6362222 Canada Inc. v. Prelco Inc., 2021 SCC 39: A Victory for Limited Liability Clauses

In general, limitation of liability clauses are valid in both Quebec’s Civil system and in the Common Law provinces. However, in Quebec limitation of liability clauses are tempered by articles in the Civil Code of Quebec prohibiting the exclusion of liability for intentional fault, bodily injury, and other public order issues. A recent Supreme Court of Canada case has strengthened the power of limited liability clauses and narrowed the applicability of the Breach of Fundamental Obligation Doctrine.

The case centered on a contractual dispute between 6362222 Canada Inc. (“Createch”), and their client, Prelco Inc. Createch is a consulting firm offering integrated management systems and performance improvement solutions. The parties entered into a contract which included a limited liability clause, stipulating that Createch’s liability to Prelco for damages for any cause whatsoever would be limited to amounts paid to Createch under the contract. A further stipulation was that Createch could not be held liable for any damages resulting from the loss of data, profits or revenue, from the use of products, for any other special, consequential, or indirect damages relating to services and/or material provided pursuant to the contract.

Two years into the contract, Prelco opted to terminate the relationship due to numerous problems with the system and Createch’s implementation. Prelco brought an action against Createch for $6,246,648.94 in damages for the reimbursement of an overpayment, costs for restoring the system, claims from customers, and loss of profits. The Superior Court found the limited liability clause to be unenforceable as it went to the essence of a fundamental obligation, and as such ordered a substantial judgment against Createch. The Court of Appeal dismissed the appeal.

The Supreme Court allowed the appeal, stating that the test for unenforceability due to the Doctrine of Breach of a Fundamental Obligation had not been satisfied. In order to find a clause inoperable on this basis, the validity of the clause has to either (a) be contrary to a public order limitation or (b) deprive a contractual obligation of its purpose. The SCC found that the clause did not run contrary to a public order limitation and that since Createch still owed significant obligations to Prelco the validity of the clause would not deprive the contract of its purpose to the extent required by the Doctrine. As such, the principle of freedom of contract supported the enforceability of the limited liability clause.

Takeaway: if you are contracting with a party that is insisting that there be clauses within the contract whereby they are excused from any liability, even for their own negligence, be aware that a Court will probably uphold the limitation of liability clause in the contract. In such a situation, you should consider the extent to which you can insure over the risks that flow from the contracting party’s negligence.

Relief from forfeiture is an extraordinary equitable remedy that the courts can apply at their discretion, which allows them to forgive imperfect compliance with a contractual or statutory requirement. In choosing to apply relief from forfeiture, the court is deciding to protect a party against a loss that would otherwise occur from that party’s breach on the basis that not to do so would be unequitable.

In a recent case, Airside Event Spaces Inc. v Langley, 2021 BCCA 306, the courts have reiterated that an applicant must act in good faith in order for relief from forfeiture to be appropriate, regardless of the disproportionality between the loss suffered on forfeiture and the loss suffered by the other party due to the breach of contract.

In this case, the company was leasing a hangar at the Langley Regional Airport from the city of Langley, which the city had terminated because the company breached the lease contract. The company admitted that it had breached the lease in numerous ways, and to having failed to remedy the breaches when Langley gave it the chance. Still, the company claimed that the loss that they would suffer compared to the loss that Langley had suffered through their breaches was so disproportionate that the court should use their power to apply relief from forfeiture. The company had paid $440,000 for the premises in 2013, and claimed to have invested in excess of $1.5 million in improvements over the years that it had leased the space. The B.C Supreme Court Judge found that since the company had misled Langley, attempted to conceal breaches of the lease, altered the premises contrary to the lease and without the lessor’s consent, and performed all manner of other misconduct that the company had not remotely acted in good faith. As such, the Judge dismissed the application and refused to apply relief from forfeiture.

