Martel Building Ltd. v. Canada

Martel Building Ltd. v. Canada
Collection
Supreme Court Judgments
Date
2000-11-30
Neutral citation
2000 SCC 60
Report
[2000] 2 SCR 860
Case number
26893
Judges
McLachlin, Beverley; Gonthier, Charles Doherty; Iacobucci, Frank; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil; Arbour, Louise
On appeal from
Federal Court of Appeal
Subjects
Contract
Torts
Notes
SCC Case Information: 26893
Decision Content
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 recognizes five categories of compensable economic loss. The respondent’s allegation of negligence in the conduct of commercial negotiations does not fall within these categories. That by itself, however, does not preclude the claim since the categories of economic loss are not closed. To enlarge the categories or identify a new head of economic loss it is useful to set out a framework that emphasizes policy considerations in any case. In determining whether to extend a duty of care in an area not previously categorized, the flexible two-stage analysis set out in Anns should be applied. Here, the relationship between the parties gave rise to a prima facie duty of care. Proximity is indicated by the pre-existing lease arrangement, the parties’ communications, and evidence of genuine and mutual contracting intent. Even in the absence of any serious potential for indeterminate liability, however, there are a number of ancillary policy considerations that necessitate precluding the extension of the tort of negligence into commercial negotiations. First, the goal of commercial negotiations is often to realize a financial gain at the expense of the other party. Second, socially and economically useful conduct could be deterred by depriving a party of any advantageous bargaining position. It would defeat the essence of negotiation and hobble the marketplace to label a party’s failure to disclose its bottom line, its motives or its final position as negligent. Third, tort law could become after-the-fact insurance against failures to act with due diligence or to hedge risk of failed negotiations through the pursuit of alternative strategies or opportunities. Fourth, the courts would assume a significant regulatory function — scrutinizing the minutia of pre-contractual conduct — when other causes of action provide alternative remedies. Fifth, needless litigation should be discouraged. In the circumstances of this case, any prima facie duty of care is outweighed by the deleterious effects that would be occasioned through an extension of a duty of care into the conduct of negotiations.
With respect to the tendering process, the preparation of tender documents and the subsequent evaluation of bids involve different considerations, and each event must, to a certain extent, be analysed separately. A call to tender is an offer to contract whereas a binding contract may arise once a responsive bid is submitted for evaluation. Express obligations based on terms in tender documents and implied obligations based on custom, usage or the presumed intention of the parties may arise once a bid is submitted. The parties in this case intended to initiate contractual relations by the call for and submission of the tender and to include an implied term to treat all bids fairly and equally. A privilege clause reserving the right not to accept the lowest or any bids does not exclude the obligation to treat all bidders fairly. The tender documents must be examined to determine the extent of this obligation. Here, these documents conferred upon the appellant significant latitude in evaluating the tenders. No contractual breach can be found in relation to the addition of fit-up costs to the respondent’s bid since the appellant was expressly entitled to add fit-up costs which it deemed necessary. Furthermore, fit-up costs were added to all bids, using the same standard or method of calculation. In this regard, the appellant complied with its implied contractual obligation to treat all bidders fairly and equally. There is no evidence of any colourable attempt to use fit-ups to achieve a desired result. The appellant could also add costs to the respondent’s bid for a contiguous space specification because this was an express requirement in the tender document to which all bidders had to comply. The appellant did breach its duty to treat all bids fairly by adding the cost of a secured card system solely to the respondent’s bid. Damages for this breach, however, are precluded for want of causation because this did not cause the respondent to lose a reasonable expectation of winning the tender. Even without this cost addition, the respondent’s bid was significantly greater than the winning bid.
