



COURT OF APPEAL FOR ONTARIO

CITATION: Atos IT Solutions v. Sapient Canada Inc., 2018 ONCA
    374

DATE: 20180418

DOCKET: C63181

Simmons, Brown and Fairburn JJ.A.

BETWEEN

Atos IT Solutions and Services GMBH and Atos Inc.

Plaintiffs (Respondents)

and

Sapient Canada Inc.

Defendant (Appellant)

Mark Gelowitz, Alexander Cobb and Evan Thomas, for the appellant

Peter H. Griffin, Paul-Erik Veel and Laurel D. Hogg, for
    the respondents

Heard: November 27, 2017

On appeal from the judgment of
    Justice Laurence A. Pattillo of the Superior Court of Justice, dated December
    7, 2016, with reasons reported at 2016 ONSC 6852, 63 B.L.R. (5th) 1, and from the
    costs judgment, dated May 1, 2017.

Brown J.A.:

I.

OVERVIEW

[1]

Sapient Canada Inc. (Sapient) appeals three aspects of the damages
    awarded to the respondent, Atos Inc. (Atos), following a lengthy breach of
    contract trial. Sapient seeks to reduce the damages awarded to Atos from
    $6,291,680.00 to $1,510,738.89.

[2]

Sapient contends the trial judge made three errors when calculating
    damages: (i) he failed to apply the minimum performance principle set out in
Hamilton
    v. Open Window Bakery Ltd.
, 2004 SCC 9, [2004] 1 S.C.R. 303, in respect of
    the data conversion services portion of the parties contract; (ii) he did not
    properly interpret a formula in the data conversion services portion of the
    contract; and (iii) he misinterpreted a limitation of damages clause as it
    applied to application management support services.

[3]

Sapient also seeks leave to appeal the trial judges award of costs to
    Atos. It asks this court to reduce the $3.1 million costs award to zero or,
    alternatively, to remit the issue of costs to the trial judge for determination
    in accordance with the outcome of this appeal.

[4]

For the reasons set out below, I would not interfere with the trial
    judges interpretation of the two contractual provisions determining available
    damages. However, I conclude, with respect, that the trial judge erred in law
    in failing to apply the
Open Window Bakery
minimum performance
    principle.

[5]

As a result, I would vary para. 1 of his Judgment and reduce the award
    of damages to Atos to $4,947,405. Since that alters the basis upon which the
    parties had agreed to the amount of the costs below, but only in part, I would
    grant Sapient leave to appeal costs but, as agreed by the parties, would remit
    the issue of costs to the trial judge for determination in accordance with the
    results of this appeal.


II.

SUMMARY OF THE DISPUTE, THE TRIAL JUDGES FINDINGS, AND THE ISSUES

The dispute

[6]

Only a brief review of the facts is required to place the damages issues
    in context.

[7]

In early 2006, Enbridge Gas Distribution Inc. (Enbridge) embarked on a
    major project to replace its many legacy customer information software systems
    with a single new system using enterprise resource planning software on a
    single IT platform (the Project).

[8]

Sapient was the successful bidder and became the Projects prime
    contractor. Sapient entered into a fixed price subcontract with Siemens Canada
    Limited (Siemens) dated June 4, 2007, which was amended as of September 30,
    2007 (collectively, the Subcontract). The Subcontract required Siemens to
    provide two services for the Project: (i) data conversion (DC) services,
    which would convert data from the legacy systems into the new systems format;
    and (ii) application management support (AMS) services to Enbridge personnel
    for a period of time after the new system went into operation.

[9]

The respondent, Atos, is the corporate successor to Siemens. Since the
    trial judges reasons refer to Siemens, for ease of reference I will refer to
    Atos as Siemens.

[10]

The
    Project involved extensive planning and implementation. Installation of the
    software began in June 2007 but was not completed until September 2009, five
    months behind schedule.

[11]

On
    June 29, 2009 Sapient terminated the Subcontract with Siemens for cause.

[12]

Siemens
    sued, claiming damages for wrongful termination of the Subcontract. In turn,
    Sapient counterclaimed for damages arising from the delay in completing the
    Project.

The trial judges findings

[13]

The
    trial judge concluded that Sapient wrongfully terminated the Subcontract.
    However, he also held that Siemens breached parts of the Subcontract at various
    times during the Project, entitling Sapient to damages as well. Neither party
    appeals those findings.

[14]

The
    trial judge awarded damages to Siemens for both the DC and AMS services
    portions of the Subcontract. I will deal in some detail with the trial judges
    damages calculations later in these reasons. At this point, I shall simply
    summarize the awards he made to Siemens.

[15]

The
    trial judge awarded Siemens damages of $2.404 million for the balance owing for
    DC services. He rejected Sapients argument that the minimum performance principle
    in
Open Window Bakery
should limit Siemens damages to a lesser amount
    calculated in accordance with the Subcontracts termination for convenience
    clause. However, the trial judge quite properly performed an alternative
    damages calculation for DC services using the termination for convenience
    formula, resulting in alternative damages for the termination of DC services of
    $1,059,725.

[16]

The
    trial judge awarded Siemens damages of $3,575,990 for the wrongful termination
    of AMS services, representing Siemens estimated gross profits.

The issues

[17]

This
    appeal raises four issues, which I will deal with in the following order:

(i)        In
    calculating damages for the DC services portion of the Subcontract, did the
    trial judge err by failing to apply the
Open Window Bakery
minimum
    performance principle?

(ii)       If
    he did, and DC services damages should have been calculated in accordance with
    the formula contained in the Subcontracts termination for convenience clause,
    did the trial judge err in interpreting that clause?

