Case No: A3/2003/2128/CHANI
Neutral Citation Number: [2004] EWCA Civ 781
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Blackburne
CH1998G/4569
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Wednesday 23rd June 2004
Before :

LORD JUSTICE MANCE
LORD JUSTICE NEUBERGER
and
MR JUSTICE BODEY

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Between:

	RODNEY MARK GARDNER	Appellant	
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	ALAN PARKER	Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
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Alan Steinfeld Esq, QC & Stuart Adair Esq
(instructed by Messrs Willan Bootland) for the Appellant
Peter Crampin Esq, QC & Ulick Staunton Esq
(instructed by Messrs Eversheds) for the Respondent

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Judgment
Lord Justice Neuberger:
1.	This appeal raises, not for the first time, the ambit and limits of the rule against reflective loss discussed in Johnson -v- Gore-Wood & Co [2002] 2 AC 1.  In other words, it is concerned with the extent to which a shareholder or creditor of a company who has suffered loss, as the result of a breach of duties owed both to him and the company by a defendant, is nonetheless debarred from recovering that loss, because the breach of duty also caused the company loss, which it is or was entitled to recover from the defendant.
The facts
2.	The present proceedings were begun on 18th August 1998 by Mr Rodney Gardner against Mr Alan Parker.  The reamended Statement of Claim contains the following allegations of fact.
3.	Mr Parker owned 85% of the issued share capital of a company called Barclays Development Corporation plc (“BDC”).  The remaining 15% of the issued shares in BDC were owned by trusts created for the benefit of Mr Gardner and his family.
4.	BDC’s two largest assets were:
i)	9% of the issued share capital of a company called Scoutvale Limited (“Scoutvale”);
ii)	a debt of £799,000 owed to BDC by Scoutvale (“the Loan”).
The remaining 91% of the issued shares in Scoutvale were owned by Mr Parker who was, in substance, the sole director of both BDC and Scoutvale.
5.	On or about 8th December 1992, Mr Parker procured the transfer by Scoutvale of an asset it owned, namely 80% of the issued share capital of a company called Old Hall Estates Limited (“the Old Hall Shares”) to Bweralley Limited (“Bweralley”), a company in which Mr Parker had an interest.  In this transfer (“the Transfer”) the consideration for the transfer of the Old Hall Shares was stated to be £400,000, the payment of which was deferred.  The audited accounts of Scoutvale for the financial year ending 30th April 1991 placed a value on those shares of approximately £5m.
6.	On 10th August 1998, BDC, acting by its liquidator, assigned to Mr Gardner all BDC’s rights of action in respect of shares, properties and other assets and the benefit of all other rights of actions and choses in action.  Mr Gardner’s claim is accordingly based on this assignment, and he is seeking to recover damages to which, on his case, BDC is entitled to recover from Mr Parker.
7.	In paragraph 7 of the re-amended Statement of Claim, it is alleged that, as a director of that company, Mr Parker “owed fiduciary duties to act at all times in good faith in the interests of and for the proper purposes of [BDC] and not to allow his own interests to conflict with those of [BDC]”.  In paragraph 10, it is contended that Mr Parker “procured the sale by Scoutvale of its 80% shareholding in Old Hall [Estates Limited] to Bweralley Limited, a company controlled by Mr Parker at a substantial undervalue”.
8.	In paragraph 11 of the re-amended Statement of Claim it is alleged that Mr Parker’s purpose in that connection was “to extract from Scoutvale its single most valuable asset to the detriment of [BDC]”, or “to cause damage to [BDC]”.  Paragraph 13 contains the allegation that “as a consequence of the Transfer, Scoutvale became insolvent and subsequently went into administrative receivership”.
9.	The damage which BDC is said to have suffered as a result of this is set out in paragraph 14 of the re-amended Statement of Claim in these terms:
“Further, as a consequence of the transfer [BDC’s] assets were substantially reduced:
i)		[BDC’s] 9% shareholding in Scoutvale was reduced in value from £450,000 to nothing, or a nominal value;
ii)	the value of [the Loan] due from Scoutvale was reduced to nothing, or a negligible amount.”
10.	Paragraph 15 alleges that, in procuring the transfer, Mr Parker acted in breach of fiduciary duty, and that “he acted deliberately in furtherance of his own interests at the expense of [BDC] and its assets”.  Paragraph 16 quantifies the loss at £1.249m.  In the prayer for relief, Mr Gardner claims from Mr Parker “damages or compensation for breach of fiduciary duty”, and he seeks orders that Mr Parker pays £1.249m together with interest and costs.
11.	In his Defence Mr Parker, while admitting the existence and terms of the Transfer and the insolvency of Scoutvale, denies most of the other allegations in paragraph 10 and following of the re-amended Statement of Claim.  In particular, he denies that the Transfer involved the Old Hall Shares being sold at an undervalue and he further denies that Mr Gardner has suffered any loss or damage.
12.	The case proceeded to trial in the normal way, with disclosure, inspection, exchange of witness statements, and preparation of bundles - ten in all.  A quick perusal of the evidence suggests that there would have been a substantial conflict between the parties as to many of the issues raised in the reamended Statement of Claim.
13.	Before turning to what happened at trial, it is appropriate to refer to one aspect of that evidence, to which relatively little reference was made in the pleadings, but which was referred to in argument, and in the judgment below.
14.	At all material times, Westpac Banking Corporation plc (“Westpac”) was a creditor of Scoutvale (and, indeed, of BDC).  In that capacity, Westpac had been granted a fixed and floating charge over all Scoutvale’s assets by a mortgage debenture dated 7th July 1989.
15.	On 5th August 1993, Westpac appointed administrative receivers (“receivers”) over Scoutvale’s property.  On 19th May 1994 Westpac commenced proceedings against Bweralley under s423 of the Insolvency Act 1986, alleging that the Transfer was a transaction at an undervalue entered into for the purpose of putting assets, namely the Old Hall Shares, beyond the reach of Westpac.  By those proceedings (“the s423 proceedings”) Westpac sought the return of the Old Hall Shares to Scoutvale.  By virtue of s424(2) of the 1986 Act, those proceedings were deemed to have been brought on behalf of all “victims” of the transaction, which would, in principle, have included BDC at least in its capacity as a creditor of Scoutvale pursuant to the Loan.
16.	The s423 proceedings were compromised by a settlement dated 2nd March 1995 (“the 1995 Settlement”) to which Westpac, Scoutvale acting by the receivers, Mr Parker and his wife, Old Hall Estates Limited, Bweralley and N M Rothschild & Sons Limited (“Rothschilds”, to whom the Old Hall Shares may have been charged by Bweralley as security) were parties.  By the 1995 Settlement, a payment of £350,000 was to be made to Westpac, Westpac agreed to discontinue the s423 proceedings, and Mr Parker was released from all claims which Westpac or Scoutvale might have might have against him:
“… save that nothing in this agreement shall operate to release [inter alia, Mr Parker] from claims that vest solely in the liquidators of Scoutvale and the Receiver’s having no authority in that regard.”
Following payment of the £350,000 to Westpac, the s423 proceedings were discontinued on the agreed terms on 9th May 1995.
17.	Shortly before the present claim was due to come on for hearing, it appears that counsel for the parties agreed to invite the court, at the beginning of the trial, to determine two preliminary issues.  This was presumably on the basis that, if either issue was resolved in Mr Parker’s favour, the claim would be dismissed.
18.	The two preliminary issues were :
“(1) whether the duties, facts and matters pleaded by Mr Gardner in relation to the Transfer are capable of amounting to a breach by Mr Parker of the pleaded fiduciary duties owed by him to BDC as its director”
and
“(2) whether on Mr Gardner’s pleaded case, assuming that the Transfer was in breach of the fiduciary duties owed by Mr Parker to both BDC and Scoutvale, the losses identified in paragraphs 14 and 16 of the reamended statement of claim are recoverable by Mr Gardner.”
19.	Those two issues were argued before Blackburne J when the case came on for hearing on 10th June 2003. In his reserved judgment dated 26th June 2003, the judge found in favour of Mr Gardner on the first issue.  He said that Mr Parker “was as much in a position of conflict as a director of BDC (as between his duty to that company and his personal interests through Bweralley as the proposed transferee of the shares) as he was as a director of Scoutvale” if he had permitted the Transfer to be effected at a substantial undervalue.  Mr Parker does not seek to challenge that decision, to my mind rightly.
20.	The judge went on to find in favour of Mr Parker on the second issue, holding that “Mr Gardner’s claims are barred by the no reflective loss principle”.  It is against that decision that Mr Gardner now appeals.
21.	Mr Parker’s basic contention is that any loss suffered by BDC was loss that it suffered as a shareholder in, and creditor of, Scoutvale, as a result of his alleged actions, and, while those actions would have been breaches of his duty to BDC, they would also have been breaches of his duty to Scoutvale, and could properly found the basis of a claim against him by Scoutvale.  Accordingly, runs Mr Parker’s argument, the damages claimed by Mr Gardner, ie BDC’s loss, is reflective loss which BDC, and therefore Mr Gardner, cannot recover as a matter of principle.  In other words, he relies on what may be characterised as the rule against reflective loss, which, he contends, serves to defeat Mr Gardner’s claim.
22.	As I have mentioned, the judge accepted that proposition and therefore dismissed Mr Gardner’s claim.  In a full and careful judgment, he referred to, and quoted fairly extensively from, speeches in Johnson, and judgments in the two most relevant subsequent decisions of this court, namely Giles -v- Rhind [2003] Ch 618 and Shaker -v- Al-Bedrawi [2003] Ch 350.
The rule against reflective loss
23.	The rule against reflective loss originates, at least judicially, in the judgment of the Court of Appeal in Prudential Insurance Co Limited -v- Newman Industries Limited (No 2) [1982] 1 Ch 204.  That was a case concerned with the right of a shareholder in a company to bring proceedings against a defendant who had caused harm to the company, which, in turn, had led to damage to the shareholder through the medium of his shares having a reduced or nil value.  At 210, the Court of Appeal referred to the uncontroversial proposition that the mere fact that the company had a cause of action against the defendant did not mean that the shareholder had a cause of action against the defendant.  As the court said at 210B:
“This is sometimes referred to as the rule in Foss -v- Harbottle (1843) 2 Hare 461 when applied to corporations, but it has a wider scope and is fundamental to any rational system of jurisprudence.”
24.	The Court of Appeal then turned to the more controversial question of the rights of a shareholder where the defendant is in breach of duty not only to the company, but also the shareholder.  At 222H to 223A, the Court of Appeal said this:
“[A shareholder] cannot … recover damages merely because the company in which he is interested has suffered damage.  He cannot recover a sum equal 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.  The shareholder does not suffer any personal loss.  His only ‘loss’ is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent. shareholding.”
25.	This principle, which I have called the rule against reflective loss, was considered in a number of subsequent cases at first instance and in the Court of Appeal, and was authoritatively discussed by the House of Lords in Johnson.  In that case, Mr Johnson, who owned virtually all the shares in a company, sought to recover damages from solicitors who had, he claimed, caused damage to both him and the company in breach of their duty owed, separately, to him and the company.  The company had issued proceedings against the solicitors, and those proceedings were settled.  Mr Johnson then brought proceedings against the solicitors.  One of the preliminary issues in those latter proceedings was the extent to which his claims were barred by the rule against reflective loss.
26.	The speeches of Lord Bingham of Cornhill and Lord Millett in Johnson have been so extensively quoted in a number of reported (and unreported) cases that it is unnecessary to set them out again in full.  The kernel of the reasoning of those two speeches are to be found at [2002] 2 AC 1, 35-36 (per Lord Bingham) and 61-62 and 65-66 (per Lord Millett), from which extensive passages were quoted, for instance, in paragraphs 23 - 26 of the judgment of Waller LJ in Giles.
27.	In light of the arguments which have been addressed in this case, I should, however, refer to a few short extracts from those speeches.  At 35F, Lord Bingham said this:
“A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss.”
28.	At 36B-C, he said this:
“On the one hand the court must respect the principle of company autonomy, ensure that the company's creditors are not prejudiced by the action of individual shareholders and ensure that a party does not recover compensation for a loss which another party has suffered. On the other, the court must be astute to ensure that the party who has in fact suffered loss is not arbitrarily denied fair compensation.”
29.	In his speech, at 62E, Lord Millett turned to:
“The position is … where the company suffers loss caused by the breach of a duty owed both to the company and to the shareholder. In such a case the shareholder's loss, in so far as this is measured by the diminution in value of his shareholding or the loss of dividends, merely reflects the loss suffered by the company in respect of which the company has its own cause of action. If the shareholder is allowed to recover in respect of such loss, then either there will be double recovery at the expense of the defendant or the shareholder will recover at the expense of the company and its creditors and other shareholders. Neither course can be permitted. This is a matter of principle; there is no discretion involved.”
30.	Later, at 66D-E, Lord Millett said this:
“[I]f the company chooses not to exercise its remedy, the loss to the shareholder is caused by the company's decision not to pursue its remedy and not by the defendant's wrongdoing. By parity of reasoning, the same applies if the company settles for less than it might have done. Shareholders (and creditors) who are aggrieved by the liquidator's proposals are not without a remedy; they can have recourse to the Companies Court, or sue the liquidator for negligence.”
He then continued at 66E-F in the following terms:
“But there is more to it than causation. The disallowance of the shareholder’s claim in respect of reflective loss is driven by policy considerations. In my opinion, these preclude the shareholder from going behind the settlement of the company’s claim. If he were allowed to do so then, if the company's action were brought by its directors, they would be placed in a position where their interest conflicted with their duty;  while if it were brought by the liquidator, it would make it difficult for him to settle the action and would effectively take the conduct of the litigation out of his hands.”
31.	I cite three further short passages in the speech of Lord Millett.  First, at 66E-H, he said this:
“Reflective loss extends beyond the diminution of the value of the shares; it extends to the loss of dividends … and all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds.”
At 67B he added:
“The same applies to other payments which the company would have made if it had had the necessary funds even if the plaintiff would have received them qua employee and not qua shareholder and even if he would have had a legal claim to be paid. His loss is still an indirect and reflective loss which is included in the company’s claim.”
32.	Finally, Lord Millett turned to the claim by the shareholder in that case for pension contributions which would have been made by the company if it had been in funds.  He said this at 67G-H:
“For the reasons I have endeavoured to state, Mr Johnson cannot recover the amount of the contributions which the company would have made if it had had the necessary funds;  this merely reflects the company’s loss and is included in its own claim.  Nor can Mr Johnson claim interest in respect of the lost contributions for the same reason.”
33.	I think that the effect of the speeches in Johnson can be taken as accurately summarised by Blackburne J at first instance in Giles in a passage set out in paragraph 57, subject to the qualifications expressed in paragraphs 61 and 62, of the judgment of Chadwick LJ in the Court of Appeal.  As amended by those two qualifications, it seems to me that Blackburne J’s formulation was approved by this court (Keene LJ having agreed with Chadwick LJ) in the following terms, so far as relevant:
“(1) a loss claimed by a shareholder which is merely reflective of a loss suffered by the company – i.e.  a loss which would be made good if the company had enforced in full its rights against the defendant wrongdoer – is not recoverable by the shareholder save in a case where, by reason of the wrong done to it, the company is unable to pursue its claim against the wrongdoer;
(2) where there is no reasonable doubt that that is the case, the court can properly act, in advance of trial, to strike out the offending heads of claim; 
(3) The irrecoverable loss (being merely reflective of the company’s loss) is not confined to the individual claimant’s loss of dividends on his shares or diminution in the value of his shareholding in the company but extends … to ‘all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds’ and also to other payments which the company would have made if it had had the necessary funds even if the plaintiff would have received them qua employee and not qua shareholder save that this does not apply to the loss of future benefits to which the claimant had an expectation but no contractual entitlement;
(4) the principle is not rooted simply in the avoidance of double recovery in fact; it extends to heads of loss which the company could have claimed but has chosen not to and therefore includes the case where the company has settled for less than it might ...;
(5) provided the loss claimed by the shareholder is merely reflective of the company's loss and provided the defendant wrongdoer owed duties both to the company and to the shareholder, it is irrelevant that the duties so owed may be different in content.” (emphasis added)
The italicised text is taken from paragraphs 61 and 62 of the judgment of Chadwick LJ.
The issues
34.	In light of the first, and unchallenged, finding of Blackburne J, the threshold requirement for the engagement of the rule against reflective loss is satisfied, namely that the defendant, Mr Parker, owed separate duties to the company, Scoutvale, and to the shareholder, BDC.  In each case, the defendant’s liability arose from the fact that he was a director, but the source of each liability was different, in that his liability to the shareholder was attributable to the fact that he was a director of the shareholder, whereas his liability to the company was attributable to the fact that he was a director of the company.
35.	On analysis, the present case appears to contain the two essential ingredients which result in the rule against reflective loss being engaged, namely:
i)	the losses claimed to have been suffered by BDC are losses suffered in its capacity as shareholder in, or creditor of, Scoutvale:  that is made as clear as could be in paragraph 14 of the Re-amended Statement of Claim;
ii)	the damages claimed in these proceedings against Mr Parker, being based on the losses suffered by BDC as a result of the transfer of the Old Hall Shares at a substantial undervalue, are damages which would have been made good if Scoutvale “had enforced its rights against” Mr Parker.  The fact that BDC only had a proportion of the issued shares in Scoutvale, and the fact that one may not be able to “trace” Scoutvale’s loss to the shareholders, without effecting some sort of adjustment, cannot make any difference.  If it were otherwise, then the reflective loss principle would in practice rarely apply.
36.	On behalf of Mr Gardner, Mr Alan Steinfeld QC, who appears with Mr Stuart Adair, contends that there are nonetheless two reasons why the rule against reflective loss does not apply to the claim for loss of value in BDC’s shares in Scoutvale or to the claim for the loss, or irrecoverability, of the Loan.  First, he contends that the rule against reflective loss has no application in a case where, as here, the shareholder is seeking to recover from the defendant by virtue of breach of a fiduciary duty towards the shareholder, independent of the defendant’s duty to the company concerned.  Secondly, he contends that the exception to the rule, as established in Giles, either applies, or ought to be extended so as to apply, to the present claim.  This second contention is advanced on the basis that, by his actions, in particular by joining in the 1995 Settlement, Mr Parker effectively disabled Scoutvale from bringing proceedings for recovery of its loss, as a result of which the shareholder, BDC, is entitled to do so.  I shall consider those two contentions in turn.  I shall then turn to Mr Steinfeld’s third contention, which is that the rule against reflective loss does not apply to the present claim insofar as it relates to the loss or irrecoverability of the Loan.
The first contention:  the rule against reflective loss does not apply to a claim for breach of fiduciary duty
37.	The first contention raised on behalf of Mr Gardner is that because the duty owed by Mr Parker to BDC, and allegedly breached by Mr Parker, was fiduciary in nature the rule against reflective loss has no application.  Mr Steinfeld justifies that contention, so far as principle is concerned, at least in part by relying on the fact that the nature of the relief granted for breach of a fiduciary duty is equitable or proprietary in nature, which is different in kind from the relief accorded in a common law claim, for breach of contract or tort, such as that contemplated in Prudential and Johnson.
38.	Mr Steinfeld reinforces his argument by pointing out the curious practical results if the rule against reflective loss applied in such a case.  He puts forward the example of three trustees of a settlement which owned shares in a company of which one of the trustees was a director.  If that trustee conducted the affairs of the company in breach of his duty to the beneficiary under the settlement and in breach of his duty as director to the company, it could lead to a curious result, so far as his fellow trustees were concerned, if he could avoid liability to the beneficiary on the basis of the rule against reflective loss.  He, as the person principally responsible for the damage to the value of the settlement, could avoid liability to the beneficiary by invoking the rule against reflective loss, whereas his co-trustees, who may have been relatively innocent of any wrongdoing, could not avoid such liability, because, as they were not directors of the company, there would be no question of their being able to invoke the rule against reflective loss.
39.	In my view, the contention that a claim, which would otherwise be defeated by the rule against reflective loss, is not so defeated because it is brought for breach of fiduciary duty must be rejected.  That contention was considered and rejected by this court in Shaker.  In that case, the claimant contended that a substantial number of shares in a company were held on trust for him by the company’s sole director.  The claimant brought proceedings against the director in respect of a large sum of money which, the claimant contended, represented part of the proceeds of sale of the company’s assets, which had been misappropriated by the director and wrongly distributed.  At first instance, the judge dismissed the claim on the basis of a preliminary point which he decided in favour of the defendant director, namely that even if the claimant otherwise established his case, his claim was barred by the rule against reflective loss.
40.	The Court of Appeal allowed the claimant’s appeal (which was argued on a different footing) on the basis that, without a full trial, it could not be clearly established that the company was in fact entitled to recover the sums claimed by the claimant.  The uncertainty principally arose because the company was subject not to English, but to Pennsylvanian, law:  see paragraphs 60-72 and 84-86 of the judgment of the court given by Peter Gibson LJ.  Accordingly, as it was unclear that the company had a claim for any loss suffered as a result of the action of the trustee/director, it could not be determined that the rule against reflective loss applied.
41.	While allowing the claimant’s appeal on this ground, the Court of Appeal, in their judgment, also considered another argument raised on behalf of the claimant.  In paragraph 73 of the judgment, Peter Gibson LJ said this:
“The question which therefore arises is whether the [rule against reflective loss] also applies in circumstances where a beneficiary with an equitable interest in a company’s shares which are held in trust by a trustee sues the trustee for an account of the profit taken by the trustee, that profit being monies in respect of which the company may have a prior claim against the trustee in his capacity as a director of the company for breach of fiduciary duty.”
42.	The Court of Appeal answered that question in paragraphs 81 and 83 of the judgment, where Peter Gibson LJ said this:
“81.	We agree … that if the claim by [the claimant] for an account is in substance a claim to monies to which [the company] has a claim against [the defendant], then consistently with the reasoning in Johnson the [rule against reflective loss] would bar [the claimant’s] claim for what in effect reflects part of the loss suffered by [the company], and it matters not that the causes of action of [the claimant] and [the company] are different.  Nor does it matter that [the company] has not yet brought proceedings against [the defendant]:  the … principle still bars a claim reflective of the company's loss 
83.	In our judgment the [rule against reflective loss] does not preclude an action brought by a claimant not as a shareholder but as a beneficiary under a trust against his trustee for a profit unless it can be shown by the defendants that the whole of the claimed profit reflects what the company has lost and which it has a cause of action to recover.  As the … principle is an exclusionary rule denying a claimant what otherwise would be his right to sue, the onus must be on the defendants to establish its applicability.  Further, it would not be right to bar the claimant’s action unless the defendants can establish not merely that the company has a claim to recover a loss reflected by the profit, but that such claim is available on the facts.  …” (emphasis added).
43.	Thus it appears clearly to have been determined in Shaker that, even when the claim is brought by a beneficiary against a trustee for breach of fiduciary duty, it can be barred by the rule against reflective loss.  In that connection I would refer to the passages I have quoted from paragraphs 81 and 83 of the judgment in that case, delivered by Peter Gibson LJ.  My reliance on paragraph 81 is, I think, self-explanatory.  So far as paragraph 83 is concerned, it seems to be to be borne out by the words I have emphasised at the end of the first and third sentences of my citation of that paragraph.
44.	Mr Steinfeld argues that those observations should not be followed.  He suggests that they were obiter, and in any event were inconsistent with the decision and reasoning of Cross J in Re Lucking’s Will Trusts [1968] 1 WLR 866 at 873-875, and the decision and reasoning of this court in Walker -v- Stones [2001] QB 902 at 932H to 934C.  I do not propose to rehearse in detail his arguments in this connection, because they appear to be substantially the same as those which were raised in Shaker, and which were considered and discussed by the Court of Appeal in that case at paragraphs 75 - 81.  As the court in Shaker said in the last of those paragraphs, the decisions in Lucking and Walker “were decided prior to the decision of the House of Lords in Johnson’s case”.  In the same paragraph, the Court of Appeal made reference to the fact that the judge at first instance in that case considered that “at least part of the reasoning in the Walker case cannot stand with Johnson’s case”.  It seems to me that, in the passage which immediately follows those observations, and which I have quoted above, the Court of Appeal effectively agreed with that contention.  Indeed, if they had not done so, they could not have reached the decision that they did.
45.	In my view, the conclusion that the rule against reflective loss would have applied in Shaker if the company had had a claim against the defendant under Pennsylvania law was part of the ratio decidendi of the Court of Appeal.  That is not merely because the court raised the issue, considered it in detail and disposed of it over the course of paragraphs 73 to 83 of its judgment.  It is also because it was, in terms of case management, necessary to dispose of the issue.  As a result of the conclusion that it was unclear whether the company had a claim in Pennsylvania law, the Court of Appeal remitted the case back for trial.  If the rule against reflective loss had had no application, it would have been unnecessary for the trial judge below to hear evidence and argument as to whether the company had a claim;  if as the court found, the rule did apply, such evidence and argument would be necessary.
46.	However, whether or not the decision of this court in Shaker on this point was strictly obiter or not, I am satisfied that we should follow it.  The court specifically identified the point at paragraph 73, and, in the next paragraph, summarised the contention that the rule against reflective loss should not apply to a claim for breach of fiduciary duty.  The court then considered, in paragraphs 75-83, the arguments and the authorities relating to that contention, and rejected it.  Particularly as this is a difficult and developing topic, it would, to my mind, require a very cogent case to be made out before this court should refuse to follow its own recent clear, unanimous and fully-reasoned conclusion on an important aspect of the rule against reflective loss.
47.	Mr Steinfeld has not persuaded me that the decision and reasoning of the court on this issue in Shaker was wrong, especially when its application to the facts of this case is considered.  So far as the decision in Lucking is concerned, I do not consider it takes matters any further.  First, the rule against reflective loss was not raised, although it is true that a not dissimilar argument was advanced and rejected;  secondly, it does not seem to me that the rule against reflective loss was actually applicable on the facts;  thirdly, it is a first instance decision, albeit one to be accorded particular respect as it was decided by Cross J;  fourthly, it pre-dated Prudential and Johnson.
48.	As to Walker, it was also decided before Johnson.  Although it is fair to say that a passage in the judgment of Sir Christopher Slade was cited with approval by Lord Hutton in Johnson at 51D-F, that passage represents a general summary of the law, and the decision was otherwise not referred to in any of the speeches in Johnson.  Further, no doubt was cast in Walker at 932H-934C on the rule against reflective loss.  On the contrary:  it was applied to bar another aspect of the claim - see at 952D-953C.  It seems to me that the rule against reflective loss considered and applied in Walker by Sir Christopher Slade was slightly, but crucially, different from what it was subsequently stated to be by Lord Millett.  That appears from Sir Christopher’s citation of the principles, and especially principle (5) contained in this court’s reasoning in Johnson (reported at [1999] Lloyds Rep PN 91 at 98) - see at 930D-931A.  This difference is reflected in the fact that the defendant’s appeal to the House of Lords in Johnson on the reflected loss issue was, albeit to a limited extent, successful.
49.	It is clear, from the analysis and discussion in the cases to which I have referred, that the rule against reflective loss is not concerned with barring causes of action as such, but with barring recovery of certain types of loss.  On that basis, there is obviously a powerful argument for concluding, as this court did in Shaker, that, whether the cause of action lies in common law or equity, and whether the remedy lies in damages or restitution, should make no difference as to the applicability of the rule against reflective loss.  Furthermore, given that the foundation of the rule is the need to avoid double recovery, there is a powerful case for saying that the rule should be applied in a case where, in its absence, both the beneficiary and the company would be able to recover effectively the same damages from the defaulting trustee/director.
50.	As Mr Peter Crampin QC, who appears with Mr Ulick Staunton for Mr Parker, points out, the present facts arguably give rise to rather a stronger candidate than those in Shaker for the application of the rule against reflective loss.  Here, the nature of the claim by the company, Scoutvale, against the defendant, Mr Parker, is very similar in nature to that by the shareholder, BDC, against the same defendant.  In each case, the claim is for breach of fiduciary duty by a director (in one case as a director of the company, in the other as a director of the shareholder) in permitting an asset of the company to be transferred at a significant undervalue to a third party in which the defendant had an interest.  On the other hand, there was a greater difference between the nature of the claim in Shaker, namely a beneficiary’s claim against the defendant as a trustee of the settlement, and a company’s claim against the defendant as a director of the company.  While, as I have said, the nature of the two claims is not the centrally significant matter when deciding whether the rule against reflective loss applies, it seems to me that it is not an irrelevant factor when considering Mr Steinfeld’s contention that, notwithstanding the decision in Shaker, the rule should not be applied in the present case.  Furthermore, the nature of the remedy appropriate to each of the two causes of action in the present case is arguably much closer than it was in Shaker.
51.	The anomaly raised by Mr Steinfeld gives one pause for thought:  on the not unlikely hypothetical set of facts he posits, it would seem surprising that only two of the three trustees could be liable to the beneficiary, particularly when it is the third trustee who, as director of the company, could be said to be the person one would expect to be primarily liable.
52.	However, on reflection, I do not consider that the alleged anomaly assists Mr Gardner’s case.  First, although it is perhaps a little more difficult to conceive of circumstances in which it might arise, the same point could be made where three persons are jointly liable in contract or tort to the shareholder, and only one of them is so liable to the company.  Secondly, it may well be that, in a case such as that posited by Mr Steinfeld, the beneficiary would not be able to recover damages from the other two trustees, on the basis that the loss which founds his claim has the character of reflective loss and is therefore irrecoverable.  Alternatively, if the two trustees were sued by the beneficiary, the remedy would lie in their hands, namely by joining the trustee director and the company to the proceedings, with a view to protecting their position by ensuring that the court’s primary order involved the trustee/director having to reimburse the company for its loss, thereby enabling the other two trustees to avoid liability.
53.	Accordingly, I am unpersuaded that the alleged anomaly justifies this court refusing to follow its recent and carefully considered decision in Shaker.  First, the anomaly, if it exists, would apply, at least in principle, to any type of claim, and not merely to a claim for fiduciary duty, where the rule against reflective loss might apply.  Secondly, the anomaly may not even arise, for reasons of principle or in practice.  In any event the anomaly would be an insufficient reason, in my view, to justify our refusing to follow Shaker.
The second contention:  the rule against reflective loss should be disapplied as a result of the 1995 Settlement?
54.	The second contention raised on behalf of Mr Gardner is that, even if the rule against reflective loss would otherwise apply in the present case, it has ceased to apply as a result of the 1995 Settlement.  In this connection, Mr Steinfeld relies on the exception to the rule established by this court in Giles.  In that case, the defendant had conducted a business in competition with a company in which he and the claimant owned the shares.  By carrying on his business, the defendant acted in breach of his duty to the company and in breach of contract with the claimant.  As a consequence, the company went into administrative receivership.  The company issued proceedings against the defendant, but, following a successful application by the defendant for security for costs which it could not meet, the company discontinued on terms that it would bring no further proceedings.  Thereafter, the claimant started proceedings against the defendant to recover the damages he had suffered, including the loss in value of his shares in the company and loss of the remuneration he would have earned.  The defendant applied to strike out that claim on the ground that the damages sought were reflective loss.  While it is clear that the majority of damages claimed in that case by the claimant constituted reflective loss, the Court of Appeal nonetheless unanimously held that the claimant’s claim was not debarred by the rule.
55.	In so doing, the court held that the rule against reflective loss does not apply in a case where the claim is against:
“a wrongdoer who, in breach of his contract with the company and its shareholders, ‘steals’ the whole of the company’s business, with the intention that the company should be so denuded of funds that it cannot pursue its action against him, and who gives effect to that intention by an application for security for costs which his own breach of contract has made it impossible for the company to provide.” - per Chadwick LJ at paragraph 66.
As Chadwick LJ went on to say in the same paragraph:
“I would not find it easy to reconcile [such a] result with Lord Bingham's observation, at p36C, that ‘the court must be astute to ensure that the party who has in fact suffered loss is not arbitrarily denied fair compensation’.”
56.	To much the same effect, Waller LJ said this at paragraph 34 of his judgment:
“One situation which is not addressed [in Johnson] is the situation in which the wrongdoer by the breach of duty owed to the shareholder has actually disabled the company from pursuing such cause of action as the company had.  It seems hardly right that the wrongdoer who is in breach of contract to a shareholder can answer the shareholder by saying, ‘The company had a cause of action which it is true I prevented from bringing, but that fact alone means that I the wrongdoer do not have to pay anybody’.”
In paragraph 35, he went on to hold that the contention that the wrongdoer could answer the shareholder’s claim in this way was “unarguable”.
57.	The reasoning in Giles, as I understand it, was that the objection to a shareholder suing the wrongdoer for what would otherwise be reflective loss would not be sustained for a combination of two reasons.  First, from the claimant’s point of view, application of the rule against reflective loss would represent an “arbitrary den[ial] of fair compensation” if he was prevented from suing, in circumstances where the company could not sue for its loss, because of the very wrongdoing of which complaint was being made.  Secondly, from the defendant’s point of view, and indeed, from the point of view of principle, there could be no objection to the claimant suing in such a case, because the ultimate reason for the rule against reflective loss is the need to avoid the risk of double recovery from the defendant, and if the company cannot sue, the defendant is not exposed to such a risk.
58.	On behalf of Mr Gardner, it is contended that the reasoning in Giles applies in the present case, or, if it does not, that the exception to the rule against reflective loss established in Giles should be extended to cover the present case.  In this connection, reliance is placed on the 1995 Settlement, whereby, through the agency of the receivers, Scoutvale released Mr Parker from any liability he might have (other than a liability to a liquidator of Scoutvale, which is of no direct relevance, because Scoutvale, even now, is not in liquidation).  Mr Steinfeld contends that Mr Gardner’s case for avoiding the rule against reflective loss is even stronger than that of the claimant in Giles, because, when the 1995 Settlement was entered into, Mr Parker owed a continuing fiduciary duty to BDC, namely to reinstate its asset which, by his breach of duty to BDC he had caused to be lost.
59.	The first problem faced by this argument is that the preliminary point which the judge was invited to consider was, in terms, by reference to “Mr Gardner’s pleaded case”.  Although it is true that the re-amended Statement of Claim includes the allegation that Scoutvale was put into administrative receivership by Westpac, and that Westpac appointed the receivers, that is as far as the pleadings go.  In those circumstances, any reliance on the 1995 Settlement, let alone the circumstances in which that settlement was entered into, faces obvious difficulties.  That is not a mere pleading point.  Given that there were no pleaded allegations that Scoutvale was forced to release Mr Parker from any liability, owing to Scoutvale’s impecuniosity, and that the impecuniosity was attributable to the wrongdoing alleged against Mr Parker, there was little, if any, evidence in the form of witness statements or other documents, which would have impinged upon those sort of allegations if the hearing had gone ahead.
60.	Secondly, over and above any point that might be taken on the pleadings, it is important to bear in mind the limits of the exception established in Giles to the rule against reflective loss.  As was made clear by Lord Millett in Johnson at 66D-E, cited above in paragraph 30, the mere fact that the company chooses not to claim against the defendant, or settles with the defendant on comparatively generous terms, does not, at least without more, justify disapplying the rule against reflective loss (and in this connection it is perhaps worth noting that he was supported by similar observations in this court in Prudential at 223E-F).  Accordingly, the court must be satisfied that the sort of circumstances described in Giles by Waller LJ at paragraph 34 or by Chadwick LJ at paragraph 66 exist, before the fact that the company has abandoned, or settled on apparently generous terms, its claim against the defendant, justifies disapplying of the rule against reflective loss.
61.	In my judgment, there was simply no evidence before the judge to support the contention that the release of Mr Parker, as contained in the 1995 Settlement, was forced upon Scoutvale by Mr Parker, let alone that Scoutvale was prevented from pursuing Mr Parker because of its impecuniosity, or even that any such impecuniosity had been caused by the wrongdoing alleged in the reamended statement of claim against Mr Parker.
62.	The mere fact that Scoutvale was in administrative receivership plainly did not of itself prevent that company starting an action, as is evidenced by the existence of the s423 proceedings.  Further, in paragraph 47 of his judgment, the judge said that:
“It is not suggested by [counsel then appearing for Mr Gardner] that it can be shown (and it is certainly neither pleaded nor a matter of common ground between the parties) that Scoutvale was disabled from pursuing any claim against Mr Parker by reason of a lack of financial means caused by his wrongdoing.  On the contrary, [counsel] very fairly conceded in his skeleton argument that ‘the financial pressures on … Scoutvale … may have that effect [ie an inability to pursue any claim against Mr Parker] independent of any action taken by Mr Parker to deplete its assets’.  Nor does the fact, if fact it be, that Mr Parker has continued to control Scoutvale mean that Scoutvale has been disabled from bringing a claim.”
63.	The fact that Mr Parker was a party to, and was released from liability by, the 1995 Settlement is not by any means even indicative of the fact that there was financial, or indeed any, pressure on Scoutvale or the receivers, to release him from liability for any wrongdoing.  The receivers may well have taken the view that, because they considered that any claim was worth much less than the reamended Statement of Claim suggests, or because of the existence of rights of third parties (such as Rothschilds), or because of the relative impecuniosity of Mr Parker, the terms agreed in the 1995 Settlement were commercially attractive.  Further, it is not as if Mr Parker was a party to the 1995 Settlement purely for the purpose of releasing him from any liability:  there were other provisions in the document whereby he released various parties, including Scoutvale itself, from any claims which he might have against them.
64.	The fact that the 1995 Settlement looks generous to Mr Parker on the basis of the facts and figures which are alleged in the reamended Statement of Claim, but which are neither established nor agreed, cannot of itself justify the conclusion that the present case falls within the ambit of the exception to the rule as established in Giles.  Accordingly, especially in light of the concessions recorded by the judge as having been made on behalf of Mr Gardner, no doubt on the basis of the fairly voluminous evidence before the court, it appears to me that the judge’s rejection of his contention on this issue was inevitable.  Even without those contentions, there was simply no evidence to support it.
65.	I turn to Mr Steinfeld’s submission that Mr Parker effectively committed a breach of his fiduciary duty to BDC when he entered into the 1995 Settlement.  First, if it is thereby intended to suggest that there is a separate claim which could be raised against Mr Parker, it is simply not pleaded.  Secondly, although attractive at first sight, the submission is flawed, because it assumes that, at the time of the 1995 Settlement, Mr Parker was under an obligation to pay substantial damages to BDC, an assumption which is inconsistent with the rejection of the first argument raised on behalf of Mr Gardner.
66.	In light of the suggestion that this conclusion may leave Scoutvale and, whether directly or indirectly, BDC without any claim, even if Mr Parker ought not to have been released, it is right to add this, albeit with diffidence, in light of the fact that the receivers are not party to the present proceedings.  If it were the case that the terms on which the receivers released Mr Parker from any liability to Scoutvale were too generous, it could well be that Scoutvale would have a cause of action for damages (which may by now be time-barred) against the receivers for breach of duty.  In that connection, I would refer to the reasoning and cases cited in Medforth -v- Blake [2002] Ch 86 at 97C-100C and 101F-102G.
The third contention:  BDC’s claim as creditor is not barred by the rule against reflective loss.
