The headline is a little bit dramatic but, nonetheless, an article published on May 25, 2014 in the Vancouver Sun, written by Derrick Penner, called, Leaky condo crisis rears its head again in B.C. – Buildings that weren’t fixed earlier now face even costlier repairs is an interesting read and touches on a number of the things addressed in a few of my earlier posts.
As promised in my January 25, 2014 post – the following is an article I wrote that was originally published in the Association of Condominium Managers of Ontario’s (ACMO) CM Magazine in 2009:
I’m a litigation lawyer and practice primarily in the area of construction law. In particular, I seem to have a natural affinity for construction deficiency claims – I like them and they like me. Not only do deficiency claims usually have complex and interesting factual and legal issues, they are often meaningful for the parties involved. This makes for satisfying legal work.
I grew up in Kitchener, Ontario but packed up in 1993 and headed out west to go to school in Vancouver. I eventually ended up going to law school and practicing law at a large Vancouver law firm where I joined that firm’s Construction Law Practice Group in early 2002 to help with the incredible workload that the “leaky condo crisis” had generated. Until returning to Ontario in 2008, I worked on numerous files arising from leaky buildings, representing primarily condominium owners, but also single-family home owners, a large building product manufacturer, and residential developers.
Most people, certainly in condominium management circles, have some degree of awareness and understanding about British Columbia’s “leaky condos”. It was a real phenomenon and socio-economic crisis that had a profound and lasting impact on the lives of tens of thousands of homeowners and the practices of builders, developers, architects, and municipal inspectors. To get a sense of the magnitude of the effect and fall-out, one only need consider that it resulted in the financial collapse of B.C.’s provincial new home warranty provider of the day, a significant re-writing of parts of the B.C. Building Code, and an international renaissance in building envelope science.
I should say at the outset that I don’t think for a minute that Ontario is likely to experience a leaky condo experience anything akin in magnitude to that in B.C. – the climate is different, there’s less moisture here and warmer drying periods, and the architecture is somewhat different. That said, buildings that suffer water ingress are not by any means a uniquely coastal phenomenon and Ontario’s heavy seasonal (and often wind-driven) rains, the rapid rise in multi-unit residential construction in Ontario and late-coming changes to the Ontario Building Code (approximately eight years behind those in the B.C. Building Code), certainly create the possibility.
While not everyone will be genuinely interested in the “leaky condo” story, what is, in my view, of utmost importance is that people – homeowners, property managers, builders, and designers – heed the lessons that were learned in B.C. as a result of the experience. For homeowners, property managers, and condominium boards, the most important of these lessons is recognizing the early signs of a problem and acting on them. This article is not intended to provide legal advice and neither is it intended to be a comprehensive playbook or checklist – what it is intended to do is to offer a few of the suggestions that I wished over the years I had been able to provide to owner/manager clients who, unfortunately, didn’t seek advice (legal, engineering, etc.) until long after the problem had been discovered.
Most often, the early signs of a “leaky condo” are first evident to the owners of individual units in the building. These owners will report wet carpets, water on window sills, drywall or ceiling staining, or similar problems to the condominium board or the management company. Sometimes these reports will begin very shortly after a new building is occupied and other times the reports won’t start until years after a building was constructed. From a legal point of view, it is critical that those involved in the management of the building take these reports seriously and act on them quickly.
Property managers are almost always heavily involved in both the investigation of construction deficiencies and the management of the remediation work. Similarly, if the condominium corporation votes to raise funds and pursue cost recovery litigation, the property manager will almost always serve as the primary liaison between legal counsel and the condominium’s board of directors. Given these realities, there are a few things that every property manager should consider and keep in the back of his or her head to be well positioned to both identify issues and to respond effectively and appropriately in the face of the discovery of a design or construction deficiency.
- Even without signs of leaks, for new buildings, one of the best things a condominium’s management can do is to retain a building science professional (generally an architect or an engineer) to conduct an investigative building envelope assessment of the subject building within the first year of the Tarion warranty coverage. If the investigating expert discovers Building Code violations, substandard workmanship in the building envelope construction, or significant deviations from building manufacturer’s details, specifications, and installation instructions, these should be reported to Tarion right away so that Tarion can assess whether warranty coverage applies. While incurring the cost of a building envelope assessment on a new building can be a hard sell to the owners, taking this pro-active and preventative measure will be some of the best money the condominium corporation ever spends if a serious problem is discovered.
