July 15, 2020
The Supreme Court has today handed down judgment in Sevilleja v Marex Financial Ltd [2020] UKSC 31, after a 7-panel hearing concerning the scope and application of the rule barring recovery of reflective loss. The appeal concerned a claim in tort brought against the Respondent, which the Respondent denied arguing that by reason of the supposed principle precluding recovery of reflective loss the Appellant had suffered no loss for which the Respondent could be made liable to the Appellant. What had given rise to the Appellant’s tort claim was that the Appellant, having in different and earlier proceedings obtained a substantial judgment against two companies owned and controlled by the Respondent, found that all their money within the jurisdiction had been transferred abroad just before the judgment was entered and the Appellant had obtained an injunction, with the result that enforcement of the judgment was fruitless. The Appellant’s tort claim is based on the contention that the transfer was procured by the Respondent to prevent, as happened, the companies being able to pay the Appellant’s judgment debt.
In its 82 page judgment, the Supreme Court unanimously allowed the Appellant’s appeal. Lord Reed, with whom the majority agreed, confirmed that, on a proper interpretation of Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 and Johnson v Gore Wood & Co [2002] 2 AC 1, the rule against recovery of reflective loss is a principle of company law and not a wider principle of the law of damages. He emphasised the need to distinguish two types of cases. The first are those in which claims are brought by shareholders in respect of losses suffered qua shareholder in the form of a diminution of the value of their shareholdings as a consequence of losses suffered by the company, which itself has a cause of action against the wrongdoer. In these cases, then shareholder is precluded from making a claim by the rule against recovery of reflective loss. The second type of case are those where a claim is brought by a shareholder, or anyone else, for losses not within the first category, but where the company has a right of action for substantially the same loss. In these cases, recovery is permitted in principle. The reasoning of Lord Millet in Johnson v Gore Wood & Co should be departed from.
Lord Sales, with whom the minority agreed, concluded that the appeal should be allowed, but for different and more radical reasons. He considered that the true governing principle of the rule against recovery of reflective loss was the avoidance of double recovery. He also considered that double recovery could be prevented by other means, and therefore questioned whether the reflective loss principle should still be recognised. If it should, then, he concluded, it should not be extended to apply to losses suffered by a creditor of a company.
George Bompas QC represented the successful Appellant. A copy of the full judgment can be found here.
