All businesses develop expertise through experience. Businesses are entitled to use general expertise developed on one project to obtain the next.

Client cannot obtain injunction to prevent consultant from working on competing project

by Michael MacKay

The Canadian Transit Company v. Ravi Girdhar and Earth Tech (Canada) Inc.

Engineer-client relationship • client alleged engineering consultant owed it a fiduciary duty, and that working on alleged competing project would be an inescapable conflict of interest • client sought injunction to prevent consultant from working on competing project • consultant not a fiduciary • injunction refused

In this recent decision, an appeal from an order dismissing a motion for an interlocutory injunction (i.e., a court order to prevent Earth Tech from temporarily working on a competing project until the ongoing lawsuit has been concluded), the Ontario Divisional Court gives direction on two legal issues of interest to the construction industry: first, whether the engineer-client relationship is inherently a fiduciary one; and secondly, the appropriate test for granting an injunction to prevent a consultant from working on a competing project.

The Facts

Canadian Transit Company operates the Ambassador Bridge between Windsor and Detroit. Earth Tech (Canada) Inc. is a consulting engineering firm. Earth Tech had prepared three studies on roadway access to the Ambassador Bridge for CTC. (Ravi Girdhar was an employee of Earth Tech).

Earth Tech was later retained as a subconsultant to analyse traffic flow to the Peace Bridge between Fort Erie, Ontario and Buffalo, New York.

CTC sued Earth Tech and its employee Girdhar for breach of fiduciary duty, breach of a confidentiality agreement, and negligence. CTC alleged the Peace Bridge was a direct competitor to the Ambassador Bridge, and that Earth Tech owed a fiduciary duty not to work for CTC’s direct competitors. (A fiduciary is someone, like a trustee, who owes a special obligation to another to act primarily for the other’s benefit, not his or her own self-interest. It is a much higher legal duty than that owed between contracting parties generally).

CTC’s claims, even if successful at trial, would only result in money damages.

Where time is of the essence, and the payment of money damages would be too late to prevent irreparable harm, a party may apply to the court on an urgent basis for an interlocutory injunction — a court order preventing the other party from doing something until the case reaches trial. CTC did just that.

The Original Motion for an Injunction

In May 2001, shortly after it started the lawsuit, CTC sought an injunction against Earth Tech to prevent it from acting as consultant on the Peace Bridge project.

The Supreme Court of Canada, in RJR-Macdonald Inc. v. Canada (Attorney General), set out the three factors that must be satisfied for the court to grant an injunction:

• there must be a serious issue to be tried;
• the party seeking the injunction will suffer irreparable harm that cannot be adequately compensated by money damages if the court does not grant the injunction; and
• the balance of convenience favours granting the injunction.

Mr. Justice Day heard the motion on May 14, 2001, and made his order refusing an injunction on May 17. He gave two reasons for his order. First, Justice Day was not satisfied that CTC would suffer irreparable harm: the risk of disclosure of confidential information causing irreparable harm was purely speculative, and that was not sufficient. Secondly, he found that the balance of convenience favoured Earth Tech, which would lose the Peace Bridge contract if the injunction were granted.

The Appeal

CTC appealed. It argued on appeal that Earth Tech was a fiduciary; and it was an implied term of its contract with CTC that Earth Tech would not act in a conflict situation.

Having failed to establish irreparable harm and a balance of convenience in its favour, CTC argued that the recent decision in Drabinsky v. KPMG et al., established the rule that the court need not consider those two factors to grant an injunction where a fiduciary is in a direct conflict of interest. A fiduciary has effectively promised not to compete, and the court should enforce its promise by granting an injunction.

Mr. Justice Lane, writing for the Divisional Court, first noted that “[f]iduciary duties can arise from inherently fiduciary relationships” such as “…principal and agent, trustee and beneficiary, solicitor and client”. He concluded “[e]ngineering advisors are not inherently fiduciaries”. The client-engineer relationship does not automatically give rise to a fiduciary duty on the engineer towards the client.

Where the relationship is not inherently fiduciary, “[t]he determination of the scope of a fiduciary duty depends on the particular facts of the case”. At law, a fiduciary relationship exists where there is “…evidence of a mutual understanding that one party has relinquished its own self interest and agreed to act solely on behalf of the other party” or “where one party…gains a position of overriding power or influence over another party”. Justice Lane cited the Alberta Court of Appeal decision in Terra Energy Ltd. v. Kilborn Engineering Alberta Ltd., which said:

…the professional engineer-client relationship along with all its attendant duties imposed by the … Code of Ethics, does not, by and of itself, place a fiduciary duty on the professional engineer. The…Act and…the Code of Ethics do not place the engineer in a position of overriding power and influence over the client. [Emphasis added.]

Justice Lane concluded that the facts here did not make Earth Tech a fiduciary of CTC:

These two bridge projects are hundreds of kilometers apart, the duties of the engineers are to study two different road systems for two different clients. The information as to one is not transferable to the other. The skill acquired by the engineers in performing various projects is theirs, not their clients. There can be no complaint about the defendant using skill acquired at Windsor in its work at Fort Erie, so long as it does not use confidential information.

The conflict that allegedly motivated CTC to seek the injunction was CTC’s, not Earth Tech’s: CTC said it was concerned it would have to attack Earth Tech’s methodology to advance its alternative to the Peace Bridge, while at the same time supporting the validity of Earth Tech’s methodology on the Ambassador Bridge project. CTC sought the injunction so that it could avoid taking mutually contradictory positions.

All the judges deciding this case simply felt that the two bridges were simply too far apart to be directly competitive. To grant an injunction in these circumstances would unduly restrict Earth Tech’s ability to do business.

Practical Results

Court decisions are sometimes like the tip of the iceberg.

CTC was in fact trying to compete directly with the Peace Bridge. In the first trial, Justice Day mentioned CTC’s pending “bid for the Peace Bridge project…”. On June 15, 2001, the Buffalo News reported that “the Ambassador Bridge operators are pursing the idea of building their own bridge across the Niagara River”.

For Earth Tech, success in court did not translate to success in the real world. The Buffalo News report disclosed that because of CTC’s lawsuit, the Peace Bridge Authority retendered the consultant’s contract. It hired the same prime consultant, but with another subconsultant in place of Earth Tech. CTC’s legal action had the practical success of both delaying the Peace Bridge project and getting Earth Tech removed from it.

The significant legal costs of twice losing an injunction application might prove to be worth it if CTC’s proposal comes to fruition. If not, at least CTC’s legal costs are deductible business expenses.

Conclusion

CTC has only lost the battle, it has not lost the war. If the lawsuit does not settle, CTC may yet prove at trial that, in the particular circumstances of this case, Earth Tech did owe a fiduciary duty to CTC. That result seems unlikely.

All businesses develop expertise through experience. Businesses like Earth Tech are entitled to use general expertise developed on one project to obtain the next. CTC’s argument, which would severely limit this practice, would be a deadly proposition for consultants and other businesses if the court accepted it. CTC’s logical fallacy is obvious if you substitute a hypothetical Toronto office building for an international bridge. That is, could the owner of an office building tell a consultant: “You can’t be involved in the design of any other office buildings in Toronto — because they will be competing with our building for tenants?”

Ontario Divisional Court
   Lane, Dunnet, and Lax JJ.
   June 12, 2002