Canada: Information Technology (IT) Contracts: 3 Key Lessons For Customers And Service Providers In Atos v Sapient

Last Updated: March 30 2017
Article by David Wallace and Peter L’Esperance

There are very few examples of a Canadian court interpreting and opining on the provisions of an information technology contract. So the Ontario Superior Court of Justice's recent decision in Atos v. Sapient, addressing a dispute concerning an information technology outsourcing project, provides interesting insight into the issues that both customers and service providers should consider when negotiating, drafting and performing IT contracts specifically, and commercial contracts generally. Here are three key lessons we can learn from the Court's decision.

  1. What we learned about a "Material Breach". 

As is typical, the contract in Atos gave the customer the right to terminate the contract upon the occurrence of a "material breach". The contract didn't define the term "material", so the Court examined other provisions of the contract along with the parties' behaviour after the alleged "material breach" to interpret what "material" meant. Another provision of the contract required the customer to make certain notifications to a third party if any breach of the contract would "affect [its] ability to perform its obligations [to such third party] in a material respect." Therefore, the Court decided that "material breach" meant "a non-trivial breach that affects or may affect [the customer's] ability to perform its obligations [to third parties] in a material respect." The Court further noted that the customer had never treated the service provider as if it were in material breach of the contract.

The lesson: clearly and precisely define what constitutes a "material breach" in commercial contracts. In the absence of such a definition, courts will look to other provisions of the contract, including those that deal with how the parties are to behave vis-a-vis third parties after a "material breach" has occurred, and the parties' actual behaviour after the alleged "material breach" for guidance in determining whether the conduct met the intended "materiality" threshold.

  1. What we learned about "good faith" terminations.

The Court rejected the customer's claim that the service provider's failure to meet a specific milestone entitled the customer to exercise its discretionary right to terminate. The Court cited the customer's failure to reference this ground for termination in its termination letter to the service provider. The Court also decided that the discretionary nature of the customer's right to terminate (upon the failure to meet this particular milestone) meant the customer must exercise it in good faith, and concluded the customer didn't: the customer invoked the service providers' non-performance of the milestone after the termination; it failed to invoke the informal dispute resolution process under the contract; and evidence (emails among the customer's executives produced at trial) disclosed the customer's motives in terminating the contract centred on improving its own financial position rather than responding to the service provider's alleged breach.

The lesson: ensure contracts contain clear and specific instructions on the type of information that must be included in a notice/letter from one party to the other to validly terminate the contract. If any contractual right of a party is discretionary (for example, uses permissive rather than mandatory language, like "may" rather than "shall"), parties must exercise such contractual rights in "good faith". And it's not all about what's actually written in the contract; how the parties behave is relevant to determining whether they acted in "good faith". The court will examine the parties' behaviour – including their non-privileged email communications – before and after the termination to determine if they acted in "good faith" (though contracting parties are free to act in their own self interest and pursue whatever advantages may flow to them from the contract – as long as they do not lie or mislead the other party in doing so). 

  1. What we learned about "limitation of liability" provisions.

Under current legal principles, a breach of contract allows an innocent party to collect the payments it would have otherwise received under the contract (less the costs they would have incurred carrying out their obligations under it). In Atos, the service provider sued the customer for "lost profits" as a result of the customer's wrongful termination of their contract. In its defence, the customer pointed to a clause of the contract specifically excluding "lost profits" as a prong of liability, a standard term in most IT outsourcing contracts: "...neither [party] will be liable to the other to the other for indirect, special, consequential or punitive damages or for loss of profits". The Court decided that excluding liability for "loss of profits" would mean effectively excluding the default remedy for a breach of contract under current legal principles, so it interpreted this provision as excluding liability only for "indirect", and not "direct", damages. Consequently, the reference to "loss of profits" in the provision limited the customer's liability to "indirect" or "consequential" loss of profits, but didn't protect it from liability for "direct" forms of damage – like the service provider's lost profits as a result of the customer's breach.

The lesson: regardless of what limitation a contract's terms place on each party's liability, their ability to "contract out" of fundamental legal remedies for breach of contract might not be enforceable. So including in a typical contract clause excluding the breaching party's liability for the innocent party's loss of profits might not protect it from liability for the innocent party's direct financial consequences.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions