Pure Economic Loss (Tort)

Forensic Support Services Inc. v. Out Of The Cold Resource Centre Inc., 2007 CanLII 1864 (ON SC)

[29] In Martel Building Limited v. Canada 2000 SCC 60 (CanLII), (2000) 2 S.C.R. 860, the Supreme Court of Canada refused to recognize a tort of negligence for pure economic loss arising out of the conduct of parties negotiating a contract. Apart from concerns about indeterminate liability which were not a fatal problem in Martel Building Ltd., the Supreme Court saw the recognition of such a tort as undesirably interfering with economic and commercial activity. The head note from the law report provides a useful summary of the Court’s policy concerns:

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.

[30] Similar policy concerns exist in the case at bar, and if the Supreme Court would not recognize a tort claim for economic losses between the immediate parties negotiating a contract, a fortiori a tort claim for a downstream suppliers of goods and services is not feasible and should not be recognized.