UCP Plc v Nectrus Ltd

A claimant must give credit for recoveries made while mitigating contractual loss, but the opportunity to mitigate is not itself an asset requiring valuation at the loss date. The reflective loss principle is strict and discretionary exceptions are unavailable. It bars recovery only where the claimant’s loss would be made good by recovery by a company in which the claimant is a shareholder. It does not extend to a claimant who is no longer a shareholder when the claim is made. Reasonable legal expenditure incurred in mitigation is recoverable as consequential loss, assessed broadly where precise assessment is impracticable.

Following an earlier judgment in favour of UCP Plc against Nectrus Ltd for breach of duties under an investment management agreement, the court assessed loss and consequential relief.

The claim comprised losses arising from deposits which were not recovered and legal costs incurred in pursuing recovery. The defendant argued that the claimant had suffered no loss because it retained recovery rights, and that the claim was barred by the reflective loss principle because the relevant company had possessed a corresponding claim.

The central issues were whether the recovery rights required valuation, whether reflective loss applied to an ex-shareholder, and whether the recovery costs were recoverable.

1. Disposition. Judgment was entered for UCP for £5,837,920.37 in respect of the lost deposits and £1,934,989 for recovery costs, subject to set-off and interest being addressed.
2. The recovery rights under the sale agreement represented the opportunity and obligation to mitigate. They did not require separate valuation at the date of loss. UCP had to give credit for sums actually recovered, but reasonable loss or expense incurred in mitigation was recoverable.
3. The reflective loss principle is a strict exclusionary rule. It is not subject to a general discretion based on perceived unfairness. The defendant bears the burden of establishing its application.
4. The relevant question is whether the claimant’s loss would be made good if the company successfully pursued its claim. The principle did not apply because UCP was no longer a shareholder in Candor when proceedings were commenced. Recovery by Candor would not have restored UCP’s loss after the sale.
5. The claim for recovery costs was separate and distinct from the lost-deposit claim. The expenditure was not voluntary, was caused by the breach, and was incurred in mitigation. The appropriate analogy for reasonableness was an indemnity-costs assessment. The court made broad-brush reductions for duplication, excessive rates and time, and work relating to unsuccessful claims.
6. Equitable set-off was available in respect of distributions held through nominees because the claims were closely connected and enforcement without set-off would be manifestly unjust.

This was a further first-instance hearing following the court’s earlier liability judgment in [2019] EWHC 1732 (Comm).