Reflective loss
Reflective loss

The following Dispute Resolution practice note provides comprehensive and up to date legal information covering:

  • Reflective loss
  • Summary of the rule against reflective loss
  • How the rule has evolved
  • Prudential v Newman
  • Johnson v Gore Wood
  • Giles v Rhind
  • Sevilleja v Marex
  • Practical considerations
  • Prior to becoming a shareholder
  • If an immediate risk of asset stripping
  • More...

This Practice Note considers the scope of the reflective loss rule. It addresses the background to and implications of the rule against reflective loss with reference to the key decisions responsible for its development, including Prudential Assurance v Newman Industries, Johnson v Gore Wood, Giles v Rhind and Marex v Sevilleja. It also sets out a number of practical issues concerning the rule which it is sensible to have in mind in the event that you are acting for a shareholder and/or are involved in a claim where the rule might be relevant.

For further details on key and/or illustrative cases concerning the rule against reflective loss, see Practice Note: Reflective loss—key and illustrative decisions.

Summary of the rule against reflective loss

The rule has its origins in the principle derived by the case Foss v Harbottle, ie where an actionable wrong has been done to a company, the company is the proper claimant to recover any loss resulting from such wrong. In other words, where a breach of duty owed to a company causes it loss, only the company may sue in respect of that loss.

The principle that reflective loss is not recoverable was first explicitly expressed in Prudential. In Marex, Lord Reed concluded that Prudential had effectively laid down a rule of company law that diminution in the value of a shareholding or in distributions

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