Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204

Court: Court of Appeal

Facts: A shareholder of Newman Industries Ltd sued the directors, alleging that their breach of fiduciary duty led to a reduction in the value of his shares. The shareholder contended that the directors’ actions caused harm to the company, resulting in a loss of share value.

Issue: Can a shareholder recover for the loss in share value if that loss reflects the company's losses caused by the directors' breach of fiduciary duty?

Held: The shareholder's claim was dismissed. The court held that a shareholder cannot recover for a loss that merely reflects the company’s loss; it is the company itself that must bring the claim. An exception to this rule exists if directors commit fraud against the minority shareholders.

Key Judicial Statement: "A shareholder cannot recover for a loss which is merely a reflection of the company’s loss." However, if the wrongdoing directors are in control and commit fraud against the minority, the minority shareholders may bring a derivative action.

💡LevelUpLaw: The "no reflective loss" rule generally prevents shareholders from claiming for losses that reflect the company's loss. However, if directors commit fraud and control the company, minority shareholders may have grounds to pursue a derivative action to protect their interests.