Still Negotiating? Don’t Lose Your Right to Sue
Still Negotiating? Don’t Lose Your Right to Sue
By: Chris MacLeod, Cambridge LLP
Many business disputes begin with a practical effort to resolve the problem. A customer has not paid, a supplier has allegedly breached an agreement, a shareholder relationship has broken down, or a business partner has failed to meet obligations. In many cases, the parties are still exchanging proposals, attending meetings, or trying to negotiate a sensible outcome.
The difficulty is that negotiations do not stop the clock.
In Ontario, the general limitation period is two years from the date you knew (or reasonably ought to have known) that you had a claim. Determining that date can be more complicated than it sounds, particularly where the issue developed over time or the parties continued to discuss a possible resolution. But waiting too long can put an otherwise valid claim at risk.
If you believe you may have a lawsuit but negotiations remain active, there are legal tools that may preserve your rights while leaving room for settlement.
Notice of Action
One option is to commence a Notice of Action. This is a relatively brief court document that starts an action and preserves the ability to advance a claim without immediately preparing every allegation and legal detail required in a Statement of Claim. After issuing a Notice of Action, you generally have days to deliver a Statement of Claim.
This can be helpful where a limitation deadline is approaching and you do not have enough time to investigate the facts, gather records, calculate damages, or prepare a complete pleading. It can allow you to meet the deadline while your lawyer finalizes the claim.
Even after a Statement of Claim is issued, service need not always happen immediately. In Ontario, a claim generally must be served within months after it is issued. That period can give the parties additional space to continue discussions before the litigation is formally delivered to the other side. However, this approach needs careful handling. Issuing a claim may affect the tone of negotiations, and procedural deadlines must be tracked closely.
Tolling Agreement
A second option is a tolling agreement. In a tolling agreement, the parties agree to suspend or extend the running of a limitation period for a defined period of time. This lets them focus on negotiation, mediation, document exchange, or another resolution process without forcing one side to start a lawsuit simply to preserve its legal rights.
A tolling agreement should be clear and in writing. It should identify the relevant dispute or potential claims, state exactly how long the limitation period is suspended, and address what happens when the agreement ends. It should also be negotiated carefully: an informal assurance that “we are still talking” is not the same as a legally effective agreement.
The right choice depends on the facts, the deadline, the relationship between the parties, the value of the dispute, and the likelihood of settlement. In some matters, commencing an action is essential. In others, a well-drafted tolling agreement protects both sides and supports productive negotiations.