|
Set-off - Equitable
MORE CASES
Part 2
. Benjamin Cochrane Trust (Re)
In Benjamin Cochrane Trust (Re) (Ont CA, 2023) the Court of Appeal considered a case where trustees, who failed to account properly, advanced an equitable set-off (and quantum meruit) 'defence':(2) Did the trial judge err in failing to turn her mind to issues of quantum meruit and equitable set-off?
(a) The Parties’ Positions
[48] The appellants took the position at trial that if the trial judge found that they had not properly accounted for all trust funds, they should be entitled to compensation for services that they had provided to their son, services which fell into seven categories: case management, academic support, supervision, bookkeeping, management of banking activities, driving lessons and surety supervision. In other words, the appellants sought a set-off for amounts they said they could have charged the trust but did not, as against any amount they could not properly account for and had to repay.[2]
[49] On appeal, the appellants maintain that the trial judge erred by failing to turn her mind to the doctrines of quantum meruit and equitable set-off. Had she done so, she would have assigned a value to the services they provided as trustees over so many years, and the value would have been set-off against any amount owing. The appellants say that the trial judge erred by instead focussing on the fact that the “unpaid disbursements”, representing the services they provided, were not paid from the trust funds. As a result of her flawed decision, the trust has been unjustly enriched by the valuable services provided by the appellants for the respondent’s benefit.
[50] In response, the respondent contends that the appellants did not seriously pursue a quantum meruit claim before the trial judge. Indeed, they never mentioned quantum meruit or unjust enrichment in their closing submissions. While they mentioned “set-off”, the respondent says this was in relation to trustee compensation, legal expenses, or on the basis of the notional “loans” that they allegedly provided to the trust; it was not on the basis of unjust enrichment. In any event, any quantum meruit claim would have been doomed to fail for a number of reasons, including that the appellants, in their capacity as parents, likely intended to provide the services gratuitously.
[51] As I will explain, I reject the appellants’ submissions on this point.
(b) Discussion
[52] In my view, the trial judge did not err or “los[e] sight of the question to be determined”, as the appellants contend. Rather, she directly confronted how the appellants framed their argument. The appellants advanced a position that: (1) they were seeking payment of the “unpaid disbursements” for their services as a set-off if (and only if) there was a “shortfall” in their administration of the trust, and (2) the set-off could be accomplished either by allowing the “unpaid disbursements” or through an award of trustee compensation. I see no reason to interfere with her treatment of those issues.
[53] It is not surprising that the trial judge did not use the terms quantum meruit or unjust enrichment in her reasons. The appellants are able to point to one, and only one, brief reference to the term quantum meruit in the written materials that were before the trial judge (in their Reply to Fresh as Amended Notice of Objection to Accounts). They have pointed to no references to the term “unjust enrichment”.
[54] As for oral submissions, the terms are similarly absent. Instead, the appellants focussed upon what they characterized as their claim for “set-off”. The following passage from the appellants’ counsel’s opening submissions provides a window into what the appellants were actually seeking at trial and how they were asking the trial judge to deal with the issue of compensation and “unpaid disbursements” for services they said they had rendered:So again, if we go to the end of the accounts, to the schedule title loan from [the appellants] starting at page 183 of the accounts – I’m not asking Your Honour to flip there now, I’m just saying it’s there – there is an annual table for the shortfalls, there is a monthly table for the shortfalls and the key is that over the 17 years the total loan amount reflecting uncompensated services provided by [the appellants] at the rates and time recommended in the cost of care report total together $245,000 to $245,618.11. Those are at 20 year old rates without interest. I stress they do not want any money repaid to them. The accounts also contain a compensation calculation. [The appellants] do not want any compensation either. We have made this clear in correspondence. These are simply set offs in the event this court agrees with any of [the respondent’s] objections. [The appellants] simply do not want to pay [the respondent] anything. They are not [out] of pocket a huge amount notionally for their time and they are not claiming compensation [except] as a set off to any objections this court may, may [sic] agree with of [the respondent’s] but they do want their legal costs paid. [Emphasis added.] [55] This position – that they sought set-off (either on the basis of the “loans” representing uncompensated services or by way of trustee compensation) if and only if they would otherwise be ordered to repay any amount – was repeated in the appellants’ closing arguments. Notably, this repeated framing of the arguments again contained no reference to quantum meruit or unjust enrichment terminology:[COUNSEL]: … okay so, I mean [the appellants] don’t want any money. The efforts that they went to are reflected in the accounts. They wouldn’t want a penny if the court accepts that they don’t owe [the respondent] any money. They don’t want a penny of compensation. So the entire question of whether they are double claiming, the answer is, if the court doesn’t accept that it’s proper to include as disbursements, which is really set-offs, you know we are really setting off — if the court doesn’t accept that it’s proper to include those amounts [for the work they did] as disbursements, then … they would want that via compensation whether it’s the percentages being increased radically or I think more appropriate would be the court awarding a special fee for that work.
