Contracts are the backbone of every business relationship. When the other side doesn’t deliver, doesn’t pay or walks away from a deal, the impact on your business can be immediate. The good news is that Ontario law offers clear remedies for breach of contract. The key is understanding what you can recover, what the court will expect from you, and how quickly you need to act.
What you need to prove
A breach of contract claim usually comes down to three questions. Was there a valid contract? Did the other party fail to do what it promised? And did that failure cause you a loss? The contract doesn’t always need to be a formal signed document. Emails, purchase orders, quotes and even a consistent course of dealing can form a binding agreement, although written terms make your case much easier to prove.
What damages you can recover
The main goal of contract damages in Ontario is to put you in the position you would have been in if the contract had been performed. That usually means recovering the money you were owed or the profit you lost because the deal fell through.
You may also recover consequential losses, such as lost business with other customers or extra costs caused by the breach, but only if those losses were reasonably foreseeable when the contract was made. Many commercial contracts limit or exclude these kinds of damages, so read your limitation of liability clause carefully.
Some contracts set out a fixed amount payable if one side breaches, known as liquidated damages. Courts generally enforce these if they’re a genuine estimate of the likely loss, but they may refuse to enforce a clause that works as a penalty. In rare cases, such as unique property or goods, a court may order the other party to actually perform the contract instead of paying money.
Your duty to limit the damage
Ontario courts expect the innocent party to take reasonable steps to reduce its losses. This is called mitigation. If a supplier fails to deliver, for example, you’re generally expected to find a reasonable replacement rather than let losses pile up. Any amount you could reasonably have avoided may be deducted from your recovery, so keep records of the steps you took.
Deadlines and where to sue
In most cases, you have two years from the date you discovered the breach to start a lawsuit in Ontario. Missing that deadline can end your claim, no matter how strong it is.
Where you sue depends on the amount. Claims of up to $50,000 can go to Small Claims Court, which is faster and less formal. Larger claims proceed in the Superior Court of Justice, where a simplified procedure applies to many claims of up to $200,000. Our guide to the stages of the litigation process explains what to expect once a case begins.
Most disputes settle
The majority of contract disputes resolve without a trial, often after a strong demand letter or mediation. Having a clear picture of your damages and the strength of your position makes those negotiations far more productive. Our article on common civil disputes in Ontario covers how lawyers typically approach them.
Get advice on your contract dispute
Our Toronto commercial litigation lawyers represent businesses in contract disputes of all sizes, from unpaid invoices to failed supply agreements. Learn more about our commercial litigation services and our civil litigation lawyers.
Talk to us about your contract dispute.
This article is general information, not legal advice.
