Lienability and the Kennedy Electric Saga (A Weighty Issue) 

publication 

August 2008 - (C.L.R. (3d) 157, August 2008, Hot Topics in Construction Law, Ontario Bar Association, November 2007)

C.L.R. (3d) 157, August 2008, Hot Topics in Construction Law, Ontario Bar Association, November 2007

As far as Hot Topics are concerned, the gamble paid off. When selecting this topic for this conference, many months ago, I had hoped that the long anticipated decision of the Ontario Court of Appeal in Kennedy Electric Ltd. v. Dana Canada Corporation 1 would be released. With barely a month left before the conference, the decision was indeed released September 27, 2007. (It does not get any hotter.) 

For those who may be unfamiliar with the Kennedy Electric saga, the case involved the question as to whether or not the installation of half million pounds of production equipment in an expanded manufacturing plant gave rise to construction lien rights. The trial judge gave a firm "no" to this question, and was upheld by the majority of the Divisional Court. However, a strong and considered dissent by the Honourable Justice Chapnik appears to have persuaded the Court of Appeal that it should review (weigh in upon) the issue. The unanimous decision of the Court of Appeal upheld the trial judge's ruling. 

Subject to any leave application to the Supreme Court of Canada, it appears that in Ontario, a building is lienable, but installing production equipment is not (for the most part) pursuant to the provisions of the Construction Lien Act ("CLA"). 2 What remains to be seen is whether, with time, Kennedy Electric will become the leading authority in this area, or whether it will be distinguished and confined to its interestingly unique set of facts. 

Factual Background

The case began with the requirement to provide the Ford Motor Company ("Ford") with frames for its F150 pickup truck. Ford entered into an agreement with Dana Canada Inc. ("Dana") whereby the latter was to provide 615,000 such frames over a period of eight years. The particular project was coded "P221". It was planned that the required production would take place at Dana's two plants in St. Mary's, Ontario and Elizabethtown, Kentucky. 

In order to fulfill the order, Dana needed to expand its St. Mary's plant to make room for the new production line. The plant was initially built in 1990, was approximately 100,000 square feet and produced frames for the F150-250-450 series of trucks. In 1995, the plant was expanded by 60,000 square feet to accommodate component production for the Ford Windstar. A further 100,000 square feet was added in 1999 when Dana moved a production line for the old F150 truck frames from Reading, Pennsylvania. Project P221 would involve a further expansion of 160,000 square feet to accommodate the new production line. 

At this point, the Trial Judge, Killeen J. continued the description of the facts as follows: 
 

" It seems clear from the evidence that , in 2001, Dana developed a two-stage process for the implementation of its new contract with Ford: the first step was the construction of the "generic" building addition and then followed the design, construction and installation of the new assembly line." 3 (emphasis added) 

The new addition was to be like the previous additions: a flexible generic type of industrial building. Newman Bros. were selected as general contractors and the building was constructed between November 2001 and July 2002. Newman Bros. was responsible for bringing electrical, mechanical, ventilation and argon gas services from the street (where applicable) into the building to trusses below the roof. 

In December 2001, a bid process initiated by Dana resulted in Rumble Automation Inc. ("Rumble") being awarded the contract to design, supply and install the assembly line for manufacturing the truck frames. Rumble was also awarded a similar contract for the Elizabethtown site in September 2002. Rumble sought subcontractors to assemble the lines at "build" sites in Oakville and Mississauga where the lines would be tested. Upon approval, the lines would be dissembled, transported and reassembled in St. Mary's and Elizabethtown. Kennedy Electric Ltd. ("Kennedy") was one such subcontractor. 

Kennedy was primarily engaged in disassembling the lines, transporting same and reassembling the lines in the plants. Two separate subcontracts were awarded, one for each of the final destinations. With respect to the St. Mary's installation, Kennedy disassembled the successfully tested line, placed it onto 165 transport trucks, carried out an elaborate lay-out plan for the line at the St. Mary's site using chalk lines, paint and lasers and then, using riggers and millwrights, installed the line. The work took place from the end of September 2002 to December 2002 with respect to the St. Mary's line. 

The line itself consisted of 100 mezzanine platforms and 165 robots which covered 100,000 square feet of floor space, stood 20 feet tall and weighed 500,000 pounds. The line was attached to the concrete floor by a series of up to 3000 mechanical and chemical bolts, up to 8 inches in length. 