- Even if a building is not new and there’s no warranty coverage, bringing in an expert to assess the construction and condition of the building envelope can be a good investment. If a major problem is discovered, the condominium corporation can start budgeting to carry out repair work and consult with a lawyer to see whether legal action is warranted. If no major problems are discovered, the consultant will be able to provide advice with respect to required maintenance and identify any areas that should be monitored.
- Regardless of whether it is a newer or an older building being assessed, encourage the condominium board to hire a premier building science firm to carry out the investigation. First, the old adage that “you get what you pay for” often holds true in this case. Second, the preliminary assessment may be one of the most important pieces of evidence if litigation later follows and premier building envelope consultants will generally be better expert witnesses than consultants with less experience or weaker qualifications.
- Educate owners within the building about what to look for and set up a protocol for reporting problems. This suggestion may sound a little pedestrian but you’d be surprised how many times I’ve seen unit owners wait months or years before reporting the problem and acting upon it. A necessary component to this suggestion is that the management (the condo board, the property manager, etc) needs to follow up with these reports, investigate the causes, and watch for patterns (i.e. leaks or moisture at the balcony doors of more than a couple of units may indicate a defective sliding door design or installation, a membrane problem, or slope deficiency that might affect most or all units in the complex).
- Establish a system of inspecting and maintaining the exterior of the building. While a window and a wall assembly might be reasonably expected to last for 20-30 years (or much more), caulking and other seals generally are not. One excellent building envelope consultant that I worked with often in Vancouver told me that, ideally, caulking should be inspected every 1-2 years and completely replaced every few years. If a building has systemic water ingress problems and significant design or construction flaws, this usual and normal maintenance won’t likely solve the problem. However, if a building is not maintained, owners can bet their bottom dollar that the defendants in their cost recovery claim are going to raise a lack of maintenance as a defence (contributory negligence) to the claim.
- One of the most important things to do following the discovery of a problem is to consult legal counsel quickly. Every Province has its own legislation that governs the timeframe within which a would-be Plaintiff must start its lawsuit. In Ontario, the current legislation requires that a lawsuit be commenced within 2 years of the event giving rise to the claim. It’s actually much more complicated than this – there is a huge body of law surrounding when that 2 year clock begins to tick – but many otherwise strong claims have been defeated because a Plaintiff failed to commence a claim in time. This is a heartbreaking way to lose the right to pursue compensation for repairs. Bottom line: Err on the side of caution and act quickly.
- Keep good records (and store them in an organized file) with respect to building envelope maintenance, reports of water ingress, any investigations undertaken, discussions (i.e. meeting minutes) and communications (i.e. emails, letters, etc.) on the subject, and financials. If a problem arises and if litigation becomes likely, not only will the condominium corporation’s lawyer love management for having done this, the condominium corporation will likely save considerable money in legal fees if the lawyer doesn’t have to comb through dozens of files and thousands of documents looking for and sorting the relevant documents.
- If there is a suspected problem with the building envelope, take steps to find out the identities of all of the players involved in the construction of the building in question. Some of this information can be obtained from the condominium’s description documents and the contracts of purchase and sale. However, often the best source is in the planning and building department file of the municipal authority having jurisdiction over building permits and approvals and such. A bit of advance notice to the good staff at the planning and building department and a half an hour at City Hall will usually net a lot of good information. If a lawyer is retained, he or she can take care of this as well but can better “hit the ground running” if some of this information is already known. This can also save valuable time if limitation periods are an issue.
At the end of the day, the central theme of these few suggestions is to monitor and investigate, maintain, and to seek advice promptly if problems are discovered. Another important point to take away is that, if owners fail to properly and diligently maintain their buildings over time and act quickly if problems emerge, they will, to varying degrees, risk having to absorb or share in the blame that might have otherwise been borne by the developers, designers, builders, trades, and municipalities that designed, built, and approved the construction of the building.
The Daily Commercial News published a short article today, written by Peter Kenter, about services and technology being offered by Systech International (with an office in Mississauga, Ontario) for the collection and presentation of evidence pertaining to the impacts of delay to construction projects. The service and technology described are 1) visualization presentations and 2) a smartphone Site Diary App.
While, as a construction litigator, I’m certainly intrigued by the concept of, “…high-level computer-animated sequence, fully narrated, showing exactly how delays affected the staging and construction of a project” as described by the article, realistically, such a presentation is, I would expect, likely cost-prohibitive in all but the largest delay claims.
