IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20110125

Docket: S-130573

Registry:
New Westminster

Between:

Freeway Properties
Inc.

Plaintiff

And

Genco Resources
Ltd.

Defendant

Before:
The Honourable Mr. Justice N. Brown

Reasons for Judgment

[1]          
These reasons deal with the issue of whether a reference to an amount of
money the company stated it owed a director, without naming the director,
constitutes a confirmation of the debt pursuant to s. 5 of the Limitation
Act, RSBC 1996, C-266 [the Act].

[2]          
Genco Resources Ltd. [Genco], the defendant, asks the court to dismiss
the claim of the plaintiff, Freeway Properties Inc. [Freeway], pursuant to
9-6(4) and 9-7 of the Civil Rules.

[3]          
On October 7, 2010, Freeway filed a notice of civil claim for $7,500,
monies it says it had loaned to Genco in August and December 2001.

[4]          
Paragraph 4 of the Statement of Facts in the civil claim states:

By a series of agreements
between the Plaintiff and Defendant made on the date of each of the Advances,
the Plaintiff agreed to make the Advances to the Defendant and the Defendant
agreed to repay the Advances to the Plaintiff on demand (collectively, the
“Loan Agreemen”).

Freeway alleges Genco also agreed to pay interest on the
amounts advanced.

[5]          
When Freeway filed its claim, it anticipated Genco would argue Freeway’s
claim was outside the six-year limitation period set by the Act for
commencement of claims for recovery of debt. Freeway decided to raise the
question head-on in its claim instead of waiting for Genco to raise it in its
defence. Genco said, in para. 5 and 6 of its statement of facts:

5)         The Defendant’s audited financial statements for
the period ended July 31, 2004 with the approval of the Defendant’s Board of
Directors noted thereon by the signatures of two of its directors (the
“Financial Statements”) were disclosed to the public on December 17, 2004 and
sent by mail to the Plaintiff’s offices on December 29, 2004.

6)         The Acknowledgement
referred to in paragraph 5 of Part 1 hereof constituted a confirmation of the
Plaintiff’s cause of action against the Defendant for the purposes of Section 5
of the Limitation Act of British Columbia, Chapter 266, R.S.B.C. 1996
and amendments thereto.

[6]          
Genco acknowledges the Act’s six-year limitation extinguished the
claim, but, relying on s. 5 of the Act, says Genco’s July 31, 2004,
audited Financial Statements confirmed the debt, effectively extending the time
for filing a claim.

[7]          
Section 5 of the Act provides:

5 (1) If, after time has begun to run with respect to a
limitation period set by this Act, but before the expiration of the limitation
period, a person against whom an action lies confirms the cause of action, the
time during which the limitation period runs before the date of the confirmation
does not count in the reckoning of the limitation period for the action by a
person having the benefit of the confirmation against a person bound by the
confirmation.

(2) For the purposes of this section,

(a) a person confirms a cause of
action only if the person

(i) acknowledges a cause of
action, right or title of another, or

(ii) makes a payment in respect
of a cause of action, right or title of another,

(b) an acknowledgment of a judgment
or debt has effect

(i) whether or not a promise to pay
can be implied from it, and

(ii) whether or not it is
accompanied by a refusal to pay,

(c) a confirmation of a cause of
action to recover interest on principal money operates also as a confirmation
of a cause of action to recover the principal money, and

(d) a confirmation of a cause of
action to recover income falling due at any time operates also as a
confirmation of a cause of action to recover income falling due at a later time
on the same account.

(3) […]

(4) […]

(5) For the purposes of this section, an acknowledgment
must be in writing and signed by the maker.

(6) For the purposes of this section, a person has the
benefit of a confirmation only if the confirmation

(a) is made to the person or to a person through whom the
person claims …

[Emphases
added]

[8]          
The defendant Genco says Freeway cannot bring itself within any of the
exceptions of the Act. There is no confirmation based on payment “in
respect of a cause of action, right or title of another,” because Genco has
never made any payments. Genco says there is no confirmation based on an
acknowledgment because its audited Financial Statements for the period ending
July 31, 2004, relied on by Freeway does not not satisfy the requirements of
the Act or the court’s decision in Ryan v. Moore, 2005 SCC 38 [Ryan].

