Judgment ruling on the effect of releases

The Superior Court of Quebec recently dismissed a professional liability suit instituted by Tandalla Inc. against the chartered accounting firm Lippman Leebosh April (LLA), represented by Woods.

The judgment, rendered by the Honourable Pepita Capriolo, j.s.c. after a nine-day-long trial, clarifies the state of the law regarding the effect of a release upon multiple co-debtors. The judgment confirms the rule that a complete release inures not only to the benefit of the released debtor, but also to the benefit of its in solidum co-debtors, whether or not they are named.

In this case, Tandalla sued LLA as the auditor of a third-party company in which Tandalla had invested. Tandalla claimed that it had bought the shares of the target company relying upon audited financial statements prepared by LLA. Before instituting proceedings against LLA, Tandalla had also instituted an arbitration proceeding against the seller of the shares. That dispute was settled pursuant to a complete release granted by Tandalla to the seller of the shares.

Justice Capriolo ruled that the release included LLA within its scope, as the “representative” of the seller of the shares. Were that not the case, Justice Capriolo would still have dismissed Tandalla’s claim. Justice Capriolo concluded that, among other things, the release inured to the benefit of LLA even though they were not named therein because LLA was liable in solidum with the seller of the shares. Judge Capriolo also ruled Tandalla had deprived LLA of a subrogatory recourse against the seller when it granted the latter a complete release. Accordingly, LLA had to be released to the extent of the value of its subrogatory right of which it had been so deprived.

The Superior Court judgment is available by following this link: http://www.canlii.org/en/qc/qccs/doc/2014/2014qccs4760/2014qccs4760.html?searchUrlHash=AAAAAQARQ2FwcmlvbG8gdGFuZGFsbGEAAAAAAQ