Think Twice Before Agreeing To Release "All" Claims

When parties settle a legal dispute, it is standard practice to sign "Full and Final" releases. Often the wording of these releases is general with the parties releasing "any and all claims existing to the present time." Before signing such a claim, the parties (or their lawyers) should think twice about what claims they wish to release. A recent Ontario Court of Appeal decisions illustrates the risk of not doing so.

The parties were an accounting firm and its former client for whom the firm had provided accounting services including negotiating a settlement with a former employee, structuring a butterfly transaction and applying for a SRED tax credit. The client failed to pay and the firm sued for $66,000 in outstanding fees. The parties successfully negotiated a settlement for $35,000 and a release was signed. The release stated:

KNOW ALL MEN BY THESE PRESENTS that DMCT LLP (“DMCT”) and PRINOVA TECHNOLOGIES INC. and PRINOVA SOFTWARE INC. (hereinafter collectively referred to as “Prinova”), (including their officers, directors, employees, representatives, associates and assigns) in consideration of the sum of THIRTY-FIVE THOUSAND DOLLARS ($35,000) and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, do hereby remise, release, and forever discharge each other of and from all manner of actions, causes of actions, suits, debts, duties, accounts, bonds, covenants, claims and demands which 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 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 commenced in the Ontario Superior Court of Justice, as court file no. 08-CV-349246 PD3. [Bold in original.]

After the release was signed, the client found out that the butterfly transaction might be subject to a 1.24 million dollar tax liability. It sued the accountants who defended and brought a motion for summary judgment on the grounds that the parties had released all claims against each other.

Both the motion judge and Divisional Court ruled for the client and the accountant firm continued to appeal up to the Court of Appeal where it succeeded. While the lower courts had interpreted the release to cover claims "known" at the time it was signed, the Court of Appeal interpreted it more broadly. It stated that a claim could exist even if it was not known and was yet to be discovered. As such, since the problems with the butterfly transaction could have been pleaded as a defence in the lawsuit for fees, the claim existed at the time of the release and was covered by the wording.

The general wording of "any and all" claims arising from "any and all services provided" was broad enough to protect the accounting firm.

The Lesson: When entering into a settlement, take a moment to consider what precisely you are settling. While the accounting firm likely wanted to completely eliminate all future claims, it is probable that the former client did not want to limit its ability to later sue in circumstances were potentially negligent work had significant financial consequences. The failure to think twice was costly.

Biancaniello v DMCT LLP, 2017 ONCA 386 (ONCA) https://www.canlii.org/en/on/onca/doc/2017/2017onca386/2017onca386.pdf

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