Proper wording is key in legal documents
An Ontario Court of Appeal decision clarifies the importance of wording used in releases and minutes of settlement agreed to by parties at the conclusion of litigation, says Toronto litigator Isabelle Eckler.
The case “highlights the importance of specificity and being deliberate in the wording of any final documentation when settling a lawsuit,” says Eckler, an associate with Shibley Righton LLP.
“At the conclusion of litigation, the parties are often relieved that the dispute has been settled and they don’t really think about the potential consequences coming out of the wording that could lead to further disputes down the road,” she tells AdvocateDaily.com.
“They’re quick to wrap things up, but the wording can be very significant.”
The case revolved around a mutual release agreed to in the course of litigation over a fee dispute between a consulting business and the accountants it retained.
The document read, in part, that the parties released each other “with respect to any and all claims arising from any and all services provided by (the defendant to the plaintiff) through to and including Dec. 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.”
But more than three years after the release was signed, the plaintiff discovered a problem with the defendant’s work on a butterfly transaction that could potentially lead to a significant tax liability. It filed a notice of action seeking to set aside the release and claiming damages for negligence, breach of contract, misrepresentation and breach of fiduciary duty, the Court of Appeal (OCA) wrote.
The defendant moved for summary judgment to dismiss the action, arguing that the release prevented the plaintiff from bringing its claim. Both a motion judge and the Divisional Court dismissed the motion, according to the OCA decision.
The defendant then appealed the case to the OCA, which allowed the appeal and granted summary judgment dismissing the action, says the OCA decision.
“The client says that its (negligence) claim is nevertheless not barred by the language of the release on two bases: first, the claim was unknown to the parties at the time the release was signed and the release does not say that it includes unknown claims. Second, the claim did not exist at the time the release was signed because neither party knew about it or had any reason to know about it at that time. In my view, neither of these objections bears scrutiny,” the court said.
“The problem for the client here is not that the words used are unclear, but that the claim that arose was unanticipated. In signing the release, the parties intended to fully and finally settle the fee dispute — a dispute that arose because the client was unhappy with both the time spent and the quality of service provided by the accountants. The language of the release covers all claims arising from the work the accountants did on the butterfly transaction in 2007. The parties were wiping the slate clean in respect of that work. Had the client wished to exclude claims it might later discover arising from that work, it could have bargained for that result,” said the OCA decision.
Eckler says the OCA “made clear that you don’t have to specify existing claims, known or unknown — that it’s assumed that claims will be released, either way.
“Generally speaking, releases are intended to absolve parties from claims that they either know or don’t know about. They are intended to establish finality for the parties. Once the release is signed, they can be assured there won’t be litigation arising out of the same circumstances. They’ve settled, they’ve released each other, so that’s supposed to give finality to the parties that the litigation is over,” Eckler says.
“Litigation is expensive to begin with, so you don’t want to have further action arising out of a settlement once you finally get there.”