Upright Scaffolding Limited v Pinnies Painters & Plasterers Limited
[2019] NZHC 1495
•28 June 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-75
[2019] NZHC 1495
UNDER The Companies Act 1993 AND
IN THE MATTER
of an application under section 241 to put a company into liquidation
BETWEEN
UPRIGHT SCAFFOLDING LIMITED
Plaintiff
AND
PINNIES PAINTERS & PLASTERERS LIMITED
Defendant
Hearing: 17 June 2019 Appearances:
A N Riches for the Plaintiff
No appearance for the Defendant
Judgment:
28 June 2019
JUDGMENT OF ASSOCIATE JUDGE LESTER
[1] The plaintiff applies for an order liquidating the defendant. It relies on the defendant’s failure to pay the amount claimed in a statutory demand. The defendant had taken no steps in the proceeding but when the matter was first called Osborne J noted that the Statutory Demand had been served by email and raised whether such was good service.
[2] Mr Riches for the plaintiff, took up Osborne J’s invitation to file submissions on the point and I am grateful to him for his thorough and even-handed submissions in
UPRIGHT SCAFFOLDING LTD v PINNIES PAINTERS & PLASTERERS LTD [2019] NZHC 1495 [28 June 2019].
which he canvasses caselaw where the Court has held that service of a statutory demand must meet the requirements of s 347 of the Companies Act 1993 (“the Act”) and those where the Court has taken the view that service under the wider provisions of s 388 of the Act applies.
[3]Those sections provide:
387Service of documents on companies in legal proceedings
(1)A document, including a writ, summons, notice, or order, in any legal proceedings may be served on a company as follows:
(a)by delivery to a person named as a director of the company on the New Zealand register; or
(b)by delivery to an employee of the company at the company’s head office or principal place of business; or
(c)by leaving it at the company’s registered office or address for service; or
(d)by serving it in accordance with any directions as to service given by the court having jurisdiction in the proceedings; or
(e)in accordance with an agreement made with the company; or
(f)by serving it at an address for service given in accordance with the rules of the court having jurisdiction in the proceedings or by such means as a solicitor has, in accordance with those rules, stated that the solicitor will accept service.
(2)The methods of service specified in subsection (1) are the only methods by which a document in legal proceedings may be served on a company in New Zealand.
387A …
388Service of other documents on companies
(1)A document, other than a document in any legal proceedings, may be served on a company as follows:
(a)by any of the methods set out in paragraph (a) or paragraph
(b) or paragraph (c) or paragraph (e) of subsection (1) of section 387; or
(b)by posting it to the company’s registered office or address for service or delivering it to a box at a document exchange which the company is using at the time; or
(c)by sending it by facsimile machine to a telephone number used for the transmission of documents by facsimile at the
company’s registered office or address for service or its head office or principal place of business; or
(d)by emailing it to the company at an email address that is used by the company.
(2)Subsection (1) is subject to section 391(3A) to (3C).
[4] The issue is whether a statutory demand is a “document in any legal proceedings” for the purposes of the above sections of the Act.
The case for a statutory demand being a proceeding
[5] A number of authorities have held that a statutory demand is a proceeding,1 with those cases relying on Delta Installations Ltd v Hamilton Joinery Ltd, where Master Faire said:2
A statutory demand, as I have mentioned, is a creation of the statue. Its purpose is to provide a means of proof of inability to pay debts. It has no other specific statutory function. The need to have a method to prove inability to pay debts is central to the application section 241 to appoint a liquidator. When these matters are considered and in light of the statutory history of the use of these demands, it is clear to me that the statutory demand is a document intended for use in legal proceedings. It is not intended for any other use. Once that conclusion is reached, it is apparent that section 387 is the statutory provision which governs service of statutory demands.