By contrast, the “Site Diary App” is, conceptually at least (I have no idea whether Systech’s app is good or not, how much it costs, whether it can be purchased as a stand-alone product or is only available bundled with other products, etc), something that might have a much broader appeal and utility. Click here for a link to Systech’s promo/informational video for the app.
I’ve seen some really poor site diaries over the years and so the prospect of a tool with the objective of making the process of keeping a good site diary easier and better is of real interest. Most litigators will agree (I think) that – without discounting the value of retrospective opinion evidence of experts on the causes and impacts of delays after they have occurred – the best factual evidence regarding the issues arising during a construction project will normally come from documents/records created contemporaneously with the events to which they relate. If this app can, at a reasonable cost and in a robust, user-friendly way, assist in creating that evidence, I expect that it will become a useful and common tool in the construction industry.
If any of my readers has any experience with this app (or knows someone who does), and is willing to spend a few minutes to give me a call or send me an e-mail, I’d be interested to hear early thoughts and reviews on it.
There are two ways to introduce evidence given by a witness examined for discovery at trial:
- The party who carried out the examination can use the prior evidence to impeach the witness’ evidence at trial where it differs from the evience given at the examination; or
- The party who carried out the examination can “read-in” portions of the transcript produced at the examination and those “read-ins” become part of the evidentiary record at trial.
The recent case of Urbacon Building Groups Corp. v. Guelph (City), 2013 ONSC 5773 (CanLII) – which by the way is producing lots of interesting caselaw re construction liens in Ontario – addressed whether an owner rely upon read-in evidence from transcripts of subcontractors’ Examinations for Discovery against the general contractor. The City of Guelph took the position that it could read-in portions of the transcripts of the Examinations for Discovery of Urbacon’s (the GC) subcontractors against Urbacon.
Much to my nerdy delight, Justice MacKenzie cited an earlier Ontario Decision and a B.C. Decision and ruled that (I paraphrase) discovery evidence can only be read in against the party who gave it. One can easily imagine the mischief that could result from one party relying on the evidence given by X against Y when Y may not have had a chance to challenge or counter X’s evidence and I am glad that the door on this risk has been closed just a little further and, in particular, in the context of a multi-party construction lien action.
A Decision (arising from a motion to have a construction lien discharged and security posted returned) in 984499 Ont. Inc. v. 1159337 Ont. Inc. et al. was released by the Ontario Superior Court of Justice on July 2, 2013, and we are – yet again – reminded how forgiving the Ontario courts can be when a lien claimant has arguably failed to comply with some ostensibly fundamental aspect of the Construction Lien Act.
The facts are (whittled down) as follows:
The Plaintiff (a general contractor for a hotel renovation) was unpaid and preserved its lien by registering a construction lien within the required time. The owner posted security with the Court in order to vacate the lien from title and the lien claimant commenced an action. However, the action commenced by the Plaintiff did not:
- expressly seek to enforce a construction lien – against the security in Court or against the land;
- mention the lien claim registered on title, the vacating order, the monies paid into court or perfection of the lien; and
- mention or plead the Construction Lien Act at all other than to plead reliance on the trust provisions of the Construction Lien Act.
The Defendant (owner) brought a motion for a ruling that the construction lien had not been perfected in accordance with the Construction Lien Act because the Statement of Claim was not in the nature of an action to enforce the lien as is required by section 36(3) of the Construction Lien Act and that it could not be an action to enforce a lien because it pleaded the trust provisions of the Construction Lien Act and section 50(2) says that an action to enforce a lien and a trust claim shall not be joined together.
Mr. Justice Whalen dismissed the motion and, relying on Rules 1.04(1) and 26 of the Ontario Rules of Civil Procedure, allowed the Plaintiff to “cure” or “fix” the Statement of Claim to effectively bring it in compliance with the Construction Lien Act.
My own view is that this Decision is wrong and, like other similar Decisions, is in stark contrast to what I think is a better line of cases in B.C. (under its fundamentally very similar Builders Lien Act) which hold that lien legislation, while being remedial, creates an extraordinary remedy (it allows one party to encumber the property of another before judgment and creates priorities between creditors, etc) that is strictly a creature of statute and so the legislation must be interpreted strictly and the court has no discretion to depart from the express statutory requirements. I have little doubt that if 984499 Ont. Inc. v. 1159337 Ont. Inc. et al. had been decided in B.C., the Defendant’s motion would have succeeded. See, for example, Nita Lake Lodge Corp. v. Conpact Systems (2004) Ltd., a 2006 Decision of the Supreme Court of B.C. in which a $300K+ lien was extinguished solely because the lien claimant failed to properly name the company with which it had contracted and from which it claimed to be owed money.