There appears to be a conflict in the decisions as to the involvement of Kennedy in connecting the line to building services. Killen J.s "conclusions on the evidence" 4 includes a finding that the connection of the assembly line to existing building services such as welding, exhaust system, mechanical services, argon gas and compressed air was not part of Kennedy's contract and was performed by others, independent of the assembly line installation. This finding is noted and repeated by the Court of Appeal. 5 Chapnik J., stated that Kennedy and its subtrades connected the services, such as electrical, mechanical, ventilation and argon gas. 6 In the absence of Chapnik J. making a finding of a clear and palpable error with respect to this finding of fact (and she did not), it appears this apparent factual conflict has to be resolved in favour of the trial judge as finder of fact. 

There were two other production lines installed by other companies in the same building addition. Those production lines applied a coating to the new frames and waxed and stacked same. 

Following the completion of most of the installation, a dispute broke out between Kennedy and Rumble which resulted in Rumble locking Kennedy out of the site. Kennedy and its subcontractors registered liens. 

The Issue

The issue, put as succinctly as possible, was whether the work of Kennedy and its subcontractors was an "improvement" within the meaning of the CLA entitling Kennedy and its subcontractors to assert construction liens. 

The Background Authorities  

At this point, it may be useful to review, in a very summary fashion, the authorities cited by the various levels of court which rendered decisions in Kennedy Electric. For the ease of the reader, I have divided such authorities into general authorities, cases in which a right to lien was sustained and cases where the right to lien was denied.

A) General Authorities  
 

  • 1. Clarkson Co. Ltd. v. Ace Lumber Ltd. 7 (1963 - S.C.C.) – This is the often cited authority for the proposition that while the Mechanic Lien Act 8 (now the CLA) is a remedial statute and must be interpreted liberally with respect to those upon which it confers rights, it must be given a strict interpretation in determining to whom it applies. A construction lien amounts to a statutory preference unknown at common law.
  • 2. "improvement" means, 
    any alteration, addition or repair to, or
    any construction, erection or installation on, any land, and includes the demolition or removal of any building, structure or works or part thereof, and "improved" has a corresponding meaning." 9
  • 3. The Report of the Attorney General's Advisory Committee on the Draft Construction Lien Act of April 8, 1982 and in particular, the comments with respect to the definition of "improvement" at p. 7 of the Report –
    "While the definition of "improvement" is broad, the Committee has attempted to draft it in such a way that it will be clear that the lien created by the Act applies only in the case of the construction and building repair industries."
  • 4. The foregoing description of the intention behind the definition of "improvement" was recognized by the Ontario Court of Appeal in Central Supply Co. (1972) Ltd. v. Modern Tile Supply Co. Ltd . 10

B) Authorities In Which Lien Rights Were Recognized 
 

  • 1. 469804 Ontario ltd. (c.o.b. Royal Heating & Plumbing) v. Ontario Hospital Association 11 (1995 – Ont. Master) – This case involved the installation of an ice melter coil which was implanted into the driveway of a commercial building property. The installation was held to be an improvement. The installation was compared favourably to the installation of air conditioning equipment and ducts incorporated into a building which were held to be lienable in Stacey Heating. 12 The Master also compared and distinguished Baltimore Aircoil 13 (see below) on the basis that the equipment in that case (a water cooling tower) was installed to enhance the manufacturing process which went on inside the building.
  • 2. Boomars Plumbing & Heating Ltd. v. Marogna Brothers Enterprises Ltd . 14 (1988 – B.C.C.A.) – This case involved the installation of three motel buildings, each constructed from nine prefabricated modular units designed and previously used in construction camps. The units could be disassembled and moved. They were not installed on foundations in this case, but rested upon wooden cribs which in turn rested on concrete blocks and were hooked up to plumbing and electrical systems. Such an installation was held to be an "improvement" within the meaning of the B.C. Builders Lien Act . 15
  • 3. Deal S.r.l. v. Cherubini Metalworks Ltd . 16 (2001 – B.C.C.A.) – Considered the supply and installation of large steel moulds fabricated in Nova Scotia and sold to the general contractor charged with construction of the Vancouver rapid transit system. The moulds were used to form the precast cement structures. The moulds were housed in sheds built for them. The weight of the moulds, when filled, was such that they required concrete piles driven into the ground and footings for the legs of the moulds to which they were bolted. The moulds were to be removed after the project. The chambers judge 17 held the sheds were improvements, but the moulds themselves were not. The B.C. Court of Appeal reversed holding that Boomars was still good law and the level of attachment of the moulds was enough to establish them as "improvements".
  • 4. Re IBL Industries Ltd . 18 (1990 – Ont. S.C.J. – Registrar) – Here, Registrar Ferron held that the installation of a hood car, truck frame and walkway forming part of the emission control system for a steel plant constituted an "improvement".
  • 5. Stirn v. Vancouver Arena Co . 19 (1932 – B.C. Co. Ct.) – This case concerned the installation of a temporary bicycle race track erected in an arena for a six day event. The court held that lien rights attached.
  • 6. V.A.W. Manufacturing Ltd. v. Electric Furnace Products Company Ltd . 20 (1984 – Alta. Q.B., Mater) – Nuclear vane separators and related equipment for an ethylene glycol processing plant were held to be improvements pursuant to the Alberta Builders' Lien Act .
  • 7. Wolfendale Electric Ltd. v. R.M.P.'s Systems Automation & Design Quality in Motion
    Inc. 21 – The facts are not entirely clear, but here, a subcontractor was retained "for electrical work on a special car owned by Meridian" [a third party]. "All the material was supplied and the labour was provided by the plaintiff in connection with the installation of a new scrap shuttle car at the site of Meridian." It was held the work gave rise to lien rights notwithstanding the defendant's assertions that the CLA did not apply relying on Hubert and Baltimore Aircoil (set out below). It should be noted that Kruzick J. accepted evidence to the effect that one quarter of the work related to the installation of "additional cables" on the subject lands of Meridian. It is uncertain if this refers to electrical cables (i.e. wiring) or steel cables used to move the shuttle car back and forth.

