ASSOCIATION OF PROFESSIONAL ENGINEERS OF ONTARIO

PROFESSIONAL PRACTICE EXAMINATION April 16, 2011

PART A Professional Practice and Ethics

You will be given a total of 90 minutes to complete this examination.

Use the correct colour-coded Answer Book for each part, place in the correct envelope and seal after
completed.
White Answer Book for Part A white question paper.
Coloured Answer Book for Part B coloured question paper.
This is a CLOSED BOOK examination. No aids are permitted other than the excerpts from the 1990
Ontario Regulation 941 covering sections 72 (Professional Misconduct) and 77 (Code of Ethics) supplied
at the examination. Dictionaries are not permitted.
The marking of questions will be based not only on academic content, but also on legibility and the ability
to express yourself clearly and correctly in the English language. If you have any doubt about the meaning
of a question, please state clearly how you have interpreted the question.
All four questions constitute a complete paper for Part A. Each of the four questions is worth 25 marks.
WHERE A QUESTION ASKS IF A CERTAIN ACTION BY AN ENGINEER WAS ETHICAL OR
NOT, A SIMPLE YES OR NO ANSWER IS NOT SUFFICIENT. YOU ARE EXPECTED TO
COMMENT ON AND DISCUSS THE ACTION OF THE DIFFERENT INDIVIDUALS AND/OR
ORGANIZATIONS INVOLVED IN EACH SITUATION.
You should identify where applicable the appropriate clauses in Regulation 941. SIMPLE REFERENCE
TO THE APPROPRIATE CLAUSES WITHOUT A DISCUSSION OF HOW THE CLAUSE
APPLIES IN THE SITUATION DESCRIBED IS NOT SUFFICIENT.

Part A - April 16, 2011 Exam

Question 1
(5)

(a)

PEO has enforcement as one of its regulating functions. What does the
term enforcement mean?

(5)

(b)

PEO recently removed one of the requirements needed to obtain a

Professional Engineers licence. Which one was removed?

(5)

(c)

Where a licence, certificate of authorization, temporary licence, provisional

licence or limited licence is revoked or cancelled what should the holder do
with the certificate and seal?

(5)

(d)

In order to be designated as a Consulting Engineer one must meet a

number of requirements. Briefly list three of them. What additional
privileges or rights are granted by this designation?

(5)

(e)

Is there any difference between being a member of PEO and holding a

licence to practice professional engineering in Ontario? Explain.

Question 2

TranTech, a manufacturing firm, has contracted to develop and produce a fullyautomated mass-transportation system to serve residents of a large city. During the
installation and testing phase, a major part of the control system did not appear to
function satisfactorily. Kappa, P.Eng. one of TranTechs mechanical engineers is
concerned that that a failure could have catastrophic consequences for the residents of
the city. Kappa reported the apparent malfunction to the project manager, who is also a
P.Eng., and recommended that the firm engage a licensed software engineering
practitioner to look into the problem. However, the project manger advised Kappa that
there was no budget available and that it was important for TranTech to make delivery
in order to meet its contractual commitments to the client.
Kappa strenuously expressed his concerns to the project manger and learned
subsequently that shipment to the client had already been made.
(20)

(a) Does Kappa have any obligation to take further actions under the
circumstances? Discuss.

(5)

(b) Discuss the actions of the project manager.

Make reference to the Code of Ethics and Code of Professional Misconduct in your
answer.

Part A - April 16, 2011 Exam

Question 3

ChemEng, a large engineering firm, was hired to prepare the design for a chemical
production plant for MajorCo. In addition to preparing the plant design,
ChemEng's duties included providing inspection services during the construction
stage of the project. The project was completed successfully.
You are a P.Eng. and have been employed on a full-time basis by ChemEng for
several years. You work in the Process Division and are involved on several
process design projects. You were an important member of the design team that
prepared the design for MajorCo's plant. In addition to working for ChemEng, you
supplement your income by occasionally undertaking work on weekends and
during evenings for EngInc, another engineering company. A colleague of yours,
who is a P.Eng. at EngInc, assigns you such work and assumes responsibility for it.
A few years after the plant was completed, MajorCo decided to restructure its
operations and sell the plant. BuyerCo has agreed to buy the plant, but before it
does so, BuyerCo wants to satisfy itself (and its bank) that the plant was built to
proper standards and is in good physical condition. BuyerCo hires EngInc to
inspect the physical plant and to review relevant documents (including the original
plans and specifications, "as-built" drawings, and operations and maintenance
logs). EngInc is very busy on several projects and asks you to assist with the plant
inspection and document review.
(10)

(a) Discuss the appropriateness of your employment arrangements.

