Executive summary: key legal and evidentiary issues

• Judgment granted under Rule 3.37 after a noting in default is classified as a default judgment, not a summary judgment, despite requiring proof of the plaintiff's claim.

• MR Engineering demonstrated an arguable defence that it did not provide the duplex stakeout services central to the plaintiff's construction failure claim.

• An employee's inadvertent failure to forward the Statement of Claim to the sole director constituted a reasonable excuse for the default.

• Significant unexplained delay in scheduling the special chambers hearing undermined MR Engineering's claim of moving promptly to set aside the judgment.

• Conflicting Court of Appeal decisions in Kraushar and Liberty Mortgage created uncertainty around the applicable test for setting aside default judgments and notings in default.

• Overall fairness, including potential prejudice of a windfall judgment exceeding actual rectification costs, warranted setting aside the default judgment subject to strict conditions.

The residential infill project and construction failure

2036576 Alberta Ltd. ("203AB") engaged in a residential infill project involving the construction of a duplex in Edmonton, Alberta. MR Engineering Ltd., an engineering consulting firm, was retained to provide services in respect of the project, although the scope of those services became a central point of contention. Other businesses and individuals were also retained by 203AB to work on the construction project. After the duplex was finished, it failed the City of Edmonton's inspection as it had been built too close to the property line. The City ordered demolition of the building. 203AB sued seven defendants, including MR Engineering, for the failure to construct the duplex in accordance with the approved building permit and for damages for losses incurred by 203AB due to the failure. The Statement of Claim was filed against the defendants on February 18, 2021.

Service of the claim and noting in default

On March 18, 2021, counsel for 203AB sent the Statement of Claim via registered mail to MR Engineering's registered corporate address. However, the registered mail was not claimed after two weeks. Counsel for 203AB then proceeded to personally serve the document at the address on MR Engineering's website. The document was handed to Purobi Chowdhury, an employee who confirmed that the address was the office of MR Engineering. Despite proper service, Ms. Chowdhury did not bring the document to the attention of Md Mizanur Rahman, the sole shareholder and director of MR Engineering. She later advised Mr. Rahman that she may have forgotten about the document as she was caught up with her regular work duties. With no defence filed, 203AB had MR Engineering noted in default on May 31, 2021. On April 24, 2023, 203AB obtained partial summary judgment against MR Engineering in the amount of $445,872.69 plus costs and interest, without prejudice to 203AB's right to seek further damages and costs against MR Engineering. The application was made pursuant to Rule 3.37.

MR Engineering's application to set aside the default judgment

Counsel for 203AB served the judgment on MR Engineering sometime between July 4 and 14, 2023. Mr. Rahman became aware of the judgment on July 17, 2023, upon his return from out of country. He immediately began to seek legal counsel. When he was finally able to retain legal counsel, his lawyer obtained a copy of the Statement of Claim and Affidavit of Service through court searches. MR Engineering filed an application on August 11, 2023, to set aside the default judgment and permit it to file a Statement of Defence. The application was filed eight days beyond the 20-day deadline prescribed under Rule 9.15(2). The hearing of the application did not take place until January 21, 2026, partly due to procedural steps taken by both parties to establish the evidentiary record and partly due to unexplained delays by MR Engineering in obtaining a special chambers date.

Whether Rule 3.37 judgment is a default judgment

A threshold legal issue was whether the judgment obtained under Rule 3.37 should be characterized as a default judgment or a summary judgment, as this determined which test applied for setting it aside. 203AB argued that the need to prove the claim and the Court's ability to direct assessment of the claim by various methods meant a judgment under Rule 3.37 is summary judgment, and thus the test for setting aside such judgment is different. Justice Angotti disagreed, finding that obtaining a judgment under Rule 3.37 requires more steps than simply establishing a failure to defend, due to the need for the Court to assess jurisdiction, available remedies, and the amount of damages. However, it remains a default judgment as it is granted only after a defendant has defaulted by not filing their defence, because liability is admitted by the default of not filing a defence. The Court supported this conclusion with several precedents, including Boyer v Boyer, TLA Food Services Ltd. v. 1144707 Alberta Ltd., Smith v Tuchscherer, and Pinsent v Sandstrom.

