1 The federal Parliament is also responsible for three territories. Federal law allows territories to elect councils with powers similar to those of the provincial legislatures.
2 Quebec has a civil law system based on the Civil Code of Quebec (CCQ). The rules of compensation set out in arts 1672 and 1673 of the CCQ codify a regime that is similar but not identical to set-off in the common law jurisdictions. Equitable set-off does not apply in Quebec. As held by the Supreme Court of Canada in D.I.M.S. Construction Inc. (Trustee of ) v Quebec (Attorney General),  2 SCR 564:
3 For a more complex definition of set-off in Canada see Palmer, The Law of Set-off in Canada (Canada Law Book Inc. 1993) 1–5.
4 The leading decision regarding legal and equitable set-off is the Supreme Court of Canada decision in Telford et al v Holt et al (1987), 41 DLR (4th) 385 (‘Telford’).
5 As described in Telford (n 4 above) 392, the availability of legal set-off originally arose from two statutes: the Insolvent Debtors Relief Act 1728 (UK), 2 Geo 2, c 22, and the Set-off Act 1734 (UK), 8 Geo 2, c 24. These statutes were repealed but their effect was preserved in Rule 199.3 of the Supreme Court of Judicature Act 1873 (UK), c 66, which formed the basis of the relevant set-off provisions found today in the provincial Rules of Court.
6 British Columbia, Supreme Court Rules (under Court Rules Act), B.C. Reg. 221/90, rule 19(13); Alberta, Alberta Rules of Court (under the Court of Appeal Act, Court of Queen’s Bench Act, Civil Enforcement Act and Family Law Act), AR 390/68, s 93(2); Saskatchewan, Queen’s Bench Rules (under the Queen’s Bench Act), R. 104A; Manitoba, Court of Queen’s Bench Act, C.C.S.M. c C280, s 65 and Court of Queen’s Bench Rules, R. 27; Ontario, Courts of Justice Act, R.S.O. 1990, c. c 43, s 111; Newfoundland and Labrador, Rules of the Supreme Court, 1986 (under the Judicature Act), Cover, S.N.L. 1986, c 42, Sch. D, R. 14.19; New Brunswick, Rules of Court (under the Judicature Act), N.B. Reg. 82–73, R. 28 (Counterclaim); Nova Scotia, Judicature Act, R.S., c 240, s 41; Prince Edward Island, Judicature Act, R.S.P.E.I. 1988, c J-2.1, s 2.
7 Telford (n 4 above) 393, adopting Canadian Imperial Bank of Commerce v Tuckerr Industries Inc. (1983), 149 DLR (3rd) 172 at p. 174 (B.C.C.A.) (‘Tuckerr’).
8 Canadian Airlines Corp. (Re)  A.J. No 226 at paras 19–21 (Alta. Q.B.) (‘Canadian Airlines’); and see definition of ‘debt’ in Diewold v Diewold  1 DLR 561 at 564 (S.C.C.), referenced in Palmer (n3 above) 22; Re North American Tungsten Corp., 2015 BCSC 1382 at paras 10–11.
9 For example, courts will consider a claim to be ‘liquidated’ if it can be determined by calculation or by reference to a scale of fixed charges or other positive data: J. Crooke (Concrete Blocks) Ltd v Campbell  OWN 713.
10 Telford (n 4 above) 394; and see Re Polywheels Inc.,  OJ 2086 (Ont. S.C.J.) para 25, where an assignment contained in a guarantee was found to have destroyed mutuality and precluded legal set-off.
11 See, for example, Re SemCanada Crude Company, 2009 ABQB 397 at paras 30–1 (Alberta Q.B.) (‘Trilogy’), leave to appeal refused with reasons 2009 ABCA 275 (Alberta C.A.), referencing McMahon v Canada Permanent Trust Co. (1979), 32 C.B.R. (N.S.) 258 (B.C.C.A.); and National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd,  2 W.L.R. 455 at 466 (H.L.).
13 In Coba Industries Ltd v Millie’s Holdings (Canada) Ltd et al (1985), 20 DLR (4th) 689 (B.C.C.A.) (‘Coba’), the British Columbia Court of Appeal drew these principles from the English authority Rawson et al v Samuel (1841), 41 ER 451. The Supreme Court of Canada accepted them as the applicable principles for equitable set-off in Telford (n 4 above) at 398–9.
