Argyle UAE Limited (in liquidation) v Robert McKellar & Anor

Key legal principles and grounds for decision:

The court applied the common law duty not to misapply a company’s assets and the statutory duties in the Companies Act 2006, notably section 172 (duty to promote the success of the company) and section 175 (duty to avoid conflicts of interest). The judge found that the sole director (RM) caused Argyle UAE to make a £525,000 payment which had no lawful basis: the company had no obligation to pay, the payment included pre‑incorporation work without novation and was used to secure services that principally benefited other interests.

Consequently RM breached his fiduciary and statutory duties and was not entitled to relief under section 1157 CA 2006; the liquidators were entitled to equitable compensation. The claim against the recipient (SV) in knowing receipt failed because the claimant did not prove that SV had the requisite state of knowledge or that retention of the payment was unconscionable.

Background and parties:

Argyle UAE Limited (in liquidation) (the claimant, acting by its joint liquidators) sued the company’s sole director, Robert McKellar (RM), for breach of fiduciary and statutory duties in causing a £525,000 payment on 12 November 2014 to Sean Verity (SV). The liquidators also pursued SV for knowing receipt of company funds.

Nature of the claim / relief sought:

• Declaration that RM breached his duties as a director when he caused the Payment.
• An order that RM pay equitable compensation to make good the company’s loss.
• A knowing receipt claim against SV seeking equitable compensation on the basis that he knowingly received company assets traceable to breach of duty.

Principal issues for decision:

• Whether English law governed RM’s conduct and the court’s jurisdiction (RM argued UAE law).
• Whether RM breached common law fiduciary duties and duties under CA 2006 (notably s.172 and s.175) by causing the Payment.
• Whether RM was entitled to relief under s.1157 CA 2006.
• Whether SV was liable for knowing receipt: did he have knowledge making retention unconscionable?
• Related factual issues: the effect of pre‑incorporation work, the provenance of the funds (trust/TPSA/PLV matters), and RM’s state of knowledge and health.

Court’s reasoning (concise):

• Jurisdiction: clause 72(c) of the company’s articles and the parties’ conduct supported application of English law; RM had not pleaded or adduced UAE law so the court proceeded on the evidential presumption of similarity with English law.
• Directors’ duties and breach: the judge analysed the duties under CA 2006 and common law. RM caused the company to pay sums when there was no legal obligation (pre‑incorporation novation absent, contingency for payment not met), diverted funds received under a Trade and Profit Share Agreement (TPSA) and made further dispersals despite knowing the company could not meet the TPSA obligation. Those facts demonstrated misapplication of assets and failure to act in the company’s interests; a creditor interest consideration was also engaged given the near prospect of insolvency.
• Section 1157 relief: RM failed to establish he acted honestly and reasonably in all the circumstances and so relief was refused.
• Knowing receipt claim: the judge applied the single unconscionability test (Akindele) with Baden classification as a cross‑check. Although SV’s role and some documentary wording were imperfect, the court found SV lacked actual or sufficient constructive knowledge that the Payment was traceable to a breach of duty; RM’s misleading conduct and asymmetry of knowledge were critical. It was therefore not unconscionable for SV to retain the payment.

Result: the claim against RM succeeded; the claim against SV failed.

First instance: the court found that RM breached his fiduciary and statutory duties when he caused the Payment to be made and is liable to equitable compensation; RM is not entitled to relief under section 1157 CA 2006. The claim against SV in knowing receipt is dismissed because SV did not have the requisite knowledge to make retention unconscionable.