[9]          
Listed under the liability section of the July 31, 2004 financial
statements is a $73,402 current liability said to be due to related parties.
Freeway submits this is the total amount Genco owes it–the $7,500 claimed in
this Civil Claim is one part of the total alleged indebtedness. The remaining,
larger, portion is claimed in a separate action. The reasons for Freeway
bringing two separate claims are not relevant. I should note also that counsel Genco
confirmed during submissions that this decision will have no bearing on the
standing of the other action.

[10]       
Genco says the current liability listed in the financial statement:

·        
does not acknowledge the cause of the plaintiff – s. 5(2)(i);

·        
is not in writing – s. 5(5);

·        
is not signed by the maker – s. 5(5); and

·        
is not made to the plaintiff – s. 5(6)(a).

[11]       
The essence of the statement’s alleged deficiency under the Act is
that it does not state Genco owes it is indebted to Freeway.

[12]       
Article 8 of the financial statement states as follows:

Loans from related parties amount to $49,590 (2003 – $49,590)
and are payable to corporations related by way of a common director. Loans from
related parties are due on demand, bear no interest and have no fixed terms of
repayment.

Interest payable to directors or
companies controlled by directors amounted to $23,812 (2003 – $23,812).

[13]       
Freeway says the $7,500 claimed in this case forms part of the $49,590
which, when added to the interest of $23,812 said to be owing, yields a total liability
of $73,402, the amount stated in the financial statement.

[14]       
Genco says both the statement and the auditor’s statement the Financial
Statement is attached to is addressed not to the plaintiff, but to “the
shareholders of Genco Resources Ltd.” The Financial Statement is signed by two
directors but is not addressed to anyone in particular.

[15]       
Genco relies on Blackline Oil Corp. v. Canada Payphone Corp., [1998]
B.C.J. No. 1671 (S.C.) [Blackline]. In Blackline, the plaintiff
argued the defendant had confirmed its indebtedness to the plaintiff two ways:
first, in a letter their accountants wrote; second, by their president’s
forwarding to the president of the lending company the quarterly financial
statement lender’s president. The court found that neither the accountant’s
letter nor the Financial Report constituted a confirmation of the debt in the manner
required by the Act. At the Blackline hearing, the parties did
agree that an earlier quarterly financial statement had listed an outstanding
liability specifically owed to the plaintiff, and this was a confirmation of
the debt. However, the timing of that early statement was such that it could
not help the plaintiff. Later statements listed a debt but did not say it was
owed to the plaintiff, which the court found was necessary. The auditor’s statement
in Blackline is very similar to the statement made by Genco’s auditors.

[16]       
Sinclair-Prowse explained her conclusions in Blackline:

23.       This letter does not constitute a confirmation by
the defendant of the debt that it owed to the plaintiff because this
acknowledgement was made by a third party, not by the debtor (that is the
defendant), as required by the Limitation Act. The firm of accountants
was not acting as the agent of the defendant, nor did they hold themselves out
as the agent of the defendant.

24.       Specifically, the accountant’s letter is written on
the letterhead of the accounting firm, not on the letterhead of the defendant.
The content of the letter confirms that the accounting firm is independent of
the defendant – that is, the letter refers to the defendant as being their
"client" and to the defendant’s records as being "their"
not "our" records.

25.       Further, the content of the Auditors Report dated
November 30, 1994, written to the shareholders of the defendant, supports the
conclusion that the accounting firm was not acting as an agent of the
defendant. In particular, in that report, the accounting firm wrote:

We have audited the financial statements of the [defendant]
as at September 30, 1994 and 1993, and the statements of loss and deficit and
changes in the financial position for the years then ended. These financial
statements are the responsibility of the company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit." (Emphasis of Sincliar-Prowse J.)

[17]       
The auditor’s statement attached to Genco’s July 30, 2004, financial
statements states:

We have audited the consolidated
balance sheet of Genco Resources Ltd. as at July 30, 2004 and the consolidated
statements of loss and deficit, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

[18]       
Sinclair-Prowse J. further noted nothing in the Financial Statements had
specifically confirmed a debt owed by Genco to Freeway. And she found the Act
required this specificity.