14 This principle was drawn from the English authority, Rawson et al v Samuel (1841), 41 ER 451.
15 This principle was drawn from the English authority, British Anzani (Felixstowe Ltd) v International Marine Management (UK) Ltd  2 All ER 1063 (‘British Anzani’), in which the Court provided that in order to rely on the doctrine of equitable set-off the defendants had to show, amongst other things, that their counterclaim was so directly connected with the plaintiffs’ claim as to go to the foundation of that claim. A simple connection between a claim and cross-claim is insufficient to qualify for equitable set-off. Rather, the cross-claim must flow out of and be inseparably connected with the dealings and transactions that give rise to the claim.
16 This principle was drawn from the English authority, Federal Commerce & Navigation Ltd v Molena Alpha Inc et al  3 All ER 1066.
17 This principle was drawn from the English authority, Bankes v Jarvis  1 KB 549 (‘Bankes’) and British Anzani (n 15 above).
18 This principle was drawn from the English authority of Bankes (n 17 above) in which the Court provided that unliquidated claims (ie a claim for unliquidated damages) may be set off against liquidated claims (ie a claim for debt). Also see Government of Newfoundland v Newfoundland R. Co. et al (1888), 13 App. Cas. 199 (P.C.).
19 Houlden and Morawetz, The 2017 Annotated Bankruptcy and Insolvency Act (Toronto 2017) F§237 (9).
20 Houlden and Morawetz (n 19 above) F§237 (9).
21  BCJ No 2855 (B.C.C.A) (‘Cam-Net’). For additional examples where equitable set-off was permitted, see Coba (n 13 above); Telford (n 4 above); Blue Range Resource Corp (Re)  AJ No 830 (C.A.) (‘Blue Range’); Canadian Airlines (n 8 above); Algoma Steel Inc. v Union Gas Limited (2003) OJ No 71 (C.A.)(‘Algoma’); Provident Bank v Wells Fargo Bank Northwest,  OJ No 1060 (C.A.) (‘Provident Bank’), affirming  OJ No 3081 (S.C.J.).
22 Mutuality among the parties is not strictly required for equitable set-off, so that an assignment or change in capacity will not remove the right, so long as the cross-obligations are so closely connected that it would be unjust to permit one party to enforce its obligation without permitting a set-off to the other. See, for example, Tuckerr (n 7 above); Telford (n 4 above), and Algoma (n 21 above).
23 See, for example, Re SemCanada Crude Company, 2009 ABQB 252 at para. 10 (‘SemCAMS’); Re SemCanada Crude Company, 2009 ABQB 397 at para 46 (‘Trilogy’), leave to appeal refused with reasons 2009 ABCA 275; Armenia Rugs—Tapis Ltd v Axor Construction Canada Inc,  OJ No. 1036 at para 40 (S.C.J.).
24 S.S., c F-13.4, as amended.
25 Financial Administration Act s 95 (now s 155), R.S.C. 1985, c F-11, the federal equivalent, was commented on briefly by the Federal Court of Appeal in Aero Trade (Western) Ltd (Receiver of) v Canada  FCJ No 1110 (F.C.A.). The wording of the federal equivalent is less broad than that of the Saskatchewan version and the Court concluded that the federal equivalent did little to alter the common law. See also Canadian Airlines (n 8 above) para 46 for brief consideration of the province of British Columbia equivalent. Other statutes that include set-off provisions in favour of the government include the federal Income Tax Act, R.S.C. 1985, c 1 (5th Supp.) (s 224.1) and the federal Excise Tax Act, R.S. 1985, c E-15 (s 85). In Mintzer v Canada,  2 FC 146 (C.A.), the Federal Court of Appeal held that the Crown’s statutory set-off rights entitled it to set off unpaid income taxes against retirement benefits payable to the appellant, and that such set-off did not constitute execution or seizure of retirement benefits contrary to applicable legislation.
26 Palmer (n 3 above) 263, cited with approval in Pioneer Grain Co v Goy,  4 FCR 687 (F.C.) para 19.
27 Palmer (n 3 above). Also, see Daydream Development Corp v John’s Sandblasting & Painting Ltd  AJ No 1204 (Alta Q.B.), where before considering enforcement of a contractual right of set-off, the Court first determined whether there existed a valid and enforceable contract.