(iii)
          In calculating damages for the AMS services portion of the Subcontract,
    did the trial judge err in his interpretation of the Subcontracts limitation
    of liability clause?

(iv)      Finally,
    if the trial judge erred in any part of his calculation of damages, should his
    award of costs be set aside and the issue of the costs below be remitted to him
    for further determination?

III.

FIRST ISSUE: DOES THE
OPEN WINDOW BAKERY
PRINCIPLE APPLY TO THE
    CALCULATION OF DAMAGES FOR DATA CONVERSION SERVICES?

A.

The issue
    stated

The Subcontracts termination provisions

[18]

Article
    17 of the Subcontract afforded Sapient two rights to terminate. First, s. 17.2
    entitled Sapient to terminate the entire Subcontract for cause by providing
    notice to Siemens in certain circumstances, one of which (contained in s.
    17.2.2) was where Siemens commits a material breach of its obligations under
    this Agreement and such breach is not capable of being cured.

[19]

A
    more limited termination right was available in s. 17.4 of the Subcontract: it
    entitled Sapient to terminate the DC services part of the Subcontract for
    convenience.

[20]

Sapient
    relied on the s. 17.2 termination for cause provision in its June 29, 2009
    termination letter by which it terminated the entire Subcontract effective
    immediately.

[21]

When
    Sapient terminated the Subcontract, the DC services were almost, if not
    entirely, complete: Trial Reasons (Reasons), at para. 325. There was little
    work left for Sapient to finish.

[22]

At
    the time of termination Siemens was putting in place the organization to
    provide AMS services, but those services would not commence until the go-live
    date in September 2009. The trial judge found Sapient had no intention of
    terminating just the Data Conversion portion of the Subcontract: Reasons,
    para. 331. Sapient wanted to provide the AMS services itself. And, in the
    result, the day after it terminated Siemens, Sapient executed a new agreement
    with Enbridge to provide AMS services.

The calculation of damages for data conversion services

[23]

The
    Subcontract set a fixed fee for DC services. Siemens damages claim for the wrongful
    termination of that portion of the Subcontract included a claim for the amount
    of the balance owing: $2,404,000.

[24]

Sapient
    contended such an award would dramatically over-compensate Siemens. Instead,
    Siemens was entitled only to the difference between the Subcontract price and
    its costs to complete the DC services. According to Sapient, Siemens had not
    established the amount of that difference.

[25]

The
    trial judge accepted Siemens submission that the proper measure of damages for
    the termination of the DC services portion of the Subcontract was the balance
    owing.

[26]

Sapient
    advanced an alternative argument: Siemens was only entitled to damages for DC
    services calculated in accordance with the formula contained in the Subcontracts
    termination for convenience clause. Although Sapient had invoked the
    termination for cause provision (s. 17.2) to end the Subcontract, not the
    termination for convenience clause (s. 17.4), it argued that using the termination
    for convenience formula would result in it paying a smaller amount of damages. Sapient
    pointed to the
Open Window Bakery
minimum performance principle to
    argue it was entitled to the benefit of the less burdensome mode of performance
    of the Subcontract offered by the termination for convenience clause.

[27]

At
    paras. 327 to 331 of the Reasons, the trial judge described Sapients argument
    and explained why he rejected it:

Sapient further submits that even if it did not have the right
    to terminate the Subcontract for cause, it had the right to terminate the Data
    Conversion portion of the Subcontract for convenience pursuant to Section 17.4
    of the Subcontract. Accordingly, it submits that Siemens damages in respect of
    Data Conversion should be limited to the amount provided for in Section 17.4 in
    accordance with the rule confirmed by the Supreme Court of Canada in
Hamilton
    v. Open Window Bakery Ltd.
, 2004 SCC 9, [2004] 1 S.C.R. 303. According to
    that rule, 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.

Section 17.4 of the Subcontract (Section 2.5 of the Data
    Conversion Amendment) provides:

Sapient may terminate the Data Conversion Services for
    convenience by providing notice to the Subcontractor of such termination,
    effective as of the date set forth in the notice of termination. Subcontractor
    shall receive payment for the last milestone preceding the termination plus the
    lesser of (a) a time and materials rate of $1450 per person (not to exceed 12
    people) per day for each day of Data Conversion Services provided following the
    last completed milestone until the effective date of termination, plus a one time
    charge of $50,000 and (b) the amount due at the next milestone, had the Data
    Conversion Services not been terminated.

Sapient submits that, given the termination date of June 29,
    2009, the amount that would be owing to Siemens in accordance with the formula
    set out in Section 17.4 is $622,725.

In my view, the rule in
Open Window
does not apply to
    Sapients termination of the Subcontract having regard to its terms. Simply
    put, given Sapients intention to terminate the entire Subcontract pursuant to
    Section 17.2, Section 17.4 is not an alternative mode of performance permitting
    Sapient to terminate the entire Subcontract.

Section 17.2 of the Subcontract permitted Sapient to terminate
    the entire Subcontract, including AMS. As I have found, that is exactly what
    Sapient intended to do. It had no intention of terminating just the Data
    Conversion portion of the Subcontract. On the other hand, Section 17.4, the
    termination for convenience provision, applies only to the Data Conversion
    portion of the Subcontract. Accordingly, termination for convenience is not an
    alternate mode enabling Sapient to terminate the entire Subcontract. It follows
    that because Sapient intended to terminate the entire Subcontract, it cannot
    rely on the termination for convenience provision to limit Siemens Data
    Conversion damages.

