Executive Summary: Key Legal and Evidentiary Issues

• The motion turned on whether the seven-factor test from Franchetti v. Huggins justified setting aside a default judgment.
   
• Personal service of the statement of claim on one defendant was contested based on a competing alibi.
   
• Corroborating evidence, including a process server's affidavit and separate written correspondence, supported a finding of proper service.
   
• Delay in bringing the motion after the defendants learned of the default was found not to demonstrate a genuine intention to defend.
   
• Bald denials unsupported by detailed facts or evidence were held insufficient to establish an arguable defence.
   
• Ongoing prejudice to the plaintiff from delayed enforcement weighed against setting aside the judgment.
   

Facts of the case

MarshallZehr Group Inc. (MZ), a mortgage broker and administrator, brought a motion to compel Sarmad Ganni and Nawar Mahfooth to attend an examination in aid of execution. Ganni and Mahfooth brought a competing motion seeking to set aside a default judgment against them. The two motions were linked by consent: if the motion to set aside succeeded, the motion to compel would be abandoned, and the parties made a joint submission that costs of $10,000 should follow to whichever side prevailed.

On February 29, 2024, Ganni and Mahfooth executed an unlimited guarantee covering all debts owed to MZ by the underlying borrowers on a loan financing condominium developments around Oakville. By early 2025, the loan had entered a wrap-up period with unpaid interest and mounting arrears. After discussions failed to resolve the default, MZ sent Ganni a demand letter on May 15, 2025, stating a total amount owing of $27,679,074.68, exclusive of accruing interest and enforcement costs. MZ served a statement of claim on both men on June 16, 2025; a process server swore he personally served Ganni at his Burlington office on July 3, 2025, and MZ's CEO stated that a colleague separately sent written correspondence, including the claim, to both defendants. Ganni maintained he only learned of the lawsuit in November 2025 and produced a dinner reservation in Niagara Falls for the evening of July 3, 2025, as evidence he was not at his office that day. Mahfooth did not dispute service; he said he relied on Ganni's assurance that the matter would be resolved.

Neither defendant filed a defence. They were noted in default on August 11, 2025, and default judgment was entered on August 20, 2025, for $24,699,125.51 with interest at 10.7% compounded monthly, a further $3,871,620.71 with interest at 15% compounded monthly, and costs of $1,906.47 with interest at 4% per annum. The defendants say they learned of the default judgment in November 2025 when notified of the examination in aid of execution, made written requests for information in January 2026, received responses on January 22, 2026, and filed their motion to set aside on February 20, 2026.

Policy and legislative provisions at issue

The guarantee signed by Ganni and Mahfooth secured all debts and liabilities owed to MZ by the borrowers and formed the basis of the underlying claim. Rule 37.07(4) of the Rules of Civil Procedure was raised in connection with service requirements, as the rule provides that an order, along with the motion record and supporting materials, must be served on the party affected. The governing legal test came from Franchetti v. Huggins, 2022 ONCA 111, which sets out the factors relevant to setting aside a noting of default or default judgment: the parties' conduct, the length of and reasons for the defendant's delay, the complexity and value of the claim, whether setting aside would prejudice a party who relied on the default, the balance of prejudice between the parties, and whether the defendant has an arguable defence on the merits.

Reasoning and analysis

Justice Cudjoe addressed each Franchetti factor in turn. On the defendants' conduct, the court noted neither had made any payments since early 2025. On service, the court found Ganni's alibi for July 3, 2025, did not undermine the process server's sworn account of serving him at his office, particularly since Ganni chose not to seek leave to cross-examine the process server and did not dispute that his business partner had told him about the lawsuit. Separate correspondence from MZ's CEO and a colleague reinforced that finding. The court also observed that once noted in default, the defendants were not legally entitled to further notice of the motion for judgment, though it acknowledged case law favouring service on defaulting parties as a matter of practice, citing Royal Bank of Canada v. Streetsville Eyecare Inc., 2022 ONSC 4609.

On delay, the court found the defendants knew of the default by November 2025 but did not send written requests for information until January 2026, receiving responses on January 22, 2026, before filing their motion on February 20, 2026. This gap was characterized as not inordinate but insufficient to show a genuine intention to defend. On prejudice, the court weighed the plaintiff's continued loss of capital and mounting legal costs, drawing on Equitable Bank v. Bal, 2025 ONSC 7130, for the principle that defendants who have used the court process to delay enforcement while failing to remedy their default can hardly claim prejudice from that delay.

On the arguable defence factor, the court applied the standard from Kantor v. Grewal et al., 2025 ONSC 1542, requiring a close review of the merits to determine whether an arguable case exists, alongside the principle from HSBC Securities (Canada) Inc. v. Firestar Capital Management Corporation, 2008 ONCA 894, that a self-serving affidavit lacking detailed facts and supporting evidence does not create a triable issue. The defendants had pleaded several grounds, including denial of liability for the claimed amounts, dispute over the quantum and calculation of the debt, denial of liability for legal costs, allegations that MZ failed to act in good faith and breached a duty to mitigate damages, claims of an invalid guarantee due to material alteration and failure of consideration, and an assertion of inadequate notice of default. The court found the notice argument unsustainable given the clarity of the May 15, 2025 letter, and held that none of the other pleaded defences were supported by any evidence, remaining bald assertions.

Ruling and overall outcome

Weighing all factors together, the court concluded it was not in the interest of justice to set aside the default judgment, and the motion to set aside was dismissed. MarshallZehr Group Inc. was the successful party, with the court ordering costs of $10,000, all-inclusive, in its favour, to be split equally between the two defendants at $5,000 each. As agreed between the parties, the order compelling Ganni and Mahfooth to attend an examination in aid of execution was confirmed.