Johnson v Gore Wood & Co
A shareholder cannot recover damages for a diminution in the value of his shares that merely reflects the loss suffered by the company, where the company has a cause of action for the same loss.
Facts
Mr Johnson was the managing director and majority shareholder of a property company. The company sued its solicitors, Gore Wood, for negligence in relation to a property transaction, and the claim was settled. Mr Johnson then sued the solicitors personally, claiming damages for his own losses arising from the same negligence, including the diminution in the value of his shares, the loss of pension contributions, and his personal financial difficulties. The solicitors argued that the claim was an abuse of process and that the losses were reflective of the company's loss.
Legal principle
The House of Lords held that the claim was not an abuse of process, but that Mr Johnson could not recover for losses that merely reflected the company's loss. Lord Bingham said that, where a company suffers loss caused by a breach of duty owed to it, only the company may sue, and a shareholder cannot sue to make good a diminution in the value of his shareholding where that merely reflects the loss suffered by the company. Mr Johnson could, however, recover for losses that were separate and distinct from the company's loss. The scope of the reflective loss principle was later narrowed in Sevilleja v Marex.
Related cases on derivative claims and reflective loss
- Daniels v Daniels [1978] Ch 406
- Edwards v Halliwell [1950] 2 All ER 1064
- Foss v Harbottle (1843) 2 Hare 461
- Franbar Holdings Ltd v Patel [2008] EWHC 1534 (Ch), [2009] 1 BCLC 1
- Iesini v Westrip Holdings Ltd [2009] EWHC 2526 (Ch), [2011] 1 BCLC 498
- Kiani v Cooper [2010] EWHC 577 (Ch), [2010] 2 BCLC 427
- Mission Capital plc v Sinclair [2008] EWHC 1339 (Ch), [2010] 1 BCLC 304
- Pavlides v Jensen [1956] Ch 565
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