The issue on appeal

[28]

Sapient
    submits the trial judge erred in law by failing to calculate damages for the DC
    services portion of the Subcontract in accordance with the minimum performance
    principle. That error attracts review on the correctness standard.

[29]

Siemens
    argues the trial judge was quite right in his conclusion that the minimum
    performance principle did not apply. Since Sapient could not terminate the
    entire Subcontract using the termination for convenience clause, the
    Subcontract did not contain an alternative means of performance upon which the
    minimum performance principle rests. Further, the reasons in
Open Window
    Bakery
must be read in light of the decision of the Supreme Court of
    Canada in
Bhasin v. Hrynew
, 2014 SCC 71, [2014] 3 S.C.R. 494, which
    recognized an over-arching duty of good faith and honest performance of
    contracts. In the present case, bad faith characterized Sapients termination
    of the Subcontract. As a result, Siemens argues, the minimum performance principle
    could not apply.

B.

Analysis

The minimum performance principle

[30]

Compensatory
    damages are the usual measure of damages for breach of contract. The expectancy
    principle governs the calculation of compensatory damages. It requires the
    breaching party to pay as damages an amount that will provide the non-breaching
    party with the financial equivalent of performance: John D. McCamus,
The
    Law of Contracts
, 2d ed. (Toronto: Irwin Law, 2012), at p. 871; and Angela
    Swan & Jakub Adamski,
Canadian Contract Law
, 3d ed. (Markham, ON:
    LexisNexis Canada, 2012), at pp. 381-383.

[31]

The
    common law places several limits on the expectancy principle: see McCamus, at
    pp. 877-882; and Swan & Adamski at p. 471. One limit is the minimum
    performance principle. The principle has been expressed in several different
    ways. In
Open Window Bakery
, at paras. 11 and 20, the Supreme Court of
    Canada expressed the principle this way: in cases where the defaulting party
    had alternative modes of performing the contract, damages are calculated on the
    basis of the mode of performance least burdensome to the defaulting party and
    least profitable to the non-breaching party.

[32]

The
    jurisprudence and legal literature contain other formulations of the minimum
    performance principle:

(i)

[D]amages for breach of a contract with alternative performances are
    assessed by reference to the promisors minimum or least extensive performance:
    Michael G. Pratt, Damages for Breach of Contracts with Alternative
    Performances in Jeff Berryman & Rick Bigwood, eds.,
The Law of
    Remedies: New Directions in the Common Law
(Toronto: Irwin Law, 2010), p. 105
    at p. 107;

(ii)

[W]here the option of fulfilling one of two alternative promises rests
    with the promisor who is in default, the measure of damages is the loss caused
    by reason of the promisor failing to perform the promise with the lesser value:
Stewart v. Cran-Vela Rental Co., Inc.
, 510 F.2d 982 (U.S. C.A. 5th
    Cir. 1975), at p. 986; and

(iii)

Damages are assessed on the basis that the defendant will perform the
    contract in the way most beneficial to himself and not in the way that is most
    beneficial to the plaintiff:
Withers v. General Theatre Corp.
, [1933]
    2 K.B. 536 (C.A.), at p. 549.

[33]

In
Withers
, at p. 549, the English Court of Appeal gave a simple example
    of the principle in operation. If a vendor agreed to sell a purchaser 800 to
    1200 tons of a certain commodity but failed to deliver any amount, the court
    would assess damages on the basis the vendor had failed to supply the lower
    amount  800 tons  not on the basis of a failure to supply the higher amount
    of 1200 tons.

[34]

In
    the
Open Window Bakery
case, the supplier, Open Window Bakery (OWB),
    was entitled under the terms of its contract with a distributor, Hamilton, to
    terminate in several ways, two of which were relevant on appeal: (i) for cause;
    or (ii) on three months notice, without cause, but only after the 19
th
month of the contractual term.

[35]

The
    trial judge, as summarized by the Supreme Court at para. 7, held that OWB
    wrongfully repudiated the contract and awarded damages reflecting the payments
    that would have been made under the full 36-month term of the contract, less an
    allowance of 25 percent. The discount reflected the possibility that OWB might
    at some later point have validly exercised its right to terminate the contract
    with notice (citations omitted).

[36]

This
    court and the Supreme Court, however, held that damages for OWBs wrongful
    termination of the contract for cause should be calculated on the basis of the
    three-months notice provision. The Supreme Court explained the rationale for applying
    the minimum performance principle, at paras. 17-18:

[U]nder the general principle applicable in breach of contracts
    with alternative performances enunciated above, it is not necessary that the
    non-breaching party be restored to the position they would likely, as a matter
    of fact, have been in but for the repudiation.  Rather, the non-breaching party
    is entitled to be restored to the position they would have been in had the
    contract been performed.

In this case, the relevant contractual duties have been
    expressly set out by the parties in the agreement.  Hamilton is entitled to
    OWBs performance of these voluntarily assumed duties.  Hamilton has no
    compensable interest in the advantages she might have expected under any
particular
performance of the contract, since the
    contract itself provided for alternative methods of performance at the election
    of the defendant.  If Hamilton wanted to secure herself the benefits associated
    with a given particular method of performance, she should have contracted for
only that
method of performance. [Emphasis in original.]

[37]

In
Open Window Bakery
, the Supreme Court acknowledged that [t]he method
    of performance that is most advantageous or least costly for the defendant may
    not always be clear at the outset from the contracts terms; as a result, [a]
    court may have to consider evidence to determine an estimated cost of the
    various means of performance: para. 21. The need for such a factual inquiry,
    however, does not undermine the general principle: para. 21.

