Introduction
Alberta now applies different tests to setting aside a noting in default and setting aside a default judgment. Since an October 2025 Court of Appeal decision, a noting in default is opened through a flexible, discretionary inquiry into what is fair and just, which may not require an arguable defence at all, while setting aside a default judgment continues to engage the stricter tri-partite test. Which test applies, and how much residual fairness discretion survives, is the subject of the decisions this article examines.
For years, Alberta courts approaching an application to set aside either a noting in default or a default judgment commonly applied the same tri-partite test, asking whether the applicant had an arguable defence, whether they deliberately let the default occur and had some excuse for it, and whether they moved promptly to set it aside once the default came to their attention. The test originated in the default-judgment context. But Court of Appeal decisions including Fort McKay Métis Community Association v Morin, 2020 ABCA 311 ("Fort McKay") applied it to notings in default as well.
That changed in October 2025, when the Alberta Court of Appeal released Liberty Mortgage Services Ltd v River Valley Development Corp, 2025 ABCA 346 ("Liberty Mortgage"). In drawing a sharp distinction between setting aside a noting in default and setting aside a default judgment, the Court held that the proper test for the former is a flexible, discretionary "fair and just" inquiry that may not require an arguable defence at all. The decision left practitioners and King's Bench justices working through what, exactly, had changed and what remained of the prior case law.
Three early 2026 decisions from the Court of King's Bench have now grappled with the implications. In Steinkey v First Capital Holdings (Alb) Corporation, 2026 ABKB 51 ("Steinkey"), Justice Lema confronted the tension between Liberty Mortgage and prior Court of Appeal authority head-on. He concluded that the two lines of cases are irreconcilable. In 2114223 Alberta Ltd v Lougheed, 2026 ABKB 78 ("2114223 Alberta Ltd"), Justice Mah considered the converse question of what role fairness and discretion play when the stricter default-judgment test applies. And in 961945 Alberta Ltd v Malfar Mechanical Inc, 2026 ABKB 179 ("Malfar"), Justice Angotti could not avoid the conflict and had to choose between the competing lines of authority. In doing so, she raised a pointed question about the scope of Liberty Mortgage itself. Together, these decisions reveal an area of law in active flux and raise practical questions for anyone facing or defending a set-aside application.
The Backdrop: The Tri-Partite Test Before Liberty Mortgage
Before Liberty Mortgage, both notings in default and default judgments were generally approached using the same three-part analysis. In Fort McKay, the Court of Appeal confirmed this test for setting aside a noting in default, requiring an arguable defence, a reasonable excuse for the default, and a prompt application to set it aside. The Court described the arguable-defence requirement as "the most important of the criteria" for opening up a noting in default (Fort McKay at para 14). Other Court of Appeal decisions, including Anderson v Anderson, 2020 ABCA 426 and Hunt v Riehl, 2024 ABCA 298, applied the same test in noting-in-default cases, each citing Kraushar v Kraushar, 2019 ABCA 186 as the source or at least an example of the test.
What Liberty Mortgage Changed
The appeal in Liberty Mortgage arose from a chambers judge's decision that had conflated the tests for setting aside a noting in default, setting aside a default judgment, and summary judgment. The Court of Appeal, in a panel decision by Justices Feehan, Feth, and Shaner, found that this conflation was an error of law and used the case to clearly distinguish the three concepts. In doing so, the Court set the stage for a significant reframing of the test applicable to notings in default.
The Court explained that a noting in default is a purely procedural step that documents a defendant's failure to respond and prevents further participation without court permission. A default judgment, by contrast, is a final ruling that grants a remedy. As the Court put it, a noting in default "triggers nothing to be enforced: it is only the later judgment" which "is capable of enforcement" (Liberty Mortgage at para 20).
The Court then held that the test for setting aside a noting in default, as set out in Al-Ghamdi v Alberta, is a flexible, discretionary inquiry into whether it is "fair and just" to allow the defendant to defend on the merits. The Court emphasized that this test "allows a court to consider a variety of factors" and that courts "will rarely require a defendant who has been noted in default to show an arguable defence on the merits" (Liberty Mortgage at para 22). The Court listed several non-exclusive factors. They include the behaviour of the parties, the length and reason for the defendant's delay, the complexity and value of the claim, and prejudice to the parties.
