COURT OF APPEAL FOR ONTARIO

CITATION: Canaccord Genuity Corp. v. Pilot, 2015 ONCA 716

DATE: 20151027

DOCKET: C59581

Weiler, van Rensburg and Roberts JJ.A.

BETWEEN

Canaccord Genuity Corp.

Plaintiff (Respondent)

and

Gregory Pilot, Mark Colosimo, Dane Hatton

and Timothy Warkentin

Defendants (Appellants)

T. Michael Harris, for the appellants

Clarke Tedesco and Michael Byers, for the respondent

Heard: September 8, 2015

On appeal from the judgment of Justice Victoria R. Chiappetta of the Superior Court of Justice, dated October 10, 2014.

Weiler J.A.:

A. overview

[1] The respondent investment dealer, Canaccord Genuity Corp. (“Canaccord”), terminated the contracts of the defendants who were four of its sales agents, when it closed its Thunder Bay corporate office in 2012. Each of the four defendants had received a loan from Canaccord which became due and payable upon termination of their contracts, among other events of default. When payment was not forthcoming, Canaccord commenced an action for repayment of the loans. The sales agents defended the action, claiming that Canaccord made a misrepresentation by omission by not telling them it was closing the Thunder Bay office before they signed their agreements in July and August 2011.

[2] The appellant, Mark Colosimo, submits that because of this misrepresentation, he is not required to repay the loan. The other defendants claim their agreements to repay the loan are null and void. In addition, they all claim equitable set-off on account of Canaccord continuing to receive revenue from their clients who remained with Canaccord after they had been terminated. All of the defendants counterclaimed for damages relying on essentially the same facts as pleaded in their defence.

[3] Canaccord brought a motion for summary judgment for repayment of Colosimo’s loan, against the appellants, Colosimo and Gregory Pilot, who had guaranteed the loan. Canaccord was successful. The motion judge awarded Canaccord judgment against Colosimo and Pilot in the principal amount of $187,900.16 including interest from the date of default to the date of the motion.

[4] The issue on appeal is whether the motion judge erred in granting summary judgment. A subsidiary issue is whether the motion judge erred in principle in refusing to exercise her discretion to stay enforcement of the judgment pending the determination of Canaccord’s claim on the other defendants’ loans and the counterclaims of Colosimo and the other defendants.

[5] For the reasons that follow, I would hold that the motion judge erred in granting summary judgment. Overall, the motion judge was not in a position to reach a fair and just determination on the merits of Colosimo’s defence without considering the evidence of the other defendants. The possibility of inconsistent verdicts with respect to the same agreement and two of the same defences is real and the concern for substantive justice is significant. The motion judge failed to consider the impact of her decision on the other defendants. Given the necessity of trying the same defences advanced by the other defendants as well as Colosimo’s counterclaim, granting summary judgment would not have resulted in any significant reduction in trial time.

[6] I would allow the appeal, set aside the judgment and direct that the claim in respect of Colosimo’s loan, as well as his counterclaim, proceed to trial along with the claims against the other defendants and their counterclaims.

B. The agreed facts and the statement of defence

(1) Colosimo and his pleading

[7] Colosimo was a sales agent at Manulife Securities Incorporated (“Manulife”). On August 15, 2011, he entered into an Associate Agent Agreement (the “Agreement”) with Canaccord and Pilot. The Agreement recited that Pilot was retained as a sales agent by Canaccord, the Dealer, and that Pilot, as “Agent”, retained Colosimo, as “Associate”, to assist the Agent in the sale of financial products and services on behalf of Canaccord. Pursuant to Schedule “C” of the Agreement, Canaccord agreed to lend Colosimo $230,000 as an “Initial Transition Loan”, calculated by reference to the book of business Colosimo was transferring to Canaccord, and Colosimo’s total production for the last 12 months. The loan was paid in four equal monthly installments of $57,500 commencing August 15, 2011. Canaccord agreed to forgive 20 percent of the principal amount of the loan annually, on the anniversary of the loan’s commencement date, until the loan was fully forgiven. On or about August 15, 2012, Canaccord forgave $46,000 or 20 percent of the principal amount of the loan.

