting engineering firm concluded that the depth of concrete and size of steel mesh in the floor as initially designed resulted in a floor that might have been appropriate for the design of an office or apartment building but not for manufacturing and warehouse purposes.

What potential liabilities in tort law arise 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 likely outcome of the matter.

 

3. Supercleen Limited, a manufacturing company, entered into an equipment supply contract with Red Fire Mines Limited, Supercleen agreeing to design supply and install a dust collection system at Red Fire Mine’s northern Ontario smelter for a contract price of $200,000.00. The specifications for the dust collection system specified that the dust collection equipment was to remove 98% of prescribed exhaust particles from the exhaust gases in order to comply with the requirements of the environmental control authorities in the area in which the smelter was located.

In addition, the signed contract between Supercleen and Red Fire Mines also contained a provision limiting to $200,000.00, Supercleen’s total liability for any loss, damage or injury resulting from Supercleen’s performance of design, supply and installation services to Red Fire Mines pursuant to the contract.

The dust collection system as installed by Supercleen did not meet the specifications. In fact, only 60% of the prescribed exhaust particles were removed from the exhaust gases. As a result, Red Fire Mines was faced with the threat of substantial fines and possible shutdown by the environmental control authorities. Supercleen refused to remedy the defective equipment without being assured of compensation from Red Fire Mines of any costs in excess of $200,000.00 incurred in connection with such remedial work.

At the time of discovering that the system failed to meet the specifications, Supercleen had already received $180,000.00 from Red Fire Mines and Red Fire Mines refused to pay anything further to Supercleen.

Red Fire Mines contracted another equipment supplier who, for an additional cost of $275,000.00 successfully designed and installed remedial equipment sufficient to clean the exhaust gases to the satisfaction of the environmental authorities and in accordance with the original contract specifications between Supercleen and Red Fire Mines.

Explain and discuss what claim Red Fire Mines Limited can make against Supercleen Limited in the circumstances.

 

4. An owner and a Contractor entered into a written construction contract which provided that payments were to be made by the Owner to the Contractor within five days subsequent to an Engineer’s Certificate being issued and that, if the Owner should fail to pay the Contractor within such five day period any sums certified as due by the Engineer, the Contractor would be entitled to terminate the construction contract. The Contractor had been the lowest bidder on the project and, as the construction proceeded, became concerned that, because of its low bid, it would lose money on the contract.

During the first two months of the six-month construction schedule, the Engineer certified payments due by the Owner to the Contractor and such payments were made to the Contractor within five days of such certification.

At the end of the third month of construction, the Engineer certified a further sum as due to the Contractor. In spite of having received the Engineer’s Certificate, the Owner requested that prior to payment the Contractor obtain the corporate seal of one of its subcontractors on a document supporting the Engineer’s Certificate and the Contractor stated that it would obtain such corporate seal. However, the Contractor never did obtain the corporate seal; the five day payment period passed and ten days later the Contractor notified the Owner that it was terminating the contract on account of the Owner’s failure to pay it within the five day period pursuant to the terms of the construction contract.

Was the Contractor entitled to terminate the contract in the circumstances? Explain.

 

5. Acme Manufacturing Limited designed and manufactured two identical cranes, which were sold by an Ottawa dealer two companies contracting logging barge services on the Ottawa River. The names of the purchasers were Movemore Ltd. and Unjammers Inc. Both cranes went into service at approximately the same time. After one month’s service the crane purchased by Movemore Limited collapsed, killing the operator of Movemore’s barge.

During the Worker’s Compensation Board’s investigation into the accident, it became apparent that the cause of the collapse was the negligent structural design of the crane. It also became apparent that the manufacturer and the dealer had been aware of the structural weaknesses for some time. Three weeks later, upon learning that a crane of similar design had been sold to Unjammers Inc., representatives of the Worker’s Compensation Board notified Unjammers Inc., of the disaster involving the sister crane sold to Movemore Limited. At no time had Acme Manufacturing Limited or the Ottawa dealer notified Movemore Limited or Unjammers Inc. of any potential problems.

As a result, Unjammers Inc., at the height of its busiest season, was forced to return the crane to the factory for repairs.

What claim can Unjammers Inc. make against the crane manufacturer or against the dealer in the circumstances? Explain.

 

6. Jason Smith is a 25% shareholder and director of Skylift Inc., a company engaged in commercial helicopter services in Ontario.

A friend of Smith, James Johnson, sought Smith’s technical and financial support in forming another commercial helicopter business in British Columbia and Smith agreed to so participate and acquired a 50% shareholder interest in the second company, known as Johnson’s Skyhooks Limited.

Eventually Skylift Inc. became interested in purchasing all of the assets of Johnson’s Skyhooks Limited. Jason Smith was in no way involved in promoting the purchase of Johnson’s Skyhooks Limited until the proposed purchase was presented to the five man board of directors of Skylift Inc. for approval. At that meeting, Smith did not disclose his shareholder interest in Johnson’s Skyhooks Limited and Smith cast the deciding vote in passing the directors’ resolution to authorize the asset purchase. Shortly after the asset purchase had been finalized, the board of directors of Skylift Inc. became aware of Jason Smith’s shareholder interest in Johnson’s Skyhooks Limited and, on further investigation, concluded that the price paid for the assets of Johnson’s Skyhooks Limited was unreasonably high.

What action might the board of directors and shareholders of Skylift Inc. take in the circumstances? State, with reasons, the likely outcome of the action.

 

7. A contractor specializing in farm buildings was engaged by an owner to design and construct a barn to be placed over a manure pit. The contract between the contractor and the owner provided that the contractor would be responsible for both the design and construction of the barn.

The contractor had previously designed and built barns over manure pits, but had never designed a manure pit of the size and shape required by this owner. In preparing the design, the contractor contracted an engineer who was employed by the Department of Agriculture of Ontario. The engineer was a government employee and not a consulting engineer. However, the engineer was employed by the government to assist farmers and contractors to work out their plans and although the engineer never received any payment from the contractor, the engineer had previously provided advice to the contractor in connection with the design of farm buildings.

The contractor and the engineer never met to discuss the plans but discussed the matter by telephone. Eventually, the contractor left a copy of the plans on the engineer’s desk and the engineer reviewed the plans and forwarded the following hand written message to the contractor:

“Good set of plans. I like the detail. Wish I could spend that amount of time on each project. Keep up the good work.”

 

After the manure pit was constructed in accordance with the plans, the walls of the manure pit cracked badly and had to be rebuilt.

The owner sought the advice of another engineer who redesigned the manure pit prior to the remedial construction taking place. The second engineer noted that the contractor’s plans had two particular deficiencies:

(a) The plans showed the reinforcing rod to be in the middle of the wall. The rebar should have been closer to the inside of the wall for maximum support.

(b) There was a complete absence of any rebar schedule on the plans.

The second engineer concluded that the original plans were deficient insofar as the structural steel components and requirements vital to the integrity of the concrete wall were missing.

When the owner discovered that the original contractor had sought advice from the government employee engineer, the owner sued both the contractor and the government engineer on account of the extra costs incurred by the owner in having the manure tank redesigned and reconstructed.

The government employee took the position that he really hadn’t carefully reviewed the plans, but had simply looked through them. He said he didn’t really understand that his advice on the detailed sufficiency of the plans was being sought.

