Law Times

PAGE 12 FOCUS JUNE 9, 2008 / LAW TIMES Kennedy a hot topic for construction bar BY HELEN BURNETT Law Times A fall, the Ontario Court of Ap- peal's decision in Kennedy Electric Ltd. v. Dana Canada Corporation continues to have implications for construction law lawyers in the area concerning the lienability of equipment installation. The case centered around whether a lien claim could be registered against a custom-de- signed, 500,000-ton (453,592 tonnes) frame assembly line for F-150 Ford trucks within a 160,000-square-foot (14,8624 square metres) addition to Dana Canada's plant in St. Mary's. Rumble Automation Inc. was the successful bidder for the design and installation of the assembly line in the new addition to the St. Mary's plant, but carried out much of the work through subcontrac- tors, including Kennedy Electric. In late 2002, a dispute arose hot topic of conversation among the construction bar since its release last between Rumble and Kennedy, and Kennedy was locked out of the site by Rumble. As a result, Kennedy and its subcontractors registered lien claims. that, "the general proposition ar- ticulated by the trial judge" was too broad, and that each case will depend on its facts. The Supreme Court of Canada dismissed an application for leave to appeal in the case in February. Glenn Grenier, of Lang Michen- of the day whether you are or are not lienable," she says. "If, as a lawyer, you are con- other projects done in the same way," she says. fronted with the question at the onset, what do you say?" she says. Clients who ask how they can er LLP, says that the case draws a line between when you can lien and when you can't lien, with respect to the installation of equipment. "Broadly speaking, if the equip- ment is being installed in the building for the purposes of assist- ing or enhancing the building in its function as a building, for example air conditioner units and that sort of thing, then that machinery is considered an improvement to the building, an improvement to the real estate, and therefore the cost of the services and supplies are lienable under the Construction Lien Act," he says. Indeed, before the decision, The trial judge in the case concluded that the assembly line for the F-150 frames could not be considered as part of an "inte- grated construction improvement within the building addition," giv- ing rise to lien rights, and therefore the claims were not lienable. The Divisional Court also dis- missed the appeal. The Ontario Court of Appeal dismissed Kennedy's appeal, not- ing that, based on the trial judge's findings of fact, he was justified in reaching the conclusion that he reached. The court did note many were of the view that if it was a large piece of equipment, lien rights would exist, says How- ard Wise, of Goodmans LLP. One of the effects of this deci- sion might be that you can't lien for equipment supply, and factors such as portability and size will be looked at on a case-by-case basis. "The question is, when you get Anna Esposito says she fears a recent appeal court decision on the lienablility of equipment installation will be 'traipsed out' every time someone wants to argue using the portability rule. and head of the construction law group at Pallett Valo LLP. And, while you would quite often come across some grey areas, all cases up to this point were understandable. Esposito, whose firm acted for very large industrial installations, are you building a building or are you installing a machine, and a lot of the contractors who are in- volved in large industrial installa- tions are not at all happy with the decision because suddenly their work, which may be worth many millions of dollars is . . . not pro- tected by the Construction Lien Act," says Grenier. Before this case, there was al- ways the issue of whether some- thing was a lienable interest, says Anna Esposito, managing partner one of Kennedy Electric's subcon- tractors in the case, says she has to advise clients when they come through the door as to whether it is a supply of services or materials to the construction industry such that if things go wrong they will have lien rights, or not. "If I met with a similar situ- ation as this, or a situation now, even a prefabricated steel building now causes me concern because of this decision," she says. "It puts me in an awkward spot, because it's not like I can get an advance ruling from some- where that says, yes, you're lien- able, no, you're not lienable — you literally take your lumps and you don't figure out until the end protect themselves raise an inter- esting question, as, if they don't fall under the act, then do they fall under some other security system, like the Personal Property Security Act, she says. "Just the uncertainty and the added expense and worry makes this not a very satisfactory situaion for those of us who have to advise in the construction industry, so it has had some ramifications," she says. However, the Court of Appeal was clear in that they didn't accept the trial judge's broad proposition that the installation of machinery in a business in a building never gives rise to lien rights, she says. While in this case it did not, they said machinery installed for use that is permanently integrated into the building may give rise to lien rights in a different factual setting. "They said, no, this can- not be taken as a blanket broad proposition that this will never be lienable," she says. One of the interesting points with this case, says Esposito, is that Dana Canada hired a separate con- tractor to build the addition and then hired Rumble to design, man- ufacture, supply, and install every- thing that went into the assembly line system, who in turn subcon- tracted some of the work out. "I wonder if the result would will be "traipsed out" every time someone wants to make an argu- ment using the portability rule. "Anytime someone can make an argument that you can disassemble and you can take this apart, even with considerable effort, and as- semble it someplace else, therefore it's not lienable, that's what I'm worried about," she says. "I don't think that that's what Esposito says her fear is the case the Court of Appeal said. I think the [court] was clear that it was based on these facts," she says. "They were careful to say we are not making a blanket rule here; it's based on the facts of this par- ticular case," she says. There are lots of equipment in- stallations where it is questionable whether or not liens will apply, or whether this case has taken away lien rights that people otherwise thought they had, says Wise. "It might affect how one structures contracts in the fu- ture, as well," he says, for ex- ample, breaking the contract for a building construction and the installation of an assembly line into two separate contracts. Grenier says that, in his view, the decision is not out of line with similar decisions in Ontario and other provinces where large installations of machinery were found not to be lienable. In this province, Grenier says have been different if Dana had hired one contractor to build the addition and to also supply and install all the assembly line components under one contract. What would the court have done then? Because it could have hap- pened that way. There have been that Kennedy Electric is the decision in this area and he suspects that it will be followed by other trial deci- sions in other provinces. Grenier says that even before the Court of Appeal ruling came down in this case, the Divisional Court's decision was something that was affecting his practice, and he says there have been at least three files in the last six months where the case has had a direct impact. 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