Neutral Citation Number: [2006] EWHC 5803 (Ch)
Case No: 1716 & 2982 OF 2005
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 27/03/2006

Before :

MR JUSTICE PETER SMITH
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Between :

	The Liquidator of Wendy Fair (Heritage) Ltd	Applicant	
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	(1)	Nicholas Giles Hobday
(2)	Sally Ann Ward	Respondents	

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Mr John Martin QC and Julian Greenhill (instructed by Olswang) for the Applicant
Lucy Frazer (instructed by Isadore Goldman) for the Respondents

Hearing dates: 22nd, 23rd February 2006 & 1st March 2006
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Judgment
Peter Smith J : 
INTRODUCTION
1.	This judgment arises out of the hearing of the Applicant’s application for summary judgment under CPR Part 24 in two related sets of proceedings commenced in March 2005.  The application notices were issued on 13th October 2005.  
2.	Both actions and applications are in effect brought by the Liquidator of Wendy Fair (Heritage) Ltd (“Heritage”).
3.	The first action (Claim Number 1716 of 2005) is brought by the Liquidator direct under the Insolvency Act 1986 against Nicholas Giles Hobday and Sally Ann Ward (his sister).
4.	The claims are that Mr Hobday and Mrs Ward who were directors of Heritage at all material times ought to have concluded either on 1st October 1998 or 13th December 2001 or 14th November 2002 that there was no reasonable prospect of Heritage avoiding going into insolvent liquidation either on 1st October 1998 or 13th December 2001 or 14th November 2002. 
5.	Consequently the Liquidator claims that they are liable to make a contribution to the assets of Heritage of £593,161 or such sums as the court might deem just under section 214 of the Insolvency Act 1986.
6.	In the alternative the Liquidator seeks a declaration that they are guilty of misfeasance in failing to act in the good faith in the interests of Heritage, failing to consider or take into account the interests of the creditors of Heritage at a time when Heritage was insolvent or nearing insolvency and have breached their duty of care owed to Heritage, and that they are consequently liable to provide a similar amount of compensation.
7.	The second action is a claim issued in the name of Heritage against Wendy Fair Markets Ltd (“Markets”).  The Claim Form was issued on 15th March 2005.  
8.	The Claim is for the same amount and this is said to be payable by Markets to Heritage for Market’s use and occupation of premises known as the southern warehouse and the extension thereto and the ground floor of part of the former tobacco warehouse together with certain other land at Stanley Dock, Regent Road, Liverpool (“the Property”) for a specified period on a Saturday, Sunday and Monday in each week.
9.	The premises were occupied by Markets for the purpose of operating a market.  
10.	Mr Hobday and Mrs Ward are two of the five directors of Markets.  They also own shares in Wendy Fair (Group) Ltd (“the Group”), the parent company of which both Heritage and Markets are wholly owned subsidiaries.
BACKGROUND
11.	The proceedings relate to the use and occupation of the Property.  The Property was purchased by Kitgrove Limited (“Kitgrove”) in March 1998.  At that time and thereafter continuously until August 2003 the Property was used and occupied by two companies forming part of the Wendy Fair group a family run group of companies trading across the UK as market operators.  
12.	Heritage was the tenant of the Property under a lease (“the Lease”) dated 13th January 1998 and made between Ollerton Developments Ltd (1) Heritage (under its then name Wendy Fair (Stanley) Ltd) (2) and Markets (3).  Kitgrove acquired the reversion expectant on the Lease from Ollerton two months after the grant.
13.	The term granted by the Lease was for a term of ten years expiring on 12th January 2008.  The Lease however contained a break clause (clause 6) exerciseable by either party to expire on 13th July 1998.  To ensure (amongst other things) the effectiveness of that notice an order was made in the Liverpool County Court on 1st December 1997 pursuant to section 38(4) L & T Act 1954 excluding the statutory continuation under sections 24 – 28 of that Act.
