Signing a Release? Make Sure You Understand What it Includes.

The recent Court of Appeal decision in Biancaniello v. DMCT LLP provides a very useful review of the law of Releases in general, and the extent to which a full Release will include claims of which the parties may not even be aware.

In this case, the defendants, a firm of accountants, provided services to the Plaintiff on three separate matters in 2007. One had to do with an application for a Scientific Research and Experimental Development Tax Credit. The second had to do with the negotiation of the departure of an employee. The third involved the structuring of a “butterfly” transaction in which the Plaintiff’s business was divided into separate companies on a tax-free basis.

The Defendant billed the Plaintiff about $66,000.00 for these services. The Plaintiff complained about both the amount of the fees and the quality of the work and refused to pay.

The Defendant sued for its fees. In 2008, the parties settled on the basis that the Plaintiff would pay $35,000.00. As part of the settlement, the parties executed a Mutual Release which provided that in consideration for that payment, the Plaintiff released the Defendant from any and all claims arising out of the services provided by the Defendant through to the end of 2007, including all claims that were either pleaded or could have been pleaded in the lawsuit over the fees.

Three years later, in the course of a restructuring, the Plaintiff learned that the butterfly transaction as structured by the Defendant was not at all tax free. In fact, the Plaintiff found that it could be subject to a tax liability of over $1.24 million.

The Plaintiff then sued the Defendant in negligence, seeking an order setting aside the Release and for damages. The Defendant moved for summary judgment dismissing the action on the basis that the Plaintiff’s claim was barred by the Release that it had signed in 2008.

The motion led to an expensive and lengthy journey through the court system. It was initially heard by a single judge, who dismissed the motion after finding that the Release did not bar the Plaintiff’s claim. She felt that the Release referred to claims as of the end of 2007, and that the Defendant’s negligence with respect to the tax issue only came to light in 2011.

The Defendant sought leave to appeal the decision to the Divisional Court. Leave was granted by the presiding judge who found that it was “open to serious debate that this wording is broad enough to cover any claim, even a future claim, in relation to the advice that the Defendants gave to the plaintiffs prior to December 2007”.

The Divisional Court, consisting of three judges, heard the appeal and dismissed it. Agreeing with the motion judge, it held that unless it has “exceptionally comprehensive language”, a Release would apply only to claims known to the parties at the time it was signed. A dispute that had not emerged by that time, or a question that had not arisen, could not be absorbed by the words of a general Release. If the parties want to bar unknown claims, that has to be spelled out in clear language.

The Defendant then obtained leave to appeal to the Court of Appeal.

By the time the matter reached a three member panel of the Court of Appeal, it had been considered by a total of six judges. Four of them felt that the claim could proceed. The two judges who granted leave had serious doubts about the point.

The Court of Appeal unanimously allowed the appeal and dismissed the action on the basis that the claim was, indeed, barred by the Release. To the Court of Appeal, no explicit language was required in the general Release signed by the Plaintiff in order to bar claims unknown to it. The negligence claim came into existence before the Release was signed, even if nobody realized it. It could have been discovered by the Plaintiff if it had hired another set of accountants to review the documents (although there was no discussion as to why the Plaintiff would ever have done such a thing at the time). Therefore, it was caught by the broad language of the Release barring any claims existing up to December, 2007. The only limiting factor in the Release, as this one had been drafted, was that the released claims would have to have been related to accounting work done by the defendants up to that date.

In my world, Releases are frequently the subject of considerable negotiation. The party signing the Release will want to limit it to the extent possible, and hopefully to only those claims actually articulated in the litigation being settled. The party receiving the Release will want to know, in essence, that it will never hear from the Plaintiff again under any circumstances.

The Release negotiated in this case was fairly typical. It was restricted as to subject matter (accounting work) and time (the end of the year in which the services had been rendered) but not in any other way. So one would have to assume that, if properly advised, this Plaintiff would have understood that in signing the Release, it was signing away any claim it might ever have against the accounting firm up to that date whether it was aware of the existence of the claim or not. In a perfect world, a Plaintiff in that position would indeed hire another accountant to check all of the work ever done by the Defendant up to the cut-off date. This is not something that would normally be done, although in this case, given that the Plaintiff was complaining that the Defendant’s work quality was poor, it might not have been a bad idea.