Application to the present case

[38]

The
    trial judge held that the minimum performance principle did not apply to
    Sapients termination of the Subcontract because the termination for
    convenience clause was not an alternative mode open to Sapient to terminate the
    entire Subcontract. That clause only entitled Sapient to terminate the DC
    services part of the Subcontract, not the AMS services portion. Since Sapient intended
    to terminate the entire Subcontract, not just the DC services portion, it was
    not entitled to have the damages for its termination of DC services calculated
    using the less burdensome formula in the termination for convenience clause:
    Reasons, paras. 330-331.

[39]

With
    respect, I disagree. Instead, I accept Sapients submission that the damages
    for the wrongful termination of the DC services should have been calculated on
    the basis of the minimum performance Siemens was entitled to expect under the
    Subcontract with respect to those services alone.

[40]

Under
    the terms of the Subcontract, Sapient could terminate the DC services portion in
    one of two ways: (i) under s. 17.4, for convenience; or (ii) under 17.2, for
    cause. Although the Subcontract did not contain a formula for calculating
    damages where DC services were terminated for cause, s. 17.4 specified the formula
    the parties were to use where those services were terminated for convenience. In
    those circumstances, the minimum performance principle applied to the
    calculation of damages for the termination of the DC services because the alternative
    mode of performance contained in s. 17.4 shaped and constrained Siemens reasonable
    expectations concerning the damages it could recover in the event Sapient
    terminated the DC services.

[41]

That
    Sapient terminated the entire contract, and not just the DC services portion, does
    not alter how the expectancy principle operates in connection with its termination
    of the DC services. The terms of the Subcontract did not prevent Sapient
    terminating both the DC and AMS services portions at the same time. The
    termination for convenience clause did not stipulate it would apply only in the
    event Sapient terminated the DC services portion but continued the contract
    with Siemens for AMS services.

[42]

On
    the language of the Subcontract, it was open to Sapient to use the termination
    for convenience clause to terminate the DC services part, while relying on the
    termination for cause provision to terminate the rest of the contract. While
    Sapient did not purport to terminate the Subcontract in that fashion, it was a
    mode of termination open on the language of ss. 17.2 and 17.4. Even if Sapient ultimately
    could not justify its termination of AMS services for cause, that would not
    alter the limit placed by the Subcontracts language on Siemens reasonable
    expectation about the damages recoverable for the termination of the other part
    of the contract involving DC services. The termination for convenience clause
    effectively defined the upper limit of Sapients liability for damages in
    respect of DC services:
Open Window Bakery
(2002), 58 O.R. (3d) 767
    (C.A.), at para. 43, varied on other grounds, 2004 SCC 9, [2004] 1 S.C.R. 303,
    at paras. 9 and 23.

[43]

Siemens
    argues that even if the terms of the Subcontract provided Sapient with alternative
    modes of performance, the minimum performance principle should not apply
    because Sapient did not act in good faith when it terminated the Subcontract.
    Siemens contends the minimum performance principle should be read in light of
    the over-arching duty of good faith and honest performance recognized in
Bhasin
.
    Siemens argues that, in terminating the Subcontract, Sapient breached its
    common law duty of good faith, as well as its contractual duty of good faith
    set out in s. 20.1 of the Subcontract. Consequently, Sapient cannot take
    advantage of the less burdensome damages calculation formula contained in the Subcontracts
    termination for convenience clause.

[44]

I
    am unable to accept these submissions for two reasons.

[45]

First,
    although the trial judge found that Sapient did not act in good faith when invoking
    the termination for cause provision to end the entire Subcontract, he did not conclude
    that Sapients lack of good faith barred the application of the minimum
    performance principle. Instead, he concluded the principle did not apply
    because the termination for convenience clause was not an available alternative
    mode of performance given Sapients intention to terminate the entire
    Subcontract, not just the DC services portion.

[46]

Second,
    in
Agribrands Purina Canada Inc. v. Kasamekas
, 2011 ONCA 460, 106 O.R.
    (3d) 427, at para. 47, this court stated that the application of the minimum
    performance principle did not depend upon good faith conduct by the breaching
    party.

[47]

Siemens
    submits that the decision in
Agribrands
has been overtaken by that in
Bhasin
.
    I am not persuaded by that submission.
Bhasin
focused on the issue of
    the performance of contracts: specifically, the existence of a general
    organizing principle of good faith contractual performance and a common law
    duty to perform contractual obligations honestly.
Bhasin
did not
    purport to alter the existing principles concerning the proper measure of
    expectation damages in the event of a breach of contract.

[48]

Indeed,
    there are suggestions in
Bhasin
 albeit not definitive  that the
    minimum performance principle operates in conjunction with the general
    organizing principle of good faith. Recall that in
Bhasin
the contract
    ran for an initial term of three years, with an automatic renewal for a further
    three years unless one party gave six months written notice to the contrary.
    At issue was whether the terminating party, Can-Am, had acted honestly in
    exercising the non-renewal clause. In the course of discussing the breadth of
    an organizing principle of good faith, the Supreme Court alluded to the minimum
    performance principle when it stated, at para. 90:

Even if there were a breach of a broader duty of good faith by
    forcing the merger, Can-Ams contractual liability would still have to be
    measured by reference to the least onerous means of performance, which in this
    case would have meant simply not renewing the contract. Since no damages flow
    from this breach, it is unnecessary to decide whether reliance on a
    discretionary power to achieve a purpose extraneous to the contract and which
    undermined one of its key objectives might call for further development under
    the organizing principle of good faith contractual performance.

[49]

Given
    that comment, I am not persuaded, as Siemens submits, that this courts
    decision in
Agribrands
has been overtaken by that in
Bhasin
.

[50]

Accordingly,
    I conclude the trial judge should have applied the minimum performance principle
    and calculated Siemens damages for the wrongful termination of the DC services
    portion of the Subcontract by using the formula in s. 17.4, the termination for
    convenience clause. His failure to do so amounted to an error of law, which is subject
    to review on the correctness standard:
Deslaurier Custom Cabinets Inc. v.
    1728106 Ontario Inc.
, 2017 ONCA 293, 135 O.R. (3d) 241, at paras. 58-61,
    leave to appeal refused, 37039 (Oct. 19, 2017). Accordingly, I would set aside
    his finding that Siemens was entitled to damages for the wrongful termination
    of the DC services portion of the Subcontract in the amount of $2,404,000: Reasons,
    at paras. 321, 345 and 410.


IV.

SECOND
    ISSUE: THE INTERPRETATION OF THE DAMAGES FORMULA IN THE TERMINATION FOR
    CONVENIENCE CLAUSE

A.

The issue
    stated

[51]

As
    noted, the trial judge performed an alternative calculation of damages in
    accordance with the formula set out in the Subcontracts termination for
    convenience clause. That section, s. 17.4, provided for a payment to Siemens
    calculated as follows:

[Siemens] shall receive
    payment for the last milestone preceding the termination
plus the lesser
    of (a) a time and materials rate of $1450 per person (not to exceed 12 people)
    per day for each day of Data Conversion Services provided following the last
    completed milestone until the effective date of the termination, plus a one
    time charge of $50,000 and (b) the amount due at the next milestone, had the
    Data Conversion Services not been terminated. [Emphasis added.]

[52]

Sapient
    had argued that under the termination for convenience clause Siemens was
    entitled to damages of $622,725. Siemens disagreed. It submitted that s. 17.4
    entitled it to an additional $437,000, representing the payment due for the
    last milestone preceding termination. As put by the trial judge, the dispute
    was what is meant by the words for the last milestone preceding termination
    in Section 17.4.

[53]

The
    trial judge accepted Siemens submission that it was entitled to an additional
    $437,000. He stated, at paras. 336 to 338:

The plain language of the words in that Section provides that
    Sapient must pay Siemens for the last milestone preceding the termination in
    the event of termination. Significantly, the words do not provide that payment
    in respect of the last milestone is only to be made if it has not yet been
    paid.

Further, it is reasonable to conclude that at the time the
    termination for convenience provision is invoked, Sapients obligation to pay
    the previous milestone would have already crystallized and been paid.
    Consequently, the provision in Section 17.4 to pay for the last milestone
    preceding termination is not to ensure that Siemens was paid for that previous
    milestone but rather to provide an additional level of compensation to Siemens
    given that termination was for convenience and not cause.

I conclude, therefore, that Section 17.4 requires Sapient to
    pay to Siemens the amount owing for the last milestone preceding termination
    regardless of whether that amount has already been paid, together with the
    lesser of the two amounts set out for services since the last completed
    milestone.

[54]

The
    trial judge concluded Siemens would be entitled under s. 17.4 to damages for
    breach of the DC services in the amount of $1,059,725  the undisputed
    $622,725, plus an additional $437,000.

B.

The
    positions of the parties

[55]

Sapient
    submits the trial judge interpreted the formula in s. 17.4 in a commercially
    absurd manner. Under his interpretation, Siemens would be entitled to a payment
    of $437,000 for the last milestone preceding the termination even though it
    already had received payment for that milestone. According to Sapient, where a
    contract provides that a party shall receive payment for something, it
    means only one payment, unless clear words to the contrary are present to
    sanction payment twice.

[56]

Siemens
    contends that the plain language of s. 17.4 supports the trial judges
    interpretation. The section does not provide that payment for the last
    milestone was to be made only if it had not already been paid. The trial
    judges interpretation was reasonable and entitled to deference.

C.

Analysis

[57]

The
    standard of review applicable to the contractual interpretation issues raised
    on this appeal is that set out by the Supreme Court of Canada in
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, and
    subsequent decisions. As summarized by this court in
Weyerhaeuser Company
    Limited v. Ontario (Attorney General)
, 2017 ONCA 1007, 13 C.E.L.R. (4th)
    28, at para. 55:

That standard holds the interpretation of non-standard form
    contracts involves issues of mixed fact and law that are subject to deferential
    review on appeal and in respect of which appellate courts may not intervene in
    the absence of a palpable and overriding error. Although it may be possible to
    identify an extricable question of law in a contractual interpretation dispute,
    courts should be cautious about identifying such questions because of the close
    relationship between the selection and application of principles of contractual
    interpretation. The construction ultimately given to the contract means that
    the circumstances in which a question of law can be extricated from the
    interpretation process will be rare:
Sattva
, paras. 50 to 55;
Ledcor
    Construction Ltd. v. Northbridge Indemnity Insurance Co.
, 2016 SCC 37, at
    para. 24;
Uniprix inc. v. Gestion Gosselin et Bérubé inc.
, 2017
    SCC 43, at para. 41.

[58]

On
    first impression, how to interpret the phrase for the last milestone preceding
    the termination in s. 17.4 of the Subcontract would seem to raise a
    quintessential question of mixed fact and law, with the trial judges
    interpretation entitled to deference. However, Sapient contends the
    interpretation reached by the trial judge ran afoul of the legal principle of
    contractual interpretation that requires any interpretation to accord with good
    business sense and avoid a commercial absurdity. Sapient paints the trial
    judges interpretation as offending that principle, thereby raising an
    extricable question of law which attracts review on a correctness standard.

[59]

Sapients
    argument does not persuade me.

[60]

The
    interpretive principle of commercial efficacy  and its corollary, avoiding
    interpretations that result in a commercial absurdity  is merely one of
    several tools used by courts to give an accurate meaning to the parties
    intentions as stated in a contract: Geoff R. Hall,
Canadian Contractual
    Interpretation Law
, 3d ed.

(Toronto: LexisNexis Canada, 2016), at
    pp. 55-66. Commercial reasonableness is not judged solely from the perspective
    of one of the contracting parties but rather must be assessed objectively:
    Hall, at p. 57. [I]n assessing commercial reasonableness the court will
    consider both the language of the contract as a whole (such that individual
    provisions are not assessed in isolation for commercial reasonableness) and the
    factual matrix (as the surrounding circumstances are essential to understanding
    whether a particular interpretation makes good business sense): Hall, at p.
    58.

[61]

The
    trial judges reasons disclose that he was attentive to the plain language of
    s. 17.4, the provisions of the Subcontract as a whole, and the factual matrix
    from which the Subcontract emerged. Given those circumstances, little ground
    remains on which Sapient can erect an argument based on commercial absurdity.

[62]

Moreover,
    the trial judge offered a commercial rationale for interpreting s. 17.4 as
    requiring an additional payment of $437,000. He stated, at para. 337:

Further, it is reasonable to conclude that at the time the
    termination for convenience provision is invoked, Sapients obligation to pay
    the previous milestone would have already crystallized and been paid. Consequently,
    the provision in Section 17.4 to pay for the last milestone preceding
    termination is not to ensure that Siemens was paid for that previous milestone
    but rather to provide an additional level of compensation to Siemens given that
    termination was for convenience and not cause.

[63]

As
    the trial judge noted, a payment of $437,000 due for the last milestone preceding
    termination would amount to only 10% of the total Subcontract price. Although a
    material amount, in the circumstances of this case awarding damages of that
    magnitude would not come close to approaching a commercially unreasonable result.

[64]

Accordingly,
    I see no basis for appellate interference with the trial judges interpretation
    of s. 17.4. He applied the governing principles of contractual interpretation
    and clearly explained the basis for his interpretation. His interpretation was
    reasonable in the circumstances and was not the product of palpable and
    overriding error. I would not give effect to this ground of appeal.


V.

THIRD ISSUE: DAMAGES FOR AMS SERVICES

A.

The issue
    stated

[65]

The
    AMS portion of the Subcontract required Siemens to implement and operate a 24/7
    toll free call centre to respond to questions or concerns from Enbridge
    personnel after the new system went into operation. Although Siemens delivery
    of the AMS services would start after the new system went live, the Subcontract
    required Siemens to perform some preparatory work, including having AMS
    personnel on site before the go-live date.

[66]

The
    trial judge did not accept Sapients position that it had cause to terminate
    the AMS portion of the Subcontract because of a lack of urgency by Siemens in
    performing the preparatory work. He found that as of June 29, 2009 Siemens was
    not in breach of its contractual obligations concerning AMS services.

[67]

Siemens
    claimed damages for loss of profits arising from Sapients wrongful termination
    of the AMS portion of the Subcontract in the amount of $3,575,990. That amount
    represented Siemens estimate of the total gross profits it would have earned
    from the AMS portion of the Subcontract had it remained in force for the full
    three year period following the go live date. The trial judge accepted the
    accuracy of Siemens estimate.

[68]

Sapient contended that s. 18.6 of the Subcontract, entitled Limitation
    of Liability, precluded Siemens from recovering damages for lost profits
    resulting from the termination of the AMS services. The relevant portions of s.
    18.6 provided:

18.6.1 SUBJECT TO SECTION 18.6.2, NOTWITHSTANDING
    ANYTHING TO THE CONTRARY HEREIN, EACH OF SUBCONTRACTOR AND SAPIENT WILL BE
    LIABLE TO THE OTHER WITH RESECT TO THIS AGREEMENT AND ANY OTHER OBLIGATIONS
    RELATED THERETO
ONLY FOR DIRECT DAMAGES
AND FOR AN AMOUNT THAT WILL
    NOT EXCEED, IN THE AGGREGATE

.

FOR GREATER CERTAINTY, SUBJECT TO SECTION 18.6.2,
    NEITHER SUBCONTRACTOR NOR SAPIENT WILL BE LIABLE TO THE OTHER FOR INDIRECT,
    SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR FOR LOSS OF PROFITS
    (COLLECTIVELY, 
EXCLUDED DAMAGES
), EVEN IF THE PARTY HAS BEEN ADVISED
    OF THE POSSIBILITY OF SUCH DAMAGES.



18.6.3 THIS SECTION 18.6 WILL APPLY IRRESPECTIVE OF
    THE NATURE OF THE CAUSE OF ACTION, DEMAND OR CLAIM, INCLUDING BUT NOT LIMITED
    TO, BREACH OF CONTRACT (INCLUDING FUNDAMENTAL BREACH), NEGLIGENCE, TORT OR ANY
    OTHER LEGAL THEORY, AND WILL SURVIVE A FUNDAMENTAL BREACH OR BREACHES AND/OR
    FAILURE OF ESSENTIAL PURPOSE OF THIS AGREEMENT OR OF ANY REMEDY CONTAINED
    HEREIN. [Bold in original and italics added.]

[69]

Sapient
    argued s. 18.6.1 clearly excluded any liability on its part for loss of
    profits, with the result that Siemens damages for the AMS portion of the
    Subcontract should be limited to its alternative claim of incremental staffing
    costs in the amount of $543,548.89.

