England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		St Dunstan's House 133-137 Fetter Lane London, EC4A 1HD
		19th March 2008

His Honour Judge Toulmin CMG QC:

1. There are two applications before me dated 27 February 2007 made by Fashoff (UK) Ltd trading as Moschino ("Fashoff") and Forall Confezioni SPA ("Forall") that each be entitled to exercise its Retention of Title clause in respect of goods which it sold to Baron Jon Menswear Ltd ("Baron Jon"), now in administration. Originally Foulds Ingham Associates ("Foulds Ingham") were named as the 1^st Respondents. Foulds Ingham reported to Martin Linton, the appointed administrator, who was substituted as the 1^st Respondent. The claim against Foulds Ingham was dismissed with costs. Baron Jon is the 2^nd Respondent. The draft orders set out the precise relief sought by the Applicants. In the case of both Fashoff and Forall the relief is that each have permission to enforce its rights under the Retention of Title clause forming part of the terms and conditions of the contracts between each of the applicants and Baron Jon.
2. The Applications are made under Paragraph 43 of Schedule B1 of the Insolvency Act 1986.
3. The statutory provisions to which the Applicants have at different times referred are as follows:

"43(1) This paragraph applies to a company in administration.

43(2) No step may be taken to enforce security over the company's property except (a) with the consent of the administrator or (b) with the consent of the court.

43(3) No step may be taken to repossess goods in the company's possession under a hire-purchase agreement except (a) with the consent of the administrator or (b) with the permission of the court.

43(6) No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the company or property of the company except (a) with the consent of the administrator or (b) with the permission of the court."

4. Paragraph 111 (the definition section) defines hire purchase agreement to include "a conditional sale agreement, a chattel leasing agreement and a retention of title agreement".
5. Originally the Applicants made their claim under paragraph 43(2) of Schedule B1, the purpose of the provision being to enable a party to enforce security over the property of the company in administration. In their skeleton argument for a hearing on 3 May 2007, the Applicants contended that their applications could fall within paragraph 43(2) or 43(3) of Schedule B1 but made no amendment to the proceedings.
6. In her witness statement dated 7 December 2007 Ms Calcott, a legal executive of the solicitors acting for the Applicants, appears to be suggesting that the Applicants wished to bring their claims under paragraph 43(6) of Schedule B1. Indeed, at one point in the hearing before me, the Applicants sought to combine an application under paragraph 43(6) with one under paragraph 43(2).
7. Later in the course of the hearing before me the Applicants made it clear that they were abandoning their claims under paragraph 43(2) and that their applications were now based solely on paragraph 43(3), namely that they seek to repossess the goods in the company's possession under a Hire Purchase Agreement (as defined in paragraph 111 to include a Retention of Title agreement).
8. The parties have filed in evidence a number of witness statements from Mr Snowden, the financial controller of Fashoff, Dr Ciscato, the Credit Manager of Forall, Ms Calcott, a legal executive of the Applicants' solicitor, and Mr Linton, the Administrator.

THE FACTUAL BACKGROUND

9. Baron Jon was operated as a business selling fashion clothing for men. On 28 February 2006 it entered into administration, using the out of court procedure, on the application of Mr Selt, a director of Baron Jon. Mr Linton, a very experienced Administrator, was appointed by the directors as Administrator. He arranged shortly after his appointment to sell the company's assets, including its stock, to Premium Retail Limited ("PRL"). This was before Mr Linton had any notice of any Retention of Title claim.
10. The stock sold to PRL included stock which Baron Jon had purchased from a number of suppliers. This is alleged by the Applicants, and not seriously disputed by the Respondents, to include stock contained in sales orders in August 2005 which are the subject matter of these applications.
11. Mr Linton made it clear in his second witness statement that the sale agreement between Baron Jon and PRL included the term that PRL would honour any valid Retention of Title claim for a reasonable period of time after the sale. This was no doubt to cover valid Retention of Title claims which might be made in the course of the administration.

