Reflective Loss Principle: Sufficiently Settled For Summary Determination

In its judgment in Burnford & Others v Automobile Association Developments Ltd,¹ the Court of Appeal has provided a useful summary of the current status of the 'reflective loss' principle – the rule that shareholders cannot bring a claim for diminution in the value of their shares where that diminution is a consequence of loss suffered by the company and in respect of which the company has a claim. The message is clear: despite there being a degree of uncertainly about its application in a very few cases, for the vast majority of cases the law is now settled, and despite its lack of popularity, the principle is here to stay.

Background

The claimants were five former shareholders in Motoriety (UK) Ltd ('Motoriety'), a start-up company that provided a variety of car maintenance related services to motorists. The defendant, Automobile Association Developments Ltd ('AAD'), was a company in the Automobile Association group (the 'AA').