When negotiating a contract, it is important to consider the termination provisions. If the contract is no longer commercially attractive, will you be able to terminate?
Atos IT Solutions and Services v Sapient Canada Inc, a recent Ontario case, explores this issue and sheds light onto how courts may interpret contracts when determining whether or not they can rightfully be terminated.
In Atos, the defendant, Sapient, contracted with Enbridge for a major project to replace Enbridge’s many software systems with a single software operating on a single IT platform. The defendant subcontracted with the plaintiff, Siemens, for data conversion and ongoing platform support. At some point the defendant realized that it would need to terminate both the data conversion and support subcontract if the project was to remain commercially attractive to them.
The subcontract contained the right to terminate immediately for cause (for a material breach), and the right to terminate for convenience with notice to Siemens. The termination for convenience clause applied expressly to the data conversion, but made no mention of the ongoing platform support obligations. ** Source ** Because the defendant wanted to terminate both data conversion and platform support subcontracts, it sent notice of termination for cause, relying on various breaches of the data conversion obligations.
The plaintiff sued for damages for wrongful termination of contract.
The court found that there was no material breach sufficient to support a termination for cause, and awarded damages against the defendant.
If the termination for convenience clause had not made specific reference to data conversion, it is possible that the defendant would have been able to terminate without relying on allegations of a material breach of the contract.
When considering termination clauses, it is important to make sure that they are not limited to references to specific obligations, unless this has been specifically negotiated. If the project ‘grows’ and additional matters are added to the contract, it is very important to review the termination provisions to be sure that they ‘grow’ with the contract as well.