Whether something put on land is an “improvement” for the purposes of construction and builders’ liens can be a difficult question of fact and law. Usually the dispute revolves around the degree of attachment of the “thing” to the land and the permanence of the attachment.

Then, add to that dispute the fact that “services” are provided to design the thing, bring it to the land or place it on or attach it to the land. Are the services lienable?

In Grey Owl Engineering Ltd. v. Propak Systems Ltd., the Saskatchewan Court of Appeal appears to have recently held that the services may be lienable even if the “thing” is not an improvement, as long as the services are in relation to a larger project that falls within the lien statute. I say “appears” because the court also seems to have held that the matter was not finally decided. So, while this decision is very important so far as it goes, it may not be the last word on this issue.

In making its decision, the Saskatchewan Court of Appeal over-turned the trial judge’s decision to the contrary: Propak Systems Ltd. v. Grey Owl Engineering Ltd. 2015 CarswellSask 91, 2015 SKQB 43. That lower court decision was reviewed by me in my article of April 28, 2015.

Background

A lessee of land contracted with Propak for engineering, procurement, and fabrication services for an oil extraction system to be provided by Propak for use on the leased land. Propak entered into a subcontract with Advanced Metal for the construction of three storage tanks to be used on the land as part of the extraction facility. In turn, Advanced Metal entered into a sub-subcontract with Grey Owl to provide engineering design services relating to those storage tanks.

The storage tanks were each to be 24 to 38 feet tall and weigh between 34,000 and 43,500 pounds. Each tank was to sit on an engineered gravel pad. Piles would run through the gravel pad and extend about 20 feet into the ground. An anchor chair was to be welded to the base of the tank and then bolted to the piles. The three tanks would then be connected to the entire oil extraction facility through steel and fiberglass piping that would be bolted to the tanks.

Grey Owl materially completed its design services, but Advanced Metal abandoned the project before any of the tanks were built and failed to pay Grey Owl for any of its engineering services. Grey Owl then registered a lien against the leased land pursuant to the Saskatchewan Builders’ Lien Act (the Act).

Propak applied to the Court of Queen’s Bench to vacate Grey Owl’s lien. Propak paid into court the full amount claimed plus an extra 25% as security for costs, and an order was granted vacating the lien.

Propak then applied to the Court of Queen’s Bench for an order releasing the amount held in Court on the ground that Grey Owl was not entitled to register a lien under the Act on the ground that Grey Owl was not entitled to a lien as its engineering services were not provided in relation to an “improvement” as defined in s. 2(1)(h) of the Act.

As noted in my article of April 28, 2015, the judge of first instance decided that Grey Owl did not have a valid lien. The judge held that the storage tanks were capable of being moved, being part of a modular system that could be relocated to another oil field. They were not designed to be moved around the site, but they were capable of being moved beyond that site once the project was finished. Since the tanks were capable of being moved, the judge held that they were not an improvement, and since they were not an improvement, Grey Owl’s claim of lien was not valid. The judge ordered that the money paid by Propak into court be released to Propak.

Decision of the Saskatchewan Court of Appeal

The Court of Appeal allowed the appeal and re-instated Grey Owl’s lien. In doing so, it first engaged in an interpretation of the Act. It noted the definition of “services” and “subcontractor” in the Act:

“(q) “services” means any labour done or service performed on or in respect of an improvement and includes the rental of equipment and the wages of any operator provided with the equipment …

(t) “subcontractor” means a person, not contracting with or employed directly by an owner or his agent, but who provides services or materials to an improvement under an agreement with the contractor or under him with another subcontractor, but does not include a labourer …(Emphasis added)”

The court then stated:

“In short, it is a mistake to begin and end the inquiry with whether the storage tanks are the improvement. The issue is whether Grey Owl provided “services” “on or in respect of an improvement for an owner, contractor or subcontractor” within the meaning of s. 22 and, as part of this analysis, identify the improvement in question.”

The court applied the approach taken in its prior decision in Hansen v. Canadian National Railway (1983), 22 Sask. R. 126 and other Saskatchewan cases which followed Hansen or applied the same logic. The court described this approach as follows:

“This approach, which focuses on the main contract or contracts rather than its individual subcontracts and the work being done under them, has been consistently followed and applied in this jurisdiction…..Courts appear to have taken it as self-evident that the improvement was the work the owner was performing on the land and not the work performed by the various subcontractors and others contracting with them.”

In enunciating the policy reasons behind this broad approach, the court adopted words of the court in Hansen: “the principal object of this Act is to better ensure that those who contribute work and material to the improvement of real estate are paid for doing so”. The court expanded on this approach as follows:

“Two factors dictate the Saskatchewan Legislature’s approach to its builders’ lien legislation. The first factor is that, unlike any other commercial endeavour, the work, services and materials supplied to an improvement are provided on credit in a pyramidal structure, where payment often depends on whether the parties in the pyramid above the lien claimant are paid. The second factor is that the ordinary law of contract does not provide sufficient remedies to ensure that the contract funds flow from the top of the construction pyramid to those entitled to receive them. The statute supplements the law of contract and fosters the provision of credit in a complex piece of legislation designed to assist and facilitate construction….A restrictive reading of s. 22 does not serve the interests of those who provide services and materials on credit. To do so would not be in line with the protective purpose of the Act. Arguably, a restrictive reading of s. 22 does not serve the commercial interests of the owner and financier of an improvement either in that uncertainty as to who is or who is not entitled to a lien can only increase costs, either in the fixing of the contract price or in the litigation that will inevitably arise.”