C) Authorities In Which Lien Rights were Not Recognized

  • 1. A.J. (Archie) Goodale Ltd. v. Risidore Brothers Ltd . 22 (1975 – Ont. C.A.) – This case involved a claim for lien with respect to a contract to take apart, remove and transport all the machinery, equipment and chattels from one premises and reinstall them in another. Some of the machinery was bolted to the floor at the destination site. The Master dismissed the claim for lien on the basis that the installation related to moveables.

    The Court of Appeal did not reconsider this aspect of the Master's decision. Rather, the appeal focused upon whether the Master had the jurisdiction to award a personal judgment notwithstanding his finding that the lien was invalid. The Court of Appeal found that if it were not clearly demonstrable that the lien was invalid on the pleadings (for example, if a lien was filed against a federal undertaking and thus was clearly invalid) then the Master retained the discretion to award a personal judgment at the conclusion of a lien trial, even upon finding the lien to be invalid. In commenting upon whether the plaintiff's pleading showed the lien to be invalid on its face, the Court of Appeal stated (in obiter) "The work of installation might have been sufficiently extensive in scope to constitute improving the plant so as to give rise to a claim for lien." 
  • 2. Baltimore Aircoil of Canada Inc. v. Process Cooling Systems Inc . 23 (1993 Ont. Gen. Div.) – The installation under consideration was a water cooling tower installed on the roof of a building which was connected to the building's electrical and drainage systems. The cooled water which the tower produced was for use in the plant's manufacturing process. It was held that the installation did not give rise to a lien. The decision was made pursuant to a motion for summary judgment and was overturned on appeal on other grounds.
  • 3. Beloit Canada Ltd. v. Fundy Forestry Industries Ltd . 24 (1981 - N.B.C.A.) – The seller and installer of a 2.5 million pound corrugated paper making machine (which included the installation of its concrete foundation) was denied a lien. The New Brunswick Court of Appeal was of the view that the machine was sold as a machine, as something to produce earnings and not as part of the building constructed at the same time to house it. The concrete foundation was simply to support the machine.
  • 4. Chubb Security Safes v. Larkin Industries Ltd . 25 (1990 – B.C.S.C.) – A lien was filed with respect to a large free standing safe in a trust company. The court held that equipment designed and used for the operations of a business within a structure, not integral to that structure, does not become an "improvement". The supply of the safe was held to be no different from the supply of a large desk or computer.
  • 5. Hubert v. Shnider 26 (1952 - Ont. C.A.) – The liens filed were with respect to the repair and reinstallation of laundry equipment in a building damaged by fire. The laundry equipment was reattached to the water and sewage systems already in the building. It was held that such services constituted the installation of moveables and not "the making, constructing, erecting, fitting, altering, improving or repairing of" the erection or building in question. The construction lien was not valid.
  • 6. Spears Sales and Service Ltd. v. Westpine Fisheries Ltd . 27 (1985 – B.C. Co. Ct.) – Repairs to a pumping system which extracted fish waste from a fish packing plant were held not to give rise to a lien. The pumps were not an integral part of the functioning of the building, rather were an integral part of the fish packing activities carried on in the plant.

