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Counterclaim and Counterclaim with Setoff

DRC’s Dispute Resolution Rules define a counterclaim and a counterclaim with setoff as follow:

“Counterclaim” means a claim by a Respondent arising out of the transaction or occurrence that is the subject matter of the Claim and that is in excess of the amount being claimed by the claimant.  Subject to Article 4, a Counterclaim is to be brought by way of a Counterclaim provided that the Respondent previously gave notice of the Counterclaim during the informal consultation process.  Claims by a Respondent arising out of the transaction or occurrence that is the subject matter of the Claim that are less than the amount being claimed by the claimant are to be asserted as a defense only in the Statement of Defence. Claims by a Respondent arising out of the transaction or occurrence that is the subject matter of the Claim that are out of time pursuant to Article 4 may be asserted as a defense to the Claim in the Statement of Defence but no amounts in excess of the Claim shall be recoverable;

“Counterclaim with setoff” means a claim by a Respondent arising out of a transaction extrinsic to the Claim.  Subject to Article 4, a Counterclaim with setoff may only be brought by way of a Counterclaim with setoff provided that the Respondent previously gave notice of the Counterclaim with setoff during the informal consultation process.  A Counterclaim with setoff is not allowed to be asserted as a defence to the Claim;

Both definitions require that a counterclaim or a counterclaim with setoff are raised during the informal consultation/mediation process and in accordance with Article 4 of DRC’s Dispute Resolution Rules, which provides a time limitation to file a claim, a counterclaim, or a counterclaim with setoff.

The main difference between a counterclaim and a counterclaim with setoff is that all the elements of a counterclaim are directly connected to the transactions claimed by the claimant. For example, Company “A” sells one load of apples for a $15,000 total invoice price to company “B”. When company “B” receives the load, an inspection is requested, and the results of the inspection show 60% condition defects. Company B decides to claim damages and their sales, less expenses connected to the transaction, indicate a loss of $1,000 above and beyond the original invoiced price. In other words, company “B” has a negative return on the load. Company “B” has the right to initiate a claim against company “A” or, company “B” can wait for company “A” to file a Statement of Claim if unsatisfied with the negative return, and then company “B” can counterclaim to have company “A” pay the $1,000.

The elements of a counterclaim with setoff are not connected to the claim initiated by the claimant. Let’s take the same scenario presented before, but with the following twist. Company “B” decides to deduct the $1,000 loss from a prior transaction done with company “A”. Now company “A”, instead of having one disputed invoice, has now two disputed invoices. One invoice is directly connected to the above scenario and the other one is not. Company “B” is offsetting $1,000 from an unrelated invoice.  While the companies are the same, the transactions involved are different.

When a Claimant files a Statement of Claim, a counterclaim or a counterclaim with setoff can be included in a Statement of Defence as a defence. However, if the Respondent wishes to collect their losses, a separate counterclaim or counterclaim with setoff must be filed, along with the appropriate arbitration fees, concurrently with their Statement of Defence.

DRC Operating Rules require that DRC members fulfill their financial obligations. Therefore, offsets are only allowed if the parties have agreed to this type of practice.