CITATION: Biancaniello, Romano, Prinova Technologies Inc. v. DMCT LLP, Collins Barrow, 2015 ONSC 6361
DIVISIONAL COURT FILE NO.: 401/14 DATE: 20151030
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
WILTON-SIEGEL, D. L. CORBETT AND BALTMAN JJ.
BETWEEN:
STEVE BIANCANIELLO, NICK ROMANO, PRINOVA TECHNOLOGIES INC., PRINOVA SOFTWARE INC.
Plaintiffs
(Respondents in Appeal)
– and –
DMCT LLP. COLLINS BARROW and COLLINS BARROW TORONTO LLP
Defendants
(Appellants in Appeal)
Adam Pantel, for the Plaintiffs (Respondents in Appeal)
Thomas D. Galligan, for the Defendants (Appellants in Appeal)
HEARD at Toronto: October 14, 2015
BALTMAN J.
[1] This is an appeal from an order of Chapnik J. dated April 23, 2014, dismissing the Defendants’ motion for summary judgment. The Defendants maintain this action is barred because of a broadly worded release following a settlement in a previous action between the parties.
Background
[2] The Plaintiff Prinova Technologies Inc. was incorporated in 1998 as a consulting business to provide services to the public related to document automation. It later developed a software business.
[3] The Defendants are professional accountants that were engaged by the Plaintiffs from 2004 until May 2007 for a variety of services, including preparation of financial statements and corporate income tax returns.
[4] In 2006 the individual Plaintiffs decided to divide their consulting and software businesses. They retained the Defendant DMCT LLP (“DMCT”) to advise on how best to achieve that. DMCT recommended transferring the software assets to a new corporation through what was described as a “butterfly transaction”. DMCT represented that this could be achieved on a tax deferred basis. The transaction was completed in May 2007.
[5] A dispute then arose over the fees charged by the Defendants, which totaled $66,632. Those fees related to three separate matters, only one of which involved the butterfly transaction.
[6] DMCT commenced an action against the companies for the outstanding fees. In March 2008, before pleadings were completed, the parties settled the claim for $35,000, representing a reduction in fees of approximately $30,000.
[7] As part of the settlement, the parties executed a Mutual Release on March 31, 2008 (the "Release"). It is this release that forms the basis of this motion and which the Defendants claim constitutes a bar to the Plaintiffs’ action against them. The Release stated that, in return for the acceptance of $35,000 and the dismissal of the lawsuit, the Plaintiffs agreed to “remise, release and forever discharge” DMCT:
“of and from all manner of actions, causes of actions, suits, debts, duties, accounts, bonds, covenants, contracts, 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 [the Defendants] to [the Plaintiffs] 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 emphasis in original, underlining added]
[8] Subsequently, in late 2010, the Plaintiffs learned that DMCT had wrongly assumed that the butterfly transaction could be structured on a tax-free basis, and that in fact it could result in a tax liability of approximately $1,240,000, before interest, penalties and taxes.
[9] The Plaintiffs then retained counsel to apply to rescind the transactions. In support of the rescission application, a representative of DMCT submitted an affidavit acknowledging that the transactions it designed did not comply with the relevant provisions of the Income Tax Act.
[10] The Plaintiffs were ultimately successful in obtaining a rescission of the transaction; however, they incurred over $250,000 in legal and accounting fees in the process. They therefore began an action against the Defendants for negligence, breach of contract, misrepresentation and breach of fiduciary duty, seeking damages in this amount.
[11] The Defendants then brought a motion for summary judgment, claiming that the earlier Release signed by the Plaintiffs barred any further claim. The motion judge dismissed the Defendants’ motion on the basis that the wording of the Release did not encompass the 2011 negligence claim. She noted that while the Release refers specifically to claims “existing to the present time”, it had been signed in 2008, whereas the Plaintiffs first learned of DMCT’s admitted negligence in 2011. She accepted the Plaintiffs’ evidence that the underlying basis for the dispute over the butterfly transaction was the excessive fees it alleged were charged for the advice, not the quality of the service provided. Consequently, there had not been any prior adjudication of DMCT’s alleged negligence.
The Legal Framework
[12] The parties agree that the issues in this case are questions of mixed fact and law, and the appropriate standard of review is therefore one of palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33, at para. 36; Hryniak v. Maudlin, 2014 SCC 7, at paras. 81-84. They further agree that a release is a contract and that the general principles governing the interpretation of contracts apply to releases.
[13] It is undisputed that the substantive law relating to the interpretation of a release stipulates that whether subsequent claims fall within the scope of those previously released requires a determination of what was “in the contemplation of the parties” when the release was given. In considering what was “in the contemplation of the parties” courts will consider the words used in the document itself, the circumstances leading up to its execution, and evidence as to the intention of the parties. The contextual analysis must be an objective one; it matters not what a party to a release personally believed, but rather what a reasonable bystander would say was in the specific contemplation of the parties under the circumstances: Hill v. Nova Scotia (Attorney General), [1997] 1 S.C.R. 69 at para. 20; Sattva Capital Corp. v. Creston Moly Corp, 2014 SCC 53, paras. 57-8; 1518628 Ontario Inc. v. Tutor Time Learning Centres LLC, [2006] OJ No 3011 at para. 102.
