In the May 5, 2017 decision of Biancaniello v. DMCT LLP, the Ontario Court of Appeal considered whether a release operated to bar a claim even though the claim was unanticipated and unknown at the time the release was executed by the parties. The Court found that the release barred all claims.
Between 2004 and 2007, DMCT LLP acted as Prinova’s accountant and billed Prinova approximately $66,000 for services rendered on three separate matters, including a tax arrangement known as a “butterfly transaction”. Prinova objected to paying the fees, alleging that it received little value for the services performed and that it suffered damages from bad advice provided by DMCT. Subsequently, DMCT sued for its fees but, prior to a statement of defence and counterclaim being delivered, the parties agreed to settle the litigation for a total payment by Prinova of $35,000 to DMCT. The parties executed a mutual release of all claims:
… 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… [emphasis added]
A few years later, Prinova had to pay an additional $1.24 million in income taxes because of the way the butterfly transaction had been structured. Prinova then commenced proceedings against DMCT to set aside the release and sought $3 million in damages for negligence, breach of contract, misrepresentation and breach of fiduciary duty. DMCT responded by moving for summary dismissal of the action, arguing that the release in the previous settlement precluded any such action.
The motion judge’s decision, upheld by the next level of appeal, found that the wording of the release only referred to claims “existing to the present time.” It further found that the language in the release did not clearly and unequivocally bar “unknown claims” and thus the release did not prevent Prinova from suing DMCT for this newly discovered claim related to the butterfly transaction.
The Court of Appeal, however, found that the release barred Prinova from suing DMCT. The Court found that a release need not explicitly refer to “unknown claims” to release them. The Court articulated that “unknown claims” were encompassed in the definition of the released claims, which comprised all claims arising out of the services that DMCT provided to Prinova prior to December, 2007.
While this decision should provide some comfort to insurers, it serves as a reminder to always use clear language to capture the intentions of all parties in order to avoid this kind of litigation.