Martel building Ltd. v. Canada, [2000] 2 S.C.R. 860, 2000 SCC 60, 2000 SCC 60 (2000)

Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860

Her Majesty The Queen Appellant v.

The Martel Building Ltd. Respondent

Indexed as: Martel Building Ltd. v. Canada

Neutral citation: 2000 SCC 60.

File No.: 26893.

2000: February 17; 2000: November 30.

Present: McLachlin C.J. and Gonthier, Iacobucci, Major, Bastarache, Binnie and Arbour JJ.

on appeal from the federal court of appeal

Torts - Negligence - Economic loss - Whether Canadian law recognizes duty of care on parties in commercial negotiations - Whether tort of negligence extends to damages for pure economic loss arising out of conduct of pre-contractual negotiations.

Torts - Negligence - Economic loss - Whether tender-calling authority owed duty of care to bidders in drafting tender specifications - Whether sphere of recovery for pure economic loss should be extended to cover circumstances surrounding preparation of tender specifications.

Contracts - Tenders - Obligation to treat all bidders fairly - Whether tender-calling authority breached its implied contractual duty to treat all bidders fairly and equally - If so, whether bidder's loss caused by contractual breach.

The respondent leased most of a building to the appellant. Prior to the end of the lease, the respondent's CEO met a subordinate of the appellant's Chief of Leasing to discuss renewing the lease. The appellant instructed its Chief of Leasing to obtain a proposed rental rate even though it intended to commence a tender process but no action was taken. The Chief of Leasing did not contact the respondent when directed to report on the status of negotiations and, at monthly meetings, led the appellant to believe that a proposed lease rate was forthcoming but nobody informed the respondent of this expectation. The respondent's CEO twice contacted the appellant, resulting in a meeting which the CEO believed was to commence negotiations but in which the appellant maintains that it told the CEO that it would proceed to tender unless it received a very attractive offer. The CEO presented proposed rental rates that fell outside a range suggested by an appraisal commissioned by the appellant. The appellant set a date to complete negotiations and, when that date passed, began steps to approve a tender by preparing a report. The report first recommended a lease renewal but no final decision was made before a revised report recommended proceeding to tender due to declining market rental rates. Approval for a tender was obtained. The CEO heard rumours that a tender was to begin and telephoned the Chief of Leasing. The parties met the same day an expression of interest was advertised to solicit interest in the tender. The CEO said he left the meeting with an understanding that the appellant would recommend a lease renewal if he offered a rate of $220 per square metre. Two days after the meeting, he advised the Chief of Leasing that he could offer that rate; however, the appellant decided that remaining terms would have to be settled that day. The respondent could not respond that quickly. Its offer was rejected and tender documents were issued. Under the terms of the call for tenders the appellant was not obligated to accept the lowest bid. The respondent submitted the lowest of four bids. The appellant conducted a financial analysis of the bids to consider the total costs that would be incurred as a result of accepting any one tender and added to the respondent's bid approximately $1,000,000 for fit-up costs and $60,000 to cover the installation of a secured card access system. The tender was awarded to a competitor.

The Federal Court, Trial Division found that the appellant owed and breached a duty of care in its conduct of the negotiations but that the respondent had failed to prove that the appellant's negligence caused the respondent to lose the lease renewal. The Federal Court of Appeal acceded to the respondent's tort claim. The court held that a duty of care had been breached not only in the context of the negotiations, depriving the respondent of the opportunity to negotiate a renewal of the lease, but also in the context of the tender, depriving the respondent of both the opportunity to participate fairly in the tender process and of a reasonable expectation of being awarded the contract. The court concluded that a causal link clearly existed between the respondent's loss and the appellant's negligence.

Held: The appeal should be allowed.

Although the common law traditionally did not allow recovery of economic loss where a plaintiff had suffered neither physical harm nor property damage, the law now recogniz...

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