BL-2025-000377 - [2025] EWHC 2976 (Ch)

I do not consider that it can properly be contended that, if Mr Dekel is entitled to rely upon s. 1 of the 1999 Act, and if the Defendants did act in breach of the Management Agreement, the loss alleged to have been suffered by Mr Dekel was suffered by him as a creditor rather than qua shareholder, or in any other capacity other than qua shareholder in respect of loss suffered qua shareholder.

Mr Dekel plainly subscribed for shares pursuant to the Subscription Agreement. This expressly provided, at clause 1.10 thereof, that Mr Dekel’s capital contribution could not be withdrawn from CLL BVI except by way of redemption of his Participating Shares upon the occurrence of a Realisation Event in accordance with the terms of the Investment Memorandum. The Investment Memorandum spoke in terms of an investment in CLL BVI itself by a subscription of shares rather than any other form of investment. Mr Dekel was subsequently registered in CLL BVI’s Register of Members as a member, and that is how his investment was recognised rather than in any other way.

CLL BVI’s Memorandum and Articles of Association expressly provided, by clause 6.3 thereof, that each Participating Share in CLL BVI should confer on the Shareholder, such as Mr Dekel, a right to an equal share in any dividend paid by CLL BVI, and the right to an equal share in the distribution of the surplus assets of CLL BVI. Whilst this was, pursuant to clause 6.4 of the Memorandum and Articles of Association, subject to CLL BVI’s right to redeem Participating Shares, this was, as provided for within the definition of “Agreed Redemption of Shares” in the Investment Memorandum, on the basis of a payment being made to each holder of Participating Shares of its pro rata share of the net assets of CLL BVI, subject to certain deductions.

Although there was some suggestion that Mr Dekel did not appreciate the nature of the investment that he was making (see paragraph 85(v) below), and may have considered that he was making some other form of investment, the relevant documentation is, I consider, clear as to the true nature of Mr Dekel’s investment in CLL BVI, and there is no suggestion that the relevant documentation was a sham.

As I have touched upon, a point was taken on behalf of Mr Dekel with regard to the return to shareholders referred to in paragraph 18 above, which was referred to in the Business Plan Review 2024 as involving “repaying shareholders 30% of their investment (£6.3m)”. There may be a question mark as to whether CLL BVI was entitled to redeem ahead of a “Realisation Event”, but what occurred was, on any view, a reduction in the number of shares held by Mr Dekel in consideration of the payment of a sum of money to him. This does not, I consider, lead to the conclusion that Mr Dekel’s involvement with regard to the Project was anything other than as a shareholder in CLL BVI.

It is instructive to consider what would have occurred had the Project been successful. In those circumstances, CLL BVI would have been entitled to receive, if it did not do so, interest on the loan of just over £15m that it made to CAF6 (at a rate of 7% per annum), and would have been able to realise its own investment in the Project made through its shareholding in CLL UK. This would then have enabled CLL BVI to make a return to the holders of Participating Shares by way of dividend and/or distribution as envisaged by clause 6.3 of CLL BVI’s Memorandum and Articles of Association. Alternatively, if Participating Shares were redeemed, they would have had to have been redeemed for full value which would have reflected the successful investment in the Project through CLL UK.

The loss suffered by Mr Dekel if entitled to enforce the Management Agreement in his own right, and if the Defendants were in breach thereof, would therefore be the loss of the return that he would have received on the payment by CLL BVI of the dividends and distributions to holders of Participating Shares that would have been made had the Project been successful. If CLL BVI exercised the right to redeem shares, then Mr Dekel would have been entitled to the net value of shares, which would have been enhanced by the profit that CLL BVI its shareholding in CLL UK.

In these circumstances, I consider it to be clear that any loss suffered by Mr Dekel is genuinely reflective of the loss that any loss that CLL BVI might have suffered by reason of any breach by the Defendants the Management Agreement.