32.       The Auditor’s Report and the Financial Statements
themselves are not sufficient because they do not confirm the debt in that they
do not specifically set out that the debt is owed to the plaintiff.
Further, this Report and the Financial Statements were not specifically written
to the plaintiff, rather they were written to the shareholders.
Presumably this is the reason that the plaintiff had to request a copy of these
documents from the defendant.

33.       Under the provisions of the Limitation Act, the
acknowledgment of the debt has to be written to the party to whom the debt
is owed – in this case to the plaintiff.

34.       For all of these reasons, I have concluded that the
plaintiff has failed to prove that the defendant confirmed its indebtedness to
it in the manner required by s. 5 of the Limitations Act.

35.       As the limitation
period has expired, the action is dismissed.

[Emphasis
added]

[19]       
Freeway submits s. 5 is a remedial section that requires a broad,
liberal and contextual approach. In essence, counsel urged application of what
could be called a subjective test, characterized as “what a reasonable person
in Freeway’s shoes reading the financial statements would conclude.” The
plaintiff further submits section 5 of the Act is a remedial section
that is to be interpreted broadly. There is good authority to support the
court’s treating s. 5 of the Act as remedial in nature: Perry Mason
Ltd. v. Isherwood, [1993] B.C.J. No. 2610 (S.C. Chambers), at para 21; Anderson
v. Bishop, [1991] B.C.J. No. 325 (S.C. Chambers) [Anderson].
Particularly, the comments of Drost J. at p. 4 in Anderson are
frequently quoted:

I do not agree with the narrow
interpretation of s. 5 of the Limitation Act advanced by the defendant. Its
provisions are remedial in nature and should therefore be given broad and
purposive interpretation. The section operates to extend the limitation period
if the person against whom an action lies confirms the cause of action either
by acknowledgment or by payment made in respect of that cause of action.

However, even with a broad and purposive approach to s.
5 of the Act, the plaintiff’s submissions cannot be supported, based
either on prevailing case law or through the interpretation Freeway urges.

[20]       
Freeway submitted the Financial Statement must be placed in context; in
this case within the fact the owner of the plaintiff was a director of the
company. Freeway submits it is the only related person to whom the debt could
refer to. While there is no specific reference to Freeway (or its principle:
Mr. Libinksi), the court should have considered what he would have thought upon
reading the Financial Statements.  Freeway submits there is nothing in any of
the Financial Statements to suggest the debt is not due, a circumstance which
he submitted was analogous to an estoppel argument. However, estoppel cannot be
raised as a sword, only as a shield. The traditional source of this legal
doctrine is Combe v. Combe, [1951] 2 KB 215, CA, but it can be found
throughout Canadian law (see, for example, Costco Wholesale Canada Inc v.
Cazalet, 2008 BCSC 952, at para. 30).

[21]       
Further, the plaintiff submits that since it was a shareholder, Genco must
be taken to know the Financial Statements would be sent to Freeway. Counsel for
Freeway also submitted the financial statements were signed by the directors in
the case at bar, and that this was not the case in Blackline. However, counsel
was mistaken, as the directors had signed the financial statements in Blackline.

[22]       
The plaintiff submits further that Blackline is distinguishable
because the debt had formed part of the general debt, whereas in the case at
bar it specifically states the amount is due to related parties. Further,
counsel submits Article 8 refers to “loans from related parties… payable to
corporations related by way of a common director.”

[23]       
Following this line, the plaintiff relies on Meredith v. Vamar
Estates Ltd., 102 D.L.R. (3d) 623 (B.C.S.C.). He points out this case was
not referred to by the judge in Blackline. In Meredith, the only
officers, directors and equal shareholders of the company were the plaintiff and
his wife. The plaintiff had advanced monies over a ten year period to the company.
Eventually, the plaintiff, as president and director, sent out the required
notice to hold a meeting of directors of the defendant company to obtain company
authorization repay a debt the company owed him. Mrs. Meredith, his wife, claiming
the claim was statute barred, refused to endorse the proposed authorization.

