Boxrud v. Canada, docket T-1162-93

     T-1162-93

BETWEEN:

     MARSHALL KYLE BOXRUD and

     SHIRLEY ANNE BOXRUD

     Plaintiffs

AND:

     HER MAJESTY THE QUEEN

     Defendant

     REASONS FOR JUDGMENT

JOYAL J.:

     The plaintiffs, Marshall Kyle Boxrud and Shirley Anne Boxrud are owners and operators of a resort at Adams Lake, near Chase, B.C., on land leased from the Crown. They are bringing an action against the Crown for a declaration that improvements to the land on which they operate their business are their property, and that title to these improvements do not revert to the Crown on expiration of the lease.

Background

     The property in question is on the Hustalen Indian Reserve No. 1 which belongs to the Adams Lake Indian Band. On November 6, 1968, the Band surrendered parts of the Reserve for the purpose of developing and subdividing the lands for sublease, as set out in the Surrender and in Order-in-Council P.C. 1969-262. Thus, upon expiration of the leasehold interests, the freehold interest in land reverts to the Crown for the benefit of the Band.

     On April 2, 1969, the Crown leased the lands to Indian Point Lands Inc., a corporation registered in B.C. and having an office in Chase, B.C. The lease was for parcels¹ of approximately 40.7 acres for a term of 20 years (i.e. until April 2, 1989). The Survey was deposited in the Land Registry office at Kamloops (B.C.). Indian Point Lands Inc. developed and subdivided the lands as a residential and commercial subdivision.

     On November 12, 1971, Indian Point Lands Inc. subleased certain lots² to Tiliruk Transport and Publishing Company Ltd. ("Tiliruk") for "the remainder of the term of twenty years less one day from the 1st day of April, A.D. 1969" (i.e. until March 31, 1989). The sublease was registered with the Indian Land Registry in Ottawa.

     As permitted in the sublease, Tiliruk brought onto the lands ten vacation cottages, an office/manager's residence complex, a wharf and two docks necessary for the operation of a summer resort business. The four-acre resort is called Indian Point Resort.

     On October 9, 1971, Tiliruk sold the resort to Harold James and Eileen Muriel Farquhar by way of assignment of the sublease purporting to transfer all title to the improvements to the Farquhars. The clause which the plaintiffs allege affects this transfer will be discussed further below.

     On March 1, 1974, the Farquhars sold the Indian Point Resort to the plaintiffs. The plaintiffs claim that all title to the improvements was in turn transferred to the plaintiffs. The assignment of the sublease was approved by the Crown and registered.

     Since then, the plaintiffs have made further improvements to the land and have continued using the improvements and operating the resort business after the expiry of the sublease. Upon entering negotiations for a new sublease, the Crown asserted an interest in the improvements.

     In February 1993, rather than renegotiating the sublease, the parties agreed that the Crown would lease the land directly to the plaintiffs. This lease was registered in Ottawa on March 24, 1993. The lease contained the provision that there was a dispute as to ownership of the improvements and reserved to the parties the right to seek a declaration from this Court with respect to ownership. The plaintiffs filed the Statement of Claim which commenced the present action on May 20, 1993, seeking such a determination.

     Both parties hired independent experts to conduct surveys of the resort with a view to determining the nature and type of construction, the manner in which the buildings are anchored, the degree of difficulty in removing the structures and the apparent permanence of the design. There are a number of discrepancies relating to inconsequential details such as the precise number of cottages and the size of the main building. Nevertheless, the two experts, of whom only one gave oral evidence, seem to have approached the issue within a practical and sensible frame of reference.

     The improvements in dispute are the following:

A.      The Office / Manager's Residence Complex

The main building is a 3,500 square foot, two-storey building (1,750 square feet per storey) constructed in two wings.

The original wing is a 2,200 square foot, two-storey building which rests on a post and beam type wood frame construction similar in design to that of the cottages. The original wing of the building is described by the defendant's engineer as being designed to be easily removable. However, an important qualification is noted. The connection between this wing and a later addition which has been built on to it is said to require some surgery to detach.

