No reflective loss: The English approach reconsidered
Author: Ataollah Rahmani
Affiliations: Lecturer in Commercial Law, Al-Maktoum College of Higher Education Dundee, Scotland, UK
Source: Journal of Corporate and Commercial Law & Practice, Volume 6 Issue 2, 2020, p. 1 – 48
A company shareholder should have no difficulty in commencing a claim to recover the loss suffered due to a wrong done to their personal property. The right to the protection of property is a fundamental human right in English law. A wronged person whose property right is infringed will have the right to commence legal proceedings against wrongdoers. However, in the company context, the exercise of a shareholder’s right of action may conflict with the company’s right of action where the loss sought is reflective. The English company law’s arrangement has been that a shareholder’s action is exceptional beyond which it will routinely be barred through the principle of the ‘no reflective loss’. Where company’s loss and the shareholders’ loss are reflectively linked, then the company’s action prevails against the shareholder action. This paper argues that the two actions should swap places in law. Shareholder action should be recognised as a general principle of law while it is barred exceptionally in circumstances where stronger policy considerations such as the observation of the corporate autonomy are to be prioritised. This article refers to company law in the UK.