The Law of Set-Off – “I Don’t Owe You Because You Owe Me”

The Court of Appeal reviewed the law of set-off in Wilson v. Fotsch, 2010 BCCA 226. It described equitable set-off as being available provided that there is a relationship between the cross-obligations such that it would be unfair or inequitable to permit one to proceed without taking the opposing claim into account. The requirements for a claim of equitable set-off are as follows:

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 plaintiffs 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.

[261] The textbook by S.M. Waddams, The Law of Damages, looseleaf (Toronto: Canada Law Book, 1991 at para 1.1770, says the following with respect to tortfeasors who use the proceeds of a conversion to pay down the plaintiff’s debts:
The preferable view, therefore, seems to be not to reduce recovery, on account of repayment of the debt, in any case in which the defendant could not, in an independent action, obtain restitution for the benefit conferred upon the plaintiff by repayment of the debt.

[262] Mr. Justice Stinson of the Ontario Superior Court of Justice commented on the court’s unwillingness to allow recovery of benefits conferred by “officiousness” in J. B.C. Consulting Inc. v. Gray (2000), 47 O.R. (3d) 212 at para. 19, as follows:
[19] Historically, juridical justification for retention of the benefit has been described as existing where a plaintiff acted officiously, or where the defendant has been the unwilling or unwitting recipient of benefits conferred by the plaintiff, that is, where the defendant’s affairs have been interfered with via the plaintiffs payment without the defendant’s awareness or despite the defendant’s objections. The courts have allowed recovery where

the plaintiff has conferred the benefit on the defendant as the result of a legal or practical compulsion, in the absence of officiousness.
[263] Stinson J. allowed the set-off in JBC Consulting. Although there was no compulsion on the plaintiff to confer the benefit, the defendant knew of the benefit he would receive before it was given. Although the defendant did not acquiesce, neither did he object.
[264] Stinson J. also adopted the following passage from J.D. McCamus and P.D. Maddaugh, The Law of Restitution in Canada (Aurora: Canada Law Book, 1990) at 739-740, as an accurate statement of the modern approach to restitution:

In sum, the few unfortunate constraints that have developed in connection with the principle enunciated by Cockburn C.J. in Moule v. Garrett must perforce lose much of their relevance in light of the modern theory of the law of restitution based upon the doctrine of preventing an unjust enrichment. Thus, it should not matter that one party has discharged another’s liability in circumstances of practical, as opposed to strictly legal. compulsion. Nor should it be of concern if the liability of each of the parties should arise from different sources. Indeed, in cases of practical compulsion or economic duress, it is meaningless to speak of any liability whatsoever on the part of the plaintiff to have satisfied the obligation owed by the defendant. Discharge of another’s liability ~ although conferred in an indirect fashion ~ is, after all, simply one form of enrichment. So long as that benefit is bestowed by a plaintiff in circumstances such that the defendant cannot, in all good conscience, retain it, restitutionary relief ought to be awarded…

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

More Posts - Website - Google Plus