A recent Ontario Court of Appeal (“ONCA”) decision, though not an estate case specifically, is an important read for all litigators and parties who settle their disputes outside of the courtroom. In the case of Biancaniello v. DMCT LLP, 2017 ONCA 386 (CanLII), the parties signed a mutual release to settle an action. Several years later, an unanticipated claim arose and the question before the ONCA was whether the release applied to the unanticipated claim.
The respondent, Prinova Technologies (“Prinova”) is a consulting and software business which employed the appellant, DMCT LLP (“DMCT”), as its accountant from 2004 until a dispute arose between them in 2007. DMCT billed Prinova $66,632.45 for services rendered on three separate matters between 2006-2007:
(a) applying for a Scientific Research and Experimental Development tax credit;
(b) negotiating the departure of an employee; and
(c) structuring a “butterfly transaction” in which Prinova’s software and consulting businesses were divided into separate companies and which involved transferring the assets and intellectual property of the software business into a new company on a tax-deferred basis.
Prinova ultimately objected to paying DMCT’s fees for a variety of reasons, including but not limited to the fact that it alleged DMCT overcharged Prinova for fees on the butterfly transaction. DMCT sued for its fees, however the parties agreed to settle the litigation before a statement of defence was delivered. As part of the settlement, the parties executed a mutual release which provides, in part:
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.]
In late 2011, Prinova learned that it could be subject to an income tax liability of approximately $1.24 million due to the way DMCT had structured the butterfly transaction. As a result, Prinova obtained a court order rescinding the steps taken to implement the butterfly transaction. Prinova incurred over $250,000 in legal and accounting fees in the process of obtaining the rescission order. In May 2012, Prinova filed a notice of action against DMCT seeking an order setting aside the release and claiming damages for, among other things, negligence and breach of contract in the amount of $3 million.
DMCT moved for summary judgment to dismiss the action on the basis that Prinova’s claim was barred by the release. The motion was dismissed. Justice Sachs granted leave to appeal to the Divisional Court, which was granted, but the Divisional Court dismissed DMCT’s appeal.
The matter was then brought to the ONCA, which was faced with the question of whether the Divisional Court erred in law in its interpretation of the language used in the release by failing to properly apply the principles of interpretation.
The ONCA reviewed the seminal decisions regarding the approach to the interpretation of a release, including the House of Lords’ decisions in London and South Western Railway v. Blackmore (1870), L.R. 4 H.L. 610 and Bank of Credit and Commerce International SA v. Munawar Ali,  UKHL 8.
The ONCA drew the following principles from its analysis:
- One looks first to the language of a release to find its meaning;
- 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;
- 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;
- 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; and
- One can look at the circumstances surrounding the giving of the release to determine what was specially in the contemplation of the parties.
The ONCA concluded:
…Because the release is specific as to the exact claims that are released, there is no need to search for what was contemplated by the parties. It is spelled out specifically and clearly…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…In my view, the language used by the parties in this release was clear and unequivocal in its intent and effect…
In settling estate matters in particular, releases and/or mutual releases are almost always used to, for example, protect an estate trustee from future claims be beneficiaries or to ensure that the issues between rivalling siblings regarding an estate are not brought back to court after settlement. While standard terms are most often used in these releases, this ONCA decision (and the decisions of the lower courts) remind us that reliance on a release will ultimately rest upon the specific language used and the court’s general principles of interpretation.