Webster v Sandersons Solicitors (A Firm)

A shareholder cannot recover a company’s direct losses by presenting them as personal or reflective loss. Reflective loss is the shareholder’s own loss which would be remedied if the company enforced its rights.

The exception where a company cannot pursue its claim applies only when the defendant’s wrongdoing caused that inability. Financial difficulty or a failure by the company, its liquidator or an assignee to pursue an available claim is insufficient.

Claims for loss to a trust fund normally belong to its trustees. A beneficiary cannot circumvent that rule by claiming the corresponding reduction in expected benefits. At the amendment stage, however, a personal claim for lost employment income may proceed where its recoverability turns on remoteness and remains reasonably arguable.

The claimant sued his former solicitors for negligently allowing proceedings against another firm of solicitors to lapse through late service. He sought damages for the chance lost in those proceedings.

A Deputy High Court Judge permitted amendments which increased the claim substantially. The proposed losses included payments, profits and indebtedness of a company controlled by the claimant, diminution of a pension fund, lost employment income and liability under a personal guarantee. The defendants appealed against the permission to claim losses belonging to the company or pension fund.

The central questions were whether the company-related claims fell within the exception to the rule against reflective loss recognised in Giles v Rhind, and whether the claimant could recover pension-fund losses in his personal capacity.

1. Appeal allowed in part. The permitted amendments were limited to the claimant’s accepted personal losses and his arguable claim for lost employment income. The amendments claiming the company’s direct losses, pension-fund losses and liability under the personal guarantee were disallowed.

2. Only a company may sue for a wrong causing loss to it. A shareholder cannot recover a diminution in share value, dividends or other payments where the loss would be made good through enforcement of the company’s rights. Determination of whether a loss is merely reflective requires close examination of the pleaded or proved facts. On a strike-out or amendment application, reasonable doubt is resolved in the claimant’s favour.

3. The exception recognised in Giles v Rhind remained binding on the Court of Appeal. It applies where the wrongdoing itself disables the company from pursuing its claim. It did not apply here. The company had brought a counterclaim and its liquidator could later have pursued or assigned the cause of action. The claimant’s inability to finance litigation did not bring the case within the exception.

4. The company’s payments, lost profits and indebtedness were its own direct losses, not reflective losses sustained by the claimant. Reformulating them as lost dividends merely produced an ordinary reflective-loss claim, which the claimant could not pursue.

5. A cause of action for loss to a trust fund is vested in its trustees and normally must be pursued by them. The claimant could not recover the pension fund’s payments or consequential losses by claiming diminution of the fund available to him. He had not sued in his capacity as trustee, had not joined the other trustee and could not allege that the trustees had failed to sue. Separate trustee proceedings were already on foot.

6. The claim for lost employment income was not struck out. Its recoverability could turn on remoteness under the duty allegedly owed to the claimant personally. By contrast, liability under his guarantee was purely reflective because recovery by the company would correspondingly reduce that liability.

• Court of Appeal (Civil Division): Allowed the defendants’ appeal in part. It confined the amendments to the claimant’s accepted personal losses and his claim for lost employment income.
• High Court, Queen’s Bench Division: Mr James Allen QC, sitting as a Deputy High Court Judge, granted the claimant permission to amend his particulars of claim and schedule of loss in several respects. He refused permission to appeal.