[8] The terms of the loan provided that upon the occurrence of an event of default, which included Colosimo’s resignation or termination of his Agreement with or without cause, his loan would become immediately due and payable. The loan agreement further provided that “[i]n the event that the Obligations of the Associate [Colosimo] are not paid, the Agent [Pilot] agrees that such Obligations become the responsibility of [Pilot] for payment under the same terms and conditions as applied to [Colosimo].” As such, Pilot was the guarantor of Colosimo’s loan.

[9] On September 24, 2012, Canaccord gave 90 days’ notice that it was terminating Colosimo’s employment effective December 21, 2012. The termination of Colosimo’s employment triggered repayment of the loan by him and, in the event of his default, by Pilot.

[10] After receiving notice of termination, Colosimo decided to resign on November 8, 2012. He returned to work for Manulife.

[11] In his statement of defence, Colosimo pleads that he was enticed to leave a lucrative position with Manulife to work as an agent for Canaccord’s Thunder Bay office when Canaccord knew of the imminent closure of that office. He would not have agreed to become an agent for Canaccord if it had not made a material misrepresentation by omission in not telling him it was going to close the office. Had he known this information, he would not have entered into the Agreement with Canaccord and there would be no loan. He submits that due to Canaccord’s material misrepresentation by omission, he is not required to perform his obligations under the Agreement.

[12] Colosimo also pleads that Canaccord made a negligent misrepresentation that resulted in the loss of substantial commissions. I take Colosimo’s pleading to be that, by its conduct in offering to hire him as an agent, Canaccord made a negligent misrepresentation that Canaccord’s Thunder Bay office would continue to operate. When Canaccord decided to close its Thunder Bay corporate office, Colosimo lost part of his client base because some of his clients stayed with Canaccord. Canaccord continues to receive revenue from these clients. Colosimo pleads that he is entitled to legal and/or equitable set-off. His position is that he should be able to set-off the amounts Canaccord is receiving (in respect of which he claims an accounting) against any amount Colosimo may owe for repayment of the loan.

[13] By way of counterclaim, Colosimo claims damages of $500,000 for negligent misrepresentation as well as damages for revenue Canaccord received on account of his clients after he was given notice of termination.

(2) The other defendants and their pleading

[14] In addition to Colosimo, Canaccord also terminated the contracts of three other sales agents, the defendants, Gregory Pilot, Dane Hatton and Timothy Warkentin.

[15] These sales agents were working for Canaccord when, in June 2011, Canaccord’s Thunder Bay Branch was converted from a corporate branch to an independent wealth management platform. At the time, each of them had a loan from Canaccord pursuant to a contract which read: “Should you resign or be terminated for cause prior to complete forgiveness of the loan you will be responsible for the payment of any portion of the loan not yet forgiven…” (emphasis added).

[16] On July 1, 2011, each was presented with a new contract. The new contract stated that upon notice of termination with or without cause, the loan from Canaccord became payable.

[17] These defendants plead that, before requiring them to enter into the July 2011 agreements, Canaccord was fully aware that it would be closing its Thunder Bay office. They allege unequal bargaining power and bad faith on the part of Canaccord in terminating their old contracts and requiring them to enter into new contracts if they wished to remain employed as agents.

[18] They further plead that the information respecting closure of the Thunder Bay office was material to whether they would have entered into the new agreements and, like Colosimo, they plead material misrepresentation by omission. They also plead that because of Canaccord’s misrepresentation by omission, “the July 1, 2011 contracts are null and void in their entirety or, alternatively, the loan payback provisions are null and void…”.

(3) Common pleading

[19] All the defendants, including Colosimo, plead the following, at para. 18 of their joint statement of defence:

[T]he purpose of the loans was to aid [the Defendants] in the transition from their previous employment to employment with [Canaccord] as each of them suffered a substantial loss of income during the first year after the transition occurred as a result of the delay in transferring clients and the loss of a portion of their client base… it is standard in this field that individuals moving from one financial institution to another receive a forgivable transition loan to financially assist them during the first year of the transition.