For setting aside a default judgment, however, the Court described the tri-partite test as "prescriptive, applied more strictly than the test for setting aside a noting in default, and recogniz[ing] the presumptive finality of a judgment" (Liberty Mortgage at para 23). The tri-partite test for default judgments asks whether the applicant has an arguable defence, whether they deliberately let the judgment go by default and have some excuse for the default, and whether they moved promptly to open it up. The Court cautioned that the two tests "must not be conflated" (Liberty Mortgage at para 24).
The Problem: Conflicting Court of Appeal Authority
The difficulty is that Liberty Mortgage did not mention, let alone overrule, the earlier Court of Appeal decisions that applied the prescriptive tri-partite test to notings in default. Fort McKay, Anderson, and Hunt all remain on the books. Each cited Kraushar as the source of the three-part test. Yet Liberty Mortgage recharacterized Kraushar as a default-judgment case, not a noting-in-default case, and identified the test for notings in default as originating in Al-Ghamdi, a single-justice decision.
This created a genuine conflict at the Court of Appeal level. Should a party seeking to set aside a noting in default meet the prescriptive tri-partite test, including the arguable-defence requirement that Fort McKay called the most important factor? Or need they only satisfy the broader "fair and just" standard from Liberty Mortgage, under which an arguable defence is rarely required? As of early 2026, the Court of Appeal has not resolved this tension.
Steinkey: Acknowledging the Conflict
In Steinkey, Justice Lema faced the conflict directly. The case involved an occupier's liability claim in which Starbucks had been noted in default. Starbucks had appointed an independent adjuster to handle the claim, but despite communications spanning more than two years from service of the statement of claim, the adjuster failed to respond to repeated demands for a statement of defence in the months before the noting in default was entered. The applications judge declined to set aside the noting in default, primarily because Starbucks had not shown an arguable defence.
On appeal, Justice Lema observed that while Liberty Mortgage stated arguable-defence analysis is "not generally required" for setting aside a noting in default, the Fort McKay line of cases made it effectively mandatory. He concluded that the two tests could not be reconciled, noting that Liberty Mortgage itself cautioned against conflating them, "with the Court of Appeal explicitly pronouncing them materially different" (Steinkey at para 40). He did not understand Liberty Mortgage to have overruled the earlier cases. It did not mention them, did not involve a formal reconsideration, and anchored its test in Al-Ghamdi and Ontario authority.
Justice Lema then considered whether Liberty Mortgage, as the later decision, automatically eclipsed the earlier cases. He concluded it did not, citing the principle from R v Arcand that "where a court of appeal has given conflicting precedents in the past, it is entitled and bound to decide which of its own two conflicting decisions it will follow" (Steinkey at para 42). This means a later decision does not, merely by virtue of timing, necessarily eclipse an earlier conflicting one, and lower courts confronted with the conflict may choose the test they consider more applicable to the case at hand.
Justice Lema did not, in the end, have to choose between the two tests. He applied both and found that Starbucks failed under each, with no arguable defence, no adequate excuse for the default, and no prompt application to set it aside. The noting in default stood.
2114223 Alberta Ltd: Discretion and Default Judgments
Justice Mah in 2114223 Alberta Ltd approached the issue from the other direction. His case involved a default judgment, so the prescriptive tri-partite test clearly applied. The question before him was different from the one Justice Lema had faced, since Liberty Mortgage had described the default-judgment test as "prescriptive," leaving unclear how much room remained for judicial discretion based on fairness.
The case had unusual facts. The defendant's statement of defence had been struck as a contempt remedy, though no finding of contempt was ever made. A default judgment was then obtained more than three years later on a without-notice basis, and the defendant only learned of it when his employer was served with a garnishee summons. Justice Mah found the defendant met all three parts of the tri-partite test. But he went further, concluding that Rule 9.15(3) "remains inherently discretionary and does not mandate a particular result" (2114223 Alberta Ltd at para 28). While a court must have regard to the prescribed tri-partite test, the decision "must still reflect fundamental fairness given the facts and circumstances of the case" (2114223 Alberta Ltd at para 28).