In any event, the moral of the story is that Plaintiffs being asked to sign Releases of this nature must understand that they are walking away from any claim they might ever have against the party being released as of that time. If there is the slightest doubt that another claim might be out there somewhere, it is up to the Plaintiff to investigate that possibility thoroughly before signing on the dotted line.

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The Latest on Coffee-Spill Lawsuits

A number of years ago, a case in New Mexico called Liebeck v. McDonald’s Restaurants made headlines when a 79 year old plaintiff won an award worth U.S. $2.9 million from a jury. Most of the award was made up of punitive damages. It was substantially reduced by the trial judge. The Judgment was appealed and the case was settled before the appeal could be heard. Nevertheless, the case made headlines given what appeared to be a tremendous discrepancy in the public’s perception between the amount awarded and the type of compensation that any person spilling coffee on themselves could possibly hope for in his or her wildest dreams.

In Canada, much of the commentary reflected the common perception that American cases are capable of ending with crazy decisions.

The recent decision of the Ontario Court of Appeal in Dittmann v. Aviva Insurance Company of Canada suggests that Canadians should not be pointing fingers quite so quickly.

In this case, the plaintiff purchased a cup of coffee from a McDonald’s restaurant drive through. After stopping at the first drive through position to place her order, she drove up to the window to pay for her coffee and to receive it. Her car was running and in gear at the time but it was not moving. When she was handed the coffee, she attempted to move it across her body to the car’s cup holder while holding it by its lid.  The cup released from the lid before it made it to the cup holder, spilling hot coffee on her.

She was wearing her shoulder/seatbelt at the time, presumably preventing her from taking any evasive action to avoid the spill.

At the time she had car insurance with Aviva. As such she was eligible for accident benefits under Ontario’s Statutory Accident Benefits Schedule (“SABS”), which provides for statutory accident benefits in accordance with the terms of a person’s insurance policy.

The plaintiff sought these benefits and Aviva took the position that she was not entitled to them.

Eligibility for SABS requires a consideration as to whether or not the use or operation of a vehicle was a cause of injury and if so, if there was any intervening act resulting in the injury outside of the ordinary use or operation of the vehicle.

Aviva conceded that using a drive through window is an ordinary activity to which vehicles are put. The real question was as to whether or not the use of the vehicle was a cause of the plaintiff’s injuries. The matter was dealt with by motion. The motion judge found that the use and operation of the vehicle was indeed a direct cause of the injuries.  He ruled that but for her use of the vehicle, the plaintiff would not have been in the drive through lane, would not have received the coffee cup while seated, would not have been transferring it to the cup holder, and would not have had it spill on her lap. In addition, but for her being belted in, she may have been able to take evasive action to avoid the coffee or at least reduce the amount that was spilled on her.

The decision was appealed to the Court of Appeal. The Court of Appeal confirmed the motion judge’s decision. The Court of Appeal pointed out that the issue was not what the triggering event of the incident was, but rather, what caused the problem. In this case, the use of a vehicle with the engine running and in gear to access the drive through, and the seatbelt restraint, were direct causes and dominant features of the injuries suffered by the plaintiff.

I learned a long time ago, the hard way, that holding a fast food restaurant beverage by the lid was not a good idea. I also learned to accept responsibility for my own mistakes. In this case, the plaintiff was able to learn the lesson and get paid for it in the process. So the next time you receive your car insurance premium notice and wonder why it is so high, think about cases like this one.

Lawsuits and the Limitations Act: When is a Claim Discovered?

In Ontario, the basic limitation period on the commencement of a lawsuit is defined by the Limitations Act (or the “Act”) as being “the second anniversary of the day on which the claim was discovered”.

The Act provides that a claim is “discovered” on the earlier of either the day on which the person with the claim first knew of the problem and who had caused it, or the day on which a reasonable person first ought to have known about the problem and who had caused it.

