Releasing the Unknown: Theoretical and Evidentiary Challenges in Interpreting the Release of Unanticipated Claims.

• Author: Bertolini, Daniele

Introduction I. Case Law A. The Blackmore Rule B. Decisions Interpreting Releases Narrowly (i) Words as a Factor Limiting the Scope of the Release (ii) The Transactional Context as a Factor Limiting the Scope of the Release C. Decisions Interpreting Releases Broadly (i) Releases Expressly Including Unknown Claims (ii) Releases Implicitly Including Unknown Claims D. Corner Brook v Bailey II. Sources of Legal Uncertainty A. The Ambiguity of the Contemplation-Intention Nexus (i) The Contemplation Requirement Understood Objectively (ii) The Challenges of Objectively Interpreting the Release of Unknown Claims (iii) Reconceptualizing the Contemplation Requirement as a Gap-Filling Device B. What Language is Sufficient to Release Unknown Claims? C What Constitutes an Unknown Claim? III. Delimiting the Scope of Release A. Proposed Rule B. Presumption of Release of Discoverable Claims C Allocation of the Burden of Proof D. Definition of Known Claim Conclusion Introduction

This paper is concerned with the release of claims that are unknown to private parties at the time the release is executed. (1) A release is a contract whereby one or more parties relinquish legal claims to preclude future litigation. Typically, in a release agreement, the releasor agrees to discharge the releasee from one or more claims identified in the releasing instrument, while the releasee seeks to obtain protection against subsequent assertions of the released claims by the releasor. The release fulfills vital functions within the legal system. It enables private parties to achieve a final definition of their mutual relationship (finality), thereby promoting legal certainty. It allows parties to allocate the risk associated with future claims, thereby pricing their transactions more accurately. By facilitating the final contractual resolution of disputes, the release reduces litigation costs and encourages judicial efficiency. These beneficial effects occur only to the extent that the releasing instrument clearly defines the scope of the claims being released. Interpretive uncertainty over the scope of the release reduces private parties' motivation to enter into a release agreement and incentivizes their recourse to judicial litigation, thereby undermining the goals of legal certainty and judicial efficiency.

Determining the scope of the release is a matter of interpretation. One major challenge confronted by the releasing parties is allocating the risk of claims that are unknown to them at the time the release is signed. There is an imprecision inherent in the task of accounting for unknown claims, which increases the risk of disputes over which issues the parties intended to release. As Cass observes, the releasee often views the release as an assurance that the releasor will not be able to commence further litigation against them, "even if a previously unknown claim surfaces or if the [releasor] discovers facts supporting a new claim that were not known". (2) On the other hand, when a previously unknown claim materializes, the releasor may have reason to argue that they did not intend to surrender rights and claims of which they were unaware or could not have been aware when they signed the release. The divergence of the parties' interpretations regarding the scope of the release gives rise to disputes in which typically the releasor acts as plaintiff, arguing that their claim does not fall within the scope of those previously released, while the releasee acts as defendant, contending that the claim should be barred because it was previously intended to be relinquished. This is a vexing issue not only when the release document fails to address the issue of unknown claims (gap in the releasing document), but also when the release incorporates all-encompassing language covering all claims that may be advanced by the releasor against the releasee (general release). This latter scenario frequently leads to litigation over the scope of the release and brings to the fore the competing interests of the plaintiff-releasor and the defendant-releasee. (3)

In drafting the releasing document, releasing parties are confronted with the following dilemma: they must use broad contractual language to cover all (known and unknown) claims and thereby attain finality; however, when an unknown claim materializes, the use of such general language results in interpretive uncertainty over which claims fall within the scope of those previously released. This dilemma stems from the contractual instrument used by the parties--the generally worded release--which is inherently conducive to an indeterminate scope of the release. (4) In short, parties pursue finality by broadening the scope of the release, but a broader scope leads to greater indeterminacy of the release, which ultimately undermines the goal of finality.

When an unanticipated claim arises, the interpretive tension between text and context must be resolved. The broader the language of the release, the likelier the wording will conflict with the extant circumstances. When taken literally, the general language of the release is often wide-ranging enough to cover all possible claims (including unknown claims) by the releasor against the releasee. At the same time, circumstances may indicate that at the time the release was drafted, the parties did not objectively intend to define the scope so expansively. In other words, while the text may support the conclusion that any unknown claim is included in the scope of the release, the context may show that the parties intended to release only claims that arise in relation to a particular dispute. This tension between text and context is the source of the interpretive ambiguity that frustrates the goals of certainty and finality underlying the use of release agreements.

There has been relatively little academic discussion on the interpretive issues associated with the release of unknown claims. (5) However, it is evident that this issue poses difficult challenges to courts that determine the scope of releases. In Canadian case law, uncertainty persists over the effect of general releases on unknown claims. Historically, Canadian courts have relied on the rule set out in London and South Western Railway Company v Blackmore (London) (the Blackmore Rule), which limits the scope of a general release "to those things which were specifically in the contemplation of the parties at the time the release was given". (6) Recently, in Corner Brook (City) v Bailey (Corner Brook), the Supreme Court of Canada clarified that the Blackmore Rule had been "subsumed entirely" (7) into the general principles of interpretation outlined in Sattva Capital Corp v Creston Moly Corp (Sattva). (8) According to these principles, courts must "give the words [used in a contract] their ordinary and grammatical meaning, in a way that is consistent with the surrounding circumstances known to the parties at the time of contract formation". (9) The Sattva principles of contractual interpretation are consistent with the historical Blackmore Rule. Sattva and Corner Brook both mandate that judges adopt a contextualist interpretive approach to releases. In addition, Corner Brook suggests language parties could implement to reduce uncertainty over the scope of release and to clarify the relationship between text and context. The Supreme Court of Canada states that "releases that are narrowed to a particular time frame or subject matter are less likely to give rise to tension between the words and what the surrounding circumstances indicate the parties objectively intended". (10)

Despite these useful clarifications, a significant degree of uncertainty remains regarding the effect of broadly worded releases on claims unforeseen by the parties at the time the release is executed. The tension between text and context, which typically arises in connection with the release of unknown claims, is not solved merely by invoking the Sattva principles, as their application is riddled with delicate questions that are difficult to resolve. First, the interpreter must identify the relevant elements of the factual matrix. (11) This exercise alone raises difficult issues concerning the admissibility of contextual evidence. (12) Second, once the admissible contextual evidence has been identified, the interpreter must assess its evidentiary significance to ascertain the objective intent of the parties. Finally, ambiguity remains regarding the language parties should use to reduce uncertainty surrounding the interpretation of release with respect to unknown claims.

This paper aims to shed light on the interpretive challenges associated with a general release of unknown claims. It has three objectives. Part I is descriptive. It examines the relevant case law concerning judicial enforcement of general releases involving unknown claims and illustrates the tension between text and context that often arises when interpreting general releases. The analysis of the case law shows that, whether they interpret releases broadly or narrowly, courts regularly apply the same conceptual framework grounded in objective contractual interpretation. Consistent with Sattva, courts affirm that the goal of contractual interpretation is to ascertain the objective intentions of the parties at the time of contract formation. At the same time, they state that the scope of the release is limited to the concerns contemplated by the parties at the time of the execution of the release, while also asserting that a sufficiently broadly worded release can cover claims unknown to the parties at the time the release is given.

Part II is critical. It contends that the above-mentioned principles confusingly characterize the judicial task, as they overlap the objective notion of intention with the often unclear notion of what the parties contemplated. The unclear relationship between the two is at the root of the legal uncertainty surrounding the...