[20] They also plead that “when [Canaccord] terminated their Agreements, it continued to receive revenue from clients of the Defendants that remained with [Canaccord] while each of the Defendants suffered a corresponding loss in revenue.” They submit that it would be inequitable for Canaccord to require repayment of the loans without having to account for the revenue received from their clients after they were unilaterally terminated when Canaccord closed its Thunder Bay office, and they claim equitable set-off.

[21] This pleading forms the basis for the counterclaim in which all the defendants claim an accounting for revenue received by Canaccord on account of their clients after September 24, 2012.

C. The motion judge’s decision

[22] Canaccord brought a motion for summary judgment against only Colosimo and Pilot for the outstanding balance of Colosimo’s loan.

[23] The motion judge granted summary judgment. She held that there was no genuine issue requiring a trial with respect to whether the loan to Colosimo was repayable, even if Canaccord made a negligent misrepresentation to him. She reasoned as follows:

(1) There was no genuine issue requiring a trial about the interpretation and application of the loan agreement;

(2) The wording of Schedule “C” to the Agreement clearly provided that the loan was repayable immediately upon termination for any reason;

(3) Even if there was a misrepresentation, it did not relieve Colosimo from repayment of the loan. In this regard, she held: “There are no factors contracted in the obligation for repayment of the loan, including misrepresentation. The defendant cannot rely on an unbargained right and retain the residual loan monies.”

(4) Colosimo could pursue his claim for misrepresentation by way of counterclaim; and

(5) The fact that litigation was to continue in this case did not offend the principles of proportionality and timeliness, as the remaining defendants “were not subject by agreement to immediate repayment for termination of [their] agency agreement[s] for any reason.”

[24] There being no genuine issue for trial, Canaccord was entitled to summary judgment. In coming to her conclusion, the motion judge stated that she had considered the decisions in Canaccord Genuity Corp. v. Sammy, 2014 ONSC 3691 and Canaccord Genuity Corp. v. Beck, 2013 ONSC 7964.

[25] With respect to the claim of set-off, the motion judge held:

In his counterclaim, [Colosimo] seeks the relief of equitable setoff… [Colosimo] has not brought a motion however, for summary judgment on the counterclaim. The issue of whether Colosimo’s claim for breach of the agency agreement can be set-off against Canaccord’s claim for repayment is therefore not before me.

The motion judge said she was not commenting on the merits of the counterclaim. Viva voce evidence and assessments of credibility would be required to sufficiently comment on its merits.

[26] The motion judge indicated that the counterclaim for set-off was, as Perell J. had held in Sammy, “practically speaking a request that execution of Canaccord’s judgment be stayed pending final resolution of his counterclaim.” She refused to exercise her discretion to stay enforcement of the judgment until after the counterclaim was tried. The fact that Colosimo commenced a counterclaim was not sufficient to deny Canaccord immediate repayment as contemplated by the clear language of the contract. Canaccord was not impecunious and a stay would delay repayment of a contractual obligation beyond the two years it had already been delayed.

D. Did The Motion Judge Err by Granting Summary Judgment?

(1) Standard of review

[27] The determination of whether there is a genuine issue requiring a trial is a question of mixed fact and law and, if there is no extricable error in principle giving rise to a palpable and overriding error, the motion judge’s determination should not be overturned: Hryniak v. Mauldin, 2014 SCC 7, [2014] S.C.R. 87, at para. 81; see Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 36.

[28] Similarly, the question of whether it is in the “interest of justice” for the motion judge to exercise the fact-finding powers provided by rule 20.04(2.1) is also a question of mixed fact and law that attracts deference. The decision whether to exercise the new powers is discretionary and ought not to be disturbed unless the motion judge misdirected himself or herself or came to a decision that is so clearly wrong that it resulted in an injustice. If the motion judge applies an incorrect principle of law, or errs with regard to a purely legal question, the decision is reviewable on a standard of correctness: Hryniak, at paras. 81-84; Housen, at para. 8.