THE INDIVIDUAL CLAIMS

12. I deal first with the claim of Fashoff. In the week commencing 6 March 2006, Mr Snowden, the financial controller of Fashoff, Mr Excell, the general manager, and Ms Anderson, the credit controller, met with various senior officers of Baron Jon. They were told in the meeting that the company was in difficulties because of rent increases and a decision had been made to sell the business.
13. After the meeting, on 14 March 2006, Mr Snowden wrote to PRL to confirm the claim that he had made at the meeting that Baron Jon was indebted to Fashoff in the sum of £69,376.70. The letter said explicitly that Fashoff UK Ltd would like to negotiate Retention of Title of goods with Foulds Ingham, who had been appointed by Mr Linton as his agent to deal with Baron Jon's stock. The letter said that it was enclosing its current terms and conditions of trade along with signed copies of the orders. These terms and conditions were governed by Italian law.
14. On 21 March 2006 Foulds Ingham responded by enclosing a questionnaire which they asked to be completed within seven days of the date of the letter. The letter said that if Foulds Ingham did not hear from Fashoff within the next seven days they would assume that Fashoff did not wish to pursue its claim under terms retaining title. The letter requested Fashoff to be "most explicit in advising us how you will show that the goods on site were supplied direct from you and not via a third party". Fashoff did not return the questionnaire until May 2006.
15. On the same day, 21 March 2006, Mr Linton gave notice of his appointment to all known creditors (including the Applicants).
16. On 11 April 2006, Mr Snowden sent an e-mail to Foulds Ingham saying that he had been out of the office but that Fashoff wished to proceed with the claim. On 13 April 2006 he sent an aged debtors analysis which gave details of eight invoices (including a credit) which made up the sum of £69,376.70.
17. On 4 May 2006, Mr Linton gave notice that he had been granted an extension of time to 20 June 2006 by the High Court for sending a statement of proposals for the administration to the Registrar of Companies and to all members and creditors with an initial meeting of creditors due 14 days after that. He said that the extension was necessary due to complex leasehold and Retention of Title issues.
18. On 15 May 2006, Foulds Ingham posed two questions to Fashoff to which it said it required a response by 24 May 2006, otherwise Foulds Ingham would assume that Fashoff would not be pursuing its claim. Fashoff was asked (a) to explain how they could identify unpaid goods in contrast to those which had been paid for, and (b) show that a director of the company was aware of and had agreed to Fashoff's terms.
19. Mr Snowden wrote on 22 May 2006 to inform Foulds Ingham that Fashoff wished to continue to pursue the claim and had instructed Brethertons, solicitors. He did not answer either of the questions posed by Foulds Ingham.
20. On 31 May 2006, Mr Cohen of Foulds Ingham explained to Brethertons that he was not prepared to accept the terms on the invoices and noted that the orders were signed by a manager rather than by a director.
21. On 2 June 2006, Brethertons wrote a robust letter expressed to be on behalf of Fashoff, which again did not answer either of Foulds Ingham's questions. Instead it asked for a copy of PRL's detailed inventory. It said it was irrelevant that the purchase order was signed by a non-director.
22. Foulds Ingham responded on 5 June 2006 with a number of concerns. First, it noted that the employee of Baron Jon was only authorised to enter into agreements for repeat orders or contracts pre-agreed by an officer of the company, hence the need to insist on seeing an order of an earlier date authorised by an officer of the company. In the submissions before me the applicant contends that the Administrator's insistence on this was unreasonable. I do not think that it was unreasonable. Secondly, Foulds Ingham noted that Fashoff's terms were subject to Italian law (Condition 17) and that, under Italian law, Retention of Title clauses must be registered in order to have validity. The letter said that in the absence of a response the file would be closed. There was no substantive reply to this letter until 15 December 2006.
23. On 19 June 2006, Mr Linton wrote to all known creditors to inform them that he had obtained from the High Court a further extension of time for sending a statement of proposals to the Registrar of Companies, this extension being to 18 July 2006.
24. On 3 July 2006, Foulds Ingham wrote to Fashoff to inform them that in the absence of any response to their letter of 5 June 2006, they were closing the file.
25. Brethertons did not reply to Foulds Ingham's letter dated 5 June 2006 until 7 July 2006. Their letter was limited to a further request for PRL's inventory.
26. On 10 July 2006, Mr Linton responded to Brethertons' letter by repeating that the claim must be proved before an inventory could be provided.
27. On 17 July 2006, Mr Linton sent his Administrator's report and proposals to creditors. On 1 August 2006, Mr Linton held the creditors' meeting and his proposals were agreed with modifications.
28. On 27 September 2006, Mr Linton sent his report on the progress of the administration from 28 February 2006 to 27 August 2006. He noted that

"(f) There are still Retention of Title disputes to be resolved but, as previously indicated, these will not materially alter the asset realisation generally."

29. It appears that there was an e-mail communication from Foulds Ingham to Fashoff dated 7 November 2006 which again said that it was closing the file.
30. Brethertons did not take matters further until their letter dated 15 December 2006 from Mrs Sioban Calcott, a deponent in these proceedings. This letter set out for the first time a claim based on a new set of terms and conditions governed by English law. The letter went on:

"We also enclose copies of the Notices our clients sent to all customers in or around mid-September 2005 together with a copy of their UK terms and conditions of trading.

Whilst we note the dates of the orders being the subject of our clients' claim run between January and February 2006, the bulk of the goods relate to a purchase order dated 10 August 2005, thus prior to the notices being issued."

31. The letter went on to set out how the orders were placed:

"Your client's representative George [Constantino] would come to our client's wholesale office, look at what he wanted and then an order pad would be filled out. The order pad contained terms and conditions which were the Italian terms. Our client would then produce an order confirmation containing its UK terms and the goods would be invoiced to your clients containing the UK terms. The order confirmations therefore constituted acceptance of your clients' offer to buy contained in the order pad. It is further our client's case that both parties understood that they were contracting according to the UK terms."