The court then considered three questions: did Grey Owl provide “services”; were the services provided to a “subcontractor”; and were the services in relation to “an improvement”?

On the first issue, the court had no doubt: “First, it is clear that Grey Owl provided “services.” The definition of “services” includes “any labour done or service performed,” including equipment rental. The definition of “improvement” in s. 2(1)(h)(iii) also demonstrates the clear legislative intent to extend rights to those who provide design services.”

On the second issue, the court also had no doubt: “Second, it is also incontestable that Grey Owl contracted with a “subcontractor,” i.e., Advanced Metal.”

The only issue was whether the services to the subcontractor were in relation to an “improvement.”   On this issue, the court said the following:

“As can be seen from the Stauth affidavit, Grey Owl was retained to provide engineering drawings with respect to storage tanks that were to be used by the contractor or principal subcontractor “as part of their oil extraction system.” In such circumstances, it is an error to ask whether the claimant claims a lien in the storage tanks as an “improvement.” Applying Hansen, the “improvement” with respect to which the legislation is concerned is the project that will lead to the extraction of oil.”

Having arrived at this conclusion, the court did not finally order that Grey Owl’s lien was valid. Rather, it said the following

“When this principle is understood, it is clear that Propak’s application could not be allowed. It is not sufficiently plain and obvious that Grey Owl’s lien is invalid on the basis put forward by Propak: that Grey Owl did not provide services “on or in respect of an improvement for an owner, contractor or subcontractor” in accordance with s. 22…..Having found error in the decision of the Chambers judge, it is necessary to determine the next step. As I have indicated, Grey Owl did not ask this Court to go on to make any other order, if we were to allow the appeal. Grey Owl maintains the position it took in the Court of Queen’s Bench that Propak’s application should be dismissed leaving the parties to pursue the usual remedies under the Act….In the end, the appeal must be allowed. The Chambers judge erred by not dismissing Propak’s application under s. 56(4). The effect of allowing the appeal is that the parties resume the same positions they occupied before the application was made. Grey Owl’s lien continues to be a charge on the funds in court according to s. 56 until further steps are taken by the parties dealing with the funds and until further order of the Court of Queen’s Bench.

Discussion

If this decision finally concluded the issue as to whether the services provided by Grey Owl were lienable services, as it appears to have, then it has stated, or re-stated, an important principle, at least in Saskatchewan. That principle is that, in determining whether the services provided by a sub subcontractor to a subcontractor in relation to something placed on the land by the subcontractor, one looks to the whole work on the site, not (just) the work or material of the subcontractor.

However, the Court of Appeal declined to make an order to that effect, and instead found that it was not plain and obvious that Grey Owl had no lien. Yet, there does not seem to be any further evidence that would be needed to arrive at the final conclusion. It appears that the only reason that the court did not make that finding is that Grey Owl did not ask for it, or that there might be other reasons that Grey Owl’s lien could be challenged so the court was not precluding any such debate.

The principle that the Court of Appeal has apparently adopted seems to leave sub-subcontractors who are instrumental in providing improvements in different positions. If the sub-subcontractor provides the physical improvement itself – in the present case, the tanks – then if those tanks are not attached to the land and are moveable, then the Court of Appeal seems to have assumed that they are not improvements and no lien could be registered by that sub-subcontractor. But if the sub-subcontractor provides services to the subcontractor in relation to the provision of the tanks, then according to the Saskatchewan Court of Appeal, those services are lienable because one looks to the overall project. In that context, the total project amounts to an improvement to the land and so the services to design or install the tanks are lienable because they are part of the overall improvement.

Why should the services in relation to something brought onto the land be lienable when that something itself is not lienable? Certainly the policy behind the statute is well expressed by the Court of Appeal, but why should that policy apply to the services in relation to that thing if the policy does not apply to the thing that is brought onto the land (and the person who brought it there)?

The Saskatchewan legislature has said that the Act (and its policy) do not apply to the thing itself if it is not an “improvement”. Section 2 of the Act includes within the definition of improvement the following words: “except a thing that is not affixed to the land or intended to become part of the land.” That is where the Act has drawn the line. If that is so, can the policy behind the Act draw the line at a different place for the services?

See Heintzman and Goldsmith on Canadian Building Contracts, (5th ed.), chapter 16, parts 4(a)(i))II and 4(a)(ii).

Grey Owl Engineering Ltd. v. Propak Systems Ltd., 2015 SKCA 108, 2015 CarswellSask 612

Construction and Builders’ liens – improvement – services – subcontractors

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                       October 30, 2015

www.heintzmanadr.com

www.constructionlawcanada.com