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

Court: Court of Appeal

Facts: Smith failed to transfer shares to a special purpose vehicle, SS Plc, in breach of an oral agreement. Direct and indirect shareholders in SS sought specific performance. Smith argued that any claim should be struck out because SS could bring a claim as a third-party beneficiary under the s1 Contract (Rights of Third Parties) Act 1999, and losses were merely reflective of those sustained by SS, thus invoking the rule against reflective loss.

Issue: Does the rule against reflective loss bar a shareholder from enforcing a contract as a third party under s1 of the Contract (Rights of Third Parties) Act 1999, or is this rule excluded by s4 of the Act?

Held: The appeal was allowed. Section 4 of the 1999 Act is not excluded by the rule against reflective loss. Asplin LJ emphasized that the rule in Prudential should not sidestep the statutory right conferred by section 1, and Arnold LJ noted that while the rule could theoretically apply to indirect shareholders, this was not directly addressed.

Key Judicial Statement: Asplin LJ observed that treating the rule in Prudential as independent of the statutory right under section 1 would undermine section 4, which expressly preserves the right of the promisee to enforce the contract.

💡Leveluplaw: Shareholders who are third-party beneficiaries under the Contract (Rights of Third Parties) Act 1999 can enforce contracts even if the rule against reflective loss would otherwise apply, thanks to the protection offered by section 4 of the Act.