Ontario Contract Disputes
What to do when the other side breaches — a commercial litigator's guide
A contract dispute is what happens when a written or verbal agreement breaks down — one party refuses to pay, fails to deliver, walks away from a deal, or performs so poorly that the deal no longer works. In Ontario, the basic limitation period to sue for breach of contract is two years from discovery. The earlier you respond, the more options you preserve: from a demand letter that produces voluntary payment, to an injunction or freezing order that stops the other side from moving assets.
This guide covers the common kinds of contract disputes we see in Ontario, the four-step response strategy we use when a client calls us after a breach, the damages available under Ontario law, and when litigation is — and is not — the right tool.
1. Common Types of Contract Disputes in Ontario
Not every contract dispute looks the same — the strategy for unpaid invoices is different from a shareholder dispute or a failed commercial closing. The seven categories below cover the large majority of what comes through our firm.
Unpaid invoices and debt recovery
The simplest and most common dispute: work was done or goods were delivered, and the other side refuses to pay. The defence often blames 'quality issues' or 'market changes.' Our first job is to assess the paper trail — contract, delivery documentation, acceptance, communications.
Shareholder and partnership disputes
Disagreements over control, profit distribution, or the conduct of one shareholder. Remedies in Ontario include oppression remedies under the OBCA/CBCA, derivative actions, and — in severe cases — orders winding up the company.
Franchise disputes
Disputes between franchisees and franchisors under Ontario's Arthur Wishart Act (Franchise Disclosure). Common claims: rescission for defective disclosure, non-payment of royalties, post-termination obligations.
Construction contract disputes
Payment disputes, defective workmanship, scope disputes, liens. The Ontario Construction Act layers additional rules (liens, holdbacks, prompt payment, adjudication) on top of ordinary contract principles.
Commercial purchase and sale disputes
Failed closings, misrepresentation, indemnity claims, earn-out disputes, and breach of post-closing covenants (including non-competition and non-solicitation).
Commercial leasing disputes
Unpaid rent, early termination, disputes over the condition of the premises, assignment and subletting, and disputes over renewal rights and rent escalations.
Cross-border commercial contracts
Disputes arising under contracts with foreign counterparties — often involving arbitration clauses, foreign judgments, or enforcement of foreign arbitral awards in Ontario.
2. The Four-Step Response After a Breach
Response Strategy at a Glance
Preserve evidence
Contract, emails, records — do not delete
Don't self-negotiate too long
1–2 rounds, then call a lawyer
Send a demand letter
Many disputes resolve here
Decide on litigation
Cost-benefit with your lawyer
Preserve every piece of evidence
Before any action, lock down the paper trail:
- The signed contract and every amendment (or the chain of emails that shows agreement)
- All correspondence — emails, text messages, chat records (including WeChat or WhatsApp)
- Invoices, purchase orders, bank transfer records, delivery and acceptance documents
- Any photos or videos (relevant in construction or property disputes)
- The names of anyone who witnessed the key events
A practical note: Ontario courts accept electronic messages (including WeChat and WhatsApp) as evidence. These are often the clearest contemporaneous record of what was said and promised. Do not delete them.
Don't self-negotiate for too long
Many business owners want to handle the dispute themselves first — one more reminder, one more call, one more extension. Two risks come with that approach:
- Delay can let the other side move assets. By the time you sue, the money may be gone.
- Prolonged tolerance can be used against you — the other side may argue waiver or estoppel, that your conduct accepted a new arrangement.
After one or two unsuccessful rounds of self-negotiation, bring a lawyer in.
Send a demand letter
A lawyer's first step is usually a formal demand letter. It:
- Sets out your legal position on the record
- Gives the other side a fixed window (typically 10–15 days) to perform or pay
- Identifies the consequences of non-compliance (including a Statement of Claim)
What actually happens: A meaningful share of contract disputes resolves at this stage. Many non-paying parties are not incapable of paying — they are waiting to see whether you will actually take legal action. A demand letter changes the calculus.
Decide whether to sue
If the demand letter does not resolve the dispute, the next decision is whether to commence litigation. A good lawyer will work through:
- Does the claim have a sound legal basis?
- Is the amount at stake worth the cost of litigation (including loser-pays cost exposure)?