Justice Mah identified two particular circumstances weighing in favour of fairness and upholding the set-aside. First, while Rule 3.37 permits a without-notice application for default judgment, the case law recognizes that even a defendant noted in default retains the right to contest damages, a right that was denied by the absence of notice. Second, the default judgment was premised on a striking order obtained in irregular circumstances, where a contempt remedy was imposed without a contempt finding. Both factors supported the conclusion that fairness required upholding the set-aside.
Malfar: Forced to Choose Between the Lines
In Malfar, Justice Angotti faced the question that Justice Lema had been able to avoid in Steinkey. Which line of authority governs when the two tests would lead to different results? The case involved a default judgment entered directly under Rule 3.36(1)(a) for a debt of approximately $1.16 million in unpaid invoices related to remediation work on an Edmonton condominium project. No noting in default had been obtained; the plaintiff moved straight to default judgment. The defendant applied to set it aside after being served with a writ of enforcement.
Justice Angotti acknowledged the conflict between Liberty Mortgage and the Kraushar line of cases, citing Justice Lema's "extensive and helpful review" of the dilemma facing trial courts with binding but conflicting appellate authority (Malfar at para 28). But unlike Justice Lema, who found the same result under both tests, Justice Angotti observed that she was "not in that enviable position" and had to choose which line to follow (Malfar at para 29). In making that choice, Justice Angotti noted several reasons why Kraushar was a better fit. She observed that Liberty Mortgage "was not a formal reconsideration" of the existing case law and did not mention Kraushar, Poloma, or the various King's Bench decisions from 2020 to 2025 that had followed Kraushar; instead, it cited Alberta case law from 2010 or prior when setting out the default-judgment test (Malfar at para 30). She also observed that the appeal in Liberty Mortgage involved only a noting in default; no default judgment had been obtained, and after distinguishing the two tests, the Court of Appeal "did not have reference back to the test for setting aside a default judgment" (Malfar at para 30). By contrast, Kraushar was itself a default-judgment case, "which was the very basis upon which it was distinguished in Liberty Mortgage" (Malfar at para 30).
On that basis, Justice Angotti concluded that Kraushar and the cases following it in Alberta were "more applicable" to a case involving only a default judgment (Malfar at para 31). She applied the tri-partite test, followed by the residual fairness inquiry recognized in Kraushar and the subsequent King's Bench decisions. The defendant established an arguable defence on some claims, including that it may not have contracted for all of the disputed remediation work and that some invoices may have been limitation-barred. However, the defendant failed to establish a reasonable excuse for the default. The general manager's deliberate decision to disregard the statement of claim, based on a mistaken belief about service requirements under Ontario law, did not qualify as inadvertence or solicitor negligence. Justice Angotti found the failure to defend was deliberate and dismissed the appeal.
Where the Law Stands
These four decisions paint a picture of an area of law in transition. The distinction between a noting in default and a default judgment, which Liberty Mortgage drew sharply, now carries real consequences for how set-aside applications are argued and decided. For notings in default, conflicting Court of Appeal authority means the applicable test remains uncertain. For default judgments, the King's Bench decisions to date have continued to apply the Kraushar test, but the interplay between the tri-partite test and the residual fairness discretion under Rule 9.15(3) is still being worked out.
One theme is consistent across all four decisions. Courts closely scrutinize how quickly a defaulting party moved to address the default after learning of it. How quickly the defaulting party moved was weighed in every case, regardless of which test the court applied.
The current uncertainty means that the outcome of a set-aside application may turn as much on which line of appellate authority the court follows, and how the competing tests are framed, as on the facts themselves. Until the Court of Appeal resolves the conflict, this area of the law will remain unsettled. Applications to set aside defaults and default judgments arise frequently in commercial litigation, where the unsettled state of the law following Liberty Mortgage makes the way these applications are framed particularly important, whether on the applicant's side or in response. Baker Law Firm's commercial litigation practice regularly handles procedural disputes of this nature before the Alberta Court of King's Bench and the Alberta Court of Appeal.
If you are dealing with a default or set-aside issue, contact Baker Law Firm to discuss your options.