Legal Blog

Improvement Revisited

The Construction Lien Act applies, and therefore the lien and trust fund provisions apply, only if work is done on or materials are supplied to an “improvement”, which is defined as follows: 

(a) any alteration, addition or repair to, or

(b) 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.

Normally, it is quite easy to determine whether a contractor is working on an improvement: erecting a building on land and renovations done to a building on land result in obvious improvements. Sometime, however, the work being done is not an obvious improvement. Usually this grey area relates to work on chattels that are being used in a building. We dealt with this issue in our newsletter of May 2002, but not in detail.

In 310 Waste Ltd. v. Casboro Industries Ltd. and Kennedy Electric Ltd. v. Dana Canada Corp., decisions of the Ontario Divisional Court in 2006 and 2005 respectively, different panels of the court came to different decisions. Not only did the two panels come to opposite conclusions, each panel of three judges had a dissenting opinion.

Tires 

In 310 Waste, the landowner had stored hundreds of thousands of tires on its land. The Ministry of the Environment had ordered the owner to remove them. There was danger of West Nile virus from the mosquitoes breeding in the standing water and, although not mentioned, there was danger of a fire that could result in the emission of environmentally adverse and toxic fumes.

A contractor removed the tires and the owner rewarded the contractor’s efforts by generously paying it $20,000 of the $1.6 million it owed. The contractor liened and the owner argued that the contractor had not performed work on an improvement.

The motions judge held that it was an improvement. The majority of the Divisional Court agreed. They stated that it was both an alteration and a repair to the land. They held that the removal of the tires enhanced the value of the land and that the removal was not mere maintenance of the land.

The minority agreed that the removal of the tires enhanced the usefulness and the value of the land, but was of the opinion that it did not alter, add to or repair any land and was not construction, erection, or installation on any land. As a result, the work performed did not fall within the definition of an improvement.

The minority noted that the tires never were attached to or became part of the land and, therefore, always retained their essential nature as chattels. The minority also noted that the removal of the tires was not done as part of a more comprehensive project to improve the lands. This latter statement makes no sense to us. The work was the same regardless of whether the removal was the end result or whether a building subsequently would have been built on the land as part of the project. Why would it make a difference if there was further work following the removal stage of the project?

Assembly Line 

The owner let two contracts, one for a $7.6 million extension to a plant and the other for a $44 million design-build of the assembly line for the manufacture of automobile parts within the plant. The assembly line had an expected life of 8 years. The general for the assembly line contract subcontracted an $11 million portion of that work to a subcontractor. The general had a contract dispute with the sub and locked it out of the plant; the sub then registered a claim for lien. A major issue at trial was whether or not the work that the general was performing was an improvement. If it was, the sub had a valid lien; if not, the sub did not have a valid lien.

You can tell from the numbers involved that this was not a small project. It was described as follows:

The sub’s portion involved: (1) temporarily connecting at the general’s build sites, all of the devices and components for the assembly line, including the pneumatic services, hydraulic air, electrical and argon gas; (2) disassembling and shipping the components to the owner’s plant; and (3) installing the assembly line there. It took 165 tractor trailer truck loads to transport the parts from the build sites to the plant. The project was described as “massive” and was the largest ever undertaken by the general.

Clearly, the bulk of the work took place at the plant. The assembly line at the plant is comprised of 100 mezzanine platforms, about 10 by 20 feet each, which are interconnected. It contains approximately 165 robots central to its operations. The entire line covers approximately 100,000 sq. ft. of space (in the 160,000 sq. ft. plant addition) stands approximately 20 feet tall and weighs about half a million tons.

At the plant, the 165 truck loads of components and equipment had to be taken from the trucks, leveled and then secured to the floor. Approximately 3,000 chemical anchors and anchor bolts were used to physically attach the mezzanines and other components to the floor in the plant. The attachment to the floor involved attaching the “legs” of the mezzanines to longer legs and bolting them into the floor. A lighting system was installed and an elaborate layout plan for the line, involving marking out the floor with chalk lines, paint and lasers, was instituted for the placement of the various components.

Although the contractor for the construction for the addition was responsible for bringing all the services such as electrical, mechanical, ventilation and argon gas from the street into the building to the trusses below the roof, the assembly line general and its subtrades connected the services to the line. This involved securing six separate fluid power systems with fluid conveyance piping to the floor, channeling 100,000 feet of pneumatic and hydraulic piping to a compressor room, affixing trays to the trusses, welding and hard-piping the argon gas system with copper piping and even building a room on one of the mezzanines in the assembly line to contain control panels and computer stations for data collection.

Indeed, the assembly line was described by those involved as the “grand-daddy of all production lines.

The majority spent 39 paragraphs setting out the facts and quoting from the decision of the motions judge. However, their analysis and reasons for decision seemed to be set out in one paragraph. They stated that if someone were to disassemble the entire $44 million assembly line and remove it from the plant, then, aside from the usual wear and tear, the land and the building would be the same as they were before the assembly line was installed. The majority felt that the assembly line was “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.”

The minority analysed the issues and the jurisprudence thoroughly. She also cited a case in which we had persuaded a trial judge that, under our particular facts, work on a waste mini-train was an improvement (see May 2004 newsletter). She noted that, given the 3,000 bolts to secure the assembly line into the concrete of the plant, the assembly line could hardly be viewed as portable. Further, the cost to remove the assembly line would have been approximately $10 million. As far as the minority was concerned, the assembly line was an improvement.

Our Take 

We suggest that when the land has no function but for the chattels attached to the land, then the installation of the chattels on the land should constitute an improvement. We feel that the 310 Waste case was correctly decided and that the Kennedy case was not. Counsel for the sub in Kennedy has informed us that the sub is moving for leave to appeal to the Court of Appeal.