Executive Summary: Key Legal and Evidentiary Issues

• Application of the three-part prescriptive test under Rule 9.15(3) for setting aside a default judgment requires showing an arguable defence, lack of deliberate default, and prompt action upon learning of the judgment.

• Calculating long delay under Rule 4.33 requires counting forward from the last uncontroversial significant advance to when the Rule 4.33 application is filed, not backward from any intervening event.

• A defendant whose defence is struck retains the right to contest quantification of damages in unliquidated claims, creating tension with Rule 3.37's allowance for without-notice default judgment applications.

• Deemed admissions from a struck defence apply only to pleaded facts, not to questions of law or of mixed fact and law, preserving certain defences.

• Irregular procedural circumstances—such as imposing a contempt remedy without a finding of contempt—may inform fairness considerations in exercising discretion under Rule 9.15.

• The doctrine of merger prevents challenging a striking order once judgment has been rendered unless that judgment is first set aside.

The dispute between an insurance brokerage and a former employee

On January 17, 2012, 2114223 Alberta Ltd and McDonald & Bychowski Ltd, operating as CMB Insurance Brokers (collectively "211"), sued Kevin Lougheed, a former key employee of their insurance brokerage, for breach of an employment contract and breach of fiduciary duty. The Statement of Claim alleged that Mr. Lougheed misappropriated confidential information and stole clients after switching employment to a competing brokerage, causing 211 loss and damage. Mr. Lougheed filed a Statement of Defence on February 15, 2012, maintaining that there is no "ownership" of insurance clients and that those who followed him to the new brokerage did so as a matter of right.

Procedural history and the path to default judgment

Mr. Lougheed was questioned for discovery in October 2015 and responded to undertakings the following year. His defence was being funded by his then employer. Mr. Lougheed changed employers again in 2017, which resulted in that counsel withdrawing. After that, Mr. Lougheed did not have counsel until recently. In 2020, 211's counsel wished to question Mr. Lougheed again. Efforts were made by counsel's office to locate him. A Notice of Appointment for Questioning was sent by registered mail to an address that 211's then counsel believed was Mr. Lougheed's current home address. He did not appear at the Questioning on October 1, 2020.

Counsel for 211 then filed an application seeking a declaration of contempt for failing to attend the Questioning and an Order striking out the Statement of Defence. Attempts to serve the application documents personally on Mr. Lougheed at the same home address were unsuccessful. A process server then posted the documents on the front door on February 16, 2021. A further copy was sent to Mr. Lougheed's work email the next day. On March 1, 2021, a Justice heard the Contempt/Striking Out Application. Mr. Lougheed did not attend the hearing. The Justice struck out the Statement of Defence. The Justice did not make a finding of contempt.

Time passed. 211 applied for Default Judgment against Mr. Lougheed under Rule 3.37 (which permits the application on a without notice basis) on October 3, 2024, which was granted by a different Applications Judge by way of Desk Application on October 16, 2024. Mr. Lougheed says he first learned about the Default Judgment on February 20, 2025, when his current employer was served with a garnishee summons. He retained his current counsel and brought his application before the Applications Judge to vacate the Default Judgment and for dismissal due to long delay.

The Applications Judge's decision and the appeal

The Applications Judge granted the Defendant's application on both counts, setting aside the Default Judgment under Rule 9.15(3) and dismissing the Plaintiffs' Action for long delay under Rule 4.33. The Plaintiffs appealed to a Justice of the Court of King's Bench, where the Honourable Justice Douglas R. Mah reviewed the decision. The standard of review for an appeal of an Applications Judge decision to a Justice is correctness.

Analysis of the long delay issue

Justice Mah addressed the long delay issue first. There is no doubt that more than three years elapsed between the striking out of the Statement of Defence (March 1, 2021) and the application for Default Judgment (October 3, 2024). 211 did not attempt to explain or justify why there was no activity during that span. However, when counting time, one counts forward from the date of the last uncontroversial significant advance, not backward from the date on which the Rule 4.33 application was filed. The count stops on the date the Rule 4.33 application was filed. By using the date of the Striking Out Order as the start date, the Applications Judge overlooked the obtaining of the Default Judgment on October 16, 2024, as being a significant advancement. It is uncontroversial that it was a significant advancement. It not only advanced the Action, it put an end to it. Three years have not yet elapsed between the last uncontroversial significant litigation event and the bringing of the Rule 4.33 application. Additionally, Justice Mah saw Mr. Lougheed's bringing of an application to set aside the Default Judgment as engaging the exception in sub-paragraph (b) of Rule 4.33(2) in that Mr. Lougheed's participation in proceedings warrants the Action continuing.

