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Reflective loss—abrogation of the rule in Prudential Assurance (Broadcasting Investment Group Ltd v Smith)

Published on: 22 June 2021
Published by: LexisPSL
  • Reflective loss—abrogation of the rule in Prudential Assurance (Broadcasting Investment Group Ltd v Smith)
  • What are the practical implications of this case?
  • What was the background?
  • What did the court decide?
  • Case details

Article summary

Dispute Resolution analysis: On hearing this strike out application at first instance the deputy judge concluded (applying the rule in Prudential Assurance v Newman) that Broadcasting Investment Group (BIG), a direct shareholder in SS plc, could not maintain a claim for damages where the loss that it alleged was the diminution in the value of its shareholding in SS plc consequent on the defendant’s wrongdoing and SS plc had its own cause of action in respect of that wrongdoing. The deputy judge also held, more controversially, that the rule in Prudential Assurance did not apply to bar the claim of Mr Burgess, a shareholder in BIG, for diminution of the value of his shareholding in BIG consequent on the wrong done to SS plc, because he was not a shareholder in SS plc. On appeal, the Court of Appeal has left open the question of whether an indirect shareholder is barred by the rule in Prudential Assurance (Lord Justice Arnold indicating his view at para [66] that they would be ‘in appropriate circumstances’) but has held that where the direct shareholder’s right arises under a contract, and the company’s right arises by virtue of the operation of section 1 of the Contracts (Rights of Third Parties) Act 1999 (C(RTP)A 1999), then the rule in Prudential Assurance is abrogated by C(RTP)A 1999, s 4. Written by David Fisher, a barrister and an associate member of New Square Chambers. or take a trial to read the full analysis.

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