4. Canadian Legal Fundamentals

• The general rules of law in Canada are a combination of,

common law

statute law

negligence

• The court structure is given below,

 

• The Adversary System: a system of opposing legal parties.

• Lower courts are compelled to follow rulings made in higher courts.

• Statues are made by provincial and federal legislatures and override common law.

• criminal law is in the federal jurisdiction, and is not within the provincial jurisdiction: ultra vires

• The theory of precedent: a basis for legal decisions. When a decision has been made in a similar case before, that decision should be used again. In apparently similar cases there might be distinctions that cause a court to not follow precedents. Occasionally precedents are used from other provinces, england, or occasionally the USA.

• Common Law: “judge made law”: previous court decisions are used as legal principles.

• Legislation: legislation can override the common law.

this is law passed in an elected legislature

can be a new law or a former common law

the court then determines how to interpret and apply the legislation

• Arbitration is an alternative to a court based lawsuit. This allows matters to be argued (either by choice or as dictated by contract). Engineers may be asked to act as arbitrator, effectively this process makes the arbitrator a judge in an ad-hoc court empowered by statutes (e.g., The Arbitrations Act of Ontario). It is possible that the result will be taken to a formal court. [Re Thomas Hackett]

4.1 BUSINESS LAW

• Three basic forms,

sole proprietorship

partnership

corporations

• proprietorship

owner and company are one entity in the courts.

profits and losses are the owners

• partnerships

all partners are considered personally responsible for the profits and loses of the partnership, except in the case of silent partners.

a silent partner must have no control in the day to day operation of the business and is essentially a financier.

Joint ventures are partnerships limited to a single project.

partnerships should be registered (The Partnership Act of Ontario) before they act as legal entities.

partnerships will dissolve when one of the partners dies or becomes bankrupt or insolvent.

partnership agreements are needed to determine responsibilities (financial, management duties, work) provisions for adding or expelling partners, etc.

corporations can also be partners.

limited partnerships are registered partnerships (Limited Partnerships Act of Ontario) where one or more partners can limit their liability to their own contribution. They cannot be advertised as part of the firm, represent themselves as a general partner, partake in business decisions, etc.

• corporation/limited company (“a fictitious person”)

federal or provincial corporations

a corporation has the same legal status as an individual. This principle is called the “corporate veil” [Salomon v. Salomon & Co. Ltd.]. This may be lifted in some cases when fraud is involved [Fern Brand Waxes Ltd. vs. Pearl]

this provides a tax shelter for shareholders
this also acts as a liability shield

Other circumstances will also set aside the corporate veil, such as common control of multiple corporations [Nedco Ltd. v. Clark et. al.]

a corporation exists as long as it complies with its governing statute, and no legal steps have been made to dissolve it.

quite often banks will require personal guarantees from shareholders for any corporate loans (this sidesteps the liability shelter of corporations).

the taxes paid for profits/dividends made by a corporation can be lower than those paid out by a sole proprietorship.

engineers can form engineering corporations

corporations can be formed by,

federal statutes
provincial statutes
by following provincial acts (eg, Canada Business Corporations Act or Business Corporations Act of Ontario)

federal and provincial corporations can trade outside their jurisdiction

federal corporations (unlike many others) are well suited to Canada wide business, but beyond certain financial levels they must file public annual financial statements.

provincial corporations may requires licences to conduct business in other provinces.

“objects” are the purposes of the business which a corporation may opt to define or limit. Some businesses, such as engineering corporations are limited by statute already. (eg, the primary control must rest with an engineer holding a certificate of authorization)

a private corporation has a limited number of shareholders (<50) with controlled transfer and ownership of shares.

a public corporation offers shares for sale publicly (often to generate investment capitol). The shareholders elect a board of directors. The board of directors appoint officers to manage day to day affairs.

in private corporations, shareholders agreements are often used to set up ownership, control new shares, sale of shares, etc. Minority shareholders can be very vulnerable if not protected by a shareholders agreement.

The directors standard of care is a legal measure of the principles required to maintain a corporation as a distinct entity.

directors must act honestly and in good faith while working toward the interests of the corporation
directors are liable for up to 6 months of wages for the corporation if actions begin within 6 months of termination if the corporation is sued because of the director, the corporation become bankrupt or goes into liquidation.
directors can also be fined or jailed (The Combines Investigations Act) if they fail to submit certain returns.
can be prosecuted and are liable under the Canada Income Tax Act
directors can be prosecuted if the corporation is not properly identified during business transactions.
directors can be prosecuted if false statements are made on corporate reports, returns, notices or other official corporation documents.
Directors in corporations are required to disclose all conflicts of interest that pertain to any business in the company. Not doing so will make the directors liable for any profit or gain.
4.2 CIVIL LAW

• In a civil trial the claims of wrong doing are made by the plaintiff, and are made against the defendant(s).

• Civil court decisions are based on an onus of proof, and a balance of probabilities.

• The civil court structure for Canada is pictured below,

 

• The civil court structure for Ontario is pictured below,

 

• The basic sequence of events for civil cases is shown in the chart below,

4.2.1 CONTRACTS

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• each contract must contain certain elements,

offer

acceptance

intent

consideration

capacity to contract

lawful purpose/legality

• Breech of contract

fraud

misrepresentation

duress

undue influence

• A contract goes through a number of phases. As a matter of habit, I will illustrate general possibilities with a flowchart. This chart is by no means complete, but can give a simple picture of the life of a contract.

• Assignment of rights: unless limited in a contract, other parties can be assigned benefits. For example the use of a “collection agency” is a common method of dealing with bad debts using a third party.

• an offer may expire if not accepted in a reasonable amount of time. Expiry dates for offers are often included.

• simple offers can be revoked at any time (before acceptance), but in some cases we might want “irrevocable offers”. This involves submitting the offers under seal, or in other word giving contract consideration.

• The “option contract” is another type of irrevocable contract. Something of value is exchanged to in effect make the “option contract” a full contract that can lead to another contract. This type of contract could be used in mining to allow some investigation of a mine before buying mining rights.

• Care should be taken to state which jurisdiction the contract is in. If this is not stated in the contract it will be determined to be where the offer was accepted. [The Queen et. al. v. Commercial Credit Corp. Ltd.]

• mutual intent: a contract should outline what both parties agree on in a contract.

• Letters of Intent: a common device to start business decisions, often a prelude to entering into contracts. These “agreements to agree” are not contracts, and are not legally enforceable. [Bahama Consult Ltd. v. Kellogg Salada Canada Ltd.]

• Consideration is an important part of a contract, in effect both parties must be giving and getting something of value (not necessarily money) to make it worthwhile to enter into the contract. The only case where consideration is not “something of value”, is when the contract is sealed (the seal is seen as something of value). Seals may be the mechanical imprint of a corporation, or a small adhesive label, as is used to make an irrevocable offer a binding contract.

• Gratuitous promise: a promise without consideration that generally wont be upheld by a court. An example is a verbal amendment to a written contract where there is no consideration. Note that this promise is moral not contractual.

• “promissory or equitable estoppel”: In some cases when a contract is amended without consideration (a gratuitous promise), but one party would be inequitably punished by the strict enforcement of the contract, then the amendment may be accepted as valid. [Conwest Exploration Co. Ltd. et. al. v. Letain] [John Burrows Ltd. v. Subsurface Surveys Ltd. et. al.] [Owen Sound Public Library Board v. Mial Developments Ltd. et. al.]

• Capacity to enter into contracts prevents those not capable of meeting the requirements from being held liable.

• Minors do not have the capacity to contract, but if they contract, they can enforce the contract, the other party cannot hold the minor liable (unless it was for a necessity). The age of majority is 18 in most provinces, except in Nova Scotia, New Brunswick, Newfoundland, and British Columbia.

• Drunks and lunatics (like minors) can enter into contracts for necessities, but for non-necessities the contract is unenforceable if the party was obviously incapacitated and repudiates the contract in reasonable time.

