Ontario Court of Appeal Clarifies Requirements for Releasing Unknown Claims

The Ontario Court of Appeal has clarified that “exceptionally comprehensive” language may not be required to release claims that were unknown at the time the release was signed.

A release of a category of claims arising prior to a certain date, does not need to say unknown claims in that category are being released. There is no need to further specify the types of claims. All claims are included – even unanticipated claims – unless specifically excluded.

So says the Court of Appeal in its reasons for decision in Biancaniello v. DMCT LLP, handed down 15 May 2017, reversing the rulings of the motions judge and the Divisional Court below.

The release being considered was given in 2008 to settle a claim by a firm of accountants for payment of its fees. The fees claimed were roughly $66,000 for services rendered in applying for tax credits, negotiating the departure of an employee, and structuring a tax saving butterfly transaction. The clients objected to the accountants’ bill on grounds including that they gave little value.

The accountants agreed to accept $35,000 in settlement, and the parties signed a mutual release which provided in part that they were releasing claims against each other which they, “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 the services provided by the accountants up to 31 December 2007.

In late 2011 the clients discovered problems with the butterfly transaction which resulted in a potential income tax liability of $1.24 million.

The clients sued for negligence. The accountants moved for summary judgment arguing the action was barred by the release.

The accountants’ motion was dismissed at first instance. The motions judge held the wording of the release referred to claims “existing to the present time” i.e. 2008. The accountant’s negligence came to light only in 2011 so there was no basis for the clients to assert a claim until after 2008. The Divisional Court agreed. It interpreted the language of the release to include only known causes.

Applying principles from UK House of Lords decisions, the Court of Appeal reasoned that because the release was given as part of a settlement of a fees action, its purpose for both parties was to wipe the slate clean in respect of that dispute. To the extent a release contains general language, the court must determine what was within the contemplation of the parties. The context of the settlement of an action limits the intended scope of a release. But in this case the release expressly includes all claims arising from “any and all” services provided by the accountants up to 31 December 2007. There was no need to search for what was contemplated by the parties. The clients now sought to assert a claim that arises out of the services provided by the accountants before 31 December 2007.

The clients asserted the release did not bar these claims because (1) the claim was unknown at the time of the release, and (2) the claim did not exist at the time.

The court of Appeal rejected both arguments. Although the release does not specifically say it includes unknown claims, it includes all claims arising from the accountants’ services before the date stated. Writing for the court Feldman J.A. observed, “Had the client wished to exclude claims it might later discover arising from that work, it could have bargained for that result.”

As for the argument the claim did not exist, the Court of Appeal held this finding by the Divisional Court was an error of law. The fact that the claim was not discovered, did not mean it did not exist.