Sevilleja v Marex Financial Ltd
The rule against reflective loss is limited to claims by shareholders for a fall in the value of their shares or distributions, and does not apply to creditors of the company.
Facts
Marex obtained a judgment for over $5 million against two companies controlled by Mr Sevilleja. Before the companies could pay, Mr Sevilleja allegedly transferred their assets offshore, into his own control, leaving them insolvent. The companies were put into liquidation in the British Virgin Islands. Marex sued Mr Sevilleja personally for inducing or procuring the companies to breach its rights. Mr Sevilleja argued that the claim was barred by the rule against reflective loss, because the companies also had claims against him.
Legal principle
The Supreme Court held that Marex's claim was not barred. Lord Reed said that the rule in Prudential v Newman is a rule of company law, which applies only to claims by shareholders for loss in the form of a diminution in the value of their shares, or in distributions, resulting from loss suffered by the company, where the company has a cause of action against the same wrongdoer. It does not apply to claims by creditors, or to shareholders' claims for other kinds of loss. The wider statements in Johnson v Gore Wood and later cases, which had extended the rule to creditors and employees, were wrong.
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
- Johnson v Gore Wood & Co [2002] 2 AC 1
- Kiani v Cooper [2010] EWHC 577 (Ch), [2010] 2 BCLC 427
- Mission Capital plc v Sinclair [2008] EWHC 1339 (Ch), [2010] 1 BCLC 304
Studying company law? Our tutors help you understand and apply cases like this in essays, problem questions and exams. Request a quote or browse our law notes.
This summary is for study and revision and is not legal advice. Although our case summaries are checked for accuracy, we do not guarantee that they are free from errors or omissions. Always read the full judgment for the court's reasoning.