Do you think the owner would be successful in a tort claim against the government employee engineer? In your explanation, discuss the tort law principles that a court would apply to determine whether and to what extent the government employee engineer would be liable.

 

8. a) The question of how long an engineer or a contractor can be sued for negligence is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort.

b) In some construction contracts, an Engineer is authorized to be the sole judge of the performance of work by the Contractor. Where such a provision is stated, it is possible that the provision will not be enforceable on account of the manner in which the Engineer performs his duties? Explain.

c) Usually, an Engineer on a construction project is authorized to inspect the construction in order to ensure that the work proceeds in accordance with plans and specifications. Comment on the desirability of an Engineer actually instructing the Contractor on work methods and construction procedures which the Contractor should employ in carrying out the work.

d) Some construction contract contain a provision that failure of the contractor to complete work by a specific date will result in the contractor being required to make a specific payment to the owner for each day, week, or month that completion of construction is delayed. Is such a penalty provision always enforceable? Discuss.

e) Describe the circumstances in which “penalty clauses” are enforceable.

f) Briefly describe the basis upon which damages for breach of contract are calculated at common law. Explain also the meaning of “mitigating damages”.

g) In a construction contract, it is common for an Engineer who is not a party to the contract to be authorized to judge the performance of the work by the contractor. Where the owner and contractor agree that the engineer shall be so authorized, it is possible that the engineer’s decisions may be challenged by either the owner or the contractor on account of how the engineer performs his or her duties? Explain.

h) An Engineer may be asked to provide engineering services to friends, neighbors or community organizations of which the Engineer may be a member. Can engineers ever be liable for losses or damages arising when engineering services are provided without any fee being charged? Explain.

i) Briefly describe the legal essentials of a binding contract.

j) A contractor entered into a construction contract to build 45 houses at a mine site in northern Ontario within a twelve month period. At the end of the twelve month period, only 30 houses had been completed and the contractor abandoned the project claiming that the local labor shortage had made it impossible for him to perform pursuant to the terms of the contract. The contractor emphasized that he had never contemplated his labor shortage when he had provided the mine site owner with his quotation for the project. The contractor claimed that the contract had been frustrated.

Was the contractor justified, from a legal point of view, in abandoning the project? Explain.

k) Briefly describe how a bonus feature may be included in a guaranteed maximum price construction contract to the advantage of both the owner and the contractor.

 

9. A municipality, as owner, retained an architect to design a new police station. The architect entered into a contract with an engineering firm to perform structural design services in connection with the project.

In performing soils investigations, the engineering firm’s employee engineer assigned to the project examined two shallow test 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 owner on the basis of the superficial examination of the shallow test pits. Neither the architect nor the engineer indicated to the owner that the engineer had recommended to the architect that a more thorough subsurface investigation be undertaken.

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 service the new police station “settled” very badly on one code and extensive remedial foundation work was necessary to correct the settlement problems.

Upon investigation the reason for the settlement problems, another consulting engineering firm concluded that the design should never have proceeded without the more detailed and thorough subsurface investigation which the original project engineer had recommended to the architect.

What potential liabilities arise from the preceding set of facts? In identifying the potential liabilities in tort law, explain the application of tort law principles to the facts as given. Indicate a likely outcome of the matter.

 

10. A mining contractor signed an option contract which provided that if the mining contractor (the “optionee”) performed a specified minimum amount of work of exploration services on the optionor’s property within a nine month period, then the optionee would be entitled to exercise its option to acquire certain mining claims from the optionor.

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 optionor of its problem prior to expiry of the option period and the optionor indicated that the option period would be extended. However, no written record of this extension was made, nor did the optionor receive anything from the optionee in return for the extension.

The optionee then proceeded 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 optionor took the position that, on the basis of the strict wording of the signed contract, the optionee had not met its contractual obligations. The optionor refused to grant the mining claims to the optionee.

Was the optionor entitled to deny the optionee’s exercise of the option? Explain the contract law principles that apply to the positions taken by the optionor and by the optionee.

 

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

During his employment with the design firm, the employee engineer dealt directly with many of the firm’s clients. He became extremely skilled in preparing cost estimates, and he established a good reputation for himself within the City of Toronto.

The engineer terminated his employment with the consulting firm after three years, and immediately set up his own engineering firm in another part of the City of Toronto. His previous employers then commenced a court action for an injunction, claiming that he had breached his contract and should not be permitted to practise within the City limits.

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

 

12. In 1967 a contractor entered into a design-build contract with an owner for the design and construction of a warehouse. The warehouse construction was completed in 1968. In 1985, the roof of the warehouse collapsed. The owner sued the contractor in 1986, alleging that the cause of the collapse was design negligence.

The contract between the owner and contractor contained no provision limiting the time during which an action could be brought against the contractor.

Was the owner entitled to sue the contractor in 1968 for design services performed more than 18 years before the roof collapse? Explain.

 

13. A developer/owner retained an architect to design an office tower complex in downtown Toronto. In the agreement between the developer/owner and the architect the architect agreed to be responsible for all aspects of design of the complex, including all structural, mechanical and electrical engineering design aspects.

The architect entered into a contract with a mechanical engineering firm for all mechanical engineering design services for the project, particularly the heating, ventilating and air conditioning systems.

The complex was designed and ultimately constructed at a cost of 125 million dollars.

The air conditioning system as designed and specified by the mechanical engineering firm did not perform satisfactorily, as evidenced by start-up and performance tests. Major design modifications and alterations to equipment already installed had to be undertaken at additional project costs in excess of two million dollars before the air conditioning system performed satisfactorily and the project could be completed. As a result, the completion date of the project occurred two months later than scheduled.

The developer/owner, when initially faced with the air conditioning performance shortfalls, retained a second mechanical engineering firm to investigate the reasons for the problem. The second mechanical engineering firm prepared an opinion report for the developer/owner which concluded that the employee engineer of the mechanical engineering firm that prepared the design had made significant errors in his design calculations that resulted in the deficient performance of the air conditioning system. The opinion report also stated that the suppliers of the air conditioning equipment had complied with the specifications included in the project contract documents.

What potential liabilities arise from the preceding set of facts? In identifying the potential liabilities in tort law, explain the application of tort law principles to the facts as given. Indicate a likely outcome of the matter.

 

14. A contractor, in designing and constructing a shopping centre in 1980, negligently designed and installed certain ceiling anchors. The shopping centre was sold to a new owner in 1987. The inadequacy of the ceiling anchors wasn’t discovered until September of 1988 when the new owner undertook significant renovations and discovered that new ceiling anchors and new ceilings had to be installed.

Is the new owner entitled to recover any damages from the contractor? In your answer, describe any damages from the contractor? In your answer, describe the limitation periods during which engineers and contractors can be sued in tort.

 

15. A contractor submitted a bid on a construction project. The contractor’s bid price of six million dollars was very low in comparison to the other bidders. In fact, the three other bidders had each bid amounts in excess of seven million dollars.

The contract was awarded to the lowest bidder. The contract conditions expressly entitled the contractor to terminate the contract if the owner did not pay monthly progress payments within ten days following certification by the project Engineer that a progress payment was due.

The low bidder commenced work on the project and soon determined that he would likely suffer a major loss on the project, as he had made significant judgement errors in arriving at his bid price. He also learned that, in comparison with the other bidders, he had “left a million dollars on the table”.