(2) Some summary judgment principles

[29] The relevant portion of rule 20.04(2) states:

The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.

[30] In Hryniak, Karakatsanis J. explained, at para. 49 of her reasons:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[31] On a motion for summary judgment, the motion judge should first determine if there is a genuine issue requiring a trial based only on the evidence before him or her without using the fact-finding powers in rule 20.04(2.1): para. 66. If there appears to be a genuine issue requiring a trial, then, the motion judge may, at his or her discretion, (1) weigh the evidence, (2) evaluate the credibility of a deponent, or (3) draw any reasonable inference from the evidence unless it is in the “interest of justice” for these powers to be exercised only at trial: para. 66. If a trial is necessary for some of the claims against some parties in any event, it may not be in the interest of justice to use these fact-finding powers to grant summary judgment against a single defendant because of the risk of duplicative proceedings or inconsistent findings of fact: para. 60. On the other hand, the most proportionate, timely and cost-effective approach may be to grant summary judgment against a key party: paras. 60, 66 and 68.

(3) The positions of the parties

[32] In oral argument, the appellants submitted that the motion judge made a material error of fact when she found that the other defendants were not subject to immediate repayment of their loans from Canaccord upon termination for any reason. This error led her to conclude that the analysis between Canaccord and the remaining defendants was different, and that to grant judgment on the Colosimo loan while the other claims continued to trial would not offend the principles of proportionality or timeliness.

[33] The appellants also submit that granting summary judgment on the Colosimo loan will not resolve the litigation as a whole because his counterclaim will proceed to trial in any event, and so will the claims of the other defendants. There will be no significant reduction in trial time. Further, the defences and counterclaims of the other defendants raise the same issues as Colosimo asserts (as well as additional defences), risking inconsistent findings and substantive injustice.

[34] The appellants contend that the entire agreement clause in the Agreement is not a bar to the claim for negligent misrepresentation. Whether or not Colosimo can make out the five required elements of that tort is an issue for trial.

[35] Finally, the appellants assert that the motion judge erred in only considering equitable set-off as relief sought by way of counterclaim, when it was also pleaded in defence of Canaccord’s claim on the loan.

[36] Canaccord’s position is that the motion judge did not err in granting summary judgment and that her decision is entitled to deference. Even if the appellants are correct that the motion judge erred in finding that the terms for repayment of the loans by the other defendants were different from Colosimo’s, her decision is consistent with the existing jurisprudence that she cited.

[37] Canaccord contends that Colosimo has not established any defence capable of defeating his obligation to repay the loan pursuant to the Agreement. Only fraudulent misrepresentation affords a basis for avoiding the contract and that has not been pleaded.

[38] Canaccord contends that it had no duty to disclose anything about its financial performance to Colosimo. For silence to give rise to a claim of negligent misrepresentation, that silence must render inaccurate or incomplete an express or implied misrepresentation. Here, the entire agreement clause applies. Section 6.1 states:

This Agreement constitutes the entire agreement between the Agent, the Associate and the Dealer. In particular, the Associate hereby acknowledges that the Dealer has made no representations or warranties to the Associate, in this Agreement or otherwise, with respect to any tax matters related to this Agreement… Subject to Section 6.3 hereof, no amendment to, or waiver of, this Agreement will be effective or binding unless set forth in writing and signed by the party to be bound thereby.

[39] Section 6.2 is also relevant and reads: “Effective as of the date of this Agreement, this Agreement will be in lieu of and supersede any former agreement, written or verbal, between the Associate[,] the Dealer and the Agent.” Canaccord also relies on Colosimo’s acknowledgment in the Agreement that he had the opportunity to seek independent legal advice. Canaccord’s only obligation under the Agreement was to give Colosimo 90 days’ notice of termination, and it gave the required notice.

