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Legal Topics in the Works



SET-OFF


1. General
2. Legal Set-off
3. Equitable Set-off

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1. General

There are two types of set-off, legal and equitable, and both are normally advanced as defences. They involve the 'set-off' between parties of mutual debts or claims against each other.


2. Legal Set-off

In Canaccord Genuity Corp. v. Pilot (Ont CA, 2015) the Court of Appeal set out one of the distinctions between legal and equitable set-off:
[57] In that case, the Supreme Court held that, while legal set-off required mutual debts, equitable set-off could apply where the defendant claimed a money sum arising out of the same contract or series of events that gave rise to the plaintiff’s claim, or was closely connected with that contract or series of events. ...

3. Equitable Set-off

In Ang v. Premium Staffing Ltd. (Ont CA, 2015) the Court of Appeal cited the elements required for equitable set-off to operate:
[8] The motion judge set out the relevant principles governing equitable set-off approved in Holt v. Telford, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193, at p. 212:

1. the party relying on a set-off must show some equitable ground for being protected against his adversary’s demands;

2. the equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed;

3. a cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross-claim;

4. the plaintiff's claim and the cross-claim need not arise out of the same contract; and

5. unliquidated claims are on the same footing as liquidated claims.
In Canaccord Genuity Corp. v. Pilot (Ont CA, 2015) the Court of Appeal outlined the key factors involved in equitable set-off:
[56] In Holt v. Telford, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193, the Supreme Court of Canada recognized equitable set-off as a defence. In that case, it was not disputed that the Telfords owed the Holts $150,000 plus interest under the provisions of their mortgage agreement. The entire amount of the mortgage became due and payable in the event of default, which had occurred. The Telfords argued, however, that they were entitled to set-off the debt owed to them by Canadian Stanley because when they had “swapped” parcels of land with Stanley, the Telford mortgage formed part of the consideration for the reciprocal transfers: p. 215.

[57] In that case, the Supreme Court held that, while legal set-off required mutual debts, equitable set-off could apply where the defendant claimed a money sum arising out of the same contract or series of events that gave rise to the plaintiff’s claim, or was closely connected with that contract or series of events. The Supreme Court noted the following five principles relevant to equitable set-off, at p. 212: (1) The party claiming set-off must show some equitable ground for being protected from his adversary’s demands; (2) that ground must go to the very root of the plaintiff’s claim; (3) the counterclaim must be so clearly connected with the plaintiff’s demand that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the counterclaim; (4) the claim and counterclaim need not arise out of the same contract; and (5) unliquidated claims are on the same footing as liquidated claims.

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Sources
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