Canada: Design Services Ltd. v. Canada: Liability Of Owner To Subcontractors In Tendering Context

Last Updated: June 6 2008
Article by Matthew Ghikas and Marina Pratchett

On May 9, 2008, the Supreme Court of Canada delivered its decision in Design Services Ltd. v. Canada, 2008 SCC 22. This case addressed the issue of an Owner's liability to subcontractors when that Owner allegedly breaches its tendering obligations to Contractors.

The Court refused to extend the established principles of recovery by a general contractor for breach of tendering obligations to the subcontractor community. Although an owner may be liable to the disappointed general contractor, the Supreme Court held that persons who would have been subcontractors to a general contractor had the contract been properly awarded, may not claim damages for economic losses suffered because the contract was wrongfully awarded. The case was decided based on contract law principles; the Court determined that the right of action given to a contractor is founded on principles of contract, and potential subcontractors - who have no contractual relationship with the owner - have no similar right of action. The Court considered the application of tort law to the facts but refused to recognize a cause of action arising in tort.

In the first instance, the Court was influenced by the fact that, on the facts of this case, by virtue of the design-build nature of the procurement, the subcontractors had been offered the opportunity to enter into a joint venture with the general contractor, and therefore could have secured a direct contractual right against the owner, but had refused to do so. The Court expressed the view that commercial parties who have the option to define their rights through contractual means cannot later assert analogous rights based on tort duties. Additionally however, and of application beyond design-build tenders, the Court held that a cause of action in tort should not be available to subcontractors in tendering situations as the liability of an owner would be too uncertain (or in legal terms, indeterminate).

Relevant Background

Public Works and Government Services Canada ("Public Works") launched a "design-build" tendering process for the construction of a naval reserve building in Newfoundland. According to the tendering documents, proponents could bid on the contract alone or with other entities as a joint venture. Public Works awarded the contract to a non-compliant bidder and was sued by Olympic Construction Ltd. ("Olympic") – the contractor that should have been awarded the contract. The subcontractors associated with Olympic also sued Public Works, although they had never entered into a partnership or joint venture with Olympic. Though Olympic settled with Public Works, the subcontractors continued with their action for economic losses suffered as a result of Public Works' decision to award the construction contract to the non-compliant bidder.

In the lower court, the trial judge recognized that there was little support in the case law for the recognition of liability in tort by owners to subcontractors in the tendering process. The trial judge nonetheless decided to create a new category of duty of care, holding that Public Works owed a duty in tort to the subcontractors in this case. In the trial judge's view, it was foreseeable that the subcontractors would suffer financial losses if Public Works awarded the contract to a non-compliant bidder. Although the subcontractors had not entered into a joint venture with Olympic, the trial judge concluded the process was analogous to a joint venture and therefore created a relationship of proximity that supported liability in tort.

The Federal Court of Appeal set aside the decision, concluding that a new duty of care should not be recognized in these circumstances. The Supreme Court of Canada upheld the decision of the Federal Court of Appeal.

Tendering Law Principles

Canadian tendering law, founded on principles of contract originating in the Ron Engineering decision, holds that "Contract A" is formed once a proponent submits a compliant bid to the owner. As determined in M.J.B Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619 if an owner awards a contract to a non-compliant bidder, provided there is no term of the tender that would allow them to do so, the owner breaches its obligations under "Contract A" - it being an implied term of "Contract A" that that non-compliant bidders would not be accepted - and is liable to the compliant bidders.

If the subcontractors in this case had formed a joint venture with Olympic, they would have been parties to "Contract A" between Olympic and Public Works, and would have been able to sue Public Works directly for breach of "Contract A". Though the subcontractors were offered the opportunity to enter into such a joint venture, they declined. Their failure to take advantage of this protective measure was – in the eyes of the Court - fatal to their claim.

Tort Law Principles

There are five recognized categories in which recovery for economic loss is currently permitted in tort law: Independent Liability of Statutory Public Authorities; Negligent Misrepresentation; Negligent Performance of a Service; Negligent Supply of Shoddy Goods or Structures; and Relational Economic Loss (i.e. losses flowing from physical damage sustained by a third party's property, such as business losses suffered by a railway when a railway bridge is damaged by a ship). The Court determined that the subcontractors' claimed loss did not fit any of the five categories and declined to create a new category for this particular situation. That decision was based primarily on two overriding policy considerations.

First, while the subcontractors had the opportunity to protect themselves by contract from the risk of economic loss, they specifically declined to form a joint venture with Olympic, which would have put them in a further contractual relationship with Public Works. The Court expressed strong reluctance as a matter of policy (at paras. 56 and 57) to enable a 'back door' approach to recovery.

Second, although it was unnecessary to the decision, the Court also concluded that the subcontractors would have failed because the creation of a new duty of care would have offended another policy concern: the fear of indeterminate liability. Recognition of a duty of care on the part of an owner to subcontractors in a tendering process could lead to what has been described as "liability in an indeterminate amount for an indeterminate time to an indeterminate class". The Court explained that in cases of pure economic loss (i.e. those without physical injury or damage to property),"care must be taken to find that a duty is recognized only in cases where the class of plaintiffs, the time and the amounts are determinate". Here, the class of potential plaintiffs was not well-defined and the type of tendering process was not unique. Because many types of arrangements may arise between owners, contractors, and subcontractors, recognition of an owner's duty of care towards subcontractors could lead to a multiplicity of lawsuits in tort. Moreover, suppliers and subcontractors have their own employees and suppliers who might claim for economic loss due to the wrongful failure of the owner to award the contract to the general contractor upon which they were all dependant. The Court reasoned that "[t]he construction contract context is one in which the indeterminacy of the class of plaintiffs can readily be seen".

Implications Of Supreme Court's Decision

In Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860, 2000 SCC 60, the Supreme Court had left open the question of whether an owner could owe a duty of care to subcontractors. The Court has now answered that question in the negative, particularly where subcontractors have the option of protecting themselves through contractual means, but likely in all instances, based on the policy considerations referred to by the Court. Further, the Supreme Court's comments about the fear of indeterminate liability (again - not necessary to this decision) are significant and will be given weight by lower courts.

To read the Supreme Court of Canada's decision, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions