In a recent decision rendered by Madam Justice Sanderson of the Ontario Superior Court of Justice, Nelligan O’Brien Payne’s client, Rougemount Capital Inc. (“Rougemount”) was awarded $11 million in damages for breach of contract (Rougemount Capital Inc. v Computer Associates International Inc.).
In 2004, Rougemount, an investor in and creditor of Sixdion Inc., (“Sixdion”) commenced the action against multinational software giant Computer Associates International Inc. (“CA”), having acquired the right of action from Sixdion’s bankruptcy trustee. The case involved a determination of whether CA was contractually bound by its commitment to partner with and to invest $1.5M in Sixdion, an aboriginal IT company uniquely positioned to take advantage of an untapped global indigenous IT market. Rougemount claimed that the decision of CA representatives in New York to unjustifiably retract the deal caused not only the loss of a formidable business opportunity, but effectively “killed” Sixdion. Sixdion filed for bankruptcy in 2005.
In comprehensive reasons delivered following a six-week trial in Toronto, the Court accepted the plaintiff’s position that CA had entered into a binding agreement to purchase share warrants in Sixdion for $1.5 million and to partner with Sixdion in future ventures in the aboriginal IT markets. The Court also found that CA’s failure to honour that commitment ultimately caused the demise of Sixdion and the loss of significant future opportunities. The Court rejected CA’s positions that the CA executives who negotiated the deal with Sixdion lacked authority to commit CA to the deal and that the essential terms of the agreement had not been agreed upon.
The decision is noteworthy for its review of the principles to be considered in assessing damages for lost opportunity. In order to establish that Rougemount was entitled to damages for Sixdion’s lost opportunity, Rougemount first needed to establish that Sixdion would have survived as a going concern but for CA’s repudiation of the contract. As stated by the Court: “[F]or Sixdion’s lost opportunity to have had any value, Sixdion would have had to avoid bankruptcy. It would have needed to have obtained financing, forbearance from its creditors, and to have met the earnings forecasts contained in its October 15, 2004 Business Plan.”
Notably, relying in part on the survivability opinion of the principal expert witness called by Nelligan O’Brien Payne LLP litigation lawyer Peter Cronyn, the Court found that, but for CA’s breach of contract, Sixdion would have not only avoided bankruptcy, but would have “thrived”. Thus, the Court found that Rougemount was entitled to damages for Sixdion’s lost opportunity.
As for quantum, the Court applied the principles established by the Ontario Court of Appeal in Ticketnet Corp v Air Canada, assessing the value of Sixdion’s lost opportunity on the basis of projections contained in a five-year Business Plan prepared jointly by Sixdion and CA, discounted for contingencies. The Court rejected CA’s position that the forecasts upon which the Business Plan was based were unreliable and speculative, finding that the projections provided a reasonable approximation of what would have occurred had the contract been performed, and thus satisfied the evidentiary burden affirmed in Ticketnet. Ultimately, the Court assessed the value of Sixdion’s lost opportunity on the basis of the projections, adjusted for additional risk, and awarded damages to Rougemount in the amount of $11M.
CA has appealed the decision.
For more on the decision read my full article, The Art of Battling Giants: IT Company Awarded $11 Million Judgment Following Six-Week David & Goliath Trial.