14.	 The rent payable under the Lease provided for a basic rent of £9,000 per week and an additional rent for car parks amounting to £650 plus Value Added Tax per week.  In addition (although this never actually occurred) there was an additional turnover rent payable.  The Lease was terminated by notice given by Kitgrove effective on 13th July 1998.  Heritage thereafter held over as tenant at will of Kitgrove until its occupation was terminated in August 2003.  
15.	The claim for use and occupation is not brought by Kitgrove against Heritage; it is brought by Heritage against Markets.  
16.	This arises from the following facts.  Heritage did not have any assets and did not trade itself.  It was apparently created to interpose it between the landlord and the trading companies of the Wendy Fair Group.  When created it had a share capital of £100 divided into 100 ordinary shares of £1 each of which only one was fully paid and that was allotted to the Group.  Although Markets was a guarantor under the Lease the guarantee was limited to an indemnity in respect of any claims brought by Liverpool City Council or any third party concerning infringement of market rights and non performance of any license or agreement entered into by Heritage with Liverpool City Council relating to the operation of a market.  
17.	Whenever the market was operated Markets operated it.  It took the profits from the market but of course had the expenses of operating that market.  Heritage had no income save that which it might receive from Markets for operating the market at the Property.  Somewhat surprisingly there is no direct documentary evidence which sets out the basis upon which Markets was permitted to occupy the Property from Heritage.  
18.	Although the claims are brought by the Liquidator of Heritage it has no creditors other than Kitgrove so that the fruits of any litigation after the liquidation and other costs of course will accrue to Kitgrove.  Kitgrove has contended that it is owed substantial monies by Heritage arising from the periods in question and the Liquidator contends that Heritage is entitled to recover in effect the like sums from Markets.
19.	In essence the Heritage claim is that the relationship as between it and Kitgrove on the one hand and it and Markets on the other was a back to back one so that it would be able to recover in full what it was liable to pay Kitgrove.
20.	The claim is for a period after the Lease had expired and the claim is for a sum for use and occupation on the basis that Heritage held over as a tenant at will and Markets was continuing to occupy on the same basis.  As will be seen in this judgment, on the way Heritage maintains its claim against Markets substantial arrears of rent accrued at a later stage.  
21.	In so far as the sums are established as against Markets and are not recovered from it, it is the Liquidator’s contention that has occurred because Heritage was directed in such a way that it continued to incur liabilities to Kitgrove without having secured any reciprocal recovery from Markets.  This, the Liquidator contends, has arisen by reason of the Respondents operating Heritage to the benefit of Markets and to the detriment of Kitgrove the main creditor.  The Liquidator contends that at all material times of course it would have been open to the directors of Heritage to terminate the tenancy at will or even put it into liquidation.  Instead of doing either of those things, the directors chose to allow Heritage to continue as tenant at will exposing it to ever increasing liabilities with no prospect of return.  This forms the subject matter of the wrongful trading and/or misfeasance claims.
22.	Mr Martin QC who with Mr Greenhill appears for the Liquidator contends that the liability of Markets should be addressed first.  He submits that any question of recovering sums from the directors only arises to the extent that those sums are not recovered from Markets.  Miss Lucy Frazer who appears for the Respondents does not disagree with that approach.
HERITAGE CLAIM AGAINST MARKET
23.	The claim is to be found in paragraph 4 of the Particulars of Claim in claim number 2892 of 2005 and is a claim that Markets occupied the Property under an express or oral agreement or alternatively an implied agreement whereby it was given permission to use the Property from 26th July 1998 at the latest until Heritage’s tenancy at will was terminated on 14th August 2003.
24.	It is contended that it was an implied term of the permission or alternatively of the oral sub tenancy that Markets would pay a reasonable sum for such use and occupation and £10,600 per week would be a reasonable sum being the amount of rent payable by Heritage to Kitgrove plus a profit element for overheads of costs of approximately 10%.  
25.	Markets’s defence admits that from 13th July 1998 until 14th August 2003 there was an implied agreement between Heritage and Kitgrove whereby Heritage occupied the Property as licensee or tenants at will.  It is contended that it was an express term or implied term of the permission that any payments made by Markets were not to constitute rent as agreed under the Lease, would be paid on account of the sums ultimately to be agreed pending agreement and would be linked to the future revenue generated from the market from time to time.  Alternatively it is claimed it was a sum which Markets could afford having regard for the revenue generated from a given market.
26.	As I said above there is no documentary evidence to support such an agreement.  Further it would be a rash agreement if it was entered into unless there was a corresponding agreement as between Heritage and Kitgrove.  As I shall set out further in this judgment there is no evidence to show that Kitgrove ever agreed with Heritage on those terms expressly or by implication.
HOLD OVER - CONSEQUENCES
27.	 Where a tenant holds over after the expiration of his lease he continues to hold over as a tenant at will and there is a presumption in the absence of any evidence to the contrary that he holds over at the rent payable under the terminated tenancy.  That amount (apart from the turnover part) was £9,676 per week.  
28.	It is sufficient to rebut the presumption to show that the parties disagreed over the sum that was due see Dean & Chapter of Canterbury Cathedral v Whitbread (1995) 72 P & CR 9.
29.	If the presumption is rebutted then the Tenant pays a reasonable rent.  That is an issue (if that arises) which I cannot decide because there is a dispute as between the parties as to what would be a reasonable rent.  
REBUTTING THE PRESUMPTION 
30.	It is important to see how parties conduct themselves at the time of the events and compare that with what they say subsequently when litigation has ensued especially if that differs from what appears from the contemporaneous documents.  This is a summary judgment application but that does not mean that I have to accept everything that is said in a witness statement for either party.  I should not of course indulge in a trial (mini or otherwise).  Nevertheless as I say I do not have to accept in my view a witness statement if it is flatly contrary to contemporaneous documents and no explanation for that contradiction is credible see National Westminster Bank PLC v Daniel [1993] 1 WLR 1453 and London and Region Investments Ltd v (1) TBI PLC (2) Belfast International Airport [2002] EWCA Civ 355.
31.	On the basis of Three Rivers Council v Bank of England (No 3) [2001] 2 All ER 513 at 541 (paragraph 95) I should not give judgment if a defence that is raised is more than fanciful.  That involves also, as that part of the judgment shows taking into account the documents and any contradictions in respect of such documents and the evidence sought to be put forward. 
CORRESPONDENCE
32.	On 3rd February 1998 Mr Hobday wrote to Paul Tesei who is a director of Richcliff (UK) Ltd.  He is a share holder also in Richcliff which manages and invests in property including the property of Kitgrove.  Mr Hobday’s letter was marked “subject to contract” and proposed (amongst other things) an increased rental of £10,500 per week.  That letter was passed on to Kitgrove’s solicitor Julian Holy and he responded by letter of 8th February 1998 referring to matters that are not relevant to the present issue.  Mr Holy then corresponded with a Mr Mason, (Heritage’s solicitor).  On 25th March 1998 Mr Holy set out terms which included the basic rent of £10,500 per week.  
33.	Correspondence ensued between them referring to the discussions and the service of the break notice.  A meeting was proposed in April 1998 and the result of that meeting (from Kitgrove’s point of view) was summarised in a letter from Mr Holy to Mr Mason dated 13th May 1998.  That proposed a term of 3 years, a basic rent of £10,500 for the first year and a possible turnover rent.  Mr Mason replied by 13th May also saying that the terms were agreed but then the matter did not proceed until Mr Mason wrote on 3rd July 1998 to Mr Holy saying “I refer to our previous correspondence in this matter and now understand that our respective clients have agreed that my client will remain in occupation under the terms of the existing lease”. 
34.	Mr Hobday in his witness statement does not deal with this letter although he does deal with Mr Holy’s letter of 7th July 1998 suggesting that the existing terms are unacceptable and the lease must come to an end with a notice of termination which had already been served.  In paragraph 33 of his witness statement Mr Hobday refers to this letter and says that he had discussions with Mr Tesei who he alleges told him on the telephone shortly after that exchange of correspondence that the only rent that had to be paid was “whatever you like just pay something on account”.  
