Equitable Set-Off as a Bar to Summary Judgment:
Alberta Court of Appeal Reaffirms Substantive Defence in Tempo v Man-Shield
The Alberta Court of Appeal recently issued a significant decision in construction law, confirming that equitable set-off constitutes a true defence to a summary judgment application. In Tempo Alberta Electrical Contractors Co Ltd v Man-Shield (Alta) Construction Inc, 2025 ABCA 310, the Court overturned a lower court’s partial summary judgment award, holding that equitable set-off may raise a genuine issue for trial and therefore preclude summary judgment. The ruling affirms that summary judgment cannot be granted where a valid defence, counterclaim, or claim for set-off exists, particularly when the transactions between the parties are so closely connected that enforcing payment without accounting for the defendant’s cross-claim would be manifestly unjust.
The Facts:
The dispute arose from a construction project initiated in May 2014, in which Shepherd’s Care Foundation retained Man-Shield as the general contractor for a seniors’ care facility known as the Heritage Condominium. In July 2014, Man-Shield subcontracted Tempo to perform the majority of the electrical work. Although the project was completed in 2017, it experienced a 45-week delay, leading to contested liability over damages and unpaid invoices. Tempo commenced an action against Man-Shield for approximately C$680,000 in outstanding payments under the subcontract, while Man-Shield counterclaimed for C$2.675 million in damages, alleging that Tempo’s delayed performance caused substantial losses. As part of its defence, Man-Shield pleaded equitable set-off.
The chambers judge granted Tempo partial summary judgment for C$678,261, acknowledging that Man-Shield’s counterclaim raised a genuine issue for trial but concluding that it did not amount to a true defence. The judge declined to determine whether Man-Shield was entitled to set-off, yet proceeded to grant summary judgment. On appeal, the Court held that this was an error in law. It found that equitable set-off is a substantive defence capable of defeating summary judgment where it raises a genuine issue requiring trial.
The Decision:
In reaching its decision, the Court of Appeal relied on the Supreme Court of Canada’s rulings in Holt v Telford and Scott v Golden Oaks Enterprises Inc, which articulate the principles governing equitable set-off. These include the requirement that the party seeking set-off must demonstrate an equitable ground for protection, that the ground must go to the root of the plaintiff’s claim, and that the cross-claim must be so closely connected to the plaintiff’s demand that enforcing payment without considering the cross-claim would be unjust. Notably, the claims need not arise from the same contract, and unliquidated claims are treated on equal footing with liquidated ones.
The decision also clarifies the burden of proof in summary judgment applications. The moving party must establish both the factual basis of its claim and the absence of any genuine issue for trial. Where the moving party is the plaintiff, it must further demonstrate that no true defence exists. In this case, Tempo failed to meet that burden, as it did not establish that Man-Shield’s equitable set-off defence raised no genuine issue.
Importantly, the Court rejected the lower court’s reliance on the litigation efficiency principles advanced in Hryniak v Mauldin, emphasizing that the push for proportionality and expediency does not override substantive legal doctrines such as equitable set-off. In Alberta, courts continue to recognize that equitable set-off may preclude summary judgment where the defence or counterclaim is sufficiently connected to the plaintiff’s claim.
The Court also addressed the clean-hands doctrine, noting that equitable relief may be denied where the party seeking it has engaged in inequitable conduct. However, the Court found that Man-Shield’s alleged document dumping and breach of trust did not rise to the level of dishonesty, fraud, deceit, or bad faith typically required to invoke the doctrine. As such, Man-Shield was not barred from asserting equitable set-off.
Conclusion:
In conclusion, the Tempo decision confirms that equitable set-off is a valid and substantive defence that may defeat summary judgment. Parties seeking summary relief must carefully assess whether interconnected claims or counterclaims could give rise to equitable set-off, as failure to do so may result in the dismissal of their application.
*The law may have changed since this article was first published. You should consult with your lawyer to confirm the current state of the law*