In United Kingdom company law, reflective loss is the loss of individual shareholders that is inseparable from general loss of the company. The rule against recovery of reflective loss states that there should be no double recovery, so a shareholder can only bring a derivative action for losses of the company, and may not allege suffering a loss in a personal capacity for a personal right.[1]
Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. — Lord Bingham of Cornhill, Johnson v Gore Wood & Co [2002] 2 AC 1 at 19.
Reflective loss extends beyond the diminution of the value of the shares; it extends to the loss of dividends (specifically mentioned in Prudential Assurance v Newman Industries Ltd) and all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds. All transactions or putative transactions between the company and its shareholders must be disregarded.
In Sevilleja v Marex Financial Ltd[2020] UKSC 31 the Supreme Court of the United Kingdom restricted (but declined to abolish) the doctrine, but disapproved many of the statements made previously in Johnson v Gore Wood & Co, describing Lord Millet's speech in particular as a "wrong turn".[2] Commentators have indicated of the decision is Sevilleja: "The importance of the decision cannot be overstated."[2]
↑ "The vanishing exception". New Law Journal. 28 November 2008. Reflective loss is the name given to the loss suffered by a shareholder where there is both breach of a duty owed to the company, and breach of a duty owed to the shareholder, but the shareholder’s loss would be made good if the company enforced its rights against the wrongdoer in respect of its loss.
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Caparo Industries PLC v Dickman[1990] UKHL 2 is a leading English tort law case on the test for a duty of care. The House of Lords, following the Court of Appeal, set out a "three-fold test". In order for a duty of care to arise in negligence:
Re D’Jan of London Ltd [1994] 1 BCLC 561 is a leading English company law case, concerning a director's duty of care and skill, whose main precedent is now codified under s 174 of the Companies Act 2006. The case was decided under the older Companies Act 1985.
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Robert John Reed, Baron Reed of Allermuir, is a British judge who has been President of the Supreme Court of the United Kingdom since January 2020. He was the principal judge in the Commercial Court in Scotland before being promoted to the Inner House of the Court of Session in 2008. He is an authority on human rights law in Scotland and elsewhere; he served as one of the UK's ad hoc judges at the European Court of Human Rights. He was also a Non-Permanent Judge of the Court of Final Appeal of Hong Kong.
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Re Paycheck Services 3 Ltd or Revenue and Customs Commissioners v Holland[2010] UKSC 51 is a UK insolvency law and company law case, concerning misfeasance.
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Peskin v Anderson [2000] EWCA Civ 326 is a UK company law case concerning directors' duties under English law.
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Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 is a leading United Kingdom company law case relating to directors' liability. The case is the principal authority for the proposition that a company will not be able to make any claim against a director for breach of duty where the acts of the director have been ratified by the members of the company.
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Sevilleja v Marex Financial Ltd[2020] UKSC 31 is a judicial decision of the Supreme Court of the United Kingdom relating to company law and the rule against reflective loss.
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