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

In response to these submissions, it is submitted on behalf of Mr Dekel that the rule against the recovery of reflective loss does not apply in the circumstances of the present case because:

As to the first of these arguments, it was submitted that Mr Dekel is properly to be treated as a creditor expecting the return of his capital, and that that is how the loss that he is seeking to recover ought to be viewed. Reliance was placed upon the way that matters were expressed in a number of the documents produced and provided to Mr Dekel prior to making his investment, including, for example:

Reliance was also placed by Mr Dekel upon the Business Plan Review dated May 2024 prepared by RE Capital referred to in paragraph 18 above, and to an acquisition loan of £12m having been obtained to assist in “repaying” the shareholders 30% of their equity. This relates to the monies that were returned to shareholders such as Mr Dekel. It was submitted that this was paid out as a “capital distribution” and reflected a partial repayment to Mr Dekel as a creditor, rather than anything else.

It was submitted on behalf of Mr Dekel that what he has lost was “his capital and his return” which was not loss suffered qua shareholder, but as an investor in CLL BVI. It is submitted that this was not the same loss as any loss suffered by CLL BVI in respect of any breach of the Management Agreement.

So far as the effect of s. 1 of the 1999 Act on the rule against reflective loss is concerned, although accepted not to be directly relevant, reliance was placed by Mr Dekel on the decision of the Court of Appeal in Broadcasting Group Limited v Smith [2021] EWCA Civ 912, [2022] 1 WLR 1. In this case, the promisee under the relevant contract was the shareholder, and it was the company that was entitled to enforce the terms of the relevant contract pursuant to s. 1 of the 1999 Act. The question arose as to whether the promisee’s claim as the actual contracting party was defeated on the basis that its loss was reflective of the loss suffered by the company entitled to sue as third party pursuant to s. 1 of the 1999 Act. The Court of Appeal held that whilst the rule against the recovery of reflective loss prima facie applied, the effect of s. 4 of the 1999 Act was to prevent the rule applying in the way that it would otherwise have applied.

S. 4 of the 1999 Act, headed “Enforcement of a contract by promisee” provides as follows:

“Section 1 does not affect any right of the promisee to enforce any term of the contract.”

The Court of Appeal held that, on true construction of s. 4 of the 1999 Act, any right to enforce a contract which a third party acquired by virtue of s. 1 was additional to and could not “affect”, whether by destroying, extinguishing or otherwise, any pre-existing right of a contractual promisee to enforce any term of the contract. Consequently, if s. 1 were to be the proximate cause of a contractual promisee’s rights being extinguished, then s. 4 would operate to prevent such an outcome. The critical question was therefore whether it was the rule against the recovery of reflective loss or s. 1 that was the proximate cause of the claimant’s right to enforce the agreement being extinguished. It was held that s. 1 was the proximate cause, and therefore s. 4 operated so as to prevent that event occurring by virtue of the application of the rule against reflective loss.

As I have said, it was not suggested on behalf of Mr Dekel that this case applied to the present facts, where it is the company that is the promisee, and the shareholder whose right to sue arises, if it does, by virtue of s. 1. However, it was submitted that the rationale for preserving the right to sue must be much the same, and that Parliament must have intended that a person entitled to rely upon s. 1 of the 1999 Act should have a right to enforce a promise made by third party irrespective of impediments such as the rule against reflective loss.

Reliance is placed by Mr Dekel on s. 1(5) of the 1999 Act, which provides:

“(5)

For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly).”

In short, it was submitted that s. 1(5) reinforces the point that s. 1 of the 1999 Act conferred on Mr Dekel a statutory right to sue that cannot be taken away from him, and/or that he has the benefit of a separate and distinct right to sue other than as shareholder conferred by s. 1 of the 1999 Act that means that he falls within the second of the categories identified by Lord Reed PSC in Marex at [79] and [83].