Amelia GreenOn 15 July, the Supreme Court handed down judgment in the landmark case of Sevilleja v Marex Financial Ltd [2020] UKSC 31. The eagerly anticipated decision brings clarity to the “reflective loss” principle, first established in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204.
By way of background, the “reflective loss” principle prevents shareholders from bringing a claim based on a fall in the value of their shares or distributions, which is the result of actionable loss suffered by their company.
However, the Supreme Court unanimously held that this principle should be limited to claims by shareholders and should not extend to prevent claims brought by creditors. In doing so, it overturned the Court of Appeal’s decision and allowed the creditor to pursue its claim.
That said, the division of the Supreme Court centred around whether to retain the “reflective loss” principle as a bright line legal rule which prohibits a shareholder’s claim (which was the view of the majority), or whether it is merely a device to avoid double-recovery (which was the view of the minority). The minority would, in effect, have abolished the rule entirely.
For more information on the case, you can see our full article here.
