However routine it may become, the humble “stat dec” should never be regarded as a mere formality.
The Federal Court of Australia has recently found a senior staff member personally liable for loss arising from an inaccurate statutory declaration.
In 2010, Reed Constructions Australia were engaged by the Principal for design and construction of an office redevelopment on St Kilda Rd, Melbourne. However, by late January 2012, many of Reed’s sub-contractors were walking off the job site, and by July Reed would be in liquidation with nil return for unsecured creditors. The Principal faced “restart” payments totaling $2.8 million to get sub-contractors to complete the works.
The Principal sued Reed’s Chief Operating Officer to recover a claim for almost $1.5 million it had paid in December 2011. This payment claim had been supported by a statutory declaration by the COO, which confirmed that “to the best of my knowledge and belief having made all reasonable enquiries” sub-contractors and suppliers had been paid in full. The “reasonable enquiries” he undertook included asking Reed’s State Manager and CEO whether there were any issues with payments, but not checking the IT systems to which he had access or checking invoices or monthly reports. This was in a scenario where the COO admitted knowing that Reed had “severe cash flow problems”, including “non-payment of many critical path subcontractors” across its projects.
The Court acknowledged that the COO was simply unable to keep on top of the thousands of payment claims he had to manage, and did not find him dishonest. However, since his enquiries could “on no view” be regarded as “reasonable”, he was found liable for the full payment claim, on grounds of both misleading and deceptive conduct and negligence.
Some key lessons:
- The COO would very likely have been held liable even if the statement had been in a certificate or letter. It was the misleading statement that rendered him liable, not the special qualities of a statutory declaration.
- However, two points about statutory declarations:
- In addition to claims like this one, a person can be prosecuted for perjury for providing a false statutory declaration; and
- They are given in the declarer’s personal capacity, whereas with certificates or letters there may be more capacity to stipulate that the statement is made “on behalf of” the company
- Watch out for “scope creep”. Our contract review service occasionally sees statutory declarations covering not only payment claims, but also occupational health and safety performance, and even quality and compliance of professional services. Providing these broad declarations in a personal capacity it best avoided as it risks undertaking personal liability for the whole scope of your company’s work.
- Avoid statutory declarations where you can, and instead confirm information in letters or certificates “on behalf of” the company (seek legal advice on appropriate wording for your business)
- If promising “reasonable enquiries”, make them, and err on the side of caution
In something of a happy ending, it turned out that the COO was covered for this claim under Reed’s “directors and officers” insurance policy. In a related dispute, the insurer tried to deny cover for the claim on the grounds that providing the statutory declaration was part of professional project management services, and “professional services” claims were specifically excluded by the policy. The court disagreed, finding that submitting the payment claim and statutory declaration did not constitute provision of professional services, but was merely “routine provision of factual information”.
This points to another risk mitigation measure: obtaining directors and officers insurance, and having payment claim documentation signed only by directors and senior staff who meet the definition of officers.
Risk Manager, informed
 470 St Kilda Road Pty Ltd v Robinson  FCA 597
 “Officers” might be defined in the policy. In this case, it was not, so the Court worked off the definition from section 9 of the Corporations Law.