Liability issues – Avoiding litigation through mediation and arbitration

April 4, 2018 | Philip A. Carson | Calgary

Canadian Consulting Engineer

An engineer has several ways to protect itself from liability, including working only within defined areas of practice competence, careful peer review to limit errors, comprehensive insurance, and careful contracting to limit liability exposure.

An engineer is best served by negotiating contractual terms that include a well defined scope of work and defined events that require field review. A contract should include limitations of liability that, among other things, exclude consequential damages and limit liability to the policy limits of the engineer’s liability insurance. Last but not least, a contract should include defined dispute resolution procedures.

While there are many steps that can be taken to protect an engineer in the event of a dispute, there is little that an engineer can do to prevent litigation when faced with a determined claimant. Binding arbitration can be an effective dispute resolution mechanism, as it is generally a faster and less expensive process than court, and is final with little room for appeal. As well, the proceedings and outcome in arbitration are confidential.

The commitment to proceed to arbitration is almost always made at the contracting stage with the inclusion of an arbitration clause in the agreement. As an example, the ACEC Document 31 – Engineering Agreement between Client and Engineer, contains mandatory arbitration wording that refers disputes to arbitration under CCDC40 “Rules for Mediation and Arbitration”. Accordingly, all disputes between the owner and engineer will be decided in arbitration.

The difficulty arises when the dispute involves more parties than just the engineer and owner, as arbitration can be compelled only among parties who have all agreed to arbitrate. If even one party to the dispute is not bound by arbitration, a court will be unlikely to require the parties to proceed through arbitration.

In many situations, such as building construction, claims against engineers can come from several directions and several parties. An owner may dispute the fees, or have claims related to the function, operation or cost of the completed project. A general contractor or subcontractor may have a claim against the owner or general contractor for extras or delays, and then the owner blames the engineer and everyone blames the subcontractors. It is not unusual for claims to involve six or more parties. In those kinds of circumstances it may be nearly impossible to bind all parties to arbitration after the fact.

With careful planning and cooperation between the owner and engineer, binding all parties to arbitration can be achieved at the contracting stage by using an integrated set of contracts that have mutually compatible arbitration provisions. If the prime consultant is involved in developing and issuing tender documents, the prime consultant should have some influence over the contract documents.

As an example, the CCDC forms of agreement provide for arbitration as between the owner and general contractor. The accompanying trade subcontract issued by the Canadian Construction Association (“CCA 1- stipulated price subcontract”) mirrors the arbitration provisions in the CCDC forms of agreement, and they all reference CCDC40 “Rules for Mediation and Arbitration” as the guide for dispute resolution. Most importantly, the subcontractor is bound to arbitration in a dispute that involves the owner and the general contractor. If the contracting is consistent throughout the contracting chain, a multi-party dispute can be arbitrated.

Similar wording can be incorporated in the engineer’s contract and in the various contractor and subcontractor documents to ensure that all disputes proceed through arbitration. Where industry standard contracts are not used, customized contract documents can build in the same kind of wording. It is essential that any customized contracts be reviewed by a lawyer and that they prescribe mutually consistent mechanisms for arbitration.

Mediation is a process by which a mediator facilitates a settlement meeting and tries to bring the parties to a negotiated resolution. Regardless of whether a contract requires mediation, parties often refer their disputes to mediation in an effort to avoid litigation. The best way for multi-party disputes to be effectively resolved is through mediation, as the expense and time required for a trial can be prohibitive.

There is a saying that a good mediated outcome is one where all of the parties are equally disappointed by the agreed result. Essentially, all parties have to be prepared to concede something in the interest of avoiding risk, expense and time commitments.

Disputes cannot be avoided, but with good planning at the contracting phase an engineer and owner can set the stage for efficient dispute resolution.


This article was published in the March/April edition of the CCE magazine