Mutually agreed to release held as binding in future unanticipated claims - Biancaniello v. DMCT LLP, 2017 ONCA 386

July 14, 2017, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

Mutually agreed to release held as binding in future unanticipated claims - Biancaniello v. DMCT LLP, 2017 ONCA 386

Date of Decision: May 15, 2017
Heard Before: Feldman, Epstein and Miller JJ.A.

This Court of Appeal decision considered whether a mutual release signed in settlement of an action applies to future claims not anticipated at the time of settlement.

DMCT LLP was hired as an accountant by Prinova. Prinova is an incorporated consulting business specializing in document automation, and software development.  

DMCT billed Prinova over $60,000 for services on three unrelated matters in 2006 and 2007. This included the division of Prinova’s software and consulting businesses in what is known as a “butterfly transaction”. Prinova claims that it obtained little values for the advice and services it received and in fact it incurred damages resulting from following some of the advice by DMCT.

DMCT subsequently sued for its fees, however before a Statement of Defence was delivered, Prinova agreed to settle the litigation for a total payment of $35,000. DMCT and Prinova executed a mutual broad ranging release dated March 31, 2008. They agreed to release any claims against each other that they had, now have or hereafter may, can or shall have for or by reason, for 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. However, in late 2011 Prinova learned that the ‘butterfly transaction’ that had been structured by DMCT may be subject to a $1.24 million income tax liability.

Prinova obtained a court order dated January 23, 2013, rescinding the steps taken to implement the butterfly transaction. This application contained an affidavit from the DMCT partner who advised Prinova on the butterfly transaction acknowledging the transactions designed by DMCT was not in compliance with the the Income Tax Act, R.S.C. 1985, and were therefore contrary to Prinova’s intentions. In the process of obtaining the rescission order Prinova incurred more than $250,000 in accounting and legal fees.

Because of this Prinova filed a Notice of Action against DMCT in May 2012, seeking an order to set aside the release agreed to in 2008. Prinova now claims $3 million in damages for breach of contract, misrepresentation, negligence, and breaching fiduciary duty. DMCT moved for summary judgement to dismiss the action on the basis that it was barred by the 2008 release.

The motion judge dismissed DMCT’s motion, finding that the release did not bar Prinova’s claim. The Divisional Court dismissed DMCT’s appeal, concurring with the motion judge that when they signed the release Prinova had no knowledge that DMCT’s advice on the butterfly transaction was negligent given. On that basis Prinova did not know that it had a claim for negligence against it.

The Court of Appeal disagreed, stating the Divisional Court made an error in law. The Court of Appeal reviewed the matter on a standard of correctness, and emphasized the importance of the contextual approach in the interpretation of a release. The Court of Appeal referred to the Supreme Court explanation in Hill v. Nova Scotia (Attorney General), [1997] 1 S.C.R. 69. This ruling determined that when considering what was contemplated by the parties, the words used in a document must not be looked at in a vacuum. The context of the agreement, and therefore the context in which the document was executed can help understand the exact words used, and the true meaning of the document.

The Court of Appeal concluded that the release was “clear and unequivocal in its intent and effect”, and although the release did not specifically reference unknown claims, it included “all” claims arising from the services DMCT provided to Prinova to the end of December 2007. The Court of Appeal determined that by including all claims, there was no need to further specify the exact types of claims that were included. The Court of Appeal noted that upon signing the release, it was evident that Prinova and DMCT intended to fully and finally settle their dispute over fees, thereby ‘wiping the slate clean’. This included the work performed by DMCT in relation to the butterfly transaction. The Court of Appeal pointed out that if the parties wanted to exclude claims down the road they could have done so.

The appeal was allowed, and the Court of Appeal set aside the decision of the Divisional Court and granted summary judgment dismissing the action.

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