Law Times

May 29, 2017

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Page 2 May 29, 2017 • Law TiMes NEWS DMCT LLP had billed its client, Prinova. The fees were for three mat- ters, which included applying for a scientific research and ex- perimental development tax credit, negotiating the departure of an employee and structuring a "butterf ly transaction." This transaction involved dividing up Prinova's software and con- sulting businesses into separate companies and transferring assets and intellectual property into a new company on a tax- deferred basis. Prinova objected to paying the fees, arguing the work the accountants had done on pre- paring the application had pro- vided little or no value and that DMCT was in a conf lict of in- terest by providing advice to the departing employee. The company also con- tended the accountants had overcharged them for fees on the butterf ly transaction and that it had obtained little value for what the accounting firm had charged. DMCT then sued for the fees and the parties settled for a pay- ment by Prinova of $35,000. As part of that settlement, the par- ties executed a mutual release in 2008, which became the subject of later litigation. The release provided that both parties were released from all manner of actions, suits and claims "against each other they had, now have or hereafter may." In 2011, Prinova learned that the butterf ly transaction would be subject to $1.24 million in in- come taxes, due to the way it had been structured. The company then filed a notice of action against the ac- counting firm for an order set- ting aside the release. The com- pany also claimed $3 million in damages for negligence, breach of contract, misrepresentation and breach of fiduciary duty. DMCT then filed a motion for summary judgment to dismiss the action based on the argu- ment that the release of the pre- vious settlement precluded any such action. The motion judge dismissed the accounting firm's motion, finding the release did not bar Prinova's claim as it refers to claims that are "existing to the present time," which would have been in 2008. The judge found that as the alleged negligence came to light in 2011, it was not covered by the release. The judge dismissed the summary judgment motion and set the matter down for trial. The Divisional Court then threw out their appeal of that ruling, saying that "unless a release has exceptionally com- prehensive language, it applies only to claims that were known to the parties at the time it was executed." The Divisional Court went on to say that if parties "want to bar unknown claims, they must use clear and unequivocal lan- guage to express that intention." The Court of Appeal, how- ever, granted the summary judgment action and dismissed Prinova's action. Thomas Galligan, the lawyer representing DMCT, says the Court of Appeal's decision shows that releases should be treated like any other contract and in- terpreted not only through the text of the document but also the surrounding circumstances so that the intentions of the par- ties come through. "The vast majority of dis- putes, not just including law- suits, are settled without going to court and almost all of them have releases or releases could be demanded," says Galligan, of Blakeney Henneberry Murphy & Galligan. "So it's important that they be, for the purpose of finality . . . at an end. Because, other- wise, the courts wouldn't be able to handle all the litigation, nor would the parties be able to af- ford it." Galligan adds that the Divi- sional Court decision could have resulted in lawyers writing really long releases, which might not have been any clearer. Madott says the lower court decisions also could have had significant consequences for other areas of law, such as fam- ily law, where 99 per cent of cases settle. "As a lawyer drafting a re- lease, how can you ever bar the unknown? That's the whole es- sence of the unknown — it's un- knowable. That was terrifying. That sent a huge chill through me," she says. The decision brings greater clarity to releases and provides a helpful set of drafting guidelines in the form of five principles, says Madott. Adam Pantel, the lawyer representing Prinova, did not respond to a request for com- ment. LT first administrative tribunals that has dealt with the issue of delays, following the Supreme Court of Canada's 2016 decision in R. v. Jordan, which capped delays in the courts. While the Jordan decision does not apply to disciplinary proceedings at the law society, Daniel Naymark, of Naymark Law, says he expects the issue of delays in matters before adminis- trative tribunals could soon find its way up through the courts. "I wouldn't be surprised to see more decisions by adminis- trative tribunals grappling with whether and how to apply the animating principles of Jordan in the disciplinary context, and I wouldn't be surprised to see the courts weighing in to offer direction to tribunals in the near future," he says. In the decision, the panel considered Blencoe v. British Columbia, a leading Supreme Court of Canada decision, in or- der to determine whether delays would warrant a stay of proceed- ings in administrative tribunals. That decision's analysis speci- fied two grounds for determin- ing whether a stay was warranted. These were if an "inordinate or clearly unacceptable delay im- pugns the fairness of the hearing" or if the delay causes significant harm to the lawyer or stigma to the lawyer's reputation. Naymark says this approach also involves parsing who is to blame for the delay. He says the tribunal's hands were tied by the jurisprudence, but it remains to be seen whether courts will decide that adminis- trative tribunals should adopt similar tests such as that in Jor- dan or continue to use the ear- lier style of analysis. "It's inevitable that this is go- ing to be a subject of attention," he says. Neuberger, however, says he doubts the issue will go up through the courts as the test in Blencoe is an appropriate test for administrative discipline tri- bunals, as it does not set out the arbitrary timelines of Jordan. The law society first started investigating Savone in 2007 and commenced proceed- ings against him in 2011. The law society alleged that Savone had knowingly participated in fraudulent real estate transac- tions. After refusing an initial mo- tion for a stay because of delay and his original requests for dis- closure, a hearing panel found he had knowingly assisted in the fraud and revoked his licence. Savone appealed to the law so- ciety's appeal division, which ordered a new hearing as the hearing panel had erred in dis- missing Savone's request for ad- ditional disclosure. The Divisional Court then echoed that decision, dismiss- ing an appeal by the law society of the appeal division's finding. Lawyers said this Divisional Court decision could push the law society to rethink its ap- proach to disclosure in disci- plinary proceedings. Brian Radnoff, one of the lawyers representing Savone and a partner at Lerners LLP, says his client is considering his options and that there will either be an appeal or the hearing will pro- ceed. "We're pleased that we finally have disclosure of the files from the law society that were ordered to be disclosed," he says. When reached for comment, Susan Tonkin, a spokeswoman for the Law Society of Upper Canada, said the reasons speak for themselves. LT Continued from page 1 Tribunal hearing refuses to stay proceeding Decision brings greater clarity Continued from page 1 © 2017 Thomson Reuters Canada Limited 00244SZ-A87345-CE Start stronger. Finish faster. SECONDARY SOURCES ON WESTLAWNEXT® CANADA Confidently take on complicated matters and leverage the topical expertise from world-class authors, including practitioners, law professors, and judges, who know and shape the law to quickly get the answers you need. Explore what's new to Secondary Sources on WestlawNext Canada.

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