In early 2006, Enbridge embarked on a major software overhaul, attempting to shift its entire business aspects to a single IT platform. This was an immense project, involving shifting data from over fifty different data systems used by Enbridge into one massive integrated platform. Enbridge put out an RFP for implementing and managing this project, using a particular software program from SAP SE with industry-specific parameters for gas, water and electric utilities.

Sapient had a previous relationship with Enbridge and was interested in bidding on the RFP, but did not have the requisite certification to manage the software from SAP SE. Siemens Canada, which did have the required certification, also wanted to bid, but did not have a prior commercial relationship with Enbridge. Together, Sapient and Siemens agreed that that Sapient would submit a bid as prime contractor, with Siemens as a partnered subcontractor to perform the application management support services portion of the overall project. At the time, both parties were aware that the majority of the expertise needed for the project was in Siemens Austria (the Austria division of the larger parent company) and that by contracting with Siemens, Sapient would be engaging with Siemens’ broader global expertise.

Sapient, with Siemens as a subcontracted partner, was the successful bidder for the project. In June of 2007, Enbridge and Sapient signed a contract – the Primary Contract – which provided, among other things, that Sapient would provide the plan, configuration and implementation of the SAP system, along with converting Enbridge’s data and migrating it to the new platform.

Sapient and Siemens divided the work between them in accordance with a subcontract also signed in June 2007 and amended in September of that year to provide that Siemens would be responsible for the majority of the data conversion services, and would provide these services to Sapient in a way that “meets the milestones, deliverables and other requirements” (para 33) in the amended contract or which are reasonably required for the work. The subcontract also stipulates that following the new program’s activation, Siemens would be responsible for application management support (“AMS”) for a fixed period of time; this service included, for example, operating a 24/7 toll free call centre to support Enbridge.

In July 2009, Sapient terminated the subcontract with Siemens for cause. Siemens claimed damages for wrongful termination, and Sapient counter-claimed for breach of contract. Given the immense complexity of the project, as well as the lengthy discussions in the judgment regarding changes in specific project management, only the facts relevant to the judge’s eventual decision are here discussed.

Sapient argued that its subcontract with Siemens included terms allowing for Sapient’s clear contractual right to terminate for cause: Siemens had, according to Sapient, failed to convert the data at the level required by the project; failed to complete the project within 90 days of the date set out in the subcontract; and, among other failures, failed to supply converted data of a sufficiently high standard, failed to comply with applicable industry standards and failed to comply with applicable project standards. Sapient argued that these breaches were “material” – they were non-trivial and could not be cured.

The judge found, based on the evidence, that Siemens adequately met its data conversion deliverables, including preparation for AMS following the activation date. However, Siemens did fail to meet some deadlines regarding ‘mock’ or trial runs by the target dates set out in various sub contractual documents. Despite this, Sapient did not give notice of these breaches to Enbridge, indicating that up until at least May 2009, Sapient did not consider these breaches to be “material.”

Moreover, internal emails from Sapient confirm that in the months leading up to the termination, Sapient discussed taking over the data conversion aspect of the project and had two options for contingency plans: retaining certain key Siemens employees, or using a Sapient-only team. The emails, according to the judge, were part of a larger scheme to take over both data conversion and AMS to increase Sapient’s profitability on the project. Sapient knew from at least early March 2009 that the project was no longer economic for it.

The subcontract between Sapiens and Siemens included a section laying out a procedure for resolving disputes, requiring both parties to attempt to resolve any issues in good faith and following an informal dispute resolution procedure. In June 2009, Siemens sent Sapient a request pursuant to this section to resolve the stalled discussions, but Sapient did not respond.

What would you decide? Does Siemens deserve damages for wrongful termination, or can Sapient rely on the terms of liability allowing them to terminate for breach? Was Siemens in breach of contract?

What would you decide in this case? See below for the answers.

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In Atos IT Solutions and Services GMBH v Sapient Canada Inc 2016 ONSC 6852 the judge held that the wrongful termination was a breach of the subcontract, thus holding Sapient liable for damages. The judge also found that since Siemens was periodically in breach as well, it also owed damages to Sapient.

Primarily, the judge determined these breaches by carefully assessing the evidence, including the credibility of various testimonies from people associated with the project. Sapient relied partly on evidence from project managers who claimed, for example, that Siemens had failed to meet industry standards but did not provide any such standards beyond their own opinions – and they were not experts in that specific field. Any breaches by Sapient were trivial only.

Moreover, the failure of Sapient to act in good faith – and the evidence that they planned to take over the data conversion and AMS in order to increase their profitability – led to the judge’s decision that Sapient did wrongfully terminate the contract.

Despite the judge’s finding that none of Siemens’ breaches were “material,” breaches did occur. Specifically, Siemens did fall behind several deadlines, although it took steps to address this and the delays were short lived. Siemens was also found to have breached some aspects regarding “reconciliation” – that is, ensuring the data taken from Enbridge’s old systems accurately matched the data in the new integrated software platform.

Ultimately Sapient could not rely on Seimen’s breaches as grounds for termination, as evidence indicated that Sapient had not acted in sufficiently good faith.  There is no indication in the case whether any of this had an impact on the ultimate deliverables to Enbridge, but we can speculate that the litigation must have been disruptive at the least.

Reprinted from The Legal Edge Issue 112, October – December 2015

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Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case.  For any particular legal problem, seek advice directly from your lawyer or in-house counsel.  All dates, contact information and website addresses were current at the time of original publication.

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