LIEN ACT J U N E by Matthew Alter

Transcription

1 C O N S T R U C T I O N L AW U P D AT E IN THIS ISSUE 1 AUTOMOTIVE ASSEMBLY LINE IS NOT LIENABLE UNDER ONTARIO CONSTRUCTION LIEN ACT 4 WORKERS COMPENSATION BOARD OF BRITISH COLUMBIA v. NEALE STANISZKIS DOLL ADAMS ARCHITECTS ET AL - EXTENDING LIMITATION CLAUSES BEYOND THE PARTIES TO THE CONTRACT 6 CIVIL LITIGATION ALERT MARCH DRUGS, ALCOHOL AND CONSTRUCTION: A BAD MIX A U T O M O T I V E A S S E M B LY L I N E I S N O T L I E N A B L E U N D E R O N TA R I O C O N S T R U C T I O N L I E N A C T by Matthew Alter The Ontario Superior Court of Justice recently released its much anticipated ruling in the case of Kennedy Electric Limited v. Rumble Automation Inc. et al, [2004] O.J. No (S.C.J.). The case involved the trial of an issue with respect to several construction liens that had been registered against Dana Canada Inc. s manufacturing plant in St. Mary s, Ontario. Briefly, the facts were as follows. Dana owned an existing industrial plant that had received additions over the years to accommodate several different automotive production lines. In October 2000, Dana was commissioned to build the frames for the Ford Motor Company s new F150 pickup trucks. In 2001, Dana commenced a two-staged process for the implementation of its new contract with Ford: the first step involved the construction of a building addition to its existing plant, followed by the design, build and installation of a new assembly line within the addition. The fact that Dana entered into two separate contracts for this work was significant to the outcome of the case. Dana first contracted with Newman Bros., as general contractor, to build the addition. That contract was subject to a ten percent holdback and received a certificate of substantial performance, which was published, all in accordance with the Construction Lien Act, R.S.O. 1990, c. C.30. The Newman Bros. contract was not the subject of the dispute. Dana s second contract was with Rumble Automation Inc. for the design, build and installation of the F150 assembly line within the addition. The assembly line installation work began at Dana s plant in the fall of 2002, roughly the time when the building addition was completed. Prior to installation, the assembly line was assembled and installed at a temporary build site, away from Dana s plant, where it had to demonstrate successful operation before it was disassembled, packed and transported to Dana s plant. Rumble, which designed the assembly

2 2 the assembly line could not be considered as part of an integrated construction improvement line, subcontracted part of the work to Kennedy Electric Limited, which in turn, engaged its own subtrades (and suppliers). The assembly line was a significant undertaking: it comprised 100 mezzanine platforms and 165 robots, covering 100,000 sq. ft., standing 20 ft. tall, weighing approximately half a million tons, with sections of the line chemically anchor-bolted to the floor of the addition. The assembly line was not, however, the only line placed in the addition. Two other companies installed separate lines to accommodate and supplement the work of the main assembly line. One of the adjunct lines, which occupied approximately 40,000 sq. ft. of space in a portion of the addition, was for the purposes of a special coating process, and a second adjunct line was installed for waxing and stacking the F150 frames. The assembly line went into production in September In December 2002, a dispute arose between Rumble and Kennedy, which led to the registration of construction liens against Dana s property by Kennedy and six of its subtrades. The liens, totalling approximately $9 million, became the subject of the trial of the issue as to whether Kennedy and its subtrades had supplied services and materials to an improvement entitling them to lien Dana s property, pursuant to the Construction Lien Act. Rumble and Dana advanced the position that the installation of the line was manufacturing equipment, which did not fall within the definition of an improvement under the Construction Lien Act and did not, therefore, give rise to lien rights. Kennedy and its subtrades took the contrary position and maintained that the sheer size of the assembly line and the manner by which it was anchored to the floor of the addition and connected to the building services, gave rise to lien rights. The lien claimants further contended that the construction of the building addition and the installation of the line, collectively, amounted to one integrated construction project, again, giving rise to lien rights within the ambit of the Construction Lien Act.

