Reflective Loss And Strike Out / Summary Judgment: Burnford & Ors v Automobile Association Developments Ltd [2022] EWCA Civ 1943

• Published date: 13 December 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Shareholders
• Law Firm: Conyers
• Author: Mr Ben Mellett

The English Court of Appeal has confirmed that cases concerning reflective loss are suitable for strike out / summary judgment. The reflective loss principle has its origins in a principle of company law known as the rule in Foss v Harbottle, or the 'proper plaintiff' rule, i.e. the only person who can seek relief for an injury done to a company is the company itself.

The rule against reflective loss is a rule of substantive law (rather than procedural law) which provides that a shareholder cannot claim for losses it has suffered in its capacity as a shareholder (for example a diminution in share value or in distributions). Those are the losses of the company which the law does not regard as separate and distinct from the shareholder's loss. Were it not for the application of the reflective loss principle, the rule in Foss v Harbottle would be subverted.

Lord Justice Newey in Burnford walked through the key cases concerning reflective loss, the leading case being the Supreme Court decision in Marex Financial Ltd v Sevilleja [2020] UKSC 31, [2021] AC 39. Lord Justice Newey summarised the following points arising out of the leading authorities:

1. The reflective loss principle applies where a shareholder brings a claim in respect of loss which he has suffered in the capacity of a shareholder (for example a diminution in share value or in distributions);
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 a loss which is 'separate and distinct' from the loss of the company;
3. There does not need to be exact correlation between the shareholder's loss and the company's loss - the reflective loss principle can apply even...