By Mathieu Turcotte, Miller Thomson, LLP
Contacts, acquaintances, and a good social network are, in all commercial sectors, the best ticket to a promising career and general good business. But in the race for contracts that prevails in the c...
Contacts, acquaintances, and a good social network are, in all commercial sectors, the best ticket to a promising career and general good business. But in the race for contracts that prevails in the construction world, certain practices are forbidden to professionals.
That is what the Quebec Court of Appeal concluded in a recent judgement bearing the name IMS Experts-conseils Inc. v. Consultants VFP Inc. At issue was an agreement between two engineering firms of the “I’ll-scratch-your-back-if- you-scratch-mine” type, which sought to establish a trade of professional services in return for future contracts.
No return on an investment
In April of 1998, IMS was awarded a contract to act as consulting engineers in an important foundry project to produce magnesium in Asbestos. Under the contract’s framework, IMS arrived at an agreement with VFP by virtue of which the latter would supply IMS with the services of about 10 of its engineers for approximately one year at their usual hourly rate.
In exchange for lending IMS the services of its engineers, VFP undertook to award IMS, during the following three years, various subcontracts for an amount equivalent to the fees that VFP had received. In case of default, there was a penal clause in the agreement by which VFP undertook to pay IMS an amount equal to the profits VFP reaped by lending out the services of its engineers.
Unfortunately for IMS, the agreement did not prove to be reciprocal because, after having paid $575,000 plus taxes for the services of VFP’s engineers, it never received from the latter so much as an iota of a contract. IMS therefore instituted proceedings in order to recover what, in its estimation, was the profit that VFP made from what it billed for the services of its engineers i. e. $300,000.
Duty to act with integrity
The Quebec Superior Court, bewildered by the recourse that IMS had taken, questioned the validity of the agreement between the two firms. As a matter of fact, recalled the presiding judge, a contract whose cause or object is proscribed by law or against public order is null and cannot, therefore, be sanctioned by the courts. In common-law terms, the courts cannot enforce an illegal agreement, which is an agreement whose purpose is illegal or contrary to public policy.
It is useful to look at whether the agreement between the parties is compatible with the provisions of the Quebec Code of Ethics of Engineers, which is cited below at length:
• 3.02.09. An engineer shall not pay or undertake to pay, directly or indirectly, any benefit, rebate or commission in order to obtain a contract or upon the carrying out of engineering work.
• 3.05.02. An engineer must ignore any intervention by a third party which could influence the performance of his professional duties to the detriment of his client.
Without restricting the generality of the foregoing, an engineer shall not accept, directly or indirectly, any benefit or rebate in money or otherwise from a supplier of goods or services relative to engineering work which he performs for the account of a client.
• 3.05.03. An engineer must safeguard his professional independence at all times and avoid any situation which would put him in conflict of interest.
The judge at first instance, in light of these sections, recalled that the purpose of the Quebec Code of Ethics of Engineers is to protect the public interest by ensuring that engineers not be placed in a conflict of interest and that they act for the sole benefit of their clients.
The judge concluded consequently that the agreement between IMS and VFP is (translation) “incompatible with the imperatives of independence and integrity that characterize the standard of conduct of professionals,” and thus rejected IMS’s legal action.
An agreement against public order
The Quebec Court of Appeal unequivocally confirmed the conclusions of the judge at first instance and evoked the dangers, especially in an area such as engineering, of exposing oneself to conflicts of interest as blatant as those that would have resulted from the agreement between IMS and VFP. The judge wrote: “The possibility or temptation of the engineer making a choice which might not be in the best interest of the client or in accordance with what good engineering prac- tice requires, but rather is motivated by an exposure to substantial financial loss, must be avoided. It is a matter of public order.”
Though these facts arose in Quebec, a province whose legal system is, in many respects, epistemologically distinct from that in force in the rest of Canada, the reasoning that the Quebec courts employed is quite compatible with the common law of the Anglo-Canadian legal realm.
Like Quebec courts, courts in the common-law jurisdictions will strike down as unenforceable agreements whose purpose is illegal or against public policy. Engineers in the rest of Canada have their own ethical guidelines that echo Quebec’s Code of Ethics of Engineers. For instance, the Association of Professional Engineers and Geoscientists of British Columbia (APEGBC) and the Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA) have their respective regulatory codes of ethics. Similarly, in Ontario, there is the Code of Ethics of Professional Engineers Ontario, which is section 77 of Ontario Regulation 941.
To conclude, if the judgment of Quebec’s Court of Appeal seems especially severe for IMS, remember that this particular judgment only puts a civil end to the matter concerning the enforceability of the agreement.
Given the observations of the courts, there is also a possibility that the facts of this case could end up before an entirely different tribunal, i. e. a disciplinary one regarding the ethical conduct of professionals. CCE
Mathieu Turcotte is a partner with the Montreal office of Miller Thomson, LLP. Antonio Iacovelli helped with the article.