Reflective Loss And Company Creditors: Sevilleja -v- Marex Financial

• Published date: 23 June 2021
• Law Firm: Keidan Harrison
• Author: Kit Smith

Sevilleja (Respondent) -v- Marex Financial Ltd (Appellant) - 2020 UKSC 31

Introduction

On Wednesday 15 July 2020, the Supreme Court handed down the much-anticipated decision in Sevilleja -v- Marex Financial, which has been termed by some as "the most important company law decision of recent times". The decision handed down by the Supreme Court pares back the rule against reflective loss and confirms that the rule no longer applies to claims brought by pure creditors of a company. A minority of the seven-member panel went as far as questioning the need for the rule to exist at all.

This article considers the background to the case, the origins of the rule against reflective loss, the decision and its commercial impact moving forwards.

Background

Mr Sevilleja owned and controlled two BVI companies, Creative Finance Ltd and Cosmorex Ltd, (the "Companies") which accrued significant losses on forex trading accounts with Marex. Mr Sevilleja was the sole director shareholder of both entities. Marex successfully sued the Companies in the UK for those losses, before Field J.

Following circulation of the draft judgment by Field J on 19 July 2013, Mr Sevilleja stripped the Companies of some $9.5m leaving them with insufficient assets to meet the judgment debt owed to Marex. The monies removed from the Companies' accounts were transferred into Mr Sevilleja's control, with the intention of defeating the judgment of Field J. The Companies were subsequently placed into liquidation in the BVI by Mr Sevilleja in December of 2013 with the purported debts of both exceeding $30m. But with nominal funds (little over $4,000) remaining in the accounts of the Companies, there existed virtually no possibility of Mr Sevilleja being personally pursued for the losses or of the loss of funds being fully investigated.

In 2016 Marex issued proceedings against Mr Sevilleja, in his personal capacity, in the Commercial Court for inducing or procuring a violation of Marex's rights under the judgment of Field J, and intentionally causing loss by unlawful means (Mr Sevilleja had transferred the funds out of the accounts of the Companies in beach of his duties owed to both).

Following the bringing of the personal claim against Mr Sevilleja, Marex obtained permission to serve the claim out of the jurisdiction. Mr Sevilleja applied to set aside the order granting permission to serve out on the grounds that Marex did not have a good claim against him, because the loss suffered by Marex as a...