[40] Canaccord submits that set-off is not available as a defence. The claim for repayment of the loan and the claim for negligent misrepresentation are two conceptually and legally distinct claims. Colosimo’s damages can be assessed when the counterclaim is tried. The motion judge did not err in principle in exercising her discretion to refuse to grant a stay of execution of the judgment.

(4) Analysis

(a) Error of fact

[41] I agree with Colosimo that the motion judge made an error of fact in finding that the terms for repayment of Colosimo’s loan were different from those of the other defendants’ loans. The loans to all of the defendants were immediately due and payable upon termination by Canaccord of their contracts for any reason. The motion judge’s conclusion that the analysis in relation to the other defendants was different would only be correct if the court were to accept their defence that the July 2011 agreements they entered into were void and that their earlier agreements applied.

[42] The motion judge’s factual error caused her to adopt too narrow an approach. She ignored Canaccord’s course of conduct, the proximity in time, and the similar terms in each defendant’s agreement respecting termination in assessing whether there had been a misrepresentation to Colosimo and its consequences. She did not consider the connection between Colosimo’s hiring and the making of the “initial transition loan”. Instead, she focused on the loan to Colosimo in isolation and divorced from the context in which it was made.

(b) Misrepresentation by omission

[43] The motion judge held that “[t]here are no factors contracted in the obligation for repayment of the loan, including misrepresentation.” To the extent that her comment was an oblique holding that the entire agreement clause in the contract applied, as submitted by the respondent, she erred in making this determination without the benefit of a full record, and without any analysis. The interpretation of the entire agreement clause would engage a number of considerations, including evidence from Colosimo as to the degree to which he relied on his relationship with Canaccord continuing beyond one year at the time of the Agreement, evidence from Canaccord regarding its knowledge of Colosimo’s reliance and any role it played in creating that reliance, as well as evidence as to industry practice.

[44] Arguably, the fact that the loan was to be forgiven at the rate of 20 percent for each year that Colosimo remained employed with Canaccord is indicative of the expectation of both parties that Colosimo would be employed for longer than just over a year. In The Law of Contracts, 6th ed. (Toronto: Canada Law Book Inc., 2010), at p. 366, S.M.Waddams states:

An interesting group of cases has to do with the obligation to stay in business… If A promises to employ B as exclusive agent for 10 years, can A avoid any obligation by ceasing to do business after 6 months? The cases are superficially irreconcilable. In some cases a term is readily implied that the business will continue for the stated period; in others the power to imply such a term is severely denounced. What lies behind such contradictions? The answer is, it is suggested, that a term is implied when the court thinks the implication necessary to avoid an agreement that would be unfair. [Footnotes omitted.]

[45] One of the pieces of evidence, on which Colosimo relies to support his position that Canaccord made a representation by omission, is a September 2012 memo in which Canaccord states that “[t]he continual losses in Canaccord Wealth Management (Canada) were unsustainable.” Colosimo asserts that at the time he became a sales agent in August 2011, Canaccord well knew that the Thunder Bay office had been losing money and that this situation could not continue.

[46] Based on Canaccord’s representation by omission, Colosimo seeks relief from performing his contractual obligations. So do the other defendants. The fact that the other defendants entered into new contracts in July 2011 providing for their loans to be called upon termination for any reason, as opposed to termination for cause under their existing contracts, just before Colosimo became a sales agent in August 2011, is also arguably some evidence that Canaccord knew its Thunder Bay operation would be closing shortly. Thus, the evidence pertaining to whether there was a representation by omission to Colosimo is intertwined with the evidence pertaining to the same claim by the other defendants and their allegation that Canaccord acted in bad faith towards them when it asked them to enter into new contracts.