While, the Ontario Construction Lien Act contains a curative provision at section 6, it does not apply to pleadings and is not so broad as to convert a Statement of Claim that does not seek to obtain or enforce a construction lien into one that does. Similarly, this wasn’t a case where there was some poorly drafted paragraphs but it was still, in substance, a claim to enforce a construction lien as required by the Construction Lien Act such that a Rule 26 amendment could improve the pleading or fix some minor flaws. Rather, it was an action that did not plead material facts to support a finding of a lien or claim a lien as a remedy and so the Plaintiff, in my view, had not perfected its lien as required by section 36 of the Construction Lien Act and the lien should have been discharged and the security returned to the owner.
Kitchener-Waterloo’s main journalistic rag, The Record, reports that the Ontario Government will apply to the Court to become an intervenor (an intervenor is a party added to a court proceeding as a result of an interest in the outcome) in the Region of Waterloo’s appeal of the Ontario Municipal Board’s decision to open up more than 1,000 hectares of regional land to new greenfield development (compared to the 85 hectares set by the Region). As reported, if the Province’s motion is successful, the Region will have a powerful ally in its appeal.
The significance of this appeal in shaping the development of the Region of Waterloo for future generations is obvious and many, myself included, will be watching with great interest as it unfolds.
Briefly, mediation is the process of seeking a negotiated resolution/settlement to a dispute using a neutral third party to facilitate the negotiation. There is no “decision maker” in a classic mediation. Mediation is a process that can take place outside of litigation entirely, be engaged in the context of litigation in an attempt at pre-trial settlement, or can even take place in the context of an arbitration proceeding (Med-Arb or otherwise).
Arbitration, by contrast, is much closer to the adversarial and adjudicative process that we associate with the courts. Sometimes arbitration is mandated by legislation or a non-negotiated contract between that parties (that one party didn’t really have any say in). In those cases, a party might be stuck with arbitration whether it/he/she wants to be or not. Other times, however, parties will jointly agree to forego the courts in favour of arbitration. There are, as far as I’m concerned, only really four essential reasons that parties might opt for arbitration over litigation.
- Privacy – unlike court proceedings, which are public in nature, arbitration is a private process where no decisions are published and the parties can keep the evidence and outcome private.
- Process – parties to an arbitration normally have the opportunity to agree upon procedures and rules that are different from the Rules of Civil Procedure and thereby shape and tailor the process to suit the needs of the dispute.
- Speed/Cost – because an arbitration has an adjudicator hired by the parties and they are not caught in the public system “waiting their turn”, there is at least the theoretical possibility of getting a result faster than if the parties were simply to litigate (for example, in Toronto it is not uncommon to have to wait five or six months to get a 15 minute hearing for a simple procedural motion).
- Appeals – the parties to an arbitration can limit the rights to appeal the decision of the arbitrator.
Zafir Holdings Inc. v. Grassmere Construction Ltd., 2013 ONSC 1835 is a very recent case out of the Ontario Superior Court of Justice that demonstrates how the objectives of arbitration aren’t always satisfied in the manner that the parties may have hoped when they agreed – perhaps with flowers and butterflies floating about – to arbitrate.
Zafir Holdings was the owner and Grassmere Construction was its general contractor in relation to a large industrial construction project. A dispute arose between Grassmere Construction and one of its subcontractors regarding some of the earthworks and that dispute percolated its way up to become a dispute between the Grassmere Construction and Zafir Holdings. Grassmere Construction’s subcontractor got judgment at a trial against Grassmere Construction and Grassmere Construction and Zafir Holdings agreed to arbitrate the issues between them. The arbitrator found that Zafir Holdings owed Grassmere Construction a large portion of the amount that Grassmere Construction had to pay its subcontractor (as well as other amounts in relation to other issues). Zafir Holdings sought, and was granted, the Court’s permission (leave) to appeal the arbitrator’s decision.
In the context of this short article, this case is notable insofar as it demonstrates how the primary objectives of arbitration were probably almost entirely obliterated in the end result. Consider:
- Privacy – the appeal, and the very fact that I was able to read the Court’s Decision and write about it here, means that if the parties had privacy as one of their objectives (whether unilateral or mutual), that benefit of arbitration has been lost.