A tendering relationship is defined by contract and in this case the contract analysis subsumes any duty of care the respondent seeks to have recognized under tort law. While an action in tort may lie notwithstanding the existence of a contract, in assessing whether a tortious duty should be recognized where a contract defines the rights and obligations of the parties, courts will look to the contract as informing any duty in tort law. Here, the tort claim by the respondent cannot succeed for the same reasons that the contractual claim failed. Nor did the appellant breach a duty of care in drafting the tender specifications by including a contiguous space requirement. The trial judge’s findings do not support the respondent’s claim that this requirement had been mistakenly added to the specifications. The respondent also conceded that the requirement was one with which all other bidders needed to comply. Further, absent the contiguous space requirement, the respondent’s bid would still have been more expensive than the successful bid. Costs not attributable to this requirement made the respondent’s bid uncompetitive. In any event, the appellant did not owe the respondent a duty of care in drafting the tender specifications. The respondent’s claim that the tender specifications were prepared negligently alleges a duty in an area not previously recognized and the Anns two-step analysis indicates that the sphere of recovery for pure economic loss should not be extended to cover the circumstances surrounding the preparation of the tender specifications in this case. Assuming without deciding that sufficient proximity existed between the parties, any prima facie duty of care is negated by policy considerations. In particular, the integrity of the tender process would become questionable if, by reason of a past relationship with, or special knowledge of, a potential bidder, there could be an enforceable obligation to take the interests of that particular bidder into account. It is imperative that all bidders be treated on an equal footing.
Cases Cited
Applied: Anns v. Merton London Borough Council, [1978] A.C. 728; referred to: D’Amato v. Badger, [1996] 2 S.C.R. 1071; Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189; Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021; Cattle v. Stockton Waterworks Co. (1875), L.R. 10 Q.B. 453; Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85; Kamloops (City of) v. Nielsen, [1984] 2 S.C.R. 2; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210; Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165; B.D.C. Ltd. v. Hofstrand Farms Ltd., [1986] 1 S.C.R. 228; Just v. British Columbia, [1989] 2 S.C.R. 1228; The Queen in Right of Ontario v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111; M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619; Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; Best Cleaners and Contractors Ltd. v. The Queen, [1985] 2 F.C. 293; Chinook Aggregates Ltd. v. Abbotsford (Municipal District) (1989), 35 C.L.R. 241; Martselos Services Ltd. v. Arctic College (1994), 111 D.L.R. (4th) 65, leave to appeal refused, [1994] 3 S.C.R. viii; Northeast Marine Services Ltd. v. Atlantic Pilotage Authority, [1995] 2 F.C. 132; Tarmac Canada Inc. v. Hamilton-Wentworth (Regional Municipality) (1999), 48 C.L.R. (2d) 236; Vachon Construction Ltd. v. Cariboo (Regional District) (1996), 136 D.L.R. (4th) 307; Health Care Developers Inc. v. Newfoundland (1996), 136 D.L.R. (4th) 609; Murphy v. Alberton (Town) (1993), 114 Nfld. & P.E.I.R. 34; Kencor Holdings Ltd. v. Saskatchewan, [1991] 6 W.W.R. 717; Colautti Brothers Marble Tile & Carpet (1985) Inc. v. Windsor (City) (1996), 36 M.P.L.R. (2d) 258; Yorkton Flying Services Ltd. v. Saskatchewan (Minister of Natural Resources), [1995] 9 W.W.R. 184; Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; Queen v. Cognos Inc., [1993] 1 S.C.R. 87; BC Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; Twin City Mechanical v. Bradsil (1967) Ltd. (1996), 31 C.L.R. (2d) 210, rev’d (1999), 43 C.L.R. (2d) 275; Ken Toby Ltd. v. British Columbia Buildings Corp. (1997), 34 B.C.L.R. (3d) 263, rev’d (1999), 62 B.C.L.R. (3d) 308.
Authors Cited
Cherniak, Earl A., and Elissa How. “Policy and Predictability: Pure Economic Loss in the Supreme Court of Canada” (1999), 31 Can. Bus. L.J. 209.
Feldthusen, Bruce. “Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow” (1990-91), 17 Can. Bus. L.J. 356.
Feldthusen, Bruce. Economic Negligence: The Recovery of Pure Economic Loss, 4th ed. Toronto: Carswell, 2000.
Feldthusen, Bruce. “Liability for Pure Economic Loss: Yes, But Why?” (1999), 28 U. W. Austl. L. Rev. 84.
Linden, Allen M. Canadian Tort Law, 6th ed. Toronto: Butterworths, 1997.
Wallace, I. N. Duncan. “Contractual Relational Loss in Canada” (1998), 114 L.Q.R. 370.