Applicable test and conflicting appellate authority

The Court acknowledged an apparent conflict between two Court of Appeal decisions: Kraushar v Kraushar, 2019 ABCA 186, and Liberty Mortgage Services Ltd v River Valley Development Corp, 2025 ABCA 346. Liberty Mortgage emphasized that the tests for setting aside a noting in default and setting aside a default judgment are unique and must not be commingled. It expressed that setting aside a noting in default involves a broad discretion to determine if it is fair and just to grant relief, while setting aside a default judgment requires the strict application of the prescriptive tri-partite test. Kraushar, by contrast, applied the tri-partite test elements followed by an overall fairness assessment, with the Court retaining discretion to grant relief where the interests of fairness require it. Because the present case involved a default judgment obtained pursuant to Rule 3.37 after the defendant was noted in default — mirroring the situation from Kraushar — Justice Angotti elected to follow the Kraushar approach. The tri-partite test requires the defendant to show: (1) an arguable defence; (2) no deliberate intention to let judgment go by default and some excuse for the default; and (3) that they moved promptly to set aside the judgment after learning of it.

Assessment of the three elements

On the first element, the Court found MR Engineering established an arguable defence. MR Engineering contended that, as an engineering consulting firm, it was retained by 203AB to prepare a plot plan and necessary documents so that 203AB could obtain an approved building permit from the City. MR Engineering completed these tasks, and the City approved the building permit, which ended MR Engineering's involvement with the project until after the duplex was constructed. MR Engineering denied that it was involved in the construction stakeout services, excavation, or construction for the duplex. Invoices from MR Engineering to 203AB and cheque stubs of payment from 203AB to MR Engineering were provided, and other than garage staking on an invoice from 2018, there was no indication of staking services in these documents. A complaint made by 203AB to the Alberta Land Surveyors Association was dismissed, as 203AB was unable to provide sufficient information that MR Engineering was involved in the stakeout services of the duplex. While 203AB pointed to an email dated May 9, 2017, in which MR Engineering provided a quote for services that included staking services, the Court was satisfied that the defence was arguable or triable, not that it would ultimately be successful.

On the second element, the Court accepted that MR Engineering did not intend to let judgment go by default, because its consistent position had been that it was not liable for the claim. In 2020, 203AB sent a demand letter to MR Engineering, which Mr. Rahman received and responded that MR Engineering took the position that it was not liable for the damages claimed by 203AB. The Court found that Ms. Chowdhury, by inadvertence, failed to bring the Statement of Claim to Mr. Rahman's attention and that the Statement of Claim became misplaced. The Court drew a distinction between accident and mistake, which contain the element of inadvertence, and lack of due diligence, which is not inadvertent, finding the former gives rise to a reasonable excuse while the latter does not.

On the third element, MR Engineering fell short. While initial steps after learning of the judgment were taken promptly and the application was filed only 8 days beyond the time limit, MR Engineering failed to obtain a special chambers date in August 2024, when counsel should have known the matter was ready for a hearing. It took another 13 months before counsel obtained a special chambers date, and only when a second chambers justice had ordered it. The Court characterized this as unexplained delay and a failure to move promptly. MR Engineering also failed to provide a proposed Statement of Defence, which is standard practice on this type of application, further demonstrating a lack of due diligence.

The court's ruling on overall fairness and the outcome

Despite MR Engineering's failure to satisfy the promptness element, Justice Angotti exercised the Court's discretion under the overall fairness analysis. The Court found potential prejudice to MR Engineering if the default judgment was not set aside. First, the evidence established that MR Engineering's arguable defence that it did not provide the relevant stakeout services was not a weak defence. The only evidence in support of MR Engineering's liability was a quote provided several months prior to the construction of the duplex and the bare assertion by Mr. Batra, 203AB's representative, that such services were provided. There were other parties involved in the construction of the duplex, making it a distinct possibility that MR Engineering was not liable or only partially liable. Second, the duplex was not demolished. Instead, 203AB rectified the construction issues by removing the duplex, constructing a new foundation within the approved parameters, and placing the duplex onto the new foundation. There were representations made at the hearing that the costs incurred to rectify the situation were less than the judgment granted. The Court noted that a party should not obtain a windfall through the court process. Prejudice to 203AB from MR Engineering's failure to move promptly could be addressed by terms and a costs award.

The Court granted MR Engineering's application to set aside both the default judgment and the noting in default, subject to strict terms. MR Engineering was required to provide its finalized, but unfiled, Statement of Defence to 203AB by April 3, 2025, and to pay costs to 203AB within 30 days of the costs award. If MR Engineering failed to meet either of these conditions, it would not be permitted to have the default judgment set aside and 203AB could take steps to enforce the default judgment. If the parties were unable to agree upon the level of costs by April 15, written submissions on costs were ordered, with 203AB's submissions due by April 29, MR Engineering's by May 13, and any reply by 203AB by May 25. While MR Engineering was successful on this application, the Court held that costs should not be awarded to the winning party, as the application and all steps taken by 203AB since service of the Statement of Claim would not have been necessary if MR Engineering had engaged in the litigation and filed its defence when required. No specific monetary amount for costs was determined in this ruling; it was reserved for further submissions by the parties.