• Corporations may not have the capacity to contract. This contract may be outside the corporate charter, not approved by the appropriate official. [Royal British Bank v. Turquand]

• The purpose of a contract must not be illegal or contrary to statutes. Some examples of such contracts are,

contracts that attempt to avoid loss of property in bankruptcy by transferring ownership (within one year to a relative or three months to a creditor).

a contract provision to limit settlements already statute specified, such as The Workmans Compensation Act of Ontario

contrary to the Combines Investigation Act

contrary to a lien act

when some form of license is required (e.g., P.Eng.) but not held. [Kocotis v. D’Angelo] [Calax Construction Inc. v. Lepofsky] In some cases this will only void part of the contract [Monticchio v. Torcema Construction Ltd. et. al.]

• a contract that is against public/common law may also be voided. For example, non-competition clauses that could lead to monopoly type situations, or make an engineer unable to earn a living might not be enforced.

• The statute of frauds has been developed to reduce problems resulting from fraudulent testimony. Generally, written contracts are required in certain circumstances such as,

any aspect of land ownership or interest

any agreement not to be fully enacted within one year

debt guarantees

• unenforceable contracts will still be recognized to prevent inequities. For example, if a verbal sales contract is made and one party disputes the contract, it might be unenforceable, but they could force the returns of goods, money, etc.

• Innocent misrepresentation involves a mistake that is not intentionally misleading, but results in another party entering into a contract. If the mislead party comes forward in time, the contract can be rescinded, and they can recover costs incurred. [Township of McKillop v. Pidgeon and Foley]

• Fraudulent misrepresentation is similar to innocent misrepresentation, except an intent to deceive is involved, and the plaintiff can sue for deceit as well. [Derry v. Peek]

• Mistakes in a contract can be overturned in rare cases.

• Rectification can be done for a “common mistake” where an agreement had been reached but inaccurately recorded. If a clerical error has been made in a contract then the court may rectify it. An example of this is a figure of ‘$100 million’ is accidently typed as ‘$100’.

• Contract may be interpreted by the court using dictionary terms, witness accounts of the intentions, etc.

• “parol evidence rule”: conditions that have been agreed upon verbally, but don’t appear in a written contract cannot be entered as evidence. i.e., if it is not written it does not exist in the eyes of the court. This will only be overlooked when it can be seen that the condition was essential for the contract to be effective. [Pym v. Campbell]

• Implied terms are terms that would obviously be expected to be in a contract, but have been overlooked. [The Moorcock] [Markland Associates Ltd. v. Lohnes] [Pigott Construction Co. Ltd. v. W.J. Crowe Ltd.] [G. Ford Homes Ltd. v. Draft Masonry (York) Co. Ltd.]

• Discharge by performance: describes the end of a contract by satisfaction of the provisions of the contract.

• Discharge by agreement: if both parties agree a contract can be terminated or amended.

• Discharge by express terms: These can be written terms to end a contract

• If a contract has been breached by one party, the other party may,

sue for damages

consider the contract discharged [Piggot Construction Co. Ltd. v. W.J. Crowe Ltd.]

• In breach there are,

conditions: essential components of a contract (discharges a contract)

warranties: a non-essential obligation in a contract (only sue for damages)

• Repudiation: an obvious indication by one party (verbal or otherwise) that they do not intend to follow the terms of the contract. The other party may ignore the breach, treat it as breached and sue, or (in a reasonable time) notify the other party that they agree to discharge the contract. NOTE: in some cases repudiation may be warranted.

• Remedies for breached contracts may include,

quantum meruit: a reasonable measure of the value of work used when it was not stated in a contract or when determining damages. [Alkok v. Grymek]

specific performance: an award where monetary rewards are not suitable (such as land transfer). This will not be given for anything requiring supervision, such as design work.

injunction: a restraint to stop another party from an action. This will only apply to contract clauses that are also preventative in nature.

• The compensation for damages are determined by the court [Hadley v. Baxendale]

• Duty to Mitigate: when a party has been injured by a breach of contract they are obliged to minimize loses suffered. Failure to do this will reduce the damages awarded by the court.

