In On Point Ltd. v. Conseil des Ecoles Catholiques du Centre Est et al, 2023 ONSC 1341, the Ontario Superior Court of Justice confirmed that the construction and installation of portable classrooms are “improvements” as that term is defined under Ontario’s Construction Act (the “Act”)[1], and therefore constitute a lienable supply eligible to be the subject of a lien claim.
The matter involved a summary judgment motion brought by the defendant owner, Conseil des Ecoles Catholiques du Centre Est (“CECCE”), seeking a finding that the plaintiff’s supply of portable classrooms was not a lienable supply, and that therefore the lien remedy was not available to the plaintiff subcontractor lien claimant.
Background
In July 2019, CECCE contracted Ty Corporation (“Ty Corp”) to construct and install 14 school portables (“portables”) on the Paul Desmarais school site in Stittsville, Ontario (the “Work”).
The Court defined the portables as buildings located outside the school building which serve as classrooms for teachers and students.[2] CECCE required the portables to be ready in advance of the school year commencing in September 2019.
Ty Corp entered into a verbal subcontract (the “Subcontract”) with OnPoint Group Ltd. (“OnPoint”) for the construction portion of the Work. Under the Subcontract, the parties agreed that OnPoint would construct the portables at its facility in Vars, Ontario. Once the construction of the portables was complete, one of Ty Corp’s other subcontractors would deliver the partially completed (two halves of the) portables to the school site. At the school property, the portables were placed by another subcontractor arranged by Ty Corp on temporary foundation (stilts). OnPoint connected the two halves of the portables and another subcontractor arranged by Ty Corp moved them to their final resting spot. OnPoint then completed the roofing, siding, stairs landing and window casings in respect of the portables on site.
On or about August 13, 2019, it became evident to CECCE that Ty Corp would be unable to supply all 14 portables to the school site by September 2019, thus failing to fulfill its contractual obligations. CECCE subsequently terminated its contract with Ty Corp and entered into a contract with Multi-Service Restoration, an intervening party in the motion, for the construction and supply of the remaining portables. OnPoint was not fully paid by Ty Corp, and registered a construction lien on the school site.
CECCE subsequently brought a summary judgement motion to determine whether the portables and OnPoint’s supply were “improvements” within the meaning of the Act. CECCE’s position was that OnPoint’s lien should be discharged as the portables were not “improvements” within the meaning of the Act.[3]
Analysis
The Court began by engaging in an exhaustive review of the legislative framework, historical developments, and relevant case law with respect to the evolution of construction liens in Ontario. Through this review, the Court reaffirmed that whether or not a party is entitled to a lien should be strictly constructed.[4] Furthermore, the Court confirmed that the determination of whether construction work is an “improvement” as defined in the Act, is a fact-driven exercise where the Court must determine whether there has been “value added” to the property in question.[5]
The Court ultimately determined that the portables were improvements to the school site, and therefore OnPoint was entitled to lien rights under the Act for the following reasons:
- OnPoint completed the portables on the school site;
- The final destination of the portables was known to the parties and therefore there was a connection to the school site;
- CECCE regularly held back 10% of the funds advanced to Ty Corp; and
- The portables enhanced the value of the school.[6]
In reaching the foregoing determination, the Court undertook a detailed analysis of the following four factors: (1) the intentions of the parties; (2) the construction of the portables; (3) the installation of the portables; and (4) the building features of the portables.
Intentions of the parties
The Court found that the parties did not expressly contemplate lien rights in the contract, and the contract made no explicit reference to the Act.[7] However, while the contract did not contemplate a retention of 10% holdback which is only required for lienable services, CECCE did retain 10% holdback for any portable-related work. Therefore, the court found that CECCE’s retention of the 10% holdback, suggested that CECCE was operating on the basis that the portables were a lienable supply.[8] The court further found the parties intended for the portable classrooms to remain at the project site on CECCE’s property (and CECCE did not intend for the portables to be leased, or to be returned).
Construction of the portables
The Court found that the construction of the portables was a factor that weighed in favour of a finding that the subject portable supply was an improvement. While the Court acknowledged that portables had an inherent impermanence as they can be removed from the school site, the removal would not be a simple task as the portables were anchored to the land with custom support.[9] The Court considered various aspects of attachment to the premises through a detailed review of the construction of the portables, reinforcing the importance of the fact-driven exercise associated with an assessment in respect of the issue of lienability.
Installation of the portables
The Court reaffirmed the proposition that the concept of the construction lien is rooted in adding value or utility to the land.[10] The Court determined that in this case, there was a direct connection between the work performed to install the portables and adding value to the school site. In particular, the Court cited that installation of the portables involved installation of cement footings, electrical work to connect the portable to the school’s electrical system and installation of skirts around the portables.[11]
Building features of the portables
The Court held that the case law on modular prefabricated structures suggests that the availability of lien rights will turn on the nexus between the structure and its connection to the specific lands.[12] Specifically, the case law suggests that the Court should consider whether a modular prefabricated structure that can be moved around at will is a chattel. The Court noted that lien rights will exist where the structure is manufactured for specific land or in respect of a specific construction project.[13] Furthermore, and pursuant to the nexus test, a supply of services and/or materials will give rise to lien rights where the owner considers the subject services or materials necessary to the completion of the project.[14] The Court ultimately held in this case that the portables added utility to the school as it enabled the school to receive further student population without the expense of expanding the school’s building, and therefore the portables were improvements to the school site.
Key takeaways
Given modern engineering techniques, and changing construction processes, including modular building, construction industry stakeholders should carefully consider the applicability of Ontario‘s lien legislation to their construction projects and any supply in respect of their construction projects (including in situations where there are questions in respect of permanence/impermanence and portability, as movability is one of many considerations).
The issue of lienability, and whether or not a particular supply falls within the meaning of an “improvement” under Ontario’s lien legislation is a critical threshold issue with respect to the prosecution/defence of a construction lien claim (in addition to the threshold issues of timeliness and quantum). The analysis with respect to whether a particular supply of services and materials is lienable and meets the definition of “improvement” under Ontario’s lien legislation, is a determination requiring a fact-driven exercise.
The OnPoint case highlights that despite the moveable nature of a prefabricated structure, the availability of lien rights will ultimately depend on if the structure adds value or utility to the lands, and whether the subject supply is essential to the normal or intended use of the land, building, structure or works. In the case of prefabricated structures, the Court will evaluate various factors, including the construction and removal complexities associated with the structure and the structure’s contribution to the property’s value.
Furthermore, this case serves as an important reminder to parties that the Court may look beyond the governing construction contract/subcontract (in addition to the express words/terms contained therein) and interpret the parties’ conduct to determine whether their actions infer an application of the Act.
Should you have any questions regarding this article or any other matters, please feel free to reach out to a member of Miller Thomson’s Construction Litigation group.
[1] Which term now includes the construction, erection, or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land, or any building, structure or works on the land that is essential to the normal or intended use of the land, building, structure or works.
[2] On Point Ltd. v. Conseil des Ecoles Catholiques du Centre Est et al, 2023 ONSC 1341 at paras 4-9.
[3] Ibid at para 30.
[4] Ibid at para 81.
[5] Ibid at paras 40-41.
[6] Ibid at para 82.
[7] Ibid at para 98.
[8] Ibid at para 104.
[9] Ibid at para 149.
[10] Ibid at para 152.
[11] Ibid at para 154.
[12] Ibid at para 156.
[13] Ibid at para 158.
[14] Ibid.
