Watch out for ''return the favour'' practices!

April 2006

Watch out for ''return the favour'' practices!

bouton-vers-francaisIn business, one often hears the expression "return the favour." While this approach can rightfully enable a business to progress, a recent decision has specified that it is unacceptable for engineers to make it a systematic practice.

Accordingly, in the case of IMS Experts-Conseils inc. (IMS) v. Consultants VFP inc. (VFP), it was decided that an agreement which stipulated there would be an exchange of a comparable volume of fees over three years between two businesses offering engineering services was illegal as contrary public order. To better understand this decision the facts can be summarized as follows :

IMS wanted to do business more closely with VFP and, ultimately, to enter into a partnership with them. Since IMS had obtained a large contract, discussions were entered into to retain, in particular, the services of the technicians of VFP.

At the beginning of the month of June 1998, the parties agreed to jointly collaborate on any large-scale projects they might receive. The agreement provided for a certain amount of fees that could be given to VFP. In addition, a clause was added stating that there would be a retrocession of gross profits if a comparable volume of fees was not offered in exchange, via sub-contract, over a three year period.

At the end of the month of June 1998, the parties signed an offer of services specifying that the project would be carried out by IMS, and that VFP would supply the manpower by subcontract to fill positions as needed. Several months later, a contract was entered into between the two parties, by which IMS retained the services of several of VFP’s technicians to work on IMS premises.

Between June 1998 and 2001, VFP never « returned the favour » despite the agreement entered into at the beginning of June 1998. IMS therefore claimed more than $300 000 from VFP, an amount corresponding to the gross profits earned by VFP as a result of contracts granted by IMS.

The judge focussed firstly on the validity of the clause providing for the retrocession of gross profits in light of the provisions of the Code of ethics of engineers. In this respect, VFP’s lawyers argued that the clause contravened articles 3.03.04 and 3.05.04 regarding conflicts of interest. It should be noted that these provisions state that an engineer may not cease to act for the account of a client unless he has just and reasonable grounds to do so. Accordingly if he is in a situation of conflict of interest or in a situation whereby his professional independence could be called into question. he must advise his client, who can authorize him to continue the mandate.

The judge did not uphold this first argument as allowing the annulment of the clause in question because if it is possible for the client to authorize the engineer to continue the mandate, it can not be held that these articles are of public order.

The second argument drawn from the Code of ethics of engineers refers to article 3.05.02, which states:  

« 3.05.02: Any engineer must ignore any intervention by a third party which could influence the performance of his professional duties to the detriment of his client.

Without restricting the generality of the foregoing, an engineer shall not accept, directly or indirectly, any benefit or rebate in money or otherwise from a supplier of goods or services relative to engineering work which he performs for the account of a client. »

Since this article does not provide for the possibility of contravening it with the client’s consent, the judge decided that it is of public order, and that the retrocession clause is incompatible with the requirements of independence and integrity characteristic of professionals. The IMS claim was therefore rejected.

It should be noted that this decision was appealed, and must therefore be followed to know whether the judgment of the trial court will be overturned. However it is a reminder to all professionals of the importance of their duty towards the public. While profitability must play an important role in sound business management, one should not lose sight of the duties professionals have towards their professional associations and the public in general.

Nevertheless this decision does not prohibit all « return the favour» practices. It does however, highlight the fact that while this type of practice can create a moral obligation to those who submit to it, it can not create an obligation subject to sanction by the courts. This type of practice may also give rise to an ethics complaint.

N.B. In 2007, this decision was confirmed by the Court of Appeal.

This bulletin provides general comments on recent developments in the law. It does not constitute and should not be viewed as legal advice. No legal action should be taken on the basis of the information contained herein.

 

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