3 3 C O N S T R U C T I O N L A W U P D A T E The trial judge, Justice Killeen, ordered that the liens be discharged, accepting Rumble s submissions (adopted and supported by Dana) on the following points: a) The building addition was designed and constructed as a separate and independent construction project from the assembly line and was certified substantially performed before any of the assembly line installation began; b) The building addition, when contrasted with the assembly line, was a construction improvement with the Construction Lien Act with holdbacks, whereas the assembly line could not be so characterized; c) The assembly line equipment was designed to fit into the building addition, whereas the generic building addition was not specifically designed for the subject assembly line; d) The building addition ultimately housed two other manufacturing adjunct lines which were supplied, installed and owned by other parties; e) The building services were brought into the building under the Newman Bros. contract and not by Kennedy; f) The assembly line, by its design, was portable and could be disassembled and removed from the building and reinstalled elsewhere; and g) Ultimately, the assembly line remained machinery, which, despite its significant size and weight, did not become a part of the building and occupied only a portion of the addition. Following the Supreme Court of Canada s decision in Clarkson Co. Ltd. v. Ace Lumber Ltd. (1963), S.C.R. 110, Justice Killeen restated the principle that courts must narrowly construe a claimant s entitlement to exercise the right of a statutory lien under the Construction Lien Act. He further relied upon appellate authority in Ontario for the proposition that the installation of machinery used in a business operation inside a building does not give rise to lien rights. Justice Killeen rejected the lien claimants reliance upon British Columbia lien decisions, notably the Boomars Plumbing & Heating Ltd. v. Marogna Enterprise Ltd. (1988), 50 R.P.R. 81 (B.C.C.A.) case, and agreed with Rumble that the definition of improvement in the B.C. Builders Lien Act is inclusive and not exhaustive or exclusive, as is the definition of improvement in the Ontario Construction Lien Act. After hearing evidence from more than a dozen witnesses, led primarily by the lien claimants, on where and how the line was fabricated and installed, Justice Killeen found that the assembly line could not be considered as part of an integrated construction improvement within the building addition, giving rise to lien rights, nor could it be considered as a free standing improvement on its own, within the meaning of improvement under the Construction Lien Act, but rather, it remained manufacturing equipment that did not give rise to lien rights. On a secondary issue, the court also dismissed the construction lien claim advanced by Kennedy s trucking supplier, Empire Transport, which had been hired to deliver the assembly line parts from the temporary build site to Dana s plant. Following the Ontario Court of Appeal decisions relied upon by Rumble in Slack

4 4 The Court agreed and found that it was the intention of the parties that any limitation of liability was to be extended to the sub-consultant Transport Ltd. v. General Concrete Ltd. (1982), and Muscillo Transport Ltd. v. Bank of Nova Scotia (1997), Justice Killeen found that the transportation services provided by Empire did not support a construction lien. The decision is under appeal, save for the trucking services ruling. If Justice Killeen s decision is upheld, it will clearly signal that construction lien rights in Ontario do not extend to the supply and installation of manufacturing equipment within a building. Trial counsel for the successful party, Rumble Automation Inc., were Matthew Alter and James MacLellan of Borden Ladner Gervais Toronto Office. T H E I M PA C T O F L I M I TAT I O N C L A U S E S O N S U B C O N T R A C T S by Grant Mayovsky The Supreme Court of British Columbia has recently extended the protection afforded by a limitation of liability clause in an agreement between an owner and an Architect to a mechanical sub-consultant retained by the Architect, in part because it was unrealistic to assume that the Architect could have performed all services under the agreement on its own. In Workers Compensation Board of British Columbia v. Neale Staniszkis Doll Adams Architects et al., the WCB sought damages from an Architect and its subconsultant for alleged structural inadequacies discovered at an office owned by the WCB. The Architect was the prime consultant retained by the WCB in 1991 in respect of the construction of the office. The sub-consultant was retained by the Architect. The agreement between the WCB and the Architect (the Agreement ) as originally drafted limited the Architect s liability to $250,000 for each claim and $500,000 for all claims during each period of coverage as provided by the Architect s professional liability insurance. However, the Agreement was amended to delete the stipulated limits and replaced with a notation that the insurance coverage per claim was to be determined by the WCB as stipulated in a project-specific professional liability insurance policy that was to be obtained by the WCB. The specific wording of the limitation of liability was also changed such that the limitation was for all claims during each period of coverage as provided by the Architect s professional liability insurance or indemnity against errors or omissions in effect at the date of execution of this agreement, including the deductible portion thereof, such limitation shall apply to the extent only that such insurance or indemnity is available to the Architect to satisfy such claims. The mechanical sub-consultant asked the Court to determine whether the limitation of liability could extend to a sub-consultant notwithstanding that the sub-consultant was not a party to the Agreement. Counsel for the sub-consultant relied on a phrase in the Agreement stipulating that the provision of any services must be carried out by either employees or agents to submit that the limitation of liability applied not only to the Architect, but also to the sub-consultant as its agent. The Court agreed and found that it was the intention of the parties under the Agreement that any limitation available to the Architect was to be extended to the sub-consultant. The Court cited four factors that favoured this finding:

