On appeal from: [2018] EWCA Civ 1468

This appeal is about whether the rule against reflective loss bars creditors of a company from claiming directly against a third party for asset-stripping the company. Marex accuses Mr Sevilleja of asset-stripping two companies so that they were unable to pay their judgment debt to Marex, by transferring money from their bank accounts in this jurisdiction into his personal control. Marex says that in doing so, Mr Sevilleja, who is not resident in this jurisdiction, committed a tort. On this basis, it obtained permission to serve proceedings on him out of the jurisdiction. Mr Sevilleja challenged the validity of service, and the court’s jurisdiction. He says that the rule against reflective loss bars Marex from showing a completed cause of action in tort. The rule bars a party who has suffered loss through a reduction in value of their interest in a company from claiming directly against the person who caused the loss to the company, rather than letting the company make the claim. This appeal raises the question of how far the rule applies to creditors.

Held: The Supreme Court unanimously allows the appeal. Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 laid down a rule of company law: a diminution in the value of a shareholding or in distributions to shareholders, which is merely the result of a loss suffered by the company in consequence of a wrong done to it by the defendant, is not in the eyes of the law damage which is separate and distinct from the damage suffered by the company, and is therefore not recoverable. The reasoning in Johnson v Gore Wood & Co [2002] 2 AC 1 should be departed from. The rule in Prudential does not apply to Marex, which is a creditor of the Companies, not a shareholder.

For judgment, please download: https://www.supremecourt.uk/cases/docs/uksc-2018-0178-judgment.pdf

For Court’s press summary, please download: https://www.supremecourt.uk/cases/docs/uksc-2018-0178-press-summary.pdf

For a non-PDF version of the judgment, please visit: https://www.bailii.org/uk/cases/UKSC/2020/31.html

To watch the hearing please visit: Supreme Court website: 8 May 2019 morning and afternoon session

To watch the judgment summary, please visit: Supreme Court website: https://www.supremecourt.uk/watch/uksc-2018-0178/judgment.html