On appeal, the Court confirmed that Judge had correctly considered the evidence in this case, and did not commit an error by finding that the consequences of the forfeiture, although significant, did not justify relief from forfeiture due to the company’s clear bad faith.

URGENT: B.C. LAND OWNER TRANSPARENCY REGISTER (“LOTR”)

We write to advise that effective November 30, 2021, the B.C. Government requires that
any Corporation, Trust or Partnership that owns an interest in real estate must file a
Land Owner Transparency Report with the Land Owner Transparency Registry.
Failure to file may result in government-imposed penalties.

What is the Land Owner Transparency Registry?

The Land Owner Transparency Registry is a publicly searchable registry of information about
beneficial ownership of land in British Columbia. Beneficial land owners are people who own or
control land indirectly, such as through a corporation, partnership or trust.

The Registry is intended to end hidden ownership of land and combat money laundering in B.C.
The B.C. provincial government created the LOTR to identify the individuals that actually own
real estate in the province.

Does the Land Owner Transparency Registry apply to you?

With few exceptions, all corporations, partnerships and trusts that own real estate in British
Columbia must register. Trusts include formal trusts, bare trusts, and prescribed trusts.

What do you need to do?

If you own an interest in land in a corporation, partnership or trust, you must prepare and
register a Transparency Report with the LOTR by November 30, 2021. An interest in land
includes a fee simple interest, life estate, or long-term lease.

The Transparency Report contains information about:

1. The corporation, partnership or trust that owns real estate (“Reporting Bodies”);
and,

2. The individuals who are beneficial owners of the corporation, partnership or
trust, as well as settlors of trusts (“Interest Holders”).

HEATH LAW LLP

The Transparency Report discloses information about Interest Holders, including:

1. Name
2. Citizenship
3. Social Insurance Number (or Individual Tax Number)
4. Date of Birth,
5. Residency for Tax Purposes, and
6. Address

Only some of this information will be publicly searchable, and certain Interest Holders are
eligible to restrict what is available to the public. Government agencies will have access to all
information. All Interest Holders must be advised that their personal information was included
in a Transparency Report and a special letter giving notice under the legislation must be
provided to the Interest Holder.

The Transparency Report must be uploaded to the LOTR Registry online.
The report must also be updated when the information concerning the Interest Holder changes, for
example, a change in residential address, name, or ceasing to be an interest holder.
Specific reporting requirements apply for each type of corporation, partnership, trust, and
Interest Holder.

A failure to prepare and upload a Transparency Report may result in the government pursuing
administrative penalties of up to $50,000 or 5% of the assessed value of the real estate.

What Heath Law LLP can do to help?

We have a team of lawyers and staff well versed in preparing Transparency Reports and
compliance under this new LOTR legislation.

Please advise our office by November 1, 2021, if you own real estate in a corporation, trust or
partnership, and if you would like our assistance in preparing and filing a Land Owner
Transparency Report.

Yours truly,
HEATH LAW LLP

Short Answer:

Generally, a director will not be held liable for corporate income tax absent misconduct. However, s.160 of the Income Tax Act introduces liability in certain circumstances where assets have been transferred by a taxpayer who owes a tax debt. The purpose behind this provision is to ensure that the CRA is able to collect tax debts where assets have been divested for less than market value.

Discussion:

Unlike s. 227.1 of the Income Tax Act, where a director’s liability is limited to tax withholdings and the like, s.160 creates liability for the recipient in a non-arm’s length transfer if the transferor has any kind of tax debt.

S. 160 applies to a person who has received a non-arm’s length transfer of property when the transferor owed a tax debt at the time the transfer occurred, and the transferee did not pay the market value for the property. Per s. 160(1), the transferee may be held jointly and severally liable for the tax debt, including interest, to the lessor of:

a) The value of the property transformed minus consideration given for it by the transferee; or
b) The total tax and interest that the transferor was liable to pay in or in respect of the year of the transfer and any preceding years.

