Canada: No Excuses: Court Affirms That Defences To Claims For Payment For Dishonoured Cheques Are Limited

The recent decision of the Ontario Superior Court of Justice reinforces that handing over a cheque to pay for services amounts to an irrevocable promise to pay for those services. In CBC v. iSport Media and Kevin Albrecht ("CBC v. iSport"), the Court confirmed that an equitable set-off defence is not generally available to a person who issues a cheque.1 The case offers reassurance for businesses who accept payment by cheque that the writer of a dishonoured cheque will struggle to resist or delay judgment against them for the amount of the cheque.

The Facts

CBC entered into a contract with Insight under which CBC agreed to produce and broadcast curling events for a fee and Insight obtained advertising and other rights for the broadcasts. Insight later assigned its rights and obligations under the contract to iSport Media and Management Ltd. ("iSport").

iSport paid CBC's fee by four post-dated cheques, two of which were dishonoured due to non-sufficient funds (the "NSF Cheques"). CBC terminated the agreement and sued iSport for full payment under the contract.

CBC moved for summary judgment for the amount of the NSF Cheques without the need for a trial. iSport defended on the basis of the defence of equitable set-off. In other words, iSport claimed that CBC owed to it amounts that exceeded the total amount of the NSF Cheques, and that any amounts CBC owed to iSport should be subtracted or "set-off" from the amount iSport owed CBC for the NSF Cheques. Accordingly, iSport argued that whether CBC was entitled to be paid for the amount of the NSF Cheques could only be determined once all of the issues were resolved at trial.

Equitable Set-Off is Not Available, Even in Domestic Disputes

The Ontario Superior Court of Justice held that iSport could not rely on an equitable set-off defence. In doing so, it affirmed the Ontario Court of Appeal decision in Iraco Ltd. v. Staiman Steel Ltd., where the Court held that equitable set-off does not apply to bills of exchange.2

The Court held that equitable set-off is prohibited by s. 94(2) of the Bills of Exchange Act ("BEA"). That section provides that where a bill of exchange, such as a cheque, is "dishonoured by non-payment, the holder of the cheque has an immediate right of recourse against the issuer of the cheque."3 The BEA provides no exceptions.

iSport argued that equitable set-off should nonetheless apply for four reasons: (i) the rule against equitable set-off only applies in international disputes; (ii) iSport received no consideration in exchange for the payment to be made by NSF Cheques; (iii) the NSF Cheques were post-dated and CBC had not provided services at the time the NSF Cheques were written; and (iv) CBC's performance under the contract was deficient.

The Court held equitable set-off is not available regardless of whether the dispute arises from a domestic or international transaction. With regard to the consideration argument, equitable set-off could have been available if CBC had provided no services at all to iSport; however, iSport conceded that CBC had provided some services for which the NSF Cheques were intended as payment. The Court further held that the fact that the cheques were post-dated was irrelevant – it mattered only that iSport provided the NSF Cheques to CBC. Finally, the Court held that while CBC's alleged performance deficiencies could form the basis of a counterclaim, it was not a reason to permit iSport to raise a set-off defence. Accordingly, the Court granted CBC judgment in the amount of the NSF Cheques.

Cheques are (Nearly) Equivalent to Cash

This case affirms that the writer of a dishonoured cheque cannot rely on equitable set-off, regardless of whether it is raised in a domestic or international dispute. Instead, the holder of the cheque is entitled to treat it as cash in that, except where there is a complete failure to provide the goods or services in exchange for which the cheque is provided, the delivery of a cheque amounts to an irrevocable promise to pay. Of course, if the writer of the cheque has no money in the account upon which the cheque is drawn, the fact that judgment on the cheque can be obtained without delay may be of little comfort to a business that has accepted payment by cheque. Therefore, as a practical matter, it remains prudent to require payment by certified cheque or bank draft (or cash), where the creditworthiness of a customer is questionable.


1. CBC v. iSport Media and Kevin Albrecht. [2014] ONSC 1905.

2. Iraco Ltd. v. Staiman Steel Ltd. [1986] 62 O.R. (2d) 129.

3. Bills of Exchange Act, R.S.C., 1985, c. B-4.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014

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