In Burnford v Automobile Association Developments Limited, the Court of Appeal upheld a first-instance decision striking out a claim on the basis of the reflective loss principle, which precludes the recovery by shareholders of loss that is reflective of loss suffered by the company.

The judgment helpfully sets out seven key points for the application of the reflective loss principle following the Supreme Court's decision in Marex Financial Ltd v Sevilleja,(1) and addresses subsequent authorities. It is important for anyone drawing claims on behalf of shareholders and companies, and further cements the approach taken by the Court in Marex.


The claimants were former shareholders in Motoriety (UK) Limited (Motoriety) who issued proceedings against Automobile Association Developments Limited (AAD) for alleged fraudulent or negligent misrepresentation and/or for breach of contract.

The claims related to AAD's investment in Motoriety under the terms of an investment agreement in which AAD agreed to subscribe for 50% of the shares in Motoriety for £400,000. If certain circumstances were met, the agreement also gave AAD the option to become Motoriety's sole shareholder by purchasing the balance of the issued shares. The claimants alleged that as part of the agreement, AAD represented that it would provide Motoriety access to AAD's customer base of 4 million personal members and 9 million business members.

Ultimately, Motoriety did not thrive. It went into administration in 2017 and was dissolved in 2019. The administrators sold its business and assets to another company in the AA Group in 2017.

The claimants issued proceedings claiming loss suffered as a result of certain alleged misrepresentations and breaches of contract relating to the investment. Substantial loss was said to have arisen by way of "loss of claimant share value", on the basis that the claimants said that they were deprived of the value which their shares would otherwise have had, but for the alleged breaches by AAD. In its defence, AAD denied the substance of the claimants' allegations against it and asserted that the alleged loss was reflective of loss that would have been suffered by Motoriety and was therefore not recoverable by the claimants as a matter of law.

It was also argued that parts of the second claimant's claims against AAD were barred by a settlement agreement reached between that claimant and AAD.

At first instance His Honour Judge Paul Matthews (sitting as a judge of the High Court) struck out the claim in full on the basis that the claims were precluded by the reflective loss principle and, even if the claims were not so barred, the second claimant would have been precluded from pursuing a limited number of his claims on the basis that they fell within the scope of the settlement agreement between him and AAD.

The claimants appealed the decision on three grounds. The first two grounds related to the reflective loss principle:

  • First, it was said that the issue was not suitable for summary determination because it raised fact-sensitive questions and the relevant law was uncertain and developing.
  • Second, it was determined that the claims were not in any event barred by the reflective loss principle.

The third ground related to the settlement agreement.


The Court of Appeal considered each part of the claim as pleaded (the pleaded facts were taken to be established for the purposes of the strike out application and appeal) and concluded that the claim was barred in its entirety by the reflective loss principle, which could be seen to be applicable at a preliminary stage without the matter going to trial. The third ground of appeal, relating to the settlement agreement, was also dismissed.

Reflective loss principle
The Court of Appeal drew together seven key points regarding the reflective loss principle:

  • principle – the principle applies where a shareholder brings a claim:

in respect of loss which he has suffered in that capacity, in the form of a diminution in share value or in distributions, which is the consequence of loss sustained by the company, in respect of which the company has a cause of action against the same wrongdoer;(2)

  • "separate and distinct" – a shareholder must have suffered "separate and distinct" loss. It is not enough to show that they have an independent cause of action against the defendant. A reduction in the value of shares or distributions which is a knock-on effect of loss suffered by the company is not "separate and distinct";
  • no correlation – there does not have to be exact correlation between the shareholder's loss and the company's loss for the reflective loss principle to apply. The principle will equally apply "where recovery by the company might not . . . fully replenish the value of its shares"(3) or if the company's loss exceeds the fall in value of its shares;
  • cause of action – the reflective loss principle will not apply if, although the shareholder's loss is a consequence of loss sustained by the company, the company itself has no cause of action against the defendant in respect of its loss;
  • shareholders only – the reflective loss principle will not apply to a claim which is not brought by a shareholder (ie, to a claim commenced by an employee or creditor);
  • no discretion – the principle is a rule of substantive law; the Court has no discretion; and
  • timing – the applicability of the principle is to be determined by reference to the circumstances when the shareholder suffered the alleged loss, not those when the claim was issued.

The claimants had also submitted that the law relating to the reflective loss principle was uncertain and developing, particularly given some disagreement in the authorities as to the question of when the "reflective loss" principle is to be tested, whether by reference to the position when the claimant's loss is said to have been suffered, or the position when the claim was brought (a debate which is addressed in Allianz Global Investors GmbH v Barclays Bank Plc(4) and Primeo, Allianz, Broadcasting Investment Group Ltd v Smith(5) on the one hand, and UCP plc v Nectrus Ltd(6) on the other), and that the applicability of the principle should be determined at a trial rather than on the basis of assumed facts.

The Court of Appeal disagreed, concluding that the points raised in recent cases on the matter did not give rise to any legal uncertainty relevant to the present case. The mere fact that it may be possible to identify other issues on which the implications of the principle might be the subject of argument could not require the judge to decline to determine the strike‑out/summary judgment application. Indeed, such questions might be said to exist in any legal field. The Court of Appeal also concluded that the principle could be seen to be applicable now (on the assumption that the claimants were able to make out all of the points pleaded in their particulars of claim), without requiring the matter to go to trial, and that it was therefore right that the claim was struck out at this stage.


This decision is a helpful refresher on the principle of reflective loss and usefully draws together a number of post-Marex authorities.

Although the application of the reflective loss principle will turn on the facts of each case, practitioners are reminded to carefully consider the application of the principle during the pleadings process in cases where a shareholder considers that they have suffered loss connected with their stake in a company. In circumstances where the court has no discretion when applying the principle, and there does not need to be an exact correlation between the shareholder's loss and the company's loss, it is important to keep a careful watch over the nature of the loss claimed.

For further information on this topic please contact Alexandra Shearer or Charlotte Henschen at RPC by telephone (+44 20 3060 6000) or email ([email protected] or [email protected]). The RPC website can be accessed at


(1) [2020] UKSC 31.

(2) Marex at paragraph 97.

(3) Marex at paragraph 42.

(4) [2022] EWCA Civ 353.

(5) [2022] EWCA Civ 912, [2022] 1 WLR 1.

(6) [2022] EWCA Civ 949.