What kind of Service is that?

What kind of Service is that?

By Fiona Reynolds & David McCrostie | June 2010 Area of Expertise | Commercial Disputes & Insolvency

Summary Effective informal service rule again finds favour.

Who Does This Impact?

Anybody serving documents upon a company.

What Action Should Be Taken?

The easiest way to ensure that effective service upon a company occurs is by utilising one of the methods prescribed by section 109X(1) of the Corporations Act 2001. The statutory provisions are not mandatory nor are they the exclusive way to serve a company. Service will be proved if the document actually came to the attention of the controlling mind of the company.

In Woodgate v Garard Pty Ltd [2010] NSWSC 508, Justice Palmer had occasion to consider whether the creditor obtained the benefit of the statutory presumption of insolvency that arose upon non-compliance with a Creditor’s Statutory Demand for Payment of Debt that was not served in any manner provided for by section 109X(1) of the Corporations Act 2001 (the Act).

The Facts •

Mr Woodgate is the trustee of the bankrupt estate of Mr Fenton.

•

Before his bankruptcy, Mr Fenton performed some building works for Garard Pty Limited (‘Garard’) for which he had not been paid.

•

On 31 July 2009, Mr Woodgate sent a statutory demand to Garard claiming a debt of $15,400, being the amount Mr Fenton had charged Garard which Garard had not paid.

•

In correspondence both before and after the issue of the statutory demand, Garard denied it was indebted to Mr Fenton in the amount claimed or at all.

•

The statutory demand was sent by registered post to the former registered office address of Garard.

•

On 14 August 2009 (within the time for compliance with the demand), one of the two directors of Garard, wrote a letter to Mr Woodgate on Garard’s letterhead that, amongst other things, acknowledged receipt of the statutory demand on 13 August 2009.

•

Despite its assertion that the debt the subject of the demand was disputed, Garard failed to comply with the statutory demand and on 13 October 2009, Mr Woodgate filed an Originating Process seeking an order that Garard be wound up in insolvency.

TURKSLEGAL

TUR K A L E R T

1

What kind of service is that?

by Fiona Reynolds & David McCrostie

The Issue Did a presumption of insolvency arise upon which Mr Woodgate was entitled to ground his Originating Process when the statutory demand had not been served pursuant to Section 109X(1)(a) or (b) of the Act?

Section 109X of the Corporations Act, 2001 Section 109X(1) of the Act provides that a document which is required to be served on a company may be served by: (a) leaving it at or posting it to the company’s registered office: section 109X(1)(a); or (b) delivering a copy of the document personally to a director of the company: section 109X(1)(b).

Section 109X(6) of the Act provides that Section 109X does not affect any other provision of the Act, Law or the power of the Court to authorise, service of a document in a different way.

Mr Woodgate’s Argument In conceding that the statutory demand had not been served in accordance with section 109X, Mr Woodgate submitted that the provisions of section 109X of the Act are not mandatory and proof of actual receipt of the statutory demand by Garard was sufficient to prove service.

Mr Woodgate’s argument relied heavily on a decision of Justice Young (as his Honour then was) in Howship Holdings Pty Ltd v Leslie (No 2) 1996 41 NSWLR 542, which was a case in which a 459G application posted to the document exchange delivery address of the creditor and not the creditor’s address for service specified in the statutory demand. In holding that service had been effected Young J said at 544: s109x is facultative, it is not mandatory. It will be noted that the words used in subs (1) are “may be served”. … The document could have been served under s109x, but the mere fact that it has not does not disqualify it from service if the document came into the possession of the addressee.

Mr Woodgate contended that the statutory demand came to the attention of one of the directors of Garard on 13 August 2009 and relied upon the letter he had received on 14 August 2009. The letter contained the following: We refer to your statutory demand dated 31st July, 2009 received by us on Thursday 13th August 2009.

Also in evidence were letters dated 24 August 2009 and 28 August 2009 received from the same director addressing the dispute Garard had regarding the debt the subject of the statutory demand. All three letters were signed off by the same director: For and on behalf of Garard Pty Ltd.

