Executive Summary: Key Legal and Evidentiary Issues

• Central issue is enforcement of an Indemnity and Security Agreement making the defendants jointly and severally liable for Aviva’s losses under a Tarion warranty bond.
• Evidence of Aviva’s bond payment to Tarion and its investigation, consulting and legal expenses supports the claimed indemnity amount.
• The defendants’ failure to defend led to deemed admissions under the Rules of Civil Procedure, forming the basis for default judgment.
• The court applied the Elekta default-judgment test, finding the pleaded facts and affidavit evidence sufficient to establish liability and quantum.
• Contractual interest at 18% per year, both pre-judgment (to a specified date) and post-judgment, was upheld as valid and enforceable.
• The court concluded that Aviva was entitled to a total judgment of $991,446.19 against the defendants, plus ongoing post-judgment interest at 18%.

Background and parties

Aviva Insurance Company of Canada is licensed to carry on business as a surety in Ontario. In January 2017, Aviva obtained an Indemnity and Security Agreement (“Indemnity Agreement”) from three individual defendants: Mohammed Rawra and Sajid Rehmatullah, officers and directors of Nascent (Tisdale) Inc. (“Nascent”), and Nausheen Rafiq, the spouse of Mohammed Rawra. Under this Indemnity Agreement, the defendants agreed to assume personal obligations connected with Aviva’s suretyship for Nascent. The agreement expressly provided that the defendants would be jointly and severally liable for all obligations arising from the Indemnity Agreement. It also stipulated that they would indemnify Aviva in full for any losses or damages arising from any bond issued by Aviva, and that all amounts payable to Aviva would bear interest at a rate of 18% per year.

The Tarion bond and Nascent’s receivership

Pursuant to its surety business, Aviva executed and delivered a Tarion Warranty Corporation bond in favour of Nascent. This Tarion bond was intended to secure obligations related to residential construction warranties. Subsequently, Nascent encountered serious financial difficulties. On March 31, 2021, Grant Thornton Limited was appointed as receiver of all assets, undertakings and properties of Nascent, signalling the company’s insolvency and leaving Aviva exposed under the Tarion bond.

Demand under the bond and Aviva’s payments

In November 2023, Tarion made a demand on Aviva under the bond in the amount of $701,700. Aviva investigated the demand and, exercising the discretion granted to it under the Indemnity Agreement, determined that it was appropriate to respond by making payment. After its investigation, Aviva paid Tarion $690,000 pursuant to the bond. In addition to the bond payout, Aviva incurred significant investigation, consulting and legal expenses totalling $194,570.67 in connection with assessing and responding to Tarion’s claim and performing its obligations as surety under the bond and the Indemnity Agreement. Aviva then sought to recover both the bond payment and these associated expenses from the defendants under the indemnity.

Key terms of the indemnity agreement

The Indemnity Agreement was central to the case. It contained several important provisions: first, that the defendants were “jointly and severally liable” for all obligations arising from the agreement, meaning Aviva could pursue any or all of them for the full amount of the loss. Second, it required the defendants to indemnify Aviva in full for “any loss or damages” arising from any bond that Aviva provided, capturing both the bond payout and related expenses. Third, the agreement conferred discretion on Aviva to make payments under any bond, thus protecting the insurer from later challenges by the indemnitors about the prudence of those payments. Finally, the agreement specified that all sums payable to Aviva under the Indemnity Agreement would bear interest at a rate of 18% per year. These contractual terms framed the court’s analysis of both liability and damages.

Procedural history and default of the defendants

Aviva commenced an action seeking indemnity under the Indemnity Agreement. The defendants did not defend the proceeding. As a result, they were noted in default at different times in 2025. Following this, Aviva brought a motion for default judgment. An order of Justice Koehnen in January 2026 directed that the motion materials, draft judgment and order be served on the defendants. Those materials were duly served, yet the defendants did not indicate any intention to defend the action or move to set aside their noted default. This procedural posture meant that the court had to determine, under the Rules of Civil Procedure, what legal consequences flowed from the defendants’ failure to defend and whether Aviva was nonetheless required to prove its claim.