After the fourth monthly progress payment was certified as due by the Project Engineer, the contractor was approached by the owner for additional information relating to bills from an equipment supplier, the cost of which comprised a portion of the fourth progress payment amount. The owner requested that the additional information be provided prior to payment of the fourth progress payment being due. Although the signed contract did not obligate the contractor to obtain such additional information, the contractor verbally informed the owner that he would provide the additional information. However, the contractor never did so.

Eleven days after the progress payment had been certified for payment, the contractor notified the owner that he was terminating the contract as the owner had defaulted in its payment obligations under the specific wording of the contract.

Was the contractor entitled to terminate the contract? Explain.

 

16. Jason Sharp, P.Eng., was retained by a Municipality in Southern Ontario to design and supervise the construction of a bridge. Mr. Sharp and the Municipality executed a contract for Mr. Sharp’s design and supervisory services.

Mr. Sharp estimated that construction of the bridge would cost his client approximately $1,750,000. The Municipality pointed out to Mr. Sharp that budgetary restrictions were such that it would not be economically feasible for it to proceed with construction if the cost were to exceed $1,800,000.

Sharp entered into a contract with a firm of soils experts, Acme Underground Ltd., to advise him on sub-surface conditions at the site. Acme Underground Ltd. was made fully aware that its services were being requested in connection with the bridge design. On the basis of its subsurface investigations, Acme Underground Ltd. reported to Mr.Sharp that he should encounter no difficulty whatsoever with subsurface conditions, insofar as all drill holes indicated that the footings could easily be designed to rest on bedrock.

Sharp completed his detailed design, the plans and specifications were finalized and the construction of the bridge ultimately awarded to ABC Construction Limited at a cost of $1,650,000. The Municipality entered into a contract with ABC Construction Limited as General Contractor for the project. The form of the Contract had been prepared and approved by Mr.Sharp. In excavating, ABC Construction determined that the subsurface conditions were not as represented in the plans and specifications. Indeed, only two-thirds of the footings could be placed on bedrock at the design elevations. Another firm of soils experts, Subsurface Wizards Inc., was called in to investigate and ultimately concluded and reported that the Acme Underground employee who was responsible for the initial investigations hadn’t drilled enough test holes to accurately predict the nature of the subsurface conditions.

After extensive additional test borings were carried out, a revised design of the structure was prepared which included the driving of piles and a new footing design to ensure a secure basis for the foundation. These changes in design resulted in an extra cost of $350,000 being requested by ABC Construction, much to the annoyance of the Municipality.

Sharp determined that ABC’s price of $350,000 for the extra work was a reasonable price in light of the revised design.

What potential liabilities arise from the preceding set of facts? In identifying the potential liabilities in tort law, explain the application of tort law principles to the facts as given. Indicate a likely outcome of the matter.

 

17. National Stores Inc., the owner of a large chain of grocery stores in Ontario and Quebec, retained the services of an architect on a project. The purpose of the project was to build a grocery store for a new outlet in Kenora, Ontario. The architect and National Stores entered into a client/architect agreement for the project. Under the agreement, the architect was to design and to prepare the construction documentation necessary to build the store.

The architect produced a conceptual design and a set of general construction specifications for the construction. The general specifications included a requirement that an automatic sprinkler system be installed. More specifically, the sprinkler system was to conform to the National Fire Protection Association (“NFPA”) standards.

In order to perform the detailed engineering aspects of the design, including the detailed design of the automatic sprinkler system, the architect retained an engineering firm. The architect and the engineering firm entered into a separate agreement to which National Stores was not a party. Under the contract, then engineering firm’s design was to conform to the architect’s general specifications.

The engineering firm assigned the design of the automatic sprinkler system to one of its employees, John Abel, who had recently received his engineering degree. Abel obtained a copy of the NFPA standards from his firm’s library because he was not familiar with the requirements. Although he read certain section of the standards, Abel did not have enough time, given his other project responsibilities, to pay close attention to all the details. Abel completed the design of the automatic sprinkler system and it was reviewed by a professional engineer. Although the professional engineer did not perform a detailed check of the design, it appeared satisfactory to him.

Six months after the new store opened for business, it was damaged by fire very early one morning. After investigating the damage, local fire officials concluded that the fire started in a back-room storage area and quickly spread to engulf the store. The fire caused substantial damage to the store and to the inventory. In addition, National Stores had to close the store in order to repair it.

National Stores retained a consulting engineer to conduct an independent investigation. The consulting engineer determined that the design of the automatic sprinkler system was inadequate. Specifically the engineer’s report indicated that the design did not conform to the NFPA standards, which required, among other things, that the coverage per sprinkler head was not to exceed 10 square meters. The engineer determined that 10% of the sprinkler heads were designed to cover an area as high as 25 square meters. The report also indicated that, in the engineer’s expert opinion, had the sprinkler head spacing conformed to the NFPA standards, the fire should have been quickly extinguished and would not have spread to any great extent.

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

 

18. Hyper Eutectoid Steel Inc. (“HESI”) is a company which produces various types of steel for industrial applications. In order to increase the strength of its steel products, HESI uses a process of quenching and tempering. During the quenching stage, hot steel is quickly cooled with water. During the tempering stage, the steel is then heat treated for an appropriate time. The process requires large amounts of water and heat.

Faced with rising costs for energy, HESI decided to install a heat recovery system. The system would include a heat exchanger by which heat could be recovered from the cooling water in the quenching stage. The recovered heat, then, would be used to heat the steel in the tempering stage.

HESI entered into an equipment supply contract with Energy Recovery and Recyclings Systems Inc. (“ERRS”). ERRS agreed to design, supply and install a heat recovery unit for a contract price of $600,000. After an analysis of HESI’s processes ERRS determined and guaranteed in the contract that the heat recovery system would recover 40% of the heat in the cooling water and that this would result in substantial savings in energy costs.

The contract also contained a provision limiting ERRS’s total liability to $600,000 for any loss, damage or injury resulting from ERRS’s performance of its services under the contract.

The heat recovery system was installed and was operational; however, certain defects in the heat exchanger prevented the system from ever recovering more than 10% of the heat in the cooling water. After repeated unsuccessful attempts by ERRS to remedy the defect, HESI hired another supplier, who, for an additional $800,000, replaced the heat exchanger and was able to achieve the level of performance originally promised by ERRS. The total amount received by ERRS under its contract was $500,000.

Explain and discuss what claim HESI can make against ERRS in the circumstances. In answering, please include a summary of the development of relevant case precedents.

 

19. Rocky Rail Limited, the owner and operator of a railway network, retained the services of Train Engineers Design Inc. (“TEDI”), a consulting engineering firm, on a project in British Columbia. The purpose of the project was to expand Rocky Rail’s service to certain areas of British Columbia.

TEDI and Rocky Rail entered into an engineering services agreement for the project. Under the contract, TEDI was to design a new rail line. The consulting firm’s services were to include the design of mountain tunnels on the rail route as well as the design of the electrical system for the locomotives.

TEDI produced a design for the route and for the tunnels which included a preliminary design for the electrical system. The preliminary design of the electrical system called for an overhead power source for the locomotives.

TEDI retained a second engineering consulting firm, Canadian Rail Electric Works (“CREW”) to perform the detailed engineering design of the electrical system. TEDI and CREW entered into a separate agreement to which Rocky Rail was not a party.

