Keith Arjoon and 2 others v Maria Daniel (Receiver) (2024)

Keith Arjoon and 2 others

(Respondents)

and

Maria Daniel (Receiver)

(Appellant) (Trinidad and Tobago)

[2023] UKPC 42

before

Lord Reed

Lord Lloyd-Jones

Lord Leggatt

Lord Burrows

Lord Richards

Privy Council Appeal No 0061 of 2021

Appellant

Kerwyn Garcia

(Instructed by Ward Hadaway (Newcastle))

Respondent

Fyard Husein SC

Devesh Maharaj

(Instructed by Devesh Maharaj & Associates)

1

This appeal arises out of proceedings brought against a receiver appointed over the undertaking and assets of KPG Co Ltd (“the Company”) by the holder of a debenture securing substantial indebtedness of the Company. The claimants are the two directors of the Company, and the Company itself, acting by its directors.

2

On the same day as the claim form was filed, the claimants were granted an ex parte injunction, restraining proposed sales by the receiver of the business and assets of the Company. The receiver subsequently applied (i) to discharge the injunction, (ii) to strike out the Company as a claimant on the grounds that no indemnity had been offered to protect the Company's assets against depletion due to any order for costs against the Company, and (iii) to strike out the directors' claims for alleged breaches of duty by the receiver on the grounds that they lacked standing to bring these claims. The High Court (Mohammed J) acceded to the receiver's application in full. On appeal, the Court of Appeal (Pemberton JA and Dean-Armorer JA) reversed her decision and dismissed each part of the receiver's application. The receiver appeals to the Board with leave granted by the Court of Appeal.

3

The issues on this appeal are the same as those which were before the courts below and may be summarised as follows:

(i) Should the Company be struck out as a claimant on the grounds that it had failed to provide an indemnity as regards any depletion of the Company's assets on account of costs?

(ii) Should the claims for breach of duty brought by the directors be struck out on the grounds that they do not have standing to make those claims?

(iii) If the answer to either of those issues is negative, should the interim injunction be discharged?

4

The Company operates in the oil and gas sector in Trinidad and Tobago and its business includes, or included, marine construction and fabrication and equipment rentals. Its only directors are the first and second claimants, Keith Arjoon and Shandon Arjoon (“the directors”). During the period 2008 to 2014, Republic Bank Ltd (“the Bank”) granted loan facilities to the Company, secured by a deed of debenture (“the debenture”) and a deed of mortgage (“the mortgage”) over two parcels of land (“the La Brea Land”) both dated 15 August 2008. These were followed subsequently by a series of charges on vessels and chattels. The debenture secured all the liabilities of the Company to the Bank by fixed and floating charges on all its property, present and future.

5

The Company experienced difficulties in obtaining payment under several major contracts with the Petroleum Company of Trinidad and Tobago Ltd (“Petrotrin”), leading to defaults by the Company on its liabilities to the Bank.

6

By an order of the High Court made on 9 December 2016, Maria Daniel (“the receiver”) was appointed interim receiver of all the Company's assets charged by the debenture and the mortgage. The receiver is the defendant in the proceedings and the appellant in the present appeal. On 26 April 2017, the Bank appointed the receiver as receiver of the Company's business and assets pursuant to the debenture, the mortgage and the vessel and chattel mortgages. The Company's indebtedness to the Bank was then $72,957,758.12 and US$808,629.71. (In this judgment, $ denotes TT$ unless otherwise stated.)

7

In or about November 2019, the receiver informed Shandon Arjoon of her intention to sell the Company's assets for the sum of $35.5m within 30 days, indicating that the assets were insufficient to discharge in full the indebtedness to the Bank. The directors objected to the proposed sale and, in a pre-action protocol letter from their lawyers dated 20 November 2019, alleged breaches of the receiver's equitable and statutory duties. The letter requested the receiver to reconsider her decision and to give further consideration to two prospective financiers who were willing to support the directors in rescuing the Company.

