Claim Right To Be Struck Out On The Principle That Reflective Loss Cannot Be Recovered (Burnford And Ors v Automobile Association Developments Limited)

Published date23 November 2022
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Shareholders
Law FirmGatehouse Chambers
AuthorMr Phillip Patterson

The Court of Appeal has upheld the decision of HHJ Paul Matthews striking out a claim on the basis that the loss claimed was reflective loss which could not be recovered. In so doing, the Court of Appeal has given a useful summary of the relevant authorities in this area.

Burnford and ors v Automobile Association Developments Limited [2022] EWCA Civ 1943

What are the practical implications of this case?

This decision offers a useful summary of a number of recent authorities, including the decision of the Supreme Court in Marex Financial Ltd v Sevilleja [2020] UKSC 31 concerning the circumstances in which a claim can be made for the recovery of reflective loss. Seven points were noted. 1. The "reflective loss" principle applies where a shareholder brings a claim "in respect of loss which he has suffered in that capacity, in the form of a diminution in share value or in distributions, which is the consequence of loss sustained by the company, in respect of which the company has a cause of action against the same wrongdoer"; 2. A shareholder cannot escape the "reflective loss" principle merely by showing that he has an independent cause of action against the defendant. He must also have suffered "separate and distinct" loss, and the law does not regard a reduction in the value of shares or distributions which is a knock-on effect of loss suffered by the company as "separate and distinct"; 3. There need be no exact correlation between the shareholder's loss and the company's for the "reflective loss" principle to be applicable. The "reflective loss" principle can apply "where recovery by the company might not ... fully replenish the value of its shares". Equally, the company's loss can exceed the fall in the value of its shares; 4. The "reflective loss" principle will not be in point if, although the shareholder's loss is a consequence of loss sustained by the company, the company has no cause of action against the defendant in respect of its loss. 5. Nor will the "reflective loss" principle apply to a claim which is not brought as a shareholder but rather as, say, a creditor or an employee; 6. The Court has no discretion in the application of the "reflective loss" principle, which is a rule of substantive law; 7. The applicability of the "reflective loss" principle is to be determined by reference to the circumstances when the shareholder suffered the alleged loss, not those when the claim was issued.

What was the background?

The Claimants were the former...

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