5 5 C O N S T R U C T I O N L A W U P D A T E 1) The WCB requested the Architect to identify the sub-consultants to be engaged; 2) The sub-consultant was listed as one of the sub-consultants; 3) There was an overwhelming identity of interest between the Architect and the sub-consultant in respect of the services to be provided by the Architect under the Agreement; and 4) There was a specific acknowledgement in the Agreement that neither the Architect nor its sub-consultants would be called upon to contribute to the cost of the project specific policy to be obtained by the WCB (which policy was never actually obtained). The Court was also satisfied that it was an implied term of Agreement that the limitation of liability could be extended to sub-consultants. Specifically, the Court held that, when dealing with the provision of the services under the Agreement, it would be unrealistic to assume that all required services could be provided by one organization. Therefore, no party that actually performed the services to be provided under the Agreement should be excluded from the benefit of the limitation of liability made available to the primary provider of those services. The Court found that the WCB could not rely on its own failure to obtain a project-specific policy to argue that there was no limitation of liability in place. The Court also rejected the Architect s submission that the WCB s failure to obtain the policy completely limited the Architect s liability. The Court found the understanding of the parties, as indicated by the language of their contract, was that, in the absence of a stipulated project-specific professional liability insurance policy, the applicable limitation of liability was the insurance available to the Architect under its own professional liability insurance policy at the time that the claim was brought. The Court also held that, if the passage of time made it such that there was no insurance available to the Architect, for example because the claims made under its policy had reached the aggregate liability per year, then the liability of both the Architect and the sub-consultant would be zero. This case may be somewhat difficult to reconcile with the Supreme Court of Canada decision in Edgeworth Construction v. N.D. Lea. In Edgeworth, the Court held that the owner s consultant could not rely on a limitation of liability clause in the contract between the owner and the contractor. It will be interesting to see how this case is treated on an appeal, if one occurs. The ramifications of this case are enormous. More than ever, owners should be aware of the limitation clauses contained within the contracts for Architects, engineers and contractors. Presumably the same logic would apply as between an owner and a subcontractor thereby eliminating the owner s ability to avoid the limitation language in its prime contracts and to seek recovery from sub-consultants and subcontractors. Owners may also wish to consider whether they should engage each of their consultants or trades (through construction management) individually rather than as sub-consultants or subcontractors to a prime as individual risk allocations can then be made. We understand from counsel involved in this matter that it is under appeal.

6 6 I N C R E A S E D B. C. S M A L L C L A I M S L I M I T S A N D E X P E D I T E D R U L E S F O R C L A I M S U N D E R $ 1 0 0, by Rick Williams On March 30, 2005 the British Columbia Attorney General announced dramatic changes to the rules that govern civil litigation in the Province. The changes, which take effect on September 1, 2005, are part of a declared effort to make the court process easier, faster and more affordable for all British Columbians seeking justice. First, the monetary limit on the Provincial Court s civil jurisdiction will be raised from $10,000 to $25,000. This means that claims up to $25,000 will be able to proceed according to the current small claims procedure in the Provincial Court. Claims up to $25,000 will be able to proceed according to the current small claims procedure. Second, a new expedited procedure will be introduced for Supreme Court Actions involving $100,000 or less. A new rule Rule 68 will be introduced as a two-year pilot project in four Supreme Court registries (Vancouver, Victoria, Prince George and Nelson). Rule 68 is designed to streamline the civil litigation process and reduce the time and costs of taking an action to trial in the Supreme Court. The new Rule 68 procedure will apply to most claims, excluding family and class proceedings actions, commenced in the four registries after September 1, The new procedure is compulsory unless the Court orders otherwise. The increase in the Provincial Court s small claims jurisdiction and the introduction of an expedited Supreme Court process is good news for all businesses that have found litigation to be an uneconomic alternative for the recovery of small to medium-sized claims. It should be possible to achieve a cost-effective result in a far greater number of instances. The cost of dealing with frivolous claims or defenses should also be reduced. Some of the more significant changes introduced by Rule 68 are as follows: A party s right to trial by jury is eliminated. The scope of documents to disclose in the litigation has been narrowed: the test for disclosure shifts from potential relevance to reliance and materiality. A party s right to conduct examination for discovery is eliminated. An opponent may only be examined with his or her consent or with the court s permission. Pre-trial examination of witnesses and the use of interrogatories are eliminated. The parties must exchange lists of witnesses, along with a written summary of each witness' expected evidence, at a relatively early stage in the proceedings. A party may not call an unlisted witness at trial, nor a listed witness whose evidence has not been summarized in writing, without the court's permission. A party may call only one expert witness unless the court orders otherwise.

