Ontario Court Of Appeal Affirms The 'Minimum Performance Principle' In Calculating Damages For Breach Of Contract

In a breach of contract case, the defaulting party may have had alternative ways of performing the contract. This has a direct impact on the Court's assessment of damages.

Since the Supreme Court of Canada's 2004 decision, Hamilton v. Open Window Bakery, 2004 SCC 9, Canadian Courts have applied the "minimum performance principle" to calculate damages for breach of contract. The doctrine provides that where the defaulting party has alternative modes of performing an agreement, damages for the breach of contract are calculated based on the mode of performance "least burdensome to the defaulting party and least profitable to the non-breaching party".

A recent decision of the Ontario Court of Appeal, Atos IT Solutions v. Sapient Canada Inc., 2018 ONCA 374, affirms the validity of the minimum performance principle at common law. The decision further affirms that the application of the minimum performance principle by the Courts is not dependent on the parties' bad faith conduct.

Facts

Atos involved an action for breach of an agreement between a prime contractor and a subcontractor in which the subcontractor agreed to provide the prime contractor with two services related to an information software overhaul for Enbridge Gas Distribution (the "Subcontract").

The subcontractor agreed to provide data conversion services ("DC Services") to the prime contractor, as well as application management support services ("AMS") to Enbridge.

The Subcontract included two rights of termination. The prime contractor could terminate the agreement for cause by providing the subcontractor with notice in particular circumstances, including where the subcontractor "commits a material breach of its obligations under this Agreement and such breach is not capable of being cured" (the "General Termination Provision").

The prime contractor also had a limited right to terminate the DC Services part of the Subcontract for "convenience" (the "DC Termination Provision").

The prime contractor relied on the General Termination Provision to terminate the Subcontract, effective immediately. The subcontractor sued the prime contractor for breach of contract.

At trial, the prime contractor argued that even though it had invoked the General Termination Provision to terminate the contract, damages should be calculated according to the DC Termination Provision, based on the minimum performance principle.

That is, the prime contractor was entitled to the "benefit of the less burdensome...