Executive summary: key legal and evidentiary issues

• Malfar Mechanical Inc. appealed a decision declining to set aside a default judgment of $1,163,054.57 entered by ServiceMaster Restore of Edmonton for unpaid remediation work on a downtown Edmonton condominium complex project.

• Application of the tripartite test from Palin v Duxbury required Malfar to demonstrate an arguable defence, a reasonable excuse for letting the claim go into default, and prompt action to set aside the judgment.

• Conflicting Court of Appeal authorities — Liberty Mortgage versus Kraushar — created uncertainty regarding whether the tripartite test is strictly prescriptive or tempered by an overriding fairness discretion.

• Malfar's general manager deliberately disregarded the Statement of Claim served by registered mail, mistakenly believing that service by a process server was required based on his understanding of Ontario's civil procedure rules.

• Evidence of settlement discussions was found insufficient and unsupported, as no connection was established between those discussions and Malfar's decision not to file a defence.

• The Court found that while Malfar had an arguable defence on certain invoices, it failed the reasonable excuse element, and no overriding fairness consideration warranted exercising discretion in Malfar's favour.

The condominium project and the parties involved

This case arises from a condominium complex project in downtown Edmonton. PCL Construction Management Inc. was a general contractor of the project and subcontracted the mechanical scope of the work to Malfar Mechanical Inc. A wrap-around insurance policy covered all contractors and subcontractors on the project as insureds, and Malfar was an insured. ServiceMaster Restore of Edmonton (961945 Alberta Ltd. o/a ServiceMaster Restore of Edmonton) was engaged to perform remediation work on the project for property damage caused by water leakage. Approximately one-third of ServiceMaster's work was paid for under the wrap-around insurance, as the water damage was an insured loss. ServiceMaster billed the remaining amount of its work to Malfar through multiple invoices. Malfar did not pay the invoices.

The commencement of legal proceedings and the default judgment

ServiceMaster filed a Statement of Claim on May 18, 2023, claiming damages in debt against Malfar and PCL for the unpaid invoices related to work completed by ServiceMaster at the request of Malfar on the condominium project. The Statement of Claim was served by registered mail and was received by Malfar on June 8, 2023. Malfar did not file a statement of defence. On September 28, 2023, ServiceMaster entered default judgment of $1,163,054.57, interest of $4,085.03, and costs of $1,862.85, pursuant to r 3.36. Malfar was subsequently served with a writ of enforcement on January 8, 2024. On January 26, 2024, Malfar applied to set aside the default judgment, set aside the noting in default, a stay of enforcement of the default judgment, and leave to file both a Statement of Defence and Notice against the Co-Defendant PCL. Applications Judge Smart dismissed the application on August 15, 2025. PCL is not a party to the application or the appeal, as the default judgment relates only to Malfar.

The tripartite test and the conflicting jurisprudence

On appeal, Justice L.M. Angotti applied the standard of review of correctness on all issues, with no deference owed to factual findings. The parties agreed that the traditional tripartite test for setting aside a default judgment applies. The defendant must show: (a) they have an arguable defence; (b) they did not deliberately let judgment go by default and have some excuse for the default, such as illness or a solicitor's inadvertence; and (c) after learning of the default judgment, they moved promptly to open it up. The parties disagreed on whether the defendant must show all three elements, or whether there is an overriding discretion of the Court to grant the application even if one or more elements have not been met. Malfar argued that fairness is the overarching consideration such that the application can be granted even if none of the three elements are met, based on historical Alberta jurisprudence. ServiceMaster argued that the three-part test is prescriptive and applied more strictly, based on the recent decision of Liberty Mortgage Services Ltd. v River Valley Development Corp., 2025 ABCA 346. Justice Angotti noted that the law was no longer clear, as there are at least two Court of Appeal decisions that appear to conflict with one another. Ultimately, because this case dealt only with the setting aside of a default judgment, Justice Angotti found that the decision in Kraushar, and the cases that follow it in Alberta, were more applicable. The Court therefore applied the tripartite test followed by a consideration of the overall interests of fairness.