Under the agreement, CREW was responsible for collecting all data and performing all field surveys necessary for it to design the electrical system. CREW assigned the collection of data and the performance of such surveys to Vera Able who had recently received her engineering degree. Able requested and received from TEDI all the relevant information that TEDI had in its possession that related to the design of the project, including geological and other profiles, cross section drawings of the tunnels and preliminary temperature data. Able, however. did not collect any data of her own. CREW used the information obtained by Able to design an overhead contact system to power the locomotives. The overhead contact system consisted of a copper cable suspended by means of “droppers” from the top of the tunnels.

Within two years of installation, the copper wire which made up the overhead contact system had undergone extensive damage. A metallurgical analysis revealed that the damage had been caused by stress corrosion cracking promoted by the presence of sulphur and ammonia compounds and excessive humidity in the tunnels.

Rocky Rail retained a consulting engineer to conduct an independent investigation of the corrosion. The consulting engineer determined that the design of the overhead contact system was inadequate. Specifically, the engineer’s report indicated that the design did not take into account the presence of sulphur compounds and the percolation of water through the rock and that, accordingly the electrical system as designed by CREW was inadequate for the corrosive environment in which the trains were operating. The report also indicated that, in the engineer’s expert opinion, a more corrosion resistant electrical system could and should have been designed.

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

 

20. A land owner retained an architect and a number of engineering firms to design various aspects of an office tower in Ottawa.

The owner entered into a design services contract with a specialist firm of vertical transportation engineers for the building’s elevators. According to the contract, the specialist engineering firm was to provide all design services for a high quality elevator system. The owner promised to pay the firm $400,000 for its services.

During the course of the contract negotiations, the engineering firm proposed that the contract should include a provision limiting the engineering firm’s total liability for any loss, damage or injury including consequential damages to $1 million, being the amount of the engineering firm’s professional liability insurance coverage. The owner, not surprisingly, strongly objected initially to any provision limiting liability but ultimately agreed to the limitation because it was unable to locate another similar specialist that could provide the services within the time available for the design of the project. Accordingly, in spite of its initial reluctance, the owner did agree to the limitation provision when it signed the contract.

The office tower was designed and ultimately completed at a cost of $45 million. A large number of corporate tenants had entered into leases in anticipation of the tower’s completion.

Two weeks before the project was scheduled for occupancy by tenants, it was discovered during start-up and performance tests that the elevator system that was designed and specified by the engineering firm did not perform adequately due to significant design errors made by the engineering firm. Specifically, the elevators would not service any of the floors below the 15th floor when they were loaded beyond one-quarter of their load capacities. As a result, the elevator system did not pass the inspection by the Ministry of Consumer and Commercial Relations and could not be put into operation.

Major design modifications and alterations to major equipment already installed had to be undertaken at an additional cost to the owner of $1.5 million before the elevator system performed satisfactorily and could be certified by the Ministry for use.

The modifications to the design and the equipment caused the completion date for the project to occur two months later than scheduled. As a result of the delay, the owner incurred additional expenses totalling $2 million due to late charges payable to tenants under the leases and the cost of extra financing to cover the project for an additional two months.

The owner sued the engineering firm for $3.5 million. The total amount that had been paid to the engineering firm by the owner pursuant to the design services agreement was $300,000.

To what is the owner legally entitled? Why? What legal principles are involved? In answering, please include a summary of the development of relevant case precedents.

 

21. Mammoth Undertaking Ltd. (Mammoth”), a development company, retained the firm of Sharpe Architects (“Sharpe”) to design a six storey office building. Sharpe also agreed with Mammoth that Sharpe would provide or arrange for inspection services during the course of construction of the project in order to ensure that construction was carried out in accordance with the project plans and specifications.

Sharpe prepared a conceptual design and retained Abel Engineering (“Abel”) to prepare the detailed structural design for the project and also to carry out inspection services to ensure that all structural aspects of the construction of the project were carried out in accordance with the project plans and specifications.

Abel prepared the structural design and eventually Mammoth awarded the contract for the construction of the project to a general contractor, Swift Construction Ltd. (“Swift”).

Abel appointed one of its employee engineers, James Newman, a recent engineering graduate, as Abel’s representative and inspector on the construction site.

Construction commenced during the month of October and soon thereafter Swift recommended to Mammoth that a substantial cost savings could be effected if the specified fill material around the foundation was changed to a more readily available material. Mammoth sought Sharpe’s advice on the suitability of the proposed alternative fill material and indicated to Sharpe that it was most important that a decision be made as soon as possible in order to complete as much of the foundation and backfilling as possible prior to frost conditions setting in.

Sharpe, in turn, referred the matter to Abel through its representative Newman, requesting that Abel approve the proposed change as quickly as possible in the circumstances. Newman determined that the original fill material had been specified by an engineer who no longer worked for Abel and that the specification had been made on the basis of a careful investigation of soil conditions at the site. Newman contacted one of Abel’s vice-presidents and was authorized to advise Sharpe as to the suitability of the alternative fill material after conducting an appropriate investigation.

Under pressure from both Mammoth and Swift to approve the proposed fill material without delaying the construction schedule, Newman approved the change of materials without giving due consideration to the possible repercussions.

The substitute material did not drain as well as the material originally specified; in fact, it retained some water and, as it expanded during freeze up, it caused significant cracking in the foundation walls, necessitating remedial work resulting in substantial additional expense being incurred by Mammoth. In addition, the completion of the project was considerably delayed as a result.

Explain the potential liabilities in tort law arising from the preceding set of facts. In your explanation, discuss and apply the principles of tort law and indicate a likely outcome of the matter.

 

22.Provincial Life of Ontario Inc. (“Provincial”), an insurance company, retained an architect, to design a new corporate head office in North York, Ontario, Provincial, as client, and the architect entered into a written client/architect agreement in connection with the project. According to the agreement, the architect was to prepare the complete architectural and engineering design for the project.

In order to carry out the structural engineering aspects of the design, the architect engaged the services of a structural engineering firm. The architect and the structural engineering firm entered into a separate agreement to which Provincial was not a party.

To determine the nature of soil on which the project would be constructed, two shallow test pits, each about 1.25 meters deep, were dug on the site at locations selected by the architect. The architect telephoned the structural engineering firm’s vice-president and requested that he send out a professional engineer from his firm to examine the soils exposed in the test pits.

Based on information received from the professional engineer sent to examine the soil, the vice-president of the structural engineering firm reported to the architect that the test pit had revealed a silty clay. The vice president also recommended to the architect that a soils engineer be engaged to carry out more thorough and proper soils tests. The architect rejected the recommendation stating that there was not “enough room in the budget” for more soils tests.

The architect succeeded in persuading the vice-president to send a letter to Provincial giving a “soils report” based on the examination of the shallow test pits. The vice-president stated in his letter to Provincial, that based on its examination of the test pits, the soil was a fairly uniform mixture of clay and silt which would be able to support loads up to 100KPa.

The structural engineering firm then completed its structural engineering design on the basis of the maximum soil load reported to Provincial.

The project was constructed in accordance with the plans and specifications. Subsequently, the building suffered extensive structural change, including severely cracked and uneven floors and walls.

On the basis of an independent engineering investigation by an engineer retained by Provincial, it was determined that the extensive structural change in the building had resulted from the substantial and uneven settlement of the building. The investigation also determined that the subsoil in the area of the building consisted of 30 to 40 meters of compressible marine clay covered by a surface layer of dryer and firmer clay two meters in depth. The investigation also revealed that the test pits that were dug had not penetrated the surface layer into the lower layer of compressible material.

