Atos v. Sapient Canada

The Ontario Superior Court of Justice’s decision in Atos v. Sapient Canada, which awarded damages to the former for breach of contract.
In 2006, Enbridge Gas decided to amalgamate its numerous data into a single Systems, Applications and Products (SAP) system. The prime contractor for the project was the defendant, Sapient Canada Inc., which in turn subcontracted both the application management support services and the document conversion parts of the implementation of the software to Siemens Canada Limited. The plaintiffs, Atos IT Solutions and Services GMBH and Atos Inc., are successor entities to Siemens Austria and Siemens Canada respectively.

Siemens Canada was initially subcontracted to provide only application support services (“AS Services”) for the SAP system’s new users once the system was in place, but was later agreed to do data conversion work on the project in addition to the AS services work. The data conversion agreement was less lucrative than the AS services agreement, and the project involved extensive planning and implementation. The installation of the software began in 2007 and was completed in 2009, five months behind schedule.
Siemens faced  challenges in meeting its deadlines for the data conversion, and by May 2009 Sapient insisted on taking over management of the data conversion track, following which progress generally improved.

Nevertheless, on June 29, 2009, Sapient delivered a letter to Siemens terminating the subcontract on the basis that Siemens had materially breached its obligations to perform data conversion work, and that the 30-day cure period of the contract did not apply because the breach could not be cured. Sapient terminated not only the data conversion contract but the AS Services contract as well, despite no breach of that contract being alleged.

In 2015 the case proceeded to a five-week trial before the Ontario Superior Court of Justice, where Siemens was eventually successful in recovering approximately $5.5 million in damages. The court was tasked with deciding whether Sapient had breached the subcontract through its termination of both the data conversion and AS Services agreements in June 2009, and had to determine whether Siemens’ alleged breach was “material” such that termination was warranted under the subcontract.

In his reasons, Justice Laurence Pattillo adopted a contextual approach to interpreting the subcontract termination clause explaining that the term “material breach” under the terms of the subcontract meant “a non-trivial breach that affects or may affect Sapient’s ability to perform its obligations under the Prime Contract in a material respect and which can either be cured within 30 days of notice or is incapable of being cured.” Justice Pattillo concluded that Siemens was not in material breach of the subcontract in May 2009 or afterwards. In such circumstances, by terminating Siemens on the basis of a material breach that never existed, Sapient was in breach of the subcontract.

Siemens argued that even if it had materially breached the subcontract, based on the doctrine of election Sapient could not rely on the breach or breaches to terminate the subcontract. The court agreed, citing the Ontario Court of Appeal’s decision in Charter Building Company v. 1540957 Ontario Inc., 2011 ONCA 487. In that case, the Court concluded that the party making the election was precluded from subsequently relying on the course of action that was rejected.

Here, Sapient had two courses of action in the face of the alleged Siemens breaches: to terminate or affirm the subcontract. Sapient had communicated its choice through its actions, by exhorting Siemens to continue its work under the subcontract and clearly re-affirming the continuation of the subcontract in May 2009. Under the doctrine of election it could not subsequently rely on the same alleged breaches to terminate the contract.

Although Justice Pattillo found that Siemens was not in material breach of the subcontract prior to termination in June 2009, he concluded that Siemens was in breach of the subcontract in respect of data conversion deliverables in the fall of 2008 and again in spring 2009.

Siemens was awarded over $6 million in damages for Sapient’s breach of contract. Sapient sought to limit its damages by relying on the principle in Hamilton v. Open Window Bakery Ltd., 2004 SCC 9: where there are several ways in which a contract may be performed, damages are awarded based on the mode of performance that is least profitable to the plaintiff and least burdensome to the defendant. Sapient sought to invoke this reasoning in light of a termination for convenience clause in the subcontract, but the court concluded that Sapient could not rely on the termination for convenience to limit Siemens’ data conversion damages. 

Part of Siemens’ claim for damages was for the wrongful termination of the AS Services agreement, for which no breach had been alleged by Sapient prior to termination. Sapient argued that the limitation of liability provision in the subcontract excluded Siemens’ claim for lost profits arising from the termination of the AS Services Agreement. The court relied on the Supreme Court of Canada’s decisions in Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4 and Sattva Capital Corp. v. Creaston Moly Corp., 2014 SCC 53 to conclude that, as a matter of interpretation, the limitation of liability clause in the subcontract did not apply to Siemens’ claim for loss profits arising from Sapient’s breach of the AS Services portion of the subcontract.  

Sapient counterclaimed for over $11 million in damages for Siemens’ alleged breaches of the subcontract, but did not provide sufficient evidence and was awarded $746,199.84.

Peter Griffin, Shara Roy, Paul-Erik Veel and Laurel Hogg of Lenczner Slaght Royce Smith Griffin LLP, with Kris Borg-Olivier of Paliare Roland Rosenberg Rothstein LLP and Julia Brown, acted for the plaintiffs, Atos IT Solutions and Services GMBH and Atos Inc.

Mark Gelowitz, Alex Cobb and Evan Thomas of Osler, Hoskin & Harcourt LLP acted for the defendant, Sapient Canada Inc.