32. It is necessary for the Applicants to establish that the "UK" terms apply because to comply with Italian law the Retention of Title clause would need to have been registered with the relevant Italian court, in this case Como, and any application would need to have been made to that court under the terms of the contract.
33. The letter went on to request again a copy of the inventory and to request Foulds Ingham's consent as Administrator to enforce security over the company's property.
34. The letter was passed to Edwin Coe, who had been appointed as the Respondent's solicitors. They replied on 26 January 2007, asking Brethertons to clarify precisely their client's claim.
35. Edwin Coe sent a formal response on 18 December 2006.
36. After some holding correspondence Edwin Coe wrote on 26 January 2007 asking which documents Fashoff was relying on to substantiate its claim and whether sample order S/S2001 was the order relied on as having been signed by a director of the company. It also asked whether the terms relied on were those set out in the order dated 2 August 2002 and finally whether revised terms and conditions were sent to Baron Jon's specifically it said;

"We note that notices were sent out in September 2005. It is not clear whether as a consequence revised terms and conditions were sent to the company …"

37. On 14 February 2007, Brethertons responded by saying that the sample S/S2001 was the relevant order and that the order dated 2 August 2002 contained the conditions to which reference was made. However it said that, the revised conditions on which their clients now relied were sent out to all customers between September and October 2005. Brethertons said that Fashoff did not keep copies of the letters. They asserted that revised terms and conditions were sent either in the September mail shot or the October mail shot.
38. The letter asserted that Fashoff's order confirmations and invoices amounted to acceptance of Baron Jon's orders.
39. On 27 February 2007, Fashoff issued this application. A further set of terms and conditions referring to a company called Unionseta Como SPA were exhibited to evidence filed in support of the application.
40. On 28 February 2007, Edwin Coe responded by saying that it seemed to them that any contract for the supply of goods must be based on Fashoff's terms of business as at August 2005. They noted that they had seen no evidence that Baron Jon had accepted Fashoff's apparent unilateral variation of its terms and conditions of business.
41. In his second witness statement Mr Linton summarised his objections to the Retention of Title claim as follows:

i) Fashoff failed to provide him with any evidence that the contractual terms now relied on were agreed to by Baron Jon.

ii) It appeared that in relation to the order dated 5 August 2005, the seller was an Italian company called Unionseta and that Fashoff was acting in the capacity of agent. Further, the contract stated that:

"Any disputes will be settled and decided in accordance with the Italian laws and will be subject solely to the jurisdiction of the law court of Como where the seller has its offices."

iii) In relation to the 10 August 2005 order, the terms and conditions on the sales invoice form part of the terms and conditions of sale. They again contained a clause conferring exclusive jurisdiction on the law court of Como. He also noted that Retention of Title clauses are not valid under Italian law unless they have been registered and there was no evidence of registration in this case.

iv) The English terms and conditions now relied on were prayed in aid for the first time in December 2006 after Foulds Ingham had pointed out in June 2006 the difficulties that Fashoff faced in pursuing its claim under the Italian conditions.

v) There is no direct evidence that the English terms were actually sent to Baron Jon in September or October 2005 or that Baron Jon agreed to be bound by them.

vi) Having checked the stock levels at Baron Jon immediately before administration it was probable that a substantial proportion of the goods had already been sold. In his response statement Mr Snowden said that each garment had a unique tag and was therefore easy to trace.

vii) The company sold its entire stock to PRL and no longer had control of the goods. It had agreed with PRL that it would honour any Retention of Title claim to a certain date but that date had long since passed.

viii) The manner in which Fashoff has conducted its case had made it particularly difficult to deal with the claim.

FORALL

42. Dr Ciscato said in his witness statement that Forall ordered goods from Baron Jon to a value of £34,034.00. The order was undated but Dr Ciscato believed that the correct date was 5 August 2005. There were three invoices but one of these related to goods which were paid for by PRL.
43. There is exhibited in these proceedings a confirmatory order in Italian dated 29 November 2005. The terms set out in that order were that the goods should be delivered between January and March 2006 with the balance ex factory on 15 April 2006. As is evidenced by Forall's notifications to Baron Jon dated 11 January 2006 and 9 February 2006, the debt shown in the invoice was assigned to Barclays Bank plc. The notifications made it clear that Barclays Bank plc should be paid in the invoice currency at their Hastings branch. This assignment was pursuant to an agreement dated 25 November 1999.
44. Paragraph 1 of the assignment provided:

"(I) the supplier shall be obliged to provide the factor with a full list of its debts resulting from the supply of goods or services and to assign to the factor all debts with no exceptions, including future ones that are not expressly rejected by the latter, unless otherwise agreed upon.

(II) the factor shall acquire the title of property to assigned debts with all the relevant accessories, liens, pledges and collaterals in general. Therefore the supplier shall no longer dispose of the debts assigned to the factor."

