Executive Summary: Key Legal and Evidentiary Issues

• A mortgage enforcement action arose after a property was sold under power of sale for $1.85M, leaving a claimed shortfall of $914,000 plus interest against the mortgagor and guarantors.
• Defendants filed a pleading containing a counterclaim but incorrectly classified it in the court portal as a statement of defence and crossclaim only, creating a procedural gap.
• Plaintiff was noted in default on the counterclaim just 22 days after service, following only one reminder letter, despite the defendants' own nine-month delay in filing their defence to the original claim.
• Central evidentiary gap: no explanation was provided for the plaintiff's original counsel's inaction over 12 months between service of the pleading and the change of lawyers.
• Prejudice was a decisive factor — defendants demonstrated no actual prejudice from setting aside the default, while plaintiff faced significant prejudice if the counterclaim proceeded uncontested.
• "Extreme circumstances" threshold for requiring a meritorious defence was not met, as the delay pattern was found to be typical rather than exceptional.

Lardan Investments Inc. v. 11269682 Canada Inc. et al.: A mortgage enforcement dispute turns on procedure

Background and facts

Lardan Investments Inc. is the plaintiff and mortgagee in a mortgage enforcement action against 11269682 Canada Inc. ("112"), the mortgagor, and several guarantors: Xian Dong Meng, Jie Helena Han, and BFD Farms Inc. The plaintiff's original claim was for $2.81 million. The mortgaged property was subsequently sold under power of sale in February 2024 for $1.85 million, leaving a claimed shortfall of approximately $914,000, plus interest.

The procedural dispute

On August 1, 2024 — approximately nine months after the defendants were served with the original claim — the defendants served a joint pleading described as a statement of defence, crossclaim, and counterclaim. The counterclaim sought an accounting from the plaintiff, damages for improvident sale, and damages for oppression. When the pleading was filed through the online court portal, however, it was uploaded only as a statement of defence and crossclaim, not as a defence and counterclaim, creating a technical gap in the court's records.

On approximately August 16, 2024, defendants' counsel sent a single reminder letter to plaintiff's counsel regarding the deadline to file a defence to the counterclaim. No extension was sought by the plaintiff. Just 22 days after serving the pleading, on August 23, 2024, the defendants filed a requisition to note the plaintiff in default on the counterclaim, which the court accepted.

The plaintiff's delayed response

The plaintiff's original counsel took no steps to address the counterclaim in the period following service of the pleading. A notice of change of lawyer was not delivered until August 25, 2025 — over a year later. Upon taking over the file, new counsel discovered that no defence to the counterclaim had been filed. When counsel attempted to file one through the online portal, the system rejected it on the basis that no counterclaim had been formally filed. On November 28, 2025, the plaintiff requested and received the court's complete file, through which counsel learned of the noting in default.

The plaintiff first communicated with the defendants about setting aside the noting in default on January 5, 2026, and brought the formal motion at the end of April 2026.

The legal framework for setting aside a noting in default

Justice Bordin applied the well-established framework from Intact Insurance Company v. Kisel, 2015 ONCA 205, at para 13, which requires the court to consider the context and factual situation of the case, including: the behaviour of the parties; the length and reasons for the delay; the complexity and value of the claim; and whether setting aside the default would prejudice any party relying on it. The court noted that only in extreme circumstances should a defendant noted in default be required to demonstrate an arguable defence on the merits.

Analysis of the key factors

On the question of delay, the court acknowledged that the 12-month period of inaction by the plaintiff's original counsel was unexplained and not insignificant. However, Justice Bordin found that the delay from August 2025 onward — once new counsel was retained — was neither unreasonable nor unexplained, as new counsel took reasonable steps to investigate the file and attempt to negotiate a resolution before resorting to a formal motion.

On prejudice, the defendants argued they had conducted the litigation on the assumption that the plaintiff was in default. The court rejected this, finding no evidence that any steps had been taken by any party on the counterclaim or in the action since the noting in default. The parties themselves acknowledged in submissions that no such steps had been taken. In contrast, the court found that the plaintiff faced significant prejudice if the default were not set aside, given that the counterclaim raises issues directly relevant to what, if anything, is owed to the plaintiff — including the improvident sale allegation, which could affect the entire basis of the plaintiff's claim.

The defendants also urged the court to find "extreme circumstances" justifying a merits review of the plaintiff's defence, pointing to the unexplained 17-month delay. The court disagreed, characterizing the delay as typical of cases of this nature rather than exceptional. Even if the delay was attributable to the plaintiff's former counsel, Justice Bordin held that such fault should not be visited on the plaintiff itself. As a result, the court declined to assess whether the defence was meritorious.

Outcome and costs

Justice Bordin granted the plaintiff's motion and set aside the noting in default, holding that the matter must be determined on its merits. The plaintiff, Lardan Investments Inc., was the successful party. On the question of costs, the court fixed costs payable jointly and severally by all defendants to the plaintiff in the all-inclusive amount of $8,000, due within 30 days. The underlying claim for the mortgage shortfall of approximately $914,000 plus interest, and the defendants' counterclaim for damages, remain to be determined at a future proceeding on the merits.