The decision overturns a series of cases deemed to have over-expanded a principle preventing shareholders from claiming against third parties for falls in a company’s value.

By Oliver Middleton and Thomas F. Lane

On 15 July 2020, the UK Supreme Court unanimously overturned a Court of Appeal decision that had barred a creditor of companies owned and directed by an individual from bringing tort claims against him for allegedly asset-stripping the companies in order to prevent them paying a court-ordered debt to that creditor. In Sevilleja v. Marex Financial Ltd,[1] the Supreme Court ruled that the “reflective loss” principle — restricting third parties from suing persons alleged to have harmed a company in a manner that caused “reflective loss” — should be narrowed so as only to apply to situations involving shareholders claiming for diminutions in value.


Marex Financial Ltd had attempted to bring claims in tort before the English High Court against Mr Sevilleja.

Marex’s tort claims arose from circumstances following the handing-down of a previous High Court decision. That decision had ordered two companies directed and owned by Mr Sevilleja (Sevilleja Companies) to pay Marex US$ 5.5 million for amounts due to Marex under contracts, plus certain legal costs.

Marex alleged that, in the days following the court’s handing down of the draft version of that judgment, Mr Sevilleja transferred multiple millions of dollars from the Sevilleja Companies into his personal control. The Sevilleja Companies were subsequently declared bankrupt. Marex alleged that the Sevilleja Companies’ other creditors were all vehicles owned or controlled by Mr Sevilleja. Moreover, Marex alleged that the Sevilleja Companies’ liquidator was in effect under Mr Sevilleja’s control, and had taken no steps to reclaim assets.

Marex accordingly brought a tort claim in the High Court against Mr Sevilleja personally. Marex claimed against Mr Sevilleja in respect of the torts of: (i) knowingly inducing and procuring the Sevilleja Companies to act in wrongful violation of Marex’s rights under the earlier judgment; and (ii) intentionally causing loss to Marex by unlawful means. The “unlawful means” in question were Mr Sevilleja’s supposed violation of his fiduciary duties to the Sevilleja Companies by allegedly misappropriating for his own benefit funds that the Sevilleja Companies needed to meet obligations to creditors.

Mr Sevilleja contested Marex’s suit on various jurisdictional grounds. Among his points, he noted that the Sevilleja Companies had a cause of action against him for the same funds sought by Marex. He argued that this activated the English law principle barring third parties from claiming for reflective loss arising out of harm caused to a company when that company held a concurrent claim of its own.

The High Court found against Mr Sevilleja. However, he appealed to the Court of Appeal on this point.

The Court of Appeal surveyed the current state of the law on reflective loss and concluded that Marex could only pursue Mr Sevilleja in its own right for certain legal costs. The bulk of Marex’s claim was for funds over which the Sevilleja Companies had their own cause of action against Mr Sevilleja. The Court of Appeal considered it possible for the Sevilleja Companies and/or their liquidator to pursue that claim. As the precedents stood, they would be the rightful claimants and Marex could only recoup its loss from what they could obtain from Mr Sevilleja. However, the Court of Appeal’s judgment concluded with comments questioning the “coherence” of the law on reflective loss and invited the Supreme Court to “put it right”.

The Supreme Court’s Decision

The Supreme Court unanimously found in favour of Marex, ruling that the principle against reflective loss did not bar Marex from advancing its claims in tort. However, the judges differed to some extent as to why, dividing into a majority/minority of 4 to 3.

Lord Reed wrote the leading judgment for the majority. Surveying the development of the principle against reflective loss, Lord Reed noted that it initially arose so as not to subvert a long-held principle of company law. That principle, as articulated in Foss v. Harbottle,[2] holds that the only person who can seek relief for an injury done to a company, if the company has a cause of action, is the company itself.

Lord Reed considered that the rule in Foss v. Harbottle developed into the principle against reflective loss nearly 100 years later, in Prudential Assurance Co. Ltd v. Newman Industries Ltd (No. 2).[3] In that case, Prudential had sued the directors of a company in which Prudential held shares, alleging that the directors had fraudulently misled shareholders into approving the company’s purchase at an overvalue of assets in which the directors had a personal interest. This had led to a diminution in the value of the company’s shares and its likely dividend, which Prudential cited as its loss. The court considering the Prudential case found that the shares themselves were not directly affected by the wrongdoing: the shareholders still held the shares as their own unencumbered property. Moreover, that court reasoned that shareholders generally accept the fact that the value of their investment “follows the fortunes of the company” and that they can only influence those company fortunes by virtue of the voting rights or statutory powers attached to their shares.

Accordingly, Lord Reed identified the principle against reflective loss, as articulated in Prudential, as “where a company suffers actionable loss, and that loss results in a fall in the value of its shares (or in its distributions), the fall in share value (or in distributions) is not a loss which the law recognises as being separate and distinct from the loss sustained by the company”.

Lord Reed identified the law as, in retrospect, improperly expanding from this relatively “narrow ambit” due to reasoning expressed by the House of Lords in Johnson v. Gore Wood & Co.[4] — in particular through the speech in that case delivered by Lord Millett.

As considered by Lord Reed, Lord Millett had mistakenly reasoned that the purpose of the principle against reflective loss was to avoid double recovery. Lord Millett had accordingly argued that, in order to prevent double recovery, “the same principle applies to other payments which the company would have made if it had the necessary funds even if the plaintiff would have received them qua employee and not qua shareholder and even if he would have had a legal claim to be paid. His loss is still an indirect and reflective loss which is included in the company’s claim”.

Lord Reed identified a series of subsequent cases that had taken this reasoning and expanded it, so as to include within the rule’s scope even employees and creditors who were not also shareholders in the injured company.

Lord Reed disagreed with the logic of this development. He argued that, in contract law, if a company’s creditor had a contract with another party, requiring that party not to take certain steps that could lead to the insolvency of that company, and the contracting party breached that contract (while simultaneously breaching his duties to the company), the creditor would be able to sue the contracting party for damages under the contract, notwithstanding the company’s own cause of action against that same party. Lord Reed considered it “equally important” that the creditor not be deprived of equivalent protections afforded by the law of tort.

Lord Reed and the majority of the Supreme Court accordingly departed from Lord Millett’s speech in Johnson and the line of case law “wrongly decided” in light of it. The Supreme Court affirmed that the principle against reflective loss 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”.

A minority of three judges agreed, but did so in obiter comments that, if followed, would potentially have consequences of even further reach. Lord Sales wrote the separate judgment on behalf of the minority, in which he argued that the purpose of the principle had, in fact, been to avoid double recovery. However, Lord Sales did not see an exact overlap between harm to a company and harm arising from a fall in the shareholders’ value. He additionally considered that the law had “other means” to avoid double recovery. Given this, in the minority’s view, the principle against reflective loss risked giving “undue priority to the interests of other shareholders and creditors of the company”.

The minority accordingly appeared to question whether the principle against reflective loss should continue to be recognised at all. Both the minority and majority considered, in any case, that Marex, as a creditor rather than a shareholder, was not barred from pursuing its tort claims against Mr Sevilleja.


The Supreme Court’s decision brings fresh clarity to what had been an increasingly complex area of English law, and overturns a set of cases which had the effect of preventing similar claims from being brought. As a result, claims which lower courts might have been obliged to reject due to those precedents may now have the opportunity to proceed. Moreover, the minority judgment by Lord Sales indicates that the extent and meaning of the principle could be debated further in future cases.


[1] (2020) UKSC 31.

[2] (1843) 2 Hare 461.

[3] (1982) Ch. 204.

[4] (2002) 2 AC 1.