Spotlight On: Releases
December 18, 2021
The Supreme Court of Canada confirms that a release will be interpreted like any other contract.
“Oh, please release me, let me go” sang Elvis Presley. The sentiment can be a common one: parties often request or are required to give releases of claims in connection with terminating a contractual relationship.
A release generally serves to protect the party being released (the “releasee”) from claims that the other party (the “releasor”) may otherwise be entitled to bring for any loss suffered related to the contractual relationship. A releasor cannot sue a releasee in court for any released claims. Releases can last forever; proceed with caution.
Releases, including mutual releases where both parties release each other, are a common way for contracting parties to part ways with some comfort that there will be no ongoing liabilities between them, subject to any specific exclusions in the release.
A release should be drafted and interpreted like any other contractual provision: as part of the whole contract, giving the words used their ordinary meaning consistent with the surrounding circumstances known to the parties at the time.
The Old Standard: The Blackmore Rule
Until recently, the drafting of releases in Canada had to contend with the “Blackmore Rule” which set out a particular approach to interpreting releases that did not allow for generally worded releases to release specific claims that were not contemplated at the time the release was given. This interpretive rule could lead to unexpected results where a releasee had expected a release to cover all claims that the releasor may otherwise be able to bring, only to have a court narrowly interpret the release to allow a claim by the releasor.
For example, in the case of Biancaniello v. DMCT LLP, a firm was given a release by its former client in connection with a fee dispute related to accounting services provided by the firm. The release covered “any and all claims arising from any and all services provided by” the firm to the client. Years later the former client sued the firm for negligence in connection with the services and argued the release did not apply to the claim as the negligence was discovered only after the release was given.
The lower courts held in favour of the client by allowing the claim and referred to the Blackmore Rule in their decisions. While the Court of Appeal for Ontario in its 2017 decision also referred to the Blackmore Rule as setting out the proper approach to the interpretation of releases, it held that the language of the release was clear and unequivocal and applied to bar the claim for negligence.
The New Approach: Corner Brook (City) v. Bailey
The Supreme Court of Canada has now clarified the approach to interpreting releases in its decision in Corner Brook (City) v. Bailey issued on July 23, 2021. In this decision, the Court established that there is no special rule of contractual interpretation that applies only to releases and the Blackmore Rule should no longer be referred to.
Releases are to be interpreted in the same way as other contracts, by giving the words of the release their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time of giving the release. The surrounding circumstances consist of objective evidence of the background facts at the time of the release, being knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of the release.
Since the issuance of Corner Brook, courts in Ontario, Manitoba, Alberta and British Columbia have applied its principles, including, in one recent decision, reiterating the Supreme Court’s statement in Corner Brook that a release “does not necessarily need to particularize with precision the exact claims that fall within its scope”.
Key Take-Aways for Giving and Getting a Release
From a practical perspective, the approach to drafting release has not been significantly changed by the Supreme Court’s decision in Corner Brook. Parties entering into releases should continue to give careful thought to the following considerations regarding the scope of the release:
- Consider if the release is intended to cover only existing claims or also future claims, including claims that may not be known or contemplated by the parties at the time of the release.
- If you are giving a release and it is intended to cover only existing claims, be as specific as possible in the description of the existing claims so as to limit the potential for the release to apply to other claims.
- If you are getting a release and it is intended to cover future claims, use clear and unequivocal language to express that intention such as “any and all claims” arising from the contract. In some cases it may be advisable to include additional terms such as claims that are “known or unknown”, “foreseen or unforeseen”, “anticipated or unanticipated” or claims that a party “had, now has or may have in the future”. However, it is not necessary to list the exact claims that fall within the scope of the release (for example, tort, negligence, breach of contract, or third party claims, cross claims, counterclaims, etc).
- Consider if the claims released are to be limited to a particular time period, such as any and all claims arising from services provided by a party between certain dates.
- If you are giving a release, a clear time period should clarify what claims would be outside the scope of the release.
- If you are getting a release, the absence of a time period or more broadly defined the time period, the more likely it is the release may be interpreted as applying to a claim that generally arose during that time period.
- Consider the subject matter of the claims released, such as claims arising from or in any way related to the transactions under a contract.
- If you are giving a release, the more specific the subject matter, the more clear the intended scope and limits of the release will be.
- If you are getting a release, the more broadly defined the subject matter, the more likely it is the release may be interpreted as applying to a claim related to that subject matter.
- Consider if any claims or other matters are to be excluded from the release, in which case expressed language should be included that specifically describes the claims or other matters being excluded. Where there will be an ongoing relationship between the parties, those should be clearly excluded. For example, in the context of a share purchase agreement where a shareholder who also is an employee is being granted a release in connection with the termination of their employment, the transactions under the share purchase agreement should be specifically excluded from the release in order to allow the parties to bring claims for a breach of the share purchase agreement in accordance with its terms. Or, if the shareholder also is party to a shareholders’ agreement that includes restrictive covenants that survive termination, the restrictive covenants also should be excluded from the release. If the person being released is a director, indemnification provisions or agreements should be excluded.
- Consider the surrounding circumstances to the release that are known to both parties, as these may be relied on later by a court in interpreting the release. The more general the language of the release, the more reliance may be placed on the surrounding circumstances.
- If you are giving a release, make sure you are aware of any potential claims that may be brought and if the release is not intended to cover those claims, consider expressly excluding them.
- If you are getting a release, be mindful of facts that may be known only to you and consider whether they should be disclosed to the party giving the release prior to the release being given to avoid a claim later being characterized as unknown.
- As part of the surrounding circumstances, consider the context of the release. If the parties are currently in dispute, absent clear and unequivocal language a release may be interpreted as only intended to cover the current dispute. On the other hand, if there is no current dispute or existing claim, a release may be more readily interpreted as covering all claims, including claims that may arise in the future.
- For some considerations about releases in the context of a plan of arrangement, take a look at our blog post here.
While we encounter releases in our practice as part of corporate transactions, releases are used in many other areas of law such as employment and litigation, and they can sometimes be controversial. Courts may interpret releases differently in other contexts. It’s wise to get legal advice before giving or getting any kind of release.
This blog post is not legal or financial advice. It is a blog which is made available by SkyLaw for informational purposes and should not be used as a substitute for professional advice from a lawyer.
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