Does The Rule Against Reflective Loss Apply To Former Shareholders? A Review Of Nectrus Ltd v UCP PLC

Published date26 August 2021
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Shareholders
Law FirmGatehouse Chambers
AuthorJoshua Griffin

In Nectrus Ltd v UCP PLC [2021] EWCA Civ 57, the Court of Appeal considered an application to reopen a final appeal permission to appeal under CPR Part 52.30. The case considers both: (i) whether the rule against reflective loss, as considered by the USKC in Marex v Sevilleja [2020] UKSC 31 applies to former shareholders as well as to shareholders; and (ii) the 'exceptional' jurisdiction under CPR Part 52.30


This Application arose in a claim brought by the Respondent ('UPC') for breach of a tripartite Investment Management Agreement ('IMA') dated 14 December 2006 entered into by UPC, its then 100%-owned subsidiary ('Candor'), and the Applicant ('Nectrus'). Pursuant to the IMA, Nectrus provided investment management advice to UPC and Candor, thereby causing or permitting UPC to make, via Candor, substantial cash investments in various Indian SPVs. The cash invested was ultimately not recovered ('the Stranded Deposits') and, in its claim issued on 31 August 2017, UPC alleged that the SPVs were manifestly inappropriate sham entities.

UPC had not been made aware of the Stranded Deposits until 2013, when a third party expressed interest in purchasing UCP's 100% shareholding in Candor. Ultimately, the purchase price on completion was reduced by about '5.8 million to reflect the value of the Stranded Deposits. As a result, UPC brought a claim in damages from Nectrus for breach of the IMA, in the amount of the discount from the purchase price.

Trial and Permission to Appeal

Nectrus raised a Defence based on the rule against reflective loss ('the Rule') and asserted that: (i) the losses claimed were irrecoverable because they were reflective of losses suffered by Candor; and (ii) since Candor could sue Nectrus under the IMA in respect of the same losses, UCP's claim was barred by the Rule.

By a judgment on quantum dated 20 November 2019, the trial judge rejected this Defence, holding that the Rule did not apply to claims made by former shareholders, and that UPC's claim as such was a separate and distinct claim from that of Candor. In doing so, the judge distinguished the judgment of the Court of Appeal in Marex v Sevilleja [2019] QB 173 but noted that the judgment of the Supreme Court on appeal from that decision was still awaited.

Nectrus's application for permission to appeal on various grounds came before Flaux LJ. By an order dated 29 May 2020, permission was refused on all but one, namely, that the judge was wrong in not applying the Rule in the circumstances. But permission on that ground was granted on the contingent basis that...

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