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Most commercial contracts are read once, at the moment the relationship fails. We draft the clauses that decide that moment: liability, termination, indemnity, intellectual property and how a dispute is resolved.
Arrange a Call →Ontario businesses can contractually vary or exclude the two-year limitation period, but only in a business agreement as defined in section 22 of the Limitations Act, 2002. In a consumer contract, that clause is void.
A precise description of scope and deliverables, payment terms including interest on late amounts, a limitation of liability with agreed carve-outs, indemnities for third-party claims, clear termination rights with cure periods and consequences, ownership and licensing of intellectual property, confidentiality, and a governing law and dispute resolution clause. Everything else is secondary to those provisions.
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A commercial contract earns its fee in a narrow set of provisions. Scope and specifications determine whether the other side has actually failed to perform. Payment terms and interest determine what you can collect and when. Limitation of liability determines the ceiling on your exposure. Indemnities determine who pays for third-party claims. Termination determines whether you can get out. Governing law, jurisdiction and dispute resolution determine where and how you fight. Everything else, however carefully drafted, is usually secondary.
Ontario courts apply established interpretation principles to commercial agreements: the contract is read as a whole, in light of the surrounding circumstances known to the parties at formation, giving the words their ordinary and grammatical meaning consistent with commercial reasonableness. Ambiguity is construed against the party who drafted the clause. The practical consequence is that vague drafting benefits the counterparty who is willing to litigate, and precision in the operative clauses is worth far more than length.
Lexaltico LLP drafts, reviews and negotiates commercial agreements for Ontario businesses: master services agreements, statements of work, supply and manufacturing agreements, distribution and reseller arrangements, software and SaaS terms, licensing, consulting agreements, referral and commission arrangements, and non-disclosure agreements. We also act on contract disputes, including demand and termination strategy before litigation begins.
A limitation of liability clause typically does three things: caps aggregate liability at a stated amount or a multiple of fees paid, excludes indirect, consequential, special and punitive damages, and excludes specific heads of loss such as lost profits, lost data and business interruption. Canadian courts generally enforce such clauses between commercial parties, subject to a narrow public policy override, so the negotiation is about the number and the carve-outs rather than about whether the clause works at all. Standard carve-outs from the cap are breach of confidentiality, infringement of intellectual property, indemnity obligations, gross negligence, wilful misconduct and fraud.
Indemnities are different in kind from damages for breach. An indemnity is a primary promise to reimburse defined losses, usually arising from third-party claims, and it is not subject to the usual requirements of proving breach, causation and remoteness in the same way. Because of that, an uncapped indemnity can quietly swallow a carefully negotiated liability cap. The order of operations should always be checked: does the cap apply to the indemnity, or is the indemnity carved out of it, and does the indemnifying party have control of the defence and settlement of the claim.
Insurance provisions should match the risk allocation rather than being copied in. Requiring commercial general liability coverage is standard; requiring professional liability, cyber, product liability, or being named as an additional insured with a waiver of subrogation depends on what the contract is actually for. A requirement to maintain coverage that the counterparty cannot obtain is a defect that surfaces at the worst time.
| Termination type | Typical trigger | What to draft carefully |
|---|---|---|
| For convenience | Notice of a stated length, no reason required | Notice period, wind-down fees, whether it is mutual or one-sided |
| For cause on notice to cure | Material breach not remedied within the cure period | What counts as material, length of cure, whether repeated breaches accumulate |
| Immediate for cause | Insolvency, fraud, breach of confidentiality, loss of licence | A closed list; open-ended immediate termination invites dispute |
| Expiry and renewal | End of the initial term | Whether renewal is automatic, notice required to prevent it, and price on renewal |
| Change of control | Sale of the counterparty | Whether the right is triggered by a share sale as well as an asset sale |
Termination clauses fail most often on consequences rather than triggers. The agreement should say what happens to work in progress, prepaid fees, licensed materials, confidential information, customer data, and any transition assistance the terminating party will need. It should also list which provisions survive: confidentiality, limitation of liability, indemnity, dispute resolution, accrued payment obligations, and any restrictive covenants. A termination right without a survival clause can leave both parties without the protections they were relying on.
Canadian contract law recognises a general organising principle of good faith, and a free-standing duty of honest performance that applies to every contract and cannot be excluded by agreement. The Supreme Court of Canada established the duty of honest performance in Bhasin v. Hrynew and clarified in C.M. Callow Inc. v. Zollinger that it prohibits not only outright lies but also knowingly misleading a counterparty, including by silence where a party knows the other is labouring under a false impression its own conduct created.
In Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District the Court confirmed a separate duty to exercise contractual discretion in good faith, meaning in a manner connected to the purposes for which the discretion was granted. For commercial contracts this matters wherever one party controls volumes, allocation, acceptance, approval, scheduling or the calculation of a variable payment. Drafting can define the purpose of a discretion and the standard on which it will be exercised, which is far more useful than attempting to disclaim a duty that cannot be disclaimed.
Terminating a contract badly is a common source of liability even where the right to terminate exists. Where notice is required, giving less than the contract requires is itself a breach. Where a cure period applies, terminating before it expires is a repudiation. And a party that continues to accept performance after learning of a breach may be found to have waived the right to terminate for that breach. Advice before sending the notice is materially cheaper than advice afterwards.
The Sale of Goods Act implies conditions into contracts for the sale of goods, including that the goods correspond with their description, are of merchantable quality and are reasonably fit for a purpose made known to the seller. Between business parties those implied conditions can be excluded by express agreement, and a well-drafted supply contract does so and substitutes a defined warranty with a defined remedy. Where the buyer is a consumer, the Consumer Protection Act, 2002 makes those warranties non-excludable and prohibits certain terms outright.
Cross-border sales carry a trap worth knowing. Ontario's International Sale of Goods Act adopts the United Nations Convention on Contracts for the International Sale of Goods, which applies by default to contracts for the sale of goods between parties whose places of business are in different contracting states. If you intend Ontario domestic sales law to govern, the Convention must be expressly excluded; choosing the laws of Ontario alone does not do it, because the Convention is part of the law of Ontario.
The Limitations Act, 2002 sets a basic limitation period of two years from discovery and an ultimate period of fifteen years. Section 22 makes any attempt to vary or exclude those periods void, except in a business agreement as defined in the Act, where sophisticated commercial parties may agree to suspend, extend or, in defined circumstances, shorten them. This is a genuinely useful tool in warranty, indemnity and construction-adjacent agreements, and a void clause in anything that touches consumers.
The Electronic Commerce Act, 2000 makes electronic signatures generally valid in Ontario for commercial agreements, subject to exceptions including wills, powers of attorney and certain documents affecting land. What matters practically is not the technology but the evidence: who signed, whether they had authority, and whether the version signed is the version each party believes it signed. Counterpart and entire agreement clauses, and a disciplined execution process, prevent most authenticity disputes.
Dispute resolution deserves a decision rather than a default. Litigation in the Ontario Superior Court of Justice is public, appealable and, for claims within the monetary limit, can be run in Small Claims Court at proportionate cost. Arbitration under the Arbitration Act, 1991 is private, generally final with very limited appeal rights, and can be faster if the clause specifies the number of arbitrators, the seat, the rules and the timetable. A clause that simply says disputes will be arbitrated without those details creates a preliminary fight about how to have the fight.
Where a contract has already gone wrong, the sequence matters: preserve documents, check the notice and cure provisions, confirm whether any conduct has waived rights, quantify the loss, and consider whether a without prejudice proposal will resolve it before positions harden. The two-year basic limitation period runs from discovery of the claim, so waiting to see whether the relationship recovers can be costly. Contact our corporate group to draft, review or enforce a commercial agreement.
Services and development agreements should distinguish clearly between background intellectual property, meaning what each party brought to the engagement, and foreground intellectual property, meaning what is created under it. The customer usually wants to own the deliverables; the supplier usually needs to keep its tools, frameworks and know-how so it can serve other clients. The workable position is normally an assignment of the specific deliverables together with a perpetual licence back of any embedded background materials, drafted so the customer can actually use, modify and maintain what it paid for.
Two Canadian specifics catch people out. First, copyright in work created by an employee in the course of employment generally belongs to the employer, but work created by an independent contractor generally belongs to the contractor unless there is a written assignment, so a supplier promising to assign deliverables must have assignments in place from its own subcontractors. Second, moral rights, being the author's rights of attribution and integrity, cannot be assigned under Canadian copyright law; they can only be waived, so an assignment clause without an express waiver of moral rights is incomplete.
Data deserves its own clause rather than being folded into intellectual property. The agreement should identify who owns customer data, what rights the supplier has to use it, whether aggregated or de-identified data may be used for the supplier's own purposes, where the data will be stored and processed, what happens on termination, and how long the supplier will make the data available for export. Where personal information is involved, the federal Personal Information Protection and Electronic Documents Act applies to commercial activity, and an organisation transferring personal information to a service provider remains accountable for it and must use contractual means to provide a comparable level of protection.
Two further points. Open source software used in a deliverable can impose licence obligations on the customer's own code depending on the licence involved, so development agreements should require disclosure of open source components and prohibit those with incompatible terms. And any contract contemplating commercial electronic messages should account for Canada's anti-spam legislation, which requires consent, sender identification and an unsubscribe mechanism, and which carries substantial administrative monetary penalties for non-compliance.
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