ELANCE STEEL FABRICATING CO. LTD. Plaintiff - v. -, 2023 SKKB 198

KING’S BENCH FOR SASKATCHEWAN Citation: 2023 SKKB 198 Date: 2023 09 25 Docket: QBG-SA-00095-2022 Judicial Centre: Saskatoon ___________________________________________________________________________ BETWEEN: ELANCE STEEL FABRICATING CO. LTD. Plaintiff - and - THREE-O-SIX INDUSTRIAL SERVICES INC. Defendant Counsel: Craig P. Frith for the plaintiff Denim R. Martyn for the defendant ___________________________________________________________________________ FIAT SCHERMAN J. September 25, 2023 ___________________________________________________________________________ Introduction [ 1 ] Elance Steel Fabricating Co.

Ltd. [Elance] seeks an order striking paragraphs from the statement of defence filed by Three-O-Six Industrial Services Inc. [Three-O-Six] in this action. The Three-O-Six defence claims set-off, both legal and equitable. Elance says that as a matter of law neither a legal nor equitable right of set-off exists on the pleadings and therefore the paragraphs related to claims of set-off should be struck. [ 2 ] Three-O-Six says its claims of set-off, both legal and equitable, are founded in a reasonable cause of action, which has a reasonable prospect of success, that is capable of being proven.

Background Facts [ 3 ] There are two actions extant between the parties: a. The “Edmonton Action” (QBG-SA-00095-2022) where Elance has sued Three-O-Six for unpaid holdbacks of $417,179 it claims are due and owing under the terms of a contract between them relating to the construction of aspects of the City of Edmonton Valley Line LRT project; and b.

The “Weyburn Action” (QBG-SA-00177-2021) where Three-O-Six claims, inter alia , damages of some $470,957 it says were caused by Elance’s breach of its contractual obligations to timely install structural steel and miscellaneous metals relating to the Weyburn Elementary School and Weyburn Recreational and Cultural Centre Project, resulting in Three-O-Six suffering the delay and

schedule extension damages claimed. Alternatively, it seeks judgment for such damages on a quantum meruit basis.

The Parties Positions [ 4 ] In its defence of the Edmonton Action, Three-O-Six claims a right of set-off against Elance’s liquidated sum claim of $417,179.00 based on the $470,957 damages it claims to have suffered on the Weyburn Action Project. [ 5 ] Three-O-Six also claims that it suffered damages of $70,815.98 in relation to the Edmonton Project, flowing from Elance’s improper actions of attempting to register liens in Alberta when, under Alberta law, liens were not registerable in connection with work on a public utility.

Thus, it says it has an equitable right of set-off in respect of the damages so suffered. [ 6 ] Elance seeks to strike the paragraphs claiming a right of set-off on the grounds that Three-O-Six’s claims for damages in the Weyburn Action: a. are not a claim for a liquidated sum due and owing and, thus, there is no right of set-off at law; and b. for there to be a right to equitable set-off, founded in damages suffered, the claim must arise out of the same dealings, transactions

or occurrence giving rise to the debt against which the right of equitable set-off is claimed. Three-O-Six has not pleaded facts to establishthat the Weyburn Action claim arose out of the same dealings, transactions or occurrence giving rise to Elance’s liquidated debt claim inthe Edmonton action. [7] Without admitting the validity or amount of the claim, Elance concedes that an equitable set-off claim of$70,815.98 arising out of the Edmonton project is properly pleaded by Three-O-Six. [8] Three-O-Six’s position is that all of its claim of set-off are appropriate claims of legal and equitable set-off.

The Law Respecting Set-off Claims [9] The common law with respect to set-off, both legal and equitable, was stated by the Supreme Court of Canadain Holt v Telford, (SCC), [1987] 2 SCR 193 [Holt], where it said the following at pages 204 to 206: The English common law

interpretation of the statutory right of set-off is neatly summarized in Halsbury's Laws of England, 4th ed.,vol. 42, para. 421: 421. Nature of the right. The right conferred by the Statutes of Set-Off was a right to set off mutual debts arising from transactions of adifferent nature which could be ascertained with certainty at the time of pleading. Thus, no legal set-off could exist against a claim whichsounded in damages, nor could a claim which sounded in damages be set off at law against a plaintiff's claim.

The fact that a claim wasframed in damages precluded the raising of a set-off at law, notwithstanding that the claim might have been differently framed in a waywhich would have permitted such a set-off. Where a claim for a liquidated debt was joined by a plaintiff with a claim for damages,set-off at law might only be pleaded in defence to the former claim. Set-off at law operates as a defence. Thus, as was stated by the British Columbia Court of Appeal in C.I.B.C. v. Tuckerr Indust. Inc., (BC CA), [1983] 5W.W.R. 602, at p. 604, statutory set-off (or set-off at law) “requires the fulfilment of two conditions.