[6] Master Faire in Delta Installations applied Laurenson J’s approach in Bond Cargo Ltd v Chilcott.3 That case concerned whether a voidable transaction notice was a proceeding for the purposes of s 387 of the Act. The Judge considered there were four reasons why a voidable transaction notice should be served under s 387 saying:
1.The notice arises as a consequence of a proceeding, ie the order of the liquidation of the company;
2.It is, whilst not amounting to an application to the Court, the necessary starting point before a proceeding can commence, ie the application (or, in this case, the statement of claim), seeking an order that the transaction be not set aside;
3.It must be filed in the Court before it can have any effect.
1 Right Point Investments Limited (in liq) v Mottram (HC Auckland, CIV 2005-404-4224, 24 April 2006); Energy Plus (New Zealand) Limited v Chiplin, HC Hamilton CIV 2006-419-1824, 5 April 2007: Pauanui Properties Limited v Kelmarna Properties Limited, HC Auckland, CIV-2006-404-7589/91.
2 Delta Installations Ltd v Hamilton Joinery Ltd (2003) 16 PRNZ 814 at [14].
3 Bond Cargo Ltd v Chilcott (1999) 13 PRNZ 629 at 633.
4.Once served it sets in train a rigorous time limitation which imposes a limit on the right of other parties to respond to section 244(2).
[7]Laurenson J went on to say:4
In my view, whilst the filing and service of the notice do not constitute a proceeding as defined in the High Court rules, the elements which I have referred to, cause me to conclude that they do, in a wider sense, constitute a ‘legal proceeding’. Accordingly I conclude that a notice under section 294(2) must be served in accordance with section 387 of the Act.
[8] Treating statutory demands as legal proceedings in a sense is driven by the significance of a statutory demand. In particular, there are short time frames afforded to a company to respond to a statutory demand by applying to set it aside or to pay the amount demanded. The individuals acting on behalf of the company need to have actual knowledge of the statutory demand having been served.
The case against a statutory demand being a proceeding
[9] In Arzan Investments Ltd v Beresford Apartments Ltd, Master Lang (as he then was) said:5
A statutory demand is not a demand which is part of legal proceedings. It must therefore be served in accordance with section 388 of the Companies Act 1993. This permits service of such documents to be effected inter alia by leaving the documents at the company’s registered office.
[10] This approach has also been applied in a number of cases.6 This reflects what is accepted in all cases that a statutory demand is not a legal proceeding as that term is commonly understood. The cases following Arzan give “legal proceedings” its ordinary meaning.
4 At 634.
5 Arzan Investments Ltd v Beresford Apartments Ltd (2003) 16 PRNZ 825 at [21].
6 Phonographic Performances NZ Ltd v Music Systems (Music) Ltd HC Wellington CIV-2006-485-1270, 2 August 2006; North Harbour Equine Hospital Ltd v D K Little Corporate Trustee Ltd HC Auckland CIV-2006-404-7585, 19 February 2007; Energy Efficient Health Homes Limited v Greenwood Natural Wood [2013] NZHC 1179.
The policy arguments
[11] In an article written for the New Zealand Law Journal, Mr Andrew Beck has argued that the reasoning in Bond Cargo and the cases following it is suspect.7 He argues that treating notices such as voidable transaction notices and statutory demands as not being legal proceedings achieves a more consistent approach to service.
[12] In an earlier article, Mr Beck considers the policy reasons for and against treating statutory demands as proceedings.8 He observes that:
The main purpose of (ss 387 and 388) can only be to make the service of documents on companies certain for those doing the serving. By virtue of the statute, the company must be taken to know that it will be deemed to have received the document if any one of the paragraphs is complied with. This immediately places the onus on the appropriate officers of the company to ensure they are aware of anything delivered to its head office, registered office, or address for service.
[13] The author recognises that while neither a statutory demand or a voidable transaction notice “… actually commences a Court proceeding, the consequences are severe”.9
[14] The author concludes that the main reason behind the service provisions of the Act is to provide certainty for those serving documents and he makes the practical observation:10
Any person serving such notices would, in any event, want to be able to prove delivery, and would therefore not want to rely on posting or faxing a document.