• Penalty Clause: a clause that must be a contractual remedy that avoids a breach. If a condition of the contract is not met it can be used to recover damages. These damages must be a reasonable estimate of the incurred loss, or else the court will not uphold the term.

• Substantial compliance: when a contract has been fulfilled for the most part, except for some minor provisions of a contract, the court will award partial payment for work and services done. [Fairbanks Soap Co. Ltd. v. Sheppard]

• Fundamental Breach: when a contract contains an exemption clause (e.g., a maximum liability) and it has been fundamentally breached, then the limitation clauses no longer apply. [Harbutt’s Plasticine Ltd. v. Wayne Tank and Pump Co. Ltd.] [Photo Production Ltd. v. Securicor Transport Ltd.] [Murray v. Sperry Rand Corporation et. al.] [Beaufort Realties (1964) Inc. and Belcourt Construction (Ottawa) Limited and Chomedey Aluminum Co. Ltd.]

 

• Mailbox Doctrine: When making an offer the medium of communication is usually set by the communication used for the offer. For example, if an offer is mailed, by Mr. A to Mrs. B. The offer is made on the date that A put the letter in the mail. If B accepted the offer, and returned it by mail, then the offer was accepted as soon as it was put in the mail. In other words the contract came into existence when B put the response in the mail. In most other cases the acceptance is only valid when received.

• When an offer has been received, terms can be added or removed by the receiving party. As soon as the terms of the original offer have been modified the offer now becomes a counter offer. This is effectively a new offer, and must be approved by the original party.

• VOID: means that a contract never existed

• VOIDABLE: the contract has an option of being voided

• In a retail store a price tag is an “invitation to treat”, but it is not an offer.

• caveat emptor: buyer beware

• undue influence: when a dominance leading to coercion exists such as an emotional bond between two family members that is exerted to enter a contract.

• duress: unfair pressure or intimidation exerted to cause somebody to enter into an agreement can make the contract voidable [Mutual Finance Co. Ltd. v. John Wetton & Sons Ltd.]

• misrepresentation: this can be either innocent or fraudulent.

• unconscionable transaction:

• Unilateral Mistake: when an honest mistake is made and it is fundamental. If the recipient of the offer knows that there has been a mistake. The court could be persuaded to fix such mistakes. For example, if Mrs. A is buying a new car for $20,000 plus $500 shipping, but she notices that the contract is for $500, and signs eagerly knowing there was a mistake. Later the autodealer realizes a mistake was made and asks the court to correct the unilateral mistake. Some examples of successful and unsuccessful cases are, [Imperial Glass Ltd. v. Consolidated Supplies Ltd.] [ Belle River Community Arena Inc. v. W.J.C. Kaufmann Co. et. al.] [Imperial Glass Ltd. v. Consolidates Supplies Ltd.] [Ron Engineering et. al. v. The Queen in right of Ontario et. al.] [Calgary v. Northern Construction Company Division of Morrison-Knudsen Company Inc. et. al.] The general principles are,

the source of the error was clerical

the errors were not obvious

the error was reported promptly

the error was honest and unintentional with good motives

the “contract” was an irrevocable offer not yet accepted

the intent was only to correct the offer, not withdraw it.

• Discharge by Frustration: problems arise that could not have been anticipated before the contract was signed. These can allow the contract to be voided. For example a contract to provide phone service to a new facility could be discharged if war caused the city to be destroyed. [Metropolitan Water Board v. Dick Kerr and Company Limited] [Davis Construction Ltd. v. Fareham Urban District Council] [Swanson Construction Company Ltd. v. Government of Manitoba; Dominion Structural Steel Ltd., Third Party]

4.2.1.1 - Engineering Contracts

• Engineers are often employed as agents, empowered to specific duties.

• Engineers that fail to specify payments in contracts will be awarded quantum meruit in court.

• When estimating costs in contracts the court may hold an engineer to a poor estimate. [Kidd v. Mississauga Hydro-Electric Commission et. al.]