In Borealis Geopower Inc. v the Queen, 2018 TCC 189 the Court applied s. 160 to corporate income tax. S.160, therefore, creates a situation where a director could incur personal liability for all or a portion of the income tax debt of the corporation if they were the transferee as described above.

BRIEF ANSWER

In the absence of fraudulent or illegal conduct or conduct that is beyond the scope of the director’s authority, a director will not generally face personal liability. However, a director may be held personally liable if they fail to indicate that they are acting in their capacity as a director, breach their fiduciary duties, or fail to act in an objectively reasonable manner. A director may also face personal liability for any amounts owing to the government that the company has failed to pay for income tax, GST, Employment Insurance or the Canada Pension Plan. A director may protect against personal liability by prudently fulfilling their obligations as a director and by ensuring that there are proper protections in place to minimize the risk of personal liability.

DISCUSSION

In general, a company will shield a director from personal liability while they are acting as a director, provided that they are not acting fraudulently or illegally. However, there are certain circumstances in which a director will face personal liability.

A director owes a duty of care to the company by virtue of their position. The applicable standard of care is set out in the Business Corporations Act to be that of a reasonably prudent individual in comparable circumstances. Directors with special expertise or knowledge (such as a lawyer, accountant, etc.) will be held to a higher standard of care. A director may delegate responsibilities to others, such as an officer or an expert; however, the director remains responsible to ensure that the individual is competent and that they adequately perform their duties. A director who breaches their duty of care to the company may face personal liability for any loss that the company suffers as a result.

A director has a fiduciary duty to act honestly and in good faith, with a view to the best interests of the company. This requires the director to avoid the pursuit of personal gain where it is inconsistent with the best interests of the company, act selflessly and loyally as a director of the company, maintain the confidentiality of information acquired by virtue of their position, and avoid conflicts of interest or disclose conflicts in a timely manner. A conflict of interest may arise where a director has a material interest in a contract, decision, or transaction contemplated by the company, when a director enters into a contract that competes with the company, or when the director takes an opportunity that rightfully belongs to the company. A director who breaches their fiduciary duty to the company may face personal liability for any loss that the company suffers as a result of the breach.

A director may face personal liability if it is not clear to other parties that he or she is acting in their capacity as a director of the company. If third parties believe they are dealing with an individual and not a company, the director may face liability for any obligations or losses resulting from the transaction. A director will also be personally liable for their tortious conduct to third parties if the director is not acting within the scope of their authority or on behalf of the company. A director must act in accordance with the applicable statutes, regulations, memorandum and articles of the company. If they fail to do so and behave improperly, they may be held personally liable.

Although directors generally only owe a duty to the company, in certain cases courts have held directors personally liable for breaching a duty to creditors. For example, failing to act reasonably by preferring one creditor over another when the company was insolvent, or engaging in other conduct prohibited by the Bankruptcy and Insolvency Act may give rise to personal liability. A director may also be personally liable for oppression or unfairly prejudicial conduct towards certain stakeholders, such as shareholders. These parties have reasonable expectations that directors will fulfill their duties to the company fairly. Consequently, in certain circumstances, a director may be personally liable if, for example, they gained a personal benefit or increased their control of the company as a result of the oppressive or unfairly prejudicial conduct.

Statutory provisions may also impose personal liability on a director. For example, a director will face personal liability if they pay a dividend, purchases, or redeems shares in the company where the company is insolvent or the action would render it insolvent. Indemnifying another director or officer where indemnity is not permitted by the company’s articles, its memorandum, or by statute may also result in personal liability. Authorizing the making of a false or misleading statement can give rise to personal liability. Significantly, while a director is generally not liable for the misdeeds of other directors if a resolution that authorizes illegal or improper conduct is passed while the director is absent, that director must dissent in writing within seven days of learning of the prohibited act or they will face personal liability. If there is a causal connection between a director’s inaction and a loss suffered by the company, then the director may be held liable for the loss.

