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Factual background and the Huron Lodge project
The dispute arises from a 2004 construction contract between the City of Windsor, as owner, and Southside Construction (London) Limited, as general contractor, to build a 224-bed long-term care home known as Huron Lodge. The contract price was approximately $29.48 million, plus GST and approved extras, with Montgomery Sisam Architects Inc. and J.P. Thomson Associates Ltd. named as architectural consultants. Southside’s work was performed largely through subcontractors. Southside claims it completed its contractual obligations, but the City refused to pay a balance said to be $4,677,391.37. In 2007, Southside sued for this unpaid balance. The City responded with a defence and counterclaim alleging delays, deficiencies, and excess costs totalling about $1.56 million, and it pleaded both a set-off defence and a counterclaim on the same factual footing. In substance, the damages alleged in the counterclaim were identical to the amounts pleaded as set-off, so that “the set-off defence was the counterclaim, and the counterclaim was the set-off defence.” The subcontractors were then drawn into the litigation: Southside issued third party claims against the subtrades and the Architects for contribution and indemnity, and there followed multiple layers of third, fourth and further party proceedings.
Earlier subcontractor litigation and the City’s settlement strategy
Not all related claims were resolved within this main action. Some subcontractor disputes were settled conventionally, with direct payment to subtrades on Southside’s consent and direction. By contrast, the claim of Artisan Masonry Inc. went to trial. In 2013, after an eight-day trial, the court rejected the City’s allegations of improper masonry work and held that Artisan’s work was not deficient, that the City had not suffered damages, and that monies withheld by the City from Southside for Artisan’s portion of the project should be released for payment to Artisan. The trial judge was critical of the City’s approach, describing its recalcitrance to pay and its shifting allegations as efforts to find “some excuse to justify not paying” despite using the building to house vulnerable seniors and taking no remedial steps. Shortly after that decision, the then-Mayor publicly invited Southside’s unpaid subcontractors to negotiate directly with the City. Between August and October 2013, the City entered into eight conditional settlement agreements with selected subtrades (the “Settling Third Parties”). These Eight Settlement Agreements were subject to City council approval and court orders to continue; council approved them in camera in October 2013. Under these agreements, the City paid different proportions of each subcontractor’s claim—sometimes close to full value, sometimes a fraction—and took assignments of their claims against Southside.
The 2022 abuse of process decision and permanent stay of claims
These Eight Settlement Agreements fundamentally changed the litigation landscape. By purchasing and taking assignments of subtrade claims that had originally been directed against Southside, the City inverted adversarial positions and realigned interests, yet it did not immediately disclose the full terms or existence of the agreements to the court or to non-settling parties. On earlier motions brought by Southside and the Architects, the court held that the City’s failure to promptly disclose agreements that “entirely changed both the adversarial relationship between the litigants and the adversarial landscape” amounted to an abuse of process. The remedy imposed in the 2022 abuse of process decision was a permanent stay of the City’s claims for damages and delay during construction—both its counterclaim against Southside and the assigned claims of the Settling Third Parties. The court expressly found that the City was barred from prosecuting its counterclaim and the assigned claims, and that “anything less” would reward the City for its misconduct. The City initially filed a notice of appeal from that decision but later abandoned the appeal. In a subsequent costs ruling, the court awarded more than $145,000 in substantial indemnity costs against the City for those abuse of process motions, underscoring the seriousness of the misconduct.
The City’s amended pleadings and new set-off theory
After the abuse of process decision and the permanent stay of its counterclaim, the City amended its pleading (with Southside’s consent as to form) to delete the counterclaim entirely. At the same time, it expanded paragraph 11 of its defence to plead both statutory legal set-off under s. 111 of the Courts of Justice Act and equitable set-off. Two categories of set-off were advanced. First, the City continued to allege that Southside was responsible for construction delays, deficiencies, and increased costs (including lifecycle costs and costs of maintaining the old facility), and that the value of those alleged losses should be deducted from any amount found owing to Southside. Second, it claimed a “credit” corresponding to the sums the City had paid to the eight subtrades under the 2013 settlement agreements, arguing that Southside had been relieved of its debts to these subtrades and should not recover those amounts again from the City. Southside viewed these amendments as an attempt to resurrect, through a defence label, the very claims that had been permanently stayed as a counterclaim and as assigned claims. It brought a motion for summary judgment to dismiss both the legal and equitable set-off defences, arguing that there was no genuine issue for trial and that allowing the defences would eviscerate the earlier sanction.
Res judicata and issue estoppel arguments
The City’s primary threshold argument was that the remedy for its abuse of process was res judicata. It contended that the earlier decision had already determined the appropriate sanction—a permanent stay of “claims”—and that Southside was improperly seeking to expand that remedy by now asking that the set-off defences be struck. The court rejected this. Issue estoppel requires that the precise right, question, or fact have been distinctly put in issue and directly determined in the prior proceeding. In the abuse of process motions, no party raised or argued the availability of the City’s set-off defence, and the court did not purport to decide it. The stay addressed the prosecution of claims (counterclaim and assigned claims), not the existence or viability of defensive set-off. This was particularly clear with respect to the equitable set-off defence, which did not even exist in the pleadings at the time of the earlier decision; it was only added in 2024. To treat that unpleaded defence as already adjudicated would stretch res judicata beyond its proper scope. The court therefore concluded that neither issue estoppel nor res judicata barred consideration of the set-off defences on the merits.
Legal set-off and the meaning of “debt” under s. 111 Courts of Justice Act
Turning to legal set-off, the court traced its origins as a statutory, not common-law, remedy that operates only where mutual debts exist. Under s. 111 of the Courts of Justice Act, a defendant may set off “a debt owed by the plaintiff to the defendant” in an action for payment of a debt. The jurisprudence draws a clear line between a “debt” or liquidated sum that is certain or readily ascertainable at the time of pleading, and unliquidated claims for damages that require assessment. The City’s pleadings framed its alleged losses squarely as “damages.” Paragraph 11 of the amended defence stated that, as a direct result of Southside’s alleged breaches, “the defendant has sustained and will sustain…damages,” which it sought to rely on both under s. 111 and by way of equitable set-off. No debt or fixed amount was pleaded. Similarly, in paragraph 11B, where the City claimed a “credit” for payments to the subtrades, it again spoke in terms of damages and “actual losses” after applying credits, without identifying any definite, mutually owed debt by Southside to the City. The court held that these pleaded claims were paradigmatic unliquidated damages, not debts susceptible to legal set-off.
Character of the “credits” for subtrade settlements
The nature of the claimed “credits” further undermined legal set-off. Before the settlements, the subtrades had asserted claims for damages against Southside for breach of their subcontracts; those claims would have required assessment and were not liquidated debts. When the City later paid varying percentages of those claims to purchase and take assignments, their legal character did not change—they remained claims for unliquidated damages, now held by the City. The chart in the City’s factum, showing the wide range of settlement percentages (from almost full value in some cases down to less than one cent on the dollar in another), confirmed that the City’s payments reflected negotiated compromises, not fixed debts that Southside was legally bound to reimburse. The court concluded that the amounts the City chose to pay its counterparties under the Eight Settlement Agreements were not “debts owed by the plaintiff to the defendant” within the meaning of s. 111. They were voluntary settlement expenditures to acquire litigation rights, not mutual cross-debts, and thus could not ground statutory set-off.
Equitable set-off and fair dealing after an abuse of process stay
Equitable set-off is broader in scope and can apply to unliquidated claims, but it is governed by fairness-based criteria. The defendant must show an equitable ground for protection that goes to the root of the plaintiff’s claim; the cross-claim must be closely connected with the plaintiff’s demand such that it would be manifestly unjust to enforce the claim without accounting for the cross-claim. Here, the parties largely accepted that the set-off issues arose from the same transaction and were closely connected to Southside’s claim for the unpaid contract balance. The City argued that equity should prevent Southside from obtaining a “double recovery” for subcontractor amounts that Southside had not paid and would never pay because the City had already satisfied the subtrades. On that view, denying equitable set-off would be unjust. However, the court focused on the third factor—manifest injustice viewed in the context of the prior abuse of process. The City’s equitable set-off defence relied on precisely the same allegations of deficiencies, delay, and subtrade liabilities that had been permanently stayed as a counterclaim and as assigned claims. Allowing those same allegations to function as a defence would, in practical terms, give the City the benefit of its stayed claim and gut the earlier sanction. It would permit the City to accomplish through the “back door” what the permanent stay had closed off at the “front door.” In the court’s view, that result would be manifestly unfair to Southside and inconsistent with the need to maintain an effective remedy for abuse of process. Accordingly, the third element of equitable set-off was not satisfied.
Interaction with the Construction Act and the City’s non-use of s. 28
The court also examined the statutory payment mechanism in s. 28 of the Construction Act. That provision allows an owner to make a payment “without obligation to do so” directly to a person with a lien, such as a subcontractor, and, with proper written notice to the “proper payer” (here, Southside), have that payment “deemed” to be a payment by the contractor to the subcontractor. In effect, s. 28 provides a clear route by which an owner can obtain a legitimate credit against the contractor’s entitlement when the owner steps in to pay subcontractors. In this case, the City did not give such notice or purport to rely on s. 28 when it made its private settlement payments under the Eight Settlement Agreements. Those payments were negotiated and approved in camera, without disclosure to or consent from Southside. The City did not plead s. 28 as a basis for credit. The court considered it significant that a statutory framework existed for the very type of credit the City now sought, but the City had bypassed that framework and failed to provide the notice required to bind Southside. In these circumstances, the City’s plea for equitable recognition of its “gratuitous” payments to subtrades rang hollow: the owner had chosen not to use the available statutory mechanism that would have preserved its credit rights while keeping the contractor informed.
Equity, clean hands, and the limits of set-off as an indirect remedy
Equitable relief is discretionary and informed by doctrines such as “clean hands.” The court accepted that the clean-hands principle is not mechanically disqualifying, but it stressed that equity must be “crafted in accordance with the specific circumstances of each case.” Here, the City stood before the court having already been found to have abused the process by secretly realigning the litigation through undisclosed settlement and assignment agreements. It had its counterclaim and assigned claims permanently stayed and had been ordered to pay substantial costs. Instead of appealing those sanctions, it attempted to re-plead the same monetary claims as set-off defences. The court concluded that to grant equitable set-off in these circumstances would erode the integrity of the earlier abuse of process remedy and confer an unwarranted advantage on a party whose litigation conduct had already been censured. The court held that the allegations forming the basis of the stayed counterclaim “cannot be resurrected, with identical content, through a claim for equitable set-off,” drawing an analogy to appellate authority where claims struck out as causes of action could not be revived as defences.
Summary judgment, partial judgment, and the outcome of the motion
On the procedural dimension, both sides accepted that the availability of legal and equitable set-off was an appropriate issue for summary judgment, and that Southside was seeking partial, not final, judgment—it did not ask for a money judgment on the contract balance at this stage. The court was mindful of the Court of Appeal’s cautions about partial summary judgment, but found that deciding the discrete legal availability of set-off defences would not generate inconsistent findings and would promote proportional and efficient resolution. Applying the governing summary judgment test, the court held there was no genuine issue requiring a trial on either legal or equitable set-off. The legal set-off defence failed because the City had not pleaded, and could not show, mutual cross-debts or liquidated sums within s. 111 of the Courts of Justice Act. The equitable set-off defence failed because, in the particular context of an existing permanent stay for abuse of process and the City’s non-use of s. 28 of the Construction Act, it would be manifestly unjust—and contrary to the need for an effective sanction—to permit the City to reduce Southside’s claim on the basis of the same stayed allegations. Accordingly, the court granted Southside’s motion, striking all of the City’s set-off defences in the amended defence.
Costs orders and financial implications for the parties
As the successful party on the motion, Southside was presumptively entitled to its costs. The parties agreed that costs should be assessed on a partial indemnity basis, differing only on quantum. After reviewing detailed bills of costs and accepting the reasonableness of Southside’s counsel rates and hours, the court fixed costs at $24,000, all-inclusive, payable by the City within 30 days. This costs order is in addition to the earlier substantial indemnity costs of more than $145,000 awarded to Southside and other parties on the abuse of process motions. Overall, Southside emerges as the successful party on both the abuse of process litigation and this 2026 summary judgment motion. In monetary terms, the court has awarded Southside more than $145,000 in substantial indemnity costs on the earlier motions plus $24,000 in partial indemnity costs on this motion; the exact total of all historical costs cannot be precisely calculated from this decision alone, and no final damages judgment on Southside’s underlying $4.68 million contract claim has yet been determined or quantified in this ruling.
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Plaintiff
Defendant
Court
Superior Court of Justice - OntarioCase Number
CV-07-CV009334-00D1Practice Area
Construction lawAmount
$ 24,000Winner
PlaintiffTrial Start Date