Reflective loss post-Marex

1 February, 2021

The Court of Appeal recently handed down judgment in Nectrus Ltd v UCP Plc [2021] EWCA Civ 57, dismissing Nectrus’ application under CPR r.52.30 to re-open the Court’s refusal of Nectrus’ permission to appeal application.

At first instance, Sir Michael Burton had dismissed Nectrus’ argument that UCP’s claim was barred by the ‘no reflective loss’ rule on the basis that the rule did not apply to ex-shareholders and UCP was not a shareholder in the relevant company (called Candor) at the time it brought its claim.

Lord Justice Flaux granted Nectrus contingent permission to appeal, but directed that the question of permission be referred to him for further consideration after the Supreme Court handed down its judgment in Marex v Sevilleja. Following the Supreme Court decision, Nectrus wrote to the Court of Appeal inviting the Court to remove the contingent basis of its grant of permission, whilst UCP wrote to request the converse, i.e. that permission be withdrawn.

Lord Justice Flaux responded by refusing permission to appeal on 24 July 2020.

Nectrus applied to re-open that decision under CPR 52.30, arguing that Lord Justice Flaux had breached principles of natural justice by making his order without permitting Nectrus to make submissions about the consequences of Marex.

Lord Justice Flaux rejected this argument, holding that Nectrus had had a fair opportunity to make its points in its letter to the Court of Appeal and re-affirming the high threshold that must be fulfilled for a successful CPR 52.30 application.

Lord Justice Flaux also considered and rejected Nectrus’ argument that he had been wrong to consider that it was unarguable that the ‘no reflective loss’ rule applied to ex-shareholders. Lord Justice Flaux analysed the Supreme Court decision in Marex  and concluded  that the Supreme Court had not left open the possibility that the rule could apply to ex-shareholders. He further held that the shareholder status of a claimant should be assessed when the claim is made.

Accordingly, Nectrus’ application was dismissed.

Sir Michael Burton indicated at first instance that if the ‘no reflective loss’ principle had applied, he would have been “tempted” to follow UCP’s argument that the defence was governed by Mauritius law being the place of Candor’s incorporation.

The issue of how to determine the governing law of a reflective loss defence has not been resolved authoritatively, despite the principle having been applied on numerous occasions in cases involving foreign companies. This issue appears to be ripe for further argument in the future.

Nectrus was represented by Andrew Butler QC, Andrew Legg and Edward Blakeney, instructed by Atul Amin of Hugh Cartwright & Amin.

UCP was represented by Huw Davies QC and Felix Wardle instructed by Bruce Macaulay of Skadden, Arps, Slate, Meagher & Flom (UK) LLP.

A copy of the judgment can be found here.