Legal: Duty of independence in construction administration

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Codes of ethics in provinces across Canada generally require engineers to demonstrate objectivity in their professional work. This requirement may be framed differently in terms of ‘fairness,’ ‘professional integrity,’ etc., but the idea behind each such provision is, essentially, an engineer’s professional decisions must be based on relevant facts and not influenced by extraneous factors.

Engineers are keenly aware of this duty when performing technical tasks, such as design calculations or engineering reviews, but it also applies when evaluating contract provisions where no engineering judgment is involved. Such situations can arise when engineers are required to provide an opinion on contract interpretation.

The duty is not contained expressly in any provincial code of ethics, but instead arises out of Canada’s judge-written common law. While the genesis of this legal principle can be traced back to the early 1900s, the oft-cited authority is a Supreme Court of Canada decision from 1960 in Kamlee Construction Ltd. v. Oakville (Town).

The majority opinion in the case stated the engineer “is required to act judicially” when interpreting contract provisions for construction projects and their judgment “must not be affected by the fact that [they are] being paid by the owner.” Since that time, the legal principle has often been applied in cases where an engineer was acting as contract administrator, but was alleged not to have acted independently.

The duty arises out of common law.

Recently, the issue came up in Potash Corporation of Saskatchewan Inc. v. HB Construction Company Ltd., 2022 NBCA 39, in the New Brunswick Court of Appeal. A dispute arose in relation to construction of a large industrial facility, for which the engineer acted as contract administrator. The project was beset by delays, resulting in the contractor requesting a time extension under terms of the construction contract. The engineer was required to interpret the contract and render an opinion on whether or not the request was justified. The request was denied and, ultimately, the contract was terminated by the owner, on the grounds the contractor had failed to meet the construction schedule.

The contractor brought a suit against both the owner and the engineer, alleging the engineer had acted wrongly in denying the time extension request and had failed to conduct an independent evaluation of the contractor’s alleged non-compliance with the contract prior to the notice of default.

The trial court held in the contractor’s favour with respect to both allegations. It first reviewed the pertinent contract terms and concluded the contractor was clearly entitled to a time extension and the engineer had acted “arbitrarily and unfairly” in denying it. Next, the court found the notice of default had been drafted by an owner’s representative and the engineer had undertaken no efforts to evaluate independently the reasons for default stated in the notice. Thus, the engineer had failed to meet the legal duty of independent decision-making. The New Brunswick Court of Appeal upheld the trial court’s findings, agreeing the engineer had breached the duty.

This case is a stark reminder to engineers to be cognizant of their duty when interpreting provisions as contract administrators. The engineer in question avoided having to pay damages to the contractor, due to the particular circumstances of the case, but engineers should not take comfort from this; as a general matter, an engineer in breach of duty could be held liable for paying damages to the contractor and/or the owner.

1960: A Supreme Court of Canada decision establishes the legal principle of an engineer’s duty of independence in construction contract matters.

There are certain measures engineers can consider to reduce the risk of legal liability. When required as contract administrators to make determinations on contractual matters, they should ensure any decision is free of influence by the client or other consultants.

In practice, this can be achieved by avoiding any substantive discussion of the deliberated issue in routine project meetings or in communications with the owner. And the engineer should certainly not collaborate with the owner when making the determination.

Rahul Ranade is a Vancouver-based construction lawyer with a practice focused on engineering and procurement law. For more information, contact him at rahul@ranadelaw.ca.

This article originally appeared in the July/August 2023 issue of Canadian Consulting Engineer.