Friday 25 June 2021

Australia: Court of Appeal of Western Australia considers the reflective loss principle

Last month I noted a decision of the New South Wales Court of Appeal concerning the (shareholder) reflective loss principle: Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75. The principle has been considered again, at appellate level, in a judgment handed down today by the Court of Appeal of Western Australia: Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 2] [2021] WASCA 105.
The court (Buss P; Murphy and Beech JJA) found that the following principles emerged from the authorities (para. [268], to quote directly):
  • Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder to make good a diminution of the value of the shareholder's shareholding where that loss merely reflects the loss suffered by the company.
  • This will be so even if the company has declined or failed to take action to recover the loss.
  • If the company suffers loss, but has no cause of action to sue to recover that loss, a shareholder with a cause of action who suffers loss to the value of his shares may sue in respect of it.
  • The reflective loss principle does not prevent a shareholder suing for a loss suffered from a breach of duty owed to him or her where the loss is separate and distinct from the loss suffered by the company.
  • The principle extends to the case where both the company and the shareholder have a claim for breach of duty or breach of contract which caused the loss.

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