[15]The author identifies the matter at the heart of this judgment:
A matter of some importance is whether these notices are to be regarded as documents in legal proceedings for the purposes of s 387. If the technical meaning of “proceeding” is adopted as in the High Court Rules, there would have to be some application to the Court for the exercise of its jurisdiction. This is not the case: both notices are only the precursors to possible proceedings. However, s 387 appears to use the words ‘legal proceedings’ in a looser sense than the Rules, and it does not specify that there be ‘court proceedings’ on foot.
7 Andrew Beck “Voidable Transaction Notices” [2006] NZLJ 257.
8 Andrew Beck “Jarndyce Lives On” [2000] NZLJ 381 at 382.
9 At 382.
10 At 384.
This was the view of the Court in Bond Cargo v Chilcott…
Discussion
[16] The starting point is that service is for the purpose of bringing documents to the attention of the company.11 As was observed in ASB Bank Ltd, a company being an inanimate legal person can only act if some person or persons have knowledge of and are involved in the steps the company must take. Master Gambrill went on to say:12
If there is no service in a form which enables any of the people acting on behalf of the company or conducting the business of the company to know of the documents then one questions whether service has achieved the objects of the Act and the general intention of service.
[17] The question is therefore whether achieving the purposes of service noted at [12] above requires the reference to ‘legal proceedings’ under ss 387 and 388 of the Act to be read in a wider sense.
[18] I am not convinced that achieving the objectives of service require, in my respectful view, what is an artificial approach to the meaning of “legal proceedings”.
[19] The concern about service by email is that a document sent by email will not come to the attention of the company or that there will be uncertainty in that regard.
[20] Someone wishing to serve a statutory demand by email must in their affidavit of service address the requirements of s 392(1)(f).
[21]Sections 392(1)(f) and (2) provide:
392 Additional provisions relating to service
(1)Subject to subsection (2), for the purposes of sections 387 to 391,
…
(f)in proving service of a document by email, it is sufficient to prove that—
11 ASB Bank Ltd v Info-Touch Technologies Ltd (2000) 14 PRNZ 331.
12 At [9].
(i)the document was properly addressed; and
(ii)the document was properly sent to the email address.
(2)A document is not to be deemed to have been served or sent or delivered to a person if the person proves that, through no fault on the person’s part, the document was not received within the time specified.
[22]In my view, the use of the word “properly” in both subsections is significant.
[23] I do not consider “properly” here simply means “correctly” in the sense that there is no error in the email address or in the process of sending the email. In this context, I consider “properly” in both subsections means “appropriately”.
[24] By that, I mean that the use of the address is appropriate to meet the objectives of service of a significant demand. The email address will need to be currently in use by the company; not be an address used by the company for what might be called “peripheral purposes” (for example, an email address on a website used to request a quote or to make an enquiry) and not be the email of a junior staff member. In relation to subparagraph (ii), the email must be sent in a way that makes clear that what is being served is a statutory demand (for example, the statutory demand must not be included in an email addressing a myriad of attachments dealing with a range of topics).
[25] In short, the email address used, and the content of the email must be consistent with the objectives of service and the importance of the document sent including the consequence of the document not being seen. If those requirements are met, then the concern over the uncertainty of service by email of the statutory demand is ameliorated.
[26] Section 392(2) provides a safety net to a company if it can show that it was not its fault that the document was not received. If the fault lies with the company then the company will not be able to say that service was ineffective. That outcome is consistent with the policy behind the service provisions set out at [12] above and gives effect to s 392(2)(f).
[27] It is in this regard that the practicalities of service come into play. The more the means of service adopted is removed from personal service of a director, the easier it may be for a company to say that, through no fault of its own, the document was not received. Any party who wishes to take advantage of a deeming provision with a proviso takes the risk that the proviso will come into play.
