Set off is a legal situation that occurs when one claimant sues another for payment, and the party being sued claims a set off for monies in fact owing to the defendant but likely for a different reason.
Blacks law dictionary defines it as “a claim filed by defendant against the plaintiff when sued and in which he seeks to cancel the amount due from him or to recover an amount in excess of the plaintiffs claim against him. ”
The decision of Coffey Estate v Coffey 2014 BCSC 110, involved a daughter of the deceased to had stolen $1.6 million from her mother, and whether she was entitled to receive her bequest under the deceased mothers will, but subject to set off against monies still owing to the estate .
For other articles on Set off and Equitable Set off please also see blogs dated:
The Law of Set Off :
The legal and equitable doctrines of set-off were helpfully summarized by Madam Justice Huddart (Bennett J.A. concurring) in Wilson v. Fotsch, 2010 BCCA 226 at paras. 68–73, 8 B.C.L.R. (5th) 1, as follows:
 True legal set-off is unproblematic. It has two principal requirements – both obligations must be debts and both debts must be mutual cross obligations: see Holt v. Telford,  2 S.C.R. 193 at 205 where the court cites from Royal Trust v. Holden (1915), 22 D.L.R. 660 (B.C.C.A.) at 662-63:
… “mutual debts” mean practically debts due from either party to the other for liquidated sums, or money demands which can be ascertained with certainty at the time of pleading.
 Where both are established, the amount due will be deducted from the award for unjust enrichment.
 Where one or both of these requirements cannot be established, legal set-off is not available. Equitable set-off may be: Holt at 205-206. By its nature, equitable set-off is more difficult in application. In Irving Oil Ltd. v. Blanchard, 2002 PESCTD 52, DesRoches C.J.T.D. helpfully explained its essence at para. 9:
 Equitable set-off arises where there are certain equitable circumstances which give a right to a person who sets them up against an opposing party to an action. It is a doctrine based on fairness. Equitable set-off is available provided 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 authorities “are clear that a defendant’s claim will not be viewed as an equitable set-off … unless it is closely or intimately connected with, or directly impeaches, the plaintiff’s claim”: Cam-Net Communications v. Vancouver Telephone Co., 1999 BCCA 751 at para. 44.
 The leading modern statement on the application of equitable set-off is a judgment of Macfarlane J.A. for this Court in Coba Industries Ltd. v. Millie’s Holdings (Canada) Ltd. (1985), 65 B.C.L.R. 31 (C.A.). It was adopted by Wilson J. in Holt, and most recently cited by this Court in Jamieson v. Loureiro, 2010 BCCA 52 at para. 35.
 Coba Industries sets out the requirements for a claim of equitable set-off (at 38):
1. The party relying on a set-off must show some equitable ground for being protected against his adversary’s demands: [Rawson v. Samuel (1841), Cr. & Ph. 161, 41 E.R. 451 (L.C.)].
2. The equitable ground must go to the very root of the plaintiff’s claim before a set-off will be allowed: [Br. Anzani (Felixstowe) Ltd. v. Int. Marine Mgmt. (U.K.) Ltd.,  Q.B. 137,  3 W.L.R. 451,  2 All E.R. 1063].
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: [Fed. Commerce & Navigation Co. v. Molena Alpha Inc.,  Q.B. 927,  3 W.L.R. 309,  3 All E.R. 1066].
4. The plaintiff’s claim and the cross-claim need not arise out of the same contract: [Bankes v. Jarvis,  1 K.B. 549 (Div. Ct.); Br. Anzani].
5. Unliquidated claims are on the same footing as liquidated claims: [Nfld. Govt. v. Nfld. Ry. Co. (1888), 13 App. Cas. 199 (P.C.)].
 I will deal first with the petitioners’ claim for equitable set-off. The petitioners contend that the equitable remedy of set-off can even apply where mutuality is lost or never existed, referring to the decision of the British Columbia Court of Appeal in Canadian Imperial Bank of Commerce v. Tuckerr Industries Inc. (1983), 46 B.C.L.R. 8, 149 D.L.R. (3d) 172. That case involved a statutory set-off under the predecessor of the Law and Equity Act, R.S.B.C. 1996, c. 253. At page 11 of that decision, Lambert J.A. discussed equitable set-off, stating:
In this case the evidence did not permit Benyan to establish an equitable set-off. Such a set-off has its origin in equity and does not rest on the statute of 1728. It can apply where mutuality is lost or never existed. It can apply where the cross obligations are not debts. An equitable set-off may arise where the cross obligations arise from the same contract, though mutuality has been lost, or where the cross obligations are closely related, or where the parties have agreed that a right to set-off may be asserted between them, or where a court of equity would otherwise have permitted a set-off, as perhaps, in a case where credit was granted by a debtor to his creditor in reliance on the availability of a set-off.
 The Trustee argues that no such relief should be granted based on the competing equities at play, relying on the decision of the Ontario Court of Appeal in Canada Trustco Mortgage Co. v. Sugarman (1999), 179 D.L.R. (4th) 548, 12 C.B.R. (4th) 1. There, two bankrupts, Sugarman and Mitchell, were chartered accountants. They practised together in partnership until February 1994 when they merged their practice with that of Schwartz, Levitsky and Feldman (“SLF”), an accounting firm. Upon joining SLF, they were required by SLF to inject capital into the firm. They each borrowed $100,000 from the CIBC for that purpose.
