Reflective Loss: Hard Cases or Just Bad Law?

On 8th May 2019, the Supreme Court heard the case of Sevilleja v Marex Financial Limited, an appeal  against the Court of Appeal’s judgment that a claim by a company’s creditor against an asset-stripping director was precluded by the rule against reflective loss.  The hearing lasted a full day and the panel consisted of seven Justices: Lady Hale, Lord Reed, Lord Hodge, Lady Black, Lord Lloyd-Jones, Lord Kitchin, and Lord Sales.  The Supreme Court heard submissions from the parties with the All Parliamentary Group on Fair Business Banking appearing as an intervener.

Ever since the House of Lords restated the rule in Johnson v Gore-Wood [2002] 2 AC 1 the precise scope of this doctrine has been the subject of debate, with hard cases being decided in what may be seen as an inconsistent manner.  For example in Giles v Rhind [2003] Ch 618 the Court of Appeal had found that a director who prevented a claim against the corporation was not protected by the rule.  However more latterly the Courts have applied the doctrine more liberally, in St Vincent General Partner v Robinson (2018) finding that the rule precluded a claim against a director who not only asset stripped but then who brought about the dissolution of the company concerned.  In the Court of Appeal in Marex Flaux LJ held that the Court of Appeal was bound to follow Gardner v Parker [2004] 2 BCLC and hold that a creditor’s claim was barred by the rule.

In this breakfast seminar Paul Downes QC and Emily Saunderson will examine the scope of the rule and, based on the proceedings before the Supreme Court, seek to anticipate the fate of the appeal.

Paul Downes QC

Paul is recognised as a formidable advocate and cross-examiner who is presently instructed in some of the hardest fought pieces of commercial and banking litigation at the bar. The directories describe him as “incredibly astute”, “a terrific cross-examiner” and “brave and dogged”. His advocacy is likewise praised as “powerful”, “phenomenal” and “fearless”. Paul appeared as leading counsel for the Claimant in the case of St Vincent v Robinson. He acted for West Ham United in their various disputes over the London Stadium (including having appeared for them in the Court of Appeal in WH Holding v E20 [2018] EWCA Civ 2652) and is currently acting for Sheffield United Limited in their dispute with His Royal Highness Prince Abdullah Al Saud. Paul is also leading counsel for the Claimant in N v RBS (awaiting judgment), listed by The Lawyer magazine as one of the top 20 cases of 2019.

Before coming to the Bar, Paul worked for Barclays Bank and is an Associate of the Chartered Banker Institute. He also previously was appointed an assistant examiner for the Institute in banking law and accountancy. He is recommended as a leading silk for banking & finance and commercial dispute resolution in Chambers & Partners UK Bar and for Banking & Finance, Commercial Litigation, Financial Services and Fraud: Civil in Legal 500.

Emily Saunderson

Emily is a general commercial practitioner specialising in commercial fraud, and banking and finance. She has broad experience in obtaining urgent injunctive relief including freezing orders, search orders, asset preservation orders and delivery up orders. Emily’s banking and finance practice has a particular emphasis on financial derivatives instruments, and she is familiar with standard form contracts including the ISDA Master Agreement.

Emily is ranked in the latest edition of Chambers & Partners in commercial dispute resolution and she is recommended as a leading junior in banking and finance and financial services by the Legal 500, where she is described as “technically outstanding, with a very sound grasp of copious quantities of fine detail.”

She has experience in cases involving contractual interpretation and rectification; dishonest assistance; fraud; bribery; fraudulent trading; rights of set-off; contractual estoppel; rights under contracts of indemnity; and guarantees.

Before embarking on a career in law, Emily was a financial journalist covering the global derivatives markets. She brings a strong understanding and useful insider’s perspective on financial markets to her legal practice.