Every now and then the term “tolling agreement” gets thrown around in litigation. While this is not a common document, it is certainly beneficial to understand the function – and utility – of these kinds of agreements and how they can be useful in the context of litigation.
What is a Tolling Agreement
A tolling agreement is made between parties (litigants) to a potential or ongoing dispute (litigation) where they agree to “pause the clock” on the running of a statute of limitations or other legal deadlines. The purpose of a tolling agreement is to allow parties to investigate the legitimacies of their claim, or other explore settlement and attempt negotiation before the commencement of a dispute. In Ontario, at least, the advantage in “pausing the clock” is that it prevents one side from losing the right to bring a claim because of time limits set out in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the “Act”).
By removing the pressure of an expiring limitation period, it gives potential litigants the breathing room to resolve potential disputes without rushing into court in order to preserve their rights. These agreements generally aid in reducing litigation costs as they avoid unnecessary filings and procedural steps that would otherwise be taken solely to ensure compliance with the Act. In short: A tolling agreement buys time.
The Requirements under the Act and Modifications through Tolling Agreements
As a general refresher, there are two (2) limitations periods in Ontario as set out in the Act:
- The Basic Limitation Period set out in Section 4 of the Act, which requires parties to set commence their proceedings within two (2) years following the day on which the claim was discovered ; and
- The Ultimate Limitation Period set out in Section 15 of the Act, which puts a final kibosh on any claims following the fifteenth (15th) anniversary on which the act or omission on which the claim is based took place.
While there are libraries of caselaw on the definitions of “discoverability” and the overall interplay of limitation periods, the general rule of thumb is that parties ensure to commence their proceedings within the two-year period. As such, when entering into a tolling agreement, parties seek to extend either the two-year or fifteen-year period.
A caveat to all tolling agreements, however, is the operation of Section 22 of the Act. Namely, pursuant to Section 22, A limitation period under this Act applies despite any agreement to vary or exclude it, subject only to the exceptions in subsections 22 (2) to (6). The more important exceptions include:
- If an agreement is made on or after October 19, 2006, then the Basic Limitation Period may be suspended or extended by a tolling agreement;
- The Ultimate Limitation Period, however, may only be extended in the event that the relevant claim has been discovered. This means that – hypothetical or uncrystallized claims cannot be extended indefinitely by a tolling agreement; and
- In the case of business agreements (being those that are made where none of the parties are “consumers” as defined under the Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A.), the Basic Limitation Period can not only be extended/suspended, but can be excluded entirely.
Utilizing Tolling Agreements
In light of the requirements under the Act, parties relying on tolling agreements may want to have some of the following clauses:
- A clause suspending or extending the respective limitations period, which could look like the following:
Pursuant to Section 22 of the Act, all limitation periods under Sections 4 and 15 of the Act in respect of the [claim] that have not expired by the date this Agreement is signed are suspended during the existence of this Agreement and will resume upon the effective date of the termination of the Agreement (provided, for clarity, that any such limitation periods are extended by the number of days that this Agreement remained in effect). This Agreement is a business agreement within the meaning of Section 22 of the Act;
- A clause that indicates the time period for terminating the agreement and when the limitations periods resume; and
- A clause that does not acknowledge the legitimacy of the underlying claim.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
[1] Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, s. 4.
[1] Ibid, s. 15(2).
[1] Ibid, s. 22(1).
[1] Ibid, s. 22(3).
[1] Ibid, s. 22(4).