Where the director failed to exercise due diligence, depending on the nature of the business a number of other statutes may also impose liability. A director may face personal liability if a company fails to pay the Canada Revenue Agency for any amounts owing, including interest and penalties, GST remittances, failure to withhold and remit income tax, or failure to deduct and remit for employment insurance or the Canada Pension Plan. Liability for these amounts only attaches to a director who was acting as a director when these amounts became due and has acted as a director within the last two years. A director should also be aware of a company’s need to withhold income tax for employees claiming tax exemptions under the Indian Act for Indian property that is not actually situated on a reserve. A director may face personal liability for any amounts that the company failed to withhold and that the CRA has been unable to recover from the company. A director may be excused from personal liability if they can demonstrate that they acted reasonably and diligently in the circumstances by trying to resolve any of the business’ financial difficulties to assist with payment and by ultimately ensuring that the company pays any amounts owing.

Under the Employment Standards Act, each director of a company may be liable for up to two months of unpaid wages for each employee. However, a director will not be personally liable for termination pay, vacation pay that becomes due after the director has ceased to hold office, or for money that remains in an employee’s time bank after the director has ceased to hold office if the company is in receivership or pursuing bankruptcy proceedings. Directors may also be liable for injuries related to unsafe working conditions.

A director may face personal liability for failure to comply with environmental laws where they did not exercise due diligence to prevent this failure. In certain cases, where a company’s actions have resulted in contamination, directors have been found personally liable despite not being a director at the time the company caused the contamination.

A director may reduce the risk of personal liability by properly fulfilling his or her duties as director, by being familiar and ensuring compliance with the applicable statutes and the company’s articles and other governing documents, by carefully appointing and maintaining proper supervision over officers and experts, and by maintaining appropriate governance policies. A director may also reduce his or her personal liability risk by ensuring that there is adequate liability insurance in place for directors and that there is an indemnity agreement from the company to provide indemnity for personal liability, when appropriate, that occurs while performing directors’ duties.

SUMMARY

The company will generally protect a director from personal liability; however, there are certain circumstances in which a director will experience personal liability. In addition to personal liability for fraudulent or illegal conduct, a director may also face liability for failing to represent oneself as a director of the company or failing to act within the scope of their authority as director. A director must also ensure that he or she is familiar with any laws under the statutes that apply to the company, and that any obligations arising from income tax, GST, Employment Insurance, or the Canada Pension Plan are withheld and remitted. In order to avoid personal liability, a director must fulfill their obligations to the company by acting in the best interests of the company, by exercising reasonable care, diligence and skill, and by acting in accordance with the applicable statutes, regulations, and the memorandum and articles of the company.

 

Local governments, such as the City of Nanaimo, are empowered by section 31 of the Community Charter to expropriate land. Section 289 of the Local Government Act gives the same power to regional districts. Expropriation is the taking of land without the owner’s consent and is an exceptional power which isn’t often exercised. The Expropriation Act must be adhered to by the local government and covers procedural requirements to be taken, as well as compensation for the land itself and disturbance caused to the landowner. Local governments can expropriate in order to provide services for the benefit of all or part of the community or in order to provide any services which are considered necessary or desirable.

In 2011 Nanaimo City Council adopted bylaw no. 7130 to expropriate land along Bowen Road. The purpose was to improve the public road and to carry out the replacement of the Quarterway Bridge. The city was unable to acquire the land through negotiation, although negotiation is the preferred option. Local governments secure certainty of costs if able to negotiate a set purchase price, while under expropriation, expenses and damages to be paid to the landowner are much less certain. Local governments are statutorily obligated to pay the market value of the property plus reasonable damages for the disturbance caused by the expropriation – amounts that are challenging to predict.

