Lucy Burnford & Ors v Auotmobile Association Developments Limited

The reflective loss principle bars a shareholder’s claim for loss suffered in that capacity where the loss is a diminution in share value or distributions resulting from loss suffered by the company, and the company has a cause of action against the same wrongdoer. An independent cause of action is insufficient unless the shareholder’s loss is separate and distinct. Exact correlation between the company’s loss and the shareholder’s loss is unnecessary.

Where pleaded facts, assumed to be true, establish the legal bar, strike out or summary judgment may be granted despite factual disputes or wider legal debate. A settlement excluding High Court claims specifically referenced in a letter does not preserve claims merely because relevant facts were mentioned or further causes of action were reserved.

Five former shareholders of Motoriety (UK) Limited appealed against the decision of the High Court, which struck out their claims against Automobile Association Developments Limited. The claims alleged fraudulent and negligent misrepresentations and breaches of implied contractual duties arising from an investment relationship.

The High Court held that the claims were barred by the reflective loss principle and that a settlement agreement separately prevented the second claimant from pursuing certain claims. The central issues were whether the reflective loss principle could be determined summarily on the pleaded facts and whether the settlement agreement preserved claims based on a services representation and alleged contractual breaches. The High Court decision was reported at [2022] EWHC 368 (Ch).

1. Appeal dismissed. The reflective loss principle was sufficiently settled for summary determination. The court may decide a strike-out or summary judgment application on assumed pleaded facts where those facts show that the claim is legally barred. Factual disputes and wider unresolved questions in the general area do not require a trial where they cannot affect the result.
2. The principle, reaffirmed in Marex Financial Ltd v Sevilleja [2020] UKSC 31, applies where a shareholder claims loss suffered in that capacity, consisting of diminution in share value or distributions consequential on loss suffered by the company, for which the company has a cause of action against the same wrongdoer. An independent cause of action does not avoid the bar. The shareholder must establish separate and distinct loss.
3. Exact correlation is unnecessary. A claim remains reflective even where recovery by the company might not fully restore the share value, or where a different contractual formula is used to measure what the shares would allegedly have realised. The claims for general share value and for the Initial Option Payment and Earn-out Consideration were therefore both reflective of Motoriety’s alleged loss.
4. The principle is substantive rather than procedural, and its application is assessed when the alleged loss was suffered. The court has no discretion to disapply it.
5. The Settlement Agreement compromised all High Court claims except those specifically referenced in the identified pre-action letter. The letter did not specifically reference the services representation or contractual claims. A reservation of further causes of action and inclusion of overlapping facts did not preserve them.

• Court of Appeal (Civil Division): Appeal dismissed. The court upheld the strike-out of the claim on reflective loss grounds and agreed that specified claims by the second claimant were also compromised.
• High Court of Justice, Business and Property Courts: His Honour Judge Paul Matthews struck out the claim in its entirety in [2022] EWHC 368 (Ch).