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Releases Mean What They Say and “All Claims” Means All Claims

In its recent decision of Biancaniello v. DMCT LLP, [i] the Ontario Court of Appeal confirmed that a release for “any and all claims” arising from the provision of services included a claim unforeseen by either party.  The use of “boilerplate” language in the release did not negate its effect on existing claims unknown at the time the release was executed.

Background

Prinova Technolgies (“Prinova”), a consulting business offering advice on automation, hired accountants DMCT LLP (“DMCT”).  From about 2006 to 2007, DMCT billed Prinova roughly $66,000 for work on three matters:

• applying for Scientific Research and Experimental Development (“SRED”) tax credits;
• negotiating an employee’s departure; and
• structuring a “butterfly transaction” where Prinova’s software and consulting businesses were divided into separate companies, and the assets of the software business would be transferred to a new company on a tax-deferred basis.

Prinova objected to paying the fees, and argued that DMCT failed to provide value for services.  Prinova alleged that: DMCT delivered a SRED application that was late and susceptible to challenge; DMCT was in a conflict of interest with respect to the employee departure; and DMCT overcharged for the butterfly transaction, engaging in a “make work” project.

DMCT sued for its fees.  Prinova and DMCT negotiated a settlement.  Prinova agreed to pay $35,000 in fees, and the parties agreed to execute a full and final mutual release.  The release stated that the parties released:

“…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.” (the “Release”)

In late 2011, Prinova learned that the butterfly transaction would not be tax-free as intended, but was instead subject to an income tax liability of approximately $1.24 million because of the manner in which DMCT structured the transaction.

Prinova obtained Court approval to rescind the butterfly transaction.  In that proceeding a DMCT partner gave evidence that the butterfly transaction did not comply with the relevant provisions of the Income Tax Act, and therefore were contrary to Prinova’s intentions. 

Prinova then commenced this claim against DMCT, seeking to set aside the Release, and seeking damages for, among other things, negligence and breach of contract.   DMCT moved to have the claim dismissed on the basis it was barred by the Release.

Lower Court Decisions

At first instance, the motion judge held that the parties had released claims “existing to the present time”.  DMCT’s admitted negligence only came to light in 2011, and there would have been no basis for Prinova to assert this claim sooner.  The motion judge concluded that, “the Mutual Release is a standard, boilerplate form of release that did not and was not realistically intended by its wording to apply to an unrelated matter that arose … years subsequently and was not contemplated by the parties.”

This decision was upheld by the Divisional Court, which held that “unless a release has exceptionally comprehensive language, it applies only to claims that were known to the parties at the time that it was executed.”  Further, “If the parties want to bar unknown claims, they must use clear and unequivocal language to express that intention.”

Court of Appeal Decision

The Court of Appeal granted leave to hear the appeal in this case, because the issue – the proper interpretation of a release containing language standard to many documents – is an issue of general public importance. 

Principles on the Interpretation of a Release

The Court of Appeal reviewed the leading Canadian and UK case law on the interpretation of releases, distilling the principles as follows:

1. One looks first to the language of a release to find its meaning.

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.

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. When a release is given as part of the settlement of a claim, the parties want to wipe the slate clean between them.

5. One can look at the circumstances surrounding the giving of the release to determine what was specially in the contemplation of the parties.

In this case, Prinova and DMCT were entering into the Release as part of a settlement, for the purpose of wiping the slate clean.

The Court of Appeal held that while the Release did not purport to release all possible claims, without limitation, that may exist between the parties, the Release did contain general language, and the Court must try to determine the matters that were specially within the contemplation of the parties.  Here the Release refers to all claims existing up to the present time, “arising from any and all services provided by DMCT to Prinova through to and including December 31, 2007” including all defences or counterclaims that could have been pleaded in the fees litigation.   

Prinova now wants to assert a claim against DMCT arising from services provided before December 31, 2007.  Though the Release does not specifically say that “unknown” claims are released, the Release covers all claims arising from the services provided by DMCT up to the end of December 2007.  The Court of Appeal noted that by including all claims, there is no need to specify that all claims includes unknown claims.  If the Release set out “including known and unknown claims” that would be another way of saying all claims.  Further, that the parties were not aware of the butterfly transaction issue at the time does not displace the Release.  The claim itself existed at the time of the Release.  The parties were wiping the slate clean in respect of the work done by December 2007.  Had Prinova wished to exclude claims it might later discover arising from that work, it could have bargained for that result.

Lessons and Conclusion

The Court of Appeal has made clear that a release of “all claims” will be taken to truly mean all claims.  There is no need for further language to clarify that unknown claims are captured.  Parties entering into releases should be mindful as to whether there are any potential claims they wish to exclude, for example claims that have yet to be discovered, and should carefully craft their releases to make this explicit.