The addition to the main building is a one-storey wood frame building with a full height concrete-walled basement. The basement floor of this wing is on a level with the lower floor of the original wing. The basement walls act also as a retaining wall for the earth on the northeast and southeast sides of the building. Although the removal of the upper portion of this addition is technically possible, it would involve enormous effort and expense. Furthermore, the basement cannot act as a retaining wall if the upper portion is detached since it would lack the support which this latter construct provides. Thus, removal of any portion of the addition would require removal or extensive reinforcement of the concrete structures.

The surgery required to separate the two wings of the complex would presumably require the replacement of the common wall where the two wings were joined. Furthermore, the upper floor of the main wing of the building contains a portion of the manager's residence, namely the kitchen and living room, while the upper floor of the addition contains the manager's bedrooms and washroom. The lower floors contain the office, a shop and storage space. Thus, a separation of the two wings would also entail splitting the plaintiff's residence in half. I therefore find that the attachment between the original wing of the building and the addition is a permanent one and I will deal with the complex as a single improvement.

B.      The Rental Cottages

There are eleven or so full-sized 440 square foot cottages used for recreational rentals which are equipped with running water and electricity. They are prefabricated structures with a post and beam type wood floor supported on individual concrete piers. Four of the cottages have insulation and skirting enclosing the crawl space under them for cold weather use. They are affixed to the land only by utility connections and the four individual concrete piers. The evidence is that the cottages affect the land minimally and are designed to be easily moved.

C.      The "Doll House"

This structure is a smaller cottage similar in structure and design to the larger ones.

D.      The Docks and Wharf

There are two docks, the larger of which is attached to the land by a twenty by forty foot floating wharf which runs along the bank. The wharf rests on two pilings which can be removed a few feet below ground. With this exception, the entire structure of the docks is afloat and can be removed easily without any impact on the land.

E.      The Swimming Pool

The pool is a conventional 18 X 36 foot swimming pool constructed of steel walls sunken into the ground with a vinyl liner. The defendant's engineer states that removal would require "removal of some concrete and installation of backfill". There is a heater and filter structure which would apparently not be easy to remove, but would not leave any significant residual effects on the land. I find that removal of the pool, even if a technical possibility, would result in such depreciation of its value and such a cost to execute as to be prohibitive.

Issues

     Although the action was originally framed as a dispute over the amount to be charged as a rental fee for the lease of the resort, this portion of the case has been settled as between the parties and was not argued before me. The parties seek from this Court only a declaration as to which party has ownership of the improvements made to the property.

     In order to determine ownership of the improvements, it is necessary to consider in what circumstances the property interest in the improvements will revert to the Crown along with title to the land itself. The plaintiffs claim that the improvements are chattels used for the purpose of carrying on the business, which can be removed without injury to the chattels or the property, and that they are therefore not fixtures and are the property of the plaintiffs. The Crown contends that the improvements have been affixed in such a way as to become the property of the Crown.

Analysis

     As lessor, title to the real property will revert to the Crown upon expiration of the leasehold interest. The lessee will, of course, be entitled to retain its property interest in chattels which it brought onto the land. The issue arises with respect to those items of property which have been placed on the property with a sufficient degree of permanence that they might be seen as having become affixed as part of the real property.

     Insofar as there is any Federal Court jurisprudence on the question of affixation, the issue has only arisen in the context of taxation (i.e. for capital cost allowance calculations). The test, which was set out in Her Majesty the Queen v. Mount Robson Motor Inn Limited³, and cited in Park Mobile Home Sales Ltd. et al. v. M.N.R.⁴, is the following:

The law on the subject seems to be reasonably clear. When chattels are physically attached to land they may either retain their identity and remain chattels or become part of the land, in which case they are called fixtures. As fixtures are really part of the land once attached to the land, they become the property of the owner of the land; and this is true, as long as the articles remain attached to the land, whether or not the person who affixed them to the land has retained the power to sever and remove them.

     In the Mount Robson Motor Inn case, above, the Court of Appeal found cottages to be fixtures due largely to the fact that asphalt driveways were not removable without damaging the property. However, little discussion was provided in that case as to what the relevant criteria for making such a determination ought to be. This case seems to be the extent of Federal Court jurisprudence on the subject of how to distinguish a fixture from a chattel. Nevertheless, case law is replete with the application of provincial laws to federal matters if they are part and parcel of the issues raised.⁵ The extensive treatment the subject has received in British Columbia courts provides some helpful guidance.