Analysis of the application to set aside the default judgment

Justice Mah considered the Court of Appeal's guidance in Liberty Mortgage Services Ltd v River Valley Development Corp, 2025 ABCA 346, which established that the test for setting aside a default judgment is prescriptive, applied more strictly than the test for setting aside a noting in default, and recognizes the presumptive finality of a judgment. The tri-partite test consists of the following elements: (a) does the applicant have an arguable defence; (b) did they not deliberately let the judgment go by default, and have they some excuse for the default; and (c) after learning of the default judgment, did they move promptly to open it up.

On the first element, Justice Mah noted that Mr. Lougheed did have a defence to the Statement of Claim that stood for nine years, until it was struck out for reasons unrelated to merit. In that time, no application for summary judgment was made to any part of the defence. While parts of the defence may be stronger or more obvious than others, there is an arguable defence or would be but for being struck out. The test requires an arguable defence, not that every allegation from the Plaintiff be rebutted in fact and law. Further, Mr. Lougheed is entitled to dispute quantification of damages, which is a form of defence.

On the second element, it is difficult to say that Mr. Lougheed deliberately allowed the Default Judgment to be taken when he was given no notice of the application for Default Judgment and therefore was not given any opportunity to either contest or even simply allow the Default Judgment to occur. Justice Mah admitted to being somewhat skeptical about Mr. Lougheed's assertion during questioning on affidavit that the email from counsel's office in 2021 attaching the application documents was opened but not read because it possibly had been flagged by his employer's email system as a phishing email. However, Justice Mah considered the discrete antecedent steps (the Notice of Appointment for Questioning and Contempt/Striking Out Application) too remote in time to conclude that they meant Mr. Lougheed deliberately allowed the Default Judgment to proceed without excuse. His excuse is that he did not know the Application for the Default Judgment was taking place.

On the third element, there is no dispute that Mr. Lougheed satisfies the third part of the test in that he has moved promptly to set aside the Default Judgment upon learning about it through the garnishment incident at his workplace. Justice Mah was therefore satisfied that he meets all three parts of the test to set aside a default judgment.

Justice Mah concluded that Rule 9.15(3) remains inherently discretionary and does not mandate a particular result. He must have regard to the three-part test, which is now prescribed as a framework, but the decision must still reflect fundamental fairness given the facts and circumstances of the case. Two circumstances weighed in favour of upholding the Set Aside Order: first, the tension between how Rule 3.37 allows a plaintiff to dispense with serving the defendant with notice of a default judgment application after that defendant's defence has been struck out, yet the defendant is still entitled to defend quantum; and second, the Default Judgment was premised on the Striking Out Order from more than three years earlier, where something unusual happened to Mr. Lougheed when he was subjected to a contempt remedy without a corresponding finding of contempt.

The ruling and terms imposed

The appeal resulted in divided success. Justice Mah overturned the Applications Judge's decision to dismiss 211's Action for long delay. Justice Mah confirmed the Applications Judge's decision to set aside the Default Judgment.

As terms of the Set-Aside Order under Rule 9.15(3), Justice Mah directed that if Mr. Lougheed wishes to attempt to set aside the March 1, 2021 Striking Out Order, he has 45 days from the date of the decision to bring that application. If the application is attempted, 211 may argue before the Justice that the application should not be heard, or if heard, should not be granted. Should Mr. Lougheed decide not to attempt such an application within 45 days or if the application is unsuccessful, then 211 is at liberty, upon notice to Mr. Lougheed, to make another application for Default Judgment. In that event, Mr. Lougheed is entitled to defend as to the quantification of the damages. In view of the divided success of this appeal, each party will bear their own costs of appeal and of the original application before the Applications Judge. No specific monetary award was determined, as the substantive issues of liability and damages remain to be resolved in subsequent proceedings.