Do you have more than one web front end server? If you do, then make sure the ToolsFile.xml is present on all servers. Also make sure that its permissions are set so it can be read by all users.
You can also try setting the ToolsFile path without a tilde at the beginning - e.g. "/ToolsFile.xml" instead of "~/ToolsFile.xml" since you have put it in the root of the web application.
All the best,
the Telerik team