APPEAL from a judgment of the Federal Court of Appeal, [1998] 4 F.C. 300, 229 N.R. 187, 163 D.L.R. (4th) 504, [1998] F.C.J. No. 1031 (QL), setting aside a judgment of the Trial Division (1997), 129 F.T.R. 249, [1997] F.C.J. No. 483 (QL), dismissing the plaintiff’s action. Appeal allowed.
David Sgayias, Q.C., and F. B. Woyiwada, for the appellant.
James H. Smellie and M. Lynn Starchuk, for the respondent.
The judgment of the Court was delivered by
1 Iacobucci and Major JJ. — This appeal calls for an extension of the tort of negligence to include a duty of care on parties during negotiations, during the preparation of calls for tender and during the evaluation of bids submitted in response to such calls. In each instance the respondent sought damages for pure economic loss.
I. Factual Background
2 The respondent, The Martel Building Limited (“Martel”), is the owner of a building at 270 Albert Street in the City of Ottawa (“Martel Building”). The National Capital Region Division of the Department of Public Works (“Department”) leased most of the rentable space in the Martel Building under a 10-year lease with an expiration date of August 31, 1993. The lease contained an option for renewal.
3 The Department was responsible for contracting for space on behalf of government agencies such as the Atomic Energy Control Board (“AECB”), the principal physical tenant in this case.
4 The Department is divided into a number of branches with varying roles in the administration of its Public Works function. Here, two branches of the Department were involved: the Realty Services Branch and the Accommodation Branch. Two sections of the Accommodation Branch played a role. The Asset Management Section ascertained space requirements. The Investment Management Section (“Accommodation (IM)”) evaluated the options available to the Crown. The Realty Services Branch included a “Leasing” department that negotiated with landlords for the acquisition of space on behalf of the Crown and informed the Accommodation Branch of the conditions of the relevant rental market, in this case Ottawa.
5 For ease of reference, nothing will be lost in these reasons by referring to all the government divisions as the Department.
6 Prior to the expiration of the lease, Martel’s President and Chief Executive Officer, Mr. McMurray, arranged to meet with Mr. Séguin, the Chief of Leasing for the Department, to negotiate a renewal. In March of 1991, Mr. McMurray met with Mr. Bray, a subordinate of Mr. Séguin. He informed him of Martel’s desire to negotiate a renewal of the lease and provided him with a copy of Martel’s proposed “retrofit” of the Martel Building, which it hoped to complete in conjunction with a renewal of the lease to complement recent “fit-ups” completed by the tenant AECB. A “retrofit” is a renovation of the common areas of a building generally undertaken by the landlord. In contrast, a “fit-up” represents leasehold improvements undertaken by a tenant with respect to the space it usually occupies exclusively.
7 In May 1991, Mr. McMurray wrote to Mr. Séguin, reiterating the contents of the prior meeting with Mr. Bray. In June, Mr. Séguin reported to Mr. Ratcliffe, the Acting Director of Accommodation (IM), that Martel was interested in renegotiating its lease and inquired whether the Department would be interested in a renewal. Mr. Ratcliffe told him the Department intended to proceed with calling for tenders but at the same time requested Mr. Séguin to obtain a proposed rental rate from Martel.
8 Mr. Séguin delegated to Mr. Bray the responsibility of contacting Mr. McMurray. No action was taken. Nor did Mr. Séguin contact Mr. McMurray despite being directed by Department officials in October of 1991 to report on the status of negotiations with Martel.
9 In February of 1992, Mr. Séguin was to obtain a proposal from Martel based upon a defined lease term. Moreover, at the monthly meetings of the Department held between October of 1991 and April of 1992, Mr. Séguin led the Department to believe that a proposed rental rate was forthcoming from Martel. Neither Mr. Séguin nor anyone else from the Department informed Mr. McMurray of this expectation. In fact, the only step taken by Mr. Séguin during this period was to arrange that an appraisal report be prepared on the Martel Building by a private contractor.
10 Mr. McMurray made two attempts to contact the Department between May of 1991 and April of 1992 for the purpose of arranging a meeting to discuss a renewal. The first attempt on December 17, 1991, was fruitless, but a second attempt in the spring of 1992 resulted in a meeting being scheduled for April 15, 1992.
