STATUTORY DUTIES AND LIABILITIES OF AN ENGINEER IN CONSTRUCTION PROJECTS Presented by K.K. Cheung, Partner and Joseph Chung, Partner Construction and Arbitration Practice Group Presented on 17 June 2014

Today’s Roadmap       

2

Introduction to Engineer’s duties – KK Statutory Duties – KK Contractual Duties & Authority – Joseph Engineer as Certifier – Joseph Engineer’s liability to contractor – Joseph Tort of Negligence – KK Standard of Care – KK

Introduction (1) 

Project Consultants include Engineer Architect Quantity Surveyor Project Manager Claims Consultant



3

Today’s talk will focus on the Engineer

Introduction (2) 

Source of the Engineer’s duties:statute contract common law

4

Statutory Duties – use of designation “RPE” (1) 

The word “engineer” in everyday usage spreads outside the traditional construction industry  what about the use of titles “Registered Professional Engineer” or “RPE”?





The Engineers Registration Ordinance (ERO) establishes a framework for the use of the title “Registered Professional Engineer” or “RPE” The system provides for:  registration of professional engineers  recognition of different disciplines within the profession  disciplinary control within the profession



5

The system is based on a central register. Those who are not on the register, cannot describe themselves as “Registered Professional Engineer” or “RPE”

Statutory Duties – use of designation “RPE” (2) 

ERO sets out the criteria for registration which includes that the applicant: is a member of the HKIE or a member of an engineering body acceptable by the Engineers Registration Board  has one year’s relevant professional experience  is ordinarily resident in Hong Kong  not subject of an inquiry committee or disciplinary order



Wrongful use of “Registered Professional Engineer” or RPE: the Engineers Registration Board may apply to the Court to restrain that person from wrongful use of the designation  it is also a criminal offence. Maximum penalty - 1 yr imprisonment and fine of HK$50,000

6

Statutory Duties – Authorised Person (1) 







7

In HK construction, the Government delegates part of the Government’s building control functions to statutorily recognised persons called Authorised Person (AP) Under the Buildings Ordinance (BO), an AP must be appointed for building works and street works where the AP will be the coordinator of such works AP:  an individual not a company  can be an architect, engineer or surveyor AP carries with him certain statutory duties and functions  Buildings Ordinance • AP is required to  supervise the building works or street works in accordance with the supervision plan  notify BA of any contravention of regulations which would result from the carrying out of any work shown in any plan approved by BA in respect of the building works or street works  comply generally with the Buildings Ordinance  Building (Administration) Regulations • AP in respect of any building works or street works is to supply to the contractor every plan approved by BA

Statutory Duties – Authorised Person (2) • the AP for any building works or street works is to provide periodic supervision and make such inspections as may be necessary to ensure that the building works or street works are being carried out in accordance with the BO and approved plans • the AP for any building works or street works is to submit to the BA within seven days of his receipt of a notice from the contractor that he has been ceased to be appointed in respect of the subject works • the AP is to supply information that BA requires with regard to the plans submitted by the AP • no AP shall act as a contractor or deal in building materials or receive any payment, commission, advantage or benefit of any kind whatsoever, either directly or indirectly, from any contractor, sub-contractor or supplier of building materials or other goods used in or in connexion with any building works or street works without disclosing the fact, in writing, to his client 8

Statutory Duties – Authorised Person (3) OFFENCES Section 40(1AA)  knowingly contravenes section 14(1) (commence or carry out building works without approval of plans and consent to commence works)  maximum fine: $400,000  maximum imprisonment: 2 years  maximum $20,000/day for continuing offence Section 40(2A)  permits or authorises to be incorporated in or used in the carrying out of any works any materials which are defective or do not comply with the BO  deviates from the approved plan  knowingly misrepresents a material fact in any plan, certificate, form, report, notice or other document given to the BA  maximum fine: $1 million  maximum imprisonment: 3 years 9

