Why do graduate engineering schools ask for academic reference letters? I'm applying to study a master of engineering in Canada from Australia. As part of my application I'm required to provide two reference letters. 

Now universities in Australia are very commercialized. Even in my third year courses, there are at least 300+ students in a course. I don't see the professors outside of lectures and consultations and as a result I am not 'close' with any professors. I was volunteering and working a lot during my undergrad degree and have thus provided my work and volunteering supervisors as referees. The enrollment team have responded by rejecting my referees and asking me to provide academic referees instead.

I am really frustrated by this as I fail to comprehend the purpose for academic referees in engineering degrees. If it's my academic performance you want to see, you have my transcript for that. If it's my character and capabilities, my supervisors knows it better than any professor ever could.

The only explanation that I can come up with is that this is an outdated system from a time when there were few students at universities and professors back then had closer relationships with students than they do now. 

I know this feels like a rant but I am genuinely interested to hear the story from an enrollments perspective. why would graduate engineering schools ask for reference letters specifically from academics?
I agree that references do not have to be from academics. That seems like an arbitrary restriction, though I can see how it makes sense to have at least one of your letter writers have a background in academia -- after all, you're applying to a university.

Why do admissions committees require letters to begin with? Because graduate school is different from undergraduate. It requires you to show creativity, initiative, independence. Only having good grades in undergraduate is not enough, so the transcript by itself only provides one piece of the picture. In addition, more students have good grades than can be admitted to graduate school -- so admissions committees have to have additional criteria to select from all candidates.