Sevilleja v Marex Financial Ltd [2020] UKSC 31: The Supreme Court’s review of the law on Reflective Loss

July 17, 2020

By Giles Maynard-Connor and Jodie Wildridge


In Sevilleja v Marex Financial Ltd [2020] UKSC 31 (“Marex”), the Supreme Court has thoroughly re-examined the principle of reflective loss. In an appeal heard on 8 May 2019 by seven Justices of the Supreme Court, at which permission had been given to the All Party Parliamentary Group on Fair Business Banking to make oral and written submissions in light of the significance of the issue,[1] the Supreme Court analysed the well-known authorities previously governing the reflective loss principle; including, most significantly, Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 (“Prudential”). The Supreme Court handed down its Judgment on 15 July 2020, providing a welcomed review of the scope of the principle.


Marex Financial Ltd (“MFL”) obtained judgment against two companies incorporated in the British Virgin Islands (“the Companies”) of which Mr Sevilleja was the owner and controller. Following the circulation of the judgment in draft, Mr Sevilleja stripped the Companies of their assets, thereby rendering them insolvent.

MFL brought proceedings against Mr Sevilleja seeking damages for procuring a violation of MFL’s rights under the judgment, and for intentionally causing loss to MFL by unlawful means. MFL obtained permission to serve proceedings on Mr Sevilleja out of the jurisdiction. Mr Sevilleja appealed against such permission, on the grounds that MFL did not have a good arguable case against him because the loss suffered by MFL was reflective of the loss suffered by the Companies and was therefore irrecoverable. Mr Sevilleja relied upon the principle established by the Court of Appeal in Prudential, that a shareholder cannot bring a claim in respect of a diminution in the value of his shareholding, or a reduction in the distributions which he receives by virtue of his shareholding, which is merely the result of a loss suffered by the company in consequence of a wrong done to it by the defendant; even if the defendant’s conduct also involved the commission of a wrong against the shareholder, and even if the company chose not to bring proceedings in respect of the same. Mr Sevilleja also relied upon the apparent extension of the reflective loss principle set out in the judgment of Lord Millet in Johnson v Gore Wood & Co [2002] 2 AC 1, which has been interpreted in subsequent cases as extending Prudential’s exclusion of shareholders’ claims, to a much wider range of potential claimants.[2]

Knowles J dismissed Mr Sevilleja’s application;[3] following which, he appealed to the Court of Appeal. In allowing the appeal, the Court of Appeal accepted that the reflective loss principle applied to around 90% of MFL’s claim;[4] i.e. 90% of the damages sought were reflective of a loss occasioned to the Companies, for which the Companies also had a right of action against Mr Sevilleja. The Court of Appeal did, however, grant MFL permission to appeal to the Supreme Court.

Supreme Court Judgment

The issues on appeal to the Supreme Court were as follows:

  1. “Whether the No Reflective Loss Rule applies in the case of claims by company creditors, where their claims are in respect of loss 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 No Reflective Loss Rule, 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.” [5]

Lord Reed’s judgment, with which Lady Black and Lord Lloyd-Jones concurred, distinguished the circumstances in which claims are brought:

  1. “by a shareholder in respect of loss which he has suffered in that capacity, in the form of a diminution in share value or in distributions, which is the consequence of loss sustained by the company, in respect of which the company has a cause of action against the same wrongdoer, and
  2. whether by a shareholder or by anyone else, in respect of loss which does not fall within that description, but where the company has a right of action in respect of substantially the same loss.”[6]

It was held, as regards (1), that pursuant to the rule in Foss v Harbottle (1843) 67 ER 189, only a company has a cause of action in respect of its loss: the law does not regard a shareholder’s loss as being separate and distinct from a company’s loss, and a shareholder therefore has no claim to recover the same.[7] As regards (2), using a creditor’s claim as an example, Lord Reed emphasised that the relationship between a creditor and a company is not analogous, and that the amount for which the company is indebted to a creditor is not dependent upon the value of the company.[8]  Actions in respect of the losses which fall under (2) therefore, are distinct and separate from a company’s loss.

Significantly, whilst affirming the approach adopted by the Court of Appeal in Prudential, Lord Reed concluded that the same did not apply in the current case as:[9]

“The rule in Prudential is limited to claims by shareholders that, as a result of actionable loss suffered by their company, the value of their shares, or of the distributions they receive as shareholders, has been diminished. Other claims, whether by shareholders or anyone else, should be dealt with in the ordinary way.[10]

Accordingly, and in dealing with MFL’s claim in “the ordinary way”, MFL’s appeal to the Supreme Court was successful and MFL was permitted to pursue the entirety of its claim against Mr Sevilleja.