The Decisions Rendered in Kennedy Electric 

The matter came before the courts by way of the trial of an issue ordered by Haines J. as to whether the materials and services supplied by Kennedy gave rise to a claim for lien. The trial was heard by Killeen J. in January 2004 who rendered his decision in November, 2004. In summary, he found the liens to be invalid as not constituting an "improvement". 

In December 2005, Rumble declared bankruptcy, but Farley J. ordered the appeal to proceed. 

On appeal to the Divisional Court, the majority (O'Driscoll and Wilson JJ.) found no error in the trial judge's recitation of the law or application of same to his findings of fact and upheld his decision. Chapnik J. dissented holding that the work carried out did constitute an "improvement", finding that the trial judge erred in his review of the law and his application of same to the facts. 

The Court of Appeal sided unanimously with the trial judge and the majority of the Divisional Court. At the risk of oversimplification, the Court of Appeal found that the issue concerning whether or not the work in question was an "improvement" was a question of mixed fact and law, the factual determination being the more significant element of the exercise. 28 In the absence of an overriding error, the Court of Appeal gave the trial judge's decision deference and dismissed the appeal. 

Accordingly, understanding the contest in this matter primarily comes down to a careful study of the reasons of Killen J. versus those of Chapnik J., followed by a study of any gloss added by the majority of the Divisional Court and the Court of Appeal. 

The Trial Decision of Killeen J.  

As I tried to convey above, skipping over an analysis of the trial decision would leave one in danger of missing the point. 

The trial judge reviewed the applicable sections of the CLA and the general proposition that lien claimants had to clearly bring themselves into the statutory scheme to enjoy the rights it conveyed ( Clarkson Co. Ltd. v. Ace Lumber ). Hereviewed both the definition of "improvement" and the Advisory Committee's stated purpose of the definition; namely that it was intended to include only building construction and repairs. He also observed the adoption of that stated purpose by the Court of Appeal ( Central Supply ).
 
With that background, the trial judge stated: 

"There is appellate authority going back as far as 1952 in Ontario stating that the installation or repair of machinery used in a business operated inside a building does not give rise to lien rights." 29  

(As we shall see, this statement was the subject of much comment by the dissent in the Divisional Court and the Court of Appeal).

Following the foregoing statement, he set out the facts and decision in Hubert (laundry equipment - no lien) in detail. He then went on to describe the findings in Beloit (paper machine – no lien), Baltimore Aircoil (water tower – no lien), Royal Plumbing (melting coil – lien - but cited for the Master's statement that Baltimore Aircoil (no lien) could be distinguished on the basis that the equipment there was intended to enhance the manufacturing process inside), Spears Sales (water pumps at fish plant – no lien), and Chubb Security (large safe – no lien). A statement from the Chubb case also appears to sum up the ratio the trial judge took from these cases: 
 

"Equipment designed and used for the operations of the business within the structure, not integral to that structure, do not become 'improvements'." 

The trial judge also discussed in detail the two B.C. Court of Appeal cases cited to him by the lien claimants in support of their position, being Boomars (modular motel buildings - lien) and Deal (concrete forms - lien). His observation was that the definition of "improvement" in the B.C. Builders Lien Act 30 was inclusive and not exhaustive, unlike the Ontario CLA.31 This, he observed, allowed Esson J.A. in Boomars to also consider the definition of "improvement" in Black's Law Dictionary.32 He held that Boomars (and Deal which followed Boomars) was distinguishable both on its facts and upon the more expansive definition of "improvement" used by the B.C. courts.33 

Factually speaking, the death knell for the plaintiff's case was sounded early in the reasons when Killeen J.'s recitation of the facts foreshadowed certain findings of fact later in the reasons. As set out above, Killeen J. first described Dana's efforts to fulfill the Ford requirement as a two stage operation.34 The lien claimants wanted project P221 treated as an integrated whole thus linking the obviously lienable work to construct the building shell with the assembly line installation. However, Killeen J. refused to find the two aspects of the undertaking constituted an integrated construction project for various reasons including:35 

  • -the work was separately let;
  • -the work was let at different times;
  • -the work was carried out by different parties;
  • -the contract for the shell construction clearly provided that it was an improvement to which the provisions of the CLA applied in terms of holdback etc. while the purchase order for the assembly line did not; and
  • -Kennedy's work did not include:
  • constructing or modifying the existing building or addition; nor
  • -connecting the assembly line to the existing building services, rather the services related exclusively to the assembly line.

Killeen J. also found that the line was fully portable,36 which seems counterintuitive in the context of a 500,000 lbs production line fastened to the floor by 3000 bolts. However, a closer examination of the decision reveals both factual support for the finding and the reason why it was addressed in the first place. 

Firstly, the line was in fact built elsewhere, tested, disassembled, shipped and reassembled. It was, initially at least, designed to be portable. Further, Dana had disassembled and moved other assembly lines before. Finally, the line could be disconnected from the building services and removed from the building without demolishing or indeed damaging the said building. 

Secondly, the issue of portability (or permanence) was raised by counsel for the lien claimants in their submission that permanence was a factor to be considered based upon the B.C. decisions they relied upon (Boomars and Deal). In turn, those decisions rely upon the B.C. definition of "improvement" which includes a consideration of whether the elements in question attach to the land or are intended to become part of the land. Thus, Killeen J. was asked to make a finding of permanence. Based upon the facts as he understood them however, he did not believe the line was permanent and in fact, felt it was portable.37

Killeen J. concluded: 

"On the evidence, I am driven to conclude that the assembly line for the F150 frames cannot be considered as part of [an] integrated construction improvement within the building addition, giving rise to lien rights, nor can it be considered alternatively as a free-standing improvement on its own within the CLA having regard to the principles rising from the decisional law in Ontario and the peculiar facts of this case. I conclude that the assemble line installation represented the installation of manufacturing equipment in a building but did not constitute an improvement or part of an improvement within the Act. 

The Dissent in the Divisional Court – Chapnik J.
Chapnik J.'s main conclusion was that the trial judge had erred in his understating of the law concerning the lienability of machinery installations and repairs. In particular, she challenged the trial judge's statement that:

"There is appellate authority going back as far as 1952 in Ontario stating that the installation or repair of machinery used in a business operated inside a building does not give rise to lien rights." 

She distinguished Hubert on its facts from the Kennedy situation and further indicated that the definition of "improvement" pursuant to the Mechanics Lien Act applicable to Hubert was narrower than that now set out in the CLA.38 She further stated that there were only a handful of decisions in Ontario touching on the issue, they were not at the appellate level and they did not stand for the proposition as stated by the trial judge. 

Chapnik J. then reviewed the results in IBL Industries (installation of components of emission control system - lien), Baltimore Aircoil (water tower – no lien), Royal Heating (ice melter – lien); Stacey Heating (air conditioning units – lien), Wolfdale (scrap shuttle car - lien), Stirn (bicycle track – lien) and V.A.M Manufacturing (nuclear van separators – lien). She also reviewed the case of Central Supply (retail sale of tile39) and opined that it was an entirely different issue from the Kennedy situation. 

Based upon the foregoing, she concluded that Killeen J.'s statement of law was wrong and he had proceeded on the wrong principles. 

I pause here to note the following: 

a) With respect to Baltimore Aircoil , Chapnik J., in her effort to distinguish the case and explain why, for other reasons, the lien was not recognized, stated "Not only was the water tower not attached to the building, but it did not form part of the manufacturing process carried on by the owner in the building."40 The latter statement does not seem consistent with the recitation of the facts by Rosenberg J. who decided that case and stated "…Process was required to attend to the installation of a system for the cooling of water used in the manufacturing process at Treibacher's industrial plant….".41 

Killeen J. cited the case for the proposition that installations not integral to the functioning of the building, but only in support of the manufacturing process in the building, are not lienable. This case, with the facts as cited by Rosenberg J., does support that thesis. 

b) To that end, both Royal Heating and Stacey Heating are consistent with Killeen J.'s thesis as the equipment installed in those cases supported the building's function as a building (i.e. melting ice on the driveway ramp and cooling the building) as opposed to supporting the manufacturing process inside the building ( Baltimore Aircoil ). 

c) IBL Industries, V.A.W. Manufacturing and Wolfdale do appear to be contrary to Killeen J.'s thesis. Those cases appear to involve the installation of equipment in support of the business activities carried out on the premises. The only question with respect to IBL Industries is whether the installation of an emission control system in a building is in support of the building as a building, in support of the manufacturing process carried on in the building, or both.