A determination of when a claim was or ought to have been discovered can be extremely tricky, as illustrated by the recent case of The Corporation of the United Counties of Prescott & Russell v. David S. Laflamme Construction Inc. (“Laflamme”) and Waterproof Concrete (Canada) Ltd. In this case, the plaintiff municipality retained WSP Canada Inc. (“WSP”) in 2004 to prepare a proposal for the rehabilitation of a bridge. WSP was then retained as the consulting engineer for the project and prepared the specifications for it in April, 2005. The specifications included the use of a particular substance in the concrete for the new bridge.

The work was completed by the Defendant Laflamme in 2005, using the concrete mixture specified by WSP. The concrete mixture was applied by the other defendant, Waterproof Concrete (Canada) Ltd. (“Waterproof”).

In May 2006, it became apparent that the work was deficient in some fashion. Repairs were completed by Laflamme in 2007. Further deficiencies were noted in 2008. Laflamme refused to repair the bridge again.

The municipality sued Laflamme and Waterproof in 2010. The matter went through the discovery and mediation process and in 2014, the defendants filed expert reports. Those reports raised concerns that the substance specified by WSP to have been mixed into the concrete for the bridge should not have been used because it lacked the required durability.

After the lawsuit had started, WSP continued to advise the municipality as its engineering consultant throughout the action, and ongoingly blamed Laflamme for the problem. From the outset, Laflamme had denied liability for the problem and consistently alleged that the liability lay with WSP because it had specified the use of deficient material. That position was repeated by Laflamme in its pleadings. However, the municipality did nothing to advance any claim against WSP until the point at which the expert reports were filed.

Once the reports were filed, the municipality finally made the decision to sue WSP as well. The municipality brought a motion to amend its pleading accordingly. WSP opposed the motion on the grounds that the limitation period for such an action had long since passed. The Court had to determine when the municipality “discovered” a potential claim against WSP.

WSP argued that the municipality knew of potential liability on the part of WSP shortly after the deficiencies appeared when Laflamme made the allegation that the fault was that of WSP. Accordingly, the municipality had sufficient information as to the potential liability of WSP at least five years before the expert reports had been filed, if not more.

WSP also argued that it continued to assist the municipality with the preparation of its case after the lawsuit started and would not have done so but for its apparently mistaken belief that WSP and the municipality were working in a common interest in the litigation. It argued that it had been prejudiced because the municipality obtained WSP’s assistance in that context and accordingly, it should not now be added as a defendant to the lawsuit.

The municipality argued that notwithstanding Laflamme’s allegations, WSP had consistently blamed Laflamme for the problem. WSP acted as a trusted advisor to the municipality but never suggested that it could be liable for the damage – even though, as it turned out, WSP had notified its own insurer in 2013 that there might be a potential claim against it.

The Court was satisfied that the municipality only discovered evidence supporting an issue with the substance specified by WSP for the concrete on the project when it received the 2014 expert report from Laflamme. Until then, it had no reason to believe that WSP might be liable for anything, other than the bald allegations made by the defendants.

The Court pointed out that there is a significant issue with WSP’s argument regarding its assistance provided to the municipality during the litigation. As the municipality’s advisor, WSP maintained that the problem with the bridge had to do with faulty workmanship and not the initial specifications. It would have been unreasonable for the municipality to have mistrusted or disregarded WSP’s advice given its status as its professional advisor. The municipality would have had no reason to doubt WSP’s actions. Accordingly, and on balance, the Court permitted WSP be added as a defendant.

These types of scenarios sometimes arise in the context of a solicitor-client relationship. A lawyer makes an error and a transaction is aborted. The lawyer continues to advise the client through the course of litigation with the other party to the aborted transaction. At some point during the lawsuit, it becomes apparent that the lawyer may have erred. In those circumstances, the Ontario Court of Appeal has already ruled that where a client makes the mistake of relying on his own lawyer, the lawyer will not then be allowed to use that erroneous reliance to support his position that a subsequent action against him was commenced out of time.

In this case, one must ask the question as to whether or not the clock would have started running against the municipality when the defendants pointed the finger at WSP had WSP not continued to advise the municipality in the litigation against Laflamme. In my view, the fact that WSP continued to assist the municipality simply delayed the commencement of the clock running until the expert reports were filed and the municipality was finally confronted with a serious and authoritative opinion as to WSP’s potential liability.