 Madam Justice Charron, writing for the Court, explained at paras. 9–10 that:
 Sugarman and Mitchell suffered a serious financial reversal as a result of a real estate transaction and, in the fall of 1995, each of them filed a proposal under the BIA. The proposals were rejected by their creditors and they were deemed to have made an assignment in bankruptcy as of October 27, 1995. Upon their personal bankruptcy, both Sugarman and Mitchell lost their C.A. designation. Consequently, they were also deemed to have withdrawn from their partnership in SLF as of the same date.
 Upon the bankrupts making their proposal, the CIBC filed proofs of claim with the trustee in bankruptcy for the amounts of the loans as an unsecured creditor and demanded payment from SLF pursuant to the letters of undertaking. The trustee in bankruptcy also demanded that SLF pay the assets of each capital account of Sugarman and Mitchell to the estate. On September 19, 1996, SLF, faced with these competing claims, entered into a settlement agreement with the CIBC. Under the terms of this agreement, repayment of the loans was made to the CIBC by SLF, in return for which the CIBC agreed to indemnify SLF in the event any judgment or order was made against SLF with respect to this repayment. It was also agreed that SLF would take the position that it was entitled to set off the amount of the payments to the CIBC as against the bankrupts’ capital accounts.
 After discussing both legal and equitable set-off, Charron J.A. concluded at paras. 22–24 that:
 In this case, because of the intervening bankruptcy, the equities are no longer just between SLF and Sugarman and Mitchell or even between SLF and the CIBC. The rights of others have come into play. These rights cannot simply be ignored on the basis that the CIBC lent the money that created the capital account in question. If the respondent’s argument was accepted, the unsecured creditor who lent the bankrupt money to buy a car would be able to claim priority over the car based on that fact alone and in the absence of any secured interest in the car. Such a result would be contrary to the scheme of distribution under the BIA. It would result in an unfair preference of one unsecured creditor over other unsecured creditors. Similarly, in this case, the resulting unfairness to SLF, if any, must be assessed in the context of the bankruptcy where other unsecured creditors may stand to lose.
 In my view, at the time of bankruptcy, SLF stood in no different position than any other unsecured creditor in the bankrupt’s estate. At the time SLF gave its undertaking to the bank to repay the loan, it could have obtained some form of security from Sugarman and Mitchell. SLF chose not to do so. SLF is an accounting firm, not an unsophisticated creditor. Obviously, it suited its own purposes to give the undertaking to the CIBC. Indeed, the evidence shows that SLF was receiving two new partners, an injection of $200,000 in the firm’s capital account and ongoing accounting business from the CIBC. There is really no reason why SLF should be treated any differently than others who stand to lose as a result of the two partners’ bankruptcy.
 Further, the ultimate result of granting the remedy of equitable set-off cannot simply be ignored. Given the indemnity it received from the CIBC, SLF does not lose any money. The claim of equitable set-off is made for the CIBC’s benefit. Granting relief in this case would be akin to elevating the CIBC’s status in the bankruptcy from unsecured to secured creditor to the detriment of other unsecured creditors. There is no justification in this case to so interfere with the scheme of distribution under the BIA.
 I am unable to accept that the Testatrix’ estate is in any better position than the bank in Sugarman. To treat the estate otherwise would be to inequitably elevate the status of the Testatrix’ estate in Ms. Coffey’s bankruptcy from unsecured to secured creditor to the detriment of other unsecured creditors. As such, the petitioners’ cannot exercise any equitable right of set-off as against Ms. Coffey’s indebtedness.
 Turning then to the petitioners’ claim for legal set-off, the Trustee contends that creditors who incur post-bankruptcy obligations to trustees in bankruptcy cannot claim a legal set-off to avoid their obligations by setting those obligations off against proven pre-bankruptcy claims. The Trustee contends that his position in this regard is supported by the decisions of Mr. Justice Farley in Re Air Canada (2003), 45 C.B.R. (4th) 13, 39 B.L.R. (3d) 153 (Ont. S.C.J.) and of Mr. Justice Fisher in Re Lussier,  4 D.L.R. 637, 8 C.B.R. 454 (Ont. S.C.).
 With respect, neither Re Air Canada nor Re Lussier provides any assistance to the Trustee in the case before me. While the Trustee has correctly stated the proposition for which both those cases stand, there is no evidence before me of any proven pre-bankruptcy claim. To the contrary, the evidence adduced by the parties shows that Ms. Coffey declared bankruptcy in 2005, prior to both the issuance of the restitution order and the Testatrix’ death. As such, both debts represent post-bankruptcy obligations involving the estate of Ms. Coffey under the direction of the Trustee such that they remain mutual cross-obligations.
 I am satisfied that the requirements for legal set-off have been made out, and therefore answer the second of the questions framed by the petitioners in the affirmative and direct that the petitioners’ are entitled to the set off the amount owing to Ms. Coffey under the Testatrix’ will against the amount still owed to her estate pursuant to the restitution order. While this may have the effect of elevating the claim of the Testatrix’ estate to that of a secured creditor, to the detriment of others, the Supreme Court of Canada made clear in Husky Oil that this reordering of priorities is what was intended by Parliament under s. 97(3) of the Bankruptcy and Insolvency Act.
 It was not unreasonable for Ms. Coffey’s to seek to defend her inheritance under the will. She has prevailed on two of the three issues raised by the petitioners. In my opinion, Ms. Coffey should have her costs of the application as a further set-off against her indebtedness to the Testatrix’ estate.
“The Honourable Chief Justice Hinkson”