[47] In her reasons for judgment, the motion judge stated that, in coming to her conclusion that there was no genuine issue requiring a trial, she had considered the reasons in Sammy and Beck, both cases in which Canaccord sought summary judgment for repayment of loans following termination of agency agreements. In Sammy, the defendant claimed that Canaccord had lured him into an agency relationship in order to acquire his book of business with the intent of terminating the relationship and keeping the business. In addition to counterclaiming for damages for misrepresentation and unjust enrichment, the defendant contended that the Canaccord’s breach of its duty to act in good faith discharged him from repayment of the loan. Perell J. held that even if Canaccord had breached a duty of good faith towards Sammy, Canaccord’s loan to him was repayable. In coming to his conclusion, he observed that the case before him was analytically similar to T.D. Waterhouse v. Little (2009), 76 C.C.E.L. (3d) 243 (Ont. S.C.), aff’d 2010 ONCA 145, 79 C.C.E.L. (3d) 216. Beck, the other decision the motion judge referred to, also relies on T.D. Waterhouse.

[48] In T.D. Waterhouse, the core of this court’s brief oral reasons is found at paras. 1-2:

The motion judge, in clear and cogent reasons, granted the respondent summary judgment for the amounts due on two loans made to the appellant, their former employee. We agree with the motion judge that even assuming the respondent could only enforce the loans if their termination of the appellant was done in good faith there is no triable issue.

The appellant asserts that the reason for his termination was to appropriate his book of business. However, the appellant has failed to advance any evidence capable of raising a triable issue that the termination was so motivated. The appellant committed a clear breach of corporate policy and professional standards. There is no evidence the individuals alleged to have acted in bad faith were implicated in his termination.

[49] In my opinion, this court’s decision in T.D. Waterhouse is not a general statement that loans made by a brokerage firm to an agent are enforceable irrespective of whether termination of the agent is done in good faith. To the contrary, the court left that question open. This court in T.D. Waterhouse only held that even if termination in good faith was required, there was no evidence capable of raising a triable issue that the agent’s termination was motivated by bad faith. Here, as I have indicated, there is some evidence of a course of conduct by Canaccord that could give rise to that inference.

[50] In any event, the T.D. Waterhouse decision relied on in Sammy and Beck predates the Supreme Court of Canada’s decision in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494. In that case, Cromwell J., on behalf of the Court, decided it was time to take two incremental steps. First, he acknowledged that there is a general organizing principle of good faith in contractual performance; and second, he recognized that there is a general duty to act honestly in the performance of contractual obligations: para. 33. He explained, at para. 73: “This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.” The duty of good faith is a general doctrine of contract law that imposes a minimum standard of honest contractual performance: para. 74. It is not an implied term and therefore operates regardless of the intentions of the parties and the existence of an entire agreement clause: para. 72.

[51] Canaccord points out that Colosimo has not specifically pleaded that it breached its duty of good faith towards him and emphasizes that the Supreme Court has not recognized such a duty in pre-contractual negotiations. That said, Canaccord’s termination of the other defendants’ contracts and its requirement that they enter into new contracts in July 2011 raises a good faith issue that impacts the common claims of all of the defendants; namely, that it would be inequitable for Canaccord to retain the revenue from their clients after termination and that they are entitled to equitable set-off.

[52] Furthermore, to the extent that the motion judge accepted Canaccord’s argument that any misrepresentation it made could only give rise to damages, she also erred in law. Absent fraud, misrepresentation can give rise to remedies other than damages: see G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Thomson Reuters Canada Limited, 2011), at pp. 764-65 (rescission coupled with payment of a sum to avoid unjust enrichment); Sir G.H. Treitel, The Law of Contract, 11th ed. (London: Sweet & Maxwell Limited, 2003), at pp. 403-4 (estoppel); and Waddams, at pp. 301-14.

[53] For example, in his chapter on misrepresentation, Waddams discusses the evolution of misrepresentation and the conflicting jurisprudence relating to rescission. At p. 311, he concludes that rescission is available even in the case of innocent misrepresentation if the misrepresentation is material or substantial. The fact that the contract has been executed is a factor for consideration and not necessarily a bar to relieving a party from its obligations under the contract: p. 308. The primary reason is that, having induced the transaction, it may be unjust to allow the party who made the misrepresentation to retain the benefit of it: p. 304. Although restoration of the parties to their prior positions may be impossible, Waddams concludes at p. 309, that “exact restitution is unnecessary if substantial justice can be done by an appropriate monetary adjustment” and, at p. 314, that “a money obligation may arise as an ancillary aspect of setting aside the transaction in order to avoid unjust enrichment.”

