How to Handle a Breach of Contract in Your Business: Step-by-Step Guide in Ontario

When you run a small business in Ontario, contracts are the foundation that keeps everything stable—sales, suppliers, employees, freelancers, services, partnerships, and even leases.

But what happens when someone doesn’t hold up their end of the deal?

A breach of contract can disrupt your operations, delay projects, drain cash flow, cause unnecessary stress, and result in losses.

In the following sections, we will discuss each step so you will know exactly what to do, what to avoid, and when to call a lawyer.

By the end of this article, you will have a clear, Ontario-specific roadmap for handling a breach of contract correctly and cost-effectively.

Connect with our partner lawyers to know your options using our free online form on this page.

What Counts as a Breach of Contract in Ontario?

A breach of contract occurs when one party fails to fulfill their obligations described in a valid agreement. This can happen in several ways:

1. Minor Breach (Partial Breach)

This occurs when one party fails to satisfy a specific part of the contract, but the main purpose of the agreement can still be achieved. For example, when a supplier delivers the goods late, but you are still able to sell them.

2. Material Breach (Major Breach)

This is a serious violation that undermines the contract’s entire purpose. An example of a material breach is when a contractor delivered substandard work, making the finished product unusable.3. Anticipatory Breach

This is when one party indicates ahead of time that they cannot perform their obligation. For example, a freelancer informs you that he cannot complete the project on the agreed deadline.

4. Actual Breach

In this case, a breach has already occurred, such as a refusal to complete the work, late delivery, or failure to pay.

Ontario’s Contracts Law stipulates that a contract must be valid and enforceable, which means it must have an offer, acceptance, consideration, intention, and clear terms. Verbal agreements can also be enforceable, although they are harder to prove.

Understanding the different types of breaches is not only about legal theories. It shapes your manner of response, the remedies you can claim, and the speed of your actions. Whether you’re dealing with a minor issue that can be fixed through a simple discussion or a major breach that threatens your business operations, this understanding will ensure your rights are protected.

Steps to Resolve a Breach of Contract in Ontario

Step 1: Review the Contract Carefully

This is the first—and most important—step. Before reacting emotionally or sending angry messages, take a moment to review the contract line by line. Ask yourself these questions:

What is the exact promise? Identify the obligations of both parties and note the deadlines, deliverables, and quality standards.

What aspect or clause was breached? Look for the section that describes the obligation in dispute.

Are there clauses about dispute resolution or notice requirements? Contracts in Ontario require that a written notice be provided within a specific timeframe.

Are there limitations on remedies or liabilities? Some contracts limit the monetary amount you can claim.

Is there a termination clause? This determines when and how you can legally end the agreement.

Write down key information. If the contract is poorly written, unclear, or missing key details, this may actually strengthen your legal position.

Step 2: Document Everything

In Ontario, evidence is everything for contract disputes. Start collecting and organizing:

• Emails, texts, and chat messages
• Signed agreements
• Delivery receipts
• Screenshots
• Photos
• Payment records
• Work samples
• Meeting notes
• Voicemails
• Timeline of events
• Communication attempts

Remember, if it is not written or cannot be proven, it is useless in a legal claim. Create a folder (digital or physical) labelled with the other party’s name. Organize the details by date. Your lawyer will find this advantageous for filing your claim successfully.

Step 3: Communicate With the Other Party

Before escalating the matter, try to resolve the issue professionally.

Why communicate first?

• You can resolve things more quickly and save on legal fees.
• Courts expect you to make reasonable efforts to reach a settlement.
• Sometimes the breach was unintentional or can be fixed.

How to communicate effectively:

1. Stay calm and neutral.
2. Reference the exact clause of the contract.
3. Describe the breach factually (no accusations).
4. Explain how it impacts your business.
5. Propose a reasonable solution or inquire about their plan to remedy the situation.

If they don’t respond, move to a formal written notice of breach which is often required under Ontario contract law.

Step 4: Send a Formal Notice of Breach

A Notice of Breach is a written document that:

• Identifies the breached clause
• Explains the issue
• Provides a reasonable time to address it
• States what will happen if they don’t resolve it

Most contracts require a written notice before terminating the agreement or seeking damages. Even if your contract does not mention it, sending one is still highly recommended.

A lawyer can help you draft a formal notice of breach to ensure the wording is correct and enforceable.

Step 5: Mitigate Your Losses

Ontario law requires businesses to mitigate their damages. This means you cannot simply wait and allow additional losses to pile up.

What are examples of mitigation?

• Hiring someone else to finish the job
• Purchasing goods from another supplier
• Taking reasonable steps to reduce financial loss

If you fail to mitigate damages, a court may reduce your compensation.

You don’t need to wait for things to get worse. A business lawyer can help you:

• Interpret ambiguous contract wording
• Confirm whether a breach occurred
• Draft notices
• Handle communication on your behalf
• Calculate your potential damages
• Decide which legal options make sense
• Avoid mistakes that weaken your claim

For Ontario small businesses, hiring a lawyer is not necessarily expensive. Many lawyers offer:

• Free initial consultations
• Flat-fee contract reviews
• Limited-scope services
• Pay-per-hour advice

Step 7: Explore Your Options to Resolve the Dispute

Once you’ve confirmed a breach, you will need to decide how to resolve it. Refer to the numerous options in Ontario outlined in the next section.

What are the Options for Resolving Contract Disputes in Ontario?

If you are in a dispute with a client, supplier, or other third-party over a contract, you have several options, depending on the gravity of the breach.

Option 1: Negotiate a Settlement

This is often the fastest and cheapest option. Negotiation may include:

• Extending deadlines
• Adjusting payments
• Offering partial refunds
• Replacing defective goods
• Agreeing to terminate the contract mutually
• Creating a new contract with clearer terms

Most disputes are resolved through negotiation to avoid costly litigation.

Option 2: Mediation

Sometimes, negotiation does not work because both parties can’t reach a mutually acceptable agreement. The next step is mediation, which involves a neutral third party called a mediator, who assists both sides in reaching a mutually acceptable resolution.

Mediation is popular in Ontario because it is:

• Flexible and confidential
• Much cheaper than going to court
• Faster (often done in one day)
• Helps preserve business relationships
• strongly encouraged by the courts

If the other side is reasonable but stubborn, mediation is a great next step.

Option 3: Arbitration

Arbitration is similar to litigation, but held privately. The arbitrator hears both sides and makes a binding decision.

Arbitration offers distinct advantages such as:

• It is faster than going through the court system
• It is private and confidential
• It is also good for technical disputes
• It results in a legally binding decision

However, arbitration has disadvantages, too, such as:

• It can be more expensive than negotiation or mediation
• There is limited opportunity to make an appeal.

Some contracts include arbitration, so check your contract carefully.

Option 4: Small Claims Court (Up to $35,000)

For small businesses, the Ontario Small Claims Court is a practical option. It handles claims of up to $35,000 and works faster than the Superior Court.

You can claim compensation for:

• Money owed
• Damages
• Lost profits
• Service failures
• Undelivered goods

Small Claims Court is business-friendly and is often used in contract disputes.

Option 5: Superior Court of Justice

For larger claims over $35,000 or more complex breaches, you’ll need to go through the Superior Court.

This is more formal and expensive, but necessary under certain circumstances:

• The damages are significant
• The contract terms are complicated
• There is a dispute about interpretation
• The financial impact is serious.

A lawsuit should be the last resort and avoided unless no other options remain.

Types of Damages You Can Claim in Ontario

Ontario contract law allows several types of compensation depending on the situation:

1. General Damages: covers direct financial loss from the breach.

2. Consequential Damages: covers indirect losses such as lost business caused by a supplier’s failure. These must be foreseeable.

3. Liquidated Damages: amounts pre-agreed in the contract, if clearly stated.

4. Specific Performance: A court order requiring the breaching party to complete the job. It is often applied to unique items like land, or custom-made goods.

5. Rescission: cancels the contract and restores both parties to their original position.

6. Restitution: Forcing the breaching party to return any benefit they received.

Not every type applies to every case, but a lawyer can tell you which ones are relevant. It’s important to consult a business lawyer to explore your options and ensure that you can file a claim successfully.

What NOT to Do When Handling a Breach of Contract

In a contract dispute, the steps you take can have a huge impact on a future claim**. Here are common mistakes that can weaken your case:**

1. React emotionally

Threats or hostility can be used against you.

2. Stop your own obligations prematurely

If you breach the contract in the process of responding, you weaken your claim.

3. Ignore notice requirements

Most contracts require formal written notice.

4. Fail to mitigate losses

Courts may reduce compensation if you failed to take reasonable steps to reduce losses.

5. Rely on verbal agreements

Always get agreements and changes in writing.

6. Delay in taking action

Delaying action makes disputes harder to resolve and may affect your legal rights.

Avoiding these common mistakes can make the difference between a quick resolution and a costly legal headache. When emotions run high, it’s easy to take actions that actually weaken your position. Stay calm, document everything, and follow the proper steps to protect your rights.

Do You Need a Lawyer for a Breach of Contract in Ontario?

Not always, but in many cases, hiring a lawyer can protect you, save you money, and prevent bigger problems.

Factors like the complexity of the dispute, the specifics of the contract, and the response of the other party to the issue will determine if you need a lawyer.

When will hiring a lawyer be unnecessary? You can resolve the contract breach without legal assistance if:

• The breach is minor or easily fixable
• The other party acknowledges their mistake
• Both sides are cooperative
• The financial impact is small
• Both parties are willing to negotiate new terms.

For straightforward issues such as a slightly late delivery, incomplete paperwork, or miscommunication, a calm conversation and written agreement to fix the issue may be sufficient.

When You Should Consult a Lawyer

A lawyer becomes important when the situation involves a real risk, financial loss, or legal complexity. In Ontario, you should strongly consider hiring a lawyer if:

• The breach is material (serious enough to affect your business operations)
• Significant money is at stake
• The other party refuses to cooperate or denies the breach
• The contract is vague, incomplete, or poorly written
• You’re unsure of your legal rights or obligations
• You want to terminate the contract
• You are being accused of breaching the contract yourself
• You need a formal Notice of Breach drafted properly
• The dispute may go to Small Claims Court or Superior Court

Even a short consultation can clarify your position and prevent you from making mistakes like sending an angry message, withholding your own performance too early, or failing to document things properly.

How to Find a Good Business Lawyer

Finding the right business lawyer can feel overwhelming when you’re already dealing with a breach of contract, but you don’t have to navigate it alone.

The fastest, smartest way to protect your business is to connect with a lawyer who understands contract disputes, responds quickly, and fits your budget.

A contract breach can snowball quickly. Mitigate your losses early and protect your rights with the right lawyer by your side. Use our quick online form to instantly compare lawyers who specialize in business and contract law in Ontario.

Receive multiple quotes from vetted lawyers who can explain your options, estimate your costs, and help you take the next step with confidence.

Fill out our short form today, compare your options, and choose the lawyer who fits your business needs.