45. Clause 6 provided that the factor shall be entitled at any time to express its willingness to return assigned debts to the supplier. The Respondent argues that the subject of this application is not a claim for an assigned debt but for a Retention of Title.
46. As an appendix to the general terms in relation to what is described as "Export Relations with Recourse", clause 6 provided as follows:

"(IV). The factor shall return all debts overdue by more than 90 days unless otherwise directed by the supplier or entrusted with the task to collect them. The supplier shall only be entitled to exercise this option with references [amount] and is not disputed by the debtor …"

47. On 21 March 2006, Mr Linton notified Forall that he had been appointed as Administrator on 28 February 2006. Forall was already aware of the situation because Fashoff also attended the meeting in the week commencing 6 March 2006 as Forall's agent.
48. Mr Excell notified Forall which confirmed on 3 April 2006 that it had received notice of the Administrator's appointment and the proof of debt form. Mr Excell said he was told that all monies owing would be paid by PRL.
49. On 2 May 2006, Dr Ciscato notified Mr Linton of a claim. He said

"Please take note that our goods are delivered under Retention of Title. We ask you to admit our request for having unsold goods returned to us."

50. The Proof of Debt form noted the date of the Administration Order as 28 February 2006. It referred to the total amount of the claim as £23,884. The letter set out in a statement that the first invoice for £10,556 was due for payment on 27 March 2006 with the balance due on 24 April 2006. The letter also enclosed copies of the two assignment documents and Forall's general conditions of sale.
51. Clause 7 of Forall's general conditions specify that:

"Products supplied remain the property of the seller until payment has been received in full."

52. Under clause 10, the general conditions stipulate that Italian law governs the sale except for clause 7, which is governed by German law. The Respondents say that this provision was made to avoid the need for registration under Italian law. Clause 10 also provides that the seller shall always have the right to sue the purchaser in the purchaser's own jurisdiction.
53. On 11 May 2006, Mr Cohen of Foulds Ingham responded to Dr Ciscato, pointing out that when an invoice was post contractual it could not vary terms which had already been agreed. He said that in order to show Retention of Title, Forall needed to prove that a director of the company had been made specifically aware of the terms before the contract was made and he asked to see any such document.
54. On 16 May 2006, Dr Ciscato replied that its normal practice was that orders would be collected by the agent and confirmed by Forall and that it had a right to expect that all its terms would be complied with by the purchaser.
55. On 24 May 2006, Mr Cohen asked Dr Ciscato for direct evidence that its terms were accepted by a director of Baron Jon. Dr Ciscato responded that Forall did not have any further documents.
56. On 30 May 2006, Foulds Ingham notified Dr Ciscato that PRL was selling its stock to the general public by way of retail sales. The e-mail went on:

"Should your RoT claim be accepted you will invoice them for the goods sold post appointment and they will make payment to you. You will be able to come to an arrangement with them regarding the remainder of the stock; either you will collect it or will sell it to them on terms mutually agreeable."

57. On 3 July 2006, Mr Cohen wrote to Dr Ciscato to say that he had again reviewed Forall's claim. He wrote that Forall had not demonstrated any way of differentiating between paid and unpaid goods and that Forall's terms had not been made with the specific agreement of Baron Jon. In these circumstances he was recommending to the Administrator that the claim should be rejected.
58. On 17 July, 2006, Forall responded by disputing the rejection of its Retention of Title claim and asked Mr Cohen for details of PRL's sales.
59. Apparently the invoices were re-assigned by Forall on 27 September 2006, i.e. 90 days from 30 June 2006.
60. On 7 November 2006, Mr Snowden sent an e-mail, apparently on behalf of Forall, to Mr Cohen, sending a copy of a signed order between Forall and Baron Jon for the season SS03 signed by Mr Selt, a director of Baron Jon. Mr Snowden asked Mr Cohen to review the document with reference to settling Forall's Retention of Title claim against Baron Jon. Mr Cohen responded immediately by saying that it was unreasonable for the Administrator to re-open the matter some four months after Forall's claim had been rejected.
61. By a letter to Edwin Coe on 27 February 2007, Brethertons notified a claim on behalf of Forall saying that it was similar to the claim by Fashoff. This was the first substantive response since Mr Cohen's rejection letter of 3 July 2006.
62. In his witness statement dated 18 April 2007, Dr Ciscato endeavours to explain the delay by saying that since he had to recover documents and obtain advice on the issues raised in the United Kingdom, Italy and Germany, a considerable delay in bringing these proceedings was inevitable. This may have involved some delay but it is impossible on the evidence before me to begin to justify the lengthy delay in this case on these grounds.
63. The Administrator disputes the claim on the following grounds:

1. Despite numerous requests, Forall have failed to produce evidence that Baron Jon agreed to Forall's terms at the time when the agreement to purchase the goods was made.

2. Forall have failed to establish that they have an enforceable claim under German law. Forall explained subsequently that unlike Italian law, German law does not require a Retention of Title clause to be registered.

3. It appears that £12,908 is the maximum invoice of goods which could be subject to this application. In his subsequent witness statement, Dr Ciscato denies mixing goods at the relevant time.

4. The claim in debt in the goods was assigned to Barclays Bank plc. There is no evidence that Forall retained any claim under Retention of Title.