• There are a number of forms available that are a suitable basis for engineering contracts. These can be found in many engineering associations.

• liability is normally limited in engineering contracts, this should be less than the liability insurance.

• Engineers are expected to understand common law principles, as well as applicable laws for the industry of practice.

• One example is the Hazardous Products Act.

• Engineers are also expected to follow codes, standards and other applicable guides.

4.2.1.2 - Tort Liability and Contract Liability: Concurrently

• We can consider the benefits of being sued for a contract, consider the case of a damage arising from a contract that is covered by a limitation period.

• Normally a contractual obligation negates a tort [Schewebel v. Telekes] but it is possible for an engineer to be held liable for damages in both contract and tort law [Halvarson Inc. v. Robert McLellan & Co. et. al.] [Dominion Chain Co. Ltd. v. Eastern Construction Co. Ltd. et. al.] [City of Kamloops vs. Nielsen et. al.] Other cases go against this trend. [Sealand of the Pacific Ltd. v. R.C. McHaffie Ltd. et. al.]

• A tort can generally be brought when it is outside of the duties described in the contract. [J. Nunes Diamonds Ltd. v. Electric Protection Co.]

4.2.1.3 - Construction Contracts

• It is typical for an engineer and a contractor to have separate contracts with the owner. These duties expected of an engineer may be,

preparation of payment certificates

certificates of work completion

reschedule when delays occur

advising the owner when the contractors performance affects the contract terms

sets values for changes in the contract (i.e., the extras)

act in cases of emergency

inspecting soil conditions

inspecting work (and rejecting it if inadequate)

• When hired as an agent/representative, an engineer must remain impartial and independent (there is a small conflict here) from the owner. [Brennan Paving Co. Ltd. v. Oshawa] [Kamlee Construction Ltd. v. Town of Oakville] [Croft Construction Co. v. Terminal Construction Company] [Sutcliffe v. Thackerah et. al.]. If this is not done, actions may not hold up in court. [Grant Smith & Co. v. The King]

• Engineers (unless specifically excluded) are expected to inspect all major portions of construction. [Dabrous v. Zuliani et. al.]

• An engineer should not direct (supervise) work methods of contractors unless specifically contracted to do so, or obvious problems exist. [Demers et. al. v. Dufresne Engineering et. al.]

• An engineer working on a construction project should try to adhere to the contract, and keep a detailed journal of events, meetings, decisions, etc. These can be used later in court.

• Detailed drawings and specifications are needed to minimize misunderstanding. Improperly prepared drawings and specifications could lead to liability. [Trident Construction Ltd. v. W.L. Wardrop and Accoc. et. al.]

• The tendering process often involves “irrevocable offers” that are submitted. When one of these offers is accepted a contract typically exists between the successful bidder and the owner. Bid bonds are another way to ensure that a binding contract exists for the tendered bid. Note: this process should be directed by a lawyer.

• Typical categories of construction contracts are,

Stipulated-Price/Lump-Sum Contract: the basic bid amount will be paid on completion of the basic work. Additional work may be done, but this is at additional cost. This type of contract can be risky for the contractor (financial) and the owner (quality) if problems arise.

Unit-Price Contract: in cases where the nature of work may change after starting the bids can be per unit of work (e.g., per cubic meter of soil).

Cost Plus Percentage: When it is not possible to estimate the cost of construction before (e.g., rushing to start a high-rise) the contractor can be paid the expenditures plus some percentage. This contract does not encourage cost reduction.

Cost Plus Lump-Sum Fee: The same as Cost Plus Percentage except there is no incentive to spend more.

Cost Plus Lump-Sum Fee Plus Bonus: Like the Cost Plus Lump-Sum Fee except that a bonus is offered for savings below an estimated price. This encourages reduced spending.

Guaranteed Maximum Price Plus Bonus: This is like a Cost Plus Lump-Sum Fee Plus Bonus Contract, except a guaranteed maximum cost is used instead of an estimated price.

Design Build: a contractor will likely work on a cost plus bonus, and will supply the engineering services. This allows projects to proceed quickly, as there are no delays waiting for plans and specifications. In this contract the engineer typically has a contract with the contractor, not the owner. Project managers are often hired by the owner to manage the projects on their behalf for a fee.

• It should be kept in mind that the contract between the owner and contractor should be consistent with the contracts between the contractor and subcontractor.

• Delay and interference can cause suits and should be handled carefully.

• Bonds are commonly used to ensure/secure bids, performance and labor and material payments. Here a third party bond agency indemnifies payment. If some contractual obligation is missed, the bond agency will pay, and pursue the party it has indemnified.

• A letter of credit is often used in place of a bond. It is effectively a “blank cheque” for the holder.

4.2.1.4 - Liens

• A construction lien directs an owner to hold back a percentage of the total cost for a period after completion (in Ontario it is 10% for 45 days). In this time anybody that is owed money for work, or materials on a property can place a lien on the property and prevent its sale. The holdback is used to pay them (even no there is no privity of contract between them).

• If an owner does not follow the lien act, for example not keeping a holdback, the owner may then become liable for the subcontractors losses.

• Before any holdback is released, or property is sold the local registry office must be checked for registered liens.

• lien rights cannot be waived in contracts.

• Trust funds can also be set up for fixed sum payments. These cannot be used until the subject of the trust has been paid.

• Engineers can also make lien claims [Application of Erickson/Massey] [Englewood Plumbing & Gas Fitting Ltd. v. Northgate Development Ltd. et. al.] [Armbro Materials and Construction Ltd. v. 230056 Investments Limited et. al.]

4.2.2 EMPLOYMENT

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• Basically defined by the Employment Standards Act,

Wage means compensation is calculated per hour

Salary means compensation is calculated per week/month

• There are two basic types of employee status,

independent contractor: can be terminated anytime as in contract

employee: requires notice, or compensation in lieu

• If employment ends there are four possible categories,

quits: no notice/compensation required

lawful dismissal: a notice is required, or compensation to cover the notice period

wrongful dismissal: an employee is terminated for unjust reasons or without adequate notice. compensation or reinstatement may be sought in civil law.

instructive dismissal: an employee is told to quit, or else be dismissed. compensation or reinstatement may be sought in civil law.

• When dismissing an employee a minimum of two weeks notice is required. Generally, if the employee has worked for more than 4 months, then 1 months notice are required for each year worked.

• Severance pay: Some employers will ask an employee to leave immediately, and not give notice. They are obliged to pay them the wages that they would have normally earned while working on notice.

• Reasons for wrongful dismissal include,

drunk every day

insubordination

theft

tardiness

incompetence

sexual harassment

willful destruction

conflict of interest

espionage

loss of assignment

4.3 CRIMINAL LAW

• In criminal cases there are claims of violations of the criminal code that the Accused is answering. The Crown is responsible for seeking guilty verdicts.

• The crown must prove beyond a reasonable doubt that the accused is completely guilty.

• criminal courts have three options for decisions,

innocent

guilty

hung

• if found guilty, sentences are set. these are set with the following principles,

rehabilitation of the individual

protection of the public

specific and general deterrents

• victims are allowed to influence sentencing with victim impact statements.

4.3.1 A Duty of Honesty

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• dishonesty in business dealings can lead to criminal convictions for,

fraud

bribes (giving or taking)

undisclosed conflict of interest

gifts to government employees that you have business dealings with

• Other areas of interest are,

the income tax act

combines investigations act

etc.

4.3.2 The Combines Investigations Act

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• Generally this act tries to dissuade,

monopolies

misleading advertising: knowingly making any statements about a product that are not true or based on fact.

bid rigging: different bidders must not work together to artificially raise the price, or cause bidders to drop out.

price fixing

conspiracy to limit competition: hoard resources, reduce production, or work together to reduce competition.

etc.

• trade associations are permitted but must avoid any actions that would reduce competition in,

prices

quality

quantity

markets/customers

distribution

 

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