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What does the Supreme Court judgment in Sevilleja v Marex mean for victims of fraud?

On 15 July 2020, the Supreme Court handed down a historic judgment which overturned nearly 20 years of precedent relating to the principle of “reflective loss”. The judgment is welcome news for victims of fraud who might previously have been prevented from bringing a claim on the basis that the right of action of a company which had also been wronged may take priority.


  • The 1982 case of Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) established a rule of company law that a shareholder cannot bring a claim for reduction in the value of his shares which is merely the result of a loss suffered by the company in consequence of a wrong done to that company by the defendant.
  • This later became known as the “reflective loss” principle.
  • This rule had no application outside of company law or to anyone other than a shareholder of the relevant company and was established so as not to undermine another founding principle of company law known as the rule in Foss v Harbottle (1843) (a rule which states that a wrong done to a company may be pursued by the company alone)
  • A widening of the “reflective loss” principle in the 2002 case of Johnson v Gore Wood & Co by Lord Millet was relied on in subsequent cases such that the rule was applied to claims brought by a claimant in the capacity of a creditor of a company (where he also held shares in it)
  • The Supreme Court was asked to consider whether the “reflective loss” principle extended to a creditor of a company that was not also a shareholder; in allowing the appeal, the Supreme Court ruled that it should not, and that the “reflective loss” principle should be taken back to the very limited circumstances set out in Prudential Assurance  
  • It was held, the “reflective loss” principle is a rule of company law and not a more general principle of the law of damages. 
  • This is welcome news to creditors of companies that have had their assets dishonestly stripped by a former director or other controlling party where a liquidator of that company has not pursued the loss the company suffered.


The facts of Sevilleja v Marex Financial Ltd paints an unattractive picture of Mr Sevilleja who essentially stripped the majority of the assets of two companies incorporated in the BVI (of which he was the ultimate owner and controller and which he used as vehicles for foreign exchange trading) (the “Companies”) in order to defeat a judgment obtained by Marex of $5.5m plus costs of £1.65m. The Companies were placed into liquidation in the BVI, and the liquidator (under the control of Mr Sevilleja) did not take any steps to investigate the missing funds or Marex’s claims. 

Marex brought claims against Mr Sevilleja personally for the economic torts of inducing or procuring a violation of Marex’s rights and intentionally causing loss by unlawful means. In an application to set aside an order permitting service of proceedings on Mr Sevilleja outside of the jurisdiction, Mr Sevilleja argued that Marex’s claim was barred as a result of the “reflective loss” principle i.e. he argued that Marex was simply seeking to recover losses which were a reflection of the losses that had been suffered by the Companies as a result of Mr Sevilleja’s breach of duties. This argument involved an extension of the so-called “reflective loss” principle beyond a claimant that was a shareholder of the relevant company.

At first instance, Knowle J (going against precedent) held that Marex had a good arguable case that its claims were not barred as a result of the “reflective loss” principle, stating that no case compelled him to apply it to cases of knowingly procuring a corporate third party to act in violation of a creditor’s rights, or intentionally causing loss to a creditor by unlawful means directed against a debtor company.

The Court of Appeal disagreed and held that the “reflective loss” principle barred 90% of Marex’s claim. However, the Supreme Court overturned that decision and held that the rule established in Prudential Assurance (see below) is distinct from the general principle of the law of damages that double recovery should be avoided being “…a rule of company law, applying specifically to companies and their shareholders in the particular circumstances described, and having no wider ambit.”

Origin of the “reflective loss” principle

The issue of double recovery arises in many different scenarios, one obvious example being where a shareholder sees a diminution i.e. reduction in the value of his shares (or the loss of dividends that would otherwise have been paid) as a result of a wrong committed against the company in which shares were held in, causing loss to the company and consequently reducing the value of the shareholder’s shares. These were the very circumstances facing the court in the case of Prudential Assurance. 
There exists a general principle of the law of damages that double recovery should be avoided i.e. the basic rule that a claimant cannot recover more than once for the same loss.

