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UK Supreme Court issues landmark ruling on the principle of Reflective Loss

The UK Supreme Court on 15 July 2020 handed down a much-anticipated judgment in the landmark case of Marex Financial Ltd v Sevilleja [2020] UKSC 31.

The Supreme Court unanimously decided 7-0 that the principle of reflective loss does not bar claims made by creditors. The decision restricts the implication of the principle of reflective loss and significantly broadens the category of people who may bring a claim for compensation where both they and a limited company have suffered loss as a result of wrongdoing.

The principle of reflective loss

The principle, which has existed since the 1981 decision in Prudential Assurance v Newman Industries (No 2) [1982] 1 Ch 204, prevents claims by shareholders of a company for loss suffered as a consequence of a defendant’s wrongdoing against the company. It was subsequently broadened, by the House of Lords in Johnson v Gore Wood [2002] 2 AC 1, to bar any claims by a shareholder, whether in his capacity as shareholder, employee or creditor.

The decision

  1. The decision significantly narrows the scope of the principle that “reflective loss” cannot be recovered. The principle is now limited to claims by shareholders that, by reason of actionable loss suffered by their company, the value of their shares, or of the distributions they receive as shareholders, has been diminished [§89].

  2. The rule had become “difficult to confine”[§77]. As Professor Andrew Tettenborn stated the rule was likened to “some ghastly legal Japanese knotweed” [§121].

  3. The Supreme Court was unanimous in deciding that the Court of Appeal’s decision should be reversed. The reflective loss principle no longer applies at all to claims by creditors, whether they are also shareholders or not.

  4. However, there was no consensus on the question of how far the Court should go in clipping the wings of the reflective loss principle. The majority judgment, led by Lord Reed, held that the principle retains a place in the law, but confined it to cases where the value of shareholders’ shares, or of distributions they might receive as shareholders, is reduced because of actionable loss suffered by their companies[§§89, 92, 109].

  5. The minority, however, led by Lord Sales, went further and concluded that the rule is unprincipled and ought to be rejected entirely [§§194-197].

  6. Given the division of opinion as to how far the rule should be limited or indeed abolished entirely as regards shareholders, the eloquent reasoning of Lord Sales, this decision is unlikely to be the last word on the matter.


  1. It is to be considered as one of the most important company law decisions of the last thirty years.

  2. The newly narrowed application of the principle does not prohibit a claim by a shareholder or anyone else in respect of loss which is not that diminution of value – even if the company has a right of action in respect of substantially the same loss.

  3. Nevertheless, a shareholder/creditor will still need to establish that they have: (a) a direct cause of action against the wrongdoer; and (b) a distinct and separate recoverable loss.

  4. Further, large swathes of authority will fall away, including Giles v Rhind [2003] Ch 618, Perry v Day [2005] 2 BCLC 405 and Gardner v Parker [2004] 2 BCLC 554, all of which were wrongly decided [§89].

  5. The speeches in Johnson v Gore Wood & Co , apart from Lord Bingham’s, should also no longer be followed insofar as they relate to the reflective loss principle and are inconsistent with the majority’s decision [§§67, 89]. This is true of Lord Millett’s speech in particular. It was Lord Millett who “paved the way” for the expansion of the reflective loss principle beyond the narrow ambit of the rule in Prudential Assurance Co Ltd v Newman Industries Ltd [§51].


It is expected that the decision has widened the door to those willing to pursue claims previously assumed (or been told) that the principle of reflective loss bars their claim.

In view of the above, new claims from all manner of creditors of companies against wrongdoers will emerge.

Cyprus Courts

It is highly arguable that Cyprus Courts, having espoused the reflective loss principle enunciated in Johnson v. Gore Wood & Co, will most likely follow the Supreme Court’s cogent judgment in Marex.

The content of this article is intended to provide a general guide to the subject matter. Tailor-made advice should be sought about your specific circumstances.

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The content of this article is valid as of the date of its first publication. It is only intended to provide a brief introduction to the particular subject matter. Detailed specialist advice should be taken prior to taking or refraining from taking any action as a result of the information contained in this article.


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