     The lead case in British Columbia on the distinction between fixtures and chattels or tenant's fixtures is La Salle Recreations Limited v. Canadian Camdex Investments⁶. Courts in British Columbia, as in several other Canadian jurisdictions, have adopted the test set out by Meredith, C.J. speaking for a divisional court in Stack v. Eaton⁷. The Court of Appeal restated the applicable principles in the following terms:

I take it to be settled law:

(1) That articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances are such as to shew that they were intended to be part of the land.

(2) That articles affixed to the land even slightly are to be considered part of the land unless the circumstances are such as to shew that they were intended to continue chattels.

(3) That the circumstances necessary to be shewn to alter the prima facie character of the articles are circumstances which shew the degree of annexation and object of such annexation, which are patent to all to see.

(4) That the intention of the person affixing the article to the soil is material only so far as it can be presumed from the degree and object of the annexation.

     The test creates a presumption that articles affixed to the land even slightly are to be considered part of the land. This presumption may be rebutted by reference to the intended use of the articles as evidenced by the degree and object of annexation. In determining the object or purpose of annexation, one must ascertain whether the annexation was for the better use of the article or for the better use of the land.

     In Homestar Holdings Ltd. v. Old Country Inn Ltd.⁸, Cumming J. as he then was, of the B.C. Supreme Court, provides us with a very useful analysis of case law relating to chattel and fixtures. After quoting from La Salle Recreations, supra, and noting how difficult it was to reconcile what are evidently conflicting cases, the Court analyses the multifarious factors which, on examination, require that a judgment call be made one way or the other. Property affixed to land is, generally speaking, a fixture, but a "trade fixture" is not. The Court then lists the various determinations made over the years, in some 22 or so cases, relating to fairly problematic issues. In effect, no article or property may be scrutinized in a vacuum when determining its character as a permanent fixture or as a removable chattel. The nature of the property, the position of the parties, the intent of the improvements, the various terms of the lease, the nature of the venture, all of these must be factored into the equation.

     In one sublease, that between the original lessee and Tiliruk, dated November 12, 1970, there is found s.14, which reads as follows:

14.      That at the expiration or sooner determination of the said term, the sublessee shall have the right to remove any buildings erected by him on the demised premises that is [sic] not permanently affixed to the land provided that if they are not so removed before the expiration of the sublease, they will revert and become the property of the Department of Indian Affairs and Northern Development.

     Although the section refers to or recognizes the principle of removal of buildings, its intent is restricted to buildings not permanently affixed to the land. Hence, the section begs the question at issue before this Court.

     Secondly, it appears from the evidence that in any event, no improvements of any kind have been removed, and the said improvements would otherwise revert to the Crown. This, however, is not necessarily helpful. Clause 16.01 of the lease between the parties effective April 1, 1989, as found in D-2, Tab 6, clearly states that "the Lessee is entitled ... to remove the Lessee's chattels and any buildings, fixtures or improvements which are determined by the Courts to have been the property of the lessee at the date of execution of the within Lease ...". Clause 16.02 further refers to the dispute existing between the parties at the time the lease was executed, as to the ownership of all buildings, fixtures and improvements, and providing for the referral of the issue to the Federal Court.

     These two provisions, in my respectful view, indicate that the issue before me was ever present in the minds of the parties and that the provisions of clause 14 of the earlier document does not bring any comfort to either of them.

Findings

     Concerning the degree of affixation of the improvements in question, I find myself inclined to agree with the conclusion expressed in the engineering report, which reads as follows:

Most of the buildings and structures constructed on the property can be removed easily, having been designed and constructed with some consideration of relocatability. Removal of most of these structures will result in little residual disruption to the land, or in any case, the land can be restored to a reasonably pristine state with minimal effort.

Of the several structures constructed on the property, only the addition to the main building poses any difficulty in removal. It has clearly not been designed or constructed with relocatability in mind. The residual effects of its removal would be significant, and much work would be required to reconstruct the building and restore the land to its former pristine state.