- Does the defendant have assets worth pursuing?
- Has the limitation period run or is there a risk of it running soon?
- Is there a faster route (arbitration clause, industry regulator, trade association)?
Not every dispute is worth a lawsuit. A firm negotiating position coupled with a realistic compromise is sometimes the better commercial outcome.
3. What You Can Recover Under Ontario Law
Ontario's contract remedies are designed to put you in the position you would have been in had the contract been performed. The practical remedies a court can order fall into five categories:
Expectation damages
The benefit of the bargain — lost profit, lost resale value, cost to cover with a replacement supplier.
Reliance damages
Out-of-pocket costs wasted because of the breach — down payments, preparation costs, transaction costs.
Consequential damages
Further losses that were reasonably foreseeable at the time of contracting (following Hadley v. Baxendale).
Specific performance
An order compelling the other side to perform — especially for unique assets like real property. Registering a CPL on title can preserve this remedy.
Injunctions
Interim orders preserving the status quo, freezing assets (Mareva), or preserving evidence (Anton Piller) in urgent cases.
Costs
The successful party is generally entitled to a portion of its legal costs on a partial indemnity basis.
Duty to mitigate: Ontario law requires a plaintiff to take reasonable steps to reduce the loss after the breach. A court will reduce damages to the extent they could reasonably have been avoided. If your supplier fails, find a replacement; if your tenant breaches, re-let the premises at market rent.
4. Alternatives to Litigation
Litigation is one tool. In many commercial contexts, an ADR path produces a faster or more confidential outcome:
Direct negotiation
Frequently fastest and cheapest when the relationship is still salvageable. Counsel can advise from behind the scenes without taking over the conversation.
Mediation
A neutral mediator helps the parties reach agreement. Toronto-region civil actions are subject to Rule 24.1 mandatory mediation before trial — but voluntary mediation at any time is often valuable.
Arbitration
If the contract contains an arbitration clause, the dispute generally must go to arbitration. Awards are typically confidential and enforceable internationally under the New York Convention.
Construction Act adjudication
For construction payment disputes, Ontario's interim adjudication provides a binding determination in weeks, not years — without giving up later rights to litigate.
Frequently Asked Questions
How long do I have to sue for breach of contract in Ontario?
The basic limitation period under the Limitations Act, 2002 is two years from the date you discovered — or ought reasonably to have discovered — the breach. Certain kinds of contracts (such as contracts under seal or claims involving fraud) may have longer or different timelines. Act early: delay can forfeit your right to sue.
What damages can I recover for breach of contract?
Ontario courts generally award expectation damages — an amount intended to put you in the position you would have been in had the contract been performed. You may also recover out-of-pocket losses, consequential damages that were reasonably foreseeable, and — in limited cases — specific performance (an order compelling the other side to perform) or punitive damages.
Do I have a duty to reduce my losses after the breach?
Yes. Ontario law imposes a duty to mitigate damages. Once the other side breaches, you cannot sit back and let losses grow — you must take reasonable steps to reduce the loss (for example, finding a replacement supplier). A failure to mitigate can reduce the damages a court awards.
What is the first thing I should do after discovering a breach?
Preserve the evidence. Keep all versions of the contract, every piece of written communication (emails, text messages, chat records), payment records, invoices, and anything documenting the breach. Do not delete anything. A strong contemporaneous paper trail is the foundation of any later recovery.
Can I recover my legal fees if I win?
Ontario follows a loser-pays framework. A successful party is generally entitled to a portion of its legal costs — typically 40–60% on a partial indemnity basis, more on substantial or full indemnity in limited circumstances. Costs are a real factor in the decision to sue, to settle, and to take reasonable positions throughout the case.
About the Author
Calvin Zhang
Commercial Litigation Lawyer · Starkman & Zhang Lawyers
Acts for plaintiffs and defendants in Ontario commercial disputes — breach of contract, debt recovery, and complex multi-party litigation. Bilingual and at ease in court.
Dealing with a Contract Dispute?
The earlier you act, the more options stay open — from a demand letter that resolves the dispute voluntarily, to a freezing order that stops the other side from moving assets. Our commercial litigation team acts for plaintiffs and defendants across Ontario.
This article is for information only and is not legal advice.
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