35.	That alleged conversation (which Mr Tesei not unreasonably cannot recall immediately 8 years after the event) was first alluded to by Mr Hobday in his witness statement dated 22nd December 2005. It had never been suggested either in correspondence or in the pleadings that there was any such agreement as alleged.  Further it is actually less potentially than the amount suggested in Mr Mason’s letter.  Mr Mason provided a witness statement.  In paragraph 9 of his witness statement he too dealt with the Julian Holy letter of 7th July 1998 but failed to deal with his letter of 3rd July 1998.
36.	I do not see how the instructions that there was an agreement to pay the existing rent can have come from anybody other than Mr Hobday.  I cannot accept that it is credible that given the fact that the debate was between the current rent and a higher rent Mr Tesei would agree something which involved enabling Heritage to pay “what it liked”.  I reject Mr Hobday’s evidence as being incredible and at variance with the documentation at the time which he has not explained away.
SUBSEQUENT PAYMENTS
37.	 Schedule C to the Particulars of Claim in claim number 1716 of 2005 shows that in the main Heritage paid the existing rent from 13 July 1998 until December 2001.  In that period it paid £1,585,275.20 but missed payments totalling £156,404.75.  It is not a case of it paying less rent on the days in question but rather simply missing payments.
38.	Schedule B to the Particulars of Claim shows that for the same period Markets paid Heritage £1,617,421 i.e. some £32,145.80 more that Heritage had accounted for to Kitgrove.  Once again in the main the payments are usually the passing rent under the old lease although there is a slight variation in that pattern.
39.	In 2002 Heritage still in the main continued to make the same payments but by the end of September 2002 it had missed a further 9 payments of £9,676 in addition to the £156,404.75, it had accumulated from the previous years.
40.	On 25th March 2002 a Mr Stallard a director of Lambert Smith Hampton wrote to Mr Hobday setting out a schedule which suggested that the total amount of arrears outstanding was £156,404.75.  Ultimately Mrs Ward replied by a letter dated 31st May 2002.  In the first paragraph of the letter she apologised for the delay in replying to the schedule but “I have now been through the account” she noted that the schedule did not take account of expenses paid out on behalf of the landlord totalling £25,084.27.  The letter then said “this leaves a balance outstanding of £131,320.48 according to our records which reconciles with your figure taking into account the above credit”.
41.	The letter then carried on “the market at present is not viable and has in fact incurred a loss to date of £125,260.  I am aware Nick Hobday has been discussing the terms with Paul Daubney and I will give him a copy of this letter to include in his discussions”.
42.	It is surprising that if there was an agreement as said by Mr Hobday and Mr Tesei in July 1998 that she does not refer to it.  On its face the letter constitutes an acknowledgment in my judgment of an express or implied agreement that Heritage has continued to occupy paying the existing rent until the terms of a new lease are finalised.
43.	Mrs Ward deals with this letter in paragraph 14 of her witness statement dated 22nd December 2005.  She rejects any suggestion that the wording in the penultimate paragraph is an admission that the rent is due.  She says that it is merely an agreement that Mr Stallard’s figures agreed with Heritage’s records as to what “payment had been made”.  This in my view is simply untenable.  I do not see how the phrase “balance outstanding” can be misconstrued.  It means what it says.  Heritage by her letter was acknowledging the arrears.  It is true that she was trying to suggest that discussions would have to take place because the market was operating at a loss but I think it is impossible on any credible basis to construe this letter as anything other than an admission that the money was due and that can only be on the basis of an express or implied agreement that Heritage would hold over on a tenancy at will or license with payment being current rent.  It must be appreciated of course that this does not create a burden for Heritage because it can always terminate the arrangements as regards its liability to Kitgrove and stop the rents accruing.  It did not do that however because it was in the interest of Markets (in which Mr Hobday and Mrs Ward were interested) to keep the occupation alive for the purposes of running its business.  