The arguable defence element

Malfar advanced several defences: (a) it was not the party that contracted with ServiceMaster for the remediation work, as it did not issue any work authorizations or purchase orders; (b) ServiceMaster's claim is outside of the limitation period for invoices issued for work completed prior to April 17, 2021; (c) Malfar did not benefit directly from the work, such that no claim exists in quantum meruit; (d) the water leaks may have been caused by one or more of seventeen tortfeasors other than Malfar; (e) the remediation work was performed in respect of insured losses, so Malfar was only responsible for the deductible; and (f) multiple overlapping actions involving many different parties give rise to the possibility of inconsistent verdicts. The Court agreed with ServiceMaster that defences (d), (e), and (f) are not valid defences, finding that Malfar remains obligated to make any payments arising from its contract with ServiceMaster, regardless of whether Malfar, the insurer, or another person is responsible for the loss. However, the Court was satisfied that Malfar has an arguable defence that it did not contract with ServiceMaster for some of the work set out in the invoices or that some of the invoices are duplicative of amounts already paid by Malfar. The Court also accepted that there is an arguable limitation defence for some invoices, noting that on some invoices, the dates of the work performed fall outside of the limitation period.

The reasonable excuse element

Malfar put forward three reasons for not defending: (1) it was engaging in settlement discussions with ServiceMaster; (2) Malfar reasonably assumed that the insurer had paid ServiceMaster's invoices; and (3) its general manager, Mario Ceccanese, believed that effective service had not occurred, as it was not personally served as required by Ontario law. The Court found none of these explanations adequate. In June 2021, ServiceMaster had provided the owner of Malfar a binder enclosing numerous invoices and requested payment of $1.4 million. Mr. Ceccanese deposed that on July 20, 2022, Malfar sent an email to ServiceMaster taking the position that it was not responsible to pay for any of the work described in the invoices. A meeting then occurred between Malfar's project manager and representatives of ServiceMaster in September 2022, where Malfar maintained its position. No further settlement discussions occurred. The Statement of Claim was served nine months after the last settlement discussion, and there was no evidence that Malfar believed litigation would not be pursued due to the settlement discussions. No connection was established between the settlement discussions and the decision to not file a defence. Regarding the insurer, the Court noted that even for remediation work the insurer paid for, Malfar was responsible to pay the $25,000 deductible, and Malfar did not present any evidence that it had made the insurer aware of ServiceMaster's $1.4 million claim for unpaid work. As for the service issue, Mr. Ceccanese stated he believed the Statement of Claim was not properly served, based on his understanding of Ontario's civil procedure rules. Despite Malfar's involvement in other litigation in Alberta, he did not take any steps to determine if the same rules applied in Alberta or to follow the clear language in the Statement of Claim setting out Malfar's obligations to file a defence. The Court found that Mr. Ceccanese's actions were not the equivalent of solicitor negligence, as he was a directing mind of the corporation — the general manager responsible for day-to-day operations — and his actions in this legal action are the actions of Malfar. The Court concluded that Malfar deliberately and intentionally failed to defend the action and had not provided a reasonable excuse for that failure.

Promptness and overall fairness

Malfar satisfied the third element of the test, as its application to set aside was filed within 18 days of becoming aware of the default judgment against it. Turning to overall fairness, the Court found no overriding factor supporting the exercise of discretion in Malfar's favour. The material filed demonstrated that, despite Malfar receiving a comprehensive demand for money, supported by documentation, months prior to the commencement of legal action and taking the position that it was not responsible for any portion of the claim, Malfar did not exercise any due diligence or take any significant action. Malfar never seriously engaged in the merits of the claim and did not take the Statement of Claim seriously when it was served, despite knowing the significant monetary amount claimed. Malfar only became invested in the litigation when it was faced with a default judgment and writ of enforcement. Any prejudice that it may suffer was a prejudice of its own making, by its wilful and deliberate failure to defend.

The ruling and the outcome

Justice Angotti dismissed Malfar's appeal, finding that Malfar did not meet all elements of the test and no overriding factor supported the exercise of discretion in Malfar's favour. Despite the additional evidence filed on appeal, the Court declined to depart from the decision of Applications Judge Smart. The default judgment of $1,163,054.57, plus interest of $4,085.03 and costs of $1,862.85, therefore stands in favour of ServiceMaster Restore of Edmonton. The respondents were also found entitled to the reasonable costs of the appeal, assessed on Column 3, and reasonable disbursements. If the parties are unable to agree on the level of costs within 45 days, they may seek further advice and direction of the Court.