Case: Biancaniello v. DMCT LLP, 2017 ONCA 386
Keywords: butterfly transaction, unanticipated claim, Income Tax Act
Motion judge: No.|
Divisional Court (an intermediate 3-judge appellate court in Ontario): No.
Ontario Court of Appeal: Yes.
Supreme Court of Canada: don’t know (yet), judgment came down Monday of last week (May 15, 2017), so S.C.C. deadline to file a Leave to Appeal is Monday, August 14th. Email me if:
- you want me to keep you up-to-date
- you’d like a copy of the S.C.C. Leave factum if/when filed, email@example.com
- Prinova Technologies incorporates
- for 3 years, until a fee dispute, their accountants are DMCT LLP
- among other matters DMCT advise re a tax butterfly transaction, implemented as advised
- Prinova object to the accounting fees
- DMCT sues for its fees ($66, 632.45)
- they settle before a Defence is filed, both parties signing a standard release, the relevant part of which is:
“KNOW ALL MEN [women too presumably?] 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.]
- later, during a restructuring, Primova learn the butterfly as structured would be “far from being tax-free”, but could be subject to an income tax liability of approx. $1.24M” (C.A. para. 7).
The balance of the basic story:
- Primova apply for, and get a court order rescinding the butterfly (rather, to be more accurate, the steps taken to implement that transaction)
- As part of the rescission the DMCT partner who’d advised on the butterfly acknowledged, without explanation, the structured transaction did not comply with the Income Tax Act, and was contrary to Primova’s intentions
- Primova incurs over $250K in legals and accounting
- Primova sues DMCT
- DMCT moves for summary judgment, on the basis this new unanticipated claim is barred by the prior release.
Quick summary (as above):
- Motion judge — it’s not covered, claim can proceed
- Ct.: — same
- A.: it’s covered, action dismissed.
Key paras. from the C.A. are 42-44 (per Feldman J.A.):
“…One can distill the following principles from these reasons:
- One looks first to the language of a release to find its meaning: at para. 8.
- Parties may use language that releases every claim that arises, including unknown claims. However, courts will require clear language to infer that a party intended to release claims of which it was unaware: at paras. 9-10.
- General language in a release will be limited to the thing or things that were specially in the contemplation of the parties when the release was given: at para. 13.
- When a release is given as part of the settlement of a claim, the parties want to wipe the slate clean between them: at para. 23.
- One can look at the circumstances surrounding the giving of the release to determine what was specially in the contemplation of the parties: at para. 28.
Applying these principles to the interpretation of the mutual release between these parties, the context was that the release was given as part of the settlement of a fees action by accountants against their client. The client had been unhappy with the service provided by the accountants on three matters. In their lawyer’s letter, the client complained that the accountants overcharged for what was accomplished, were in a conflict of interest, performed unnecessary work, and performed deficient work. Because the release was given as part of the settlement of the fees claim, its purpose for both parties was to wipe the slate clean in respect of the dispute between the parties.
The release does not purport to release all possible claims, without limitation, that may exist between the parties. Nevertheless, to the extent that the release contains general language, the court must try to determine the matters that were specially within the contemplation of the parties In this case, one will look at the fact that the context is the settlement of an action.”
Counsel for the Appellant: Thomas Galligan (Blakeney Henneberry Murphy & Galligan, Toronto)
Counsel for the Respondent: Adam Pantel (Diamond Pantel LLP, Toronto)