5. Forall claims that it assigned the debt to a company called Italease Factorit SPA ("IFS") and that the agreement permitted the factor to use another factor in the home jurisdiction. In May 2005 Factorit became Italease SPA. The Italian factor entered into an agreement with a factor in the purchaser's jurisdiction. Dr Ciscato confirmed that the debts and the security were returned to Forall on 29 September 2006. This explains the process but not how Forall had a valid claim to retention during the period of the assignment. The Administrator claims that Forall assigned the Retention of Title claim to IFS and the debt claim to Barclays. Only the debt claim has been re-assigned. In his third witness statement dated 19 July 2007, Dr Ciscato says that this view is based on a misconception. Forall assigned any claims to Factorit which then assigned them to Barclays.

6. Baron Jon sold all its stock to PRL and is no longer in control of the goods. The agreement with PRL that it would honour any Retention of Title claim has long since elapsed.

7. The task of dealing with the claim has been complicated by Forall's failure to identify and disclose relevant documents and give appropriate explanations as to their relevance.

THE LAW

64. This application must be considered in the context of the overall duties of the Administrator. The procedure of Administration Orders was established by Part II of the Insolvency Act 1986 ("the Act"). A new Part II which came into force on 15 September 2003 is set out in schedule B1 of the Insolvency Act 1986 and governs administrations commenced on or after that date
65. Section 8 of the Act sets out the purposes for whose achievement an administration order would be made. They are to procure the rehabilitation and survival of the company as a going concern or, failing that, to secure a more advantageous realisation of the company's assets. Under the new regime similar purposes are now set out in paragraph 3 (1) of schedule B to the Insolvency Act 1986 .
66. Section 10 of the Act (and paragraph 44 schedule B1) has the effect of imposing a moratorium on the company's affairs. This includes a Retention of Title agreement, defined in Section 251 of the Act as "an agreement for the sale of goods to a company being an agree
67. ment (a) which does not constitute a charge on the goods but (b) under which if the seller is not paid and the company is wound up the seller will have priority over all other creditors of the company as respects the goods or any property representing the goods. Section 11 of the Act (and paragraph 43 of schedule B1) has the effect of maintaining the moratorium established under Section 10.
68. Section 14 of the Act confers on the Administrator of the company power to do all such things as may be necessary for the management of the affairs, business and property of the company. A new similar power is embodied in paragraph 59 (1) of schedule B1.
69. Section 23 of the Act requires the Administrator within three months (or such longer period as the court shall allow) to send to the Registrar of Companies and to all creditors a statement of his proposals for the way forward for the company. He must lay a copy of the statement before a creditors' meeting summoned for that purpose on not less than 14 days notice. Paragraph 49(5) of schedule B1 requires the administrator to send his proposals to creditors within 8 weeks.
70. The scheme of the Act requires the Administrator's proposals to be considered and approved with or without modifications as happened in this case.
71. Section 27 of the Act establishes a procedure whereby any creditor may petition the court for relief where it considers that the company's affairs are being managed by the Administrator in a manner which is unfair to that creditor. A similar procedure exists under paragraph 74 of Schedule B1.
72. The judgment of the Court of Appeal in In re Atlantic Computer Systems [1992] Ch 505 at 525 ff analyses the position of administrators appointed under Part II of the Act. It notes at page 529 and following that

1. The Administrator is an officer of the court.

2. He can be expected to make his decision speedily insofar as he is able to do so.

3. He should make his decision responsibly.

4. When he refuses consent he should give reasons.

5. Should it become necessary for a lessor to make an application to the court, the court has ample powers to ensure that the applicant is not prejudiced by an unreasonable decision of an administrator.

73. I now turn to Schedule B1 of the Act. For completeness I repeat paragraph 43(3) of Schedule B1 under which these applications are now made:

"43(3) No step may be taken to re-possess goods in the company's possession under a Hire Purchase agreement except (a) with the consent of the Administrator or (b) with the permission of the court."

74. The Applicants also rely in this application on the provisions of paragraph 72. Paragraph 72(1) provides:

"The court may by order enable the administrator of a company to dispose of goods which are in the possession of the company under a Hire Purchase agreement as if all the rights of the owner under the agreement were vested in the company.

72(2) An order under sub-paragraph (1) may be made only

(a) on the application of the administrator and

(b) where the court thinks that disposal of the goods would be likely to promote the purpose of administration in respect of the company.

72(3) An order under this sub-paragraph is subject to the condition that there be applied towards discharging the sums payable under the Hire Purchase agreement

(a) the net proceeds of disposal of the goods and

(b) any additional money required to be added to the net proceeds so as to produce the amount determined by the court as the net amount which would be realised on a sale of the goods at market value."