[70]

The
    trial judge did not accept Sapients position. He started his analysis by considering
    the first step in the test set out in
Tercon Contractors Ltd. v. British
    Columbia (Ministry of Transportation and Highways
), 2010 SCC 4, [2010] 1
    S.C.R. 69, at para. 122. Under the first step, a court must ask whether the
    exclusion clause would even apply in the circumstances of the case.

[71]

The
    trial judge applied the principles of contractual interpretation discussed in
Sattva
and concluded, at para. 354, that when the words in Section 18.6.1 are read
    both on their own and in the context of the Subcontract as a whole, the
    limitation of liability set out in Section 18.6.1 does not apply to Siemens
    damage claim for loss of profits in respect of AMS.

[72]

The
    trial judge explained how he reached this conclusion, at paras. 356 to 361 of
    his reasons:

Turning first to the wording of Section 18.6, the wording in
    Section 18.6.1, which limits damages to direct damages only, includes loss of
    profits under the Subcontract. As previously discussed, expectation damages,
    which are direct damages, include loss of profits.

Section 18.6.1 goes on, however, for greater certainty to
    provide that neither Siemens nor Sapient will be liable to the other for
    indirect, special, consequential or punitive damages or for loss of profits
    (collectively, Excluded Damages), even if the party has been advised of the
    possibility of such damages.

Given the above grouping and inclusion of loss of profits as
    Excluded Damages along with indirect, special and consequential damages, in
    my view the reference to loss of profits in Section 18.6.1 refers to
    consequential or indirect lost profits, i.e., a breach that causes either
    Siemens or Sapient to lose profit from other work forgone as a result of the
    breach. Consequential lost profits do not include profits under the Subcontract
    but rather are indirect losses which are only recoverable when they are
    foreseeable or communicated to the defendant:
Hadley v. Baxendale
(1854), 9
    Exch. 341, 156 E.R. 145 (Eng. Ex. Div.) at para. 3. My conclusion
    that the provision of loss of profits in Excluded Damages relates to
    consequential or indirect profits is further confirmed by the concluding words
    of the paragraph which provide: even if the party has been advised of the
    possibility of such damages. That language is in accordance with the
Hadley
recovery
    principle for consequential damages.

In my view, the above interpretation of loss of profits in s.
    16.1 is also confirmed when considering the context of the Subcontract. The AMS
    portion of the Subcontract is a fixed price commercial contract for services.
    It is reasonable to assume that parties who enter into such a contract would
    rely on the fact that they would receive the loss of profit component of the
    price in the event of a breach. As stated by Professor Waddams in the
Law
    of Contracts
, (6
th
ed.), at pp. 523-524, the main purpose
    of contracts in a commercial context is to allow and protect reliance. The
    learned author goes on to state:

Thus reliance can only be fully protected, at least in a
    commercial context, by a rule that measures damages by the value of
    performance, enabling the plaintiff to recover what has been called the
    expectation interest or damages for the loss of bargain.

Further, there is no evidence surrounding the formation of the
    contract that would support a finding that it was the intention of the parties
    at the outset of the Subcontract that the limitation of liability clause would
    apply to prevent the recovery of loss of profits in the event of a breach of
    the Subcontract.

For the above reasons, therefore, I conclude as a matter of
    interpretation that the limitation of liability clause in Section 18.6 of the
    Subcontract does not apply to Siemens claim for loss of profits arising from
    Sapients breach of the AMS portion of the Subcontract. The claim for lost
    profits is a direct damage claim and does not come within the exclusion in
    Section 18.6.1 of the Subcontract. As a result of my conclusion, as noted above
    by Justice Binnie in
Tercon
, there is no need to proceed further
    with the
Tercon
analysis.

[73]

The
    trial judge awarded Siemens damages of $3,575,990 for Sapients breach of the
    AMS portion of the Subcontract.

B.

Positions
    of the parties

[74]

Sapient
    advances two main arguments in support of its position that the trial judge
    erred in concluding s. 18.6.1 did not exclude a claim for loss of profits: (i)
    the proper interpretation of this exclusion clause involves an extricable
    question of law to which the correctness standard applies; or (ii)
    alternatively, the trial judge made a palpable and overriding error in light of
    the unambiguous and unqualified language chosen by the parties in s. 18.6 to
    exclude liability for loss of profits.

[75]

Siemens
    contends the trial judges interpretation of the limitation of liability
    provision is a question of mixed fact and law, reviewable on a deferential
    standard. His interpretation was a reasonable one.

C.

Analysis

The standard of review

[76]

In
    support of its argument that the correctness standard applies, Sapient points
    to this courts decision in
Biancaniello v. DMCT LLP
, 2017 ONCA 386, 138
    O.R. (3d) 210. Sapient contends
Biancaniello
stands for the
    proposition that the interpretation of a contractual term that uses language
    common to other contracts  such as consequential or indirect damages  involves
    an extricable question of law to which the correctness standard applies.

[77]

I
    am not persuaded by this submission.

[78]

Sapient
    seeks to stretch the decision in
Biancaniello
beyond its specific
    circumstances. At issue in that case was whether the words releasing any claim
    existing to the present time covered claims unknown at the time the parties
    signed a release. The issue of the standard of review was intertwined with the
    litigation history of the case: leave to appeal had been granted by the
    Divisional Court from the initial dismissal of the summary judgment motion; the
    Divisional Court dismissed the appeal; and then this court granted further
    leave to appeal. This court stated, at paras. 20-22, that this litigation
    history affected the applicable standard of review because leave to appeal would
    only have been granted if the issue raised was one of general public
    importance.