Statutory Duties – Authorised Person (4) Section 40(2AA)  fails to notify the BA of any contravention of regulations which would result from the carrying out of any work shown in the approved plan in respect of building works  maximum fine: $250,000  no imprisonment  defence: he did not know, nor could reasonably have discovered, the contravention Section 40(5)

 any person, being a person directly concerned in or with any building works or street works, who permits the commission of any offence specified in this section shall be deemed to be guilty of such offence and shall be liable to the penalty prescribed therefor [Also new offences relating to minor works] 10

Statutory Duties – Authorised Person (5) Section 40(6)  where an offence under this Ordinance committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect or default on the part of, any director, manager, or other officer concerned in the management of the body corporate, or any person purporting to act in any such capacity, he, as well as the body corporate, is guilty of the offence Section 40(6A)  where an offence under this Ordinance committed by a partner in a partnership is proved to have been committed with the consent or connivance of, or to be attributable to any neglect or default on the part of, any other partner of the partnership, that other partner is also guilty of the offence Section 40(8)  any prosecution under the provisions of this Ordinance may be commenced within 12 months of the commission of the offence or within 12 months of the same being discovered by or coming to the notice of the BA

11

Statutory Duties – Authorised Person (6) 

12

AP is also required to follow the Practice Notes for Authorised Person (commonly referred to as PNAP) issued by BA

Contractual Duties & Authority (1) 



 

13

Civil Engineer’s role under infrastructure and engineering contracts is similar to that of Architects under building contracts. In cases of building contracts, the engineer may serve as consultant to the architect e.g. structural and E&M In a typical Engineer’s terms of engagement and construction contract, the Engineer will have two roles: agent of the Employer;  certifier These will be looked at in turn The starting point for defining the duties owed by the Engineer to the Employer and the Engineer’s authority is to look at the terms of engagement

Contractual Duties & Authority (2) Engineer’s authority 



The scope of authority of the Engineer is strictly limited to the terms of his engagement Engineer’s authority can be: express; or  implied



Instances of presence or absence of implied authority: invitation to tender contains specification, plans, drawings and BQ • no implied warranty that those documents are accurate • Engineer has no implied authority to warrant their accuracy

14

Contractual Duties & Authority (3)  



15

Engineer has no implied power to bind the Employer by acceptance of a tender As it is part of the normal duty of the Engineer to supervise work, the Engineer has implied authority to ensure that the work is carried out in accordance with the construction contract Engineer has no implied authority to waive strict compliance with the construction contract  John Liang Construction Ltd v County and District Properties Ltd (1982) • JL were contractors engaged by CDP to construct a shopping development • JCT standard form of contract • fluctuation clause provided that QS and JL may agree what shall be deemed to be the net amount payable to or allowable by JL in respect of occurrence of any event specified in the contract • the contract required notice of the relevant event to be given by JL as condition precedent • JL did not give such notice. Nevertheless, the QS agreed the amount on the claim waiving the absence of the notice • Held: QS had no authority to waive the notice requirements

Contractual Duties & Authority (4) 





Engineer has no implied authority to vary the works or to order extras. This explains why most construction contracts will contain an express variation clause Engineer has no implied authority to settle disputed claims with a contractor on behalf of the employer (Kwan Yiu Cheong alias Kwan Yiu (t/a Chong Tai Construction Co) v Efficiency Industrial Works Limited (1970)) Consequence of exceeding scope of authority  Employer not liable for the Engineer’s acts in question • Employer may ratify act

 Engineer would be personally liable to the contractor for breach of warranty of authority 16

Contractual Duties & Authority (5) Engineer’s Duties  The terms of engagement will usually set out specific duties of the Engineer. They would also usually impose a general duty as follows:“exercise all reasonable professional skill, care and diligence in the performance of all and singular the Services…”

17

Contractual Duties & Authority (6) 

18

NEC – Professional Services Contract:  Clause 10:“The Employer and the Consultant shall act as stated in this contract and in a spirit of mutual trust and co-operation.”  Section 2 of PSC sets out the core responsibilities of the parties. By Clause 21.2:“The Consultant’s obligation is to use the skill and care normally used by professionals providing services similar to the services” • although Clause 21.2 does not contain the word “reasonable”, a proper interpretation of that Clause would imply a quality of reasonableness in the obligations