- Process – there’s no way to tell whether the parties achieved any benefit here but, insofar as the ability to modify process usually has cost as its objective, I generally doubt it.
- Speed/Cost – the dispute arose in 2004 or 2005 and Grassmere Construction’s subcontractor obtained its judgment in June 2010. By contrast, Grassmere Construction and Zafir Holdings didn’t get their decision in the arbitration until November, 2012 – two and a half years later! Given that both Grassmere Construction and Zafir Holdings were likely involved in the litigation with the subcontractor (at least to some extent) and then had to adjudicate their dispute before the arbitrator (and pay the arbitrator’s fee which was likely substantial), it’s hard to imagine how there might have been significant cost-savings in the way that it all unfolded.
- Appeals – Zafir Holdings has been granted leave to appeal so there was no benefit here (in fact, the motion to seek leave to appeal added a layer of cost that wouldn’t have existed if the underlying arbitration decision had been a judgment of the court).
I’m not anti-arbitration – it certainly has the potential to be a useful alternative to litigation in certain types of cases. However, cases such as Zafir Holdings Inc. v. Grassmere Construction Ltd. highlight the reason that I believe most parties contemplating putting a mandatory arbitration provision into an agreement, or those facing a decision whether to arbitrate rather than litigate in the face of a dispute, should very carefully and deliberately consider the potential benefits of arbitration. In such circumstances, the question should be asked: “Is there a really compelling reason that I/we should take on the cost of an arbitrator (in addition to the cost of my/our lawyers) rather than proceed in a public forum and let my/our tax dollars pay for the judge?” More often than not, in my view, the answer will be “No”.
Hypothetical contractual provision and scenario:
“The contractor shall supply and install 8” widgits as required by the owner. The contractor warrants that the 8” widgits will be fit for their intended purpose and that the 8” widgits will be free from all defects arising at any time from faulty design in any part of the 8” widgits.”
After the 8” widgits are supplied and installed, it turns out that 8” widgits are too long to serve their purpose and 6” widgits should have been used. The 8” widgits have to be replaced with 6” widgits at a cost of $3,000,000.
On these limited facts, do you think a court would make the contractor or the owner bear the cost of replacing the 8” widgits with 6” widgits?
The recent decision of the British Columbia Court of Appeal in Greater Vancouver Water District v. North American Pipe & Steel Ltd. serves as a serious warning to suppliers and supply contractor about the risks that can attach to an unqualified warranty against design defects, even when the manufactured product is supplied in compliance with the owner’s (or some other third party’s) specifications.
The case arose from a contract for the supply of water pipe to the Greater Vancouver Regional District (the owner). The owner’s specification required that the pipe have a seal coat over a fibre mat over-wrap. The contract between the owner and the pipe supplier included provisions that the supplier:
- “…warrants … that the Goods … will conform to all applicable Specifications … and, unless otherwise specified, will be fit for the purpose for which they are to be used. …” and
- “…warrants and guarantees that the Goods are free from all defects arising at any time from faulty design in any part of the Goods.”
The pipe was manufactured according to the owner’s specifications. However, following the supply of the pipe, the seal coat on the pipe began delaminating. The owner sued under the warranty for the repair costs for the defective pipe. The pipe supplier defended itself, arguing that its warranty should be restricted to its own design or manufacture errors (not defects arising from the owner’s own specifications).
The trial judge agreed with the pipe supplier and found the above provisions to be inconsistent with one another. She reconciled the inconsistency by resort to the rules of contractual interpretation and determined that the parties did not intend that the supplier’s guarantee and warranty (the second provision above) would extend to cover defects arising from the owner’s own specifications. On the basis of the expert evidence presented, the trial judge found that the defect in the pipe was caused by the owner’s specifications (i.e. not some other manufacturing defect) and dismissed the owner’s claims in respect of the defective pipe. The owner appealed.
The Court of Appeal disagreed with the trial judge and found that the contract was clear and the warranty applied regardless of whose design gave rise to the defects. The Court of Appeal found an old Supreme Court of Canada case to be applicable and determinative of the appeal. The Court of Appeal reversed the Judgment of the Court below and found in the owner’s favour.
It’s an interesting Decision but the nub of the caution to be taken from it is found in Justice Chiasson’s closing remarks:
[Warranty clauses such as the one here] distribute risk. Sometimes they appear to do so unfairly but that is a matter for the marketplace, not for the courts. There is a danger attached to such clauses. Contractors may refuse to bid or, if they do so, may build in costly contingencies. Those who do not protect themselves from unknown potential risk may pay dearly. Owners are unlikely to benefit from circumstances where suppliers and contractors are faced with the prospect of potentially disastrous consequences. Parties to construction or supply contracts may find it in their best interest to address more practically the assumption of design risk. To fail to do so merely creates the potential for protracted and costly litigation.
