Executive Summary: Key Legal and Evidentiary Issues

• Respondents were permitted to withdraw an admission that no payments had been made on the BDC Mortgage since June 2015, after the court found it was in the interests of justice to allow correction of pleadings and determination of the mortgage-enforceability issue on full facts.

• The central legal dispute concerned whether the limitation period under the British Columbia Limitation Act, S.B.C. 2012, c. 13, barred Sonic's enforcement of the BDC Mortgage against Jenor.

• Evidence from 466's and Sonic's financial statements and tax returns established that rental income was applied toward the BDC Mortgage on behalf of both co-owners, extending the limitation period for a time.

• The court ultimately held that no timely enforcement action was commenced, and Sonic's claims relating to the BDC Mortgage against Jenor are statute-barred under the Limitation Act.

• Judges scrutinized inconsistent affidavits, late-filed evidence, improperly redacted financial disclosure, and "notional" versus actual payments, ultimately giving greater weight to objective financial records.

• Jenor succeeded in obtaining a declaration that Sonic's mortgage claims are time-barred; however, no precise monetary amount was determined as the accounting and distribution of sale proceeds remain outstanding.

Factual background and business relationship

Jenor Steel Incorporated ("Jenor") and 466372 B.C. Ltd. ("466") were holding companies whose principals were Tom Savage (Jenor) and Ray Roussy (466). They jointly owned a commercial property at 43833 Progress Way in Chilliwack (the "Chilliwack Property"), purchased in 2007 for $2.5 million as the manufacturing site for Sonic Drill Systems Inc. ("SDSI"). The purchase was funded partly by equal capital contributions from 466 and Jenor, and partly by mortgage financing from the Business Development Bank of Canada ("BDC"). 466 and Jenor each held 50% of the shares in SDSI. SDSI granted a 25% guarantee on the mortgage debt.

The mortgage registered by BDC secured two separate loans: a $2,125,000 loan to fund the purchase of the Chilliwack Property, and a $100,000 loan to purchase an overhead crane. SDSI also borrowed approximately $500,000 from the Royal Bank of Canada ("RBC"), with Jenor, 466, Mr. Roussy, and Mr. Savage each guaranteeing RBC's loan to SDSI.

By November 2013, SDSI's business was struggling and a receiver was appointed. Ultimately, SDSI was assigned into bankruptcy in March 2014 leaving a debt of approximately $4,000,000, with MNP Ltd. appointed as trustee in bankruptcy. The Chilliwack Property was listed for sale at $2.55 million. In a prior decision, Justice Kirchner found that "at this stage, Mr. Savage wanted to sell the property to pay the company's debts, but Mr. Roussy wanted to hang on to it." In the face of the failed attempt to sell the Chilliwack Property in 2014, Mr. Savage advised Mr. Roussy that he would not be contributing further to the BDC Mortgage or the expenses on the Chilliwack Property.

On April 2, 2015, BDC sent a letter to Jenor and 466 declaring a default under the terms of the BDC Mortgage, invoking the acceleration clause and demanding repayment of the loans in full. Mr. Roussy then incorporated the respondent Sonic. On June 12, 2015, Mr. Roussy caused Sonic to pay out and take an assignment of the BDC Mortgage (loan and security) for $1,892,814.10. Jenor was given notice of the assignment by BDC on June 15, 2015.

The relationship between the principals deteriorated further, spawning extensive litigation. There have been more than 11 written decisions of this Court plus one decision of the Court of Appeal and one application for leave to the Supreme Court of Canada (which was denied). Mr. Roussy's two actions proceeded to an 18-day trial before Justice Watchuk in 2019. Justice Watchuk dismissed both actions and awarded the defendants costs, assessed as uplift costs. Regarding Mr. Roussy's credibility, Justice Watchuk found that "I cannot find that he was a credible witness on many key issues."

In November 2015, Sonic leased the Chilliwack Property to DC Machine Parts Inc. The respondents say that, thereafter, Sonic would collect the rent, but only as agent for the owners. After 2014, Jenor did not participate in the management of the Chilliwack Property; Jenor did not receive any (visible) benefit, nor did it contribute to the expenses.

