Tort Law: Negligent Misstatement Douglas Wilhelm Harder, M.Math. LEL Department of Electrical and Computer Engineering University of Waterloo Waterloo, Ontario, Canada ece.uwaterloo.ca dwharder@alumni.uwaterloo.ca © 2013 by Douglas Wilhelm Harder. Some rights reserved.

Outline An introduction to the engineering profession, including: Negligent Misstatement Outline An introduction to the engineering profession, including: Standards and safety Law: Charter of Rights and Freedoms, contracts, torts, negligent malpractice, forms of carrying on business Intellectual property (patents, trade marks, copyrights and industrial designs) Professional practice Professional Engineers Act Professional misconduct and sexual harassment Alternative dispute resolution Labour Relations and Employment Law Environmental Law

Negligent Misstatement Misstatements What happens if an engineer says something that is incorrect and someone else acts on that information? Of course, inside a contract, one might be liable for damages if another party is affected What happens if there is no contract? Does a professional have a responsibility to others?

Negligent Misstatement Hedley Byrne v Heller Consider the case of Hedley Byrne & Co. Ltd. v Heller & Partners, 1964 Hedley Byrne was an advertising firm and a client, Easipower Ltd., placed a large order Hedley Byrne requested a check of Easipower’s financial situation and creditworthiness Without consideration, Heller replied with a letter indicating that Easipower was “considered good for its ordinary business engagements.” Heller’s letter included the statement “without responsibility on the part of this bank”

Negligent Misstatement Hedley Byrne v Heller Consider the case of Hedley Byrne & Co. Ltd. v Heller & Partners, 1964 Soon thereafter, Easipower liquidated and Hedley Byrne lost £17,000 on contracts This is the equivalent of half a million Canadian dollars Hedley Byrne sued for negligent and misleading information Heller & Partners had the position that: There was no duty of care Liability was excluded

Negligent Misstatement Hedley Byrne v Heller This case went to the House of Lords which found: The disclaimer was sufficient to limit any liability Also, the relationship was sufficiently proximate so as to establish a duty of care However, they also set new precedence: It would be possible to sue for tort even if the loss is purely economic in nature Professionals and others would now be liable for statements that are made

Hedley Byrne v Heller In the ruling, Lord Morris said: Negligent Misstatement Hedley Byrne v Heller In the ruling, Lord Morris said: “I consider that it follows and that it should now be regarded as settled that if someone possessing special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise.”

Negligent Misstatements Thus is established the duty of care by professionals to individuals with whom they have no established contract

Negligent Misstatement Limitation Clauses In Wolverine Tube (Canada) Inc. v Noranda Metal Industries Ltd. et al., 1994, we have the following: An environmental consultant prepared a report with respect to environmental compliance audits and the possibility of any environmental liabilities on the lands The report was prepared for the owner, Noranda Metal Industries When selling the land to Wolverine Tube, Noranda passed on the report and indicated that Wolverine could rely on the report Five years after the report was prepared, Wolverine determined that the report had errors and those errors detrimentally affected Wolverine who then sued Noranda and the consultant Wolverine claimed the consultant was negligent

Negligent Misstatement Limitation Clauses In Wolverine Tube (Canada) Inc. v Noranda Metal Industries Ltd. et al., 1994, the report contained the disclaimer: “This report was prepared by Arthur D. Little of Canada, Limited for the account of Noranda, Inc. The material in it reflects Arthur D. Little’s best judgment in light of the information available to it at the time of preparation. Any use which a third party makes of this report, or any reliance on or decisions to be made based on it, are the responsibility of such third parties. Arthur D. Little accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made or actions based on this report.”

Negligent Misstatement Limitation Clauses In Wolverine Tube (Canada) Inc. v Noranda Metal Industries Ltd. et al., 1994, the court found that the limitation clause was more than sufficient when compared to “without responsibility on the part of this bank” Had the report not contained that clause, would the consultant have been liable?

Preparing Tendering Packages Negligent Misstatement Preparing Tendering Packages In Brown & Hudson Ltd. v The Corporation of the City of York et al., 1983, a consulting engineer prepared a tendering package The package omitted information relevant to the soil and ground-water levels The contractor assumed that, as no such information was included in the package, there would be no issues with respect to water during construction The contractor did not specifically ask for such reports in preparing his tender

Preparing Tendering Packages Negligent Misstatement Preparing Tendering Packages In Brown & Hudson Ltd. v The Corporation of the City of York et al., 1983, a consulting engineer prepared a tendering package The court determined the contractor was partially negligent for not having done so The consulting engineer, however, was also found liable Contractor: 25 % Consulting engineer: 75 % Question: 75 % of what?