7 7 C O N S T R U C T I O N L A W U P D A T E A party may request a case management conference after the document disclosure process. Should a conference be requested, the parties must attend with their counsel, if represented, and bring all of their disclosed documents to the conference. At the conference, the court can make various orders aimed at expediting the process. A mandatory trial management conference will be held before a judge prior to trial. The conference is designed to aid in the orderly conduct of the trial. The parties are required to file and exchange detailed trial briefs prior to the conference. These will include, among other things: a summary of the issues and the party s position on those issues; a list of documents they intend to produce at trial; time estimates for direct, cross, opening and closing; and a list of the authorities they intend to rely on. If you have any questions concerning these changes or would like further information please contact Rick Williams, Peter Eastwood, Jonathan Brook or any other member of our litigation team. D R U G S, A L C O H O L A N D C O N S T R U C T I O N : A B A D M I X by Sara Gittens There has been a recent tightening of drug and alcohol testing policies in some sectors of the construction industry. Whether you are a site owner contemplating pre-site access testing for employees and contractors or a contractor supplying contract workers to a site that implements a pre-access testing policy, there are significant legal implications that you must consider. If you are a site owner contemplating a pre-site access drug and alcohol testing policy, you should consider the following: blanket pre-site access testing will almost always violate human rights laws and create a risk of successful human rights complaints; and drug and alcohol testing is generally only acceptable in the following circumstances: (1) after an accident or near-accident, (2) on reasonable suspicion that an employee is under the influence of drugs or alcohol at work, (3) where an employee has disclosed a drug or alcohol dependency, and (3) random testing for employees in particularly safety-sensitive positions. If you are a contractor supplying contract workers to a site that implements a pre-access testing policy, you should consider the following: if the contractors that you are sending to the site are not performing safety sensitive functions (for example, professionals providing consulting services), and you require them to submit to drug and alcohol testing prior to accessing the site, there is a risk of a successful human rights complaint. Some ways to limit the risk associated with a human rights complaint by one of your employees would be to: (1) ask for an indemnity from the site owner for any costs or damages arising out of the implementation of their policy, (2) ensure that the site owner is aware that their policy does not comply with human rights laws and suggest revisions, or (3) ask the site owner for an exception for your employees, on the basis that they are not in safety sensitive positions.

8 This document provides only general information, and does not constitute legal or other professional advice. Readers are encouraged to obtain legal advice from a competent professional regarding their particular circumstances. Our Construction, Surety & Fidelity Group contacts are: Regional Calgary Jeffrey D. Vallis, Q.C. Montréal Daniel Ayotte (403) (514) Ottawa David Sherriff-Scott Vancouver David L. Miachika, P.Eng. (613) (604) Toronto Richard H. Shaban (416) National R. Bruce Reynolds (416) C O - E D I T O R S Christopher J. O Connor Douglas R. Sanders P. Eng C.Arb., FCIArb. (604) (604) dsanders@blgcanada.com coconnor@blgcanada.com To obtain additional copies of the Borden Ladner Gervais LLP Construction Law Alert or to change your mailing address, please contact one of the editors. Or, visit our website at where you can view the Construction Law Alert and other Borden Ladner Gervais LLP publications. This newsletter has been sent to you courtesy of Borden Ladner Gervais LLP. We respect your privacy, and wish to point out that our privacy policy relative to newsletters may be found at If you have received this newsletter in error, or if you do not wish to receive further newsletters, you may ask to have your contact information removed from our mailing lists by phoning BLG- LAW1 or by ing subscriptions@blgcanada.com Borden Ladner Gervais LLP Borden Ladner Gervais LLP Lawyers Patent & Trade-mark Agents Ca l g a r y 1000 Canterra Tower 400 Third Avenue S.W. Calgary, Alberta, Canada T2P 4H2 tel: (403) fax: (403) M o n t r é a l 1000 de La Gauchetière Street West Suite 900, Montréal, Québec, Canada H3B 5H4 tel: (514) fax: (514) Ottawa World Exchange Plaz a 100 Queen Street, Suite 1100 Ottawa, Ontario, Canada K1P 1J 9 tel: (613) Legal fax: ( 613) IP fax: (613) Toronto Scotia Plaza, 40 King Street West Toronto, Ontario, Canada M5H 3Y4 tel: (416) fax: ( 416) Va n c o u v e r 1200 Waterfront Centre 200 Burrard Street, P.O. Box Vancouver, British Columbia, Canada V7X 1T2 tel: (604) fax: (604) Wa t e r l o o Re gion 508 Riverbend Dr., Suite 303 Kitchener, Ontario, Canada N2K 3S2 Tel.: (519) Fax: (519) Borden Ladner Gervais LLP is an Ontario Limited Liability Partnership Printed in Canada