After a decision to expropriate, the local government will need to physically inspect the land, as certain issues can affect the value of the property. Under section 6 of the Expropriation Act, notice of intent to expropriate the land must be given to the owner, as well as posted on the land itself. Section 32 of the Community Charter provides authority for a local government to enter and inspect the land. Section 290 of the Local Government Act provides the same power for a regional district to enter and inspect, as does section 9 of the Expropriation Act. Consent of the owner is not necessary, but the local government is responsible for paying any compensation related to loss or damage caused by entrance and/or inspection. In compliance with the Expropriation Act, the local government will conduct an appraisal of the market value of the land which would have been obtained had the owner sold under normal circumstances. Reasonable compensation to be paid to the owner must also be calculated, covering factors such as moving expenses, legal expenses, and potentially increased mortgage rates for the owner’s subsequent property purchase.

 

In Royal Pacific Real Estate Group Ltd. v. Dong, 2020 BCCA 323, the British Columbia Court of Appeal made it clear that unauthorized use of a trademark carries legal consequences. The Court found that the Defendant, Mr. Dong, had committed the tort of passing off, despite his arguments that he had proper consent from the Plaintiff, Royal Pacific Real Estate Group Ltd., to use the Royal Pacific trademark. Mr. Dong had signed an agreement with the Plaintiff whereby he would work under the real estate group as an independently contracted real estate representative. The agreement allowed and even encouraged Mr. Dong to use the Royal Pacific trademark in this capacity, because the group is well-known for success in the Vancouver area, having arranged billions of dollars of sales. But Mr. Dong could only properly use the trademark for his work under the real estate group; he was not authorized to use the trademark for his other private businesses. One of these included his business named Bliip Box, which he’d hoped to have as a supplier of real estate websites.

Mr. Dong took several actions which constituted trademark infringement including making available the contact information of the Royal Pacific group on his personal website, such that the public would consider Royal Pacific to be endorsing or associated with Mr. Dong’s personal site. The Defendant also sent solicitation emails to various real estate agents, saying that Royal Pacific was seeking to endorse local businesses through his personal Bliip Box company, while Royal Pacific had no intent of this. Even after Royal Pacific lawfully terminated their agreement with the Defendant, and as such he no longer had authority to use the trademark whatsoever, he continued to do so. Bliip Box continued to display Royal Pacific’s trademark, and in launching this business relied on the Royal Pacific online domain name. The Court of Appeal upheld the trial judgement that Mr. Dong had committed the tort of passing off outlined under section 7 of the Trademark Act. The Court recognized that the three elements of passing off were present, being: The existence of reputation or goodwill, a misrepresentation leading the public to believe an association between the parties, and damage or potential damage to the Plaintiff, as outlined in Vancouver Community College v. Vancouver Career College (Burnaby) Inc., 2017 BCCA 41.

The goodwill associated with familiar trademarks has commercial value, and companies such as Royal Pacific will not stand silent in the face of passing off. The Defendant passing off his goods and services as being endorsed by and associated with the trademarked name can be viewed as the unauthorized use of goodwill, and wrongful confusion of the public. While the trial judge only awarded nominal damages of $6,000 to the Plaintiff, an injunction restraining Mr. Dong from continued trademark infringement was also granted. The Court held that the Plaintiffs underwent considerable inconvenience, but that Mr. Dong hadn’t financially benefited from his conduct.

 

In the recent case of Canex Investment Corporation v. 0799701 B.C. Ltd., 2020 BCCA 231, the British Columbia Court of Appeal showed its flexibility in offering oppression remedies for wronged minority shareholders. The case involved exceptionally high-handed conduct by the two directors of Canex Investment Corporation (“Canex”), leading to their personal financial gain at the expense of the minority shareholder Plaintiffs. Neither Canex nor its minority shareholders benefited from the $500,000 loan taken out and secured by Canex’s properties, rather, the loan was used to finance a related company (Flame Engineering & Construction) controlled by the Defendants. Further, the Defendants falsified financial records related to the Flame Engineering loan, manipulated Canex’s records to reduce the Plaintiffs’ investment through charging excessively high interest and management fees, and advanced arguments which Justice Harris termed as “bogus”.

