Executive Summary: Key Legal and Evidentiary Issues

• Competing positions on whether long procedural inactivity justified dismissal of the action for long delay under Rule 4.33 of the Alberta Rules of Court.
• Dispute over the proper test and degree of judicial discretion for setting aside a default judgment under Rule 9.15(3), following the Court of Appeal’s guidance in Liberty Mortgage.
• Effect of a prior striking out of the Statement of Defence, including whether it created deemed admissions that barred the defendant from raising a substantive defence or contesting damages.
• Questions about the adequacy of service and notice to the defendant regarding questioning, contempt/striking applications, and the default judgment, and whether the defendant deliberately allowed judgment to go by default.
• Procedural irregularity in obtaining a contempt-style striking remedy without an explicit finding of contempt, and whether that irregularity should influence the setting aside of the default judgment.
• Tension between Rule 3.37’s “without notice” default-judgment mechanism and appellate authority preserving a defendant’s right to participate in the assessment of unliquidated damages even when in default or after a defence is struck.

Factual background

The dispute arises out of the departure of a key employee from an insurance brokerage. 2114223 Alberta Ltd and McDonald & Bychowski Ltd, operating as CMB Insurance Brokers (collectively, 211), sued their former employee, Kevin Lougheed, after he left their brokerage and joined a competing firm. The Statement of Claim alleges that as a former key employee, Mr. Lougheed breached his employment contract and fiduciary duties by misappropriating confidential information and diverting insurance clients to his new brokerage, causing 211 loss and damage. Mr. Lougheed’s core position, maintained from early in the litigation, is that there is no “ownership” of insurance clients and that customers are free to follow a broker of their own choosing. He denies legal wrongdoing and characterizes client movement as a lawful exercise of client choice rather than misappropriation. While the factual matrix is deeply rooted in the insurance brokerage industry, the case is framed as an employment and commercial dispute about duties owed by a former key employee, the protection of confidential information, and competition for clients, not about interpretation of an insurance policy. There is no discussion of insurance policy wording or specific coverage clauses; the focus is on contractual, fiduciary and procedural issues rather than policy terms.

Procedural history and default judgment

The action was commenced in January 2012, when 211’s predecessor entities sued Mr. Lougheed, and he filed a Statement of Defence in February 2012. Discovery proceeded: he was examined for discovery in October 2015 and answered undertakings in 2016, with his defence costs funded by his then employer. That funding ceased when he changed employers in 2017, and he was thereafter self-represented for a period. In 2020, 211’s counsel sought to question him again. A Notice of Appointment for Questioning was sent by registered mail to an address counsel believed to be his current home address, but he did not attend the scheduled questioning in October 2020. 211 then escalated matters by bringing an application seeking a declaration of contempt for failing to attend questioning and an order striking out the Statement of Defence. Attempts at personal service at the same home address failed; a process server posted the documents on the front door in February 2021 and another copy was sent to his work email. The contempt/striking-out application was heard March 1, 2021, with no appearance by Mr. Lougheed. The presiding Justice did not expressly find him in contempt but did grant the remedy of striking out his Statement of Defence, a serious contempt-type sanction that effectively deemed the pleaded facts admitted and set the stage for default judgment. After that order, there was a lengthy period of inactivity. In October 2024, 211 applied on a without-notice basis under Rule 3.37 for default judgment against Mr. Lougheed, which was granted by a different Applications Judge as a desk application on October 16, 2024. Default judgment brought the action to a procedural end on liability and, at least on its face, on the claim as a whole. Mr. Lougheed says he only learned of the default judgment in early 2025, when a garnishee summons was served on his current employer and his wages were affected. At that point, he retained counsel and applied before an Applications Judge (AJ) to set aside the default judgment and to dismiss the action for long delay.

Applications judge’s ruling

The AJ granted Mr. Lougheed’s application in full. On the default judgment issue, the AJ held that he met the three-part common law test that informs the exercise of discretion under Rule 9.15(3): he had an arguable defence, he did not deliberately allow judgment to go by default and had an excuse for his default, and he acted promptly once he became aware of the judgment. The AJ therefore set aside the default judgment. On the delay issue, the AJ concluded that more than three years had elapsed with no significant advance in the litigation between the striking-out proceeding before the Justice on March 1, 2021 and the plaintiffs’ desk application for default judgment on October 3, 2024. Treating that gap as the relevant period for Rule 4.33, the AJ dismissed the entire action for long delay. This left 211 with both the default judgment vacated and the action dismissed, prompting their appeal to a Justice of the Court of King’s Bench.