28 In Re Sutcliffe & Sons Ltd, Ex p. Royal Bank,  2 OR 120 (C.A.); Ross v Royal Bank of Canada,  1 OR 90 (H.C.); and see discussion in Palmer (n 3 above) 200–2.
29 Bangsund, Set-off and Security Interests, (2017) 50 UBC L Rev 1–35.
30 See discussion of Caisse populaire Desjardins de l’Est de Drummond v Canada, 2009 SCC 29, in the discussion below about set-off and security interests.
31 Palmer (n 3 above) 245.
32 See, for example, Transamerica Life Assurance Co. of Canada v Canada Life Insurance Co. (1996), 28 O.R. (3d) 423, affirmed (1997) OJ No 3754 (Ont. C.A.); see discussion of corporate veil concepts in the SemCanada Crude Company cases (n 23 above).
33  AJ No 218 (Alta Q.B.) (‘Compton Petroleum’).
34 Compton Petroleum (n 33 above) para 29.
35 (1961), 30 DLR (2nd) 280 (‘Royal Bank’).
36 Royal Bank (n35 above) 287.
38 See, for example, n 22 above.
39  1 DLR 737 (Ont. S.C. [Bankruptcy]) (‘McMurtry’).
40 The Supreme Court of Canada has recognized a ‘principled exception’ to the privity doctrine, to be determined on a case-by-case basis, which applies when the parties are found to have intended to confer a benefit on the third party and the third party seeks the benefit in the circumstances intended to give rise to that benefit: London Drugs Ltd v Kuehne & Nagel International Ltd,  SCJ 84; and Fraser River Pile & Dredge Ltd v Can-Dive Service Ltd,  SCJ 48. While the third party may rely on the principled exception as a shield to defend a claim against it, it remains unclear whether the principled exception may be used by the third party as a ‘sword’ to enforce a contract.
41 See Re SemCanada Crude Company, 2009 ABQB 715 at paras 4–5, 17 (‘Husky’); and see commentary on Husky by Anderson, Gelbman, and Pullen, ‘Recent Developments in the Law of Set-Off’, Ann Rev Insolv (2009) vol 1, 1–38.
42 In all provinces other than Quebec, security in personal property is governed by the applicable provincial Personal Property Security Act (PPSA). In Quebec, the CCQ governs the granting of security over personal (or ‘movable’) property. While there are variations in the detail of the PPSA legislation in effect in the different common law provinces, in each province the PPSA system follows the same general framework. The PPSA sets out the requirements a creditor must satisfy in order to obtain, maintain, and enforce a security interest in personal property, and includes a detailed code of priorities of secured claims.
44 Under the Ontario PPSA (n 43 above) ‘personal property’ means chattel paper, documents of title, goods, instruments, intangibles, money, and securities, and includes fixtures but does not include building materials that have been affixed to real property.
45 2009 SCC 29 ‘Drummond’.
46 See Bangsund, Set-off and Security Interests, (2017) 50 UBC L Rev 1–35 and commentary cited in footnotes. See also s 40 (1.1) of the Ontario PPSA, which provides that an account debtor (a person obligated on an account or a chattel paper) may set up against an assignee (a) all defences available to the account debtor against the assignor arising out of the terms of the contract or a related contract, including equitable set-off, and (b) the right to set off any debt to the account debtor by the assignor that was payable to the account debtor before the account debtor received notice of the assignment.
49 Houlden and Morawetz (n 19 above) F§237(8).
50  OJ 3409 (Ont. Gen. Div.) at para 30.
51 Palmer (n 3 above) 158.
52 Palmer (n 3 above) 158.
53 The liquidation of insolvent banks, insurance companies, trust or loan companies, and railway companies is subject to the Winding-up and Restructuring Act R.S.C. 1985, c W-11 (WURA). Proceedings under this statute are rare and are usually only brought at the instance of a regulatory authority to liquidate an insolvent financial institution. Section 73 of the WURA also preserves set-off rights.