The partition proceeding and the mortgage limitation issue

On September 4, 2020, following the dismissal of Mr. Roussy's derivative action, Jenor commenced this proceeding under s. 6 of the Partition of Property Act, R.S.B.C. 1996, c. 347, seeking partition and sale of the Chilliwack Property and an accounting inquiry. Sonic was named as a respondent because it had two charges registered on title: the BDC Mortgage and the RBC judgment which was registered against Jenor's share of the Chilliwack Property.

In May 2022, Jenor's application for partition and sale came before Justice Kirchner, who ordered the sale of the Chilliwack Property, an accounting by the Registrar of the revenues and expenses associated with use of the Chilliwack Property, and that 466 and Sonic cooperate fully with the listing and sale process. The issue regarding enforceability of the mortgage and the accounting were adjourned to be addressed at a later date.

On July 14, 2021, prior to the hearing before Kirchner J., Jenor amended the petition to seek a declaration that all claims relating to a mortgage on the Chilliwack Property are statute-barred as against Jenor.

Following the order of Kirchner J., with some delays, the Chilliwack Property was sold on May 2, 2023, for a price of approximately $7.5 million. The Chilliwack Property sold in May 2023; Jenor and 466 each received a $1 million advance on the sale proceeds, leaving approximately $2.5 million in trust pending resolution of the outstanding issues.

The original admission about non-payment and its attempted withdrawal

In their response to petition filed on October 6, 2020, 466 and Sonic stated that neither 466 nor Jenor had made any payments toward the Mortgage since the assignment to Sonic in June 2015 and the balance as of October 2020 was approximately $2.2 million. Mr. Roussy swore a supporting affidavit (Affidavit #1) on October 15, 2020, stating: "Neither the Petitioner nor 466 have made any payments on the BDC mortgage assigned to [Sonic] in June 2015."

On July 14, 2021, Jenor filed an amended petition to seek a declaration that Sonic is statute-barred from enforcing the Mortgage against Jenor, such that the Mortgage had expired by June 2017, pursuant to the Limitation Act, two years after the last payments to the Mortgage.

The respondents filed their amended response to petition on July 22, 2021, and in specific response to Jenor's claim that the Mortgage was statute-barred stated "the loan is a good and valid charge". The respondents did not, however, delete or amend the statement at the start of the same paragraph that no payments were made to the Mortgage after June 2015.

The respondents retained new counsel, Mr. Clavier, in September 2021. Mr. Clavier immediately advised Jenor's counsel that the respondents' pleadings were wrong and required amendments to correct the statement that no payments had been made on the Mortgage since June 2015. However, it took Mr. Clavier several months to come up to speed on the file so the respondents' application to amend was not filed by Mr. Clavier until March 2022.

Legal test for withdrawing admissions and Hamilton J.'s ruling (2025 BCSC 648)

The issue before Justice Hamilton was whether respondents could amend their response to withdraw the admission of "no payments" and replace it with a new narrative that rent had been applied to the mortgage. Under Rule 7-7(5)(c), a party may not withdraw an admission made in a pleading, petition or response to petition except by consent or with leave of the court.

The Court of Appeal in Sidhu v. Hothi, 2014 BCCA 510 sets out the test for withdrawal of an admission as "whether there is a triable issue which, in the interests of justice, should be determined on the merits and not disposed of by an admission of fact." The court considers all of the circumstances, including factors such as: whether the admission was made inadvertently, hastily or without knowledge of the facts; whether the admission is one of fact and whether it is or may be untrue; whether the "fact" admitted was or was not within the knowledge of the party making the admission; whether and to the extent the withdrawal of the admission would prejudice a party; and whether there has been delay in the application to withdraw the admission and any reason offered for the delay.

Applying these principles, Justice Hamilton held that:

The respondents sought to withdraw an admission that no payments were made by either 466 or Jenor toward the Mortgage since June 2015, and the statement is clearly and unambiguously a concession made about a matter of substance.

While the admission was not made hastily—Mr. Roussy admitted he reviewed the original response before instructing counsel to file it—it appears that when Mr. Roussy authorized the statement regarding no "payments", he was likely focussed on there being no direct payments made by 466 or Jenor to Sonic by cheque or direct transfer.