(10)

(b) Assuming that your employment arrangements have not changed since the plant
was designed and constructed, discuss how you respond to EngInc's request for
assistance?

(5)

(c) Would you need a Certificate of Authorization to provide services to

EngInc? Explain.

Part A - April 16, 2011 Exam

Question 4
Honcho, a senior licensed professional engineer, established a small firm, Newco
Engineering, to provide professional engineering services to the public. The firm
became busy very quickly and within a few months, hired A. Zeta, a bright, recent
university graduate with an engineering degree, to assist with the work. Honcho
strongly believed in mentoring and hoped that in several years, after obtaining the
necessary experience requirements and becoming a P.Eng., Zeta would assume
increasing managerial responsibility and possibly an ownership interest in the firm.
About a year after Zeta joined the firm, Newco Engineering was asked by one of its
clients to provide a formal report that included an engineering opinion. Zeta performed
the work on that matter and prepared a draft of the report. Before having a chance to
review Zetas work, Honcho received an urgent request from another client that
required Honcho to leave on a lengthy business trip. On the way out of the office,
Honcho stopped at Zeta 's desk and said, Sorry, but I'll be out of the country and tied
up completely for the next three weeks, so I won't be able to review that report. I know
that its due tomorrow, so go ahead and sign it under your own name and send it to the
client so we meet the deadline. Honcho was confident that that would be alright, since
Zeta had always produced outstanding work in the past. Zeta proceeded to complete
the report, signed it A. Zeta, Eng., Newco Engineering and sent it to the client.
(10)

(a) Discuss the conduct of both Honcho and Zeta. What, if anything, should they
be concerned about?

(10)

(b) Could Honcho and/or Zeta be subject to a disciplinary hearing by the Discipline
Committee of PEO? Discuss

(5)

(c) Is there anything about Honchos conduct relative to the Code of Ethics that is
commendable?
In your answer, please assume that A. Zetas report would have no impact on
public safety or welfare.

Study Guide - Part A

April 16, 2011 Exam Reprint
The objects of Part A are to test your knowledge of PEO functions (Question 1) and of the
Misconduct and Ethics Codes (Questions 2, 3 and 4) and to apply these codes by section and
sub-section numbers.
The Codes are contained in Regulation 941 sections 72. and 77. These 2 sections are supplied
at the exam, but they should be carefully studied before the exam. This will facilitate recognition
of comparable situations within the questions, and an appropriate response to each situation
using exact code numbers.
Answers should be given within about 20 minutes each. During study time, try practice writing,
review and re-writing, to develop a timing skill, while still giving a complete and concise answer.
The references here are for study purposes, and except for 72. and 77., are not expected in an
answer.
This study guide is extensive to illustrate the possible range of content in an answer.

1(a) Enforcement means to legally prosecute, persons or companies, who are not licensed to
offer professional engineering services in the public marketplace, but who lead members of the
general public to believe they are so licensed, or hold a Certificate of Authorization (C of A), PE
Act 12.(1) and 12.(2).
1(b) Requirement recently removed - be a citizen or permanent resident of Canada,
PE Act 14.(1)(a).
1(c) Licence et al, when revoked - items shall be delivered to the Registrar, PE Act 36.,
Reg. 941, 54.
1(d) Consulting Engineer, 3 Requirements: 1) a P.Eng. member of PEO; 2) Five (5) years of
experience beyond P.Eng.; and 3) Two (2) years of the foregoing in independent practice
meaning major project responsibility, Reg 941, sections 56. and 60. A privilege is to use the title
Consulting Engineer, Reg 941, section 59.
1(e) Licence differences the only members of PEO are P.Eng. licence holders. They have
met specific requirements to use the P.Eng., PE Act 14. and Reg 941 / 33. Temporary licence
holders may use the P.Eng. but they are not members, PE Act 40.(2). Provisional and limited
licence holders are not members, PE Act 18.(5). The only members of PEO are P.Engs, the
other licensees are not. This is the difference.