In the context of a solicitor-client relationship, of course, a lawyer has a specific duty to advise the client of his or her potential error at the outset. Given the result in this case, it may well be that the duty applies to professionals other than lawyers as well. Either way, it appears clear that where a potential wrongdoer continues to advise an injured party after the error is committed, the Court will likely extend the date upon which the advisor’s potential liability will be considered to have been discovered.

The Latest on Certificates of Pending Litigation: How Unique Does the Property Have to Be?

The recent Ontario Superior Court of Justice’s decision in THMR Development Inc. v. 1440254 Ontario Ltd. may exemplify a judicial trend in favour of a more liberal view of the extent to which a property must be “unique” before a certificate of pending litigation may be granted.

Where a real estate transaction has been terminated by a vendor and the purchaser still insists on closing, one remedy available to the purchaser as part of a lawsuit for specific performance of the contract is the issuance and registration of a certificate of pending litigation on title.  This device should ensure that the vendor cannot sell the property out from under the purchaser while the purchaser’s claim is proceeding before the Court.

In this case, the plaintiff/purchaser agreed to purchase from the defendant a commercial property in Port Perry.  The property was located on the last street in Port Perry that is parallel to the waterfront.  The purchaser claimed that this location was highly desirable for its business and that it had been looking for such property in Port Perry for several years.  It was close to other properties owned by the plaintiff and was the only suitable such property for sale in the plaintiff’s price range.

The agreement of purchase and sale was conditional on the plaintiff obtaining the approval of the existing mortgagee to assume the existing first mortgage.  The approval had to be obtained by the 40th business day following the day on which the agreement was “fully executed”.

The purchaser took steps to obtain the first mortgagee’s approval and ultimately obtained a letter from the first mortgagee consenting to the plaintiff’s assumption of the mortgage.  The vendor took the position that, among other things, the approval had been provided by the first mortgagee after the deadline date and accordingly, the transaction was terminated.

The parties disagreed about the deadline date.  The purchase agreement had been negotiated back and forth over some period of time and there did appear to be some ambiguity as to when the 40 day time period started to run.

In any event, the purchaser sued for specific performance and brought a motion for a certificate of pending litigation.

The Court pointed out that the test on such a motion, brought on notice to the vendor, is the same as the test on a motion by a vendor to discharge a certificate obtained without notice.  The question in either case is whether or not there is a triable issue as to an interest in the land, and not whether or not the purchaser is likely to succeed at trial.

The Court outlined the various tests involved in the process including, importantly, whether or not the land is unique.  The Court will also consider whether there is an alternative claim for damages, the degree of difficulty in calculating damages, and whether damages would be a satisfactory remedy.  Overall the Court will consider the harm to each party if the certificate is or is not issued as well as any other relevant matters between the parties in the exercise of the Court’s discretion in equity.

In this case, the Court had little difficulty concluding that there was indeed a triable issue as to a reasonable claim to an interest in the property.  The Court was also satisfied that the property was unique.  The Court approved previous authority to the effect that the purchaser need not demonstrate that the land is unique in the strict dictionary sense that it is entirely different from any other piece of property.  It is sufficient to demonstrate that the property has a quality that makes it especially suitable for the purchaser’s proposed use and that the property cannot be reasonably duplicated elsewhere.

In this case, given the property’s location and its particular suitability to the purchaser, the Court considered it unique.  The Court specifically rejected the argument that as a rule, commercial parties are not entitled to certificates of pending litigation.

There was a time that commercial purchasers understood that the availability of a certificate of pending litigation in a case of the purchase of commercial property was virtually nil.  Clearly, that is no longer the case.

Avoiding Arbitration: Is the Case a Proper One for Summary Judgment?

The Courts in Ontario have made it clear that parties to a contract containing an arbitration clause will be required to arbitrate rather than pursuing a lawsuit, unless they both agree otherwise. The Arbitration Act itself specifically provides that Courts are not to interfere in disputes covered by an arbitration agreement other than for the limited purposes of assisting in the conduct of arbitrations, ensuring that they are conducted in accordance with arbitration clauses, to prevent unequal or unfair treatment of parties to arbitration clauses, and to enforce arbitration awards.

