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Ontario Construction Lien Act Revised – the Legacy of Kennedy Electric

Date

January 14, 2011

AUTHOR(s)

Julie K. Parla


It has been 20 years since the Construction Lien Act was amended, but the harsh implications of Kennedy Electric v. Dana Corporation1 finally got the legislature’s attention.

No one was more surprised than Kennedy Electric when the court found it had no lien rights under the Ontario Construction Lien Act. Kennedy had provided installation services for an assembly line used in the manufacture of Ford truck frames. The line consisted of 100 mezzanine platforms and 165 robots. It was attached to the floor by a system of some 2,000-3,000 mechanical and chemical bolts and was connected to the building services. The line covered 100,000 square feet of the 160,000-square-foot building in which it was housed, was twenty feet high, and weighed 500,000 tons. The building itself was an addition to the manufacturing plant, commissioned specifically to accommodate the assembly line, and constructed contemporaneously. Notably, the building cost approximately $7 million to construct, whereas the cost of the design, build and installation of the assembly line was $44 million. The addition’s sole intended use was to house and run the assembly line.

The Kennedy action was a trial of the issue of whether Kennedy Electric’s work gave rise to lien rights as against the owner’s manufacturing plant.

Of course, lien rights only flow from services provided to an "improvement." At the time, improvement was defined under the Act to include "any construction, erection or installation on any land." Relying primarily on findings that the assembly line was "portable" — that is, it could be removed from the building with minimal damage — the trial judge found that the line was neither part of the integrated construction nor an improvement in its own right. Simply put, the court found the assembly line to be "manufacturing equipment in a building," and therefore not subject to a lien pursuant to the Act. Because the general contractor who had retained Kennedy was by this time bankrupt, Kennedy was left with no remedy.

The case was unsuccessfully appealed to both the Divisional Court (albeit with a well-reasoned dissent by Chapman J.) and the Court of Appeal. The tone of the Court of Appeal’s decision was deferential to a fault. Armstrong J.A. repeatedly emphasized that the approach as to what is or is not an improvement involves at its core a "fact-finding exercise." Despite hints that the judges on the Appeal Court would have supported a different factual conclusion, their hands were tied from interfering with the trial judge’s findings.

Criticism of the case was directed at the trial judge’s failure to treat the construction of the plant addition and installation of the assembly line as an integrated project. The sole purpose of the plant addition was to house the assembly line; the building was of no use without the installation. The intention of the project as a whole was clear: to create facilities in which the manufacture of truck frames would be carried out.

The Kennedy precedent created a business risk for the trades whose services and materials could be characterized as equipment, distinct from the overall construction project. Those trades would be at the mercy of the court’s "fact-finding exercise," unclear as to whether they would ultimately be afforded the protection of the Act.

Enter Bill 68: the Open for Business Act, 2010. As part of its overall agenda to promote business and investment in Ontario, the legislature, for the first time in over two decades, turned its attention to the Construction Lien Act. The definition of improvement was amended and proclaimed in force on October 25, 2010. It reads (added language underlined):

… "improvement" means, in respect of any land:

  1. any alteration, addition or repair to the land;
  2. any construction, erection or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land or on any building, structure or works on the land that is essential to the normal or intended use of the land, building, structure or works; or
  3. the complete or partial demolition or removal of any building, structure or works on the land.

In debating this amendment, the legislature stated:

The proposed changes to the Construction Lien Act [will] help ensure that courts are only involved in construction disputes when needed, by broadening the definition of the term "improvement." 2

Kennedy Electric’s experience drove the particulars of this amendment. There is little doubt that the work it provided would today fit the definition of improvement. However, those who are unpaid and without an immediate remedy in the construction industry will always push the envelope. Whether the definition will be tested in the other direction — that is, as to how broad of an interpretation "improvement" can now be given — remains to be seen.


1 (2007) 285 D.L.R. (4th) 466, leave to the SCC denied.

2 Ontario, Legislative Assembly, Official Report of Debates (Hansard), Second Session, 39th Parliament No. 37A, May 31, 2010 at 1784.

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