11 Different accounts were given at the trial on what happened at the April 15 meeting. The Department maintained that it informed Mr. McMurray that a decision had been made to proceed with the tender process unless Martel made a particularly attractive offer to the Department. Mr. McMurray’s version, which the trial judge accepted, was that while he always understood tendering to be a possibility, he was told the meeting was the commencement of negotiations for a renewal of the lease. Consistent with his version of the meeting, Mr. McMurray presented the Department officials present, Messrs. Séguin and Mahar, with proposed rental rates. Mr. Séguin then informed Mr. McMurray that a private appraisal had been commissioned and that he would inform Martel when it had been completed.
12 As considerable lead time would be required to relocate the tenant AECB prior to the August 1993 expiry of the Martel lease, the Department set June 30, 1992 as the “drop-dead date” by which time negotiations with Martel would have to be completed, or the tendering process would start. The drop-dead date was extended later to October 2, 1992.
13 Between June and September of 1992, Mr. McMurray met with Mr. Mahar on several occasions to present proposed rental rates. These proposals did not fall within the market range suggested by the appraisal commissioned by the Department, which it was agreed did not include the costs of the proposed retrofit. The parties did not have contact again until October 14, 1992, when Mr. McMurray, having heard that the tendering for space was to begin, telephoned Mr. Séguin.
14 It turned out that after the initial June 30, 1992 drop-dead date had passed, the Department began the initial steps required to proceed to tender for the AECB space. The Department required two approvals to tender and eventually to lease the space. The first, preliminary project approval (“PPA”), had to be obtained before the tender process began. The second, effective project approval (“EPA”), was sought after tenders had been received and evaluated. The authority to grant these approvals varies with the amount of space to be acquired and the value of the lease. In the AECB’s case, the authority to grant PPA rested with the Assistant Deputy Minister - Accommodation (“ADM”) and the authority to grant EPA rested with the Treasury Board.
15 The Department had an internal advisory structure geared toward preparing a recommendation for approval by the ADM. It was a time-consuming process. An Investment Analysis Report (“IAR”) analysed the various options for obtaining rental space and made a recommendation. The report then proceeded through a bureaucratic chain ultimately resulting in the Investment Management Board (“IMB”) of the Department making a recommendation to the ADM.
16 The IAR recommended renegotiating the Martel lease. It was considered by the Department in late September, but no decision was made. The Department considered a revised report on October 9 but, due to declining rental rates in Ottawa recommended that the matter proceed to tender. Within the Department, the IMB was not involved in the tender proposal. Approval for tendering was obtained from the ADM although the evidence did not establish on what date that occurred.
17 Amid rumours that the AECB space was proceeding to tender, Mr. McMurray telephoned Messrs. Mahar and Séguin again on October 14 and 15. As a result of these calls Mr. McMurray received a letter confirming that the tendering process was proceeding and stipulating that the Department would not accept any proposal from Martel subsequent to October 22.
18 The October 22 deadline was subsequently extended to October 27. The parties held a meeting on October 27, the same day on which an expression of interest advertisement for tender of the AECB space appeared in the Ottawa Citizen newspaper. Mr. McMurray said he left the meeting with the understanding that if he met a $220/m2 rental rate, the Department would recommend to the Treasury Board that the Martel lease be renewed.
19 Mr. McMurray advised Mr. Séguin by telephone on October 29 that Martel could meet the $220/m2 rental rate. On October 30 Martel submitted a written offer of a rate of $249/m2 plus an allowance, calculated by the Department to be an effective rate of $219.39/m2. On the same day the Department decided that the remaining terms of the Martel lease, including the full details of the proposed retrofit, would have to be settled that day otherwise tendering would proceed. Martel was unable to provide finalized retrofit plans by that afternoon. On November 26 a letter was sent advising Mr. McMurray that Martel’s October 30 offer was rejected. Tender documents were issued the same day with a deadline for submitting bids of December 3, 1992.
20 Martel bid on the project. When the bids were opened, Martel’s bid was the lowest of the tenders. Martel was not awarded the contract.