The first is that both obligationsmust be debts. The second is that both debts must be mutual cross obligations”. The claim in this case is a debt. The major hurdle theappellant faces is the requirement of “mutuality”. How has this mutuality requirement been interpreted by the courts? In Royal Trust v. Holden (1915), (BC CA), 22D.L.R. 660 (B.C.C.A.), the British Columbia Court of Appeal discussed the meaning of the phrase “mutual debts” at pp. 662-63: The expression “mutual debts” is somewhat hard to understand according to the old cases, but when we see in the ancient and approvedform of plea given in Bullen v.

Leake, 3rd. ed., 682, viz.: -- That the plaintiff, at the commencement of the suit was and still is indebted to the defendant in an amount equal to the plaintiff's claim ... we are relieved to find that “mutual debts” mean practically debts due from either party to the other for liquidated sums, or moneydemands which can be ascertained with certainty at the time of pleading – per Kennedy, L.J., in Bennett v. White, [1910] 2 K.B. at 648,79 L.J.K.B. 1133. It seems that under this definition any assignment would destroy mutuality and hence destroy the possibility of set-off at law.

This wasthe view taken by the British Columbia Court of Appeal in Coba Industries Ltd. v. Millie's Holdings (Canada) Ltd. and Tsang, (BC CA), [1985] 6 W.W.R. 14, at pp. 28-29: None of the authorities cited by the appellant is applicable to the case before us and none of them detracts in any way from the authorityof the Nfld. case. Each of them is an example of a set-off at law. In such cases the assignment of a debt prevents fulfilment of therequirement that the debts sought to be set off against each other must be mutual.

Once a debt is assigned, it is owed to a third party andthe debts are no longer mutual cross-claims: see C.I.B.C. v. Tuckerr Indust. Inc., (BC CA), 46 B.C.L.R. 8, [1983] 5W.W.R. 602 at 605, 48 C.B.R. (N.S.) 1, 149 D.L.R. (3d) 172 (C.A.). Since there was an assignment in this case, it appears that a set-off at law is not available to the Telfords. It is necessary, therefore, todecide whether a set-off is available in equity. The distinction between set-off at law and set-off in equity was canvassed by the British Columbia Court of Appeal in C.I.B.C. v.Tuckerr Indust.

Inc., supra, at p. 605: 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 canapply where the cross obligations are not debts. Equitable set-off is available where there is a claim for a money sum whether liquidated or unliquidated: see Aboussafy v. Abacus CitiesLtd., 1981 ABCA 136 , [1981] 4 W.W.R. 660 (Alta. C.A.), at p. 666. More importantly in the context of this case, it is availablewhere there has been an assignment. There is no requirement of mutuality.

The authorities to be reviewed indicate that courts of equityhad two rules regarding the effect of a notice of assignment on the right to set-off. First, an individual may set-off against the assignee amoney sum which accrued and became due prior to the notice of assignment.

And second, an individual may set-off against the assigneea money sum which arose out of the same contract or series of events which gave rise to the assigned money sum or was closelyconnected with that contract or series of events. [10] Then, at page 212, the Supreme Court adopted the following principles as stated in Coba Industries Ltd. vMillie’s Holdings (Canada) Ltd. (1985), (BC CA), 20 DLR (4th) 689 (BCCA) at 696-97, related to the common lawright of equitable set-off: …

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. , [1980] Q.B. 137 , [1979] 3 W.L.R. 451 , [1979] 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 and Navigation Co. v. Molena Alpha Inc. , [1978] Q.B. 927 , [1978] 3 W.L.R. 309 , [1978] 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 , [1903] 1 K.B. 549 (Div. Ct.) ; Br. Anzani. 5. Unliquidated claims are on the same footing as liquidated claims: Nfld. v. Nfld. Ry. Co. , [1888] 13 App.

C. 199 (P.C.)]. [ 11 ] In Saskatchewan, The Queen’s Bench Rules specifically address, in Rule 3-47, when a set-off claim may be pleaded as follows: 3-47

(1) A matter that might be claimed by set-off may be claimed by counterclaim or by pleading set-off as a defence or by both.

(2) A defendant may plead that a claim be set-off against the claim of the plaintiff if: (

a) there are mutual debts between the plaintiff and the defendant; (

b) in the case where either party sues or is sued in a representative capacity, there are mutual debts between the person represented and the other party; or (

c) a claim, whether of an ascertained amount or not, by the defendant arises out of the same dealings, transactions or occurrence giving rise to the claim of the plaintiff.

(3) The defendant’s claim pursuant to subrule (2) must be pleaded in accordance with the principles that would govern the pleading of the defendant’s claim if the defendant were a plaintiff.