Mr. Roussy's Affidavit #2 states: "It was incorrect of me to say that Jenor and 466 have not made any payments on account of the BDC Mortgage. What I had intended to convey through this statement was that, from the time of the BDC Mortgage Assignment, neither Jenor nor 466 had made any payments on account of the BDC Indebtedness in addition to rent."

The respondents maintain that after Sonic made the assignment agreement with BDC on June 12, 2015, Sonic became entitled to collect any rents for the Chilliwack Property on behalf of the owners, 466 and Jenor, and that Sonic collected rent and attributed such rent to the owners equally, applying the rent it collected to the Chilliwack Property's expenses including the Mortgage.

Regarding delay, Mr. Clavier promptly notified Mr. Aitken that the pleadings were wrong and needed to be amended. While it took several months to file the application to amend the amended response, the court accepted Mr. Clavier's explanation that it took him some time to review the file and come up to speed.

In terms of prejudice, there is no trial or hearing date that would be forced to be adjourned, no date yet set for the enforceability of the Mortgage issue or the accounting, and no issues with witnesses being no longer alive or information no longer preserved.

The court emphasized that a key issue to be determined in this proceeding on the merits is whether the enforceability of the Mortgage is statute barred, and if leave is not granted to the respondents to withdraw the admission, the court will not have the full facts before it to deal with this primary issue on the merits.

Considering all of the circumstances and weighing the various factors, Justice Hamilton found that the overall interests of justice are best served by granting the respondents leave to withdraw the admission and file their proposed further amended response to the amended petition.

The evidentiary fight over "notional" payments and redacted documents

Once the admission was withdrawn, attention shifted to whether the respondents could actually prove, with credible evidence, that Jenor had made payments (directly or indirectly) toward the BDC Mortgage sufficient to extend the limitation period.

The accountant Mr. Montgomery's Affidavit #1 described a "notional" payment that is required for accounting purposes. In an email dated June 15, 2021, Mr. Montgomery stated that the balance owing from Jenor Steel was comprised of the net rental income/loss each year "PLUS the required (but unfunded) payments to service the debt assumed by Sonic from BDC. In other words we notionally applied payments from 466372 and Jenor Steel at 50% each of the scheduled debt payment."

On November 15, 2023, Associate Judge Hughes ordered that the respondents produce their financial statements and various communications. On January 18, 2024, Justice Hori ordered the respondents to produce additional documents including Sonic's tax returns for 2015-2023, permitting Sonic "to redact information not related in any way" to the Chilliwack Property.

Sonic, via Mr. Roussy, produced its tax returns for the years 2015-2023 on January 31, 2024. Every bit of financial information reported in the tax returns was redacted; essentially, no information was disclosed.

Mr. Montgomery advised that the "entire T2 should also be redacted for Sonic Holdings" and stated that Sonic only received rental income as a "banking intermediary" for 466 and that "Sonic Holdings reports none of the rental property info in its financial statements or T2."

Mr. Montgomery was cross-examined on November 21, 2024. Mr. Roussy was in attendance throughout Mr. Montgomery's cross-examination.

Mr. Roussy says that he realized during Mr. Montgomery's cross-examination that his full redaction of the financial records was incorrect. On March 11, 2025, Mr. Roussy swore his Affidavit #8, which exhibited extracts of Sonic's tax returns from the 2016-2023 fiscal years with certain information unredacted.

Ross J.'s factual findings on rent, intercompany accounting and mortgage payments (2026 BCSC 30)

Justice Ross undertook a detailed review of 466's financial statements and Sonic's tax returns to determine what had actually happened with the BDC Mortgage.

Mr. Montgomery's affidavit explains that 466 maintains an account to record amounts that it owes to Sonic (the "Intercompany Account"), and that since at least 2015, all expenses relating to the Chilliwack Property have flowed through the Intercompany Account.

A review of the 466 financial statements shows amounts recorded as "Due from Related Party" (the "related party" is Jenor), and 466 recorded its "Long Term Debt" in amounts that decreased from $902,450 in 2015 to $646,100 in 2021. 466 also recorded paying "Interest on Long Term Debt" each year.

It is not disputed that the BDC Mortgage, when assigned to Sonic in June 2015, was at $1,892,814.10. By the end of fiscal year 2021, it had been paid down to $1,285,200 (more than $500,000).

