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Civil Procedure - Release - Interpretation

Contracts - Release - Interpretation

Biancaniello v. DMCT LLP (Ont CA, 2017)

Here the Court of Appeal reviews principles of contractual interpretation as they apply to a release from liability, executed as part of a settlement of a lawsuit:
Interpretation of the release

(a) General principles

[23] The seminal decision on the proper approach to the interpretation of a release is the House of Lords’ decision in London and South Western Railway v. Blackmore (1870), L.R. 4 H.L. 610. At p. 263, Lord Westbury stated: “The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time the release was given.”

[24] In Hill v. Nova Scotia (Attorney General), 1997 CanLII 401 (SCC), [1997] 1 S.C.R. 69, Cory J. cited this principle with approval and noted, at para. 20:
What the statement quoted means is that in determining what was contemplated by the parties, the words used in a document need not be looked at in a vacuum. The specific context in which a document was executed may well assist in understanding the words used. It is perfectly proper, and indeed may be necessary, to look at the surrounding circumstances in order to ascertain what the parties were really contracting about. [Emphasis added by Cory J.]
[25] This approach was recently addressed again by the House of Lords in Bank of Credit and Commerce International SA v. Munawar Ali, [2001] UKHL 8; [2001] 1 All E.R. 961.

[26] In Ali, a bank terminated the employment of a number of employees and gave them severance packages. In exchange for a release, the bank gave the terminated employees, including the respondent, an extra month’s salary. The release contained the following language:
The Applicant [Mr. Naeem] agrees to accept the terms set out in the documents attached in full and final settlement of all or any claims whether under statute, Common Law or in Equity of whatsoever nature that exist or may exist and, in particular, all or any claims rights or applications of whatsoever nature that the Applicant has or may have or has made or could make in or to the Industrial Tribunal, except the Applicant’s rights under the Respondent’s [the bank’s] pension scheme.
[27] A year later, during the course of the wind-up of the bank, it was discovered that the bank had been carrying on its business in a corrupt and dishonest manner. A number of employees wished to sue the bank for damages caused by the “stigma” of working for a corrupt bank, a previously-unknown cause of action. The claim was rejected until the case reached the House of Lords, which ruled that such a claim was sustainable in principle. The respondent then wished to pursue a claim for “stigma damages”, and the issue was whether he was barred from doing so by the terms of the release.

[28] Lord Bingham of Cornhill wrote the main decision for the majority. He explained that in interpreting the release, as in interpreting any contractual provision, “the object of the court is to give effect to what the contracting parties intended”: at para. 8. The court does not inquire into the parties’ subjective states of mind, but makes an objective assessment based on the contract as a whole, the impugned words in their ordinary meaning and in the context of the agreement, the parties’ relationship, and all relevant facts surrounding the transaction so far as known to the parties.

[29] Lord Bingham reviewed the jurisprudence from the English and Australian courts on the interpretation of releases. The jurisprudence established that, by using appropriate language, a party can release claims that the party neither knew nor could have known, nor even imagined. However, “in the absence of clear language”, the court “will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware”: at para. 10. At para. 14, Lord Bingham quoted from a decision of Dixon C.J. of the High Court of Australia in Grant v. John Grant and Sons Pty. Ltd. (1954), 91 C.L.R. 112, at pp. 129-130:
From the authorities which have already been cited it will be seen that equity proceeded upon the principle that a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor.
[30] Turning to the release before the court, Lord Bingham pointed out that although the wording was wide enough to cover more than all incidents of the employer/employee relationship, the bank’s liquidators acknowledged that they would not seek to apply the release to, for example, a claim for a deposit held in an account at the bank. He concluded from this that the broad words used could not be read literally.

[31] Lord Bingham held, at para. 19, that because the claim for stigma damages was something that the parties to the release “could never have had in contemplation at all”, the parties could not have intended that such a claim would be surrendered by the release.

[32] Lord Nicholls of Birkenhead wrote concurring reasons. He pointed out the problem that often arises when interpreting a release: in settling a dispute, the parties want to wipe the slate clean, but then when an unexpected claim comes to light, it is unclear whether the broad general language used was intended to cover the unexpected claim.

