Executive Summary: Key Legal and Evidentiary Issues

• Whether the mortgage on a jointly owned commercial property became unenforceable due to statutory limitation.

• Dispute over the accuracy and withdrawal of an admission that no mortgage payments were made after June 2015.

• Determination of whether rental income applied to the mortgage qualifies as payment under the Limitation Act.

• Admissibility of a late-filed affidavit containing previously redacted financial documents.

• Impact of amended pleadings on the petitioner’s claim that the mortgage was statute-barred.

• Consideration of procedural fairness and prejudice in granting leave to amend pleadings and withdraw admissions.

Background and Facts

The dispute centers around a commercial property in Chilliwack, British Columbia, jointly owned by Jenor Steel Incorporated and 466372 B.C. Ltd., each holding a 50% interest. The property was originally financed through a mortgage obtained from the Business Development Bank of Canada (BDC). After a business fallout, 466’s affiliate Sonic Holdings Ltd., controlled by Mr. Ray Roussy, paid out the mortgage in 2015 and received an assignment of the mortgage and associated security, including the right to collect rents.

Following the breakdown of their shared business, Sonic Drill Systems Inc., and subsequent legal proceedings related to fiduciary breaches (which were dismissed), the parties disagreed over property management and sale. Jenor initiated a petition in 2020, seeking partition and sale of the Chilliwack property, an accounting of proceeds, and a declaration that the mortgage was statute-barred as no payments had been made since June 2015. A partial judgment in 2022 ordered the property's sale, which occurred in May 2023, with proceeds held in trust pending resolution of the mortgage enforceability and accounting issues.

Disputed Admission and Amendment

At the heart of this decision is the respondents’ attempt to withdraw an earlier admission in their pleadings that no payments had been made on the mortgage after June 2015. This admission became central when Jenor relied on it to assert that the mortgage was time-barred under the Limitation Act, which imposes a two-year period from the last payment for enforceability. The respondents, now with new counsel, argued that rent collected from tenants after the mortgage assignment was used to pay down the debt, and thus, the earlier admission was inaccurate.

The court considered whether to allow the respondents to amend their pleadings to correct the statement and whether such a change constituted a withdrawal of an admission. If so, it required court approval under Rule 7-7(5)(c) of the Supreme Court Civil Rules. The petitioner opposed the amendment, arguing it would unfairly delay proceedings and that the respondents had previously reviewed and affirmed the original pleadings knowingly.

Legal Analysis and Ruling

Justice Hamilton acknowledged that the original admission was not made hastily and that the principal, Mr. Roussy, had reviewed the filings. However, the court found that the misunderstanding likely stemmed from a narrow interpretation of "payments," meaning direct payments only. The court concluded that the broader issue—whether rental income applied toward the mortgage could legally extend the limitation period—was significant enough to merit a full hearing.

The judgment emphasized the overarching principle of the interests of justice, finding that withdrawing the admission would enable a fair determination on the merits. While acknowledging potential procedural unfairness and delays, the judge noted there was no current trial date, and any prejudice could be addressed through cost orders if necessary.

Outcome

The court granted the respondents leave to withdraw the admission and file a further amended response to the petition. This opens the door for a substantive hearing on whether the mortgage remains enforceable or is barred by the Limitation Act, taking into account the role of rental income in potentially extending the limitation period. Costs of the application were left to be determined in the cause, with the option for further submissions from counsel if desired.