Appeal before Justice Mah

On appeal, 211 challenged both findings. They argued that the common law test for setting aside a default judgment under Rule 9.15(3), as recently described by the Alberta Court of Appeal in Liberty Mortgage, is prescriptive and must be strictly met. In their view, Mr. Lougheed had either deliberately or through wilful blindness allowed the process to unfold, including contempt-related steps and default judgment, by avoiding service and failing to maintain an appropriate address for service. They also contended he had no arguable defence, particularly because his Statement of Defence had been struck, creating deemed admissions that foreclosed his ability to contest the claim’s merits. They framed his application as an impermissible collateral attack on the March 1, 2021 striking-out order, which he had never appealed. On the delay point, 211 submitted that the AJ had misapplied Rule 4.33 and the appellate guidance in Rahmani. In their view, the three-year period must be calculated from the last uncontroversial significant advance to the date the Rule 4.33 application is filed, and the last significant advance was the default judgment granted on October 16, 2024. They further argued that Mr. Lougheed’s active participation in bringing a set-aside application engaged the participation exception in Rule 4.33(2)(b), and that a defendant should not benefit from his own delay or obstruction. Finally, they suggested that once judgment had been entered, the matter was no longer an “action” capable of dismissal for long delay, relying on authority that distinguishes between liability-only judgments and final determinations where damages remain unresolved. Mr. Lougheed, in response, emphasized lack of notice and fairness. He maintained he was never properly served with critical procedural steps: the second questioning appointment, the contempt/striking application, the default judgment application, or the default judgment itself. He argued that Rule 9.15(3) allowed the Court to set aside the default in these circumstances and that he met the tripartite test, including having a defence on the merits (no ownership of customers, and clients’ freedom to move brokerages), as well as long-delay and quantum defences. He also pointed out irregularities in how the striking-out order was obtained—particularly that a contempt-style remedy was granted without an explicit finding of contempt—and resisted any characterization of his application as a collateral attack on that order. On the long delay issue, he stressed the unexplained three-plus-year gap between March 2021 and October 2024, arguing that even a defendant in default or subject to a liability judgment is entitled to expect diligent prosecution of the damages portion of a claim, and that Rule 4.33 should apply to expose dormant litigation.

Long delay analysis under rule 4.33

Justice Mah addressed the Rule 4.33 issue first, treating it as the more straightforward question. He accepted that more than three years had indeed elapsed between the March 1, 2021 striking-out order and the October 3, 2024 desk application for default judgment, and noted that 211 had offered no explanation for this period of inactivity. However, applying the Court of Appeal’s framework from Rahmani and subsequent cases, he held that the AJ had selected the wrong “start date” for the three-year calculation. Under Rule 4.33(2), the relevant period is measured forward from “the last uncontroversial significant advance” in the action to the date the Rule 4.33 application is filed, not backward from an earlier event. In his analysis, the last significant advance was not the March 1, 2021 striking-out order; it was the obtaining of default judgment on October 16, 2024, which was not only a significant advance but brought the action procedurally to an end. Because the defendant’s Rule 4.33 application was brought shortly after he learned of the default judgment, three years had not yet passed between that last significant advance and the filing of the delay application. Justice Mah also considered the exception in Rule 4.33(2)(b), which preserves actions where there has been participation by the defendant that warrants the action continuing. He viewed Mr. Lougheed’s choice to bring an application to set aside the default judgment as the kind of participation that demonstrated an intention to carry on with the action as a defendant, rather than abandon it. In other words, one cannot both seek to set aside a default judgment in order to defend and simultaneously insist the entire action be dismissed for long delay. While Justice Mah was critical of 211’s unexplained three-year (and more) period of inactivity and noted that it might have future costs consequences, he concluded that the binding case law on how the Rule 4.33 clock is calculated left him “no alternative” but to overturn the AJ’s dismissal for long delay. The default judgment, although later set aside, counted as the last significant advance and broke the three-year period, so Rule 4.33 could not be used in the way the AJ had done.