75. This provision gives a right to the Applicants to make a claim before me. No such separate claim has been made in this case. However the Applicant says that if the Administrator chose not to make an application to the court he should have made adequate provision to be able to honour all Retention of Title claims.
76. Paragraph 74 provides the mechanism under which a creditor or a member of a company in administration may apply to the court claiming that the Administrator is acting or proposes to act in a way so as unfairly to harm the interests of the Applicant or (74(2)) that the Administrator is not performing his functions as quickly or as efficiently as is reasonably practical. This is the provision under which a creditor could challenge directly the conduct of the Administrator. There is no such application in this case.
77. In re Atlantic Computer Systems [1992] Ch 505 at 542 and following, the Court of Appeal went on to set out the approach to be followed in cases where leave is sought to exercise proprietary rights including security rights against a company in administration. The court emphasized that the following propositions were intended to be no more than general observations. However, these observations are extremely helpful and persuasive.

1. It is in every case for the person who seeks leave to make out a case for him to be given leave.

2. The prohibition against other steps being taken or other legal process being instituted to enforce security is intended to assist the company under the management of the Administrator to achieve the purpose for which the Administration Order was made. If granting leave to a hirer of goods to exercise his proprietary rights to re-possess the goods is unlikely to impede the achievement of that purpose, leave should normally be given. (See s.11(3)(c) and (d) of the Insolvency Act 1986.)

3. In other cases the court may need to balance the legitimate interests of the applicant with the legitimate needs of other creditors of the company. "The purpose of the power to give leave is to enable the court to relax the prohibition where it would be inequitable for the prohibition to apply."

4. In carrying out the balancing exercise, great importance or weight is normally given to the proprietary interests of a lessor.

5. Thus it will normally be a sufficient ground for the granting of leave if significant loss would be caused to the lessor by a refusal. For this purpose, loss comprises any kind of financial loss, direct or indirect, including loss by reason of delay and may extend to loss which is not financial. "But if substantially greater loss would be caused to others by the grant of leave or loss which is out of all proportion to the benefit which leave would confer on the lessor, that may outweigh the loss to the lessor caused by a refusal."

6. In assessing the respective losses the court will have regard to matters such as: the financial position of the company, its ability to pay the rental arrears, the Administrator's proposals, the period for which the Administration Order has already been in force, the effect on the administration if leave was given, the effect on the applicant if leave was refused, the end result sought to be achieved by the Administrator, the prospect of that result being achieved and the history of the administration so far.

7. In considering these matters it will often be necessary to assess how probable the suggested consequences are.

8. The conduct of the parties may also be a material consideration in a particular case. "It behoves a lessor to make his position clear to the Administrator at the outset of the administration and, if it should become necessary, to apply to the court promptly.

78. In setting out the further considerations (9-12), the court made it clear that the Court of Appeal's observations are intended to apply to all applications for leave. It emphasized that where there was a serious dispute over the existence, validity or nature of the security, it was not for the court to adjudicate upon it (unless it raised a short point of law which could be disposed of conveniently) but the court needed to be satisfied that the applicant has a seriously arguable case.
79. If the claim is only a money claim, Patten J held in A E S Berry Ltd v TXU Europe Energy Trading Ltd [2005] 2 BCLC 22 at 28 (para 24) that it is only in very exceptional circumstances that the court will give permission to a creditor to commence proceedings with a money claim rather than to allow the administration to run its course.
80. I must next consider the question of possession and therefore re-possession under the administration procedure. This is dealt with at page 532 of the Court of Appeal's judgment in In re Atlantic Computer Systems. The court held that goods remain in the possession of the company

"whether they remain on the company's premises, or are entrusted by the company to others for repair, or are sub-let by the company as part of its trade to others."

81. It seems to me that this might also encompass a situation where the goods were sold to a third party but subject to a condition that they were to be retained by the third party during the administration or for a period of time during which claims could be made and that property in the goods did not pass until that time had elapsed. This period could not continue once the time specified in any such condition had elapsed. In this case Mr Linton made it clear in his evidence that the sale had been an outright sale but that he had made arrangements as part of the sale that PRL would honour any valid claims made to PRL within a reasonable period of time after the sale. Although it may be arguable that the goods remained in the constructive possession of Baron Jon or the Administrator for that limited time, it cannot be argued successfully that this period continued after the specified period had elapsed.

THE APPLICANTS' CASE

82. The Applicants' case is that they have a good claim on the merits and that the Administrator should have acceded to their claims at the time when they were made in writing and that the claims should be admitted now or the result will be a serious disadvantage to the Applicants. They claim that the normal rule is that leave should be granted and the Respondents have not produced any evidence as to why it should not happen in this case.
83. The Applicants contend that the sale to PRL should not prevent permission being granted in this case. The terms on which the sale to PRL took place have not been disclosed. They contend that there is a prospect that the Administrator has committed a tort in relation to the goods which needs to be investigated. As to delay, it is contended that the administration would have been delayed in any event and that any delay in making this application has not affected Mr Linton's dealings with the goods themselves. The admitted delay, taking into account the circumstances in which it occurred, in particular an administration already delayed and the time taken to fix the hearings, while a factor which should be considered, should not outweigh the other indices set out in Atlantic Computers which point in favour of granting permission.
84. In their further note I am asked to take into account the way the administration was conducted.