Legal framework for default judgment and deemed admissions

The court applied the Ontario Rules of Civil Procedure dealing with default and default judgment. Under rule 19.02, a defendant who fails to deliver a defence is deemed to admit the truth of all material facts pleaded in the statement of claim. However, rule 19.06 clarifies that a plaintiff is not automatically entitled to judgment merely because facts are deemed admitted; the pleaded and admitted facts must, as a matter of law, justify the relief claimed. In cases involving unliquidated damages, rule 19.05 requires supporting affidavit evidence on a motion for judgment. The court also relied on the three-part test for default judgment set out in Elekta Ltd. v. Rodkin, which asks: what deemed admissions arise from the pleadings; whether those admissions, in law, entitle the plaintiff to judgment; and, if not fully sufficient, whether additional admissible evidence, combined with the deemed admissions, supports judgment on the pleaded claim.

Assessment of liability under the indemnity

Applying this framework, the court accepted that the defendants were bound by the deemed admissions in Aviva’s statement of claim. Those admissions included that the defendants had executed the Indemnity Agreement, that they were jointly and severally liable for Aviva’s losses under the Tarion bond, and that Aviva had made the bond payment and incurred related expenses in accordance with the agreement. The court also considered an affidavit sworn by an Aviva representative, which detailed the bond payment, the expenses, and the basis on which Aviva concluded that it was obliged to pay Tarion under the bond. The judge held that these deemed admissions, together with the affidavit evidence, established liability under the Indemnity Agreement. The defendants had contracted to indemnify Aviva, Aviva had fulfilled its obligations under the bond, and the resulting loss fell squarely within the scope of the indemnity.

Calculation of indemnified losses and expenses

The court then turned to the quantification of Aviva’s loss. Aviva sought indemnification of $884,570.67, consisting of the $690,000 payment made to Tarion and $194,570.67 in investigation, consulting and legal expenses. The judge reviewed the breakdown of expenses and was satisfied that they were properly incurred by Aviva in investigating the Tarion demand, determining whether and to what extent to respond, and fulfilling its obligations as surety. Because the Indemnity Agreement required the defendants to indemnify Aviva for losses and damages “arising out of” any bond, the court held that both the principal bond payment and the associated expenses were recoverable from the indemnitors.

Enforcement of contractual interest

A significant issue concerned interest. The Indemnity Agreement stipulated a contractual rate of 18% per year on all amounts payable to Aviva. Aviva claimed pre-judgment interest at this contractual rate from the 30th day after the issuance of its statement of claim, and it calculated this interest up to December 18, 2025, resulting in a pre-judgment interest figure of $106,875.52. The court reviewed leading authorities on contractual interest, including cases confirming that courts generally give effect to agreed interest rates unless they are vague, unclear, or contrary to statute, such as the federal Interest Act. It also noted decisions emphasizing that, absent exceptional circumstances, it is fair and appropriate to enforce the rate to which commercial parties have agreed. Finding no statutory or equitable reason to depart from the contract here, the judge upheld the 18% rate and awarded pre-judgment interest in the amount claimed by Aviva, as well as post-judgment interest at the same 18% contractual rate going forward.

Outcome and total award

In its final disposition, the court granted Aviva’s motion for default judgment in full. It awarded Aviva indemnification of $884,570.67 for the bond payment and related investigation, consulting and legal expenses, plus $106,875.52 in pre-judgment interest calculated at 18% per year up to December 18, 2025. This produced a total monetary judgment of $991,446.19 against the defendants. The judgment also ordered that post-judgment interest would accrue at the contractual rate of 18% per year, though that ongoing interest was not reduced to a fixed dollar amount in the reasons. Accordingly, Aviva Insurance Company of Canada is the successful party, having obtained judgment in its favour for a total awarded sum of $991,446.19, with additional post-judgment interest continuing at 18% per annum.