...
[COUNSEL]: ... If Your Honour finds the [appellants] did all this work, then, did all this work and it’s fair that they be compensated, or not compensated, but it’s fair that they use that as a set-off for any amounts that they can’t, they can’t prove, any disbursements that they can’t prove, then these are alternative ways of, of creating that, of, of, not creating, these are alternative ways of, of, of arriving at that set-off. Either in the accounts and disbursements, or in the compensation calculation, and I think the simplest way to do it is to use the correct numbers, use the usual percentages and then apply a special fee for compensation equating to all the work they did which is set-off against what they can’t prove. [Emphasis added.] [56] This argument was fully understood and addressed by the trial judge.
[57] For example, at the outset of her reasons, she acknowledged that the appellants’ position was that if they were to be ordered to repay any amount to the respondent, that repayment order should be set-off in recognition of the valuable unpaid services they had provided. In particular, she said:[The appellants] do not have receipts or documentation to support most of the disbursements in the Statement of Accounts. Nevertheless, they argue that they have fully accounted for the $418,672.25 received by the trust. [The appellants] also ask that any order I make requiring them to repay the trust be offset by the amount they are entitled to receive as trustee compensation.
...
[The appellants] testified that they only included their unpaid services as disbursements in the account to offset any expenses that are disallowed and to reduce the chance they will be required to repay the trust. [Emphasis added.] [58] These passages (and more) clearly demonstrate that the trial judge understood that the appellants were asking for set-off either by way of the hundreds of “unpaid disbursements” included in the statement of accounts or by way of their claim for trustee compensation. As she noted later in her reasons, they claimed “unpaid disbursements” for services allegedly rendered totaling $218,670.08 and trustee compensation in the amount of $131,038.42. The trustee compensation sought as “set-off” constituted around 30 percent of the total trust funds the appellants had administered.
[59] The trial judge disallowed the “unpaid disbursements” relating to services the appellants said they had provided to the respondent. As was her prerogative, the trial judge concluded that these “unpaid disbursements” were inaccurate and misleading:The Statement of Accounts contains hundreds of disbursements for services that [the appellants] purportedly provided to [the respondent] or the trust. There are disbursements for case management services, bookkeeping services, banking services, academic support and general supervision. The Statement of Accounts shows all of these disbursements as having been paid to [the appellants]. [The appellants] submitted signed receipts for most of these disbursements that appear to confirm they were paid for their services….
[The appellants] both testified that they were not actually paid by the trust for their services. [The mother] testified there was never enough money in the trust to pay her and [the father] for the services they provided as trustees. [The appellants] testified that they only included their unpaid services as disbursements in the account to offset any expenses that are disallowed and to reduce the chance they will be required to repay the trust. These “unpaid disbursements” should not have been included in the Statement of Accounts. They distort and distract from the truth of what happened with [the respondent’s] money.
...
