‘Reflective Loss’: A principle of company law or the law of damages? BLM examines Sevilleja v Marex Financial Ltd [2020] UKSC 31 

‘Reflective Loss’: A principle of company law or the law of damages? BLM examines Sevilleja v Marex Financial Ltd [2020] UKSC 31 

By Head of Commercial Litigation, Partner Craig McAdam and co-authored by Robert Ferdinando, Trainee, BLM

In a unanimous ruling overturning the principle of reflective loss, the Supreme Court decided in Sevilleja v Marex Financial Ltd [2020] UKSC 31 that the principle only applies to shareholders of companies rather than employees or creditors.  This means that company creditors are no longer barred by this principle from bringing claims simply because the company in question has also been wronged by the same action.

Using this case as the example, the action of a vexatious director shareholder in dissipating a company’s assets in order to frustrate enforcement action will not be able to hide behind the fact that such dissipation is harmful in the first instance to the company itself.  The loss by the creditor of means by which it can enforce a judgment against the company will not be deemed to be a ‘reflective loss’ of the loss suffered by the company.  This case therefore means that it will be easier for creditors to bring claims where it is clear that a loss has been suffered, with such claims no longer being prevented by the Court of Appeal’s expanding interpretations of what would constitute a reflective loss.

What is reflective loss?

The legal principle of reflective loss is rooted in the case of Prudential Assurance Co Ltd v Newman Industries [1982] where itwas established that a loss by a shareholder, through the diminution in value of their shareholding in a company that has suffered a wrong, is merely a “reflective loss” of that which is suffered by the wronged company. 

As this loss is merely a reflection of another, it cannot be said that an action can be brought in respect of the reflection because that would lead to policy issues such as double recovery.

Such wrongs against companies are more properly actionable by the companies themselves, particularly as it is not technically the case that a loss in the fortunes of the company will be mirrored by a proportionate reduction in the value of its shares.

Over time, case law developed and widened the principle of reflective loss to prevent claims by employees or creditors of companies who had been wronged and where those companies had a subsequent cause of action.

The law developed similar exceptions and sought to justify factual nuances in the interests of justice, but the decision in Sevilleja has now overruled these developments and clarified the law on reflective loss.

Details of Sevilleja v Marex

Sevilleja concerned a judgment that had been obtained by Marex against two companies owned and controlled by Mr Sevilleja.  Upon judgment, Mr Sevilleja undertook to move the companies’ assets beyond Marex’s reach.  Marex sought to recover the judgment debt by claiming damages in tort from Mr Sevilleja.

Mr Sevilleja argued in response that the losses allegedly suffered by Marex were merely reflective losses of those suffered by the two companies from which the assets were moved.  This was on the extended application of the principle of reflective loss given that Marex was a creditor rather than a shareholder.

On appeal to the Supreme Court, the Court unanimously allowed the appeal but for different reasons, being split 4 to 3 as to the Lord Justices’ reasoning. 

An overview of the judgments in Sevilleja v Marex

The major difference of opinion was regarding whether the principle of reflective loss was one of company law rather than a rule of the law of damages (preventing double recovery).

The majority held that the principle was one of company law on its proper construction.  That proper construction included that not all instances of potential double recovery, such as with employees and creditors, would fall within the principle of reflective loss, even if the principles were similar and intended to avoid the same unjust outcomes.  It was considered that the reflective loss principle ought properly be restricted to preventing claims by shareholders for a diminution in value of shareholdings where the company itself would otherwise have its own claim against the wrongdoer.

The minority, rather than considering that a rule of law had been created in Prudential, held that that case simply decided as a matter of fact that shareholders do not technically suffer the same losses that the companies do, and there is more nuance to how such losses are suffered by each party.  The minority’s focus appeared to be more pragmatic with regard to double recovery rather than seeking to establish or confirm any legal principle to more of an extent than is required.  After all if a genuine claim is held by a company then that company’s share value ought to reflect that fact, mitigating the supposed loss that the shareholder has suffered.

BLM’s conclusions on Sevilleja v Marex

Either way, this case confirms that the reflective loss principle does not extend to employees and shareholders, and the principle has itself been restricted significantly.  However due to the split between the Justices, it is unlikely that this case will have the final say on this principle, and further judicial reflection will be required in future.




Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.


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