Application Of The Minimum Performance Principle In Determining Damages For Breach Of Contract

The Court of Appeal for Ontario's decision in Atos IT Solutions v Sapient Canada Inc.1 highlights the utility of a termination for convenience clause in defining a breaching party's minimum contractual obligation in the event of a wrongful termination for cause.

The Minimum Performance Principle

The minimum performance principle requires the court, when assessing damages for breach of contract, to assume that a contract-breaker, who has alternative modes of performing the contract, will perform in the way least profitable to the non-breaching party and least burdensome to itself.2 The minimum performance principle is, therefore, a limit on the expectancy principle, which requires the breaching party to pay damages in an amount that will provide the non-breaching party with the financial equivalent of performance.3

Atos IT Solutions v Sapient Canada Inc.

In June 2007, Enbridge Gas Distribution Inc. ("Enbridge") contracted the appellant, Sapient Canada Inc. ("Sapient"), to replace its many software systems with a single enterprise resource planning software system (the "Project"). Sapient, in turn, entered into a fixed price subcontract with Siemens Canada Limited ("Siemens"), now Atos Inc., to perform both the application management support ("AMS") services and the document conversion ("DC") services elements of the Project. The subcontract entitled Sapient to terminate the entire agreement for cause and provided a more limited right to terminate the DC services portion for convenience.

The Project was large and complex, involving extensive planning in order to achieve proper implementation. The installation of the software started in June 2007 and was completed in September 2009, five months behind schedule. Sapient purported to terminate the subcontract with Siemens for cause on June 29, 2009 and entered into a new agreement with Enbridge to self-provide the AMS services in order to improve its financial position on the Project. Siemens sued, claiming damages for wrongful termination of the subcontract, and Sapient counterclaimed for damages arising from delayed completion of the Project.

The trial judge determined that Sapient had wrongfully terminated the subcontract and awarded damages of $2.4 million for the balance owing to Siemens for the DC services, and damages of $3.6 million for termination of the AMS services, equal to Siemens' estimated gross profits.

In determining the damages for termination of the DC services, the trial...