In the first two parts of this blog series, we have explored whether commercial parties can agree to extend, reduce, exclude, or otherwise vary a statutory limitation period (in Ontario and Western Canada), and whether shorter contractual survival periods in M&A transactions violate statutory limitation periods. Each of the foregoing involves parties agreeing to modify limitation periods (or otherwise define their respective rights and remedies) relating to a claim prior to that claim arising. In contrast, this blog post explores how parties can agree to modify the limitation period for a claim after that claim has arisen pursuant to a tolling agreement.
(This blog post is the third in a series of three blog posts discussing how parties can agree to modify applicable time limits for bringing lawsuits against one another. For further reading, please visit the “Blogs and Insights” page on our website.)
What is a tolling agreement?
A tolling agreement is an agreement between two (or more) parties that suspends (or “tolls”) the applicable limitation period for a potential claim. A tolling agreement typically includes two key pieces of consideration:
- the party who has suffered some loss/damage (i.e. the potential plaintiff) will agree to suspend the limitation period for a set amount of time (the “tolling period”); and
- in exchange, the party who has caused the loss/damage (i.e. the potential defendant) agrees not to count this tolling period in arguing whether the limitation period for the claim has expired.
A tolling agreement is entered into after a potential claim arises between parties, and the scope of the agreement is typically narrowed so that it only applies to that particular claim. In other words, tolling agreements usually suspend the limitation period for a specific claim, rather than suspending the limitation periods for all claims that may arise between the parties.
Why use tolling agreements?
Tolling agreements are often used in a commercial context to extend the time during which the parties can negotiate the settlement of a potential claim. This can be beneficial for both parties, as it may allow them additional time to resolve disputes before resorting to litigation (which can be both costly and time-consuming).
Potential defendants may additionally benefit from the suspension of a limitation period, as suspensions can afford them additional time to perform some contractual obligation. For example, in the case of a potential defendant who has failed to pay some amount owing under a commercial agreement, this additional time can allow them to source funds for missed payments (including through re-financing or new financing, whether from the potential plaintiff or from a third party). To a lesser extent, this may also allow the potential defendant to benefit from the “time value” of money.
Meanwhile, potential plaintiffs can utilize tolling agreements to enforce new (or modified) obligations against the potential defendant. For example, a potential plaintiff may agree to suspend a limitation period in exchange for the potential defendant’s agreement to restructure payment provisions (which ultimately result in higher payments to the potential plaintiff).
Validity of tolling agreement
As noted in the first part of this blog series, limitation periods are established by provincial legislation in each of Ontario, Manitoba, Saskatchewan, Alberta, and British Columbia. The validity of tolling agreements is definitively established by legislation in Ontario; however, the validity of tolling agreements is slightly less clear in each of the other provinces.
In Ontario, sections 22(3) and (4) of the Limitations Act, 2002 (Ontario) specifically allow for the suspension of both the basic limitation period and ultimate limitation period for a claim (provided, in the case of the ultimate limitation period, that the claim has been discovered). Accordingly, there is certainty that tolling agreements are valid in Ontario.
Meanwhile, applicable statutes in Manitoba, Saskatchewan, and Alberta allow for the “extension” of limitation periods, but do not expressly contemplate the “suspension” of a limitation period pursuant to a tolling agreement. However, court decisions in each of those provinces have recognized tolling agreements, which provides some certainty as to their validity in those provinces.
Lastly, as noted in the first part of this blog series, in British Columbia, the Limitation Act (British Columbia) is silent as to whether commercial parties can agree to modify applicable limitation periods (including being silent as to the suspension of limitation periods). However, tolling agreements have also been recognized by courts in British Columbia, similarly offering some certainty as to their validity in that province.
Commercial parties should be aware that the enforceability of any tolling agreement may depend on several factors, including the nature of the claim, the wording of the agreement, the relationship between the parties, and the applicability of any specific legal doctrines which may affect enforceability (such as capacity, duress, undue influence, and so on).
We recommend obtaining legal advice before entering into any tolling agreement. Should you have any questions about tolling agreements or require further information about statutory tolling in any particular province, please do not hesitate to contact our firm.
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.
 We note that applicable legislation in each of the five provinces discussed herein contemplate statutory suspensions of applicable limitation periods for various reasons. These reasons depend on the particular province but may include situations where a potential defendant conceals fraud, where the potential plaintiff becomes disabled, or where the potential plaintiff is a minor. For more information about statutory suspensions of limitation periods in any given province, please contact our firm.