Study Guide - Part A

April 16, 2011 - Exam Reprint

2(a) Transportation system - Kappa P.Eng. does have an obligation to take further actions
beyond expressing concerns to the project manager P.Eng. If the system were installed with a
software problem, it could cause a major loss for the city, and injuries or deaths to the public
users of the system.
Kappa has wisely recommended engaging a software engineer for competence in services,
77.1.v., and has not offered to undertake work outside Kappas training and experience,
72.(2)(h).
Kappa clearly and strenuously expressed concerns to the project manager, and especially a
P.Eng. project manager, but has been overruled, 72.(2)(f). The potential dangers need more
attention.
The matter should be brought to a higher authority in TranTech, showing a true loyalty to the
employer, and to the client, 77.1.i. To avoid a potential problem may enhance regard for the
profession, 77.2.ii.
Although it would violate a responsibility to keep an employers information confidential, 77.3.,
also it would be whistle blowing, the paramount duty of a P.Eng. is to protect the public, 77.2.i.,
PE Act 2.(3).
If TranTech does not address the problem, Kappa must report the danger to city authorities,
72.(2)(c), and to any related others, e.g., safety, in the city and province, 72.(2)(d). Actions
must be taken to ensure safe guarding of life health and property, 72.(2)(b), and to show fidelity
to public needs, 77.1.ii.
To not take these actions is a compromise in devotion to high ideals of personal honour and
professional integrity, 77.1.iii. Shipment to the client has been made and the danger is
imminent.
2(b) Project manager actions contract delivery and availability of budget is a secondary
priority under public welfare, 77.2.i. An excuse of 'budget' by a P.Eng. project manager, fails to
maintain reasonable standards, 72.(2)(a), and therefore is professional misconduct, 72.(2)(j).
Other TranTech P.Eng. superiors could be charged as well. Although Kappa would not want to
injure the reputation of another P.Eng, 77.7.iii., Kappa must expose this conduct to the proper
tribunals, 77.8., even if Kappa loses employment.
3(a) Employment arrangements - this is moonlighting and is only appropriate, providing I
have:
1) satisfied myself that my work at EngInc will not conflict or interfere with my duty to
ChemEng
2) informed ChemEng of my interest, and ChemEng does not object to my work at EngInc

Study Guide - Part A

Exam Reprint - April 16, 2011

3) informed EngInc in writing, of my employment status at ChemEng, and

4) informed EngInc in writing of the limitations on the services I may perform for EngInc, 77.5.
3(b) Conflict of interest - because of my pervious involvement in preparing the design for
MajorCos plant, an inspection for BuyerCo would be in a direct conflict of interest with my
work at ChemEng, 77.3., and an attendant limitation on my services to EngInc, 77.5.
Even if the conflict were fully disclosed and all companies gave their consent, 72.(2)(i), I could
still be construed as having some bias, 77.4. I must recommend to EngInc that I not be involved
with this work. Perhaps I could work on another assignment and free up another person for the
BuyerCo work.
3(c) Certificate of Authorization - since my colleague at EngInc is taking responsibility, a
personal C of A is not needed. If I were acting as an independent practitioner, I must hold a C
of A, PE Act 12.(2).
4(a) Report with an engineering opinion - Honchos conduct was negligent, 72.(2)(a), and
unprofessional, 72.(2)(j). Honcho failed to review a report, which was neither fair to the client
nor to the employee, 77.1.i. Honcho counselled Zeta to practice but without appropriate
supervision, 72.(2)(m).
Honcho was more interested in meeting a deadline than in ensuring competence in services,
77.1.v.
Zetas conduct was negligent in using a term Eng. because this could lead to the belief that
Zeta was a licensed professional engineer and therefore has violated PE Act 40.(1) and
40.(2)(a.1). Zeta should be concerned about a licence award because of failure to act in
accordance with the law, PE Act 14.(2).
Neither Zeta nor Honcho were acting with high ideals of honour and professional integrity,
77.1.iii. They should both be concerned this action could reflect negatively on Newco
Engineering, 77.2.ii.
4(b) Disciplinary hearing by PEO - Honcho could be subject to discipline because of the
actions above. If Newco has a C of A, Honcho has violated a requirement to supervise the
work, PE Act 17. This breach of the Act is a violation of 72.(2)(g), and the terms of a certificate
(C of A), 72.(2)(k), and therefore subject to discipline, 72.(2)(j). If Newco does not possess a C
of A, this is a violation of the PE Act 12.(2).
Complaints and Discipline Committees only consider matters affecting C of A or other licence
holders. Zeta is not a P.Eng. and therefore not subject to discipline by PEO. However Zeta
could be subject to a refusal of a licence for dishonesty, PE Act 14.(2).
4(c) Commendable conduct by Honcho - hiring of a bright, recent university graduate and a
strong belief in mentoring. Honcho also gave credit for Zetas work, even if somewhat
improperly, 77.7.v.

