Sevilleja v Marex Financial Ltd [2020] UKSC 3: Reining in the “No Reflective Loss” Principle?

Rachelle Lam


The Supreme Court recently handed down its much-anticipated decision in Sevilleja v. Marex Financial Ltd, where it confirmed that the application of the “NoReflective Loss” principle is confined to claims brought by shareholders and does not extend to creditors (even if they are also shareholders), and that there is no exception to the doctrine even where the wrongdoer caused the company’s impecuniosity.




Mr Sevilleja owned and controlled two BVI companies (“the Companies”), against whom Marex had obtained judgments for repayment of a US$5.5m debt and £1.65m in costs. Subsequently, Mr Sevilleja allegedly stripped the Companies of their assets, leaving them insolvent.[1]Marex issued proceedings against Mr Sevilleja for: (1) inducing the violation of Marex’s rights and (2) intentionally causing the Companies to suffer loss by unlawful means. On Marex’s application for permission to serve out of jurisdiction, Knowles J held that Marex had a good arguable case. The Court ofAppeal, however, allowed Mr Sevilleja’s appeal, holding that Marex’s claim was barred, as its loss was reflective of the loss caused to the Companies by Mr Sevilleja.[2]


Issues on appeal

There were two issues on appeal:

(1)  Whether the “no reflective loss principle”applies to claims by creditors, where their claims are for losses suffered as unsecured creditors, and not solely to claims by shareholders?


(2)  Whether there is any and, if so, what scope for the court to permit proceedings claiming for losses which are prima facie within the reflective loss principle, where there would otherwise be injustice to the claimant through inability to recover, or practical difficulty in recovering, genuine losses intentionally inflicted on the claimant by the defendant in breach of duty both to the claimant and to a company with which the claimant has a connection, and where the losses are felt by the claimant through the claimant’s connection with the company?[3]




The Supreme Court unanimously held that the claim was not barred by reflective loss. The majority (Lord Reed, with whom Lady Black and LordLloyd-Jones agreed, and with whom Lord Hodge concurred) narrowed the doctrine of reflective loss; the minority (Lord Sales, with whom Lady Hale and Lord Kitchin agreed) questioned whether the rule should exist at all.


Majority judgment

Lord Reed first embarked on an examination of the case law. Foss v. Harbottle[4]established the rule that, where there has been a wrong done to a company, the proper claimant is the company.This ensures that company autonomy is respected, and that the company’s creditors are not prejudiced by an action brought by individual shareholders.[5] 

Prudential Assurance Co Ltd v. Newman Industries Ltd (No.2)[6]extended the rule in Foss v. Harbottle, holding that a diminution in the value of a share which is merely the result of a loss suffered by the company as a consequence of the defendant’s wrongdoing is not a loss recognised in law as being separate and distinct from the loss sustained by the company.Consequently, the shareholder cannot bring a claim, even if no proceedings have been brought by the company. [7] This is based on the notion that a share is aright of participation in a company on the terms of the company’s articles of association. The articles normally confer ultimate control of the company’s affairs on a majority of the shareholders voting at a general meeting, including a decision as to whether to bring, compromise or abandon litigation against third parties.[8]

Lord Reed then launched an attack on Lord Millett’s judgment in Johnson v. Gore Wood & Co.[9]Lord Millett had relied on the rule against double recovery, which ensures that the claimant and the company do not both recover at the expense of the defendant.[10]However, as Lord Reed pointed out, in the case of a large public company whose shares are traded on a stock market, there may be no correlation between the company’s loss and the share value. If the impact on the shareholders is greater than the impact on the company, an award of damages restoring the company’s position will not restore the shareholder’s share value. Furthermore, the double recovery rule is premised on a recognition of the existence of the shareholder’s loss, whereas the Prudential rule denies that the shareholder’s loss exists at all.[11]By treating the avoidance of double recovery as a sufficient basis to justify the reflective loss principle,[12]Lord Millett paved the way for the expansion of the principle beyond its narrow ambit demarcated in Prudential.[13]This effectively allowed shareholders to circumvent the rule by bringing a personal action and then seeking an injunction rather than an award of damages in their own favour.[14] 


In Gardner v. Parker, [15] the scope of the rule was expanded to cover shareholders bringing a claim in their capacity qua creditors and qua employees. Lord Reed concluded that this was an unsustainable extension of the reflective loss principle, and overruled Gardner and Perry v. Day[16].