54 Husky Oil Operations Ltd v Canada (1995), 128 DLR (4th) 1 (S.C.C.) (‘Husky Oil’).
55 Houlden and Morawetz (n 19 above) F§237 (1).
56 Houlden and Morawetz (n 19 above) F§237 (1).
58 McMurtry (n 39 above). Also see Re Berman (1979), 105 DLR (3rd) 380 (Ont. C.A.); Clarkson v Smith & Goldberg  1 DLR 509 (Ont. C.A.); and Re Brunswick Chrysler Plymouth Ltd v DaimlerChrysler Canada Ltd (2005), 11 CBR (5th) 10 (N.B.Q.B.). And see Canada (Attorney General) v Reliance Insurance Co.,  OJ No 795 (S.C.J.) where the Court held that the analogous section of the WURA preserves contractual set-off rights. For commentary, see Houlden and Morawetz (n 19 above) F§109(1) and Palmer (n 9 above) at 264.
59 Re Air Canada (2003), 45 CBR (4th) 13 (Ont. S.C.J. [Commercial List]) (‘Air Canada’) para 14.
60 Houlden and Morawetz (n 19 above) F§237 (1).
61 The limitation relating to fraudulent preferences, which is provided in s 97(3) of the BIA, is a means of carrying into effect the principle of the BIA that all ordinary creditors shall rank equally: Hudson v Benallack (1975), 21 CBR (N.S.) 111 at 117 (S.C.C.), as referenced in Houlden and Morawetz (n 19 above) F§237 (1).
62 The term ‘related person’ is defined in 4(2) of the BIA, but generally refers to family members and corporations under common control.
63 The term ‘initial bankruptcy event’ is defined in 2(1) and s 101.1 of the BIA.
64 In the event that a debtor makes a voluntary assignment in bankruptcy.
65 In the event that one or more of a debtor’s unsecured creditors commences bankruptcy proceedings by filing a petition for a receiving order with the court and the debtor is declared bankrupt.
66 In the event that a debtor attempts to reorganize under the BIA by filing a notice of intention to make a proposal or by filing an actual proposal and the proposal is rejected by creditors or by the court, at which time the debtor is deemed bankrupt as of the date the notice of intention to make a proposal or proposal was filed.
67 D.W. McIntosh Ltd (Trustee of) v Royal Bank of Canada  OJ No 105 (Ont. H.C.J.).
68 Re T.C. Marines Ltd (1973), 18 CBR (N.S.) (Ont. H.C.J), as referenced in Houlden and Morawetz (n 19 above) F§91(c). Also see Re Sutcliffe & Sons Ltd, ex p Royal Bank (1933), 14 CBR 266 (Ont. C.A.) (‘Sutcliffe’); and Ross v Royal Bank of Canada (1966), 8 CBR (N.S) 303 (Ont. H.C.J.) (‘Ross’).
69 Palmer (n 3 above) 196–7.
70 British Columbia, Fraudulent Preference Act, R.S.B.C. 1996, c 164; Alberta, Fraudulent Preferences Act, R.S.A. 2000, c F-24; Saskatchewan, Fraudulent Preferences Act, R.S.S. 1978, c F-21; Manitoba, Fraudulent Conveyances Act, C.C.S.M. c F160; Ontario, Assignments and Preferences Act, R.S.O. 1990, c A.33; Newfoundland, Fraudulent Conveyances Act, R.S.N.L. c F-24; New Brunswick, Assignments and Preferences Act, R.S.N.B. 2011, c 115; Nova Scotia, Assignments and Preferences Act, R.S.N.S. 1989, c 25.
71 A receiver may be appointed privately by a secured creditor pursuant to the terms of a security agreement or by the court under the rules of civil procedure of the province where the debtor’s business is based.
72 An interim receiver is appointed by the court. The court’s authority to appoint an interim receiver arises under the BIA, which is effective across Canada.
73 For cases concerning contractual set-off see Ching v Jeffrey (1885), 12 OAR 432 (C.A.); Toronto-Dominion Bank v Block Bros. Contractors Ltd (1980), 118 DLR (3rd) 311 (Alta Q.B.). For equitable set-off, see Re Associated Investors of Canada Ltd (1989), 62 DLR (4th) 269.