The loss specifically sought to be recovered by Mr Dekel as set out in paragraph 39 of the Particulars of Claim is expressed to be Mr Dekel’s loss of the return on his investment that the Project would have made but for the alleged negligence of the Defendants. However, on proper analysis, any such loss of the return of Mr Dekel’s investment is what he would have received as a shareholder in CLL BVI had the Project been successful, and that is a loss which is reflective of any loss suffered by CLL BVI itself.

Consequently, subject to the possible effect of the provisions of the 1999 Act, I am satisfied that the rule against reflective loss applies so as to bar a personal claim by Mr Dekel in respect of the loss that he seeks to recover by the present proceedings.

As to the provisions of the 1999 Act, I do not consider that they assist Mr Dekel in avoiding the rule against reflective loss.

Broadcasting Investment Group Ltd v Smith (supra) was concerned with the specific position of the promisee’s rights, and the preservation thereof by s. 4 of the 1999 Act. There is no equivalent position protecting the rights of a party entitled to enforce a contract by virtue of the provisions of s. 1 of the 1999 Act, rather than as actual promisee, in the same way. Further, I consider it instructive that in Broadcasting Investment Group Ltd v Smith, the Court of Appeal regarded the critical question is being whether it was the rule against reflective loss or s. 1 of the 1999 Act that was the proximate cause of the claimant’s right to enforce the agreement being extinguished. In the present case, any right to sue was conferred upon Mr Dekel by s. 1 of the 1999 Act. In these circumstances, it is difficult to see that the proximate cause of any loss of the right to enforce the Management Agreement was anything other than the rule against reflective loss.

I do not consider that the provisions of s. 1(5) of the 1999 Act assist Mr Dekel. This, as referred to above, provides that there is available to the third party any remedy that would have been available to them in an action for breach of contract had they been a party to the contract, i.e. it provides for a party relying upon s. 1 of the 1999 Act to be treated for the purposes of enforcement of the contract, in the same way as an actual party to the contract. However, had Mr Dekel been a party to the Management Agreement, then the same difficulty in respect of reflective loss would, I consider, still have arisen in that Mr Dekel would, in those circumstances, still have been seeking to recover a loss, as a shareholder, that was reflective of the loss suffered by CLL BVI, and not loss sustained in some other capacity such as creditor or employee.

In Broadcasting Investment Group Ltd v Smith (supra), it was argued that the primary obligations owed to a contractual promisee are different from the secondary entitlements granted by s. 1 of the 1999 Act, such that the shareholder was not binding its fortunes to those of the company in which it was a shareholder. The Court of Appeal did not consider it necessary to consider this argument in detail given its finding as to the effect of s. 4 of the 1999 Act. However, at [53], Asplin LJ did say that she found this argument to be … “a difficult one upon which to succeed given that the shareholder’s loss would be of the very nature described by Lord Reed PSC as falling within the rule in Prudential.”

This does, I consider, lend further support to the conclusion that I have reached.

I therefore consider that even if Mr Dekel is entitled to rely upon s. 1 of the 1999 Act as being a party falling within the scope of clause 20.1.2 of the Management Agreement, and even if the Defendants did act in breach of the Management Agreement, Mr Dekel is barred from claiming for any loss suffered in consequence thereof because such loss is reflective of the loss suffered by CLL BVI in respect of the breaches of the Management Agreement in question.

Consequently, I consider that Mr Dekel, being a shareholder in CLL BVI, is barred by the rule against reflective loss from pursuing a claim for breach of the Management Agreement against the Defendants. On this basis I consider that the Defendants are entitled to have the claim against them struck out, and/or so far as may be necessary and appropriate, to summary judgment.

As this disposes of the claim against the Defendants, it is not strictly necessary for me to consider the further issues that arise in respect of the Application. However, should I be wrong in my conclusion in respect of the reflective loss issue, I shall consider these further issues, but will do so in rather less detail than I otherwise would have done.