CL-2020-000117 - [2025] EWHC 1620 (Comm)

I can take this issue more shortly. The reflective loss principle is a rule that precludes a shareholder from recovering damages equivalent to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a loss “is merely a reflection of the loss suffered by the company” – see Johnson v Gore Wood & Co [2002] 2 AC 1 in relation to the English law iteration of this principle. However, the issue that arises in this case does not concern the English law principle but is concerned with whether Maltese law applies a similar principle.

Whilst there is no specific evidence as to the burden of proof of an issue such as this, I have no reason to think that it would not adopt the English law approach. That approach is to require a defendant seeking to rely on the reflective loss principle to both plead and prove because it was an exclusionary rule that denies a claimant what otherwise would be his right to sue – see Shaker v Al-Bedrawi [2002] EWCA Civ 1452; [2003] Ch 350 per Peter Gibson LJ at [83].

None of the defendants with which I am concerned has pleaded much less proved that the reflective loss principle is a principle applied by Maltese law. In my judgment this is enough to dispose of this issue in the circumstances of this case. The issue does not arise in any event. Professor Zammit is the claimant’s expert on Maltese law. In summary (a) Maltese law recognises a version of the no reflective loss principle; but (b) Maltese law approaches the issue pragmatically and will not generally permit the rule to defeat the principle that victims of torts should be fully compensated with the result that a shareholder will be permitted to sue in his or her own name to recover damages for the harm a company suffers where it is impractical or impossible for a shareholder to require the company to take action – see (C) on page 35 of his second report. Moreover, generally the rule will apply in Malta only where (a) the claimant’s loss is not the same loss or a reflection of the loss suffered by the company (i.e. for personal loss distinct from that suffered by the claimant) and (b) the company cannot seek the loss concerned itself – see second report, paras. 66 – 68.

He also considers it likely that the principles will not apply at all in relation to claims based on fraud because of the strictly applied “fraus omnia corrumpit” civil law concept – see para. 76. He concludes therefore that the Maltese courts will apply the reflective loss principles but only if:

“(i)

the personal loss suffered by the plaintiff/shareholder is not distinct from that suffered by the company and: (ii) the plaintiff/shareholder still has the opportunity to work within the company structures to ensure that the company itself takes the legal action he was proposing to take personally.”

Although Professor Zammit characterises this as being “… the comprehensive transplantation of the reflective loss rule from Common law judgments into the Maltese legal system”, he also recognises that Maltese law is different to the extent it recognises an exception to the reflective loss principle “… where it would be in practice impossible for the plaintiff/shareholder to ensure that the company would itself take action to sue for the reduction in its share-value resulting from the defendant’s culpably negligent conduct.” Aside from this, the fraud exception noted earlier is one that will be strictly applied:

“…the maxim that fraus omnia corrumpit occupies a foundational place within the Maltese legal system, tantamount in practice to a rule of Public Policy; although it may not always be appropriate to call it such. This rule expresses the general Roman law actio and exceptio doli - which have survived as a primary source of law into contemporary Maltese law, partly in a codified manner and partly as an unwritten basic principle. The Maltese Courts have repeated on more than one occasion that they would not hesitate to ignore the separate legal personality of a company if this was what was necessary to investigate allegations of fraud and/or provide a remedy for fraud.”

Where that principle is engaged then “… a Maltese Court will not require proof either that the personal loss of the plaintiff can be distinguished from that of the company, or that the plaintiff is unable to act to reclaim the damages suffered through the company’s structures in order to allow the plaintiff shareholder access to an action in delict to obtain full compensation of all the harm she or he suffered.” Whilst strictly it is for me to apply what Professor Zammit proves to be the law of Malta, he adds that in the circumstances of this case, “… a Maltese court would feel duty bound to ignore the separate legal personality of Falcon; thereby positioning itself appropriately to investigate the fraud fully and consequently to determine the responsibility of each of the persons involved in the fraud and provide a restitutio in integrum to the Claimant.” Aside from this, Professor Zammit makes the point that it would now be impossible or impractical for Falcon to sue for the losses claimed in these proceedings by the claimant because Falcon has already settled its claims against Mr Serwin at least for €958,665.70 thereby making it impossible for the claimant to sue him for the full amount of the loss and damage it claims to have suffered and in any event Falcon is subject to control by KPMG as the Competent Person and could not be compelled by the claimant to sue in respect of the liabilities it has incurred in respect of each of the sub funds it operated.

I accept this evidence as being accurately reflective of Maltese law. Indeed, there is no other evidence on which to form any other view. In consequence the reflective loss principle is not an impediment to the claims brought by the claimant in these proceedings because (a) it ought to have no application in any event to a claim based on an acquisition of shares which are worth less than their claimed value at the time of their acquisition; (b) the losses claimed are not reflective of losses suffered by Falcon; (c) the reflective loss principle would be of no application applying Maltese law because there was no practical means by which the claimant could have forced Falcon to sue the defendants for the recovery of the claimant’s losses both because (i) on a proper analysis it did not control Falcon (because it held all the investment but none of the founder shares, which were the shares with the relevant voting rights) and (ii) Falcon had settled with Mr Serwin and so could not on any view proceed against him again given the terms of its settlement agreement with him; and (d) because in any event, Maltese law would not permit application of the principle in a claim based on fraud by operation of the fraus omnia corrumpit principle. This is a conclusion I can reach at this stage because in relation to fraud whilst it must necessarily be assumptive at this stage, this claim is not advanced on any other basis save that the claimant has been the victim of a massive fraud with the result that the claim can only either succeed on that basis or fail altogether.