TU R K S L E G A L

TUR KALE R T

2

What kind of service is that?

by Fiona Reynolds & David McCrostie

Garard’s Argument In reply, Garard contended that the provisions of Section 109X of the Act are mandatory and Mr Woodgate’s failure to strictly comply with either Section 109X(1)(a) or (b) of the Act meant that the Statutory Demand was not validly served regardless of whether it came to the attention of a director of Garard.

Garard relied upon the decision of Rochester Communications Group Pty Ltd v Lader Pty Ltd (1997) 143 ALR 648 which was a case in which a debtor company had served a 459G application, within time, but to the office of one of the directors of the creditor and not to the creditor’s registered office or to the address for service specified in the statutory demand. In that Federal Court decision, the Court held that the debtor company’s failure to strictly comply with section 109X of the Act or to serve the application to the creditor’s address for service was fatal and the 459G application was not validly served.

The Decision Faced with apparently conflicting authority, Justice Palmer distilled all of the relevant decisions and observed that what his Honour termed to be the effective informal service rule described by Justice Young in Howship Holdings had been followed in numerous subsequent decisions concerning not only service of a statutory demand on a company, but service of documents on a company generally, even though there had been no authorative decision of an appellant court confirming the rule.

His Honour concluded that the prescribed modes of service provided for in section 109X of the Act are not exclusive of other modes of service. Palmer J noted that in circumstances where the rules as to service had not been followed, whether there has been good service of a statutory demand would require the serving party to: 1.

prove to the Court that the document actually came to the attention of an officer of the company who is either expressly or implicitly authorised by the company to deal with the document; and

2.

prove the time at which the document came to the attention of the company.

His Honour noted that the Court would not draw inferences or make assumptions about either question of fact.

Adopting these two principals, his Honour accepted the evidence of Mr Woodgate and held: (a) the statutory demand came to the attention of the director who wrote back to Mr Woodgate; (b) that director was an officer of Garard who was expressly or implicitly authorised by the company to deal with the statutory demand and, in fact, did so deal with it by writing to Mr Woodgate; and (c) the statutory demand came to the attention of Garard on 13 August 2009 being the date the director acknowledged receipt of the demand.

His Honour then made a declaration that Garard was served on 13 August 2009 and held that Garard’s failure to comply with the statutory demand by 4 September 2009 enabled Mr Woodgate to rely upon the presumption of insolvency arising under section 459C(2)(a) of the Act.

What kind of service is that?

by Fiona Reynolds & David McCrostie

Conclusion Failure to strictly comply with Section 109X of the Act may not necessarily be fatal to proving service of a document on a company.

Although the prescribed method of service provided for in section 109X of the Act is always to be preferred, it is clearly a facilitative provision and not mandatory. Section 109X of the Act is not a code governing service; there is scope for the Court to avoid the absurd situation referred to by McInery J in Pino v Prosser [1967] VR 835 at 837 where, ‘The defendant who, on his own affidavit, admits that he received the Writ … should be held not to be served’.

For more information, please contact: Fiona Reynolds

David McCrostie

Lawyer T: 02 8257 5751 fiona.reynolds@turkslegal.com.au

Partner T: 02 8257 5711 david.mccrostie@turkslegal.com.au

Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Insurance & Financial Services | Commercial Disputes | Workers Compensation | Business & Property

www.turkslegal.com.au This Tur kAler t is cur rent at i t s d ate o f p u b l i c at i o n . Wh i l e eve r y c a re h a s b e e n t a k e n i n t h e p re p a rat i o n o f t h i s Tu r k Aler t it do es not constitute legal advice a n d s h o u l d n o t b e re l i e d u p o n fo r t h i s p u r p o s e. Sp e c i f i c l e g a l a dv i ce s h o u l d b e s o u g ht o n p ar ticular matters.

Tur ksLegal do es not ac ce p t re s p o n s i b i l i t y fo r a ny e r ro r s i n o r o m i s s i o n s f ro m t h i s Tu r k Al e r t . Th i s Tu r k Al e r t i s co py r i ght and no par t may b e repro duced in a ny fo r m w i t h o u t t h e p e r m i s s i o n o f Tu r k s Le g a l . Fo r a ny e n q u i r i e s, p l e a s e co nt a c t t h e a u t h o r o f this Tur kAler t. © Tu r k s Le g a l 2 01 0