d) Stirn did not involve the installation of machinery. It was a bicycle racetrack, albeit a temporary one. If a track was installed in the school field, it would be lienable. If a velodrome were built in an Olympic venue (i.e. if Toronto was ever awarded the Olympics), it would be lienable. The fact a lien was granted does not appear to weaken Killeen's thesis. 

e) There is little doubt that Central Supply is not factually similar at all to Kennedy Electric. However, Killeen J. did not rely upon Central Supply in this way. Killeen J. cited Central Supply expressly (and solely) for the proposition that it was appellate authority which recognized and adopted the Attorney General's Advisory Committee statement that "improvement" was intended to apply only to the construction and building repair industries. Distinguishing Central Supply on its facts does not weaken Killeen J.'s argument.

Chapnik J. also noted that "materials" as defined in the CLA include every kind of moveable property that becomes or is intended to become part of the improvement and then recited a detailed description of the extent to which the F150 assembly line was attached to the Dana building.42 

In distinguishing Beloit (installation of paper making machine – not lienable) Chapnik J. pointed out that the initial version of the New Brunswick lien statute provided that furnishing or placing machinery gave rise to a lien. Such provisions were deleted in the subsequent versions of the statute, leading to the obvious inference that in New Brunswick, machinery installations were intentionally addressed and excluded from the lien legislation. In contrast, she pointed out that the CLA does include moveable property in the definition of "material". 

In dealing with Spears (pumps for fish plant – not lienable) and Chubb (safe – not lienable), Chapnik J. distinguished the cases both on the basis that the B.C. definition of "improvement" differs from the CLA and on the facts. She then articulated the test set out in the latter case as follows: 
 

"…would the reasonable supplier in supplying a chattel and placing it upon the land conclude he was supplying and installing that item for the enhancement of the land or simply for the use or convenience of a user of land?" which question involved a consideration of such factors as: 

-the degree to which the land or building had to be adapted to accommodate the item; and 

-the permanence of the attachment. 

Chapnik J. further took issue with Killeen J.'s assertion that the B.C. definition of "improvement" was broader than the CLA . She pointed out that, unlike the CLA , the B.C. definition requires the improvement to be attached or intended to be attached to the land. Since there is no such requirement in the CLA , she was of the view that it was wider. 

With respect, I pause again at this point. Chapnik J. herself pointed out earlier in her decision that the definition of "materials" within the CLA requires an element of attachment or an intention that the materials become part of an "improvement".43 Thus, the CLA , like the B.C. statute, does have the same required element of attachment etc. In the CLA , the requirement is simply found in another defined term (i.e. "materials") that can be part of an "improvement". If so, then the attachment criteria is the same in both statutes. The difference, as noted earlier, is the B.C. statute is inclusive ("improvement" includes…) and expansive, and the CLA is exhaustive ("improvement means…). On these considerations, the CLA would be narrower. 

Chapnik J. then stated that the trial judge was "stuck" on the proposition that machinery used in a plant was not lienable, for which proposition she could find no support. That, with respect, is overstating the case and ignores Baltimore Aircoil, Beloit, Chubb, Hubert, Spears and A.J. Goodale

Chapnik J. indicated that Killeen J. put undue emphasis on the "alleged" portability of the line, that permanence was only one factor to be considered, and that his emphasis on portability may have caused him to ignore other factors tending to show that the P221 project was viewed by the parties as a whole. 

In the end, Chapnik J. held the fact that the line was to be in place at least eight years, the fact its components were bolted to the floor and attached to the building services and done so in a massive manner and the fact that the premises was purpose-built for the line would lead a reasonable person to conclude that the assembly line "improved" the premises. 

The Majority Decision in the Divisional Court – O'Driscoll and Wilson J.J. 
In summary, the majority reviewed at length both the findings of facts as found by Killeen J. and the law as noted by him (and set out above). They found that he correctly applied the correct law to the facts as he found them.44 

Other points of note include the following: 

a) the majority agreed with Killeen J.'s comparison and characterization of the CLA and the B.C. provisions concerning "improvements" and stated: 

"Although the CLA definition of "improvement" is broad, it is exhaustive, and applicable only to the construction and building repair industries."45 

b) the majority stated: 

"The assembly line is all about machinery and equipment and has nothing to do with "improvements" to the land and/or the buildings of the St. Mary's plant."46 

c) the majority adopted the ratio of the two B.C. cases of Spear (pumps for fish plant) and Chubb (safe), both of which indicate that the critical criteria is whether the installed machinery is integral to the functioning of the building, or the functioning of the business within the building.