Justice Ross found on a balance of probabilities that: in November 2015, the Chilliwack Property was rented by Sonic to DC Machine Parts Inc.; after 2015, Sonic would receive the rent as agent for the owners; thus, 466 and Jenor were "receiving" the rental income; 466 was paying the expenses on the Chilliwack Property and attributing half of those expense payments to Jenor; 466 was also paying the interest and principal on the BDC Mortgage and attributing half of those expense payments to Jenor; Sonic received payments from both 466 and Jenor which paid the interest on the BDC mortgage and reduced the principal.

Ross J. concluded: "I am satisfied by the financial statements and tax returns that Jenor, unwittingly, was paying down the BDC Mortgage via the collection of rent and the payment of expenses by 466."

Timeline of limitation, last payment, and role of financial statement acknowledgments

The last documented rental payment received by Sonic (as agent) and alleged to have been applied, at least in part, to the BDC Mortgage, was a deposit of rent in the amount of $12,124.35 on February 3, 2023.

The respondents accept that more than two years have elapsed since the last mortgage payment. For the extension of the limitation period during the period since February 2023, the respondents rely on Jenor's financial statements.

According to Mr. Savage's Affidavit #6, Jenor has an inconsistent record of preparing financial statements. The financial statements for the year ending December 31, 2016, were prepared on April 9, 2018. Thereafter, Jenor did not prepare financial statements until the fall of 2023, when Jenor's external accountant, MNP LLP, prepared unaudited financial statements for the fiscal years ending 2017 to 2023.

The respondents' position is that a company's balance sheet is capable of containing an acknowledgement that will extend the limitation period, relying on Freeway Properties Inc. v. Genco Resources Ltd., 2012 BCCA 258.

Legal analysis of acknowledgments, context and expiry

Justice Ross emphasized the need to consider context and timing. By the time Jenor's 2017-2023 financial statements were prepared, Jenor had already amended its petition (in 2021) to assert that the limitation period on the BDC Mortgage had expired and had been actively litigating on that basis.

The court held that it would stretch the reasoning of Freeway too far to allow an entry in Jenor's financial statements to displace the position that Jenor had specifically taken in its pleadings.

The court noted that Ryan v. Moore, 2005 SCC 38, stated: "a party can only be held to have acknowledged the claim if that party has in effect admitted his or her liability to pay that which the claimant seeks to recover."

On the relevant date for calculating when an extended limitation period starts to run, Justice Ross followed Freeway in holding that the material date is the fiscal year-end to which the financial statements are directed, not the later date of signing or disclosure.

The 2023 financials related to a year ending April 30, 2023; at best they could extend the limitation period to April 30, 2025.

This matter came on for hearing before Justice Ross on September 2-4, 2025. As acknowledged above, Sonic has not commenced any action against Jenor. As a result, more than two years had passed since any acknowledgement by Jenor by way of financial statements.

Overall outcome, successful party and financial consequences

Justice Hamilton's 2025 BCSC 648 ruling allowed 466 and Sonic to withdraw their "no payments" admission, ensuring that the limitation dispute would be resolved on a full evidentiary record rather than on a technical pleading error.

At the subsequent hearing, Justice Ross carefully reviewed that expanded record and held that while rent-based payments did in fact extend the limitation period for some time, they ended in early 2023 and no further valid acknowledgments prolonged Sonic's rights beyond 2025.

Justice Ross summarized his findings: (a) The last payment of rent was in February 2023, which would extend the limitation period until February 2025; (b) Jenor's last financial statement was for the period up to April 30, 2023, which would extend the limitation period until April 2025; (c) No action had been commenced by April 30, 2025, hence the limitation period expired on May 1, 2025; (d) The production of the 2023 financial statement by Jenor in August 2025 does not revive the limitation period.

Justice Ross granted the declaration that the claims of Sonic relating to the BDC Mortgage are barred pursuant to the provisions of the Limitation Act.

Regarding costs, Justice Hamilton's preliminary view was that costs of the amendment application should be in the cause. Justice Ross did not hear submissions on costs and indicated he would entertain a further application to be scheduled within 60 days of the date of judgment.

The exact monetary allocation of the approximately $2.5 million held in trust and distribution of sale proceeds remains to be determined through the accounting process. No specific monetary amount was ordered in either decision.