Contractual Duties & Authority (7) 

19

The duties of the Engineer can by and large be categorised as:pre-contractual – design post-contractual – certification, supervision, carrying out inspections, legal compliance and acting promptly

Contractual Duties & Authority (8) 





20

The Engineer has a duty to carry out his designs with reasonable skill and care Whilst the general principle is that the Engineer does not guarantee that his designs will be fit for the intended purpose of the works, this principle is often rebutted on the terms of the subject contracts Typical problems arising with designs that may provide a good cause of action against the Engineer: the design adopts out of date methods  the design is not in accordance with the employer’s requirements  they do not comply with relevant laws/regulations

Contractual Duties & Authority (9)  the design simply fails to work • Ronald Claud Hardwick v Spence Robinson (1975)  RH engaged SR as architects to design and supervise the construction of their house at Silver Strand Beach  SR’s design of the drainage system made no calculation for rainfall and nor did it make provision for blockage during heavy rain  System designed and constructed was found to be inadequate to cope with great quantities of water and the rubble that came down the hillside during heavy rains  Held: SR was negligent

21

Contractual Duties & Authority (10)  the design involves specification of unsuitable materials • Richard Roberts Holdings Limited v Douglas Smith Stimson Partnership (1988)  RRH were the owners of a dyeworks in Leicestershire  RRH engaged DSS as architect for the design of alterations to the dyeworks  a consultant engineer specialising in dyeing equipment in particular, designing effluent tank, was not retained  DSS designed the effluent tank and used sub-standard lining  in the event, the tank lining failed shortly after installation

22

Contractual Duties & Authority (11) Held:  DSS were employed to act as architects for the creation of the dyeworks and to design the tanks. If they wished to limit their role, they should have done so expressly and in writing  DSS had fail adequately to investigate the lining proposed by the supplier. DSS did not know anything about linings. If they felt that they could not form a reliable judgment about a lining for the tank, they should have informed RRH of that fact and advised them to take other advice  The Engineer’s duty with regard to design is of a continuing nature and extends until completion “…the architect's duty of design is a continuing one, and it seems to me that the subsequent discovery of a defect in the design, initially and unjustifiably thought to have been suitable, reactivated or revived the architects' duty in relation to design and imposed upon them the duty to take such steps as were necessary to correct the results of that initially defective design.” (London Borough of Merton v Lowe (1981)) 23

Contractual Duties & Authority (12) 

The Engineer has a duty to supply drawings and information within a reasonable time  what is a reasonable time?  this is a question of fact depending on the individual circumstances on identifying the point of time at which the contractor requires the information



By Clause 6(3) of the Government Civil Engineering Works:“The Engineer shall issue to the Contractor from time to time during the progress of the Works such other Drawings and Specification as in the opinion of the Engineer shall be necessary for the purpose of the execution of the Works and the Contractor shall be bound by the same.”

24

Contractual Duties & Authority (13) Is the Engineer under a duty to give instructions as to methods of working and temporary works?  no. Unless the contract expressly stipulates to the contrary, the contractor is entitled to choose his own methods of working or temporary works  in general, the Engineer’s duty is confined to stipulating the final permanent result required and if this has already been done, he is under no further duty to assist • what if asked by contractor – permissive vs instructive  contractors may seek to demand such instructions or even threaten to discontinue working unless told what to do - there is no justification for this City of Moncton v Aprile (1980)  contractor was laying pipes  contract required contractor to submit his proposed working methods for effecting a tunnel crossing of a river for approval  after two attempts at the crossing had failed, the contractor refused to continue working without specific instructions on what to do from the Engineer  the employer terminated the contract with the contractor on the ground that the contractor had failed to proceed expeditiously  Held: there was no duty for the Engineer to give instructions and hence the termination was valid



