Marex: UK Supreme Court Reflects On Loss

Published date30 July 2020
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Shareholders
Law FirmCampbells
AuthorMr Andrew Pullinger and Hamid Khanbhai

In its long-awaited judgment in Sevilleja v Marex Financial Ltd [2020] UKSC 31, the UK Supreme Court has clarified the rule barring the recovery of reflective loss, which is likely to be of importance in most common law jurisdictions. The Court has narrowed the application of the rule to shareholders seeking to recover loss suffered in their capacity as shareholder. The rule has no application to creditors. It was this latter point that was dispositive of this appeal. Although the seven justices unanimously allowed the appeal, there was a 4:3 split as to the reasons, which were set out in three separate speeches.

What is the Reflective Loss rule?

A defendant wrongs and causes loss to a company, giving the company a cause of action against the defendant. A shareholder suffers loss by way of a reduction in the value of his shareholding in the company, as a result of an actionable wrong by the same defendant. The shareholder is barred from bringing a personal claim against the wrongdoer. This principle developed from the English Court of Appeal in Prudential Assurance v Newman Industries Ltd (No 2) [1982] Ch 204 and the House of Lords in Johnson v Gore Wood [2002] 2 AC 1.

Factual Background

Marex obtained judgments against companies controlled by Mr Sevilleja. Before the judgments were handed down, he put those companies' assets out of reach in his own name, apparently to avoid the companies paying the judgment debt. The companies are in liquidation and Marex is the only external unsecured creditor; the rest are Mr Sevilleja and entities controlled by him. The liquidator of the companies has not pursued Mr Sevilleja for the apparent breaches of duty in transferring the assets of the companies into his own name.

Marex wanted to bring a claim directly against Mr Sevilleja. The courts below did not give permission to Marex to serve Mr Sevilleja with such a claim out of the jurisdiction because they considered that the reflective loss rule was engaged.

Issues and Decision of the UK Supreme Court

Two important issues arose on the scope of the rule. First, does it apply to creditors of a company, where their claims are in respect of loss suffered as unsecured creditors and not solely to claims by shareholders? If so, the second issue was whether there is scope for the Court to permit such a claim if it were to produce injustice.

Marex's appeal was unanimously allowed because all of the justices held that the reflective loss rule does not apply to a creditor (as...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT