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2014-01-05 Nov 2010 LAW AND ETHICS IN ENGINEERING PRACTICE (CEN 800) FACULTY OF ENGINEERING AND APPLIED SCIENCE RYERSON UNIVERSITY A2G: 1196343v7 HOW IS THE LAW APPLICABLE TO ME? Gas Fired Power Project – Project Management – Civil – Electrical – Mechanical – Computer – Aerospace – Industrial Complex Contractual Arrangements 1 2014-01-05 COURSE OUTLINE Canadian Legal System Business Organizations Torts Contracts Security for Payment Bonds and Performance Guarantee Lien Legislation Consulting/Construction Agreements Insurance Intellectual Property Alternate Dispute Resolutions 2 2014-01-05 CANADIAN LEGAL SYSTEM Based on Englis h Common Law – Equity – Common Law Theory of Precedent – Basis of Predictability – Apply Legal Principles Established in Previous Court Decisions – Factual Distinctions and Equitable Relief Provide for Flexibility CATEGORIES OF LAW Common Law – Judge Made Legislative – Government-Made – codification of existing common law or enactment of new law Federal Provincial Municipal – Statutes are Supplemented by Regulations – Theory of Precedent 3 2014-01-05 JURISDICTION BETWEEN FEDERAL AND PROVINCIAL GOVERNMENTS Parliamentary Supremacy – British North America Act 1867 S#91 – Federal Jurisdiction S#92 – Provincial Jurisdiction – Ultra Vires JURISDICTION BETWEEN FEDERAL AND PROVINCIAL GOVERNMENTS (cont’d) Constitution Act, 1982 and Charter of Rights and Freedoms – Guarantees Fundamental Freedoms – Constitution is Supreme Law – Reduced Effect of Parliamentary Supremacy Reasonable Limits S#33 Override 4 2014-01-05 COURT SYSTEM B.C. ALBERTA HOUSE OF LORDS Criminal - 1933 Other - 1949 SUPREME COURT OF CANADA LEAVE REQUIRED FEDERAL COURT OF APPEAL ONTARIO COURT FEDERAL OF APPEAL COURT DIVISIONAL -PATENTS -TRADEMARKS COURT -COPYRIGHT COURT OF ONTARIO SUPERIOR COURT OF JUSTICE ONTARIO COURT OF JUSTICE (6 People on Jury) Provincial Criminal Family (12 People on Jury) Offences SMALL CLAIMS COURT -maximum of $25,000 COURT PARTICIPANTS Original Trial – Plaintiff – Defendant Appeals – Appellant – Respondent 5 2014-01-05 CIVIL COURT CASE PROCESS Issue Statement of Claim (Plaintiff) Respond with Statement of Defence (Defendant) Discoveries – Documents – Oral Trial BUSINESS ORGANIZATIONS Corporation – Share Capital – Non-Share Capital Partnership – General – Limited Liability Sole Proprietorship Unlimited Liability Company 6 2014-01-05 SALOMON V SALOMON & CO. LTD. 1897 HOUSE OF LORDS MR. SALOMON MRS. SALOMON SON SALOMON LOAN SECURED . SALOMON & CO. LTD UNSECURED MATERIAL CREDITORS MATERIAL SUPPLIER SUPPLIER Issue: Did Mr. Salomon rank before the Unsecured Creditors by virtue of being a secured Debenture Holder? House of Lords recognized Salomon’s Corporation as a separate and distinct entity from himself – there was no evidence of intent by Salomon to deceive or defraud. FERN BRAND WAXES LTD. V PEARL 1972 ONTARIO COURT OF APPEAL PEARL (DIRECTOR, OFFICER & ACCOUNTANT OF FERN) CO#1 CO#2 FERN BRAND WAXES LTD. Pearl transferred unauthorized funds to 2 companies controlled by him by loaning them monies from Fern Brand. Some of the funds were used to purchase shares in Fern Brand Waxes Ltd. Court stated that the Defendant should not be allowed to profit from his breach of trust. 7 2014-01-05 LIMITED PARTNERSHIP PARTNER #1 PARTNER #2 SHAREHOLDERS GENERAL PARTNER CORPORATION 49.5% PARTNERS1% 49.5% LIMITED PARTNERSHIP NON DISTINCT TYPES OF BUSINESS ORGANIZATIONS Joint Venture Consortium 8 2014-01-05 CONSIDERATIONS IN SELECTING A BUSINESS ORGANIZATION Duration Simplicity/Complexity Taxes – Canadian Controlled Private Corporation (CCPC) Liability Separate Identity CONSIDERATIONS IN SELECTING A BUSINESS ORGANIZATION (cont’d) Personal Guarantees Property Ownership Registrations 9 2014-01-05 CORPORATIONS Articles of Incorporation/Letters Patent Jurisdiction of Incorporation Objects By-laws Resolutions Public vs. Private CORPORATIONS (cont’d) Participants – Shareholders – Directors – Officers – Employees 10 2014-01-05 DIRECTOR’S AND OFFICER’S DUTIES Manage the Corporation – Act honestly and in good faith – In best interests of corporation – Exercise the care, diligence and skill that a reasonably prudent person would exercise in a comparable circumstance GLOBAL CONSIDERATIONS Form of Business Organization Political Risks Foreign Legal Systems Licensing Requirements Financial Risks Contract Forms 11 2014-01-05 SECURITY OF PAYMENT AND PERFORMANCE Bonds Letters of Credit Guarantees Subcontractor Default Insurance Bonds guarantee by a surety that contractor will perform obligations not insurance bonding company will seek compensation from contractor Contractor’s shareholders usually provide guarantees 12 2014-01-05 Types of Bonds Bid Bond – forfeited if Contractor fails to enter contract Performance Bond – guarantees to owner that contract will be performed Labour and Material Payment Bond – guarantees payment to subcontractors and suppliers BONDING RELATIONSHIP OWNER BOND EQUIPMENT INDEMNITY SURETY SUPPLIER AGREEMENT (BONDING. CO ) SUB- SUPPLIER 13 2014-01-05 Letters of Credit More common outside of Canada May be close to a blank cheque Usually affect contractor’s credit capacity Often referred to as “Performance Guarantees” in international work LETTER OF CREDIT OWNER LETTER OF CREDIT EQUIPMENT SUPPLIER AGREEMENT BANK SUB- SUPPLIER 14 2014-01-05 GUARANTEE OWNER GUARANTEE PARENT EQUIPMENT COMPANY SUPPLIER SUB- SUPPLIER CONSTRUCTION LIEN ACT Lien Holdback -10% Trust Provisions Priority of Mortgages 15 2014-01-05 $ Time Substantial Performance Substantial Performance Two Part Test the work must be ready for the purpose intended (the “Qualitative Test”) the cost of completing incomplete items and rectifying known defects must be less than an amount calculated as: 3% of the first $500,000 of Contract Price, plus 2% of the next $500,000 of Contract Price, plus 1% of the remainder of the Contract Price (the “Quantitative Test”) 16 2014-01-05 EXAMPLE Contract Price = $3 , 500 ,000 Quantitative Calculation: 3% of $500,000 = $15,000 2% of $500,000 = $10,000 1% of 2,500,000 = $25,000 $50,000 $ 45 days Sub Perf. Publication of the TIME Certificate of Sub Perf. 17 2014-01-05 $ TIME Sub Perf. Completion COMPLETION The completion of incomplete items and rectification of known defects is less than the lesser of: 1) $1,000 2) 1% of the Contract Price 18 2014-01-05 $ 45 days Sub Perf TIME Completion Owner’s Questions How much input does the owner wish to have in the design of the project? Is the owner interested in a unique design or one that will be relatively generic? Is the completion date of the project critical to the owner? Is overall cost critical to the owner? 19 2014-01-05 Owner’s Questions (cont’d) How experienced is the owner? How risk adverse is the owner? Does the owner have its own in-house administrative staff? Are there performance guarantees that are important to the owner? How is the project being financed? Is there any equipment that has a long lead time for delivery? Owner’s Questions (cont’d) Are there particular designers, equipment suppliers or trade contractors that the owner wishes to utilize? How much construction experience does the owner’s consultant have? Will the owner’s expectations require unique construction experience? 20 2014-01-05 Project Structures Traditional project structure Construction management project structure Contractor/construction manager project structure Multi-designers project structure Engineering, procurement and construction management (“EPCM”) project structure Design/build project structure TRADITIONAL Owner Consultant Contractor Sub Consult Sub Consultant Sub #1 Sub #2 21 2014-01-05 Advantages of the Traditional Project Structure “Single point” responsibility of the consultant and contractor The owner can keep its involvement fairly limited Easier to acquire a fixed price from the contractor Cooperative relationship between the owner and the consultant Advantages of the Traditional Project Structure (cont’d) The number of contractor initiated change orders which affect the price should be relatively limited The consultant and the contractor bear any risks of non-performance of the subconsultants and the subcontractors, respectively 22 2014-01-05 Disadvantages of the Traditional Project Structure Not conducive to fast-tracking Until prices are received from contractors pursuant to the tendering procedure, the owner is not fully aware of its final costs Not conducive to having input from the contractor during the design If the project fails to perform in accordance with the