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June 1st, 2017

A recent Ontario Court of Appeal decision contains a useful review of the leading principles relating to the interpretation and scope of releases, particularly when unanticipated claims arise after a release is executed.

A dispute over accounting fees led to the accounting firm suing its client for payment of fees billed.  The client had objected to the fees for several reasons, including the quality of work provided by the accountants.  The claim settled for a discounted amount, and a mutual release was signed which covered all claims relating to the services provided to the client by the accountants, and specifically the issues arising from the claims pleaded in the court action that was settled.  The settlement for fees was $35,000.

Three years after signing the mutual release, the client learned that the tax advice provided by the accountants had been deficient, resulting in a significant unanticipated tax liability. The client commenced an action against accountants for some $3 million in damages for negligence, among other things.  In response, the accountants brought a motion for summary dismissal of the claim based on the mutual release signed three years earlier.  The motion judge dismissed the application on the basis that the mutual release did not cover an unanticipated claim of this nature.

On appeal, the Ontario Court of Appeal disagreed, concluding that the language of the mutual release was broad enough to include the negligence claim that came to light years later, even though the claim was unanticipated at the time the mutual release was signed.  The specific language used in the mutual release was fairly standard, referring 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.”  As the negligence occurred in the context of the services provided by the accountants during that time frame, the claim was barred by the release. The client’s action against the accountants was dismissed by the CA on that basis.

For the full court decision see: Biancaniello v. DMCT LLP, 2017 ONCA 386

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