What potential liabilities in tort law, arise from the preceding set of facts? Please state the essential principles applicable to a tort action and apply these to the facts above. Indicate a likely outcome of the matter.

 

23. ACE Construction Inc. is a company primarily engaged in the business of supplying heavy equipment used in construction. As part of the company’s economic plan to expand its business, ACE became interested in the rock crushing industry.

ACE had become aware that International Metals Company Ltd. (“IMCO”) required a contractor to crush, weigh and stockpile approximately 250,000 tons of ore. As ACE believed this was an excellent opportunity to venture into venture into the rock crushing business, it decided to tender on the IMCO contract.

In order to tender on the contract, ACE set out to purchase the necessary equipment to crush the material. ACE was contracted by a representative of Rock Busters Ltd., a company which sold such equipment. After visiting the IMCO site and determining the nature of the material to be crushed, the representative discussed the IMCO contract with ACE. After performing a number of calculations, the representative determined and guaranteed that the equipment Rock Busters would provide would be capable of crushing the material at a rate of 175 tons per hour. On the basis of the guarantee, Rock Busters and ACE entered into a contract. Rock Busters agreed that if ACE were successful in its tender to IMCO, RockBusters would provide the equipment for a price of $400,000. The contract also contained a. provision for limiting Rock Busters’ total liability to $400,000 for any loss, damage or injury resulting from Rock Buster’s performance of its services under the contract.

Based on the information provided by the representative, ACE prepared and submitted its tender to IMCO. IMCO accepted the tender and entered into a contract with ACE to crush the material.

The rock crushing equipment was set up at the IMCO site by employees of Rock Busters and crushing operations commenced. However, from the beginning there was trouble with the operation. One of the components of the crusher, called the cone crusher, consistently became plugged by the accumulation of material. Each time the cone crusher had to be shut down and the blockage cleared manually. In some cases, such blockages caused damage to the equipment. Rock Busters made several unsuccessful attempts to correct the defect by making modifications at the site and at its factory. The crushing equipment was never able to crush more than 30 tons of material per hour.

In order to meet its obligations under the IMCO contract, ACE hired another supplier to correct the defects in the Rock Busters equipment. For an additional $500,000 the supplier replaced the cone crusher with one manufactured by another company. The modified equipment was able to crush the material at the rate of 180 tons per hours. The total amount which had been paid by ACE to Rock Busters was $350,000.

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

 

24. An owner and a contractor entered into a written construction contract. According to the contract, the contractor would be paid a lump sum price to construct a factory. The contractor was to complete the work by August 30, 1992.

The contract provided that if the owner delayed the contractor in performing the work, the contractor would be entitled to additional time in completing the work and to be reimbursed by the owner for reasonable costs incurred by the contractor as a result of the delay. Section 4.3 of the contract provided:

“Section 4.3: No claim for a time extension of for costs shall be made for delay unless a written notice describing the delay is given to the owner not later than 14 calendar days after the commencement of the delay.”

Under the contract, the owner was to purchase and supply specialized manufacturing equipment which the contractor was to install in the factory. The owner was to arrange for and have the equipment delivered to the site by March 15, 1992. The owner delivered the equipment on March 22, 1992 and the contractor immediately commenced to install it. At a meeting at the site between the owner and the contractor on March 23, 1992 to discuss the status of the work, the contractor verbally indicated that it had incurred additional labor and equipment rental costs as a result of the owner’s delay in delivering the manufacturing equipment. The contractor explained that because the manufacturing equipment was not available as scheduled, the contractor had incurred 8-person days in additional labor costs and two days’ in rental costs for a crane. The contractor said that it would be seeking compensation for these additional costs. The owner assured the contractor that it would be paid for the delay and asked the contractor to provide the owner with a detailed written statement of the additional costs “within the next month or so.”

On April 10, 1992, the contractor provided the owner with a detailed written statement indicating additional costs of $9,400 as a result of the delay. On May 10, 1992, the owner responded to the contractor’s detailed statement and indicated that the contractor was not entitled to the additional costs claimed because the contractor had failed to give the owner a written notice of delay within the time required by section 4.3 of the contract.

Is the contractor entitled to the additional costs claimed? Explain.

 

25. Ontario Industrial Laundry Inc. (“OILI”) is the owner of several laundry plants in Ontario. OILI’s operations include handling laundry for various industrial and institutional facilities around the province. OILI decided to build a large new plant in Brampton. The new plant would replace a number of smaller and aging facilities OILI operated nearby.

OILI engaged an architectural firm, Clever and Really Useful Design Developments Inc. (“CRUDDI”), and entered into an architectural services agreement with it. Under the agreement, CRUDDI was to design the new plant and prepare construction documentation necessary to build it. According to the agreement, CRUDDI was to design “the most modern and technically up-to-date laundry in Canada.”

CRUDDI hired a number of engineering consultants to provide the various engineering design services necessary for the project. Of these, Mechanical Engineering Systems and Services Inc. (“MESSI”) was to design the air conditioning and handling system.

Although MESSI did not have a contract with OILI, it worked closely with a representative of OILI who specified that, as it was important to provide comfortable working temperatures in the plant, the air conditioning and handling system must be able to provide working temperatures in the range of 22° to 25° and a minimum of 18 air changes per hour.

OILI, on the basis of competitive tenders, awarded the contract for the construction of the new plant to Dominion Industries and Related Technologies (“DIRTI”). The contract price was $15,000,000. DIRTI completed the construction in accordance with the contract drawings and specifications.

Almost immediately after having commenced its operations in the new plant, OILI experience problems in the air conditioning and handling system. The temperature in the working areas was excessive, reaching 38°C in the summer months. In the compressor room, the temperature reached 50°C and caused malfunctions. In addition, the circulation was poor and the air quality was offensive. The employees began suffering fatigue and other ailments and it became necessary for them to take frequent “heat breaks”.

CRUDDI and MESSI tried several times to remedy the problems but they were unsuccessful. OILI retained Top Industrial Designs Inc. (“TIDI”), another mechanical engineering company, to conduct an independent investigation. TIDI determined that the air conditioning and handling system was underdesigned. The air conditioner’s chilling unit had a capacity of only 230 tons; a large unit having a capacity in the order of 600 tons should have been specified. In addition, the exhaust and intake vents on the roof were located too close to each other and caused exhaust air to reenter the plant.

TIDI determined that the system would require $1.1 million in modifications in order to meet the plant’s specifications. It also indicated that, had the system been specified and constructed as it ought to have been in the first place, construction costs incurred by OILI would have been $400,000 higher, that is $15,400,000.

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

 

26. An owner and a contractor entered into a written contract for the construction of a $20,000,000 chemical plant in Sarnia, Ontario. The contract provided that the plant would be constructed in accordance with the plans and specifications that had been prepared by the owner’s engineering consultant. Under the contract, the owner, through the engineering consultant, was permitted to make changes to the design of the plant with the amount payable to the contractor being adjusted accordingly. However, the contract further provided that the contractor could not proceed with any change in the work without a written order signed by the owner and that no claim for additional compensation on account of a change would be valid without such a written order.

As the work progressed, the engineering consultant certified payments for amounts due to the contractor on the basis of the amount of work performed during each month. Several of the monthly payments included additional compensation for extra work performed by the contractor on account of relatively minor changes to the design of the plant. In total there were 55 such changes. In each case, the contractor had proceeded with the extra work and was paid additional compensation despite the fact that no written order was given by the owner authorizing the extra work of the additional compensation.