21 Under the terms of the call for tenders the Department was not obligated to accept the lowest or any bid. Moreover, the Department conducted a financial analysis of the bids to consider the total costs that would be incurred as a result of accepting any one tender. These costs included fit-up costs, contiguous space requirements, and a secured card access system. The Martel Building’s fit-up costs were calculated to be approximately one million dollars. As well, the Department added $60,000 to Martel’s bid to cover the installation of a secured card access system. Based upon a net present value calculation, Martel’s bid was higher than the second lowest initial bid of Standard Life. The tender was awarded to Standard Life.
II. Judicial History
1. Federal Court, Trial Division (1997), 129 F.T.R. 249
22 Martel sued in contract and in tort. In contract, Martel claimed the appellant had breached an implied term to renew the lease arising out of either the lease itself or an agreement reached between the parties on or about October 30, 1992. Martel’s claim in tort rested on the Department’s alleged breach of a duty to negotiate in good faith and on its alleged negligent conduct of the negotiation and tender processes.
23 The trial judge dismissed the contract claim. She also declined to consider liability based on a duty to negotiate in good faith when she was sceptical that such a duty existed under Canadian law. She did not address negligence in the tendering process, but noted that “a somewhat arbitrary assessment of fit-up costs appears to have been added to the financial analysis of the plaintiff’s bid” (para. 76).
24 In the context of negotiations, the trial judge concluded that the relationship between the parties was sufficiently proximate to give rise to a duty of care in negligence. She held it was reasonably foreseeable the Department’s carelessness might cause damage to Martel. She further concluded that the Department was negligent in its conduct of the negotiations.
25 However, she concluded that Martel had not established causation as it failed to prove that the Department’s negligence caused Martel to lose the 10-year renewal. She dismissed the plaintiff’s action.
2. Federal Court of Appeal, [1998] 4 F.C. 300
26 The Federal Court of Appeal held that the trial judge was correct that a duty of care arose from the conduct of the negotiations and that it had been breached. It too declined to consider whether a duty to negotiate in good faith had emerged in Canadian law.
27 The Federal Court of Appeal also addressed negligence in the tendering process. It held that “[n]egligence in the tendering process was a matter before the Trial Judge which she failed to address” (para. 31). In this respect, it found that the call for tenders gave rise to an implied contractual obligation to treat all bidders fairly. In turn, this obligation placed the parties in sufficient proximity to give rise to a duty of care. It concluded that the Department had breached this duty through evaluating the bids according to undisclosed conditions which included the addition of fit-up costs, secured card access system costs and contiguous space requirements.
28 The court held that in the context of the negotiations, the Department’s negligence deprived Martel of the opportunity to negotiate a renewal of the lease. In the context of the tender, the Department’s negligence deprived Martel of both the opportunity to participate fairly in the tender process and a reasonable expectation of being awarded the contract.
29 The court disagreed with the trial judge on causation. It concluded that the Department’s conduct was the principal, if not the only cause, of Martel losing the opportunity to negotiate and losing its reasonable expectation of being awarded the contract under a fair and proper tendering process.
30 The Federal Court of Appeal allowed the appeal with costs. It found the Department liable in negligence and ordered a continuance of the trial on the issue of damages.
III. Issues
31 This appeal raises two issues:
1. Given that one owes a duty of care not to harm those who might foreseeably suffer damage, does a duty of care exist to that same group with respect to negotiations? Does the tort of negligence extend to damages for pure economic loss arising out of the conduct of pre-contractual negotiations?
2. Did the Court of Appeal err in finding that the Department owed Martel a duty of care in the tendering process and that this duty was breached?
IV. Analysis
1. Given that one owes a duty of care not to harm those who might foreseeably suffer damage, does a duty of care exist to that same group with respect to negotiations? Does the tort of negligence extend to damages for pure economic loss arising out of the conduct of pre-contractual negotiations?
32 A central issue in this appeal is the extent to which Canadian jurisprudence recognizes a duty of care on parties in negotiations. If a cause of action exists in this context, it is apparent that the damages claimed would be a purely economic loss.
33 The appellant submitted that to extend the tort of negligence into the conduct of commercial negotiations would be an unnecessary and unsound invasion of the marketplace. It argued that this case involves business risks inherent in commercial negotiation, risks which should be borne by parties and not be re-allocated through the imposition of a duty of care.