[14] Unless a release has exceptionally comprehensive language, it applies only to claims that were known to the parties at the time that it was executed. A dispute that had not emerged, or a question which had not arisen, cannot be absorbed by the words of a general release. If the parties want to bar unknown claims, they must use clear and unequivocal language to express that intention: York University v. Markicevic, 2013 ONSC 378 at paras. 48 and 52, quoting Geoff Hall, Canadian Contractual Interpretation Law, Second Edition (Toronto: LexisNexis, 2012), s.7.10.1; London & South Western Railway Co. v. Blackmore (1870), LR 4 HL 610, cited with approval in R. v. Imperial Tobacco Canada, 2012 ONSC 6027 at para. 26; Gwininitxw v. British Columbia (Attorney General) 2013 BCSC 1972, para. 25.
Submissions and Analysis
[15] The Defendants argue that claims relating to the quality of services they provided were clearly within the contemplation of the parties when the Release was executed. They rely in particular on the affidavit of Nick Romano, the Chief Executive Officer of the Plaintiff Prinova Inc., wherein he stated that the Plaintiffs agreed to provide a release “respecting the quality of work” on two of the matters that were the subject of the fees dispute in 2007. However, neither of those two matters had anything to do with the butterfly transaction that is the subject of the current claim.
[16] However broad the language of the Release may be, it is still restricted to “any cause manner or thing ... existing to the present time”. At the point when the release was signed the Plaintiffs had no idea that the butterfly transaction would attract approximately $1.2 million of tax liabilities; their only quarrel with the services provided in respect of this transaction was that the fees charged seemed excessive for the amount of time involved. It was only years later, when they learned that the transactions were not effected on a tax deferred basis, that they realized that DMCT had been negligent. As that “cause” did not exist when the Release was signed, it cannot be said that they intended to release DMCT from their negligent provision of advice on that transaction.
[17] Importantly, the Release does not contain express language that excludes potential or undiscovered negligence; again, it is specifically limited to “any cause, manner or thing” existing at that time. While it covers “all manner” of actions and claims, the facts which would give rise to such claims must, at a minimum, be within the knowledge or contemplation of the releaser when he signs; if he is then unaware of the injury in question, how can he have released it?
[18] In my view, the fact that the Plaintiffs had to spend approximately $250,000 toward an application rescinding the butterfly transaction because the transaction, as structured, gave rise to a tax liability of approximately $1.24 million are facts that arose in or about 2011, well after the execution of the Release, and were not in the contemplation of either party at such time.
[19] The case of Disera v. Bernardi 2014 ONSC 4500, upon which the Defendants rely, can be distinguished on its facts. In that case the plaintiff, after settling a prolonged estate dispute amongst various family members, sued to recover a loan he had made to his nephew before the mutual releases were signed. In dismissing the action, Campbell J. observed that in the months and years preceding the settlement the plaintiff had consistently demanded repayment of the loan in question. It was therefore “clearly an issue of dispute in the estate litigation at the time it was finally settled” (para. 32). Here, by contrast, the dispute in question was unknown when the Release was signed.
[20] The Defendants submit that the fact that the Plaintiffs contemplated the possibility of professional negligence claims in respect of the two other accounts means that they must necessarily have contemplated the possibility of such claims in respect of the butterfly transaction. I do not think that this inference necessarily follows from the treatment of the two other fees in dispute. It is more probable that in explicitly dealing with the two claims, the absence of any similar reference in respect of the butterfly transaction demonstrates that the parties did not have such a possibility in contemplation.
[21] In my view, that the Plaintiffs neither knew of nor intended to release, any negligent performance of the butterfly transaction is demonstrated by the modest fee reduction they negotiated. If, as reasonable business professionals, they in fact contemplated waiving all potential negligence claims - including any potential claims relating to the butterfly transaction, which was designed to avoid a substantial tax liability - one would not expect them to accept a $30,000 adjustment in lieu.
[22] Given these factors, we see no error in the motion judge’s decision to dismiss the motion for summary judgment. The appeal is dismissed.
[23] The Defendants agreed that if the appeal is dismissed it would not be necessary for us to address the motion judge’s determination of the triable issues. As the motion judge will be retiring shortly and therefore not be in a position to remain seized of the issues she identified, the determination of triable issues should be addressed by the trial judge.
[24] In accordance with the submissions received from counsel, the Defendants shall pay costs fixed at $10,000, inclusive of GST and disbursements, to cover both the leave application and the appeal.
___________________________ BALTMAN J.
WILTON-SIEGEL J.
D. L. CORBETT J.
Date of Reasons for Judgment: October 14, 2015
Date of Release: October 30, 2015
CITATION: Biancaniello, Romano, Prinova Technologies Inc. v. DMCT LLP, Collins Barrow, 2015 ONSC 6361
DIVISIONAL COURT FILE NO.: 401/14 DATE: 20151030
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
WILTON-SIEGEL, D. L. CORBETT AND BALTMAN JJ.
BETWEEN:
STEVE BIANCANIELLO, NICK ROMANO, PRINOVA TECHNOLOGIES INC., PRINOVA SOFTWARE INC.
Plaintiffs
(Respondents in Appeal)
– and –
DMCT LLP. COLLINS BARROW and COLLINS BARROW TORONTO LLP
Defendants
(Appellants in Appeal)
REASONS FOR JUDGMENT
BALTMAN J.
Date of Reasons for Judgment: October 14, 2015
Date of Release: October 30, 2015