ASSOCIATION OF PROFESSIONAL ENGINEERS OF ONTARIO

PROFESSIONAL PRACTICE EXAMINATION April 16, 2011

PART B - Engineering Law and Professional Liability
This examination comes in two parts (Part A and Part B). Both parts must be completed
in this sitting. You will be given a total of 180 minutes to complete the examination.
Use the correct colour-coded Answer Book for each part, place in the correct envelope and seal
after completed.
White Answer Book for Part A white question paper.
Coloured Answer Book for Part B coloured question paper.
This is a CLOSED BOOK examination. No aids are permitted other than the excerpts from
the 1990 Ontario Regulation 941 covering sections 72 (Professional Misconduct) and 77 (Code
of Ethics) supplied at the examination. Dictionaries are not permitted.
The marking of questions will be based not only on academic content, but also on legibility and
the ability to express yourself clearly and correctly in the English language. If you have any
doubt about the meaning of a question, please state clearly how you have interpreted the
question.
All four questions constitute a complete paper for Part B. Each of the four questions is worth
25 marks.

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Part B- April 16, 2011 Exam

(25)

1.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)

Briefly define, explain or answer any five of the following:

Duress
Consideration
Five examples of equal treatment employment rights to which individuals are
entitled under Ontarios Human Rights Code (list only)
How arbitration awards are enforceable internationally
Contract A in tendering
The rule of contra proferentem
The discoverability concept as it relates to limitation periods.
Common law

(25) 2. An owner/developer (the owner) entered into a contract with an

architectural firm (the architect) for design and contract administration services in
connection with the construction of a ten storey commercial office building.
The building was designed to be entirely surrounded by a paved podium concrete
deck used for parking and driving, and the design provided for a parking area below the
deck. The podium deck was divided by construction joints and expansion joints placed to
allow thermal expansion of the concrete as the temperature changed. The land on which the
building was located sloped towards a river so the lower parking deck was designed to be
partially open to the outside.
The architect engaged a structural engineering firm (the engineer), as the
architects subconsultant on the project. The engineering firm, in its agreement with the
architect, accepted responsibility for all structural aspects of construction, and also
specifically acknowledged responsibility for the design of the paved podium concrete deck
and the parking area below.
Upon completion of the design and the tendering process, the owner entered into a
contract for the construction of the project with an experienced contractor who had submitted
the lowest bid.
Unfortunately, within two years following construction, a significant number of leaks
occurred in the podium deck which resulted in water leaks in the lower parking garage.
The contract specifications had called for a specific rubberized membrane to be
installed for the purpose of waterproofing the podium deck. However, during construction,
at the suggestion of the roofing subcontractor and without the knowledge of the owner,
another asphalt membrane product was substituted for the rubberized membrane product
specified. Neither the engineer nor the architect objected to the substitution when it was
suggested. The roofing subcontractor had suggested the substitute membrane because it was
more readily available and would speed completion of construction. The design engineer
and the architect took the position that they would rely on the subcontractors
recommendation.