[24]       
In Meredith, the plaintiff relied on s. 5 of the Act in
answer to the defendant company’s contention the action was statute barred. The
plaintiff submitted the financial statements prepared by the company’s
accountants each year showed a loan owing to him that constituted a written
acknowledgement by the company through its agent accountants. The defendants
denied the accountants were agents and maintained there was therefore no effective
acknowledgement by the defendant corporation.

[25]       
Callaghan J. reviewed a number of English authorities: Re
Transplanters (Holding Company), Ltd., [1958] 2 All E.R. 711; Re Gee
& Co. (Woolwich) Ltd., [1974] All E.R. 1149; Ho Tung v. Man On
Insurance Co., Ltd., [1902] A.C. 232 [Ho Tung]; and, Leask Cattle
Co. Ltd. v. Drabble & Sons, [1922] 66 D.L.R. 791 [Leask].

[26]       
After reviewing the authorities, he concluded, “a balance sheet signed
by the company’s accountants may constitute acknowledgement by the company
through its accountants as agents within the meaning of the Limitations Act”
(Meredith, para. 16).

[27]       
Callaghan J. also considered whether the defendant had acquiesced,
having noted the wife had alleged in her petition of divorce the company was
indebted in the sum of $70,000 to the plaintiff. He considered Ho Tung
and Leask, and concluded:

19.       It is apparent in the case at bar that Mrs.
Meredith as the only other shareholder in the company acquiesced over the years
to the liability of the company to the other shareholder, and accordingly she
cannot now suggest that the financial statements are not a proper
acknowledgment by the company of the debt. In fact, not only did she acquiesce
but stated in her divorce petition that as of the year 1975 the defendant was
indebted to the plaintiff in the sum of $70,000.00.

20.       I am therefore of the
view that since the accountants performed general accounting duties they were
acting as agents on behalf of the defendant corporation; that the financial
statements were a proper acknowledgment by the company of the debt and that
Mrs. Meredith as the only other shareholder acquiesced by her conduct in not
challenging the company’s financial statements which over the years
consistently showed the amount of the loan due to the plaintiff.

[28]       
This case does not assist the plaintiff in the case at bar. In Meredith,
the judge found the accountants had acted as agents of the company. There were
only two company shareholders and directors, and the court made a specific
finding of acquiescence on the part of the defendant.

[29]       
Blackline is clear in its conclusions. Here, as in Blackline, there
is no specific reference to the debtor in the Financial Statement. The Financial
Statement should be viewed objectively. The authorities give no basis for divining
the Financial Statement’s intending to acknowledge the debt based on what might
have been in the mind of Freeway.

[30]       
Further, the financial statements do not acknowledge the claim the
plaintiff makes in the case at bar for $7,500. A party acknowledges a claim
only if the party effectively admits their liability to pay what the claimant
claims: Ryan, at para. 45. In Ryan, the plaintiff’s cause of
action arose out of a motor vehicle accident. He launched action within the two-year
time frame as required under the Limitation Act, S.N.L. 1995, c.
L-16.1. However, not long after the accident, the defendant died of
injuries unrelated to the accident. The shorter limitation period dictated by
the Survival of Actions Act, R.S.N.L. 1990, c. S-32, had passed. The
Supreme Court of Canada held an acknowledgment of a liability can serve to
extend the limitation period under the Limitation Act, supra, (but not
under the Survival of Actions Act, supra) if that acknowledgement admits
liability. A party could acknowledge the ‘existence’ of a liability through
communication, without explicitly acknowledging any liability: para 45.

[31]       
The Financial Statements contain no such admission. Nowhere in it is the
plaintiff Freeway named. It is not specifically addressed to Freeway. No
covering letter comments on the debt or acknowledges it in any way.

[32]       
Further, Freeway’s submissions require unwarranted speculation relating
to the breakdown of the debt, and which portion could relate to the $7,500
claimed here, versus other portions that might be speculatively attributable to
him or to some other director. Further, as counsel for Genco points out, the
statement in the Financial Statements that the loans do not bear interest
contradicts the plaintiff’s claim for interest set out in the notice of civil
claim.

[33]       
In sum, Blackline governs. The plaintiff cannot satisfy the
requirements for confirmation, either through payment or through
acknowledgments as required by the Act.

[34]       
The defendant is entitled to its costs.

“N. Brown J.”