During the course of the work, the engineering consultant made a major change to the design of the plant. It was anticipated that the change would require and additional $1.7 to $2.0 million of work by the contractor and would require four months to complete. The contractor requested the owner’s approval before proceeding with the extra work. The owner indicated orally to the contractor that the contractor should proceed with the work and that a written order authorizing the change would be issued once the details of the design change were finalized.

The contractor commenced performing the additional work for the major design change in January, 1990 and invoiced the owner on a monthly basis. Although the owner never did issue a written order authorizing the additional work, the contractor was paid for the additional work that was performed in January, February and March of 1990. The contractor completed all of the extra work in April 1990 and submitted an invoice for payment which included $950,000 on account of extra work performed in April.

The owner refused to pay the $950,000 on the basis that no written order by the owner was given authorizing any extra work, as required by the written contract. Is the contractor entitled to the $950,000? Explain.

 

27. A supplier of information technology hardware, ABC Hardware ("ABC"), submitted a fixed price bid on a computer installation project for a large accounting firm. ABC’s bid price of six million dollars was very low in comparison to the other bidders. In fact, the three other bidders had each bid amounts in excess of nine million dollars.

The contract was awarded to the lowest bidder. The contract conditions expressly entitled the contractor to terminate the contract if the owner did not pay monthly invoices within thirty days following receipt of an invoice.

ABC commenced supplying computer hardware on the project and soon determined that it would likely suffer, a major loss on the project, as it had made significant judgment errors in arriving at its bid price. ABC also learned that, in comparison with the other bidders, ABC had "left three million dollars on the table".

After the fifth invoice was delivered, ABC was approached by the accounting firm for additional information and explanation of bills from an equipment parts supplier, the cost of which comprised a portion of the fifth invoiced amount. The accounting firm requested that the additional information be provided prior to payment of the fifth invoice being due. Although the signed contract did not obligate ABC to obtain such additional information, a representative of ABC verbally informed the accounting firm that ABC would provide the addition information. However, ABC never did so.

Thirty-one days after the fifth invoice had been received, ABC notified the accounting firm that ABC was terminating the contract as the accounting firm had defaulted in its payment obligations under the specific wording of the contract.

Was ABC entitled to terminate the contract? Explain the relevant legal principle and how it should be applied in this situation.

 

28. A telecommunications development company leased an outdated and unused.underground.pipe system from an Ontario municipality. The developer’s purpose in leasing the pipe was to use it as an existing conduit system in which to install a fibre optic cable system to be designed, constructed and operated in the municipality by the telecommunications developer during the term of the lease. AU necessary approvals from regulatory authorities were obtained with respect to the proposed telecommunications network.

The telecommunications development company then entered into an installation contract with a contractor. For the contract price of $4,000,000, the contractor undertook to complete the installation of the cable by a specified completion date. The contract specified that time was of the essence and that any contract was to be completed by the specified completion date, failing which the contractor would be responsible for liquidated damages in the amount of $50,000 per day for each day that elapsed between the specified completion date and the subsequent actual completion date. The contract also contained a provision limiting the contractor s maximum liability for liquidated damages and for any other claim for damages under the contract to the maximum amount of $1,000 000

Due to its failure to properly staff and organize its workforce, the contractor to meet the specified completion date. In addition, during the installation, the contractor’s inexperienced workers damaged significant amounts of the fibre optic cable, with the result that, the telecommunications development company, on subsequently discovering the damage, incurred substantial additional expense in engaging another contractor to replace the damaged cable. Ultimately, the cost of supplying and installing the replacement cable plus the amount of liquidated damages for which the original contractor was responsible because of its failure to meet the specified completion date, totalled $1,800,000.

Explain and discuss what claim the telecommunications development company 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.

 

 

29. (a)An environmental consulting firm, E Inc., was retained by a large manufacturing company, Acme Ltd. E Inc. was retained to prepare an environmental compliance audit as Acme Ltd. was contemplating the possibility of a sale of two of its properties.

E Inc. carried out the environmental compliance audit with respect to each of the properties and submitted its reports on each property. Included at the outset of each report was the following statement:

"This report was prepared by E Inc. for the account of Acme Ltd. The material in it reflects E Inc.’s best judgement 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, are 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, Acme Ltd. sold each of the two properties to Acquisitions Inc. In negotiating the sale with Acquisitions Inc., E Inc.’s reports were shown to Acquisitions Inc., but Acquisitions Inc. had no dealings with E Inc. E Inc. had no knowledge of the sale to Acquisitions Inc. until approximately four years later when Acquisitions Inc. commenced a lawsuit against E Inc. Acquisitions 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. Acquisitions Inc. claimed in its lawsuit that E Inc. was aware that the report might be shown to a prospective purchaser and, accordingly, E Inc. should be responsible for damages arising as a result of reliance by Acquisitions Inc. on the negligent misstatements in E Inc.’s report.

Should E Inc. be liable in the circumstances? Explain.

 

(b) - The Ontario Human Rights Code protects employees against certain types of behavior in the workplace. Briefly identify (list) five examples of inappropriate conduct in the workplace that are prohibited by the Ontario Human Rights Code.

 

(c)The question of how long an engineer or a contractor can be sued for negligence or breach of contract is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort and in contract.

 

30. Live Rail Inc. ("Live Rail"), a company specializing in the manufacture and installation of railway commuter systems was awarded a contract by a municipal government to design and build a significant transit facility in British Columbia. The contract specified electrically powered locomotives. As part of the design, Live Rail was contractually obligated to design an overhead contact system in a tunnel. Live Rail subcontracted the subdesign of the overhead contact system to a consulting design firm, Ever Works Limited (’Ever Works’).

Ever Works designed an overhead contact system in the tunnel, however, in doing so it did not carry out any testing nor did it gather any data of its own relating to the conditions inside the tunnel. It did not even request copies of underlying reports which, had they been examined, would have indicated that there was a large volume of water percolating through the tunnel rock and that the tunnel rock contained-substantial amounts of sulphur compounds. The project documentation that was turned over to Ever Works by Live Rail did not include the underlying reports, but did identify the existence and availability of the underlying reports.

The construction of the rail system through the tunnel was completed in accordance with the Ever Works’ design. However, within eight months of completion, the overhead contact system in the tunnel became severely corroded and damaged due to the water seepage in the tunnel resulting in a very humid atmosphere that promoted stress corrosion cracking damage, accelerated by the presence of hydrogen sulphide, ammonia and nitrites.

As a result of the corrosion damage, the municipality had to spend substantial additional money on redesigning and rewiring the system.

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.

 

31. 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 "optionor") within a nine month period, then the optionee would be entitled to exercise its option to acquire certain mining claims from the optionor.

Before the expiry of this nine month "option period", the optionee realized that it couldn’t fulfil its obligation to expend the required minimum amount by the expiry date. The optionee notified the optionor of its problem prior to expiry of the option period and the optionor indicated that the option period would be extended. However, no written record of this extension was made, nor did the optionor 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 optionor took the position that, on the basis of the strict wording of the signed contract, the optionee had not met its contractual obligations. The optionor refused to grant the mining claims to the optionee.

Was the optionor 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 optionor and by the optionee.

 

32.An information technology firm assigned to one of 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 firm’s 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 investigators concluded that although the design software would suffice for certain types of structures it was not appropriate in the 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 this 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.