owner’s expectations, it is necessary to assess responsibility between the consultant and the contractor CONSTRUCTION MANAGEMENT Consult ant Owner Construction Manager Trade #1 Civil Trade #2 Mech Trade #3 Elec 23 2014-01-05 Advantages of the Construction Management Project Structure Very conducive to fast-tracking Because the construction manager is not taking on any direct liability for the trade contractors, the construction manager’s fee does not need to incorporate any risk with respect to the particular trade contractors The construction manager can be retained early in the design development process and provide very advantageous construction advice during the design. Disadvantages of the Construction Management Project Structure Because the construction manager does not have privity of contract with the trade contractors, not only does the owner not have the advantage of looking to the contractor as the party with “single point responsibility”, but the construction manager does not have the same level of control over such trade contractors 24 2014-01-05 Disadvantages of the Construction Management Project Structure (cont’d) The ultimate cost to be paid by the owner will not be determined until such time as the last component of work is tendered for construction Pursuant to the Occupational Health and Safety Act, once the owner enters into more than one contract for the construction of a project, the owner becomes the “constructor” CONTRACTOR/CONSTRUCTION MANAGEMENT Owner Consultant Contractor/Construction Manager Sub #1 Sub #2 Sub #3 25 2014-01-05 Advantages and Disadvantage of the Contractor/Construction Management Project Structure Advantages – The contractor/construction manager becomes involved in the project very early in the design process – Conducive to fast-tracking Disadvantage – It may not be possible to seek a fixed price at the time of retaining the contractor/construction manager Diagram #4 Multi-Designer Project Structure Owner Architect General Contractor Structural Engineer Mechanical Engineer Electrical Engineer 26 2014-01-05 Advantage and Disadvantage of the Multi-Designer Project Structure Advantage – Since no one particular designer takes on the responsibility or liability for all other designers, the cumulative fees payable to all designers should be lower than those payable to a single designer Disadvantage – Requires the owner to assume overall coordination responsibilities Diagram #5 Engineering, Procurement and Construction Manager Structure Owner Engineer/ Construction Manager Prime Prime Supplier Contractor Contractor 27 2014-01-05 Advantage and Disadvantage of the Engineering, Procurement and Construction Management Project Structure Advantage – One entity takes an active role in both the design and construction of the project Disadvantage – As is the case in the construction management project structure, the EPCM party is usually only an agent of the owner and as such does not take on any direct liability for the trade contractors or equipment and material suppliers Diagram #7 Design/Build Project Structure Owner’s Owner Consultant Design/ Builder Consultant 28 2014-01-05 Advantages of the Design/Build Project Structure Where time of delivery, performance or output of the project is critical to the owner, single point of responsibility makes one person responsible for such matters Conducive to “fast-tracking” Advantages of the Design/Build Project Structure The designer and the contractor work together as a team The single point of responsibility is important to lenders in project financing projects 29 2014-01-05 Disadvantages of the Design/Build Project Structure It is very difficult to adequately and fully define the scope of the design/builder’s obligations prior to the design being completed Price for the design and construction of a project cannot realistically be determined with precision until the design is finalized The designer will no longer have the same interest in satisfying the owner’s expectations if those expectations will result in additional construction costs to the design/builder. Forms of Contract Stipulated Price Unit Price Cost Plus – Cost Plus Percentage – Cost Plus Fixed Fee – Cost Plus Lump Sum Bonus Guaranteed Maximum Price plus Share of Savings 30 2014-01-05 Unit