When a contract is broken, the money you can recover follows a set of well-established rules — and one major limit that catches people out. Here is a plain-English guide to the damages available for breach of contract in Ontario, and how courts actually measure them.
By Jonathan Kleiman, Barrister & Solicitor · Published June 2026
"What's it worth?" is the question behind almost every breach of contract dispute. The answer depends on the kind of damages the law lets you claim, how foreseeable your losses were, and — crucially — what you did to limit them after the breach. This guide explains the categories of contract damages recognised in Ontario, the principles courts use to calculate them, and the duty to mitigate that quietly shrinks more claims than any other rule.
Ontario contract law starts from one guiding principle. The purpose of damages is not to punish the party who broke the deal — it is to put the innocent party, as nearly as money can, in the position they would have been in had the contract been performed. Almost everything else flows from that idea. It is why a court asks "what did you actually lose?" rather than "how badly did they behave?"
Expectation damages are the standard remedy and the starting point in most cases. They give you the benefit you expected from the bargain. In practice that often looks like:
If a contractor abandons a $40,000 renovation and it costs you $52,000 to have another firm finish it properly, your expectation loss is the $12,000 difference — the amount needed to get what you were promised.
Sometimes expectation damages are too speculative to calculate — for example, with a new venture whose profits are unknown. In those cases a court may award reliance damages instead: compensation for the expenses you reasonably incurred in reliance on the contract, which were wasted because of the breach. The idea is to restore what you spent getting ready to perform, rather than the profit you hoped to make.
Beyond your direct loss, a breach can trigger knock-on losses — lost profits, lost business opportunities, extra costs downstream. These are consequential (or special) damages, and they are recoverable, but only within a limit that has governed contract law since the famous English case of Hadley v Baxendale (1854). Under that rule, you can recover losses that:
The practical upshot is foreseeability. Unusual or extraordinary losses are only recoverable if the other party knew, when contracting, of the special circumstances that would make them likely. A supplier who is not told that a late delivery will shut down your production line may not be on the hook for the lost production. This is exactly why notifying the other side of what is at stake — in writing — can matter so much later.
Many contracts try to fix the consequences of a breach in advance with a liquidated damages clause — a pre-agreed sum payable if a party defaults. Ontario courts will enforce such a clause if it is a genuine pre-estimate of the anticipated loss. But they will refuse to enforce it if it is really a penalty — an amount set so high, relative to the likely loss, that its purpose is to punish or frighten the other side into performing. If you are relying on (or facing) a liquidated damages clause, whether it is enforceable is a question worth getting a contract dispute lawyer to assess.
Occasionally a contract is breached but the innocent party suffers little or no actual loss. The court may then award nominal damages — a small, symbolic sum that recognises the breach without compensating for real harm. Nominal awards confirm you were legally in the right, but they are rarely worth litigating for on their own, and a nominal-damages outcome can affect who pays costs.
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Contract damages are usually about money, not feelings — but not always. The Supreme Court of Canada confirmed in Fidler v Sun Life (2006) that damages for mental distress can be available where an object of the contract was to provide a psychological benefit or "peace of mind," and the distress was within the reasonable contemplation of the parties. These cases are the exception, not the rule, and they turn heavily on the nature of the contract. They rarely arise in an ordinary commercial dispute, but they are worth knowing exist.
People often ask whether they can make the other side "pay extra" for behaving badly. In contract, the answer is usually no. Punitive damages are designed to denounce and deter, not to compensate, and Canadian courts award them in contract only where the breaching party's conduct amounts to an independent actionable wrong — for example, a breach of a separate duty of good faith — and is sufficiently high-handed, malicious, or reprehensible to deserve punishment. The leading case, Whiten v Pilot Insurance (2002), involved an insurer's egregious bad-faith handling of a claim. The bar is high, and the vast majority of breaches — even frustrating ones — do not clear it.
If there is one rule that surprises people, it is this. After a breach, the innocent party has a duty to mitigate — to take reasonable steps to limit their losses. You cannot sit back, let the damage pile up, and then bill the breaching party for all of it. If the court finds you could reasonably have reduced your loss — by re-letting a property, finding a replacement supplier, or accepting reasonable alternative work — it will cut your damages by the amount you could have avoided.
Mitigation does not require you to take unreasonable risks or accept a humiliating deal; it requires reasonable effort. But it is one of the first things a defendant will raise, so document what you did to limit your losses from the moment the breach occurs.
Money is the default, but it is not the only remedy:
These equitable remedies are discretionary, and in Ontario they generally must be pursued in the Superior Court rather than Small Claims Court. Which remedy fits your situation is a strategic question best worked out with counsel — see our guide to enforcing a contract in Ontario.
A damages award is rarely the whole story. On top of it, a successful party is generally entitled to:
In the real world, the number turns on evidence. To recover, you generally have to prove both that the loss was caused by the breach and how much it was — with documents, not estimates. That means contracts, invoices, payment records, quotes for replacement work, accounting records for lost profits, and a clear record of your mitigation efforts. A claim that is obviously valid can still be cut down at trial if the loss is not properly documented. Before you commit to litigation, it is worth having a breach of contract lawyer value the claim — and weigh it against whether the other side can actually pay.
People often blur "damages" into one idea, but the measure differs depending on the type of claim — and the same facts can give rise to both. Contract damages aim to put you in the position you would have been in had the promise been kept — they look forward to the benefit you expected. Tort damages (for example, negligence or negligent misrepresentation) aim to put you back in the position you were in before the wrong — they look backward to undo the harm.
That distinction can change the number significantly. A misrepresentation that induced you into a deal might be pursued in contract, in tort, or both, and the better measure depends on the facts. Sorting out which claim — and which measure — gives the larger, more provable recovery is part of what a contract lawyer does before a claim is framed.
The principles above land differently depending on the kind of breach:
Lost profits are often the largest part of a claim — and the hardest to win. To recover them you have to clear two hurdles: they must have been reasonably foreseeable at the time of contracting (the second limb of Hadley v Baxendale), and they must be proven with reasonable certainty, not guessed at. Established businesses with a track record have an easier time; brand-new ventures with no history face real scepticism, because their projected profits are speculative. Solid records — past financials, comparable contracts, accounting evidence — are what move a lost-profits claim from "plausible" to "proven."
When the breach is serious enough to be repudiatory (a material breach or an anticipatory breach), the innocent party usually faces a choice: accept the repudiation, treat the contract as ended, and sue for damages — or affirm the contract, keep it alive, and insist on performance. The election has real consequences for what you can recover and for your own ongoing obligations, and it interacts with the duty to mitigate. It is exactly the kind of fork in the road where a quick conversation with counsel before you act pays for itself. Whichever path you choose, watch the clock — see how long you have to sue.
A damages figure is the start, not the finish. Once you know what the claim is worth, the path to actually collecting it runs through the same steps as any contract dispute: a demand letter (you can draft one with our demand letter generator), negotiation, and — if needed — a claim in Small Claims Court or, for larger or more complex matters, commercial litigation in the Superior Court. If you do file, it helps to know what happens after a claim is issued. And as always, a strong damages number is only worth pursuing if the other side can actually pay it.
Because the duty to mitigate quietly shapes so many claims, it is worth seeing what it means on the ground. Mitigation does not require heroics or unreasonable risk — it requires reasonable effort to limit the damage:
You are not required to accept a humiliating deal or take on undue risk, and the burden is on the breaching party to prove you failed to mitigate. But because it is one of the first things a defendant raises, document your efforts from the moment the breach occurs — the calls you made, the replacements you sought, the steps you took. A clear mitigation record protects the full value of your claim.
Liquidated damages clauses deserve a closer look, because they cut both ways. If you are drafting a contract, a well-built liquidated damages clause can save you the difficulty of proving your loss later — but only if the figure is a genuine, good-faith estimate of the anticipated harm at the time the contract is made. Pluck a number out of the air to scare the other side and you risk the clause being struck down as an unenforceable penalty, leaving you to prove your actual loss the hard way.
If you are facing a liquidated damages clause, the question is the mirror image: is this a genuine pre-estimate, or a disguised penalty? A figure wildly out of proportion to any plausible loss is vulnerable to challenge. Either way, whether a clause holds up is a fact-specific question worth running past a contract lawyer before you rely on it — or pay it.
Most commonly expectation damages — money to put you where you would have been had the contract been performed — plus, where they apply, reliance damages, consequential damages for reasonably foreseeable losses, liquidated damages set out in the contract, and nominal damages. In limited cases the court orders specific performance or an injunction.
Expectation damages cover the direct benefit you expected — the unpaid price or the cost to complete the work elsewhere. Consequential (special) damages are further losses that flow from the breach, such as lost profits, recoverable only if they were reasonably foreseeable when the contract was made.
Yes. You must take reasonable steps to limit your losses after a breach. If you could reasonably have reduced the loss but did not, the court can cut your damages accordingly. Keep a record of what you did to mitigate.
Rarely. Punitive damages require an independent actionable wrong (such as a breach of a duty of good faith) and conduct high-handed enough to deserve denunciation. Ordinary breaches almost never qualify, because contract damages are meant to compensate, not punish.
Usually. A successful party is generally entitled to prejudgment interest from the date the cause of action arose and can recover a portion of legal costs and disbursements from the losing side — both on top of the damages award.
If a contract has been broken and you want a clear-eyed assessment of what it is worth, call 416-554-1639 or book a free consultation.
The right damages analysis can be the difference between a settlement and a write-off. Jonathan Kleiman helps Ontario clients value and recover contract losses. Free 30-minute consultation.