Additionally,Lord Reed overruled Giles v. Rhind,[17]which had recognised an exception to the reflective loss principle where the wrongdoer’s conduct caused the company’s impecuniosity, thereby preventing the company from pursuing its claims. Under these circumstances, a shareholder should bring a derivative claim or an “unfair prejudice” petition instead.

In summary, individuals, whether they are shareholders or not, can bring personal claims for their loss, even where the company has a right of action in respect of substantially the same loss, only as long as the loss suffered is not a diminution in share value or in distributions.[18]Therefore, the rule was held to have no application to Marex’s claim asa creditor.



Minority judgment

Lord Sales came to the “same conclusion” as Lord Reed, but his reasons for doing so were different.[19]He pointed out that there were “some cases where the shareholder suffers a loss different from that suffered by the company”, where the shareholder should not be prevented from pursuing a different cause of action. Therefore, he disagreed with the “bright line” rule laid down in Prudential, that a shareholder with a parallel claim to that of a company “simply had to be deemed to suffer no different loss of his own.[20]The minority therefore advocated for the abolition of the reflective loss principle and use of the court’s case management powers to ensure that any claim brought by the company would be heard at the same time.[21]




The decision is to be applauded for clarifying the scope of the reflective loss principle, as well as for removing the Giles v. Rhind exception, thereby providing much-needed certainty for commercial parties and legal practitioners. Additional benefits flowing from the judgment are that fraud claimants and victims of economic torts such as inducing a breach of contract will no longer have to rebut reflective loss arguments merely because a corporate vehicle was involved in a fraud.[22]


However, the judgment also left several important questions unanswered. For example, it is unclear whether it might be possible for shareholders to contract out of the reflective loss principle through the conclusion of a shareholders’ agreement. Furthermore, the Supreme Court did not comment on potential complications arising from the application of the reflective loss principle to companies incorporated outside the UK: since the reflective loss principle is an English company law principle, whether the principle (or perhaps a comparable principle in foreign law) is recognised and applied in cases where the relevant company is a foreign one may depend on what the law of the jurisdiction of incorporation says.[23]


Nevertheless, it remains to be seen whether this enhanced simplicity will come “at the cost of working serious injustice”[24]for certain shareholders. Ultimately, the legal fiction on which the reflective loss principle is based continues to leave open the distinct possibility that shareholders could find themselves in an unenviable position, where they are unable to recover losses which are far greater than and entirely distinct from the company’s loss.  

[1] Sevilleja v. Marex Financial Ltd [2020] UKSC 3[16] – [19], [90] (Lord Reed).

[2] ibid [14].

[3] ibid [22].

[4] (1832) 2 Hare 461.

[5] Sevilleja (n 2) [48].

[6] [1982] Ch 204.

[7] ibid [28],[39].

[8] Sevilleja (n 2) [35] – [37].

[9] [2002] 2 AC 1.

[10] Sevilleja (n 2) [50].

[11] ibid [52].

[12]ibid [32] – [33].

[13]ibid [51].

[14]ibid [53]. See: PeakHotels and Reports Ltd v. Tarek Investments Ltd [2015] EWHC 3048 (Ch); LatinAmerican Investments Ltd v. Maroil Trading Inc [2017] EWHC 1254 (Comm); Xie Zhikun v. Xio GP Ltd (Cayman Islands Court of Appeal, unreported, 14November 2018).

[15] [2004] EWCA Civ 781.

[16] [2004] EWHC 3372 (Ch).

[17] [2003] Ch 618.

[18] Sevilleja(n 2) [79], [84] – [85].

[19] ibid [116].

[20] ibid [118].

[21] ibid [162].

[22] See: RaiffeisenInternational Bank AG v Scully Royalty Ltd FSD 162/2019 (RPJ).

[23] ‘UK: Sevilleja v Marex Financial Limited: Reflections for shareholders’ agreement’ <> Accessed 19 November 2020.

[24] Sevilleja (n 2) [167].

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