Faculty of law blogs / UNIVERSITY OF OXFORD

Marex Financial Ltd v Sevilleja: Some Commentary in Response to Paul Davies’s Blog Contribution


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5 Minutes

Paul L Davies’s blog piece on Marex Financial Ltd v Sevilleja [2020] UKSC 31; [2020] 3 WLR 255, concerned with the intractable topic of ‘reflective loss’ claims is, with respect, a model of clarity. He favours the majority view in that case, found in the judgments of Lord Reed and Lord Hodge, namely that where a shareholder has a private law claim arising out of action that also involves a wrong done to the shareholder’s company, the shareholder cannot sue for their loss to the extent that that loss is simply a diminution in the value of their shares in the company. A blunt rule of this sort, Paul says, ‘enhances the conceptual coherence of company law and makes life easier for courts’.

That sometimes there are undoubted advantages to blunt rules cannot be gainsaid. One only has to contrast the basic principle that citizens do not, in the absence of an assumption of responsibility, owe a duty to avoid carelessly causing others economic loss, still hanging on by its nails in the United Kingdom, with the open-ended negligence cause of action that is the bane of New Zealand tort law. But on the current controversy, it is difficult to answer the following points of Lord Sales, putting the minority view (at [167] and [150]):

It is true that adoption of the rule of law identified by Lord Reed and Lord Hodge would eliminate the need for debate about the interaction of the company’s cause of action and the shareholder’s cause of action, and in that way would reduce complexity. Bright line rules have that effect. But the rule only achieves this by deeming that the shareholder has suffered no loss, when in fact he has, and deeming that the shareholder does not have a cause of action, when according to ordinary common law principles he should have. In my respectful opinion, the rule would therefore produce simplicity at the cost of working serious injustice in relation to a shareholder who (apart from the rule) has a good cause of action and has suffered loss which is real and is different from any loss suffered by the company.

If [the claimant] is a shareholder with a personal cause of action, nothing in the articles of association constitutes a promise by him that he will not act to vindicate his own personal rights against a defendant against whom the company also has its own cause of action; and there is no other obligation to that effect arising out of his membership of the company.

This is not to deny that concurrent causes of action in separate parties for overlapping losses give rise to complications. But as both Lord Reed and Lord Sales make clear, such situations arise in many ways in private law. So, both an owner and a bailee can sue a party who converts a chattel for the value of the chattel converted. Depending on the defendant’s undertakings, it is also not infrequently the case that both a principal and an agent can sue (and be sued) on a contract for the same, or overlapping, damages. In both these examples, double recovery is usually avoided by collateral techniques.

The Marex case, even on the majority’s approach, is itself an example of concurrent causes of action in multiple parties for overlapping loss. The outcome seems so far to have been generally lauded, but Marex is no less problematic than other types of overlapping-loss claims.

The facts of the case were incredibly simple and routine; a director-shareholder strips the company of its assets in order to render worthless a creditor’s claim against the company. In pretty well any jurisdiction, such conduct would give the company a cause of action for misappropriation of its assets. Should the affected creditor have its own cause of action?  ‘Yes’ say all the judges in the Supreme Court in Marex, at least in principle. Presumably, an intention to defraud a host of creditors would result in them each having a claim against the director.

One of the causes of action Marex relied upon for its claim against the director was the intentional causing of loss by unlawful means (see [21]). Under this tort, the unlawful means need not involve breaching a duty owed the claimant. Here, the unlawful means was the breach by the director of various duties he owed the companies.

The economic torts are all intrinsically difficult and require careful management, but here they provided a pragmatic solution to injustices that arise from exploiting international borders. A similar example of pragmatism is the rule that a maker of a mistaken payment to X can sue both X and Y, where Y is the agent of X and Y received the payment but has not yet accounted for it to X. This very old rule probably arose out of the fact that it was frequently the case that the agent was within the jurisdiction and still possessed of the money, whereas the principal was not and would be difficult to sue.

One of the oddities of Marex is that the claimant creditor was claiming the full value of its judgment debt of US$5.5 million plus costs from the defendant director of the debtor companies (see [21]), when those companies were said also to owe US$30 million to the defendant and entities controlled by him (see [18]). A number of explanations for the scope of Marex’s claim are possible. Perhaps Marex was claiming that, were it not for the defendant’s actions, it would have been able to enforce its judgment in full before the debtor companies were put into liquidation. Otherwise, Marex may have been arguing that the insider-debt was not genuine, or that the company law of the debtors’ home jurisdiction (the British Virgin Islands) allowed for subordination of insider debt. The fact remains that prima facie Marex’s loss from its economic-tort causes of action was only the loss of dividend that it would have received in the liquidation of the debtors, not the face value of the debts owed it.

On any basis, however, the result of the unanimous decision in Marex exposes the defendant director to double liability. So, Marex’s tort claim would not, prima facie, deprive the debtor companies, through the liquidator, of their right to recover the full value of the assets misappropriated by the director. Lord Reed, for the majority, did not address this issue. However, Lord Sales perceived (at [203]) that the solution to this problem would be that once the defendant had paid Marex, he would be entitled to be subrogated to Marex’s right to prove in the liquidation of the debtor companies. This is one of the ways in which the common law deals with overlapping-loss claims.

One should say that subrogation is far preferable to Lord Sales’s other solution, which was to contemplate a direct unjust-enrichment claim by the director against his own company for having reduced its debt exposure to Marex. For this, Lord Sales relied on Moule v Garrett (1872) LR 7 Ex 101 (see [202]). Moule has been around too long to be overruled, but it is, it is submitted, a highly anomalous restitutionary claim, permitting leap-frogging down a chain of contracts using an amorphous concept of unjust enrichment.

Returning to general principle, one can note that where the overlapping claims are both contractual, it will usually be possible to solve the problems of double liability by construction of the promises. The court may conclude that one promise is subordinate to, or becomes superseded by, the other. One common situation arises where a professional is retained to advise a client but then finds that the client wishes to form a company to carry out the transaction. It may then be that, once the company is formed, the professional’s responsibility is implicitly undertaken only in favour the company. It is simpler, of course, if the contracts expressly spell out how double liability is to be avoided. But it should not altogether be ruled out that a promisor may not only have accepted a double liability, but may also have contemplated double recovery.

Peter Watts QC is a Senior Research Fellow at Harris Manchester College, Oxford                                                   


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