The Decision of the Court of Appeal - O'Connor A.C.J.O., Armstrong and Jurianz JJ.A) 

As noted above, the Court of Appeal was of the view that the issue as to whether the assembly line was an "improvement" was a question of mixed law and fact, principally fact. While they acknowledged that a different judge may have come to a different conclusion, they could find no overriding error on the part of the trial judge and thus, gave his findings and decision deference. 

Counsel for Kennedy raised several new arguments, one of which was the fact that the definition of "improvement" includes "works", which, according to dictionary definitions47 includes machinery, apparatus, appliances and equipment. 

The response to this, and the other arguments of both counsel and Chapnik J. to the effect that the line was permanent and not portable and was part of an integrated whole was that these were findings of fact, that there was evidence to support the findings and that there should be no interference in the absence of a palpable and overriding error. 

I believe one of the most important parts of the Court of Appeal decision is the comment upon the central statement of law by Killeen J. concerning Hubert (which I will repeat because of its importance in understanding the comments of the Court of Appeal that follow): 

"There is appellate authority going back as far as 1952 in Ontario stating that the installation or repair of machinery used in a business operated inside a building does not give rise to lien rights." 

The Court of Appeal opined: 
 

a) that it was not difficult to distinguish Hubert and the other cases cited by Killeen J. based upon both their facts and the relevant statutory provisions; 

b) "That said, what emerges from the brief reasons of the Hubert case is that a mechanics' lien will not arise where the work and materials have been applied in respect of an installation that is moveable (i.e. portable) and not an integral part of the building. A moveable installation does not improve the building in which it is located as it does not become a part of the building."48 

c) That a useful case that gives support to the above was the Court of Appeal decision in A.J. (Archie) Goodale (disassembling, moving, reinstalling machinery – no lien) including the following comment (noted to be said in obiter): 
"The work of installation might have been sufficiently extensive in scope to constitute improving the plant so as to give rise to a claim for lien."49 

d) and finally, the following is likely one of the passages from this case which will be quoted in the future:

"I would hesitate to derive from Hubert the general proposition articulated by the trial judge. I think it is too broad. Each case will depend on its facts. In most cases, the installation or repair of machinery used in a business operated in a building, particularly where the machinery is portable, will not give rise to lien rights under the CLA. On the other hand, where machinery is installed in a building for the use of a business and is completely and permanently integrated into the building, a lien claim will arise."

Conclusion 


Where does that leave us? Based upon the authorities, it still seems that if machinery is installed which services the business within the building rather than the building itself, it will not be lienable. According to the Court of Appeal in Kennedy Electric and in obiter in A.J. (Archie) Goodale , there is always a possibility that the installation will be sufficiently extensive or permanently and sufficiently integrated that it will be lienable. While it is difficult to imagine what additional factors would be required to tip the F150 assembly line installation into the realm of "improvement", it is apparently possible. The odds are, however, a given equipment installation that does not support building functions, but only business operations within the building, will not be found to give rise to lien rights. 

I leave the reader to consider two scenarios: 

a) an installation that both supports the building functions as a building and services the operations within. For example, the installation of ducting and venting in a building which venting is required by the operations within. All buildings need to be ventilated in order to function. Certain buildings require additional and specialized venting because of the nature of the activities within. In my view, such installations would be lienable. 

b) Equipment installation which might have been considered purely as equipment in the past, but may not be today and in the future because of changing needs and expectations. Thus, thirty years ago, the installation of a computer cable network within a building to service a business' computer needs may have been considered too specialized to be part of the building function and thus, was only there to support the business. However today, computer cables in a commercial building (and indeed residential buildings) are expected and thus, may be considered just as much a part of the building as the electrical wiring and plumbing.

This paper was presented at the Hot Topics in Construction Law Conference - OBA Professional Development and appeared in the Construction Law Reports, Third Series, Vol 70, Part 2, August 2008.


1 2007 ONCA 664 (hereinafter the "Decision of the Court of Appeal). 

2 R.S.O. 1990 c. C.30. 

3 Kennedy Electric Ltd. v. Rumble Automation Inc . [2004] O.J. No. 5091, 73 O.R. (3d) 530, (S.C.J.) (hereinafter the "Trial Decision"), at para. 12. This section has been set out in detail as it is an early indication of the direction Killeen J. was heading. It leads to his finding of fact that the building phase and the production line phase were not a single integrated construction project to which finding the Court of Appeal gave deference. 

4 Trial Decision para. 115. 

5 Decisions of the Court of Appeal, para. 21(iii). 

6 Kennedy Electric Ltd. v. Dana Canada Corp . [2006] O.J. No. 972 (Div. Ct.) (hereinafter the "Decision of the Divisional Court"), para. 74. 

7 [1963] S.C.R. 110. 

8 R.S.O. 1960, c. 233 

9 CLA, s1(1) definitions. 

10 (2001), 55 O.R. (3d) 783, para. 15. 

11 [1995] O.J. No. 957 (Master). 

12 Stacey Heating & Plumbing Supplies Limited v. Tamari (1998) 65 O.R. (2d) 481 (H.C.J.)
 
13 (1993), 16 O.R. (3d) 324 (Gen. Div.), reversed on other grounds 30 O.R. (3d) 159 (C.A.). 

14 (1988), 50 R. P.R. 81 (B.C.C.A.). 

15 R.S.B.C. 1979, c. 40 [now S.B.C. 1997, c. 45] 

16 [2001] B.C.J. No. 159 (B.C.C.A.). 

17 [2000] B.C.J. No. 370. 

18 (1990), 80 C.B.R. 20 (Ont. S.C.J. – Registrar). 

19 [1932] B.C.J. No. 72 (Co. Ct.). 

20 (1984), 54 A.R. 243 (Q.B. – Master). 

21 (2004), 47 B.L.R. (3d) 1 (S.C.J.). 

22 (1975), 8 O.R. (2d) 427 (C.A.).

23 (1993), 16 O.R. (3d) 324 (Gen. Div.), reversed on other grounds 30 O.R. (3d) 159 (C.A.). 

24 (1981), 127 D.L.R. (3d) 320, leave to appeal refused 127 D.L.R. (3d) 320n (S.C.C.). 

25 (1985), 36 C.L.R.225 (B.C.S.C.). 

26 [1952] O.J. No. 23 (C.A.). 

27 (1985), 17 C.L.R. 197 (B.C. Co. Ct.).

28 Decision of the Court of Appeal, para. 24. 

29 Trial Decision, para. 64. 

30 "improvement" includes anything made, constructed, erected, built, altered, repaired, or added to, in, or under land, and attached to it or intended to become a part of it, and also any clearing, excavating, digging, drilling, tunneling, filling, grading or ditching of, in, or under land." 

31 "improvement" includes….. (B.C.). 

"improvement" means….. (Ont.). 

32 "Improvement- A valuable addition made to property (usually real estate) or an amelioration in its condition, amounting to more than mere repairs or replacement, costing labour or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes. 

33 Trial Decision , para 84-5, 93-6; Decision of the Court of Appeal, para. 20.

34 Trial Decision, para. 12. 

35 Trial Decision, paras. 115(1) and 116 

36 Trial Decision paras. 104-106 and 115. 

37 However, (as subsequently pointed out by Chapnik J.) the definition of "material" in the CLA includes moveable property that becomes or is intended to become part of the "improvement" and thus, the permanence issue is also raised by the CLA as well as the B.C. statute. 

38 Decision of the Divisional Court, para. 63-9. 

39 The decision concerned whether or not the CLA applied and thus, whether the trust obligations of Part II were applicable to retails sales. The CLA was found not to apply. 

40 Decision of the Divisional Court, para. 75 

41 Baltimore Aircoil, supra, at p. 88. 

42 In so doing, there may have been a misstatement of the facts in that Chapnik J. stated that Kennedy was responsible for connecting the building services to the line (para. 74 of the Divisional Court Decision) whereas Killen J. found that they did not (para. 115 of the Trial Decision). 

43 "materials" means every kind of moveable property, 

(a) that becomes, or is intended to become, part of the improvement, or that is used directly in the making of the improvement, or that is used to facilitate directly the making of the improvement,… 

44 Decision of the Divisional Court, para. 34. 

45 Decision of the Divisional Court, para. 29. 

46 Decision of the Divisional Court, para. 32. 

47 Black's Law Dictionary, 7ed – works. 1. A mill, factory, or other establishment for manufacturing or other industrial purposes; a manufacturing plant; a factory. 2. any building or structure on land. 

Dictionary of Canadian Law, 2ed – works…2. Includes all property, buildings, erections, plant, machinery, installations, materials, dams, canals, devices, fitting, apparatus, appliances and equipment… 

48 Decision of the Court of Appeal, para. 48. 

49 A.J. (Archie Goodale