According to the legislation, if a party to an arbitration agreement starts a lawsuit instead of proceeding with an arbitration, the Court will stay that proceeding upon motion brought by the other party to the arbitration agreement.

However, there are exceptions.

One of the exceptions specified by the Act is any case in which the matter is a proper one for default or summary judgment.

This provision was added to the Act in 1991, when summary judgments were still rare and difficult to obtain. At that time, disputes involving numerous contested facts, and particularly cases where credibility issues existed between the parties, would rarely be dealt with by means of summary judgment. As a result, there have been very few cases determining what might or might not be a “proper” case for summary judgment within the meaning of the Act.

The cases that have dealt with the issue provide that a Court would have to be satisfied that a motion for summary judgment, if brought, would appear to have a high prospect of success and was not being used as a device to avoid the arbitration agreement. It has been understood that the summary judgment exception would be exercised sparingly and only in the most simple and clear cases.

Much more recently, however, the Supreme Court of Canada decision in Hryniak v. Mauldin held that “a trial is not required if a summary judgment motion can achieve fair and just adjudication… and is a proportionate, more expeditious and less expensive means to achieve a just result than going to trial”.

It is clear from subsequent cases that this decision has dramatically lowered the threshold required for a party to obtain a summary judgment.

Accordingly, it can certainly be argued that many more cases than before may be considered to be “proper” cases for summary judgment. A party now faced with the prospect of having to arbitrate a dispute may now have a realistic opportunity to avoid that process, if so desired, if there is any reasonable prospect of persuading the Court that the case may be more efficiently resolved by means of a summary judgment motion than an arbitration.

It should be borne in mind that nowhere does the Act specify that a motion for summary judgment must actually be brought. It merely has to appear, presumably at an early stage, that the case is a proper one for summary judgment.

In other words, a party to an arbitration agreement may choose to commence a lawsuit.  The defending party, presumably, would bring a motion to stay the action given the existence of the arbitration clause. If the plaintiff can demonstrate that the case is a proper one for summary judgment, the Court may well exercise its discretion to refuse the stay and permit the lawsuit to continue. The successful plaintiff is under no obligation to actually bring a motion for summary judgment. There is no jurisprudence that suggests that the unsuccessful defendant may bring a new motion for a stay at some point down the road on the basis that the plaintiff had failed to bring its summary judgment motion.

An arbitration is often a cheaper and faster way of resolving a dispute, compared to a lawsuit. However, that is not always the case. There are many instances in which an aggrieved party would prefer a lawsuit, but cannot commence one because of an arbitration clause. In such instances, the existence of the summary judgment exception should be borne in mind and may provide an escape route.

Online Defamation: What if the Author Can’t Be Identified?

The recent case of Carleton Condominium Corporation No. 282 v. Yahoo! Inc. and Yahoo! Canada Co. provides useful guidance on how a potential Plaintiff in a defamation case can identify the author of a defamatory statement made online.

This case involved an individual, using a false name, sending a series of emails from an email address which did not provide a clue as to the author’s identity.  The emails were sent to residents of the condominium building, following the resignation of the condominium corporation’s superintendent, and stated that the members of the board of directors had been harassing the superintendent and deliberately ignoring a variety of problems.  The emails also accused the board members of receiving kickbacks and generally mishandling problems.

The President of the board of directors emailed this individual asking him to identify himself.  The author refused to do so.

The emails were sent using a Yahoo! email address.  The condominium corporation brought an application to the Court for what is known as a Norwich order.  A Norwich order is an order requiring a third party to a potential action to disclose information that would otherwise be confidential.  The condominium corporation asked that Yahoo! be ordered to disclose the identity of the author of the emails.

The Court observed that the following factors apply to an application for a Norwich order:

  • does the Applicant have evidence of a valid claim;
  • does it appear that the third party is somehow involved in the acts complained of;
  • is the third party the only practical source of the information available;
  • can the third party be indemnified for any costs to which the third party may be exposed as a result of the disclosure; and
  • do the interests of justice favour obtaining the disclosure?

