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December 1, 2000

Misled parties in business deals can't sue: court

Supreme Court reversal: Judges won't second guess hard bargaining

Luiza Chwialkowska
National Post

OTTAWA - Parties to hard-driving business negotiations cannot sue for damages if they were misled or outwitted by the other side, the Supreme Court said yesterday.

"Hard bargaining" is endemic to business dealing and does not give rise to negligence claims, the court said in denying Martel Building Ltd., an Ottawa landlord, millions of dollars in compensation from the federal government over failed lease negotiations tainted by accusations of political patronage.

"It would defeat the essence of negotiation and hobble the marketplace to extend a duty of care to the conduct of negotiations, and to label a party's failure to disclose its bottom line, its motives or its final position as negligent," wrote Mr. Justice Frank Iacobucci and Mr. Justice Jack Major in a 7-0 decision.

Though the court found government negotiators had treated Martel with "casual contempt," and that Martel "suffered from its innocence," it declined to award damages in a case that did not involve outright fraud or deceit.

"The retention of self-vigilance is a necessary ingredient of commerce," said the court.

The decision was hailed by some as maintaining stability in the business world.

"Anybody in business is going to be happy about this case because they know what the rules are," said Bruce Feldthusen, Dean of Law at the University of Ottawa and a specialist in the field of economic loss.

"They are not going to have their bargains second-guessed by judges," he said.

Martel Building Ltd., an Ottawa landlord, had leased a building to the federal Department of Public Works for use by the Atomic Energy Control Board for close to 20 years until the department chose not to renew its lease in 1993. The contract was opened to tenders, and Martel was rejected even though it submitted the lowest bid.

Martel accused the government of dishonesty about deadlines and rates during the negotiations, and said Public Works had wrongly included additional costs in Martel's bid in the tender process.

Without its principle tenant, Martel was unable to pay its mortgage and lost the building to creditors. The company sued the federal government for $30-million for the foregone 10-year rental contract.

The deal acquired a political twist when Liberal MPs, then in Opposition, accused the Tory government of awarding the lucrative lease to a company represented by a real-estate dealer who had raised money for Jean Charest, then a Tory leadership hopeful. The government rejected the accusation, and the political allegations were not brought before the court.

Don Boudria, the Liberal House leader, who had made the accusations as Public Works critic, said yesterday he did not remember the case.

At trial, the Federal Court condemned the government's actions but did not impose damages. The Federal Court of Appeal ruled that the government had caused an economic loss to Martel, and ordered the trial judge to assess damages.

The Supreme Court's reversal of that decision came as a relief to some business lawyers.

"Had it gone the other way it would have opened up a can of worms," said John Laskin, a business litigator with the Toronto firm of Torys.

"Lots of our clients would have been affected ... because the kind of behaviour that the court was asked to intervene in takes place every day in business negotiation," he said.

The decision halts the incremental expansion of negligence claims from the sphere of accident and injury into the commercial arena, legal scholars said yesterday. "They are going backwards to a more traditional view," said Lewis Klar, Dean of Law at the University of Alberta. "Over the last 10 to 20 years, the courts have been allowing tort law to expand into these other areas, and that has created some confusion."

James Smellie, lawyer for Martel, called the case "a novel and a difficult one," but said the decision left open the door to future suits over the responsibilities of parties to negotiations.

He pointed out that while the court said no duty to bargain in good faith has been recognized to date in Canadian law, it also said "there may well be a set of circumstances in which a duty of care may be found."

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