[54] The motion judge’s error of law resulted in the loss of a potential remedy for Colosimo, namely, relief from performing his obligations under the Agreement. He specifically claimed such relief at para. 15 of the statement of defence.

(c) Equitable set-off

[55] Because Colosimo had not brought a motion for summary judgment on his counterclaim, the motion judge held that this issue was not before her. The motion judge ignored the fact that, in addition to claiming equitable set-off in his counterclaim, Colosimo also pleaded equitable set-off as a defence. Colosimo’s failure to bring a motion for summary judgment on his counterclaim did not relieve the motion judge from her obligation to assess whether, as a defence, equitable set-off raised a genuine issue requiring a trial.

[56] In Holt v. Telford, [1987] 2 S.C.R. 193, the Supreme Court of Canada recognized equitable set-off as a defence. In that case, it was not disputed that the Telfords owed the Holts $150,000 plus interest under the provisions of their mortgage agreement. The entire amount of the mortgage became due and payable in the event of default, which had occurred. The Telfords argued, however, that they were entitled to set-off the debt owed to them by Canadian Stanley because when they had “swapped” parcels of land with Stanley, the Telford mortgage formed part of the consideration for the reciprocal transfers: p. 215.

[57] In that case, the Supreme Court held that, while legal set-off required mutual debts, equitable set-off could apply where the defendant claimed a money sum arising out of the same contract or series of events that gave rise to the plaintiff’s claim, or was closely connected with that contract or series of events. The Supreme Court noted the following five principles relevant to equitable set-off, at p. 212: (1) The party claiming set-off must show some equitable ground for being protected from his adversary’s demands; (2) that ground must go to the very root of the plaintiff’s claim; (3) the counterclaim must be so clearly connected with the plaintiff’s demand that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the counterclaim; (4) the claim and counterclaim need not arise out of the same contract; and (5) unliquidated claims are on the same footing as liquidated claims.

[58] The motion judge commented that viva voce evidence and assessments of credibility were required to sufficiently deal with the merits of the counterclaim; the same is true to sufficiently assess equitable set-off as a defence. Canaccord’s claim for repayment of the loan is intertwined with Colosimo’s defence of equitable set-off. I also agree with Colosimo that, as in Siemens Electric v. Unident Ltd., [1999] O.J. No. 575 (C.A.), dismissing his defence of equitable set-off while sending the counterclaim on for trial risks inconsistent verdicts and substantial injustice. In addition, granting summary judgment in the face of the claim for equitable set-off also undermines the defence of the other defendants who have raised the same argument in defence to the claims on their loans.

(d) A fair and just determination on the merits

[59] The findings of fact necessary to reach a fair and just determination on the merits could not be made in this case without taking into consideration the evidence of the other defendants who were in the same relationship to Canaccord as Colosimo. The possibility of inconsistent verdicts based on the same claims made with respect to the same agreement is real and the concern for substantive justice is significant. Furthermore, given the necessity of trying the same defences put forward by the other defendants as well as Colosimo’s counterclaim, granting summary judgment against Colosimo would not result in any significant reduction in trial time that would be necessary for the adjudication of the balance of the claims and counterclaims.

E. DISPOSITION

[60] I would allow the appeal and set aside the summary judgment against the appellants Colosimo and Pilot. In view of my decision, I need not address the subsidiary issue of a stay of execution of the judgment.

F. Costs

[61] The motion judge awarded costs fixed in the amount of $6,940.57 to Canaccord. I would simply reverse those costs and order them payable to the appellants along with the costs of the appeal which by agreement are fixed in the amount of $7,500.

Released: October 27, 2015

(KMW) “Karen M. Weiler J.A.”

“I agree K. van Rensburg J.A.”

“I agree L.B. Roberts J.A.”