Truewood Ltd, Re

A judgment obtained without proper service should ordinarily be set aside where the defect caused prejudice and the respondent has an arguable defence. A claimant who knows or has reason to believe that an individual has moved must take reasonable steps to ascertain the current residence. If that cannot be established, an order for alternative service may be required. Retrospective validation of service requires a good reason, with actual attention to the document by the intended recipient being a critical factor.

In misfeasance proceedings, personal expenditure is not necessarily misfeasance if it arose from lawful loans. Mutual dealings may therefore support an arguable defence based on set-off. A director has no automatic entitlement to salary merely because work was performed; a board decision or valid dividend is required.

The liquidator of Truewood Limited obtained a debarring order judgment in misfeasance proceedings against Mr and Mrs Parekh. They applied to set it aside, contending that the application and supporting evidence had not been served at their usual or last known residence. The liquidator had served documents at a property which the respondents said was rented out, without obtaining an order for alternative service.

The court considered the service requirements, the statutory discretion to review the judgment, delay, prejudice, and whether the respondents had an arguable defence based on alleged salary, loans, mutual dealings and particular company payments.

1. Service. The liquidator knew that the respondents had sold the address previously used for correspondence. A Land Registry search identifying another property established only ownership, not residence. Further reasonable inquiries were required. The current residence was not ascertained, and an application for alternative service under CPR Rule 6.15 should have been made. Service at the former address was therefore irregular.
2. Retrospective validation. Under CPR Rule 6.15(2), the court exercises a value judgment and requires good reason to validate steps taken without authorised service. The document coming to the intended party’s attention is a critical factor. The evidence did not establish that the application or evidence had come to the respondents’ attention before judgment became effective, so there was no good reason to validate service.
3. Set-aside discretion. The requirements under Rule 7.47(1), including the guidance in Papanicola v Humphreys [2005] 2 AER 418, and Rule 7.55 were satisfied to the extent that the irregular judgment caused substantial injustice and there was an arguable defence. A judgment in unserved proceedings will normally be set aside where prejudice and an arguable defence are shown.
4. Merits. Mrs Parekh could not set off personal drawings against an alleged salary. No board decision awarding remuneration was shown, and the statutory formalities for a dividend had not been met. Mr Parekh’s alleged service charges were likewise not an agreed debt. However, payments made by Mr and Mrs Parekh to the company were arguably repayments of existing loans or sums to be credited against later drawings. Mutual dealings under Rule 4.90 of the Insolvency Rules 1986 therefore raised an arguable defence.
5. The judgment was set aside on that limited ground. The court did not need finally to determine whether Mr Parekh was a de facto or shadow director.