Relective loss and the unsecured creditor.

 

Garcia v Marex Financial Ltd [2018] EWCA Civ 1468 is a cautionary tale of a creditor with a judgment against two companies being thwarted by their beneficial owner removing their assets from the jurisdiction before the judgments could be enforced. The creditor decided to sue the wrongdoer for the torts of knowingly inducing and procuring the two companies to act in wrongful violation of your and causing loss to you by unlawful means. But not so fast, what about the rule against recovery of ‘reflective loss’ established by the House of Lords in Johnson v Gore Wood [2002] 2 AC 1? The rule states that where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. A claim is barred if the loss suffered by the claimant would have been made good by restoration of the company’s assets. The rule is subject to an exception in Giles v Rhind [2003] Ch 618, where as a consequence of the actions of the wrongdoer, the company no longer has a cause of action and it is impossible for it to bring a claim or for a claim to be brought in its name by a third party. Here, there was a clear breach of duty owed to the company by the beneficial owner who had  asset stripped them.

But does the rule also apply to unsecured creditors of the company who are not its shareholders? Until now this question was undecided, but not any longer. In Garcia v Marex Financial Ltd [2018] EWCA Civ 1468, the Court of Appeal have decided that the rule does apply to unsecured creditors of the company who are not its shareholders. On the facts the rule barred the action against the tortfeasor and the Giles v Rhind exception did not apply as the wrongdoing had not made it impossible for the companies to pursue a claim against the wrongdoer.

 

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Professor Simon Baughen

Professor Simon Baughen was appointed as Professor of Shipping Law in September 2013 (previously Reader at the University of Bristol Law School). Simon Baughen studied law at Oxford and practised in maritime law for several years before joining academia. His research interests lie mainly in the field of shipping law, but also include the law of trusts and the environmental law implications of the activities of multinational corporations in the developing world. Simon's book on Shipping Law, has run to seven editions (soon to be eight) and is already well-known to academics and students alike as by far the most learned and approachable work on the subject. Furthermore, he is now the author of the very well-established practitioner's work Summerskill on Laytime. He has an extensive list of publications to his name, including International Trade and the Protection of the Environment, and Human Rights and Corporate Wrongs - Closing the Governance Gap. He has also written and taught extensively on commercial law, trusts and environmental law. Simon is a member of the Institute of International Shipping and Trade Law, a University Research Centre within the School of Law, and he currently teaches at Swansea on the LLM in:Carriage of Goods by Sea, Land and Air; Charterparties Law and Practice; International Corporate Governance.

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