“Corporate shareholders are not entitled to recover damages that are a mere reflection of the damages caused by third parties to the company, as part of the same loss suffered, and recoverable, by the company, with consequent indirect compensation in favour of the shareholder. Therefore, a loss cannot be deemed “reflective”, in legal terms, when such possibility is precluded, like in case of damage caused to the shareholder’s person (right to honour or reputation) or property – e.g. arising from loss of personal, economic or employment opportunities, or reduction in creditworthiness –, which must be compensated to the shareholder by the liable third party.”

So ruled the Italian Supreme Court in judgment No. 27733 of 11 December 2013 in a case about damage caused by third parties to the shareholders of a corporation.

In that case, the plaintiffs – shareholders and guarantors of two corporations – sued two banks, which, after having taken and duly accepted some cheques presented for payment, subsequently returned a number of unpaid and non-dishonoured cheques and sued the companies, claiming back the money paid. The banks obtained a court order for the payment of a huge sum of money, which caused the companies to go bankrupt. The plaintiffs then sued the banks, claiming compensation for pecuniary loss, existential damage and damage to personal relationships, alleging that, as a result of the banks’ unlawful conduct, they had suffered loss from the diminution in value of their shares, further pecuniary losses from losing their job and damage to their image and personal relationships.

The Court rejected the plaintiffs’ claims and the matter was appealed to the Supreme Court.

The Court of Appeal rejected the appeal on the ground that the damages alleged by the plaintiffs were causally related to the conduct of the defendant banks, which, basically, had affected the  companies’  assets  and therefore had to be viewed as a mere consequence of the financial loss directly suffered by the companies. Furthermore, the Court recognised that the plaintiffs were not entitled to recover as guarantors of  the companies and that, as a result of the adverse ruling as to their entitlement to compensation, it was not possible to ascertain the existence of the alleged damage.

The shareholders/guarantors of the companies then appealed to the Supreme Court, inviting  a  positive response on

  • whether the shareholders of a corporation are entitled to claim compensation from liable third parties for damage to their shareholding and further losses arising from the impossibility to carry out economic activities and the closure of their personal bank accounts, in addition to damage to their personal relationships;
  • whether two banks who engaged in unlawful conduct against two companies are liable for the damage caused to the legal sphere of the shareholders.

According to the principle applied by the Court of Appeal to settle the case, the shareholders of a corporation are  not  entitled  to  claim  compensation  from  a  third  party  who,  as  a  result  of  its  unlawful  conduct,  has damaged the company, which is the only party entitled to make such claim. Indeed, the adverse impact on the shareholder’s economic interest is a mere reflection of such damage, and not a direct and immediate consequence of the tort (see Court of Cassation, No. 17938/2005; Court of Cassation en banc, No. 27346/2009).

Furthermore, the Supreme Court noted that the judges of the Court of Appeal misapplied the above principle – which  is the natural accompaniment of Article 2395 of the Italian  Civil Code concerning “negligent or wrongful acts of directors”, which prevents a shareholder recovering reflective loss if the wrongdoer is a third party –, as they neither inquired its rationale nor verified its full applicability to the case with respect to the specific damages alleged by the plaintiffs.

In particular, the Supreme Court made an analysis aimed at distinguishing the damage directly caused to the shareholders’ assets and the damage that is merely reflective of the loss suffered by the company.

Immediate damages, i.e. the damages that directly affect the shareholder’s asset position and are not a mere consequence of the damage caused to the company, can be claimed by the shareholder only.

Corporate damages are instead recoverable by the company only, which means a shareholder can be compensated only in the same indirect way as damage was caused to him. To allow the shareholders of a corporation to  have  an  individual cause  of action  for damages  caused  by  third  parties  to  the  corporation would indeed result in double compensation for the same loss.

As far as damage to shareholding is concerned, the Supreme Court therefore confirmed the Court of Appeal’s ruling, denying recoverability by the plaintiff shareholders uti singuli.

Concerning, respectively, pecuniary loss related to one’s own economic activity and non-pecuniary loss related to one’s own personal relationships, the Supreme Court clarified that damage is reflective, in legal terms, when it amounts to part of the damage suffered, and recoverable, by the company, whose recovery by the shareholder will (and may) be indirect. If this is not possible, any loss caused to the personal sphere of a shareholder must be deemed immediate and, therefore, recoverable by the shareholder from the liable third party.

The provision of Article 2395 of the Italian Civil Code applies by way of analogy in case of loss suffered by the shareholders of a corporation as a result of a wrong committed by a third party, which leads to excluding the recoverability of any damage that is a mere reflection, in legal terms, of damage done to the company’s assets.

On the contrary, any immediate damage caused to the shareholders’ personal assets (“which can be claimed only by the shareholders themselves”) must be compensated.

Therefore, taking into account that the plaintiffs, besides damages to their shareholding,  claimed  further damages (i.e. existential damage and damage to  personal  relationships),  the  Supreme  Court  overruled  the Court of Appeal’s ruling, which had rejected the claim for damages without giving appropriate grounds, particularly as to why the further (pecuniary and non-pecuniary) damages claimed should likewise be deemed indirect and how could they be claimed as the company’s own damages.