EVENTS OCTOBER 2002 – JANUARY 2003
44.	Mr Daubney (a surveyor retained by Kitgrove) had a meeting with Mr Hobday on 16th October 2002.  According to a letter Mr Daubney sent to Mr Stallard the purpose of the meeting was to see whether any proposals would come forward from Mr Hobday addressing future occupancy and the arrears.  Mr Daubney apparently told Mr Hobday at that meeting that if nothing was heard he would be recommending Kitgrove to present a winding up petition against Heritage.
45.	Mr Hobday sent an offer (echoed in Mr Daubney’s letter to Mr Stallard) dated 22nd October 2002.  That letter was marked “subject to contract”.  In it he offered to pay £259,000 per year for a 3 year agreement and (crucially in my opinion) to pay the arrears up to 30th September over the next 6 months.  On that basis he calculated that the rent for October would be £14,942.31.  On 29th October 2002 (again marked subject to contract) he sent a letter which replaced the letter of 22nd October 2002 as there had been a mistake in the earlier letter.   The change made was the reduction of the 3 year term as he back dated its commencement by a year.  
46.	Kitgrove’s response was to serve a statutory demand on 14th November 2002.  The amount demanded was £228,080.48.  An application to restrain the presentation of a winding up petition was issued in the Cambridge Count Court whereas it should have been issued (if not in the High Court) in the court where Heritage’s registered office was i.e. Uxbridge.  It was then reissued but was not proceeded with.  Nor was a petition presented but instead in January 2003 the parties entered into negotiations.  It is said by the Respondents (see their defence in the wrongful trading proceedings) that it was agreed at the meeting that any arrears would be written off and a new rent of £6,000 per week would be paid or alternatively that was agreed after the meeting.  It is pleaded in the defence that Kitgrove was estopped from demanding the arrears of rent on any basis other than that that was agreed at the meeting.
47.	Mr Mason gave advice to Mr Hobday before he attended the meeting.  There is an attendance note dated 15th January 2003 (which Mr Mason does not deal with in his witness statement)  which says (amongst other things) as follows:-  
“we went through the issue on agreed rent or not agreed rent and I explained my concerns about the fears of wrongful trading and a desire to move away from a pantomime argument about what was or what was not agreed in respect of the current rent.  I said that that was an issue but if they wanted to they could pursue it against Heritage……We have to  respond to that [statutory] demand and make sure that we are trading lawfully”.
The letter that was discussed was altered (being a draft of Mr Hobday’s sent to Mr Daubney on 15th January 2003).  This letter is marked “subject to contract without prejudice”.  It referred to a dispute and suggested that is was Mr Hobday’s view that a rent of £4,980 had been agreed.
48.	It is impossible for him to believe that in my view.  There is no evidence to show that level of rent was ever agreed by Kitgrove.  Mr Hobday reverted again to his letter of 29th October 2002 as a way forward.  On 22nd January 2003 there was a further 5 minute discussion between Mr Hobday and Mr Mason.  Mr Hobday was about to meet Mr Tesei and Mr Daubney.  Mr Mason’s note records him making it clear that Mr Hobday must under no circumstances do anything other than have off the record conversations pending agreement on a deal but to suggest that it was now appropriate for them to continue trading the market while he was in negotiations with the landlord to try and resolve the problem.  Thus Mr Mason was making clear to Mr Hobday that he should not conclude any agreement at the meeting.
MEETINGS IN JANUARY 2003
49.	The Meeting took place on 24th January 2003.  Mr Hobday followed Mr Mason’s advice to the extent that his own notes were marked “without prejudice and subject to contract”.  There is a dispute over what was “agreed” at this meeting.  There was a further meeting on 29th January 2003 with Mr Hobday, Mr Tessei, Mr Daubney, Mr Stallard and a Mr Watson.  In paragraph 90 of his witness statement Mr Hobday suggests that Mr Tesei said “come on we can sort this out.  The past is all water under the bridge.  Forget the arrears.  Lets start again from 1st January 2003”.    Mr Tesei acknowledges saying something like that but in neither case he says was he intending to nor did he agree to write of the arrears which by then amounted to some £329,000 odd.  That is a dispute which I cannot resolve at a summary judgment stage.  It turns on oral testimony.  