[28] A simplistic example would be a person who through some accident was absent from their office for a week when a demand was sent by email to their email address.
[29] Each case will, of course, turn on its own facts. An email address that has been used by a director for correspondence in respect of the debt subject to the statutory demand will mean it will be difficult to complain of a statutory demand being emailed to that email address in the course of communications about the debt.
[30] At the other extreme, an email sent to an address that has not been active for an extended time or sent to an employee’s address where the sender was aware that the employee was away from the office would be viewed differently.
[31] With the use of email now being a routine part of business, provided the sender of a statutory demand meets the requirements of s 392(1)(f) I do not see the need to treat “legal proceedings” as having anything other than its ordinary meaning.
[32] The risk for a creditor is that if it gets service by email wrong and then commences liquidation proceedings, that proceeding may be met with a defence that the statutory demand was not property served. If the defence is successful costs may well follow the event.
[33] The risk for companies is that they must monitor email addresses that can reasonably be used for important company correspondence.
[34] Accordingly, I consider that a balance is struck between the interests of those wishing to serve documents other than legal proceedings and the recipients of such
notices. Following Arzan avoids any uncertainty as to what other notices or demands might be caught by treating legal proceedings as having a wider meaning.13
[35] Given the relatively modest cost of a service of a statutory demand at a registered office, I expect that service by email will only occur in the clearest of cases.
The present proceeding
[36] An affidavit of service has been filed in this proceeding that shows correspondence between the director of the defendant company and the plaintiff’s solicitor in respect of the debt. The last email in the sequence was from the director of the defendant to the plaintiff’s solicitor on 21 November 2018 recording that the defendant company was chasing money the defendant company was owed and expressing a hope that if its debtors paid what they owed the defendant, that the defendant would be able to make a partial payment to the plaintiff.
[37] On 7 December 2018, the statutory demand was sent as an attachment to an email which also recorded the absence of payments being made and made it clear that what was being sent was a statutory demand by way of service. It also referred to the need for the debt to be paid within 15 working days, failing which the defendant would be presumed to be insolvent, and may be the subject of liquidation proceedings.
[38]I consider the affidavit meets the requirements of s 392(1)(f) of the Act.
[39] The Court proceedings seeking the liquidation order were served at the registered office of the defendant company, and the defendant has taken no steps.
[40] I consider that service has been effected and that the plaintiff is entitled to an order placing the defendant company into liquidation.
[41] In reaching this decision, I am conscious that I am taking a different view from that adopted in many judgments of this Court. However, I consider there is merit in
13 Arzan Investments Ltd v Beresford Apartments Ltd, above n 5.
the point made by Mr Beck that restricting the application of s 387 of the Act to proceedings filed in a Court or Tribunal has the merit of certainty. I do not see a real risk that debtor companies will be exposed to receiving statutory demands of which they will be unaware because of the requirements on a party wishing to serve by email to comply with s 392(1)(f) and because those considering serving statutory demands by email will need to balance the need to prove service, the relatively modest cost of service at a registered office with the cost risks of defective service.
Conclusion
[42] That service of the Statutory Demand by email met the requirements of ss 387 and 388 of the Act, and the plaintiff is entitled to the orders sought it seeks.
[43] Lynda Jane Smart and Geoffrey Sebastian Eric Brown are appointed Liquidators.
[44] The Liquidators’ remuneration is approved in accordance with consent of Lynda Jane Smart and Geoffrey Sebastian Eric Brown dated 14 May 2019, subject to s 284 Companies Act 1993.
[45] The Liquidators are allowed to exercise their powers individually pursuant to s 242 Companies Act 1993.
[46] Costs to the applicant on a 2B basis, plus disbursements as fixed by the Registrar.
[47]Order timed 12.15pm on Friday 28 June 2019.
Associate Judge Lester
Solicitors:
Saunders & Co., Christchurch
6
1
0