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Personal liability for false and misleading statutory declarations

In the recent decision 470 St Kilda Road Pty Ltd v Robinson [2017] FCA 597 the Federal Court held Chief Operating Officer of Reed Constructions Australia Pty Ltd (Reed) personally liable for approximately $1.5m for falsely declaring in a statutory declaration that all workers, subcontractors and suppliers had been paid.

The case is a warning bell to employees who sign statutory declarations to ensure that they are correct and not misleading with potential consequences for false supporting statements under the Building and Construction Industry Security of Payment Act 1999 (SOPA).

 

What were the Facts?

In 470 St Kilda Road Pty Ltd v Robinson, Reed entered into a design and construction contract with the principal for the redevelopment of an office building located at 470 St Kilda Road in Melbourne.

The work involved converting the office building into a 14 storey residential apartment building to be known as “The Leopold”.

The contract required that a statutory declaration be provided with any payment claim, confirming that Reed had paid to its subcontractors and suppliers.

In the course of preparing a payment claim, Mr Robinson, the Chief Operating Officer of Reed swore a statutory declaration as to the payment of workers, subcontractors, suppliers and insurances (“Statutory Declaration”).

The Statutory Declaration included the statement that:

‘to the best of my knowledge and belief having made all reasonable enquiries… all sub-contractors or suppliers of materials who are or at any time have been engaged on the work under the Contract have been paid in full all monies which have become payable to the sub-contractor under terms of the sub-contract or to the supplier of materials under the terms of agreement for supply’….

“… I ACKNOWLEDGE that this declaration is true and correct and I make it in the belief that a person making a false declaration is liable to the penalties of perjury…”

Reed relied on the statutory declaration in support of a payment claim in the sum of $1,425,641.70 which Reed sent to the principal.

The statutory declaration was not correct.

Reed went into liquidation and it was established that Reed had liabilities to unsecured creditors of approximately $132m.

 

What did the Principal allege?

The principal commenced proceedings against Mr  Robinson personally alleging that:

  • Mr Robinson’s representation that, to the best of his knowledge and belief and having made reasonable enquiries, all subcontractors and suppliers had been paid in full all monies owed to them, was misleading and deceptive; and
  • Mr Robinson’s representation also involved a negligent misstatement.

The evidence at the trial was that Mr Robinson:

  • managed the cash flow of Reed;
  • did not have direct access to Reed’s financial software, but he could and often would seek access from the accounts department regarding what payments were due;
  • knew of severe cash flow problems in August 2011; and
  • by October 2011 he knew there was a “looming financial crisis” for Reed.

The principal argued that had it known of the true position of Reed, it  would not have certified the payment to Reed, withheld the entire payment, issued a show cause notice and terminated the contract.

 

What did the Court say?

The Court found that at the time of making the statutory declaration Mr Robinson:

  • knew of the dire cash flow issue;
  • knew the subcontractors had not been paid in full and had threatened to cease work on the project;
  • had failed to make any enquiries relating to the financial software, which if he had, would have shown that all subcontractors and suppliers had not been paid on time;
  • failed to look at any actual invoices or any relevant recent monthly reports; and
  • failed to make any enquiries of the actual trading terms of all relevant subcontractors and suppliers, which meant that the limited enquiries Mr Robinson did make could on no view be regarded as sufficient to be said to be “reasonable” for the purposes of his statutory declaration.

As a result of the above, the Court found that  Mr Robinson had engaged in misleading and deceptive conduct and that the statutory declaration had also included the making of a negligent misstatement.

The Court also found that the principal had suffered loss and damage by reason of the statutory declaration because had the true position been disclosed by Mr Robinson; the principal would not have paid the invoice.

Mr Robinson was ordered to pay damages of nearly $1.5m.

 

Lessons learned

As made clear by the Court, a Statutory Declaration, is an absolute statement to the effect that to the knowledge of the declarant, all subcontractors and suppliers had been paid in full all moneys which had become payable.

The Court confirmed that a Statutory Declaration:

“…is a solemn promise, containing, as the legislation requires, an acknowledgement that it is true and correct and is made in the belief that making a false declaration will render the maker liable to the penalties of perjury….”

The case is a clear warning that any person that signs a statutory declaration must always make sure the contents of the declaration is true and correct.

 

WHAT ABOUT SUPPORTING STATEMENTS?

The case also raises the interesting question of how the courts will view supporting statements which are required to be provided by Head Contractors in support of payments claims under SOPA if there is evidence that the Supporting Statements are incorrect.

Although Supporting Statements are not statutory declarations, s13(8) of SOPA provides that penalties, including imprisonment, applies if a Head Contractor serves a supporting statement, knowing that the statement is false or misleading.

It will not be surprising if 470 St Kilda Road Pty Ltd v Robinson will be used to impose a personal liability on a signatory to a Supporting Statement, if it is subsequently established that the supporting statement was knowingly false or misleading.

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