The Court of Appeal has made it clear that a Norwich order is a discretionary remedy.  Given that it is intrusive and extraordinary, it is to be exercised with caution.  An Applicant for such an order must show that the information sought is required to permit a perspective lawsuit to proceed although it is not necessary for any Applicant to make a firm commitment to actually start the action.

In this case, the Court was satisfied that the condominium corporation had an apparently valid claim for damages for defamation.  Yahoo! Inc. and Yahoo! Canada Co. were involved in the alleged wrongful acts simply by virtue of the fact that they are communication service companies that had provided the web based email services.  Clearly they were the only practicable sources of the information, the costs of compliance with the Norwich order would be nominal, and the interests of justice strongly favoured the disclosure.

Accordingly, the order was granted and Yahoo! and Yahoo! Canada were ordered to disclose their information regarding the identity and contact information of the individual using the fictitious user name and email address as well as the internet protocol address (IP address) associated with them.

Individuals making defamatory statements through email or on social media may feel secure in hiding behind fictitious names.  This case is an important reminder that, as has been said in other contexts, you can run but you can’t hide.

Real Estate Transactions and Misrepresentations: When Can a Purchaser Back Out of the Deal?

In the recent Superior Court decision in Beatty v. Wei, the Court provided a helpful overview of the law relating to misrepresentations in real estate transactions.

This case involved the sale of a residential property. The sale agreement included a clause in which the seller represented and warranted that during the time the seller owned the property, no part of the property had been used for the growth or manufacture of any illegal substances. The clause went on to say that to best of the seller’s knowledge and belief, the property had never been used for that purpose.  Finally, the clause provided that the warranty would survive closing.

Between the date that the sale agreement was signed and the date set for closing, the purchaser’s real estate agent conducted an internet search and discovered that the property had been used to grow marijuana plants before the seller had purchased the property.

The purchaser refused to close and the matter came before the Court.

The Judge examined the clause closely and noted that it contained both a warranty and a representation. A warranty is a contractual promise that the thing being sold has some particular quality. This clause did not provide any promise that the property had never been used for the growth of illegal substances. The seller only warranted that he had never used it for that purpose and that he had no knowledge that the property ever had been used for that purpose. The Court accepted that this promise on the part of the seller had been honoured.

However, the clause also contained a representation to the same effect. The representation was that to the best of the seller’s knowledge, the property had never been used to grow illegal substances. The Court interpreted that representation as a statement of a present fact that was intended to be relied upon by the purchaser when it was made by the seller, and upon which the purchaser could continue to rely at least until the closing date.

Where a representation is made in the belief that it is true and the party who makes it discovers before closing that it is untrue, that party cannot remain silent. In other words, had the seller found out through his own sources of information, at any time prior to closing, that the property had indeed been used to grow marijuana plants, the seller would have had an obligation to report that to the purchaser.

In this case, the seller did discover this information before closing. The source of the information was the purchaser himself. In the Court’s view, this did not make a difference. The fact is that at some point prior to closing, the seller did discover that the representation contained in the agreement of purchase and sale was untrue. As a result, as at the closing date, the clause was deemed to contain a misrepresentation.

Where a misrepresentation in a contract is material and induces a party to enter into a contract, the innocent party may rescind the transaction prior to closing. The term “material” means that the misrepresentation must be substantial, or go to the root of the contract itself.

In this case the Court was persuaded that the representation was material to this purchaser and in general. After the deal collapsed, the property was resold at a purchase price almost $100,000.00 less, under an agreement in which the previous use of the property was fully disclosed. The Court saw this reduced price as evidence of the materiality of the issue.

It is open to a seller to avoid an adverse result by proving, either that the purchaser knew of the true state of affairs at the time the sale agreement was signed, or that the purchaser did not rely on the representation whether he knew the facts or not. The seller was unable to do so in this case.

As a result, the Court found that the purchaser was entitled to walk away from the transaction and recover his deposit.

On a plain reading of the clause, it would have been reasonable to conclude that as long as the seller did not know about the previous use of the property at the time the sale agreement was entered into, and of course as long as the seller himself had not used the property for that purpose, the representation would have been satisfied and information acquired afterwards would not matter. That is not the correct interpretation of the law.  This case makes it clear that a seller’s obligation in this area continues right up until closing.