Keith Arjoon and 2 others v Maria Daniel (Trinidad and Tobago)

When directors of a company in receivership commence proceedings in the company’s name against a receiver or debenture-holder, a third-party costs indemnity is not a precondition to the proceedings’ validity. The court may stay proceedings pending an appropriate indemnity where the charged assets are, or may be, insufficient and there is a real risk of depletion.

The protection ordinarily covers adverse costs orders. The company’s own litigation costs are generally funded externally. The indemnity jurisdiction is distinct from ordinary security for costs and coexists with the statutory receivership regime. Directors have no personal standing to recover company losses or seek company relief in their own names where the company can sue through them. A personal-loss claim requires a pleaded duty owed personally.

The appeal concerned proceedings brought by two directors and their company against a receiver appointed over the company’s undertaking and assets. The claim alleged breaches of equitable and statutory duties and sought substantial damages, much of which represented losses allegedly suffered by the company.

The High Court discharged an interim injunction, struck out the company as claimant for failure to provide a third-party costs indemnity, and struck out the directors’ claims for want of standing. On 23 September 2020, the Court of Appeal of the Republic of Trinidad and Tobago reversed that decision and restored the injunction.

The Privy Council considered whether an indemnity was required, whether the directors could sue in their own names, and whether the injunction should remain in force.

Appeal allowed. The claims of both the Company and the directors were struck out, and the interim injunction was discharged.

1. Proceedings by a company in receivership. Directors retain authority to authorise proceedings in the company’s name against a receiver or debenture-holder. The absence of a third-party indemnity does not invalidate the proceedings or deprive the directors of that authority. This was consistent with the approach in Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 and Sutton v GE Capital Commercial Finance Ltd [2004] EWCA Civ 315.
2. Protection of charged assets. Where the proceedings are against the secured creditor or its receiver and the charged assets are, or may be, insufficient to meet the secured liabilities, the court should protect the secured creditor against a real risk that litigation costs will deplete those assets. The usual order is a stay pending an appropriate third-party indemnity, secured if necessary. The secured creditor or receiver must establish potential insufficiency; directors must establish any special circumstances justifying departure from the general rule.
3. Scope of the indemnity. The indemnity should go no further than necessary. The company’s own costs will generally be funded from outside the charged assets. The indemnity will ordinarily cover adverse costs orders payable to the debenture-holder or receiver. The Board distinguished that protection from ordinary security for costs, and considered the contrary suggestion in Sutton v GE Capital Commercial Finance Ltd [2004] EWCA Civ 315 and Closegate Hotel Development (Durham) Ltd v McLean [2013] EWHC 3237 (Ch) to be wrong to that extent.
4. Statutory regime. Sections 295 and 296 of the Companies Act 1995 and section 20 of the Bankruptcy and Insolvency Act 2007 do not displace the general protection afforded to charged assets. The legislation does not make an indemnity a precondition, but it does not prevent the court requiring one.
5. Directors’ standing. Claims for losses suffered by the company belong to the company. Directors have no standing in their own names to recover those losses or obtain relief for the company. Their authority to commence proceedings in the company’s name is distinct from personal standing. Nor could the directors recover their personal liability under an indemnity without pleading and establishing a duty owed to them personally.
6. The statutory rights concerning notice of proposed dispositions and inspection of accounts do not confer personal rights on directors. Those rights are held in their capacity as fiduciary agents, so the company remained the proper applicant where it could sue in its own name.

1. Privy Council: The appeal was allowed under [2023] UKPC 42. The Company’s and directors’ claims were struck out and the interim injunction was discharged.
2. Court of Appeal of the Republic of Trinidad and Tobago: On 23 September 2020, the court reversed the High Court’s order and restored the interim injunction.
3. High Court: On 8 April 2020, Mohammed J discharged the injunction and struck out the Company as claimant and the directors’ claims.