74 Palmer (n 3 above) 160.
75 Palmer (n 3 above) 160.
76 Palmer (n 3 above) 160. This destruction of mutuality is demonstrated in the decision United Steel Corporation Ltd v Turnbull Elevator of Canada Ltd (1973) 34 DLR (3rd) 492 (Ont. C.A.). Also see Tuckerr (n 7 above).
77 An insolvent debtor of any size may institute reorganization proceedings called a ‘proposal’ under the BIA, but this process is used primarily for smaller debtors.
78 As referenced in n 53 above, these entities are subject to the WURA. The WURA contains a few provisions which contemplate the possibility of a restructuring, but because of the inherent difficulties of a restructuring of a financial institution in a public court-supervised process, these provisions are rarely, if ever, used.
79 Air Canada (n 59 above); Blue Range (n 21 above); Cam-Net (n 21 above); Canadian Airlines (n 8 above); Algoma (n 21 above); Provident Bank (n 21 above).
80 In Husky (n 41 above), a claim for contractual set-off was denied based on the Court’s interpretation of the contract. The Court concluded that the set-off right had not been triggered in the circumstances. In analysing whether contractual set-off applied in the circumstances, the Alberta Court of Queen’s Bench implicitly accepted that the set-off rights preserved by the CCAA include contractual set-off.
81 Arrangement relatif à Métaux Kitco inc., 2017 QCCA 268 at para 20.
82 See, for example, Air Canada (n 59 above); Tucker v Aero Inventory (UK) Limited,  OJ 4797 (S.C.J.), leave to appeal and leave to vary the leave to appeal order denied 2015 BCCA 426; Re North American Tungsten Corp., 2015 BCSC 1382, leave to appeal denied 2015 BCCA 390; Re Quintette Coal (1990), 51 BCLR (2d) 105.
83 Tungsten (n 82 above) paras 32–3.
84 Grant, Tickle, and Williams, ‘Is That My Receivable?’, Ann Rev Insolv (2016) 8.
85 See s 84.2 of the BIA and the Eligible Financial Contract General Rules under the BIA, and ss 11.3, 32, and 34 of the CCAA and the Eligible Financial Contract Regulations under the CCAA.
86 Payment Clearing and Settlement Act, S.C. 1996, c 6, Sch., s 13.
87 Club Resorts Ltd v Van Breda, 2012 SCC 17 (‘Van Breda’).
88 Van Breda (n86 above).
89 Z.I. Pompey Industrie v ECU-Line N.V.,  1 S.C.R. 450.
90 See comments in Lion Creek Properties Ltd, LLP v Sorobey, 2015 ABQB 382; and discussion of estoppel and res judicata applying to set-off claims in Zaidenberg v Hamouth, 2005 BCCA 356 (‘Zaidenberg’).
91 Castel and Walker, Canadian Conflict of Laws, 6th edn (LexisNexis 2005), Ch. 6, para 6.3.
92 Castel and Walker (n 90 above).
93 See, for example, Canada (Attorney General) v Reliance Insurance Co.,  OJ 795 (SCJ), in which Pepall J of the Ontario Superior Court of Justice rejected an unsworn letter on Pennsylvania law, holding that it did not qualify as proof of foreign law, and instead interpreted set-off clauses in reinsurance contracts in accordance with Ontario law.
94 Narrow defences to a recognition and enforcement action include the foreign court lacking jurisdiction over the action, fraud, breach of public policy, or breach of the rules of natural justice, or the existence of new facts potentially material to the outcome of the foreign proceedings that were not known or could not be raised in the prior foreign proceedings.
95 Chevron Corp. v Yaiguaje, 2015 SCC 42.
96 See discussion of the case law in Zaidenberg (n 89 above).
97 S.C. 1997, c12, s 118; S.C. 1997, c 12, s 125.
98 BIA, Part XIII, ss 267–84; CCAA, Part IV, ss 44–61.
99 See Sarra, ‘Northern Lights: Canada’s Version of the UNCITRAL Model Law on Cross-border Insolvency’ 16 Int Insolv Rev (2007), 19–61; Grieve, ‘The New Canadian Cross-border Insolvency Regime: Reflections on the First Year’, 9 Ann Rev Insolv (2010).
100 See commentary in Houlden and Morawetz (n 19 above) F237, citing Re Bank of Credit and Commerce International S.A. (No. 10) , 2 WLR 172 (Ch. D.).