Legal Blog

Stat Dec #2

 A statutory declaration is a document that attests to the truth of facts under oath. Presumably, this means that recipients should be able to rely on it. The construction industry uses stat decs so that a payor can confirm that its payee has paid all of the payee’s debts relating to a project. We conjecture that stat decs are false more often than they are true. Let us elaborate.

Finance

In the usual course of a construction project, contractors at the top of the ladder (e.g. the general and many subs) have subs, subsubs, or suppliers beneath them who have done part of the work or provided some of the materials.

 For simplicity, we will refer to a situation in which there is an owner, a general, and some subs. However, the same analysis equally applies to a general, a sub, and some subsubs.

 Construction payments are usually paid in arrears. A general will work on a project, incurring substantial costs that the owner will not usually pay for 10 to 40 days after the actual work. A general who is not flush with cash will not be in a position to pay its subs and suppliers until the owner pays it.

 The owner wants to know that general has paid the subs before it pays the general because a happy group of subs often means a well-run project. Unhappy subs cause problems and register claims for lien.

The general is then caught in a catch-22 situation. It will not be paid without swearing a stat dec stating its subs are paid and it cannot pay the subs until it receives the draw from the owner. Many generals (and even more subs in the same position) simply sign the stat dec and interpret “I have paid” to mean “I am forthwith going to pay.”

Default

This seems to work in the normal course, but if a construction project turns sour or a general’s other construction projects turn sour, then, regardless of the general’s best intentions, it may have insufficient funds to pay its subs. It then starts to descend along a slippery slope towards oblivion.

 We have discussed trust fund claims many times; we have discussed, only a few times, the possible effects of a false statutory declaration (see newsletters of November 2001 and January 2006). Declarants who swear false statutory declarations are subject to criminal penalties; they are also subject to civil awards and penalties. These civil awards and penalties are discussed in Beatty Floors Ltd. v. KTM Development Corp, a 2009 decision of the British Columbia Supreme Court.

 Trust

 The facts were a little sketchy, but we gather that a property manager retained a general to perform renovation work and the general retained the sub to supply and install flooring. The general received its money from the owner, but failed to pay the sub.

 In order to gets its money from the owner/project manager, the general’s officer signed a stat dec swearing that all of its subs had been paid. This, of course, was false.

 The judge stated, “Owners and project managers like BLJC rely on statutory declarations from contractors in order to ensure the contractor has discharged its obligations and the subcontractors’ labourers and material men on projects have been paid. Valid statutory declarations are critical to the payment process and are of paramount importance to owners and project managers. If statutory declarations cannot be relied on by owners and project managers, the orderly payment process on construction projects will become chaotic.”

 The judge then held the individuals liable on grounds of breach of trust and, in the case of one of them, the falsely sworn stat dec.

 Punitive

 A court rarely awards punitive damages. It awards them to express its disapproval of abysmal conduct. The purpose is to punish the perpetrator rather than to compensate the victim.

 The judge relied on a 2003 Ontario Superior Court of Justice decision to award punitive damages of $15,000. The censured conduct was the breach of trust and the swearing of the false stat dec. The judge held that the individuals “should be punished to deter them and others from swearing false statutory declarations in the future.”

 The judge also awarded full indemnity costs to the sub.