34 A breach of a duty of care in negotiations would, in this case, result in the loss of an opportunity to negotiate a lease renewal. This is a claim for damages not accompanied by physical injury or property damage. What is left is a claim for pure economic loss. See D’Amato v. Badger, [1996] 2 S.C.R. 1071, at para. 13.
35 As a cause of action, claims concerning the recovery of economic loss are identical to any other claim in negligence in that the plaintiff must establish a duty, a breach, damage and causation. Nevertheless, as a result of the common law’s historical treatment of economic loss, the threshold question of whether or not to recognize a duty of care receives added scrutiny relative to other claims in negligence.
36 An historical review of the common law treatment of recovery for economic loss has been undertaken by this Court on several occasions. See Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189; Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021; and D’Amato, supra. Rather than re-canvassing the jurisprudential genealogy reviewed in these cases, it is enough to say that the common law traditionally did not allow recovery of economic loss where a plaintiff had suffered neither physical harm nor property damage. See Cattle v. Stockton Waterworks Co. (1875), L.R. 10 Q.B. 453.
37 Over time, the traditional rule was reconsidered. In Rivtow and subsequent cases it has been recognized that in limited circumstances damages for economic loss absent physical or proprietary harm may be recovered. The circumstances in which such damages have been awarded to date are few. To a large extent, this caution derives from the same policy rationale that supported the traditional approach not to recognize the claim at all. First, economic interests are viewed as less compelling of protection than bodily security or proprietary interests. Second, an unbridled recognition of economic loss raises the spectre of indeterminate liability. Third, economic losses often arise in a commercial context, where they are often an inherent business risk best guarded against by the party on whom they fall through such means as insurance. Finally, allowing the recovery of economic loss through tort has been seen to encourage a multiplicity of inappropriate lawsuits. See D’Amato, supra, at para. 20, and A. M. Linden, Canadian Tort Law (6th ed. 1997), at pp. 405-6.
38 In an effort to identify and separate the types of cases that give rise to potentially compensable economic loss, La Forest J., in Norsk, supra, endorsed the following categories (at p. 1049):
1. The Independent Liability of Statutory Public Authorities;
2. Negligent Misrepresentation;
3. Negligent Performance of a Service;
4. Negligent Supply of Shoddy Goods or Structures;
5. Relational Economic Loss.
See B. Feldthusen, “Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow” (1990-91), 17 Can. Bus. L.J. 356, at pp. 357-58; Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85, at para. 12; and D’Amato, supra, at para. 30.
39 The allegation of negligence in the conduct of negotiations does not fall within any of these classifications. Thus, Martel’s claim is novel when weighed against the prior jurisprudence of this Court. That by itself should not preclude the claim. The question is whether the numbered categories ought to be enlarged or some other method identified to include a new head of economic loss. To answer this question it is useful to set out a framework for the recognition of new categories such as that advanced by Martel.
40 In attempting to mould such a framework, it is noteworthy that this Court has looked beyond the traditional bar against recovery of pure economic loss in favour of a case-specific analysis that seeks to weigh the unique policy considerations which arise. See Rivtow, supra, at pp. 1211-12; Kamloops (City of) v. Nielsen, [1984] 2 S.C.R. 2, at p. 33; Norsk, supra, at p. 1054, per La Forest J., and at p. 1155, per McLachlin J.; Winnipeg Condominium, supra, at para. 32; and D’Amato, supra, at paras. 31-34.
41 A presumptive exclusionary rule exists only within the narrow realm of contractual relational economic loss. This phrase is intended to define an economic loss suffered via a plaintiff’s contractual relationship with a third party to whom the defendant is already liable for property damage. Prior to Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210, it was undetermined whether the recognition of contractual relational economic loss was to be approached incrementally on a case-by-case basis, as with the other categories of economic loss, or through recognized categorical exceptions to a narrow exclusionary rule. This debate arose out of the differing approaches expressed by McLachlin J. (as she then was) and La Forest J. in Norsk. The substance of these positions was reviewed in D’Amato and need not be repeated for the purpose of this appeal.
