{"id":895190,"date":"2018-11-14T15:52:51","date_gmt":"2018-11-14T22:52:51","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=895190"},"modified":"2018-11-14T15:52:51","modified_gmt":"2018-11-14T22:52:51","slug":"termination-limitation-liability-clauses-proceed-caution","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/termination-limitation-liability-clauses-proceed-caution\/","title":{"rendered":"Termination &#038; Limitation of Liability Clauses: Proceed with Caution"},"content":{"rendered":"<p>Marcus Augustine | <a href=\"https:\/\/www.bradley.com\/insights\/publications\/2018\/10\/termination-and-limitation-of-liability-clauses-proceed-with-caution\" target=\"_blank\" rel=\"noopener\">Bradley<\/a> | October 31, 2018<\/p>\n<p>Contractors and subcontractors expect to be paid, and, when contracts are terminated, the termination provisions play a critical role in determining payment. Just as important to contractors and subcontractors is limiting liability as much as possible. In a recent case,\u00a0<em>Atos IT Solutions and Services v Sapient Canada Inc.,\u00a0<\/em>a Canadian court explored the relationship between termination clauses and limitation of liability clauses in the context of interpreting \u201clost profits.\u201d\u00a0<em>Atos<\/em>\u00a0reminds us of the importance of being thoughtful in deciding which provision to utilize in terminating a contract, and the reality that limitation of liability clauses may be interpreted narrowly.<\/p>\n<p>In\u00a0<em>Atos<\/em>, the defendant, Sapient, was the general contractor for a $50-million-dollar IT replacement project. It subcontracted with Siemens to provide data conversion and application management support. The subcontract provided that Sapient could terminate the entire agreement \u201cfor cause,\u201d and allowed it the right to terminate the data conversion services portion of the subcontract for convenience. As the project progressed, Sapient decided to terminate Siemens\u2019 subcontract for cause. Three days later, Sapient executed a new $8-million-dollar agreement with the owner to provide the application management support services, which were originally within Siemens\u2019 scope of work. Siemens sued for damages, including lost profits, alleging that the subcontract was wrongfully terminated.<\/p>\n<p>After a five-week bench trial, the trial court found that there was no material breach of the subcontract justifying termination. As a fallback position, Sapient argued that it had a right to terminate\u00a0at its convenience\u00a0the portion of the contract associated with data conversion services. The trial court found that Sapient\u2019s intent was to terminate the entire subcontract so that it could take over the application management services portion, which was not subject to the termination for convenience provision. As a result, the court determined that Sapient could not rely on the subcontract\u2019s termination for convenience provision.<\/p>\n<p>Having concluded that the subcontract was improperly terminated, the trial court focused on the issue of damages. Sapient argued that the subcontract\u2019s limitation of liability clause meant Siemens could not make a claim for the lost profits arising from the breach of the application management support portion of the subcontract. In relevant part, the limitation of liability provision stated that neither party \u201cwill be liable to the other for indirect, special, consequential or punitive damages or\u00a0<strong>for loss of profits<\/strong>\u00a0&#8230;.\u201d (emphasis added). The court found that \u201closs of profits\u201d referred only to consequential or indirect profits,\u00a0<em>i.e.<\/em>, the opportunity cost associated with turning down other work due to work on the subcontract. As the court noted, a key principle of contract law is to place the plaintiff in the same position they would have been in had the contract been performed. Accordingly, the court concluded that the clause did not prevent Siemens\u2019 recovery of lost profits from the application management support portion of the subcontract.<\/p>\n<p>Although\u00a0<em>Atos<\/em>\u00a0involves an agreement for IT services, the lesson holds true for construction agreements. If, after careful consideration, it is decided to limit the agreement\u2019s termination for convenience clause to specific obligations, the termination for convenience clause should be used only to terminate that specific obligation. If Sapient had done so here, it may have been able to eliminate Siemens\u2019 award of lost profits. Finally, the court\u2019s interpretation of the subcontract\u2019s limitation of liability clauses serves as a helpful reminder that damage exclusion provisions may be narrowly construed.<\/p>\n<p>. Just as important to contractors and subcontractors is limiting liability as much as possible. In a recent case,\u00a0<em>Atos IT Solutions and Services v Sapient Canada Inc.,\u00a0<\/em>a Canadian court explored the relationship between termination clauses and limitation of liability clauses in the context of interpreting \u201clost profits.\u201d\u00a0<em>Atos<\/em>\u00a0reminds us of the importance of being thoughtful in deciding which provision to utilize in terminating a contract, and the reality that limitation of liability clauses may be interpreted narrowly.<\/p>\n<p>In\u00a0<em>Atos<\/em>, the defendant, Sapient, was the general contractor for a $50-million-dollar IT replacement project. It subcontracted with Siemens to provide data conversion and application management support. The subcontract provided that Sapient could terminate the entire agreement \u201cfor cause,\u201d and allowed it the right to terminate the data conversion services portion of the subcontract for convenience. As the project progressed, Sapient decided to terminate Siemens\u2019 subcontract for cause. Three days later, Sapient executed a new $8-million-dollar agreement with the owner to provide the application management support services, which were originally within Siemens\u2019 scope of work. Siemens sued for damages, including lost profits, alleging that the subcontract was wrongfully terminated.<\/p>\n<p>After a five-week bench trial, the trial court found that there was no material breach of the subcontract justifying termination. As a fallback position, Sapient argued that it had a right to terminate\u00a0at its convenience\u00a0the portion of the contract associated with data conversion services. The trial court found that Sapient\u2019s intent was to terminate the entire subcontract so that it could take over the application management services portion, which was not subject to the termination for convenience provision. As a result, the court determined that Sapient could not rely on the subcontract\u2019s termination for convenience provision.<\/p>\n<p>Having concluded that the subcontract was improperly terminated, the trial court focused on the issue of damages. Sapient argued that the subcontract\u2019s limitation of liability clause meant Siemens could not make a claim for the lost profits arising from the breach of the application management support portion of the subcontract. In relevant part, the limitation of liability provision stated that neither party \u201cwill be liable to the other for indirect, special, consequential or punitive damages or\u00a0<strong>for loss of profits<\/strong>\u00a0&#8230;.\u201d (emphasis added). The court found that \u201closs of profits\u201d referred only to consequential or indirect profits,\u00a0<em>i.e.<\/em>, the opportunity cost associated with turning down other work due to work on the subcontract. As the court noted, a key principle of contract law is to place the plaintiff in the same position they would have been in had the contract been performed. Accordingly, the court concluded that the clause did not prevent Siemens\u2019 recovery of lost profits from the application management support portion of the subcontract.<\/p>\n<p>Although\u00a0<em>Atos<\/em>\u00a0involves an agreement for IT services, the lesson holds true for construction agreements. If, after careful consideration, it is decided to limit the agreement\u2019s termination for convenience clause to specific obligations, the termination for convenience clause should be used only to terminate that specific obligation. If Sapient had done so here, it may have been able to eliminate Siemens\u2019 award of lost profits. Finally, the court\u2019s interpretation of the subcontract\u2019s limitation of liability clauses serves as a helpful reminder that damage exclusion provisions may be narrowly construed.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Marcus Augustine | Bradley | October 31, 2018 Contractors and subcontractors expect to be paid, and, when contracts are terminated, the termination provisions play a critical role in determining payment. Just as important to contractors and subcontractors is limiting liability as much as possible. In a recent case,\u00a0Atos IT Solutions and Services v Sapient Canada&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/termination-limitation-liability-clauses-proceed-caution\/\">Continue reading <span class=\"screen-reader-text\">Termination &#038; Limitation of Liability Clauses: Proceed with Caution<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,72,10663,10664],"class_list":["post-895190","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-construction-contracts-2","tag-liability-clauses","tag-lost-profits","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Termination &amp; 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