Price often found in excavation and municipal servicing contracts use where quantity of work is not well defined defined method of measurement is essential Cost - Plus more appropriate where design is not complete other situations where significant uncertainties exist bonus arrangements may provide incentive to reduce costs 31 2014-01-05 Guaranteed Maximum Price Hybrid between Stipulated Price and Cost Plus plus Share of Savings adds incentive to reduce costs design must be reasonably complete Insurance 1) Property Liability Errors & Omissions Professional Liability Cap of Limit Deductibles Exclusions (i.e., Liability excludes faulty workmanship and faulty design) 32 2014-01-05 Intellectual Property Patents of Invention Trademark Passing Off Copyright Industrial Designs Trade Secrets Patents of Invention – Inventions must be New and useful art, process, machine, manufacture or composition of matter Novel Reduced to something physical/tangible – Term: 20 years from date of application – Patent rights can be assigned to others or used under a license agreement – Exclusive right to use or license the invention – Can be assigned 33 2014-01-05 Patents of Invention (cont’d) – Is it the employer’s invention or the employee’s? – Remedies Damages sustained by patent holder Injunction Recovery of profits obtained by infringer Trade-mark – Used to distinguish wares or services manufactured, sold, leased, hired, or performed by someone from those of others – Owner has exclusive right to use trade-mark – Mark must be distinctive – Registered trade-marks are effective for a period of 15 years: can be renewed for unlimited 15-year periods – Can be licensed – Remedies Restraint on future use Liable for damages 34 2014-01-05 Passing Off – A type of legal action against someone who uses your trade-mark or a similar trade-mark to yours – Unregistered trade-mark – You must show that customers purchase from someone else because they mistakenly believe that they are dealing with you – Remedies Restraint on future use Liable for damages Copyright – Subsists in original literary, dramatic, musical, artistic work, communication signals, sound recordings, performances – Right to produce or reproduce something; perform and deliver it in public; publish – Term: life of the author + 50 years – Includes engineering plans – Assignment must be in writing – “moral rights”: right of identification as author, integrity of the work (i.e., Eaton Centre art) 35 2014-01-05 Industrial Designs – Designs (shape, pattern, ornament) that are ornamental or aesthetic in nature – Not mechanical construction or method of manufacture – Design must be novel and original – Term: exclusive right to use design for 10 years from registration – Assignment must be in writing Trade Secrets – Formula , pattern, device, compilation of info used in one’s business, which gives advantage over competitors, i.e., formula for a chemical – Some rely on this as opposed to patents – Legal action: Show info was confidential Show secret information was communicated to the person at fault in circumstances implying a duty of confidence Degree of secrecy – Duty of confidence: employer and employee 36 2014-01-05 Dispute Resolution 1. Partnering – Dispute Avoidance Negotiation Dispute Review Boards Mediation Arbitration a) Mandatory b) Binding Private Court Litigation Mediation Independent third party attempts to bring parties together Very useful if all parties want to settle 37 2014-01-05 Characteristics of Arbitration Choose the tribunal - may be expert if desired May be quicker and cheaper Less public Usually binding Parties must agree to participate and be bound by decision Arbitration Agreements usually a clause in a larger contract may be a stand alone agreement agreement should define: – arbitrator(s) - number, identity, qualifications, how chosen – rules and procedure – timing 38 2014-01-05 Arbitration Act Philosophy to encourage arbitration Courts must almost always enforce arbitration agreements Rights of appeal are limited prevents arbitration being simply a delaying tactic ADR on International Projects Arbitration Clauses usual in Ontario the International Commercial Arbitration Act applies provides even less flexibility to courts to intervene Contracts encourage non-binding ADR methods 39