8

The receiver did not accede to this request but entered into an agreement dated 25 November 2019 for the sale of assets to Sammy's Multilift Services Ltd for $26m and into a further agreement dated 29 November 2019 for the sale of the La Brea Land to Inland and Offshore Contractors Ltd for $8.5m.

9

On 16 December 2019, the directors caused the proceedings to be commenced by filing the claim form and statement of claim, naming themselves and the Company as claimants and the receiver as the defendant.

10

The claims pleaded in the statement of claim are based on allegations of breaches by the receiver of her equitable and statutory duties.

11

Some claims are pleaded as breaches of equitable duties only, in dealing with the property of the Company and managing its business. It is alleged that she failed to take steps to recover sums totalling $328.6m due from Petrotrin; to charge Petrotrin for storage costs totalling $2.27m; and to secure and maintain the Company's property (no value is pleaded for this claim, except $3.47m for missing equipment). It is also pleaded that the receiver's breaches of equitable duties in failing to pursue claims against Petrotrin and in failing to intervene in proceedings brought by Petrotrin on a third-party performance bond, against which the directors had given personal indemnities to the bond issuer, caused direct loss to the directors personally as they had been held liable for $8.8m on their indemnity.

12

Other claims are pleaded as based on breaches both of equitable and statutory duties to deal with the Company's property in a commercially reasonable manner. It is alleged that the receiver restricted the Company's business to equipment rental, resulting in a loss of profit of some $45m on other business. It is alleged that she failed to provide information to prospective financiers, resulting in the claimants' inability to secure a refinancing of the Company's secured liabilities to the Bank; this is also alleged to be a breach by the receiver of her statutory duties to act honestly and in good faith. It is further alleged that the proposed sales of the Company's land at La Brea and of its other assets were at gross undervalues, when there were financiers willing to provide funds to refinance the Bank's loan and to allow the Company to continue in business.

13

A third category of claims comprises alleged breaches of statutory obligations alone. It is alleged that the receiver failed to prepare interim reports relating to the receivership and to provide copies of them to (among others) the Company; to keep records of all receipts, expenditures and transactions involving the charged or other property of the Company or to prepare monthly summaries of her administration of such property; and to keep accounts of her administration and to make them available for inspection by the directors.

14

Damages of almost $60m are claimed, with some heads of loss yet to be calculated.

15

Although the declarations sought in the claim form state that the receiver acted in breach of duties owed to “the Claimants individually or collectively”, the losses claimed are to a great extent losses said to have been suffered by the Company, rather than by the directors personally. The only clear exception is the claim for $8.8m in respect of the indemnity on which the directors had been held liable.

16

On 16 December 2019, the directors obtained the ex parte injunction mentioned above.

17

On 21 January 2020, the receiver filed the application to strike out the Company as a party and to strike out the director's claim. After a hearing on 6 March 2020, Mohammed J (“the judge”) gave judgment on 8 April 2020, discharging the injunction, striking out the Company as a party to the proceedings and striking out the directors' claims.

18

By its judgment delivered on 23 September 2020, the Court of Appeal reversed the judge's order and restored the interim injunction.

19

It is important to note that at all stages in the proceedings it has been accepted by the receiver that the directors of the Company had power to authorise the issue of proceedings in the name of the Company against her. This has not been an issue in the proceedings.

20

In Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 (“ Newhart Developments”), the Court of Appeal held that directors retained a residual power to bring proceedings on behalf of a company in receivership against a debenture-holder when, as would be expected, the receiver appointed by the debenture-holder declined to do so. Sir Nicolas Browne-Wilkinson V-C, sitting at first instance in Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53 (“ Tudor Grange”) expressed substantial doubts about the correctness of the decision in Newhart Developments, but accepted that he was bound by it.

21

The decision in Newhart Developments, that there are circ*mstances in which the directors of a company in receivership may authorise proceedings in the company's name against the receiver or debenture-holder, has been widely accepted and applied in many common law jurisdictions and the Board is not aware of any case in which the contrary has been held. Reference may be...