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Part B- April 16, 2011 Exam

During the investigation into the cause of the leaks, another structural engineering
firm provided its opinion that the rubberized membrane as specified in the contract was a
superior product to the substituted membrane; that the substituted membrane was brittle and
could fracture or crack under certain circumstances, particularly on podium decks with
expansion joints; that the winter temperatures had contributed to the breakdown of the
substitute membrane as it became more brittle at colder temperatures; and that the substitute
membrane should not have been used over expansion joints on a dynamic surface podium
deck. The second engineering firm also expressed the opinion that the designers ought to
have taken into account the non-static nature of the deck that featured these expansion joints
and should not have accepted the substitute membrane.
Ultimately, to remedy the leaks, the substitute membrane had to be replaced by the
rubberized membrane originally specified in the contract.
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.
25) 3. An information technology firm submitted a bid to design software and hardware
for an electronic technology process to control the operation of a large scale baggage
handling and related security facility for a major airline.
The firms fixed guaranteed maximum price was the lowest bid and the contract was
awarded to it. The contract conditions entitled the information technology firm to terminate
the contract if the airline did not pay monthly progress payments within 15 days following
certification that a progress payment was due. Pursuant to the contract, an independent
engineering firm engaged as contract administrator carried out the certification.
The work under the contract was to be performed over an 8 month period. After
commencing work on the project the information technology firm determined that it had
made significant judgment errors in arriving at its bid price and that it would face a major
loss on the project. Its concern about the anticipated loss was increased further when it also
learned that, in comparison with the other bidders, its bid price was extremely low and that,
in winning the bid, by comparison with the other bidders, it had left more than two million
dollars on the table.
Three monthly progress payments were certified as due by the independent
engineering firm and paid by the airline in accordance with the terms of the contract.
However, after the fourth monthly progress payment was certified as due by the independent
engineering firm, the airlines finance department asked the information technology firms
representative on the project for additional information relating to an invoice from a
subcontractor to the information technology firm. The subcontractors invoice comprised a
portion of the fourth progress payment amount. The airlines finance department requested
that the additional information be provided prior to payment of the fourth progress payment.

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Part B - April 16, 2011 Exam

There was nothing in the signed contract between the information technology firm
and the airline that obligated the information technology firm to provide the additional
information on the invoice from its subcontractor. However, the information technology
firms representative did verbally indicate to the airlines finance department that the
additional information would be provided.
The information technology firm never provided the additional information relating
to the subcontractor's invoice.
Sixteen days after the fourth progress payment had been certified for payment, the
information technology firm notified the airline in writing that it was terminating the contract
because the airline was in default of its obligations to make payments within fifteen days
pursuant to the express wording of the contract.
Was the information technology firm entitled to terminate the contract in these
circumstances? In giving reasons for your answer, identify and explain the relevant legal
principle, its purpose, how it arises, and how it would apply to the facts.
25) 4.
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 included a maximum liability provision that limited to
$5,000,000 the contractors 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. Pulpcos 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.

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Part B- April 16, 2011 Exam

Unfortunately the contractors 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 contractors 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 $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.

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Study Guide - Part B

April 16, 2011 Exam Reprint
The object of Part B is to examine a knowledge of elementary law, as this may apply to an
engineers work experience. Question 1. is definitions, and requires only 5 answers from the 8
options.
Questions 2., 3. and 4. are case studies. Each answer should include the names of relevant
legal terms and principles, and how each term or principle applies to one or more elements of
the case.
A candidate should be able to show a basic understanding of all the elementary legal principles
of contracts and tort. The 3 case study answers therefore, should each reach a pass value on
their own.
Page references below are for the Marston text, 4th edition, and are given here for study
purposes.
In the case of a perceived ambiguity, the text should be taken as authoritative.

1.(i) Duress - threatened or actual, violence or imprisonment used to persuade a party to enter
into a contract. Such a contract is voidable, page 110.
1.(ii) Consideration an essential element of an enforceable contract and is a payment or
promise given by one party in exchange for an undertaking or promise of another party,
pages 79 & 91.
1.(iii) Employment rights, equal treatment - meaning without discrimination regardless of (list
only 5 of the 14 given here) race, ancestry, place of origin, colour, ethnic origin, citizenship,
creed / religion, sex, sexual orientation, age, marital status, family status, record of offences, or
handicap, page 322.
1.(iv) Arbitration awards - in 1958 a New York Convention under United Nations auspices,
was signed by over 135 nations including Canada. By the terms of this convention, arbitration
decisions are internationally enforceable. International contracts should be with a party from a
signing nation, page 30.
1.(v) Contract A in tendering is an agreement by the parties to adhere to the terms and
conditions of a tender. A request for proposals is an offer, and the submission of a bid that is
compliant with the terms is acceptance. Any violation of the terms is a breach of Contract A.