In those circumstances, an award of damages to the company would restore it to the position in which it would have been if the wrongdoing had not occurred, and this may also result in the restoration of the value of the shares. For the shareholder to have a personal right of action, in addition to the company’s right of action, would (in circumstances where the damages awarded to the company also brought about a restoration of the value of the shares) result in a double recovery. Therefore, the rule established in Prudential Assurance barred the shareholder from bringing a claim in these limited circumstances (i.e. where the company’s loss also led to a loss in the value of its shares), as it was considered the shareholder’s loss is not separate and distinct from the company’s loss. 

However, in his considered judgment, Lord Reed explained that the desire to avoid double recovery was not the only reason for the rule in Prudential. The rule still stands in the event that a company may fail to pursue its right of action or compromises its claim for less than full value. This may seem strange at first, but, to allow a shareholder’s personal claim in these circumstances would undermine a foundational rule of company law established in Foss v Harbottle i.e. that the only person who can seek relief for an injury to a company, where the company has a cause of action, is the company itself. 

 This seemingly strict approach reflects the fact that when a shareholder invests in a company, he entrusts his investment to the company and its “decision making organs” as established under a company’s articles of association  (ultimately, a majority of the members voting in a general meeting). Consequently, in circumstances where a company’s management powers are being abused, then normally a majority of shareholders will be able to intervene by way of a resolution at a general meeting.
A minority shareholder also has certain remedies available to them such as bringing a derivative action on the company’s behalf,equitable relief from unfairly prejudicial conduct or winding up the company on the “just and equitable” ground.

Widening of the “reflective loss” principle

Prior to the Supreme Court ruling in Sevilleja v Marex, the principle created in Prudential Assurance had been expanded beyond its origin to such extent that it no longer solely addressed the narrow circumstances on which it was first established. In large part this was due to the speech of Lord Millet in Johnson v Gore Wood who expressed the opinion that the concept of “reflective loss” went beyond the diminution / reduction of the value of shares and loss of dividends to include all other payments which the shareholder might have obtained from the company, including those received as an employee.

Relying on Lord Millet’s speech in Johnson, the Court of Appeal decision in Gardner v Parker [2004] extended the “reflective loss” principle to a claim arising from a creditor’s inability to recover a debt owed to it by a company in which the creditor was also a shareholder. The Court of Appeal’s decision in Sevilleja v Marex was the first case in this jurisdiction in which the “reflective loss” principle had been applied to a claimant which is purely a creditor of a company (i.e. not also a shareholder). The Supreme Court decided the “reflective loss” principle had gone too far, and in doing so, overturned a number of other cases which it said had been wrongly decided.

What does this mean for victims of fraud?

The Supreme Court judgment is welcome news for victims of fraud. Had the Court of Appeal decision in Sevilleja v Marex been allowed to stand, not only would this have been a huge injustice for Marex, but the consequence for other victims of fraud or other wrongdoing attempting to bring a claim in circumstances where the wronged company declined to do so, would have been a bar to justice.  

Over the years, claimants have often been faced with arguments that their loss is reflective of the loss suffered by a company controlled by a defendant who had stripped that company of its assets and therefore their claim (or part of their claim) was barred. This will no longer be an issue for creditors (or indeed anyone other than shareholders), as this decision provides a creditor with a clear and direct route to recover its loss. Furthermore, a shareholder bringing a claim in their capacity as a creditor or employee of the company need no longer fear the “reflective loss” principle. 

There may even be hope for shareholders attempting to bring a personal claim, but they would need to show that their loss is “separate and distinct” from that of the company. Allowing the appeal, Lord Sales took the view that the governing principle should be the avoidance of double recovery and that a shareholder should not be prevented from pursuing a valid cause of action. It remains to be seen how the case law will progress in this regard, however there is certainly more scope for a shareholder’s personal claim in circumstances where the loss is not distinct from that of the company than there has been previously.

Should you suspect that you are a victim of fraud or other wrongdoing, please do not hesitate to get in touch at   

Published on July 29, 2020

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