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Legal Notes: Tolling agreements maintain project progress despite ongoing disputes

John Bleasby
Legal Notes: Tolling agreements maintain project progress despite ongoing disputes

Disputes are almost inevitable in large construction projects and can involve project partners down the ladder, from owners to designers to the contracted trades.

However, when projects extend over long periods of time, it becomes impractical for parties to be embroiled in a constant string of disputes. These could put at risk co-operative relationships that can last beyond that one project itself.

This is where tolling agreements have value.

Tolling agreements are a stop-the-clock mechanism, says Krista Chaytor of WeirFoulds LLP. They permit parties to recognize that there is a dispute while allowing them to get on with the job now and deal with the dispute later, despite some limitations.

For example, parties cannot interrupt any provincially legislated prompt payment regimes. Similarly, they cannot contract out of the 24-month Limitation Act of 2002 in Ontario.

Sahil Shoor of Gowling WLG explains.

“Let’s say one party discovered 23 months ago that there was a potential issue, but the project is still ongoing. If the parties are in agreement, they can toll it, and agree to focus on completing the project. They are still following the legislation but just pausing the clock before commencing the actual dispute resolution under the contract, whether it’s litigation or arbitration.”

Shoor sees tolling agreements at the highest levels of the project chain, often between the owner, the designer and the main contractor.

“Really large infrastructure projects have a life of their own. Sometimes after 18 months there are issues that get extended because despite any disagreements, parties still have to work together.”

However, Chaytor says although tolling agreements aren’t often seen at lower levels on the project pyramid, that doesn’t mean they can’t be put in place.

“Trades like painting and drywall usually don’t have the same access to legal advice, so they don’t tend to get involved in things like tolling agreements,” she told the Daily Commercial News. “That’s not to say that it can’t happen. A tolling agreement can be with anyone.”

Tolling agreements can be flexible in terms of their length. Shoor typically sees agreements ranging from six to 18 months, depending on how much time the parties wish to give themselves to resolve any issues that might build up over time. Chaytor says whether short or long, the key is the ability to terminate the tolling agreement with 30 days’ notice.

Webnesh Haile of Singleton Urquhart Reynolds Vogel LLP told the Daily Commercial News that tolling provisions can also be included in other agreements, such as co-operation agreements among trades lower down the chain.

Chaytor agrees and offers examples.

“Let’s say there’s a problem with the electrical in the building. The owner threatens to sue the contractor, citing several issues. The contractor counter-claims, saying the owner, in fact, has added equipment not included in the original scope, resulting in overloaded circuits. The contractor will then turn to his electrical contractor. He will explain that he intends to defend against the owner’s allegations because of the changes made, but he needs the electrical contractor’s help and expertise to do so.”

Or it could be about obtaining factual information to prevent disputes carrying down the line.

For example, an owner might allege that concrete was poured without heat, resulting in problems. In order to defend, the contractor may need access to facts that are only available to the concrete subcontractor, such as the use of heaters and records of temperature readings taken at the time. 

“The main contractor might say to the concrete contractor, ‘By providing me with the information I need for my defense, I don’t have to spend time and money on a fight with you that we may never need to have.’”

Thus, tolling agreements can stop the urgency to sue and counter-sue within the tight timelines under the Limitation Act, thereby reducing legal costs and delays over the course of a project.

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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