(a) the delay generally in the administration – lack of prejudice to others;

(b) the over-strict requirements of a director's signature in the order;

(c) failure to provide an inventory until the claim was substantiated which led to the Applicants facing difficulties in dealing with the goods;

(d) the ability of the Administrator to locate the goods by their identifications;

(e) the ability of the Administrator to confirm with either the directors or the management of Baron Jon that the terms which the Applicant contended for applied.

85. It is also claimed that the Applicants were entirely frank with the Administrator. They agree that lack of frankness would be a matter that I could take into account but they say that both Fashoff and Forall behaved in a way which was frank.

THE RESPONDENTS' CASE

86. The Respondents contend that the burden is on the party seeking leave to make out a case for leave. The application should be made promptly and satisfy the court that there is a seriously arguable case. The Applicants have not discharged that burden. The relief claimed is flawed, the merits of the claims are extremely weak and the Applicants have delayed in making their applications. This, it is contended, has prejudiced the creditors of the company, since the Administrator is not able to make a distribution to creditors until these applications are resolved. If leave is given there will be further delays.
87. In relation to the merits of Fashoff's claim, it is contended that it is based on two orders dated 5 August 2005 and 10 August 2005. In relation to the first order the seller is a company called Unionseta Como SPA and that Fashoff was its agent. There is no evidence that Fashoff has the right to pursue a claim on behalf of Unionseta. In relation to the order of 10 August 2005, Retention of Title is governed by Italian law, which requires disputes to be settled in accordance with Italian law in the law court of Como.
88. The Respondents contend that the English terms were not incorporated into the contract. They were apparently printed as circulars sent out to all customers by Fashoff in either September or October 2005. They were also printed on the reverse of "confirmations" sent out in late November/mid December 2005 and on the invoices sent in January and February 2006.
89. Fashoff first suggested that the English terms applied in their solicitors' letter dated 15 December 2006. The Respondents rely on Lord Denning's judgment in White v Blackmore [1972] 2 QB 651 that "confirmations" on the reverse of a document without any reference on the front of the document is not sufficient notice. In any event they say that the documents are post-contractual documents.
90. In relation to Forall it is contended that there is no order form signed by the agent of the company and it is therefore questionable whether or not the terms were incorporated. Further, the Retention of Title claim was apparently assigned to Barclays. The debt was not assigned back to Forall (if Forall's evidence is accepted) until 27 September 2006, some four months after Forall's letter of claim and two months after Mr Linton's statement to creditors. There is no evidence that the Retention of Title claim was ever re-assigned to Forall. The title to pursue the claim did not therefore belong to Forall at the date that Mr Linton sold the goods or during any reasonable period during which the administration proceeded and during which the goods were retained by PRL.
91. The Respondents also claim that the goods are no longer in the Respondents' possession, having been sold to PRL, and any arrangements with PRL have elapsed. The company had not retained any beneficial interest in the goods at the relevant date, namely the date on which the court was asked to grant leave – see Re David Meek Plant Ltd [1994] 1 BCLC 680 at 686.
92. Finally, the Respondents contend that the Applicants did not apply to the court promptly as they were required to do.

CONCLUSIONS

93. In their judgment In re Atlantic Computer Systems [1992] Ch 505 at 541, the Court of Appeal emphasized that Parliament has left the application of s.11 of the Insolvency Act 1986 to the courts and that the discretion of the judge is a very wide one. Once it is shown that the goods are in the Respondents possession I must take into account all the circumstances of the case in reaching my decision.
94. The general observations in re Atlantic Computer Systems have been regarded in the years that have followed as extremely helpful in assisting courts in reaching their conclusions. I bear in mind in particular that if I conclude that the goods are in possession of the hirer (i.e. Baron Jon) the starting point is that I should grant leave unless the granting of leave would be likely to impede the purpose of the administration.
95. I must take into account the purpose of the administration, namely that the Administrator is expected to act responsibly and to act speedily insofar as he can do so. If he refuses consent to any Retention of Title claim it is clear that he should give reasons. Mr Linton had done so in this case.
96. However the legislation makes it clear that if the lessor wishes to challenge a decision of the Administrator on the grounds that the Administrator was acting unreasonably or the lessor is prejudiced, he can do so and the court has ample powers to grant redress. In the case of Fashoff, Brethertons, its solicitors, were notified of its concerns by Foulds Ingham on 5 June 2006. Fashoff, as one of the known creditors, was informed on 19 June 2006 by Mr Linton that he was sending his statement of proposals to the Registrar of Companies by 18 July 2006.
97. There are three questions to be considered:

a) do or did the goods belong to Fashoff or Forall?

b) were they in the possession of the administrator at the date of the application?

c) would the granting of leave impede the administration and/or are there any other reasons why exceptionally leave should not be granted?