The unpaid disbursements and the fictitious loans [created to reflect the unpaid disbursements] render the Statement of Accounts inaccurate and misleading. They also make it difficult to decipher what actually happened to the cash that [the appellants] withdrew from the trust account each month. [Emphasis added.] [60] In light of these findings, which are owed deference, I see no basis to interfere with her disallowance of the fictional disbursements, which were matched by fictional loans. In the trial judge’s words, these were “unpaid disbursements included to offset any repayment order” as opposed to amounts “paid by the trust”.
[61] It was only once she had determined the “truth of what happened” – or what disbursements to allow or disallow – that set-off came into play, since set-off was, as the appellants argued, only required if there was a shortfall. Consistent with the appellants’ submissions, after reviewing the disbursements claimed in the statement of accounts, the trial judge went on to consider whether the appellants were entitled to set-off in discussing trustee compensation.
[62] The appellants claimed they were entitled to $131,038.42 in trustee compensation, of which almost $100,000 was for “care and management” and the balance was for “receipts and disbursements”. The trial judge found that the parents could not receive “care and management” fees seeing as they did nothing to invest or manage the trust funds, other than withdrawing cash and putting it into a safe. As for the “receipts and disbursements”, the trial judge concluded that even there, the appellants had miscalculated what they said was owed.
[63] Notably, the trial judge considered the time that the appellants spent administering the trust, but explained that she was not prepared to grant them a significant award of trustee compensation due to their failure to fulfill their primary duty to account for the trust funds they received. In the end, she only allowed for a “modest” set-off of $15,000 in trustee compensation.
[64] There is no basis upon which to interfere with the trial judge’s finding that only a modest set-off was appropriate in the circumstances. As she noted, the appellants had failed to fulfil their duty as trustees to keep proper accounts. Further, they acknowledged that they “never expected [their son] or the trust to repay the loans.” These findings of fact, to which deference is owed, undermine the appellants’ suggestion that the trust was unjustly enriched by the services they provided to their son. At the end of the day, the appellants’ submission is really an attack on the trial judge’s findings of fact.
[65] In conclusion, the trial judge was alive to the appellants’ position that, if there was a shortfall, there should be a recognition of the value of the services they provided by means of a set-off. Not only was she alive to their position but she dealt with it head on. Her findings on this point are entitled to deference. . Canaccord Genuity Corp. v Pilot
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. ... . LV Windows v. 7194145 Canada Ltd.
In LV Windows v. 7194145 Canada Ltd. (Ont CA, 2020) the Divisional Court reviewed the law of equitable set-off:Issue 4: Does the doctrine of equitable set off apply?
The Law
[28] Section 111(2) of the Courts of Justice Act provides that mutual debts may be set off against each other, even if they are of a different nature.
[29] In 1808059 Ontario Ltd. v. Galaxy Entertainment Inc., 2015 ONSC 1214, at para. 17, the court noted that:Equitable setoff is an available remedy where a defendant’s cross-claim is liquidated or unliquidated and whether or not it arises out of the same contract. Agway Metals Inc. v. Dufferin Roofing Ltd., [1991] O.J. No. 9, 46 C.P.C. (2d) 133 (Ont. Gen. Div.) aff’d [1994] O.J. No. 3671, 30 C.P.C. (3d) 295 (Ont. C.A.). [30] In Holt v. Telford, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193, the Supreme Court of Canada set out the following preconditions for the granting of the remedy of an equitable set off:a) there must be some equitable basis to resist the plaintiff’s claim;
b) the equitable ground must go to the essence of the plaintiff’s claim; and
c) it would be manifestly unjust to enforce the plaintiff’s claim without taking into consideration the defendant’s claim. See also Spiral Aviation Training Co., LLC v. Canada (Attorney General), 2010 ONSC 2581, at para. 7.
