Equitable Set Off

Canaccord Genuity Corp. v. Pilot, 2015 ONCA 716:

[56]       In Holt v. Telford, [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. 

Of the Law Societies of Upper Canada and Nunavut