Latin American Investments Ltd v Maroil Trading Inc & Anor

The reflective loss principle does not necessarily prevent a shareholder with its own contractual cause of action from seeking an order requiring payment or restoration of property to the company. The critical question is whether the remedy respects company autonomy, protects creditors and avoids recovery by the shareholder of the company’s loss. Specific performance and monetary relief payable to the company may therefore be available, subject to the pleaded obligations and the facts proved. A freezing order may support such relief where the anticipated judgment requires payment of money to the company, even though payment is not made to the claimant. The relevant monetary relief is construed broadly.

Oceanic Trans Shipping Est obtained a freezing order against Maroil Trading Inc and Sea Pioneer Shipping Corporation. The claimant was a shareholder in two joint venture companies which owned vessels and had claims arising from the settlement of disputes with PDVSA. It alleged that the defendants had acted in breach of shareholder agreements and fiduciary duty, causing loss reflected in the diminution of its shareholding.

On the return date, the defendants argued that the claim was barred by the reflective loss principle, that there was no good arguable case for the claimed quantum, and that there was no real risk of dissipation. The defendants also applied for security for costs.

1. The freezing order was continued until trial. None of the defendants’ three objections justified discontinuing it.
2. The reflective loss principle, stated in Johnson v Gore Wood [2002] 2 AC 1, prevents a shareholder recovering loss which merely reflects loss suffered by the company. It does not necessarily prevent a shareholder with its own cause of action from seeking relief requiring property or payments to be restored to, or made to, the company. Such relief is consistent with company autonomy, does not prejudice creditors, and does not permit the shareholder to recover the company’s compensation.
3. The reasoning in Peak Hotels and Resorts Limited v Tarek Investments Limited and others [2015] EWHC 3048 (Ch) supported the distinction between damages payable to a shareholder and injunctive or specific performance relief payable to the company. Whether specific performance is the most appropriate remedy remains fact-sensitive. The pleaded claim included both potentially primary contractual relief and damages or consequential relief, but there was a good arguable case that the remedies were available without breaching the reflective loss principle.
4. A freezing order must support an anticipated money judgment, but “money judgment” is not narrowly confined to sums payable to the claimant. An order requiring payment of money to the joint venture companies could support freezing-order relief.
5. Applying the good arguable case standard identified in Madoff Securities v Raven and others [2012] 2 AER (Comm) 634, the evidence disclosed an arguable case that the claim should have settled for $89 million. There was also sufficient evidence of a real risk of dissipation.
6. The application for security for costs was not determined. The defendants could pursue it later, and could seek increased fortification of the claimant’s undertaking in damages.