[31] In Canada Trustco Mortgages Co. v. Pierce Estate (2005), 2005 CanLII 15706 (ON CA), 254 D.L.R. (4th) 79 (Ont. C.A.), the Court of Appeal for Ontario held that an equitable set off provides a complete defence to a statutory limitation period. . 1582235 Ontario Limited v. Ontario
In 1582235 Ontario Limited v. Ontario (Ont CA, 2020) the Divisional Court cited the accepted test for equitable set-off:[43] The leading authority on equitable set-off is the Supreme Court’s decision in Telford v. Holt.[23] In that decision, Wilson J. (who wrote for the court) relied on a decision of the British Columbia Court of Appeal, which extracted the following principles from the English authorities:(a) “The party relying on a set-off must show some equitable ground for being protected against his adversary’s demands”;
(b) “The equitable ground must go to the very root of the plaintiff’s claim before a set-off will be allowed”;
(c) “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;”
(d) “The plaintiff’s claim and cross-claim need not arise out of the same contract”;
(e) “Unliquidated claims are on the same footing as liquidated claims”.[24] . 3113736 Canada Ltd. v. Cozy Corner Bedding Inc.
In 3113736 Canada Ltd. v. Cozy Corner Bedding Inc. (Ont CA, 2020) the Court of Appeal made some useful comments on equitable settlement:[36] Cozy Corner argues that equitable set-off falls outside of this language because it is a defence, not a claim. Equitable set-off is not, for example, precluded by a limitation period the way a claim is: Grand Financial Management Inc. v. Solemio Transportation Inc., 2016 ONCA 175, 395 D.L.R. (4th) 529, leave to appeal refused: [2016] S.C.C.A. No. 183, at paras. 92 to 94.
[37] I would not give effect to this argument. Although equitable set-off is a defence, it is one that arises from the defendant having a “cross-claim” that is closely connected to the plaintiff’s claim: Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193, at p. 212. It is a way of raising, as a defence, a plaintiff’s liability to take into account a loss it occasioned to the defendant in reduction of the plaintiff’s claim. It is often referred to as a “claim for equitable set-off”: Canada Trustco Mortgage Co. v. Pierce (Estate Trustee of) (2005), 2005 CanLII 15706 (ON CA), 254 D.L.R. (4th) 79 (C.A.), at para. 50, leave to appeal refused: [2005] S.C.C.A. No. 337. . Ang v Premium Staffing Ltd.
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. . Canaccord Genuity Corp. v Pilot
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. . Algoma Steel Inc. v Union Gas Ltd.
In Algoma Steel Inc. v. Union Gas Ltd. (Ont CA, 2003) the court set out the following basics for equitable set-off:[26] Equitable set-off is available where there is a claim for a sum whether liquidated or unliquidated. In Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193, 41 D.L.R. (4th) 385, at pp. 211-12 S.C.R., pp. 398-99 D.L.R., Wilson J., speaking for the court, approved a statement of the applicable principles for equitable set-off found in Coba Industries Ltd. v. Millie's Holdings (Canada) Ltd. and Tsang (1985), 1985 CanLII 144 (BC CA), 20 D.L.R. (4th) 689, 36 R.P.R. 259 (B.C.C.A.) at pp. 696-97 D.L.R. Those principles can be summarized as follows:1. The party relying on a set-off must show some equitable ground for being protected against the adversary's demands.
2. The equitable ground must go to the very root of the plaintiff's claim.
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. [page89]
5. Unliquidated claims are on the same footing as liquidated claims. . Harvey Kalles Real Estate Limited v. Sochaczewski
In Harvey Kalles Real Estate Limited v. Sochaczewski (Ont CA, 2008) the court set out the elements of equitable set-off:[32] The requirements for establishing equitable set-off are set out in Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193 where Justice Wilson observed the following:a. The party relying on the set-off must show some equitable ground for being protected against his adversaries' demands.
b. The equitable ground must go to the very root of the Plaintiff's claim before a set-off will be allowed.
c. 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.
d. The Plaintiff's claim and the cross-claim need not arise out of the same contract.
e. Unliquidated claims are not on the same footing as liquidated claims.
|