[79]

Consequently,
    I do not read this courts explanation in
Biancaniello
for its choice
    of the correctness standard of review in that particular case as establishing some
    broader proposition that a correctness standard applies to contractual
    interpretation when a non-standard form contract uses words found in other
    agreements. The choice of the standard of review in
Biancaniello
was
    firmly rooted in that cases procedural history.

[80]

Further,
    Sapients submission that a correctness standard should apply where a
    non-standard form contract uses words found in other contracts runs against the
    grain of two basic directions given by this court about contractual
    interpretation.

[81]

First,
    following
Sattva
this court has cautioned that reviewing courts should
    be slow to identify extricable questions of law in interpretation disputes
    given that the goal of ascertaining the objective intentions of the parties is inherently
    fact specific:
Trillium Motor World Ltd. v. Cassels Brock & Blackwell
    LLP
, 2017 ONCA 544, 72 B.L.R. (5th) 177, at para. 25, leave to appeal refused,
    [2017] S.C.C.A. No. 366, citing
Sattva
, at paras. 54-55. As
Sattva
emphasized, at para. 55, [t]he close relationship between the selection and
    application of principles of contractual interpretation and the construction
    ultimately given to the instrument means that the circumstances in which a
    question of law can be extricated from the interpretation process will be rare.
    To adopt the correctness standard whenever a contract uses a word found in
    another would turn the rare into the common.

[82]

Second,
    the meaning of a contractual term is derived not just from the words used, but
    from the context or circumstances in which the words are used. Sometimes it may
    prove difficult to understand contractual language without some knowledge of
    its context and the purpose of the contract:
Dumbrell v. The Regional Group
    of Companies Inc.
, 2007 ONCA 59, 85 O.R. (3d) 616, at para. 52. This too
    militates against adopting the correctness standard of review simply because a
    contract uses a word found in other agreements.

[83]

Accordingly,
    the trial judges interpretation of s. 18.6 of the Subcontract attracts the
    deferential
Sattva
standard of review.

The trial judges interpretation of s. 18.6 of the Subcontract

[84]

Sapient
    contends the trial judge made numerous errors in interpreting s. 18.6: (i) he
    failed to determine the parties intentions in accordance with the language
    they used; (ii) he read one part of s. 18.6  direct damages  in isolation,
    without construing the contract as a whole; (iii) he ignored the ordinary and
    grammatical meaning of the clause, including the disjunctive language used; (iv)
    his interpretation deprived the phrase loss of profits of any meaning; (v) he
    failed to consider the clause in relation to a similar (but not identical)
    clause in the Prime Contract between Sapient and Enbridge; and (vi) he did not
    have regard to the overall commercial context of the Subcontract.

[85]

I
    would not accept these submissions. Sapients long list of purported errors
    simply reflects its disagreement with the trial judges detailed analysis, at
    paras. 356 to 361 of the Reasons, reproduced above. Sapient would have
    interpreted s. 18.6 in a different fashion. So be it. Reasonable people can
    disagree about the meaning of some contractual provisions.

[86]

But
Sattva
and its successors are premised on the inevitability of
    reasonable disagreements about the interpretation of provisions in a
    non-standard form contract. Where, as in this case, the trial judge gives a
    considered, detailed, and context-sensitive explanation about how he arrived at
    the specific interpretation, and his analysis is not marked by a rare
    extricable error of law or palpable and overriding errors of fact, then an
    appellate court should defer to his interpretation. That another interpretation
    might reasonably be available does not provide a basis for appellate
    intervention.

[87]

Accordingly,
    I would not give effect to this ground of appeal.


VI.

SUMMARY ON THE APPEAL FROM DAMAGES

[88]

I
    conclude the trial judge erred in his assessment of the damages for the
    termination of DC services. Instead of awarding damages based upon the balance
    owing for DC services ($2,404,000), he should have applied the formula
    contained in s. 17.4 of the Subcontract. However, I see no basis for appellate
    intervention in the alternative damages calculation he performed under s. 17.4
    ($1,059,725) or in his award of damages for termination of the AMS services
    part of the Subcontract.

[89]

Consequently,
    I would reduce the damages awarded to Siemens by $1,344,275 (i.e., $2,404,000 less
    $1,059,725). That would result in an award of damages to Siemens of $4,947,405
    (i.e., $6,291,680 less $1,344,275).


VII.

FOURTH
    ISSUE: COSTS

[90]

Siemens
    and Sapient resolved the costs below, fixed at an award of $3,100,000 to
    Siemens, subject to the outcome of any appeal made by Sapient.

[91]

In
    the event this court reduced the damages awarded to Siemens, the parties agreed
    that the costs of the proceedings below should be remitted to the trial judge
    for his further consideration.

VIII.

DISPOSITION

[92]

For
    the reasons set out above, I would reduce the damages awarded to Siemens by
    $1,344,275. Accordingly, I would set aside para. 1 of the judgment and
    substitute an award of damages in favour of Siemens in the amount of
    $4,947,405. I would also set aside the award of costs to Siemens and remit the
    issue of the costs below back to the trial judge.

[93]

The
    parties agreed that the successful party on the appeal would be entitled to
    costs fixed at $50,000. In the result, success on the appeal has been mixed. In
    the event the parties are unable to resolve the issue of the costs of the
    appeal, they may file brief, written cost submissions to the panel no later
    than April 30, 2018.

Released: DB Apr 18 2018

David Brown J.A.
I agree. Janet Simmons J.A.
I agree. Fairburn J.A.