[33] In addressing the problem, he refuted the suggestion that unknown claims are not covered by broad general language. I quote his discussion, at para. 27:
The wording of a general release and the context in which it was given commonly make plain that the parties intended that the release should not be confined to known claims. On the contrary, part of the object was that the release should extend to any claims which might later come to light. The parties wanted to achieve finality. When, therefore, a claim whose existence was not appreciated does come to light, on the face of the general words of the release and consistently with the purpose for which the release was given the release is applicable. The mere fact that the parties were unaware of the particular claim is not a reason for excluding it from the scope of the release. The risk that further claims might later emerge was a risk the person giving the release took upon himself. It was against this very risk that the release was intended to protect the person in whose favour the release was made.
[34] That said, Lord Nicholls cautioned that this approach “should not be pressed too far”. He explained, at para. 28:
However widely drawn the language, the circumstances in which the release was given may suggest, and frequently they do suggest, that the parties intended or, more precisely, that the parties are reasonably to be taken to have intended, that the release should apply only to claims, known or unknown, relating to a particular subject matter. The court has to consider, therefore, what was the type of claims at which the release was directed.
[35] For example, Lord Nicholls explained, a mutual general release on a settlement of final partnership accounts might properly be interpreted as being confined to claims arising in connection with the partnership business. It would not extend, for example, to a later claim by one partner against the other that the tree roots of his neighbouring property were encroaching.

[36] Applying this discussion of principles to the issue in Ali, Lord Nicholls held that it was clear from the wording that the parties did not intend the release to be limited to known claims, but that it was limited to claims arising out of the ending of the employment relationship. However, the parties were contracting based on the law as it then stood, and a claim arising as a result of a change in the law could not have been within the contemplation of the parties.

[37] Lord Hoffmann, writing in dissent, began by characterizing the words of the release as very broad, without any deliberate gaps. Nevertheless, he explained that there may still be limitations in the scope of the release which could be inferred from the background.

[38] Often a release is given as part of the settlement of a dispute. In such a case, “the scope of the dispute provides a limiting background context to the document”: at para. 41. Lord Hoffmann adopted the oft-quoted statement of Lord Westbury in London Railway: “The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given.” Lord Hoffmann noted, at para. 42: “This is a rather sweeping statement. It is almost always dangerous to say ‘always’. But, in cases of a release given in connection with the settlement of a dispute, it is a fair generalization.”

[39] In Ali, the context for the release was not ending litigation, but ending an employment relationship. Therefore, “all claims” meant claims arising from the employment relationship, and included both known and unknown claims. Lord Hoffmann reasoned that because the bank paid specific amounts for the known claims, the extra month’s salary it paid for the release must have been for unknown claims, including those not then known to the law. For the bank, the purpose of the release was finality. For the employee, the more unlikely or remote a claim, the more likely the employee would be willing to release it for extra money.

[40] Lord Hoffmann’s approach was to give effect to what the parties agreed on ordinary principles of construction. He rejected the submission that because the bank conceded that in spite of the very broad language of the release, some claims such as personal injury claims or claims on accounts held at the bank were not covered, therefore all unknown claims were not covered. He explained that while the bank did not advocate for a literal meaning (i.e. covering any claim whatsoever), it argued for a contextual meaning that would exclude claims outside the employment relationship, but would not exclude unknown claims altogether. Further, if the context demonstrated that both parties intended that the release applied to claims unknown to both of them, he saw nothing unfair in giving effect to that intention. He concluded that it would give the language of the release “a strained construction” to interpret it to exclude the stigma claim: at para. 75.

[41] In summary, the real issue in Ali was not whether the general words of the release should be interpreted to include unknown claims. All the Law Lords agreed that the release covered factually unknown claims. Rather, the issue was whether it was fair to conclude that it was in the parties’ contemplation that the release included a claim for stigma damages, where such a claim was unknown in law (and in fact) to the parties when they drafted and signed it.

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