The UK Supreme Court Restated The "No Reflective Loss Rule" ' The Significance Of The Decision To Civil Claims And Insolvency Law

Publication Date30 Oct 2020
SubjectCorporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy, Shareholders
Law FirmONC Lawyers
AuthorONC Lawyers


In its recent judgment of Sevilleja v Marex Financial Ltd [2020] UKSC 31, the Supreme Court of the United Kingdom ("Supreme Court") restated the rule against reflective loss ("No Reflective Loss Rule"). It held that the No Reflective Loss Rule would only bar the claims made by shareholders against wrongdoers who committed wrongs against and caused loss to the company, which in turn caused the shareholders to suffer diminution in the value of their shares or the amount of their distribution. The Supreme Court effectively narrowed down the scope of application of the No Reflective Loss Rule.


Marex sued and obtained judgment for more than US$5.5 million against two companies owned and controlled by Mr Sevilleja ("Companies"). Mr Sevilleja allegedly transferred the Companies' assets to his personal account and placed the Companies into insolvent voluntary liquidation. Marex claimed against Mr Sevilleja and sought damages for (1) inducing or procuring the violation of Marex's rights under the judgment against the Companies, and (2) intentionally causing Marex to suffer loss by unlawful means.

Mr Sevilleja contended that Marex's claim against him should be barred by the No Reflective Loss Rule because Marex, as a creditor of the Companies, was claiming for reflective loss which was suffered by the Companies (whose assets were depleted by Mr Sevilleja) and ought to be recovered by the Companies only.

What is the No Reflective Loss Rule?

The No Reflective Loss Rule originated from the principle that the only person who can seek relief for an injury done to a company, where the company has a cause of action, is the company itself (Foss v Harbottle (1843) 2 Hare 461).

In Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, the Court of Appeal adopted the principle in Foss v Harbottle and held that where a company suffered loss from the wrongs committed by a wrongdoer, and that loss resulted in a fall in the value of the shares of the company, a shareholder could not claim against the wrongdoer for the diminution in the market value of the shares. The shareholder did not suffer any personal loss. His only loss was through the company, in the diminution in the value of the net assets of the company, and was merely a reflection of the loss suffered by the company, which can be made good once the company recovered its loss from the wrongdoer.

The No Reflective Loss Rule was based on the company law principles that:

(1) a share is...

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