## Facts

- Broadcasting Investment Group Ltd (BIGL) and Mr. Smith entered into a shareholders' agreement relating to Infront Sports & Media AG.
- BIGL alleged that Mr. Smith breached the shareholders’ agreement, causing harm to both Infront and directly to BIGL.
- BIGL sought damages for direct harm and for reflective loss resulting from a decrease in the value of its Infront shares.

## Issues

1. Whether shareholder claims for reflective loss are barred when the company itself has a right of action.
2. How to distinguish between a shareholder's direct loss and reflective loss in the context of a breach of shareholders' agreement.
3. Whether breaches of shareholders’ agreements can give rise to separate, direct claims by shareholders, independent of company losses.

## Decision

- The Court of Appeal reaffirmed the reflective loss rule, preventing shareholders from claiming for reflective loss if the company has its own right of action.
- The Court distinguished between reflective loss and direct loss, holding that losses arising from a distinct legal breach, such as a breach of a shareholders' agreement, are not barred by the reflective loss rule and may be claimed personally.
- The Court accepted that breaking a shareholders' agreement creates direct contractual duties between shareholders, enabling direct claims independent of the company's losses.
- The Court considered recent developments, including _Marex Financial Ltd v Sevilleja_ [2020] UKSC 31, and applied the narrowed principles of the reflective loss doctrine.

## Legal Principles

- The reflective loss rule prohibits shareholders from recovering losses that merely reflect loss suffered by the company when the company has a cause of action.
- Shareholders may claim for direct losses stemming from breaches of separate rights, such as contractual rights under a shareholders’ agreement, provided these losses are distinct from the company’s losses.
- Shareholder agreements can establish duties and rights that allow direct claims for breaches, separate from any claims the company may have.
- The _Marex_ decision clarified that the reflective loss rule applies broadly to those with financial interests in the company, but cannot bar claims arising from breaches of independent rights.

## Conclusion

The Court of Appeal's decision in Broadcasting Investment Group Ltd v Smith distinguishes between reflective and direct loss, confirming that shareholders can personally recover losses arising from breaches of shareholders’ agreements, as these are separate from company losses. This reinforces the need to assess the source of the alleged loss and confirms the continued relevance and limits of the reflective loss rule in light of _Johnson v Gore Wood & Co_ and _Marex Financial Ltd v Sevilleja_.


Broadcasting Investment Group Ltd v Smith [2021] EWCA Civ 912