Setting aside the default judgment under rule 9.15(3)

Justice Mah then turned to the more complex question of whether the AJ was correct to set aside the default judgment under Rule 9.15(3). He began by analyzing the impact of the Court of Appeal’s decision in Liberty Mortgage, which distinguishes between setting aside a noting in default and setting aside a default judgment. For a default judgment, Liberty Mortgage characterizes the common law three-part test as prescriptive and applied more strictly, recognizing the presumptive finality of judgments. At the same time, earlier authorities emphasize that applications to set aside remain discretionary and must be exercised to achieve fairness, not rigid formalism. Reconciling these lines of authority, Justice Mah concluded that Rule 9.15(3) remains inherently discretionary. The three-part test provides a framework that must be respected, but the Court is still required to consider fundamental fairness in the specific factual setting. On the first part—whether there was an arguable defence—he acknowledged that the Statement of Defence had been struck, but focused on the broader history. The defence had been pleaded and litigated for approximately nine years, subjected to questioning, and never attacked by summary judgment. He accepted that while not every allegation was specifically refuted, the defence that clients are not owned and may freely move between brokerages, together with the ability to contest quantum, amounted to an arguable defence for purposes of the test. On deemed admissions arising from the striking-out order, he adopted the view that admissions go to pleaded facts, not to questions of law or mixed fact and law. Whether Mr. Lougheed was in fact a fiduciary, whether his conduct legally constituted misappropriation or conspiracy, and whether his actions were wrongful in law remained legal characterizations, not admitted conclusions, despite the striking of his pleadings. Turning to the second part of the test—whether he deliberately allowed judgment to go by default and whether he had an excuse—Justice Mah recognized a tension between Rule 3.37, which allows a plaintiff to seek default judgment without notice once a defence is struck or a defendant is noted in default, and appellate decisions stating that such a defendant retains the right to contest unliquidated damages. Because no notice of the default judgment application was given and no attempt was made to serve it, he found it difficult to say that Mr. Lougheed had deliberately allowed the judgment to proceed; he simply did not know it was happening. He examined 211’s argument that earlier conduct—failure to attend the second questioning, failure to respond to emails, and alleged avoidance of service—showed deliberate indifference that should “infect” the entire causal chain leading to default judgment. While expressing skepticism about some of Mr. Lougheed’s explanations for not reading or acting on emails, and noting his failure to update his address for service as the Rules require, Justice Mah found those earlier steps too remote to equate them with knowingly allowing the 2024 default judgment to be taken. For the purpose of the Rule 9.15(3) analysis, the relevant question was whether he deliberately allowed the default judgment application itself to proceed; because he had no notice of it, his excuse that he was unaware was accepted. On the third part—promptness—there was no real dispute: he moved quickly after learning of the judgment through garnishment at his workplace. Justice Mah therefore agreed that all three components of the test were met. He then considered whether any broader fairness considerations would justify denying relief despite formal satisfaction of the test. Two factors weighed in favour of maintaining the set-aside: first, if he had been given notice of the default judgment application, he could have raised the long delay issue by way of cross-application at that time, potentially altering the litigation’s course; second, the default judgment rested on a striking-out order granted in a contempt context without an express finding of contempt, an irregular sequence that had serious consequences for him without clear justification. These features, though fortuitous for 211, had operated to Mr. Lougheed’s procedural disadvantage. In the result, Justice Mah upheld the AJ’s decision to set aside the default judgment.

Outcome and implications

Having dealt with both issues, Justice Mah crafted a nuanced order. On the long delay question, the AJ’s dismissal of the action under Rule 4.33 was overturned, meaning 211’s claim is not extinguished for delay and the action formally continues. On the default judgment, the AJ’s order setting it aside was confirmed, so the October 2024 default judgment no longer stands and any monetary consequences flowing from it fall away. However, Mr. Lougheed’s Statement of Defence remains struck under the March 1, 2021 order. To address this, Justice Mah invoked his power under Rule 9.15(3) to impose terms: Mr. Lougheed is given 45 days from the date of the decision to bring an application (if he chooses) to set aside the striking-out order. If he does so, 211 can oppose both the hearing and the merits of that application; if he does not apply, or if any such application fails, 211 will be at liberty, upon proper notice, to bring a fresh application for default judgment, with Mr. Lougheed expressly entitled to participate and defend on the quantification of damages even if liability remains deemed. In terms of success, the appeal produced a split outcome: 211 succeeded in overturning the long-delay dismissal, preserving their action, while Mr. Lougheed succeeded in maintaining the set-aside of the default judgment, removing the immediate monetary consequences of that judgment. Reflecting this divided result, Justice Mah ordered that each party bear its own costs of the appeal and of the application before the AJ, leaving open the possibility that 211’s lengthy period of inactivity between March 2021 and October 2024 may have costs implications later when the action finally concludes. As things stand after this decision, there is no operative damages judgment or quantified monetary award in favour of any party, and no specific total amount of costs or damages has been fixed; any eventual monetary award, if one is granted, will depend on future steps and outcomes, and cannot presently be determined.