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Mackrell Turner Garrett helps settle the debate over reflective loss following a decisive ruling at the Court of Appeal

Enforcement of arbitration awards: choose your courts wisely

The Litigation and Dispute Resolution team at full-service London law firm, Mackrell Turner Garrett, led by Joint Heads of Litigation, James Atton and Nigel Rowley, acted for Carlos Sevilleja Garcia in his landmark appeal against a claim brought by Marex Financial Limited in the Court of Appeal.

The latest ruling in the Court of Appeal delivered on 26 June has finally given a definitive answer to the complexities of the reflective loss rule (RL Rule). During proceedings, the Court was given a detailed overview of the rule, its rationale and previous case law.

Having heard the facts, Lord Justice Flaux, along with fellow Lord Justices Lewison and Lindblom, agreed that Marex’s attempt to recover the judgment debt (plus interest and costs) from Mr Sevilleja was barred by the RL Rule.

James Atton

James Atton

The RL Rule has, up until this point, been best defined by Lord Bingham of Cornhill in his ruling on Johnson v Gore Wood & Co [2002] in which he said:

“Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder’s shareholding where that merely reflects the loss suffered by the company.”

This has since been extended through other case law to not only include the diminution of the value of the shares, but also the loss of dividends and other payments which the shareholder may have obtained if the company had not been deprived of funds.

 The Facts 

Marex (the Respondent) had brought claims in 2013 against two companies, Creative Finance Limited and Cosmorex Limited, for amounts due on account between the broker, Marex, and the two companies, who were clients of the firm that dealt in forex trading.

A Commercial Court in 2013, presided over by Justice Field, issued a draft ruling which found that Marex had succeeded in its claim against the two companies, winning an award of $5 million.

However, Marex alleged that following the release of the judgement Carlos Sevilleja Garcia (the Appellant) had asset-stripped the two companies of $9.5 million to prevent the payment of the judgment debt.

A final judgement was given on 26 July 2013, however, the companies against which the debt was set had gone into liquidation in the British Virgin Islands in December 2013.

Following these initial proceedings, Marex obtained permission to serve English proceedings on Mr Sevilleja in 2016. They secured the case out of the jurisdiction under the tort gateway, claiming damages from him corresponding to the sums unpaid by the now liquidated companies.

Mr Sevilleja challenged the jurisdiction of the English Courts, but Marex’s factual case had to be taken at its highest, with Mr Sevilleja’s left to contest the facts at a later stage, if the challenge to jurisdiction was lost.

 The Ruling 

Nigel Rowley

Nigel Rowley

Having reviewed the facts of the appeal, the Court of Appeal justices decided that the RL Rule applies to claims by all unsecured creditors of a company where the loss claimed is a reflection of the loss suffered by the company as a consequence of the wrongdoing of the defendant.

The Court went on to hold that Marex could not establish that any wrongdoing of Mr Sevilleja had caused it to be impossible for the companies to pursue a claim against him.

However, the Court did decide that the subsidiary claim for the costs incurred seeking to enforce the judgment of Justice Field in various jurisdictions survived as a distinct personal loss not reflective of the companies’ loss and that the RL Rule was therefore not applicable on this particular claim.

James Atton said: “This latest ruling in favour of our client’s appeal has, to a significant degree, clarified that the RL Rule applies to claims by unsecured creditors and provides a precedent for future cases.

“This new ruling is consistent with previous rulings and builds upon them. Lord Justice Flaux’s reasoning that it does not make ‘logical or legal sense at all’ that a claim by a creditor who has one share in a company should be barred by the rule against reflective loss, whereas a claim by a creditor who is not a shareholder is not will be welcomed by many.

“Importantly this case also clarifies that the RL Rule depends on the nature of the loss, irrespective of the cause of action. “

Nigel Rowley added: “We are delighted with the outcome of this ruling and are happy that this judgement has provided clarity to several pieces of statute and case law that seemed at odds with the general approach and intention of the RL Rule.”

During the case, Carlos Sevilleja Garcia was represented by David Lewis QC and Richard Greenberg of 20 Essex Street Chambers under the instruction of Mackrell Turner Garrett.

The full ruling for Carlos Sevilleja Garcia v Marex Financial Limited [2018] EWCA Civ.1468 can be found at

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