50.	What is clear however is that whatever was agreed it was all subject to contract.  Mr Hobday’s notes make that point.  Mr Stallard thought it was subject to contract.  On 29th January 2003 he wrote setting out the terms as he understood them in a letter marked subject to contract and without prejudice.
51.	It is clear that it is impossible to say any concluded agreement was made as so much remained outstanding to be considered.  For example there is no clear agreement as to all terms of the lease.  This is important because there had been correspondence about various obligations that were not to be found in the original lease.  It is fair to say that note item 11 of Mr Stallard’s schedule is ambiguous as to whether or not the rent arrears were to be written off.  It appears that Mr Mason thought that the heads of the agreement did not address the arrears (his letter 6th February 2003 to Mr Hobday).  He rightly observed that there was a requirement for Market to be guarantor which is a completely new provision.  
52.	This is reiterated by Mr Mason’s chaser of 27th February 2003 which says “….I remain concerned that until such time as a deal is in place, Wendy Fair (Heritage) maybe trading unlawfully”. 
53.	After that no serious attempt was made to finalise any agreement.  Payments were made at the rate of £6,000 per week (i.e. the subject to contract agreed rent) but two were missed (though later made up).  On 7th August 2003 Kitgrove served on Heritage a Statutory Demand in the sum of £419,065.25.  On 14th August 2003 it retook possession.  It presented a winding up petition on 8th September 2003 and a winding up order was made on 22nd October 2003.
54.	At no time did Heritage, when it was being controlled by Mr Hobday and Mrs Ward ever suggest any of the matters raised in the present proceedings.  Of course any of them if raised and genuine would have enabled Heritage to have the Statutory Demand set aside.   It is in my view significant that they chose not to challenge the position vis a vis Heritage.  I suspect that they thought that they would not incur any liability and that Heritage would simply go in to liquidation leaving Kitgrove high and dry with a large debt claim against a company with no assets. 
INTERNAL DOCUMENTS
55.	On Mr Hobday’s own internal notes he made reference to figures for arrears. 
56.	Heritage’s internal management accounts throughout the period referred to £9,676 per week as being the Heritage rent and its audited accounts and draft accounts to 30th April 2003 record costs of sale and turnover figures calculated on the basis of the rent being £9,676 per week.
ARRANGEMENTS AS BETWEEN HERITAGE AND MARKETS
57.	On the basis of the material that I have set out above the arrangement as between Kitgrove and Heritage was that Heritage would continue with the lease as tenant at will subject to paying the rent of £9,676 per week.  The payment record and the documents referred to above support that.  There is no documentation adduced to contradict it.  
58.	I cannot believe that there would be anything other than a back to back arrangement i.e. the relationship as between Heritage and Markets would be identical.  The payment record of Markets supports that.  Markets payment record until the business ceased to be profitable towards the end of October 2002 also broadly reflects that view.
59.	I do not accept it is credible that Mr Hobday and Mrs Ward agreed anything other than back to back terms.
60.	In my view the arrangements were precisely the same.  The terms as between Kitgrove and Heritage were that Heritage would pay the passing rent under the old lease until a new lease was agreed.  The meeting that took place in January 2003 was clearly subject to contract and without prejudice with a result that no agreement of a binding nature can be inferred from that arrangement.
61.	As I have set out above any such terms were provisional and much required to be done.  It is not open in any event to Heritage to cherry pick the £6,000 payment without addressing the fact that it had other obligations (for example to take a new lease) and Markets to be a guarantor.  