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April 16, 2011 Exam Reprint

There are as many Contract A's as there are bidders. Contract B is one signed agreement with
the one successful bidder, pages 119 - 134.
1.(vi) Contra proferentem, rule of - where a contract provision is ambiguous, it will be
construed or interpreted against the party who drafted the provision. Who drafted what, should
be noted, page 136.
1.(vii) Discoverability concept - is a point in time when a limitation period begins. For the 2year basic limitation period, it begins when the damage or loss is discovered, or ought
reasonably to have been discovered. For the 15-year ultimate limitation period, it begins when
the act or omission took place, e.g., when a building was built. A tort action or an action for
breach of contract must be commenced within these limitation periods, otherwise it will be
statute barred, pages 71 - 73.
1.(viii) Common law, judge-made - precedent court decisions used to establish predictability,
page 2.
2. Tort, potential liabilities - the purpose of tort law is to compensate an aggrieved party for
damages, so far as money will suffice. The 3 essential principles of tort law are relevant,
and they are 1) a duty of care 2) a breach of that duty and 3) damage or injury as a result of the breach.
The owner (TO) has contracts with the architect (TA) and the experienced contractor (EC) but
does not have contracts (privity) with the engineer (TE) or the roofing subcontractor (RS).
Therefore legal action(s) by TO against TE and RS, would be in tort.
Although only responsible for the structural aspects, a TE working in this field, ought to be
competent about the characteristics of membranes. So also should the EC and especially the
RS. Expert testimony by the second engineering firm would establish that TA and TE should
have objected to the substitution.
TA, TE, EC and RS all had a duty of care 1) to provide a podium deck roof membrane which
would perform under colder temperatures. This duty was breached 2) since a significant
number of leaks occurred in the podium deck. There was resulting damage or loss 3) since the
substitute membrane had to be replaced by the rubberized membrane originally specified in the
contract.
Potential liabilities might be, TA 30%, TE 20%, EC 20% and RS 30%. They are concurrent tortfeasors.
The TE and RS liabilities are in tort. TA and EC liabilities are in contract and there may be some in tort.

A relevant case precedent is Unit Farm Concrete vs. Eckerlea Acres, page 46.

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Study Guide - Part B

April 16, 2011 Exam Reprint

3. Equitable estoppel - the information technology firm (ITF) was not entitled to terminate the
contract. ITF was exposed to significant loss, and was trying to use the default of a 4th payment
from the airlines finance department (AFD) within 15 days of certification, as an excuse to break
the contract.
If ITF insists on the express wording of the contract, AFD could invoke the relevant legal
principle or concept of "promissory" or "equitable estoppel", which is to ensure the result would
be equitable.
A "gratuitous promise" had been made by the ITF representative to AFD. The promise to AFD
was, to be given additional information relating to an invoice from a sub-contractor to ITF, before
AFD would make the fourth progress payment. The contract was not amended, the promise
was not in writing, and it was freely made. This makes the promise "gratuitous". AFD was
clearly depending on the promise.
The contract stays in force and ITF takes the loss. Strict contractual rights are not followed
because the equitable estoppel remedy makes an exception to those rights. Any other result
would be inequitable.
A similar case precedent is Conwest Exploration vs. Letain, page 92.
4. Contract, breach of and liability - Pulpco could make a claim against the industrial
contractor (IC) for excess costs, including lost profits and production delays.
Pulpco had paid $27,000,000 of a contract price of $30,000,000 and paid another contractor
(AC) an additional $15,000,000 that is $12,000,000 more than expected to achieve the desired
result. Therefore the IC is apparently liable to return $12,000,000 to Pulpco, which is well above
the $5,000,000 for 'maximum' liability.
This is a case of fundamental breach going to the root of the contract. Based on case history,
a clause(s) to limit liability is not enforceable, and IC would be responsible to pay $12,000,000.
The clause may be enforceable if the cause is unknown or there is ambiguity, but neither is
evident here.
Some Canadian courts have allowed enforceability of liability clauses. If the construction of
wording of a contract clause which determines the liquidated damages, is clear and true, and is
a genuine pre-estimate of damages, then a 'true construction approach' to the wording of that
clause is considered to have taken place. Therefore the clause is enforceable, all of which

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Study Guide Part B

April 16, 2011 Exam Reprint

means the law has changed in this area. In this case IC would be liable only for the calculated
liquidated damages of $4,000,000.
Relevant case precedents are Harbutt's Plasticene vs. Wayne Tank and Pump, where the
clause was not enforceable, and Hunter Engineering vs. Syncrude Canada, where it was,
pages 155 to 162.

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