July 24, 2017

When combatants settle a lawsuit, they often exchange mutual releases – that is, they release each other from all and any possible claims arising out of the issues raised in the litigation. However, releases can be the bane of a lawyer’s existence when it comes to getting the words just right. Clients don’t think they are much fun either. Releases are often dense and cumbersome in their wording and full of legalese. They can be difficult to read and their many twists and turns, designed to address any and all eventualities, are usually repetitive and mind-numbing. However, releases are a critical part of the litigation process and in settling a claim; they are, in fact, a necessary evil. I was reminded as much when I read Biancaniello v. DMCT LLP, a recent case from the Ontario Court of Appeal (“CA”).

In that case, the parties signed a broad-worded, mutual release to settle an action in 2008. The earlier action had arisen out of a fee dispute between the company (Prinova) and its professional accountants (DMCT). Years later, an unanticipated claim came to light. In 2012, Prinova filed a notice of action against DMCT seeking a court order setting aside the 2008 release and claiming damages in the amount of $3 million. Prinova claimed that DMCT’s 2007 advice on a “butterfly transaction,” in which Prinova’s software and consulting business was divided into separate companies, was negligent and resulted in a belatedly huge tax bill. DMCT moved to dismiss the action on the basis that Prinova’s claim, which was based on advice given by DMCT in 2007, was barred by the 2008 mutual release signed by both parties. The issue before CA was whether the 2008 release applied to bar Prinova from bring the new, unanticipated claim against DMCT.

The CA quickly noted that the proper interpretation of releases was an issue of general public importance (for example, the 2008 release in question used language that was standard in many releases). It was common sense that in settling disputes, the parties want to wipe the slate clean between them, which is accomplished in part through the use of releases. But when an unexpected claim comes to light, it is often unclear whether the broad general language used in a release is intended to cover the unexpected claim.

When faced with a broadly-worded release and in considering what was “in the contemplation of the parties,” the CA advanced the following principles: 1) one looks to the language of a release to find its meaning; 2) clear language is required to infer that a party intended to release claims of which it was unaware; 3) general language in a release will be limited to the thing or things that were specifically in the contemplation of the parties when the release was given; 4) a release is intended to wipe the slate clean between the parties; 5) one can look at the circumstances surrounding the giving of the release to determine what was specifically in the contemplation of the parties.

In the case before the CA, the language used by the parties in the 2008 release was clear and unequivocal in intent and effect. Although the release did not specifically say that it included “unknown claims”, it included “all claims” arising from the services provided by the accountants up to the end of December 2007. The language was specific and fully understandable; it included all claims related to professional services provided during the specified time frame. The CA held that “all claims” included “unknown claims” unless specifically excluded.

The problem faced by Prinova was not that the words used in the release were unclear, but that the negligence claim that later arose was unanticipated (Prinova did not discover that the 2007 advice it received from DMCT was negligent until 2012). According to the CA, in signing the release, Prinova and DMCT intended to fully and finally settle the fee dispute – a dispute that arose because Prinova was unhappy with both the time spent and the quality of service provide by DMCT. The language of the release therefore covered all claims arising from DMCT’s work on the butterfly transaction in 2007. As the CA wrote: “The parties were wiping the slate clean in respect of that work. Had the client [Prinova] wished to exclude claims it might later discover arising from that work, it could have bargained for that result.” The CA therefore held that the 2008 release barred Prinova from pursuing its negligent advice claim against DMCT with respect to the 2007 butterfly transaction.

Bottom line: both lawyers and clients should pay attention to the wording of a release. Boilerplate language should be carefully scrutinized to ensure that it does what it is intended to do (i.e. exclude claims) and remains appropriate in different situations. Consider unknown or unanticipated claims. Clear language is required to exclude a claim of which a party is otherwise unaware.

As always, happy (and careful) litigating.