42 In Bow Valley, at para. 48, McLachlin J. resolved this debate, affirming that recovery for contractual relational economic loss is presumptively excluded, subject to categorical exceptions. However, the categories of recoverable loss are not closed and new ones may emerge as different cases arise. The majority in Bow Valley approved her reasons. See Iacobucci J. at para. 113:
I understand my colleague’s discussion of this matter to mean that she has adopted the general exclusionary rule and categorical exceptions approach set forth by La Forest J. in Norsk. . . . She points out that both her reasons and those of La Forest J. in Norsk recognize that the categories of recoverable contractual relational economic loss are not closed.
43 It is important to distinguish between the Bow Valley majority’s reference to the categories of contractual relational economic loss, which falls within the fifth category, and the other four categories of economic loss listed above. This distinction is relevant because contractual relational economic loss receives unique treatment within the broader scope of economic loss in general. In this connection, we reject the assertions of certain commentators who have suggested that the same approach applies to all five categories of economic loss following the Bow Valley decision: see E. A. Cherniak and E. How, “Policy and Predictability: Pure Economic Loss in the Supreme Court of Canada” (1999), 31 Can. Bus. L.J. 209, at p. 232, and I. N. D. Wallace, “Contractual Relational Loss in Canada” (1998), 114 L.Q.R. 370, at pp. 374-77.
44 Unlike the other areas of economic loss, contractual relational economic loss continues to operate under a presumption against recovery. The following categories of contractual relational economic loss are, to date, the sole exceptions to this presumption:
1. Where the claimant has a possessory or proprietary interest in the damaged property;
2. General average cases; and
3. Where the relationship between the claimant and the property owner constitutes a joint venture.
45 However, as noted above, these three categorical exceptions within contractual relational economic loss categories are not closed. The same is true for the five broader categories of economic loss: see Norsk, supra, at pp. 1150-53, per McLachlin J. As Professor Linden, supra, states, “further categories of economic loss cases will have to be identified beyond the five general ones of Professor Feldthusen” (p. 421). The reason for the broader five categories is merely to provide greater structure to a diverse range of factual situations by grouping together cases that raise similar policy concerns. These categories are merely analytical tools.
46 Canadian jurisprudence has consistently applied the flexible two-stage analysis of Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.), originally adopted in Kamloops, supra, in determining whether to extend a duty of care in a given case. The Anns approach has been applied in this manner to each of the first four categories of economic loss. See, for example, Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, at para. 19 (negligent misrepresentation); Winnipeg Condominium, supra, at para. 32 (negligent supply of shoddy goods or structures); and B.D.C. Ltd. v. Hofstrand Farms Ltd., [1986] 1 S.C.R. 228 (negligent performance of a service). It is likely that any extension to the categorical exceptions of contractual relational economic loss also would be considered under the same analysis. See Bow Valley, supra, at paras. 52-56, per McLachlin J., and para. 113, per Iacobucci J.
47 The Anns approach is equally applicable when, as in this appeal, the claim alleges a duty of care in an area not previously categorized. The respondent’s submission has to be considered within that framework.
48 This analysis begins with the oft-repeated question:
Was there a sufficiently close relationship between Martel and the Department so that, in the reasonable contemplation of the Department, carelessness on its part might cause damage to a party such as Martel with whom it negotiated?
49 See Hercules Managements, supra, at paras. 23-24, per La Forest J.:
... the term “proximity” itself is nothing more than a label expressing a result, judgment or conclusion; it does not, in and of itself, provide a principled basis on which to make a legal determination.
. . .
The label “proximity”, as it was used by Lord Wilberforce in Anns, supra, was clearly intended to connote that the circumstances of the relationship inhering between the plaintiff and the defendant are of such a nature that the defendant may be said to be under an obligation to be mindful of the plaintiff’s legitimate interests in conducting his or her affairs.
50 So as to infuse the term “proximity” with greater meaning, the courts take into account a variety of factors in ascertaining whether the relationship between two parties gives rise to a prima facie duty of care. See McLachlin J. in Norsk, supra, at p. 1153:
In determining whether liability should be extended to a new situation, courts will have regard to the factors traditionally relevant to proximity such as the relationship between the parties, physical propinquity, assumed or imposed obligations and close causal connection. And they will insist on sufficient special factors to avoid the imposition of indeterminate and unreasonable liability.
51 It may be foreseeable that carelessness on the part of one negotiating party may cause an opposite negotiating party economic loss. Generally, negotiation is undertaken with