Releases are commonly used to settle existing or anticipated disputes between two or more parties which involve (or may involve) their legal rights and obligations to each other. Examples of such use are:
(i) where the parties are in a dispute or disagreement, where they have commenced Court
(or similar proceedings and where the Court (or other tribunal) has not yet finally adjudicated on the matter or matters in dispute;
(ii) where an employee who, by the terms of her or his employment, has had access to the employee's employer's trade or other valuable "secrets" or information, methods, formulae, etc., and the employee's further employment has been terminated; and
(iii) where a corporate or partnership interest has been acquired by a purchaser with the vendor thereafter ceasing to be an owner or participant in the relevant business owned/operated by the corporation or partnership.
Usually, the parties to a release (the "releasor", being the party which gives up and terminates its claims against the other party) and the "releasee" (being the party who is given the benefit of the release by the releasor) will either specifically refer to, or will by implication, release and terminate claims and potential claims which are known to the parties, whether or not such claim or claims are already the subject of litigation. But what about unknown claims which may only be discovered in the future, but which relate to the relationship between the parties which existed prior to or at the effective date of the provision of the release? The question of whether or not a release containing broad, general wording should or should not apply to (ie, release and terminate) claims or potential claims unknown to the parties at the date of the release was recently considered by the Ontario Court of Appeal in the case Biancaniello v. DMCT LLP, May 15, 2017 (hereinafter, the "DMCT Case"). In the DMCT Case, DMCT LLP provided accounting and business consulting advice to Prinova Technologies Inc. in 2006 and 2007. The advice pertained to Scientific Research and Experimental Development tax credits, an employee termination matter, and, an income tax motivated restructuring of Prinova's business and assets. Prinova took issue with the fees charged by DMCT and DMCT commenced an action for collection. Before the litigation had got too far, the parties agreed to settle matters. DMCT accepted $35,000.00 on account of its fees (the original amount claimed was $66,632.45), and Prinova issued a release to DMCT. The operative words of the release which were relevant to the matter considered by the Court in the DMCT Case were as follows:"…Prinova (and DMCT) do hereby remise, release…each other of and from all manner of actions, causes of action, etc...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 (including claims in the previously commenced litigation)". There was no question between the parties as to whether or not the release covered (ie, released) claims of Prinova with respect to the DMCT's services relating to the tax credit and the employee termination. But Prinova was completely unaware - at the time that the release was provided - that DMCT's services relating to the restructuring transaction were or might ultimately be held to have been provided negligently. It was not until long after the provision of the release that the income tax authorities determined that the restructuring was not properly effected so as to minimize Prinova's income taxes. In fact, C.R.A. subjected Prinova to a tax liability of approximately $1,250,000.00. In its judgement, the Court of Appeal extensively reviewed the law pertaining to releases, and concluded that, in construing the meaning, effect and extent of a release, one should keep the following principles in mind:
1. First, review the ordinary or plain meaning of the wording contained in the release;
2. In considering what the wording extends to, the parties to a release may use language that releases every claim that arises, including unknown claims. However, the Courts will require clear language to infer that a party intended to release claims of which it is unaware;
3. In considering the general language in a release, such language will, absent unequivocal wording to the contrary, 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 a settlement of a claim, one should assume that the parties wish to "wipe the slate clean" between them; and
5. In attempting to determine what the parties contemplated - and did not contemplate – at the time of issuance of a release, one can look at circumstances surrounding the giving of the release.
Contrary to what the lower Courts had held, the Court of Appeal decided that the above-quoted language in the Prinova release was broad enough to include unknown claims, which would have included the Prinova claim relating to the unsuccessful tax motivated restructuring transaction. The release's wording was: "…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, the Court concluded that Prinova and DMCT wished to "wipe the slate clean" between them pertaining to all possible disputes. It is interesting to note that in its holdings, the Court rejected the argument that, because Prinova's claim relating to the restructuring was unknown to Prinova at the time it issued the release, such a claim did not in any way exist. The Court held that the claim did exist, or perhaps more accurately, potentially existed, at least for the
purpose of determining what the release was intended to cover. Persons wishing to provide (or exchange) releases and their counsel should discuss the possibility of unknown claims or liabilities before providing or committing to provide releases.
Ned Brown is focused on the areas of lending and secured transactions, banking law, subdivisions and commercial real estate development