In a recent decision in the Federal Court, a person who made a statutory declaration in support of a progress claim was found personally liable under the Australian Consumer Law as a result of untrue statements made in the statutory declaration.
This eBulletin discusses this decision and how it highlights the importance of making diligent enquiries before signing and submitting statutory declarations in support of progress claims.
Reed Constructions Australia Pty Ltd (Reed) entered into a design and construct contract with 470 St Kilda Road Pty Ltd (470 St Kilda Road) to convert the existing office building on the site into a 14 storey residential apartment building (Contract).
The Contract entitled Reed to submit regular monthly progress claims which were required to be supported by documentary evidence identifying that all workers, subcontractors, and suppliers had been paid.
One progress claim made on 12 December 2011 sought payment from 470 St Kilda Road of the amount of $1,426,641.70 (Progress Claim). The Progress Claim was supported by a statutory declaration made by Glenn Roy Robinson (Robinson), the Chief Operations Officer of Reed, which contained the following statement:
"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’ (emphasis added)."
470 St Kilda Road subsequently paid the amount claimed of $1,426,641.70 a month later on 11 January 2012.
Later that year, a liquidator was appointed to Reed. At the time of appointment Reed had unsecured creditors totalling $132 million. None of Reed's creditors recovered any funds in the liquidation.
470 St Kilda subsequently commenced proceedings against Robinson personally, seeking to recover the amount of $1,426,641.70 it paid on the progress claim, on the basis that Robinson had breached section 8 of the Australian Consumer Law which provides that "a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive", asserting that the statutory declaration contained untrue statements.
470 St Kilda Road also sued Robinson for negligent misstatement.
Robinson defended the proceedings and said that the statutory declaration:
1. was only a statement as to his 'state of mind' and one as to the enquiries that had been made to inform that state of mind; and
2. was not an 'absolute statement' to the effect that all subcontractors and suppliers had been paid.
The court rejected these arguments and held that the statutory declaration was an absolute statement that to the best of Robinson's knowledge and belief he had made all due enquiries, and that that statement was misleading or deceptive or likely to mislead or deceive as he had not, as claimed, made all 'reasonable enquiries'.
The court found that Robinson failed to make reasonable enquiries as he:
- had knowledge of Reed's dire cash flow problems and the fact that Reed had recently failed to pay all subcontractors and suppliers in full, and that critical path subcontractors had recently threatened to block or cease supply to the project;
- failed to make any up-to-date enquiries of anyone who had direct access to the payment software which would have revealed that all subcontractors and suppliers had not been paid;
- did not look at any actual invoices or any relevant recent monthly reports; and
- failed to make any enquiries of the actual trading terms of the relevant subcontractors and suppliers.
The court further held that if Robinson had not signed the statutory declaration and had disclosed Reed's true financial position, 470 St Kilda Road would not have paid Reed the sum of $1,426,641.70.
The court also rejected Robinson's defence that Reed should also be partly responsible for repaying the sum of $1,426,641.70 given that Robinson made the statutory declaration on Reed's behalf.
People who sign statutory declarations in support of progress claims will be personally liable if the statutory declaration is found to contain false statements and payments have been made in reliance of the statutory declaration.
In order to minimise the risk of personal liability, before you make a statutory declaration, all necessary and reasonable enquiries should be undertaken to verify the matters set out in the statutory declaration. Ideally you should also keep a written record identifying the enquiries that you have made and the result of those enquiries.