25

Contractual Duties & Authority (14)  Can the Engineer then simply turn a blind-eye if he sees the contractor using or proposing a method of working which he considers potentially unsafe or likely to fail in its intention? • The Engineer’s duty to the employer will require him to balance the advantage to the employer of the method he himself prefers against the fact that by intervening and giving an instruction, he may expose the employer to a financial claim if the contractor can show that his own method would have been equally efficacious • the following circumstances may warrant the Engineer’s intervention in the contractor’s methods of working or temporary works: contractor’s methods of working are contrary to what is specified in the specification  contractor’s method is likely to compromise the quality of the permanent work  contractor’s method is unsafe 26

Contractual Duties & Authority (15) 





27

Supervision - three principal areas: prevention, detection and correction of any defective work  intervention in the contractor’s working methods or temporary works  correction of original design errors The Engineer is required to exercise due care during construction to ensure that the materials and workmanship conform to the contractual requirements A higher degree of supervision will be required where inferior work by the contractor has already been seen or reported:“I think that the degree of supervision required of an architect must be governed to some extent by his confidence in the contractor. If and when something occurs which should indicate to him a lack of confidence in the contractor, then, in the interest of his employer, the standard of his supervision should be higher.” (Sutcliffe v Chippendale and Edmondson (a firm) (1971))

Engineer as Certifier (1) 

Apart from being the employer’s agent, there will be certain circumstances in which the Engineer will act as a certifier “ Many matters may arise in the course of the execution of a building contract where a decision has to be made which will affect the amount of money which the contractor gets. Under the RIBA contract many such decisions have to be made by the architect and the parties agree to accept his decisions. For example, he decides whether the contractor should be reimbursed for loss under Clause 11 (variation), Clause 24 (disturbance) or Clause 34 (antiquities); whether he should be allowed extra time (Clause 23); or when work ought reasonably to have been completed (Clause 22). And, perhaps most important, he has to decide whether work is defective. These decisions will be reflected in the amounts contained in certificates issued by the architect. The building owner and the contractor make their contract on the understanding that in all such matters the architect will act in a fair and unbiased manner and it must therefore be implicit in the employer's contract with the architect that he shall not only exercise due care and skill but also reach such decisions fairly, holding the balance between his client and the contractor …” (Sutcliffe v Thackrah (1974))



As between the employer and the contractor, the employer does not warrant that the certifier will be skilful or confident  the employer only warrants that the certifier will be honest and independent in exercising his function as a certifier

28

Engineer as Certifier (2) 







29

The employer will therefore be in breach of contract with the contractor if it exerts pressure or seeks to influence the Engineer in reaching his decision as a certifier The Engineer owes a duty to the employer to act fairly in the certification process and he is to exercise skill and care in so acting The Engineer is not an arbitrator in performing his role as a certifier  negligent certification will amount to breach of the duty of skill and care On the other hand, the certifier owes no direct duty to the contractor as there is no direct contract between the certifier and the contractor  usually, a construction contract will make provision for the contractor to challenge a certificate which they disagree. The contractor will have direct course against the employer for erroneous certificate and for breaches associated with the certification process

Engineer as Certifier (3) 

Pacific Associates v Baxter (1988)  Ruler of Dubai was the employer and Pacific was the contractor for dredging and reclamation work in the Persian Gulf. Baxter was the Engineer  FIDIC International Civil Engineering Conditions were used which had an arbitration clause  Condition 86 contained a disclaimer provision:“neither any member of the Employer’s staff nor the Engineer nor any of his staff, nor the Engineer’s Representative shall be in any way personally liable for the acts or obligations under the Contract, or answerable for any default or omission on the part of the Employer in the observance or performance of any of the acts, matters or aims which are herein contained.”

 the work was delayed and Pacific may claims for EoT and additional expenses which were rejected by the Engineer. The claims were ultimately referred to arbitration and the Employer paid ￡10 million in settlement of Pacific’s claim  then Pacific commenced legal proceedings against the Engineer for ￡45 million being the balance unrecovered from the Employer alleging negligence and/or breach of duty by the Engineer to act fairly and impartially in administrating the contract  the Engineer sought to strike out the Statement of Claim on the ground that it did not disclose a reasonable cause of action and was an abuse of the Court’s process 30

Engineer as Certifier (4)