62.	Until there is a new binding agreement either party can resile from their understanding that came from the meetings see the case referred to above.  Nor can any of the provisions give rise to an estoppel for the same reasons.  Of course Heritage paid £6,000 and if there was no agreement it would be able to recover that money as there would be no consideration for that in the normal case.  However it had a continuing liability in excess of that so that ability to recover is theoretical rather than actual.  
63.	I therefore conclude that Markets has no defence to Heritage’s claim as limited to £9,676 as per market and I will enter judgment for the sums claimed.
WRONGFUL TRADING/MISFEASANCE 
64.	  As Mr Martin QC said the measure of the misfeasance/wrongful trading will depend on the amount of monies that are recovered from Markets.  It is only if full recovery is not made from Markets that the Liquidator will look to claims against Mrs Ward and Mr Hobday.
65.	As I said above the Liquidator pick 3 dates 1st October 1998, 13th December 2001 and 14th November 2002 as being the dates upon which the directors knew or ought to have known there was no reasonable prospect that the company would avoid going into insolvent liquidation.  Those dates are respectively the signing off of Heritage’s accounts for 30th April 1998, the signing off of Markets’s accounts for the year to 30th April 2001 and the date when Heritage was served with a Statutory Demand by Kitgrove. 
66.	Separately to that issue it seems to me is the potential liability of the directors for misfeasance if they contend that the arrangements as between Markets and Heritage and Heritage and Kitgrove were not back to back.  If they were not it seems to me that they are exposing Heritage to a liability for the benefit of Markets.  If Heritage cannot meet its liabilities because it is not receiving monies sufficient to discharge those liabilities from Markets that is a situation which is in my view arguably a breach of duty by them as directors.  Given the insolvency or near insolvency of Heritage that duty is owed not merely to the company Heritage but also to its creditors see West Mercia Safetyware v Dodd [1988] BCLC 250. 
67.	The difficulty however in this case at this stage (i.e. summary judgment) is the willingness of Kitgrove apparently to allow arrears to arise and the possibility of Kitgrove being willing to negotiate a release of all outstanding arrears.  Heritage would only become insolvent if its liabilities were in accordance with the agreement as set out and determined by me.  It seems to me that there are suspicions that Mr Hobday and Mrs Ward chose to run Heritage allowing it to accumulate arrears which it could never pay but using it as a shield to protect Markets which continued to trade and paid lesser payments in the confident hope that it did not have any direct liability to Kitgrove.  That might be true but an indirect liability is established as set out in this judgment.
68.	I do not see however that I can determine that at a summary judgment stage.  
69.	Further there is a possibility that they can raise an argument that they had a reasonable prospect of negotiating a relaxation of the arrears and that reasonable prospect did not evaporate until after the meetings in January 2003 did not lead to a concluded agreement.  Once again that might afford them to a defence to a claim under section 214 of the Insolvency Act 1986.  It might not be a defence to a misfeasance claim because it seems to me very difficult to argue as directors that they should permit Heritage to enter into arrangements which were either not back to back or continued to expose it to a liability without possible recourse from Markets.
70.	Further Miss Frazer submits the question of misfeasance cannot be considered at this stage because one has to consider whether or not there should be relief under section 727 of the Companies Act 1985.
71.	These arguments in the context of this case in my view look weak.  However they are sufficient in my view to lead to the conclusion that I should not grant summary judgment on the misfeasance claim but should instead make a conditional order.  
72.	I indicated at the adjournment stage of the applications that that was a possibility that I had in mind and accordingly Mrs Ward and Mr Hobday have provided witness statements of means.  They were provided at short notice to the Liquidator and in fairness he has not had an opportunity to evaluate them.  Any such conditional payment must of course be one that can be met by them as otherwise it is illusory and does not allow them to defend.  It would infringe their rights under article 6 of the European Convention on Human Rights see Anglo Eastern Trust Ltd v Kerman Shahci [2002] EWC Civ 198 C.A.  I will therefore make a conditional order as against the Respondents but I will hear representations as to the amount and method of satisfying any such conditional order when I deliver this judgment.