Section 227 of the Business Corporations Act allows shareholders to apply for remedies when they’ve suffered harm that is typically, but not necessarily, separate from the harm suffered by the corporation as a whole. The remedy granted in this case was the return of the minority shareholders’ initial investment plus interest. In addition, the Court of Appeal found that punitive damages of $100,000 were appropriate, considering the egregious conduct of the Defendants. While the Defendants tried to assert that a derivative rather than an oppression action ought to have been brought by the shareholders, meaning that the Plaintiffs would have additional hurdles in order to obtain financial relief, the Court held that the oppression action was supported. Typically, if harm has been done to the company itself, a derivative action is appropriate. Oppression actions are brought when harm has been done to individual shareholders. But the Court held that the remedy of oppression will not be limited by mere corporate structure, and that the substantive reality of how a company is operated, instead of the legal from, is what matters.

On appeal, the Defendants argued that the trial judge had failed to recognize the formalities of corporate governance when imposing personal liability on the Defendants as directors. But based on the Defendants’ wrongful conduct and taking financial advantage, personal liability had to be imposed despite the separate legal personality of Canex as a corporation. Further, one of the Defendant’s personal liability survived beyond her declaration of bankruptcy because the fraud was committed while acting in a fiduciary capacity. While directors typically only owe fiduciary duties to a company itself rather than individual shareholders, the Court recognized the reality of this closely held corporation. Here, the two shareholders were in a special relationship of trust and dependency with the directors; the directors were expected to manage the company’s financial records honestly and in good faith, yet breached those duties. The Court brought home its disapproval of the Defendant’s oppressive conduct by imposing punitive damages. These types of damages are appropriate when conduct is so high-handed or malicious that it offends the Court’s sense of dignity. Particularly relevant for closely held corporations such as Canex, this case highlights the Court’s willingness to offer expanded remedies to minority shareholders based on the substantive conduct that occurred, and to turn down arguments based on technical corporate structure.

In Triton Hardware Limited v. Torngat Regional Housing Association, 2020 NLSC 72, the owners of a construction project (“Torngat”) sought to rely on a privilege clause in the project’s tendering documents to select its preferred bidder, not the lowest bidder. This case serves as a cautionary tale to owners that a general privilege clause does not afford them absolute discretion.

In the case, the plaintiff (“Triton”) made a material supplier bid to Torngat for the construction of a housing project. Triton’s bid was the lowest. Yet, Torngat selected another bidder with whom it had previously worked and preferred. In making this preferential selection, Triton relied on the following clause: The awarding of the contract will be based on the lowest average price for quality material. *The Lowest of Any Quotes Will Not necessarily Be Accepted.

At trial, Knickle J. interpreted the impugned privilege clause as allowing the owner to either select the lowest bidder or to select no bidder at all. The asterisk-qualification did not permit the owner to select from any of the bidders according to undisclosed criteria (para. 63). As a result, Triton was awarded $126,852.14 for its lost profits.

If general privilege causes were not read strictly but, instead, granted owners complete discretion when selecting bidders, the tendering process would be rendered meaningless. As the Supreme Court of Canada established in Martel Building Ltd., v. R., 2000 SCC 60, the tendering process must treat all bidders fairly and equally.

As such, there must be reasonable certainty regarding the terms of selection. If otherwise, all bidders would be prejudiced. That is, the losing bidders would expend resources in producing a hopeless tender, and the winning bidder’s tender would be arbitrarily reduced by fictional market competition.

Engineers have specialized skill and knowledge on which their clients rely. When engineers are found to be professionally negligent, this relationship of reliance limits an engineer’s ability to shield themselves from liability by operating their business as a corporation. To consider why this is the case, we review several key decisions that create a duty of care between engineers and their firm’s clients.