Preparing Tendering Packages Negligent Misstatement Preparing Tendering Packages In the judgment, the court indicated that “The engineer must have known that tenderers would rely on the tender package; particularly when the contract documents did not require the contractor to satisfy itself about the subsurface conditions. “Was the lack of reference to the soil reports and the change of a sketch and plan a negligent omission to convey necessary information? Information concerning the water and sub-surface conditions was of great significance to any tenderer. I can think of no good reason why the engineers did not refer to the soils reports in the tender package and no reason for this omission was advanced at trial.”

Negligent Misstatement Negligent Comments In Canama Contracting Ltd. v Huffman et al., 1983, we see the following: An engineer is employed by the Dept. of Agriculture of Ontario A contractor had occasionally relied on his advice The contractor passed on its design of a barn to be built over a manure pit The only communications were by phone, but the engineer looked at the plans and sent the message: “Good set of plans. I like the detail. Wish I could spend that amount of time on each project. Keep up the good work.” The engineer, however, failed to note deficiencies in the plan with respect to the placement of rebar Part of the walls failed as a result

Negligent Misstatement Negligent Comments In Canama Contracting Ltd. v Huffman et al., 1983, we see the following: The engineer claimed that he was not under the impression he was being consulted by the contractor The court, however, found that the engineer did refer to the plans as “good”, which would consequently “lull the plaintiff into thinking the plans were adequate.” With regard to the impression of the consultant, to be “held to account for negligence, it is not what we subjectively feel or think but what our conduct objectively makes the other person believe we feel or think”

Negligent Misstatement Negligent Comments In Canama Contracting Ltd. v Huffman et al., 1983, we see the following: The engineer claimed that he was not under the impression he was being consulted by the contractor The court, however, found that the engineer did refer to the plans as “good”, which would consequently “lull the plaintiff into thinking the plans were adequate.” With regard to the impression of the consultant, to be “held to account for negligence, it is not what we subjectively feel or think but what our conduct objectively makes the other person believe we feel or think”

Negligent Misstatement Negligent Comments In Canama Contracting Ltd. v Huffman et al., 1983, we see the following: The consulting engineer, however, was also found liable Contractor: 25 % Engineer: 75 % Question: 75 % of what?

Negligent Misstatement Negligent Design In SEDCO and Hospital Laundry Services of Regina v William Kelly Holdings Ltd. et al., 1988, we see the following: The owner hired an architect to design a building The architect subcontracted with mechanical engineers to design the ventilation system The cooling system was deficient and this resulted in workers having to take “heat breaks” throughout the day This resulted in financial losses for the owner who sued the engineers for negligence

Negligent Misstatement Negligent Design In SEDCO and Hospital Laundry Services of Regina v William Kelly Holdings Ltd. et al., 1988, we see the following: The courts found that the engineers: Were aware of the working conditions Were or should have been aware that such a defect would have been detrimental to the working environment Consequently, the there was a breach in a duty of care that resulted in a pure economic loss of the owner

Negligent Misstatement Negligent Design In Edgeworth Construction Ltd. v N.D. Lea & Associates Ltd., 1993, we see the following: There were errors in specifications and construction drawings prepared by the engineering firm for an owner A contractor who made a tender based on the erroneous documents lost money because of the errors The tendering package specifically stated that the documents were “furnished merely for the general information of bidders and is not in anyway warranted or guaranteed by or on behalf of the Minister.” There was no contract between the contractor and the engineering firm Is there a duty of care? That is, is there the possibility for liability in tort?

Negligent Misstatement Negligent Design In Edgeworth Construction Ltd. v N.D. Lea & Associates Ltd., 1993, the court found: “Liability for negligent misrepresentation arises where a person makes a representation knowing that another may rely on it, and the plaintiff in fact relies on the representation to its detriment. “The facts alleged in this case meet this test, leaving the contract between the contractor and the province to one side. The engineers undertook to provide information (the tender package) for use by a definable group of persons with whom it did not have any contractual relationship. The purpose of supplying the information was to allow tenderers to prepare a price to be submitted. The engineers knew this.”

Negligent Misstatement References [1] D.L. Marston, Law for Professional Engineers, 4th Ed., McGraw Hill, 2008. [2] Julie Vale, ECE 290 Course Notes, 2011. [3] Wikipedia, http://www.wikipedia.org/ These course slides are provided for the ECE 290 class. The material in it reflects Douglas Harder’s best judgment in light of the information available to him at the time of preparation. Any reliance on these course slides by any party for any other purpose are the responsibility of such parties. Douglas W. Harder accepts no responsibility for damages, if any, suffered by any party as a result of decisions made or actions based on these course slides for any other purpose than that for which it was intended.