 

33. (a) The Ontario Human Rights Code protects employees against certain types of behavior in the workplace. Briefly identify (list) five examples of inappropriate conduct in the workplace that are prohibited by the Ontario Human Rights Code.

(b) 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 employment, the engineer would not practise 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 clients. The engineer became extremely skilled in preparing cost estimates, and established a good personal reputation within the City of Toronto.

The engineer terminated 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 for an injunction, claiming that the engineer had breached the employment contract and should not be permitted to practise within the City limits.

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.

(c) The question of how long an engineer or a contractor can be sued for negligence or breach of contract is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort and in contract.

 

34. 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 cogeneration 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 that was less than the amount 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 a stipulated date. However, the contract also included a "maximum liability" provision that limited to $5,000,000 the contractor’s liability for all liquidated damages due to failure to achieve (i) the specified electrical power output, (ii) the guaranteed heat rate and (iii) the specified 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 the technical specifications, with the result that the total cost of the replacement equipment and parts reached an additional $115,000 000 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.

 

35. (a) Briefly define, and explain the differences between, (i) sole proprietorship, (ii) partnership, and (iii) the corporation.

(b) Some construction contracts contain a provision that failure of the contractor to complete the work by a specific date will result in the contractor being required to make a specified payment to the owner for each day, week or month that completion of construction is delayed. Is such a penalty provision always enforceable? Discuss.

(c) The question of how long an engineer or a contractor can be sued for negligence or breach of contract is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort or contract.

 

36.Ontario Industrial Laundry Inc. ("OILI") owns several laundry plants in Ontario.OILI’s operations include handling the laundry for various customers around the province. OILI decided to build a large new plant in Brampton to replace a number of smaller and aging OILI facilities.

OILI engaged an architectural firm, Clever and Really Useful Design Developments Inc. ("CRUDDI"), and entered into an architectural services agreement with it. Under the agreement, CRUDDI was to design the new plant and prepare plans and specifications necessary to build it. According to the agreement, CRUDDI was to design "the most modern and technically up- to-date laundry in Canada."

CRUDDI hired several consultants to provide the various services necessary for the project. Of these, Mechanical Engineering Systems and Services Inc. ("MESSI") was to design the air conditioning and handling system.

Although MESSI did not have a contract with OILI, it worked closely with a representative of OILI who specified that, as it was important to provide comfortable working temperatures in the plant, the air conditioning and handling system must be able to provide working temperatures in the range of 22deg to 25deg C and a minimum of 18 air changes per hour.

OILI, on the basis of competitive tenders, awarded the contract for the construction of the new plant to Dominion Industries and Related Technologies Inc.’ ("DIRTI"). The contract price was $15,000,000. DIRTI completed the construction in accordance with the contract drawings and specifications.

Almost immediately after having commenced its operations in the new plant, OILI experienced problems in the air conditioning and handling system. The temperature in the working areas was excessive, reaching 38deg C in the summer months. In the compressor room, the temperature reached 50deg C and caused malfunctions. In addition, the circulation was poor and the air quality was offensive. The employees began suffering fatigue and other ailments and it became necessary for them to take frequent "heat breaks".

CRUDDI and MESSI tried several times to remedy the problems but they were unsuccessful. OILI retained Top Industrial Designs Inc. ("TIDI"), another mechanical engineering company, to conduct an independent investigation. TIDI determined that the air conditioning and handling system was underdesigned. The air conditioner’s chilling unit had a capacity of only 230 tons; a larger unit having a capacity in the order of 600 tons should have been specified. In addition, the exhaust and intake vents on the roof were located too close to -each other and caused exhausted air to re-enter the plant.

TIDI determined that the system would require $1.1 million in modifications in order to meet the plant’s specifications. It also indicated that, had the system been specified and constructed as it ought to have been in the first place, construction costs incurred by OILI would have been $400,000 higher, that is, $15,400,000.

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.

 

37. Arbour Pulp & Paper Company ("ARBOUR") entered into a written equipment supply contract with Recovery Exchangers and Turbines Inc. ("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 instalment of the purchase price shall become due and payable by ARBOUR on the last day of the month for which the instalment is to be made. If ARBOUR fails to pay any instalment within 10 days after such instalment becomes due, RECOVERY shall be entitled to stop performing its work under this contract or term invalidate this contract."

As the work progressed, RECOVERY invoiced ARBOUR for each monthly instalment. Although ARBOUR paid the first instalment 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 payments, 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 contract by the time the equipment would be completed. Although the instalment 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.

 

38. 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 $200,000.The specifications for the cleaning system stated that the equipment was to remove ninety-five percent of the prescribed chemicals from the mill’s liquid effluent in order to comply with the requirements of the environmental control authorities in the area in which the mill was located. However, the contract clearly provided that Clearwater accepted no responsibility whatsoever for any indirect of consequential damage, such as lost profits, arising as a result 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 $180,000 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 $10,000 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 $250,000, 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 can make against Clearwater Limited in the circumstances.

 

39. A long established manufacturing company, Acme Ltd., contemplating the possibility of a sale of some of its properties, retained an environmental consulting firm, E Inc., to prepare an environmental compliance audit.

The Vice-President of E Inc. responsible for the performance of the environmental compliance audit, herself a professional engineer, turned the matter over to one of her department’s engineering employees. The engineering employee in question to whom the matter was referred had only recently qualified 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 her extremely busy schedule would likely limit the amount of time she could spend on the environmental compliance audit herself and, accordingly, selected the younger employee engineer in the hope that his involvement, particularly in view of his impressive performance on previous matters, would decrease her 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 outset of each report was the following qualifying statement:

’This report was prepared by E Inc. for the account of Acme Ltd. The material in it reflects E Inc.’s best judgement 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, are 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, Acme Ltd. sold two of its properties to Acquisitions Inc. In negotiating the sale with Acquisitions Inc., E Inc.’s reports were shown to Acquisitions Inc., but Acquisitions Inc. had no dealings with E Inc. E Inc. had no knowledge of the sale to Acquisitions Inc. until approximately four years later when Acquisitions Inc. commenced a lawsuit against E Inc. Acquisitions 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. Acquisitions Inc. claimed in its lawsuit that E Inc. was aware that the report might be shown to prospective purchasers and, accordingly, E Inc. should be responsible for damages arising as a result of reliance by Acquisitions 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 reports by E Inc. had not contained the qualifying statement identified above and, if your conclusion would differ, explain why.

 

40. (a)The Ontario Human Rights Code protects employees against certain types of behavior in the workplace. Briefly identify (list) five examples of inappropriate conduct in the workplace that are prohibited by the Ontario Human Rights Code.

(b)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.

(c)In some construction contracts, an engineer is authorized to be the sole judge of the performance of work by the contractor. Where such a provision is stated, is it possible that the provision will not be enforceable on account of the manner in which the engineer performs his or her duties? Explain.

(d)The question of how long an engineer or a contractor can be sued for negligence or breach of contract is one that is of concern to professional engineers and to contractors. Describe the limitation periods during which engineers and contractors can be sued in tort and in contract.

 

41. ACE Construction Inc. is a company primarily engaged in the business of supplying heavy equipment used in construction. As part of the company’s economic plan to expand its business, ACE became interested in the rock crushing industry.

