Blacks Law dictionary defines set-off as a counterclaim demand which a defendant holds against the plaintiff, arising out of the transaction extrinsic of the plaintiff’s cause of action. The defendant seeks to cancel the amount due from him or to recover a mountain in excess of the plaintiff’s claim against him.
Coba Industries Ltd. v. Millie’s Holdings (Canada) Ltd., 1985 CanLII 144 correctly summarizes the applicable principles for a valid claim of set-off:
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.
5. Unliquidated claims are on the same footing as liquidated claims.
[citations omitted]
Similarly the Court of appeal in Wilson v. Fotsch, 2010 BCCA 22 described law of 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 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.