Employee’s Liability

In London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), the Supreme Court of Canada found that employees of a company, who performed the services for which their company has been hired to complete, may owe a duty of care to the company’s customer. That is, the individual employee may be liable for any damages arising from services they negligently perform on behalf of their employer. In the case, warehouse workers were found to have negligently handled the Plaintiff’s machinery resulting in significant damages. Because the Plaintiff’s contract with the Warehouse owner contained a limitation of liability clause which restricted recovery to $40, the Plaintiff sued the owner’s employees personally. The Supreme Court of Canada found that, although the employees owed a duty of care to the owner’s customers, the contract’s limitation of liability clause logically extended to the Owner’s employees, for they were the ones performing all of the contract’s enumerated tasks.

In the construction context, this principle of an employee’s liability arose in Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., 1993 CanLII 67 (SCC). In the case, Edgeworth, the plaintiff company, was the successful tenderer on a provincial highway contract. Edgeworth claimed that it lost money on the project due to errors in the specifications and construction drawings prepared by the defendant engineers, N. D. Lea. Consequently, Edgeworth sued N.D. Lea and its individual engineers for negligent misrepresentation.

While the Supreme Court of Canada found that N.D. Lea was liable for negligent misrepresentation, it held that the firm’s individual engineers were not liable because they only affixed their professional seals to the impugned designs. Therefore, the Court found that the tenderers in the bidding process did not rely on any individual engineer’s representations because the seal merely represented that the designs were prepared by a qualified engineer, not that the designs were accurate. Since no representations were made by an individual engineer, there was no basis for finding that the engineers had a duty of care to the tenderers (viz. Edgeworth).

The British Columbia Court of Appeal considered the Edgeworth decision in British Columbia v. R.B.O. Architecture Inc., 1994 CanLII 1740 (BC CA) and in Boss Developments Ltd. v. Quality Air Maintenance Ltd., 1995 CanLII 3213 (BC CA). In Boss, Gibbs J.A. distinguished the case from Edgeworth on the grounds that the engineer did more than simply affix their seal to a design. Instead, the engineer signed a report indicating that an aircraft was properly maintained when it was not. Despite the fact that the engineer’s employer had the inspection contract with the customer, the engineer was found personally liable. Gibbs J.A. justified his finding by writing: “only an individual can be qualified as an aircraft maintenance engineer in this field of special skill and knowledge, … it is the individual mechanic who certifies [and] whose skill is being relied upon.”

Boss was applied and extended to a firm’s engineering employees generally in Maritime Steel and Founderies Ltd. v. Whitman Benn and Associates Ltd., 1996 CanLII 5415 (NS SC) and Strata Plan No. VR 1720 (Owners) v. Bart Developments Ltd., 1999 CanLII 5428 (BC SC). In both cases, the engineers did not simply attach their seals to tendering materials –as in Edgeworth—but rather, they provided negligent services to the plaintiffs directly.

Concerning an engineer’s personal liability, Edwards, J. wrote in Bart:
It cannot be plausibly argued that a limited company purporting to offer professional services of “consulting engineers” and indicating that its employees have special skill and experience is not inducing its clients to rely on those individuals’ expertise. It is immaterial whether the client can identify that expertise with individual employees of the firm.
In other words, engineering firms cannot perform engineering services without qualified employees. As such, the firm’s employees must know that their specialized skill and knowledge is being relied upon by the customer, and therefore, they owe a duty of care to their firm’s customers generally.

In conclusion, individual engineers working for an incorporated engineering firm are not shielded from liability by virtue of their employer’s corporate structure. Likewise, engineering firms may be held vicariously liable for the negligence of an employed engineer.

To limit their liability, engineers have four options:

First, they may contractually limit their liability for damages, e.g. to the amount of fees paid. Second, they may place disclaimers on their designs to prevent other parties from unreasonably relying on them. Third, engineers can increase their professional liability insurance coverage. And fourth, engineers can supervise the construction process to ensure their designs are properly constructed.