This is another example of the courts deciding a contractual dispute between two parties on the basis of, “a deal is a deal even if it’s not a very fair deal” rather than on the basis of what many might consider to be the more “fair” or the “correct” outcome.
If you are a supplier or supply contractor (or even a trade or general contractor for that matter), this case gives good cause for you to pay very close attention to the warranty requirements when responding to a tender call or reviewing an owner’s proposed form of contract. If the proposed contract requires you to manufacture or install in accordance with someone else’s specifications/instructions and the warranty/guarantee provisions then make you responsible for any defects, you might very well be responsible for the owner’s (or other third party’s) own defective specification. Coming full circle to my opening scenario – if you are that contractor, you better be sure that the 8” widget is manufactured and installed properly and that the 8” widget is the right size or you might be $3,000,000 lighter in the pocket!
The Globe and Mail reports today that lawsuits are underway. Click here to read the article. There probably won’t be much of interest to report for quite some time (as the case moves slowly through discovery and pre-trial procedural motions) but I will keep an eye on the case and post anything of interest.
The short answer: Possibly sometimes, maybe.
I recently had a case where this was one of the primary issues. My client was supplying coated structural steel for a large steel building. Raw (uncoated) steel was purchased in the US, shipped to Ontario to be coated by a third party subcontractor and, once coated, the steel was then shipped to the project site (located in another Province). A dispute arose between my client and the subcontractor coating the steel regarding price and claimed extras and the subcontractor asserted a construction lien in relation to the steel already delivered to the project site and a possessory lien under section 3 of the Repair and Storage Liens Act (RSLA) over the steel still in the subcontractor’s possession.
In my view, the subcontractor’s invocation of the RSLA to assert a possessory lien over the steel in its possession (effectively holding my client’s steel hostage until my client posted security with the Court to secure its release) was a twisted and tortured application of legislation ostensibly designed to provide security to an unpaid “repairer” who had fixed a sailboat or a car or a wristwatch or some other widget (you get the idea). However, the definitions of “article”, “repair”, and “repairer” under the RSLA are so expansive that, at least at first blush, it can be argued to apply to individual items (i.e. steel) in the manufacturing process. The relevant definitions are:
“article” means an item of tangible personal property other than a fixture;
“repair” means an expenditure of money on, or the application of labour, skill or materials to, an article for the purpose of altering, improving or restoring its properties or maintaining its condition and includes,
(a) the transportation of the article for purpose of making a repair,
(b) the towing of an article,
(c) the salvage of an article;
“repairer” means a person who makes a repair on the understanding that the person will be paid for the repair;
As you can see, these definitions are extremely broad and almost any item is capable of being an “article” and almost anything that someone can do to that item (with the expectation of compensation or profit) can be considered a “repair”. The real pinch, though, is just how powerful (and some might say draconian) the RSLA is – without getting into the fine legal details, it gives the party asserting the possessory lien the ability to hold the item(s) hostage, name its price, and barring early and expensive court challenge or the posting of security, sell the item(s) without any trial or court Order. No other statute in Ontario, that I’m aware of, gives a self-declared creditor that kind of power without any kind of pre-execution/pre-sale judicial process.
Realistically, this apparent potential for misapplication of the RSLA in the manufacturing/construction process is not likely to have a frequent or significant effect on the general construction industry – the problem my client ran into with the RSLA can only practically arise when Party A delivers its own material to party B for Party B to “alter” or “improve” that material and then a dispute arises between Party A and Party B while Party B still has Party A’s “articles” in its possession. This is where Party B can hold Party A’s own material hostage to extract payment (or the posting of security) for Party A to secure its release. In the more common scenario where Party A is paying Party B money to build or “alter” or “improve” Party B’s own material, the RSLA doesn’t really work because Party B would simply be refusing to release its own material to Party A – doesn’t pack quite the same punch.
If your business (or that of one of your clients if you are a lawyer or professional advisor) involves delivering materials to someone else for them to be altered or improved, beware the RSLA. Where this is the case, the RSLA permits the parties to contract out of the repairer’s right to a possessory lien (the opening words of section 3) and doing so should be given some very serious consideration.