Executive Summary: Key Legal and Evidentiary Issues

• Whether a defendant that admits liability and discontinues its defence stops being adverse in interest for questioning under Rule 5.17 was the central issue on appeal.
   
• Filing of the Discontinuance of Defence after the applications judge’s decision was new, relevant and material evidence, so the court reviewed the matter de novo.
   
• A defendant in default is deemed to admit the facts pleaded, but the court must still be satisfied that those facts support a recognized cause of action before granting judgment.
   
• ATB Financial’s need to determine whether any judgment should rest on fraud, negligence, or breach of contract kept the parties adverse in interest.
   
• Rule 3.37 is permissive, so a plaintiff cannot be forced to seek immediate judgment on a timetable set by the defendant.
   
• Reading Rules 4.37(2)(a) and 5.20(2)(a) together suggests that a defendant in default of defence may still be questioned.
   

Facts of the case

On May 31, 2019, ATB Financial sued Hastings Ilagan Inc. The claim alleged that the company made deceptive representations or, alternatively, negligently misrepresented material facts, or in the further alternative, breached its contractual obligations. ATB claimed to have suffered significant financial losses as a result. Hastings Ilagan filed a Statement of Defence on May 15, 2020, denying liability and asserting that the claims were barred by Alberta’s Limitations Act.

On August 20, 2025, Hastings Ilagan applied for judgment against itself, indicating it would consent to judgment in ATB’s favour. ATB opposed that application and, on August 28, 2025, applied for an order compelling Hastings Ilagan’s corporate representative to attend for questioning.

In a decision dated September 8, 2025, the applications judge treated the request for judgment as a unique application. She accepted that ATB retained control of its action and was not required to seek judgment at that stage. Hastings Ilagan’s affidavit of records listed no records, and ATB needed to determine whether the eventual judgment should be based on fraud, negligence, or contract. On that basis, the applications judge found ATB had a valid reason for questioning, dismissed Hastings Ilagan’s application, and granted ATB’s.

On November 21, 2025, after that decision, Hastings Ilagan filed a Discontinuance of Defence. Hastings Ilagan appealed the applications judge’s decision, and the Court of King’s Bench of Alberta heard the appeal on September 2, 2026.

Policy and legislative provisions at issue

The appeal turned on several provisions of the Alberta Rules of Court. Rule 1.2(1) states that the purpose of the Rules is to allow claims to be fairly and justly resolved in a timely and cost-effective way. Under Rule 3.37(3), a party may apply for judgment where a defendant is noted in default or its defence is struck. On such an application, the court may, among other things, pronounce judgment, direct a determination of damages, or adjourn the application and order additional evidence.

Part 5 of the Rules aims to let parties obtain evidence, narrow the issues, encourage early disclosure, and facilitate evaluation of their positions. It also seeks to discourage conduct that unnecessarily delays proceedings or increases costs (Rule 5.1(1)). Within that framework, Rule 5.17(1) entitles a party to question parties adverse in interest about relevant and material records and information.

The timing of a plaintiff’s questioning is governed by Rule 5.20(2)(a). It allows questioning any time after a statement of defence has been served or the time for serving one has expired. A defendant may discontinue its defence under Rule 4.37 by filing and serving a notice, after which Rule 4.37(2)(a) provides that it is in default of defence. Appeals from applications judges are addressed in Rule 6.14(3), which permits an appeal to be based on additional evidence that is relevant and material.

Reasoning and analysis

The Discontinuance of Defence was filed after the applications judge ruled, and it was relevant and material. For that reason, the court conducted a de novo review, deciding the matter independently without deference to the earlier decision.

Hastings Ilagan raised two grounds on appeal:

• Questioning was improper because it was willing to accept the allegations pleaded and the relief sought.
• Alternatively, its discontinuance created a deemed admission, so ATB should be required to pursue remedies under Rule 3.37.

The court treated these as a single issue, since the discontinuance and its legal effect were central to both. That issue was whether ATB could question the corporate representative under Part 5.

Hastings Ilagan argued that no dispute remained to justify questioning and that ATB should go directly to judgment. ATB countered that it needed further information before deciding how to proceed, including the proper basis for any judgment. It also argued that the Rules do not let a defendant unilaterally end a plaintiff’s discovery rights simply by being willing to admit liability.

The court drew on Towers v Whiting, an Ontario case involving a will dispute. There, a defendant who withdrew her defence and sought to discontinue her counterclaim remained adverse in interest and subject to discovery, because the question of which document was the valid will was still unresolved. Although Towers arose in a different context under Ontario’s Rules of Practice, the court found its reasoning relevant. Withdrawing a defence does not by itself settle adversity; that depends on whether issues remain and whether the questioning targets them.

A defendant in default of defence is deemed to admit the facts in the statement of claim. Even so, the court must still determine whether the plaintiff has made out its cause of action before granting default judgment. On this point, the court cited Spiller v Brown: admissions cannot create a cause of action where none exists. Uncertainty over whether liability lies in fraud, negligence, breach of contract, or a combination may produce competing positions on the factual findings needed and the relief to be granted.

The court rejected the notion that a defendant can force a plaintiff to seek immediate judgment by admitting liability and discontinuing its defence. Nothing in the Rules lets a defendant dictate the terms of judgment or control its timing, and Rule 3.37 is permissive rather than mandatory. Rule 5.20(2)(a) necessarily implies that a defendant in default may be questioned. A harmonious reading of that Rule with Rule 4.37(2)(a) suggests the same applies to a defendant in default because it discontinued its defence. Since the court may adjourn a default judgment application and require more evidence, it would make little sense to make a plaintiff seek judgment before obtaining evidence it reasonably expects to need.

The court added that a plaintiff’s entitlement to further steps is not unlimited. Where no practical dispute remains, the court can control its process, including through costs consequences. Efficiency concerns are addressed through those supervisory powers, not by treating an admission of liability as extinguishing the plaintiff’s procedural rights. Here, ATB was not seeking questioning merely to prove liability Hastings Ilagan was prepared to concede. It sought information on the proper factual and legal characterization of that liability.

Ruling and overall outcome

The court found that ATB Financial had identified a legitimate reason for questioning. The parties therefore remained adverse in interest despite Hastings Ilagan’s willingness to admit liability and its Discontinuance of Defence. The appeal was dismissed, and ATB may proceed with questioning Hastings Ilagan’s corporate representative. As a procedural ruling, the decision awarded no damages and did not address costs, so no monetary amount was ordered in ATB’s favour.