Carlos Sevilleja Garcia v Marex Financial Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lindblom,Lord Justice Lewison,Lord Justice Flaux |
| Judgment Date | 26 June 2018 |
| Neutral Citation | [2018] EWCA Civ 1468 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A4/2017/1372 |
| Date | 26 June 2018 |
[2018] EWCA Civ 1468
Lord Justice Lewison
Lord Justice Lindblom
and
Lord Justice Flaux
Case No: A4/2017/1372
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE KNOWLES CBE
Royal Courts of Justice
Strand, London, WC2A 2LL
David Lewis QC and Richard Greenberg (instructed by Mackrell Turner Garrett) for the Appellant
Alain Choo Choy QC and Sophie Weber (instructed by Memery Crystal LLP) for the Respondent
Hearing date: 14 June 2018
Judgment Approved
Introduction
This appeal raises the as yet undecided question whether the rule against reflective loss applies to claims by unsecured creditors who are not shareholders of the relevant company. In his judgment, Knowles J decided on a jurisdiction challenge by the appellant (to whom I will refer as “Mr Sevilleja”) that the respondent (to which I will refer as “Marex”) had the better of the argument that Mr Sevilleja had committed the torts of (i) knowingly inducing and procuring two companies of which Marex claims he was the ultimate beneficial owner to act in wrongful violation of Marex's rights under the judgment it had obtained and (ii) intentionally causing loss to Marex by unlawful means. The judge then concluded that Marex also had the better of the argument that the rule against reflective loss did not bar its ability to show a completed cause of action in tort. Mr Sevilleja sought to appeal all those findings but Asplin LJ only granted permission to appeal in relation to the judge's finding in relation to the rule against reflective loss.
Factual background
Creative Finance Limited and Cosmorex Limited (“the Companies”) were companies incorporated in the British Virgin Islands and were the principal trading vehicles of Mr Sevilleja for foreign exchange trading. They were clients of Marex, which is a foreign exchange broker. In 2013, claims by Marex against the Companies on the account between them were tried before Field J in the Commercial Court.
Field J released his draft judgment to the parties on 19 July 2013 which showed that Marex had succeeded in its claim against the Companies in a sum in excess of US $5 million. The judgment in final form was handed down by the judge on 26 July 2013. A freezing order was then obtained by Marex against the Companies on 14 August 2013. The disclosure of assets by the Companies pursuant to that order revealed that the Companies held only US $4,392.48.
In the present proceedings against Mr Sevilleja, Marex alleges that, after the release of the draft judgment he took the opportunity to dishonestly asset-strip the Companies of some US $9.5 million held in their bank accounts in this jurisdiction which he transferred into his personal control in the period between 24 July 2013 and 12 August 2013. It is contended that Mr Sevilleja has thereby committed the torts identified above. As a consequence of that tortious conduct, the Companies were unable to pay the judgment debt to Marex. The Companies are now in liquidation in the British Virgin Islands. In these proceedings, Marex claims as damages the principal amount of the judgment debt, together with interest and costs. Credit is given for sums recovered in enforcement proceedings in New York. Marex also claims as damages costs incurred in taking steps to enforce the judgment of Field J in various jurisdictions.
On 11 August 2016, Marex obtained permission to serve the proceedings on Mr Sevilleja out of the jurisdiction. On 5 October 2016 he issued his application to set aside service, disputing the jurisdiction. The judgment under appeal was in relation to that application.
The judgment below
In relation to the two torts relied upon, the judge rejected the arguments, on behalf of Mr Sevilleja, that the tort of knowingly inducing and procuring the Companies to act in wrongful violation of Marex's rights under the judgment did not exist and that Marex could not show unlawful means for the purposes of the tort of intentionally causing loss by unlawful means. He held, at [33] of the judgment, that the asset-stripping had been carried out to take away from the Companies the freedom to meet their obligations to Marex. As already noted, Mr Sevilleja was refused permission to appeal against the judge's conclusion that Marex had the better of the argument that the two torts had been committed.
The judge then recorded at [37] the submission on behalf of Mr Sevilleja that even if Marex otherwise had a cause of action in tort, the rule against reflective loss barred its ability to show a completed cause of action in tort. The judge cited the statement of the principle by Lord Bingham in his speech in Johnson v Gore Wood [2002] 2 AC 1 at p 35E-F (set out at [17] below).
He went on to cite various passages from the judgment of Neuberger LJ in Gardner v Parker [2004] EWCA Civ 781; [2004] 2 BCLC 554, in particular [71] where reference is made to the speech of Lord Millett in Johnson v Gore Wood at p 67. Neuberger LJ noted that Lord Millett had said in terms that it made no difference to the application of the rule against reflective loss that Mr Johnson was claiming qua employee rather than qua shareholder. Neuberger LJ said obiter that it was: “hard to see why a creditor who is an employee should be treated differently from any other creditor of the company when it comes to applying the rule against reflective loss.”
The judge then noted that, in two cases at first instance, ( Fortress Value Recovery Fund LLC and Others v Blue Sky Special Opportunities Fund LP (A Form) and Others [2013] EWHC 14 and Erste Group Bank AG v JSC “VMZ Red October” and Others [2013] EWHC 2926), I had doubted the correctness of this obiter dictum of Neuberger LJ. Although Knowles J relied upon those cases, neither is of any real assistance in resolving the issue on this appeal as to the correct ambit of the rule against reflective loss, since in neither case was this issue fully argued to the extent it has been on this appeal.
The judge's reasoning in relation to the non-application of the rule against reflective loss in the present case then appears at [41] to [42] of the judgment:
“41. The no reflective loss principle is a valuable and important principle. However in my judgment, the better argument is that the no reflective loss principle does not apply where the claimant sues, as here, for a defendant's knowingly inducing and procuring a third party to act in wrongful violation of the claimant's rights, or for the defendant's intentionally causing loss to the claimant by unlawful means.
42. Were the position otherwise these torts would be left with little application in situations where, in my view, they have a principled part to play. The primary focus of these torts is on loss to the claimant, not to the third party (the company in the no reflective loss context). They purposely recognise that the defendant incurs liability to the claimant by what he has caused to be done to the claimant through his actions with or to the third party. I strongly resist the proposition that the claimant is then to be confined to remedies against the third party, perhaps often (as here) remedies in its insolvency. I strongly resist the proposition that the defendant is answerable in law, and for damages, only to the third party for what he has done.”
At [43] the judge concluded that it was not necessary to have resort to the exception to the rule recognised by this Court in Giles v Rhind [2003] Ch 618 where the alleged wrongdoing has left the company unable to pursue the wrongdoer. In the Respondent's Notice, Marex seeks to uphold the judgment on the alternative basis that the exception recognised in Giles v Rhind does apply.
The correct ambit of the rule against reflective loss
It is quite clear from the terms in which Asplin LJ granted permission to appeal that she contemplated that, at the appeal hearing, the full Court would determine the question of law as to the correct ambit of the rule against reflective loss and, in particular whether it applies (subject to the potential application of the Giles v Rhind exception) to claims by unsecured creditors, where the loss claimed is in effect the same loss as suffered by the company as a consequence of the wrongdoing of the defendant. Whilst this is not determinative of whether the Court should decide that question of law on a jurisdiction challenge, it militates against the suggestion advanced by Mr Alain Choo Choy QC for Marex that we should simply decide that Marex has a sufficiently arguable case that the rule does not apply to creditors for its claim to be allowed to go to trial. I consider that the issue raised by the appeal is a pure question of law which will not be affected by any facts which might emerge at trial, so that we should decide that question of law at this stage. This will increase certainty in this area of the law and address the concern expressed by Arden LJ in Johnson v Gore Wood (No 2) [2003] EWCA Civ 1728 at [162] that: “it is to be hoped that the current will o' the wisp character of the no reflective loss principle will be clarified before long”.
In order to decide the proper ambit of the rule against reflective loss, it is necessary to look in some detail at how the rule has developed. The genesis of the rule was in the decision of this Court in Prudential Assurance v Newman Industries (No. 2) [1982] 1 Ch 204. In that case the plaintiff, which had a 3.2% shareholding in the company, Newman Industries, inter alia sued two individual directors in respect of a fraud on the company. The Court of Appeal (Cumming-Bruce, Templeman and Brightman LJJ) held that this claim was misconceived. In the judgment...
To continue reading
Request your trial
- Sevilleja v Marex Financial Ltd
-
Arcelormittal USA LLC v Mr Ravi Ruia
...evidence and/or pleaded case that AMUSA's claim is barred on reflective loss grounds in the light of Marex Financial Ltd v Sevilleja [2019] QB 173; [2018] EWCA Civ 1468. That point is contested by AMUSA both on its merits under English law (if it were applicable) and on the basis that Mau......
-
Primeo Fund (in Official Liquidation) v Bank of Bermuda (Cayman) Ltd and HSBC Securities Services (Luxembourg) Sa
...2 Hare 461; 67 E.R. 189, referred to. (35)Freeman v. Ansbacher Trustees, 2009 JLR 1, referred to. (36)Garcia v. Marex Fin. Ltd., [2018] EWCA Civ 1468; [2019] Q.B. 173; [2018] 3 W.L.R. 1412; [2018] BPIR 1495, considered. (37)Gardner v. Parker, [2004] EWCA Civ 781; [2004] 2 BCLC 554; [2005] B......
-
Primeo Fund v Bank of Bermuda (Cayman) Ltd
...379 The ambit of the principle was considered in two decisions in 2018. The first is Carlos Sevilleja Garcia v Marex Financial Ltd. [2018] EWCA Civ. 1468, [2018] 3 WLR 1412 (“ Garcia's case”). In that case the English Court of Appeal, after discussing the policies underlying the principle......
-
Does The Rule Against Reflective Loss Apply To Former Shareholders? A Review Of Nectrus Ltd v UCP PLC
...and distinct claim from that of Candor. In doing so, the judge distinguished the judgment of the Court of Appeal in Marex v Sevilleja [2019] QB 173 but noted that the judgment of the Supreme Court on appeal from that decision was still Nectrus's application for permission to appeal on vario......
-
Does The Rule Against Reflective Loss Apply To Former Shareholders? A Review Of Nectrus Ltd v UCP PLC
...and distinct claim from that of Candor. In doing so, the judge distinguished the judgment of the Court of Appeal in Marex v Sevilleja [2019] QB 173 but noted that the judgment of the Supreme Court on appeal from that decision was still Nectrus's application for permission to appeal on vario......
-
UK Supreme Court Gives Landmark Ruling on Reflective Loss
...employees of the company in Gardner v Parker [2004] EWCA Civ 781; and to non-shareholder creditors of a company in Sevilleja v Marex [2018] EWCA Civ 1468. In the present case, the Supreme Court held that this expansion of the doctrine of reflective loss was no longer sustainable; restrictin......
-
Primeo Fund v HSBC: Cayman Islands Court Of Appeal Dismisses Primeo's Appeal
...HSBC Respondents. Footnotes [1] [2017 (2) CILR 334]. For our client advisory about the first instance judgment, see here. [2] [2018] EWCA Civ 1468. This judgment has been appealed to the UK Supreme Court, and judgment is expected later this The content of this article is intended to provide......
-
No reflective loss: The English approach reconsidered
...LP (A Form) 2013 EWHC 14; Erste Group Bank AG v JSC VMZ Red October 2013 EWHC 2926.148 Carlos Sevilleja Garcia v Marex Financial Ltd 2018 EWCA Civ 1468.149 Salmon supra note 20. © Juta and Company (Pty) 30 (2020) 6(2) JOURNAL OF CORPORATE AND COMMERCIAL LAW & PRACTICEhttps://doi.org/10.4734......