     As noted above, the addition to the main building has been, for all intents and purposes, affixed to the land permanently. The original wing of the main building, having been permanently connected to the addition has acquired the same degree of affixation. Finally, the pool, although removable in theory, realistically has a significant degree of affixation.

     With respect to all of the improvements but the main complex and the pool, the initial degree of affixation is minimal. Minimal affixation does give rise to the presumption that the improvements are fixtures, but I find that the object of the annexation, as disclosed primarily by the ease of removal of the structures, was to enhance their value as chattels.

     Concerning the main complex, I find that the apparent object of the affixation is the better use of the land as a place of permanent residence since it is permanently affixed. The pool was certainly not intended to be removed easily. Thus, these additions are presumed to be fixtures.

     Although case law provides no specific reference to purely economic considerations in the fixture/chattel debate, it nevertheless seems to me that practical aspects alone might sometimes bring common sense to it. I would cite as an example the rationale with respect to the inground swimming pool. It is true in a sense that the steel walls and the security fence around the pool may be physically removed and the area backfilled to its original topography. However, what would the owner do with them? He would first of all have to dig a new hole. He would have to cope with steel panels which have probably become seriously pitted by exposure to acid earth. He would quite probably have to install a new vinyl liner. The whole operations appears to me quite futile and, in my respectful view, provides no economic benefit to the owner.

     The same considerations apply to the twin structures which are used as business premises and for residence purposes. How practical would be the severance of one twin from the other, and what economic advantage might the chattel owner gain from it? Such a severance operation, in my view, would not be worth the candle.

     Case law, referred to earlier, makes it clear to me that the facts and circumstances of each case must be examined before proper classification may be made. This, of course, imposes on the Court the obligation to make a judgment call. A salient fact before me is that the plaintiffs are in the business of running a resort business and that a heavy proportion of their improvements may be regarded as tenants' fixtures. This element, in my respectful view, makes their classification consonant with some decided cases, or at least not inconsistent with others. There is the further element of removal of the cabins or of the docks, and that such removal may be easily done with no resulting injury to the land, but with resulting benefit to the owners.

     The converse, of course, applies to the office/residence complex and to the inground pool. By reason of later improvement, the original residence has lost its character of removability, and its several parts are of very doubtful use. As regards the pool, I need not repeat here the futility of removing it. In other words, the chattel could only be removed by effectively destroying it.

Conclusion

     On the basis of all the foregoing, I should allow the plaintiffs' claim in part. It is declared that the improvements made to the land are chattels and are the property of the plaintiffs, with the exception of the main office/manager's residence complex and the pool. It is further declared that these two latter additions have been affixed in such a way as to become part of the land belonging to the Adams Lake Indian Band and surrendered to the Crown.

     The plaintiffs are entitled to 80% of their taxed costs and disbursements, but I make no corresponding order on behalf of the defendant.

     In closing, I feel obliged to commend both the parties, their counsel and their witnesses for having given to these proceedings an especially courteous and expeditious quality.

     L. Marcel Joyal

     ___________________________

     J U D G E

O T T A W A, Ontario

December 4, 1996.

__________________

     ¹      designated A, B and C on plan 54559 of the Canada Land Survey Records

     ²      designated 28, 29, 30 and 44 on plan 59214 of the Canada Lands Survey Records

     ³      [1982] 2 F.C. 52 (F.C.A., Pratte J.A. speaking for the Court).

     ⁴      [1983] C.T.C. 2635 (St Onge T.C.J.).

     ⁵      See, for example, Re Canada (A.G.) and Le Motel Fontaine Bleue Inc. (1978), 29 N.R. 394 (F.C.A.) and 384238 Ontario Ltd. v. The Queen, [1982] 1 F.C. 61 (T.D.).

     ⁶      (1969), 4 D.L.R. (3d) 549; 68 W.W.R. 339 (B.C.C.A.) at pp. 344-45.

     ⁷      (1902), 4 O.L.R. 335 at 338.

     ⁸      (1986) 8 B.C.L.R. (2d) 211.