In concurring, Lord Hodge observed that:

“There is no disagreement within the court that the expansion of the so-called “principle” that reflective loss cannot be recovered has had unwelcome and unjustifiable effects on the law and that, if the facts alleged by [MFL] are established in this case, the exclusion of the bulk of its claim would result in a great injustice.”[11]

Lord Hodge acknowledged that the ruling in Prudential was not of general application; and was to be solely confined to a claim made by a shareholder in that capacity.[12]

It is clear from the Judgment in this case that the Justices of the Supreme Court differ in their understanding of the Court of Appeal’s decision in Prudential. Whilst Lord Reed and Lord Hodge expressed their views that it gave rise to a rule of law that a shareholder was not able to claim against a third party defendant where the company had a concurrent and reflective claim against the same defendant, whatever the true position on the facts as regards the shareholders loss; Lord Sales understood the Court of Appeal to have determined that in such a case, as a matter of fact, a shareholder suffered no separate or distinct loss.[13]

Lord Sales, with whom Lady Hale and Lord Kitchin concurred, disagreed with what he understood to be the principle established in Prudential. Whilst acknowledging the relationship between the loss suffered by a company and that suffered by its shareholders where a company’s loss affects the value of its shares, “…the loss suffered by the shareholder is not the same as the loss suffered by the company. There is no necessary, direct correlation between the two.”[14]

Lord Sales was of the view that the question as to whether a shareholder suffers a different loss of his own is a matter of fact;[15] and a matter which should be considered in every case:

“It is true that adoption of the rule of law identified by Lord Reed and Lord Hodge would eliminate the need for debate about the interaction of the company’s cause of action and the shareholder’s cause of action, and in that way would reduce complexity. Bright line rules have that effect. But the rule only achieves this by deeming that the shareholder has suffered no loss, when in fact he has, and deeming that the shareholder does not have a cause of action, when according to ordinary common law principles he should have. In my respectful opinion, the rule would therefore produce simplicity at the cost of working serious injustice in relation to a shareholder who (apart from the rule) has a good cause of action and has suffered loss which is real and is different from any loss suffered by the company. Common law courts are used to working through complex situations in nuanced and pragmatic ways, to achieve practical justice. In my opinion, the fact that the interaction between the company’s cause of action in respect of its loss and the shareholder’s cause of action in respect of his own loss gives rise to complexity is more a reason for not adopting a crude bright line rule which will inevitably produce injustice, and requiring instead that the position be fully explored case by case in the light of all the facts, with the benefit of expert evidence in relation to valuation of shares and with due sensitivity to the procedural options which are available.” [16]

Whilst expressing doubt as to the existence of the principle of reflective loss; Lord Sales held that if such principle did exist, it did not apply in this case.[17]


The lengthy Judgment in this case involves a careful consideration of the previous law on the principle of reflective loss and the Supreme Court has now significantly curtailed the principle. There can be no doubt that this will have an important impact in practice. The Judgment makes clear that if a principle of reflective loss does exist, it is narrowly confined to shareholder claims – whether automatically in each case in which a shareholder and a company have a concurrent and reflective claim against the same third party, as per Lord Reed and Lord Hodge – or whether determined according to the specific loss suffered by the shareholder in the particular circumstances, as per Lord Sales.

On either view, the Justices of the Supreme Court were united in the decision that the scope of the reflective loss principle does not extend to claims made by parties other than shareholders, including creditors.


[1] The All Party Parliamentary Group on Fair Business Banking made oral and written submissions in support of MFL’s appeal.

[2] An example includes Gardner v Parker [2004] EWCA Civ 781; commentary in respect of which can be found in Marex @ ⁋75.

[3] [2017] EWHC 918 (Comm)

[4] [2018] EWCA Civ 1468

[5] Marex ⁋22

[6] Marex ⁋79

[7] Marex ⁋83

[8] Marex ⁋84

[9] Marex ⁋92

[10] Marex ⁋89

[11] Marex ⁋95

[12] Marex ⁋100

[13] Marex ⁋117-118

[14] Marex ⁋132

[15] Marex ⁋146

[16] Marex ⁋167

[17] Marex ⁋211