98. I start with the history in Fashoff's case. On 3 July 2006, Foulds Ingham wrote to Brethertons that in the absence of any response to their letter of 5 June 2006 they were closing the file. It was not until 7 July 2006 that Brethertons wrote again requesting an inventory and were met with Mr Linton's response on 10 July 2006 that the claim must be proved before an inventory could be provided.
99. It must have been apparent to Fashoff's legal advisers at least by the beginning of July 2006 that in their terms the Administrator was acting unreasonably and in a manner which might prejudice their clients. They did not make any application to the court, nor did they take any steps until five months later when, on 15 December 2006, Brethertons wrote again to make a claim (based on a different contract). It was more than two months later that this application was made. This makes a period of delay on the Applicants' case of around seven months. This could not be said to comply with the requirement that an application should be made promptly.
100. This delay has been compounded for the other creditors by the fact that it has taken almost a further year to fix a relatively short hearing. I am told, and accept Mr Linton's evidence, that this has prevented and continues to prevent a distribution to creditors.
101. The further problem with which the Administrator has had to contend is that it was only at the hearing before me that the Applicants decided under which statutory provision the application should be made.
102. The purpose of instituting the procedure of administration under the Insolvency Act is to procure the rehabilitation and survival of the company as a going concern or, failing that, to secure a more advantageous realisation of the assets. The delay in bringing this application is contrary to the objectives of the Act. These considerations on their own would be sufficient for me to refuse leave to Fashoff.
103. I next consider the position of the assets in relation to Fashoff. Their case is that Fashoff should have permission to enforce its rights under the Retention of Title claim by re-possessing goods in Baron Jon's possession. This claim must be considered as at the date when the application was made – see Re David Meek Plant Ltd [1994] 1 BCLC 680 at 686. I am told by Mr Linton that the goods are not in Baron Jon's possession and have not been since the moment that the goods were sold to PRL in February 2006. I have no reason to doubt Mr Linton.
104. In these circumstances there is no basis on which to give permission, since the goods were no longer in Baron Jon's possession or constructive possession at the time when the application was made, ie 27 February 2007. It would appear that if an application had been made promptly, and had been successful, PRL may well have made provision under the contract with the Administrator to satisfy Fashoff's claim. Fashoff may also have been able to advance an arguable theory of constructive possession.
105. Taken in isolation, in relation to the claim of ownership of the goods, Fashoff would have been entitled to leave if they could show a seriously arguable case.
106. However, I find considerable force in the Respondents' argument that in relation to the 5^th August 2005 invoice the principal was Unionseta and that there is no compelling evidence that Fashoff was entitled to pursue a claim on its behalf. In relation to the second invoice dated 10 August 2005, this appears to be governed by Italian law, which requires disputes to be heard in the Court of Como.
107. I also find no evidence that Baron Jon consented to the English law terms. I do not find on the evidence before me that there is compelling evidence that the terms set out on the reverse of the "confirmations" were drawn to the attention of Baron Jon or that Baron Jon consented – see the judgment of Lord Denning in White v Blackmore [1972] 1 QB 651.
108. Taking the evidence as a whole I do not find that there is a seriously arguable case on the merits. Even if there had been such a case I should have found that carrying out the balancing exercise applying the guidance referred to in Atlantic Computers I should have rejected Fashoff's application.
109. Forall was also notified through Fashoff as its agent of the progress of the administration. It knew as a result of Mr Cohen's letter dated 3 July 2006 that its claim had been rejected. The matter was not taken up again until Brethertons' letter to Edwin Coe dated 27 February 2007, when a claim was notified on behalf of Forall which was said to be in the same terms as that of Fashoff.
110. In this case there was a delay of nearly eight months between the notification of the rejection of Forall's claim and the application to the court. Again, the delay in the context of the purpose of the legislation was substantial and contrary to the requirement that any application should be made promptly. I am satisfied that to grant leave would be likely to impede the purpose of the administration.
111. Again, if the application had been made promptly and had been successful, Forall would have been able to take advantage of the sale agreement made between PRL and the Administrator and might have been able to argue that the Administrator/Baron Jon remained in contructive possession.
112. As with Fashoff, the question of possession of the Defendants must be considered as at the date when the court is asked to grant leave. The Administrator did not have possession of the goods after they were sold to PRL in February 2006 although for the length of time that the agreement with PRL that PRL would retain the goods it may again have been arguable that the Defendants retained constructive possession.. As with Fashoff, if there had been a valid claim, and it had been made promptly, the matter could have been dealt with within the provision made by the Administrator.
113. Further in relation to title to sue it appears that Forall's claim in relation to the goods had been assigned at the relevant time either to the Italian factor or to Barclays. In these circumstances it does not appear that Forall had any standing in relation to the Retention of Title claim until 29 September 2006, two months after Mr Linton had sent his statement of proposals to the Registrar of Companies. This assignment was not referred to by Forall in their correspondence with the Administrator, his agent or Edwin Coe. The Administrator had no idea as to the circumstances of the factoring arrangement. Forall did not in this respect behave in a way that was entirely frank.
114. Whatever the position is in relation to the factoring arrangement, I am satisfied that the granting of leave now would impede the purpose of the administration. I am also satisfied that the title to the goods at the time when the application should have been made i.e. by the end of August 2006 was not Forall's. If I have to go further and carry out the balancing test applying the guidance set out in In Re Atlantic Computers I again find for the Respondents.
115. In these circumstances these applications are refused.