A supplier walked away, a customer stopped paying, or a partner did the opposite of what they promised. Deciding whether to sue for breach of contract is partly a legal question and mostly a commercial one. Ontario sets a short clock, a specific measure of damages, and a costs regime that rewards realism. This guide covers what to know before you file.
What You Must Prove to Sue for Breach of Contract
Four elements: a contract existed, the other side breached it, the breach caused your loss, and you can quantify it.
You can sue for breach of contract on an oral agreement in Ontario, so a missing signature is not the end of it. The difficulty is evidentiary, and you may prove the deal through emails, texts, invoices, payment records and the parties’ conduct.
Some promises still need writing. Under the Statute of Frauds these include contracts for the sale of land or an interest in land, or promises to answer for another person’s debt such as a guarantee. Check before assuming an oral deal is enforceable.
The Two-Year Clock
Check this before anything else. It is the most common reason a good claim dies, and it catches people who assumed they had longer to sue for breach of contract.
Section 4 of the Limitations Act, 2002 sets the basic period:
Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
Discovery and the breach date are not the same thing, but the Act assumes they coincide. Section 5(2) puts the burden on you:
A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.
Miss the deadline, and the right to sue for breach of contract disappears entirely.
One point deserves more attention than it gets. In a business agreement made on or after October 19, 2006, meaning one where no party is a consumer, the parties may vary or exclude the basic two-year period outright, or set an even shorter time limit. Read what you signed before you assume you have two years to sue for breach of contract.
What You Can Recover
Damages aim to put you where performance would have left you. That is the “expectation measure” of damages, and it is the default when you sue for breach of contract.
Remoteness limits it. The Supreme Court settled the framework in Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, at paragraph 54:
It follows that there is only one rule by which compensatory damages for breach of contract should be assessed: the rule in Hadley v. Baxendale.
In practice you recover losses arising naturally from the breach, plus losses from special circumstances the other side knew about at formation. Tell a counterparty at the outset what failure will cost you, therefore, and you widen the claim later.
Lost profits are recoverable where they fall within that rule, and nothing automatically excludes them as indirect or consequential. How your contract defines those words often decides the argument.
You must also mitigate. In Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, the Supreme Court upheld an award of nominal damages of one dollar against a plaintiff that had refused to take reasonable steps to reduce its loss.
When money is not enough
Courts occasionally order the other side to perform instead of paying, but the threshold is high and most parties who sue for breach of contract will recover money rather than performance. In Semelhago v. Paramadevan, [1996] 2 SCR 415, the Supreme Court said at paragraph 22:
Specific performance should, therefore, not be granted as a matter of course absent evidence that the property is unique to the extent that its substitute would not be readily available.
The Clauses That Decide the Case
Before you sue for breach of contract, read the exclusion and limitation of liability clauses. They usually determine what the claim is worth.
Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, supplies the analysis. The framework came from Binnie J. in dissent, and the Court adopted it unanimously on that point.
Three questions follow. Does the clause, properly interpreted, even apply to what happened? Was it unconscionable when the parties made the contract? And is there an overriding public policy reason not to enforce it, which is a deliberately high bar?
Tercon also buried the doctrine of fundamental breach, so do not assume a bad enough breach lets you sue past the cap. On interpretation, Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20, held that an express agreement under section 53 of the Sale of Goods Act needs no magic words, because what matters is what the parties objectively agreed.
Good faith also constrains performance. Since Bhasin v. Hrynew, 2014 SCC 71, parties must not knowingly mislead each other about matters directly linked to performance, and later cases extended that to half-truths, to silence, and to contractual discretion.
Where You Sue, and What It Costs
The amount decides where you sue for breach of contract. Claims up to $50,000 can go to Small Claims Court, a limit that rose from $35,000 on October 1, 2025. Larger claims go to the Superior Court, where, as the rules stand in 2026, the Simplified Procedure applies up to $200,000 and imposes tighter limits on discovery and trial length. A wider overhaul of the civil rules is in the works, so check the current position before you file.
Check the contract for an arbitration clause first. Under the Arbitration Act, 1991, a court must stay a proceeding brought in the face of a valid arbitration agreement if the other side moves for it, subject to narrow exceptions. Suing in the teeth of that clause simply hands the other side a motion.
Costs, interest and offers to settle
Ontario is a loser-pays jurisdiction. Section 131(1) of the Courts of Justice Act puts the question in the judge’s hands:
Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.
That discretion usually lands on a partial indemnity scale, which recovers a meaningful share of actual fees. Prejudgment interest runs from the date the cause of action arose, and postjudgment interest runs from the order.
Rule 49 of the Rules of Civil Procedure rewards realism. A plaintiff who makes a written offer at least seven days before the hearing and then does at least as well as that offer generally recovers partial indemnity costs to the date of the offer and substantial indemnity costs afterwards. A defendant who beats its own offer recovers partial indemnity costs from that date, which is a smaller but still useful lever.
What to Do Next: When to Call a Lawyer
Diarise the two-year date before you do anything else, then preserve the paper trail and suspend any automatic deletion.
Take advice before you stop performing. After a serious breach you must choose whether to treat the contract as at an end or carry on, and choosing wrongly can turn you into the party in breach.
Send a demand letter that sets out the term, the breach and the loss. It often resolves the matter, and it fixes your position in writing if it does not.
Deciding to sue for breach of contract should follow a hard look at the clause, the clock and the counterparty’s ability to pay. If you are weighing that decision, contact Cowan for a straight assessment before the limitation period makes it for you.
