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Biancaniello v. DMCT LLP
Defence + Indemnity

Litigation Releases can be wide enough to preclude future claims between the parties that were unknown and unanticipated when the Release was executed.  

Biancaniello v. DMCT LLP, 2017 ONCA 386, per Feldman, J.A. [4235]

This case revolved around the interpretation and application of a release that concluded litigation.
Between 1998 and 2007, the Defendant accounting firm DMCT provided accounting services to the Plaintiff Prinova Technologies (a consulting business with respect to computer software and document automation). DMCT billed Prinova for over $66,000 on three separate matters during this time frame. Prinova had objected to paying the fees, alleging that the DMCT work provided “little or no value”, that DMCT ought to have recognized that it was in conflict of interest by providing advice to both Prinova and the departing employee on a matter dealing with the departure of that employee and that DMCT had overcharged Prinova for fees on another file which Prinova argued was a “make work project”. In 2008, after DMCT sued for its fees, the parties arrived at a settlement involving a total payment by Prinova of $35,000. The release in question provided as follows:

KNOW ALL MEN BY THESE PRESENTS that DMCT LLP (“DMCT”) and PRINOVA TECHNOLOGIES INC. and PRINOVA SOFTWARE INC. (hereinafter collectively referred to as “Prinova”), (including their officers, directors, employees, representatives, associates and assigns) in consideration of the sum of THIRTY-FIVE THOUSAND DOLLARS ($35,000) and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, do hereby remise, release, and forever discharge each other of and from all manner of actions, causes of actions, suits, debts, duties, accounts, bonds, covenants, claims and demands which against each other they had, now have or hereafter may, can or shall have for or by reason of any cause, manner or thing whatsoever existing to the present time with respect to any and all claims arising from any and all services provided by DMCT to Prinova through to and including December 31, 2007 and, without limiting the generality of the foregoing, with respect to any and all claims, counterclaims or defences that were pleaded or could have been pleaded in the action commenced in the Ontario Superior Court of Justice, as court file no. 08-CV-349246 PD3.
[Bold in original.]
Three years later, in 2011, Prinova learned that the DMCT work done on one of the matters (a butterfly transaction designed to separate Prinova businesses into different companies on a tax deferred basis) had not been done properly, such that Prinova would be subject to an income tax liability of 1.24 million dollars if that transaction had been carried out. Prinova obtained a court order in January 2013 to rescind the steps taken to implement the butterfly transaction. Its evidence included an affidavit form the DMCT partner who had advised Prinova on that transaction to the effect that the transactions designed by DMCT did not comply with the relevant tax provisions and therefore were contrary to Prinova’s intentions. Prinova incurred over $250,000 in legal and accounting fees to get the rescission order.
In May 2012, Prinova filed a Notice of Action against DMCT to set aside the 2008 release and claim damages for negligence, breach of contract and misrepresentation or breach of fiduciary duty against DMCT in the amount of $3,000,000. DMCT applied for summary dismissal of the claim based on the release.
The motion judge dismissed DMCT’s application and found that the release did not bar Prinova’s claim. She held that the release only referred and applied to claims “existing to the present time” i.e. when the release was executed, whereas the basis of the current action came to light three years later. She found that the current Prinova claim had not been contemplated by the parties when they executed the 2008 release.
Leave to appeal was granted to DMCT by the Divisional Court which upheld the motion judge, concluding that “[u]nless a release has exceptionally comprehensive language, applies only to claims that were known to the parties at the time it was executed” and that a “dispute that had not emerged, or questions that had not arisen, cannot be absorbed by the words of a general release”. That Court held that if the parties had intended to bar unknown claims “they must use clear and unequivocal language to express that intention”. DMCT appealed to the Ontario Court of Appeal.

HELD: For the Defendant DMCT; appeal allowed and action dismissed.

1.   The Court held that in interpreting a release the specific context in which it was executed might assist the court in understanding the words used and it may be proper and necessary to look at the surrounding circumstances to ascertain the parties’ intentions. It is possible for the parties to use general wording sufficiently wide to apply to claims that were unknown at the time the release was executed: Bank of Credit and Commerce International SA v. Munawar Ali [2001] UKHL 8.

2.   The Court summarized general principles for interpretation of releases:

[42]   The factual context and wording of the release are both quite different in this case than in Ali. However, I have discussed the opinions in the Ali case at some length because the Law Lords considered virtually every interpretive issue that could arise in applying the concept of what was “in the contemplation of the parties” when faced with a broadly-worded release. One can distill the following principles from these reasons:

1.   One looks first to the language of a release to find its meaning: at para. 8.
2.   Parties may use language that releases every claim that arises, including unknown claims. However, courts will require clear language to infer that a party intended to release claims of which it was unaware: at paras. 9-10.
3.   General language in a release will be limited to the thing or things that were specially in the contemplation of the parties when the release was given: at para. 13.
4.   When a release is given as part of the settlement of a claim, the parties want to wipe the slate clean between them: at para. 23.
5.   One can look at the circumstances surrounding the giving of the release to determine what was specially in the contemplation of the parties: at para. 28.

3.   The Court held that the release in this case was sufficient to apply to (and preclude) future claims that were unknown at the time when the release was executed because it not only applied to litigation up to the date of the release, it expressly applied to “claims arising from any and all services provided by DMCT to Prinova” during the time frame in question [emphasis added]:

[49]   Although the release does not specifically say that it includes unknown claims, it includes all claims arising from the services provided by the accountants up to the end of December 2007. By including all claims, but limiting the description of the claims that are intended to be covered both by subject matter and by time frame, there is no need to further specify the types of claims that are included. The language is specific and fully understandable: it includes all claims related to professional services provided during the specified time frame. There is no need, for example, to say, “including tort claims, negligence claims, breach of contract claims, costs claims”, etc. They are all included unless specifically excluded. The same analysis applies to unknown claims – by specifying the claims contemplated by the parties and describing them inclusively, all claims in the defined category are included unless specifically excluded. Had it said “including known and unknown claims”, that would just have been another way of saying that the release includes all claims.
[50]   In my view, the language used by the parties in this release was clear and unequivocal in its intent and effect. The Divisional Court did not find the language “exceptionally comprehensive” enough to include the claim that arose. I do not agree. More words would not assist. I agree with the observation by Lord Hoffmann in Ali, at para. 38, that the solution does not lie with more verbiage.
[51]   The problem for the client here is not that the words used are unclear, but that the claim that arose was unanticipated. In signing the release, the parties intended to fully and finally settle the fee dispute – a dispute that arose because the client was unhappy with both the time spent and the quality of service provided by the accountants. The language of the release covers all claims arising from the work the accountants did on the butterfly transaction in 2007. The parties were wiping the slate clean in respect of that work. Had the client wished to exclude claims it might later discover arising from that work, it could have bargained for that result.
[52]   The Divisional Court held that because the parties were not aware that the accountants had given negligent advice on the butterfly transaction, the client’s claim for negligence did not exist when the release was signed. With respect, this statement constitutes an error of law. The negligent advice on how to put in place a butterfly transaction to achieve a tax-free division of the client’s business was provided by the accountants in April 2007. Because neither party was apparently aware that the advice was negligent, there would be a discoverability issue for the purpose of determining the relevant limitation period. However, the fact that the claim was not discovered does not mean that it did not exist, nor that it was not discoverable. In fact, it did exist, but came to light only upon being discovered by other accountants four years later.