Releases Wipe The Slate Clean Between The Parties And Include Unexpected Claims

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Borden Ladner Gervais LLP

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The Court of Appeal for Ontario found, in Biancaniello v. DMCT LLP, that a release signed by the parties in settlement of claim relating to accounting services provided by the appellants extended to...
Canada Accounting and Audit

The Court of Appeal for Ontario found, in Biancaniello v. DMCT LLP, that a release signed by the parties in settlement of claim relating to accounting services provided by the appellants extended to a claim for negligence relating an income tax liability that the respondent discovered after entering into the settlement.  Unless a particular claim is excluded from its scope, a release ought to be interpreted to achieve finality between the parties such that negligence subsequently discovered falls within its scope despite the significant costs that the Plaintiffs may incur to address the liability.

The Court applied a standard of correctness in reviewing the decision of the Divisional Court, which had found that the release did not cover a claim for negligence of which the the releaser was unaware when it signed the release.  The Court distilled the interpretation of a release as follows: if the parties release every claim that arises, that includes unknown claims. Clear language is required to exclude from the release claims of which the releaser is unaware.

Claims completely unrelated to the subject matter of the release would not be covered by it.  However, the Court rejected the respondent's argument that the claim was unknown, because unknown claims are included in the scope of arelease unless explicitly excluded.  The Court also rejected the respondent's argument that the claim was not covered by the release because it did not exist at the time the release was signed. The accounting work having been executed in such a way as to expose the plaintiffs to a significant tax liability, the claim did in fact exist but was only discovered four years later by other accountants.

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