(4) If, on a plea of set-off, a larger sum is found to be due from the plaintiff to the defendant than is found to be due from the defendant to the plaintiff, the defendant is entitled to judgment for the balance remaining due to the defendant. [ 12 ] If and to the extent that Rule 3-47 modifies the common law of set-off, legal or equitable, it is my opinion that the language of Rule 3-47 prevails. I am satisfied that the reference in Rule 3-47(2)(

a) to “mutual debts” is equivalent to the common law right of legal set-off of mutual debts – see paragraph 25 of Holt . [ 13 ] Rule 3-47(2) permits set-off claims of a different nature – specifically “a claim, whether of an ascertained amount or not, by the defendant arises out of the same dealings, transactions or occurrence giving rise to the claim of the plaintiff”. This permitted claim has elements of the common law equitable set-off claim.

However, in determining whether the particular claim of set-off can be pleaded, I am of the opinion that the words of the Rule are to be applied as opposed to the language of dated cases dealing with the common law concept of equitable set-off. [ 14 ] Given this view of the operative test it follows that much of the arguments presented by counsel for each of the parties has not assisted me. Counsel for Elance spent considerable time on submissions regarding the test to be applied on an application to strike pleading pursuant to Rule 7-9(2).

Given what I have stated in the preceding paragraph, I am of the view that if the defence pleads a claim of set-off that is not permitted under Rule 3-47(2) then to so plead is simply not permitted and it can be struck on the basis that it is not permitted.

Either Rule 1-6(1) or Rule 7-9(2) could support the striking; the latter on the basis of either disclosing no reasonable defence or as being an abuse of process. [ 15 ] Counsel for Three-O-Six made submission relating to the applicability of the provisions of Rule 7-9(2) and seeking to draw principles and analogies from various judicial authorities on the meaning of liquidated debt and ascertainable sum and arguing that the damages claimed in the Weyburn Action are ascertainable liquidated debt. I do not see how this is relevant. [ 16 ] The meaning of mutual debts is well established.

Mutual debts are debts of liquidated amounts respectively owing by each of the parties to the other. Claims for damages, the amount of which can not be determined until both liability and quantum of damages are proven after trial, are not mutual debts whether viewed strictly from the common law perspective or as the term “ascertained amount” is used in Rule 3-47. The fact that the claimant says he can calculate or ascertain the damages he claims does not make that damage claim a debt. It remains a claim until the claim is proven and quantified. That being so, Rule 3-47(2)(

c) requires the claim must arise out of the same dealings, transactions or occurrence giving rise to the plaintiff’s claim. [ 17 ] Common law nuances with respect to what constitutes a claim in respect of which equitable set-off may be claimed need not be delved into. Instead, whether it is of an ascertainable amount or not, the claim must be a claim by the defendant which arises out of the same dealings, transactions or occurrence giving rise to the claim of the plaintiff .

This is the test I must apply for this type of set-off claim. [ 18 ] Applying these principles to this matter: a. any claim for damages arising out of the Weyburn Project does not qualify as a mutual debt in respect of which set-off can be pleaded within the Edmonton Claim for the simple reason that it is a claim for damages not for set-off of a mutual debt; and b. the claims for damages made in respect of the Weyburn Project can not be the basis for a claim of set-off in the Edmonton Action

because they do not arise out of the same dealings, transaction or occurrence which are the basis of Elance’s claim against Three-O-Six in the Edmonton action. I do not need to delve into the whether specific categories of Rule 7-9(2) are applicable. Rule 3-47 permits set-off to be pleaded only in the two specified circumstances. Conclusion and Orders Made [ 19 ] Applying these principles to the defence, each of paragraphs 7(d), 20, 21 and 22 are struck from the claim. The facts therein pleaded as the basis for claims of set-off are not permitted to be pleaded by Rule 3-47.

The pleaded facts relate to neither claimed set-off of mutual debts nor of a claim arising out of the same dealings, transactions or occurrence. These pleadings are not compliant with Rule 3-47. If and to the extent that a basis founded in Rule 7-9(2) is required to strike these pleadings, I find they are each of vexatious, immaterial and an abuse of process. I also rely on Rule 1-6(1). [ 20 ] The set-off claim in paragraph 35 of Three-O-Six’s defence respecting the sum of $70,815.98 is, as a claim arising out of the same dealings, transactions or occurrence for which a set-off claim is permitted to be claimed.

However, paragraph 37 needs to be amended so as to plead only matters strictly related to that specific claim of set-off. In addition, paragraph 42 of the claim similarly needs to be amended so as to restrict the claim of set-off to the noted amount. [ 21 ] If counsel are unable to agree on appropriate amendments to paragraphs 37 and 42, they may bring those matters back to me. [ 22 ] Since the plaintiff (applicant) was largely successful on the application, they shall have costs of the application on a Column 2 basis of the Tariff of Costs. “B. Scherman” J. B. SCHERMAN