31

 Held: application allowed • the fact that there was a disclaimer and also an arbitration clause for challenging a certificate issued by the Engineer suggested that the Engineer did not assume a responsibility to the contractor  often construction contracts contain an arbitration clause. Where this is not the case, it may be arguable that the decision in Pacific Associates is not applicable The decision in Pacific Associates was followed in the Hong Kong decision of Leon Engineering and Construction Co Ltd v Ka Duk Investment Co Ltd (1989)  Leon sued the employer on a building contract and sought to join the Architect as a 2nd defendant  Leon claimed that the Architect was negligent – that the Architect owed a duty of care to the main contractor to give proper, timely and impartial consideration to the contractor’s claims and issue all certificates in accordance with the building contract. In performing those duties, Leon claims that the Architect had been negligent

Engineer as Certifier (5) In refusing Leon’s application to join the Architect, the Court held:“The principle which I extract from the Court of Appeal’s decision in Pacific Associates v Baxter is one which I would state in these terms: Where, first, there is adequate machinery under the contract between the employer and a contractor to enforce the contractor’s rights thereunder and, secondly, there is no good reason at tender stage to suppose that such rights and machinery would not together provide the contractor with an adequate remedy, then, in general, a certifying architect or engineer does not owe to the contractor a duty in tort coterminous with the obligation in contract owed to the contractor by the employer...” 32

Engineer’s liability to contractor?  

33

A certifier owes no duty of care to the contractor But there may be a cause of action against a certifier for wrongful interference with contract  essential ingredients:• knowledge of the existence of the contract • intention to interfere with the performance of it • doing of unlawful acts • causing a breach of the contract or the non-performance of primary obligation in consequence  Lubenham Fidelities & Investment Co v South Pembrokeshire District Council (1986) • Architects made wrong deductions in interim certificates • Court held:“We would not accept the broad contention that an architect, in effecting an interim valuation under this form of building contract, could never in any circumstances expose himself to a claim under this head of tort.”  John Mowlem & Co plc v Eagle Star Insurance Co Ltd (1992)  no decided cases yet holding the Architect/Engineer liable

Tort of Negligence (1) 

Essential ingredients:duty of care breach of that duty breach caused damage loss foreseeable

 

Physical damage Economic loss sufficient proximity between the parties and that it is just and reasonable to impose liability assumption of responsibility

34

Tort of Negligence (2) 

Relationship with contractual duty concurrent liability usually not more extensive than that imposed by the terms of contract between the parties



Why is it necessary to pursue 2 causes of action? different limitation periods • contract • tort

35

: 6/12 years from breach : 6 years from damage

Standard of Care (1) 







36

The Bolam test:- whether the defendant has acted in accordance with practices that are regarded as acceptable by a respectable body of opinion in the same profession Bolam v Friern Hospital Management Committee (1957) “Where you get a situation which involves the use of some special skill or competence … the test is the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest expert skill … it is sufficient if he exercises the ordinary skill of the ordinary competent man exercising that particular art.” The law does not require a professional man that he be a “paragon, combining the qualities of polymath and prophet” To be liable, the Engineer must have failed to exercise the standard of care required of him

Standard of Care (2) 





37

The normal measure of an Engineer’s skill is that of an ordinarily skilled Engineers If the majority of Engineers would (under the circumstances) have done the same thing, this normally provides a good defence  a defendant charged with negligence may be able to clear himself if he shows that he acted in accord with general and approved practice  however, standard practice in the industry may not be enough to exonerate a defendant from liability Where there is no one accepted practice, the Engineer will not be negligent if he acted in accordance with a practice accepted to be proper by a responsible body of Engineers, even if another body of competent professional opinion considered the practice wrong

Standard of Care (3) 



 

38

If a course proposed by the Engineer is in accordance with competent practice but has risk, the ordinarily competent engineer should warn his client of such risks If the possibility of damage emerging is reasonably apparent, then to take no precautions is negligence even though others in like circumstances had in the past not taken precautions Error of judgement does not equate negligence Significant departure from Code of Conduct is prima facie evidence of falling below the standard of care

Thank you for your participation 

39

Any Questions?