ACE had become aware that International Metals Company Ltd. ("IMCO") required a contractor to crush, weigh and stockpile approximately 250,000 tons of ore. As ACE believed this was an excellent opportunity to venture into the rock crushing business, it decided to tender on the IMCO contract.

In order to tender on the contract, ACE set out to purchase the necessary equipment to crush the material. ACE was contacted by a representative of Rock Busters Ltd., a company which sold such equipment. After visiting the IMCO site and determining the nature of the material to be crushed, the representative discussed the IMCO contract with ACE. After performing a number of calculations, the representative determined and guaranteed that the equipment Rock Busters would provide would be capable of crushing the material at a rate or 175 tons per hour. On the basis of the guarantee, Rock Busters and ACE entered into a contract. Rock Busters agreed that if ACE were successful in its tender to IMCO, Rock Busters would provide the equipment for a price of $400,000. The contract also contained a provision limiting Rock Busters’ total liability to $400,000 for any loss, damage or injury resulting from Rock Busters’ performance of its services under the contract.

Based on the information provided by the representative, ACE prepared and submitted its tender to IMCO. IMCO accepted the tender and entered into a contract with ACE to crush the material.

. The rock crushing equipment was set up at the IMCO site by employees of Rock Busters and crushing operations commenced. However, from the beginning there was trouble with the operation. One of the components of the crusher, called the cone crusher, consistently became plugged by the accumulation of material. Each time the cone crusher became plugged, the operation would have to be shut down and the blockage cleared manually. In some cases, such blockages caused damage to the equipment. Rock Busters made several unsuccessful attempts to correct the defect by making modifications at the site and at its factory. The crushing equipment was never able to crush more than 30 tons of materials per hour.

In order to meet its obligations under the IMCO contract, ACE hired another supplier to correct the defects in the Rock Busters equipment. For an additional $500,000 the supplier replaced the cone crusher with one manufactured by another company. The modified equipment was able to crush the material at the rate of 180 tons per hour. The total amount which had been paid by ACE to Rock Busters was $350,000.

Explain and discuss what claim ACE can make against Rock Busters in the circumstances. Would ACE be successful in its claim? Why? In answering, please include a summary of the development of relevant case precedents. In particular, point out how the law changed because of these relevant case precedents.

 

42. A supplier of information technology hardware, ABC Hardware ("ABC"), submitted a fixed price bid on a computer installation project for a large accounting firm. ABC’s bid price of six million dollars was very low in comparison to the other bidders. In fact, the three other bidders had each bid amounts in excess of nine million dollars.

The contract was awarded to the lowest bidder. The contract conditions expressly entitled the contractor to terminate the contract if the owner did not pay monthly invoices within thirty days following receipt of an invoice.

ABC commenced supplying computer hardware on the project and soon determined that it would likely suffer a major loss on the project, as it had made significant judgment errors in arriving at its bid price. ABC also learned that, in comparison with the other bidders, ABC had "left three million dollars on the table’.

After the fifth invoice was delivered, ABC was approached by the accounting firm for additional information and explanation of bills from an equipment parts supplier, the cost of which comprised a portion of the fifth invoiced amount. After a lengthy meeting on the subject, during which some clarification of the information was provided, the accounting firm requested that further additional information be provided prior to payment of the fifth invoice being due. Although the signed contract did not obligate ABC to obtain such additional information, a representative of ABC verbally informed the accounting firm that ABC would provide the additional information as requested, and prior to payment of the fifth invoice being due. However, ABC never did so.

Thirty-one days after the fifth invoice had been received, ABC notified the accounting firm that ABC was terminating the contract as the accounting firm had defaulted in its payment obligations under the specific wording of the contract.

 

43. A contractor decided to use a computer program to prepare its bid for tendering on a construction project. Having been approached by a software developer promoting its software package for bid preparation, the contractor dealt with the software developer and entered into a contract in the form of a license agreement authorizing the contractor to use the software. However, the contract between the contractor and the software developer also included an express provision which limited the software developer’s liability on account of any damages that the contractor might suffer as a result of using the software to the amount of the license fee paid by the contractor for the use of the software. The licence fee for the software package was $25,000.

The contractor used the software program to prepare a bid for an important contract opportunity. Unformtunately, the software contained a software defect, a flaw which resulted in the bid price that the contractor submitted on the project being understated by $2,000,000. Because of the understated price, the contractor was the lowest bidder and the contract was awarded to the contractor.

The owner insisted that the contractor perform its obligations on award of the contract, even though the contractor attempted to persuade the owner that its low price was due to a software defect. The contractor performed the work under the contract as best it could, and upon completion of the contract determined that its loss on the project amounted to $1,400,000.

The contractor claimed that its loss of $1,400,000 was entirely due to the software defect. The contractor retained an independent expert who confirmed that the contractor had performed as well as it could have on the project and that the losses were in fact due to the pricing error that had resulted from the software defect.

The contractor sued the software developer to recover its loss.

Explain and discuss whether the contractor could succeed in a breach of contract claim agains the software developer. In answering, please include a brief summary and description of the development of relevant case precedents relating to the enforceability of contractual provisions that limit liability.

 

44. Briefly define and explain any five of the following:

(i) Rule of contra proferentem

(ii) The limitation period applicable to contracts in Ontario

(iii) Five examples of inappropriate conduct in the workplace (list only)

(iv) Contract A (in tendering)

(v) Statutory holdback under the Construction Lien Act (vi) Discharge by frustration

(vii) The corporate director's standard of care (viii) Quantum meruit

 

45. 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 employees, 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 a concrete ­steel composite, consisting essentially 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 design tables which the engineer located in his firm's library and which had been published by a company which manufactured and supplied the steel deck.

The construction of the plant was completed and shortly after manufacturing commenced at the plant, severe cracks appeared in the concrete on the second floor. After two months of 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 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 engineering firm concluded that the depth of concrete and size of steel mesh in the floor as initially designed resulted in a 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 arise 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 likely outcome of the matter.

 

46. 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 cogeneration 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 a stipulated, date. However, the contract also includedd a "maximum liability" provision that limited to $5,000,000 the contractor' liability for all liquidated damages due to failure to achieve (i) the specified electrical power output, (ii) the guaranteed heat rate and (iii) the specified 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 totaled $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 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.

 

47. 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 "optionor") within a nine month period, then the optionee would be entitled to exercise its option to acquire certain mining claims from the optionor.

Before the expiry of this nine month "option period", the optionee realized that it couldn't fulfil its obligation to expend the required minimum amount by the expiry date. The optionee notified the optionor of its problem prior to expiry of the option period and the optionor indicated that the option period would be extended. However, no written record of this extension was made, nor did the optionor 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 optionor took the position that, on the basis of the strict wording of the signed contract, the optionee had not met its contractual obligations. The optionor refused to grant the mining claims to the optionee.

Was the optionor 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 optionor and by the optionee.

 

 

1.10.84 HOW SOLVE TO LAW/ETHICS PROBLEMS

 

1. Identify major events and issues.

2. State the applicable laws and precedents.

3. Apply legal principles and precedents to analyze the situation.

4. Consider possible outcomes.

5. Recommend an action.

 

1.10.85 A NOTE TO YOU

 

If you have benefited by using these problems, help others and give me more recent copies of the exams. I would prefer electronic copies (jackh@gvsu.edu), but faxed copies would also work (616) 331-7215. Thanks. If you want to see if anybody else offered the exam to me first, send me an email (jackh@gvsu.edu)

 

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