How many times have you been asked to provide a certificate? The form can differ and might not even be labelled a certificate. It may be an innocent looking letter or form which your client labels as “standard” or “housekeeping”. Essentially, a “certificate” captures any written statement whereby you are making, or attesting to, some factual conclusion.

You should always approach a certificate carefully. A certificate can be fraught with legal consequences particularly in a written format which can be easily traceable and proven. If you make an inaccurate statement, then a party who has relied on your certificate may be able to sue you for negligence, misleading or deceptive conduct, or misrepresentation. Your liability might be greater than the fees earned in delivering your services. Or, even worse, the certificate you sign might be only partially, or wholly, uninsured.

Professional indemnity policies commonly exclude claims arising from dishonest or misleading conduct by the insured. For example, if you signed a statement stating that a building complied with all codes and standards, but you knew it didn’t, then that would be a dishonest statement that may be wholly uninsured.

Below we discuss two cases which highlight just how careful you need to be when providing certificates as, depending on the circumstances, a consultant’s conduct could be considered misleading or deceptive conduct.

Actron Investments Queensland Pty Limited v DEQ Consulting Pty Ltd [2018] QCA 147

In this case, Actron Investments Queensland Pty Limited (Purchaser) purchased a commercial lot in a new building which had a floating concrete slab. DDS Project Management (the Builder) was engaged by the previous owner (Owner) to build the warehouse. The Builder subsequently contracted with DEQ Consulting, a consultant civil, structural and engineering company (the Engineer). The Engineer prepared preliminary drawings for an industrial warehouse which incorporated a concrete slab. The Engineer provided a report to the Builder with three structural options (each with pros and cons). Ultimately, the “low cost” design option – a free floating slab-on-ground – was preferred by the Owner, even though the Engineer’s reports warned that this option could lead to settlement of 150-200 mm.

Mr Henry, a director of the Engineer and a registered engineer, performed work under the contract, including issuing a “Form 15 Compliance Certificate – Design” and a “Form 16 Compliance Certificate – Construction” which are approved forms under Queensland legislation.

In the Form 15, Mr Henry certified that the concrete slab, if installed and carried out in accordance with the certificate, including any referenced documentation (i.e., the BCA and in turn the AS3600), will comply with the Standard Building Regulation. After construction, Mr Henry, on behalf of the Engineer, issued a Form 16 that the specified components had been built generally in accordance with the development approval, the Engineer’s drawings and the Standard Building Regulation. This form was relied upon by the building certifier to approve the building development.

Subsequently, the Purchaser installed pallet racking in the building and used the property to store air conditioning units and parts pending sale. The slab later subsided resulting in the Purchaser not being able to use forklifts on the concrete floor. Rectification costs were over $1 million.

The Purchaser brought a claim against the Engineer and Mr Henry for damages for a breach of the duty of care regarding the design of the slab and the issue of the certificates. In particular, the Purchaser claimed the Engineer breached s52 of the Trade Practices Act 1974 (TPA) and sought compensation for misleading and deceptive conduct against the Engineer, and also against Mr Henry as he was “a person involved in a contravention” of the TPA.

The Queensland Court of Appeal held that the Engineer and Mr Henry engaged in misleading and deceptive conduct in issuing the Form 15 certificate. Of relevance was that AS3600 stated that a slab should be able to withstand loads without “undue” settlement. The Court held that the anticipated settlement would be “undue” and there was no reasonable basis for a competent person in Mr Henry’s position to reach a contrary view.

The Court noted that the regulatory scheme under which a Form 15 is issued was for the protection of the public, including those people who may suffer loss caused by structural behaviour, including successive owners. It is a “competent person” who is obliged to make judgments as to whether a Form 15 should be issued. In this case, it was the Engineer who was obliged to make such judgment.

 Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd [2020] NSWCA 223

In this case, the owners of land, Mistrina Pty Ltd and Mr Elias Sikos (the Owners) entered into a contract with Jabbcorp (the Builder) to construct a mixed-used development on the land in New South Wales (the Development). The Development was financed by a loan facility arrangement with Bankwest (the Bank).

The Builder then engaged a structural engineer, Australian Consulting Engineers Pty Ltd (the Engineer). The Engineer certified the structural design of a raft slab was compliant with the BCA and relevant Australian standards. The Builder relied on that certificate before commencing construction. Notably, the Owners were not privy to the agreement with the Engineer and the Builder, nor the certificate.

When construction was in the advanced stages, an owner of a neighbouring property claimed that the slab was a risk to the integrity of their property. The Engineer issued a Stop Work Order to the Builder, and work was suspended. As a result of the suspension of work, the Bank then exercised their rights under their facility arrangement to sell the partially completed Development and another property which was securing the facility. Receivers were also appointed and sold the land.

The Owners claimed loss of opportunity costs – that is, they had lost the opportunity to make a profit from the Development. They alleged that the Engineer had issued a certificate which was false and misleading as it incorrectly certified that a raft slab was compliant with the Building Code of Australia, when it was not.

The NSW Court of Appeal held that the structural defect issue was a material cause of the Bank taking over the Development. Further there was a causal link between the misleading and deceptive conduct and the loss suffered by the Owners.

Despite the Owners not even being a party to the contract between the Builder and the Engineer, or being aware of the certificate at the relevant time, they were able to establish that the loss suffered by the Owners was a reasonably foreseeable consequence of the Engineer’s misleading and deceptive conduct. As a result, the Engineer was ordered to pay damages to the Owners in the sum of over $3.3 million.

Takeaways

It is important that whenever you are asked to provide a certificate, statement, declaration or similar that you carefully consider the potentially uninsured exposures and your greater liability. To minimise your risk exposure from a professional indemnity insurance perspective, consider the following:

1. Only provide a certificate if contractually obliged to (ideally considering whether to remove any requirement to provide them in your agreement).
2. If your client insists on providing a certificate, amend the certificate so that you only certify matters within your knowledge and expertise. Remember, professional indemnity insurance won’t cover you if you are acting outside your usual profession noted on your policy.
3. Make sure that you only certify facts that you are actually aware of.
4. Consider: Can I honesty make the statement that I am being asked to make? If the answer is “No”, then the statement should not be made.
5. Be very careful with the language that is used. For example, ensure your certificate is appropriately qualified (e.g., use words like “to the best of my knowledge, information and belief”) and if certifying that work complies with a specific document, make sure it is known to you and relates to your own contract documents.
6. Only provide certificates addressed to and in favour of your client. Do not provide a copy to other parties (e.g., any party who is not the other party to the Consultancy Agreement).
7. Have your solicitor draft a disclaimer that you accept no liability to any third party (i.e., a party who is not the other party to your agreement) who has relied on the certificate.
8. Ensure only senior staff provide such certificates.

At the end of the day, always remember to carefully consider before you certify. If you are concerned you do not have the expertise or resources to provide the certificate, it would be prudent not to agree to provide provide a certificate in your consultancy agreement.

Lisa Wastell-Anthony
Risk Manager QLD

This article is only general advice in respect of risk management. It is not tailored to your individual needs or those of your business, nor is it intended to be relied upon as legal or insurance advice. For such assistance you should approach your legal and/or insurance advisors.