67.	If, as I believe to be the case for the reasons given, the claim against Mr Parker for the loss suffered by BDC in relation to its shares in Scoutvale is barred by the rule against reflective loss, Mr Steinfeld’s final contention is that the rule does not apply insofar as Mr Gardner’s claim is based on BDC’s inability to recover the Loan from Scoutvale, and the judge was wrong to conclude otherwise.  In this connection, Mr Steinfeld points out that the observations of the Court of Appeal in Prudential in relation to reflected loss were directed to claims by shareholders who have suffered a diminution in the value of their shares and a loss of dividends payable in respect of those shares, and that the plaintiff in Johnson was effectively the sole shareholder in the company concerned.  Accordingly, he argues that there is no reason to extend the rule against reflective loss to a claim by a person who sues as a creditor, rather than a shareholder, of a company concerned in which he has a relatively small interest.
68.	In my view, the rule against reflected loss bars any claim by BDC for the loss of its ability to recover on the Loan, just as much as any loss it suffered in respect of its shares in Scoutvale, in light of the reasoning of the House of Lords, in particular that of Lord Millett, in Johnson.  At 36G, Lord Bingham dealt briefly with Mr Johnson’s claim in that case for loss of payments which the company would have made to the plaintiff’s pension fund.  He said this:
“… [T]his claim relates to payments which the company would have made into a pension fund for Mr Johnson:  I think it plain that this claim is merely a reflection of the company’s loss and I would strike it out.”
69.	Lord Millett reached the same conclusion in the passage I have quoted at paragraph 32 above.
70.	It is clear from those observations, and indeed from that aspect of the decision, in Johnson that the rule against reflective loss is not limited to claims brought by a shareholder in his capacity as such;  it would also apply to him in his capacity as an employee of the company with a right (or even an expectation) of receiving contributions to his pension fund.  On that basis, there is no logical reason why it should not apply to a shareholder in his capacity as a creditor of the company expecting repayment of his debt.  Indeed, it is hard to see why the rule should not apply to a claim brought by a creditor (or indeed, an employee) of the company concerned, even if he is not a shareholder.  While it is unnecessary to decide the point, as BDC was a shareholder in Scoutvale, it is hard to see any logical or commercial reason why the rule against reflective loss should apply to a claim brought by a creditor or employee, who happens to be a shareholder, of the company, if it does not equally apply to an otherwise identical claim by another creditor or employee, who is not a shareholder in the company.
71.	There are observations, which I have quoted, in the speech of Lord Millett in Johnson which appear to me strongly to reinforce the conclusion that the rule against reflective loss does indeed bar BDC’s claim against Mr Parker insofar as it is based on the Loan.  Thus, in the passage from his speech I have quoted at paragraph 30 above, Lord Millett does not merely refer to “shareholders” but also to “creditors”.  Secondly, in the passage cited in paragraph 31 above, Lord Millett emphasised that reflective loss does not only extend to “diminution of the value of the shares” and “loss of dividends”, but also to “all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds”.  Similarly, at 67B, he said in terms that the fact that Mr Johnson was claiming, as it were, qua employee, rather than qua shareholder, made no difference.  I can see no basis whatever in logic or principle as to why, if a claim qua employee is barred by the rule, a claim made qua creditor is not similarly so barred.  In most cases where an employee’s claim is barred by the rule against reflective loss, the employee will be a creditor of the company.  It is hard to see why a creditor who is an employee should be treated differently from any other creditor of the company when it comes to applying the rule against reflective loss.
72.	I should make two further comments about this part of the appeal.  First, it seems to me that, in his judgment in Walker at 934A-C, Sir Christopher Slade appears to have taken the view that, if (contrary to his opinion) a claim against a trustee/director by a beneficiary is barred by the rule against reflective loss, then a claim by the beneficiary against other trustees would similarly be barred.  That observation seems to me consistent with the view taken by Lord Millett in Johnson in the passages to which I have just referred.
73.	Secondly, when reaching his conclusion that the claim based on the Loan was barred by the rule against reflective loss, the judge disagreed with an obiter view I had expressed at first instance at paragraphs 29 and 33 in Humberclyde Finance Group Limited -v- Hicks (14th November 2001 - unreported).  I had suggested that, if the shareholder in that case had had only a few shares in the company concerned, rather than effectively being a sole shareholder, it would probably have been wrong to strike out his claim for lost pension rights.  Blackburne J was right to express disagreement with my view in view of what was said by Lord Bingham and Lord Millett in Johnson.  It appears to me that, even if the claimant in Humberclyde had held no shares in the company, his claim would almost certainly have been barred by the rule against reflective loss.  In any event, it is clear that, provided the claimant owns some shares in the company concerned, his claim for lost pension rights is liable to fail owing to the rule against reflective loss.  As Mr Crampin points out, this view is strongly reinforced by the observations of Chadwick LJ in paragraph 81 of his judgment in Giles.
74.	Mr Steinfeld suggests that this is a rather surprising result.  However, if a creditor (or employee) whose claim is barred by the rule against reflective loss is not repaid, he is not without remedies.  If the company concerned is solvent, he can sue the company for his loss.  If the company is insolvent, the creditor (or employee) can put the company into liquidation (if that has not already happened) and can either fund a claim by the liquidator against the defendant or, as Mr Gardner did in relation to BDC, he can take an assignment of the company’s claim.  Indeed, the creditor (or employee) could probably take an assignment of the company’s claim without seeking to wind it up.
75.	Part of Mr Steinfeld’s argument in relation to his third (and indeed, his second) contention appears to me to question or challenge the justice of applying the rule against reflective loss in cases other than when the claim is made for diminution in the value of the claimant’s shares or loss of dividends (as in Prudential) or where the claim is brought by a person who effectively owns the company (as in Johnson).  That challenge, it seems to me, is not consistent with the principle established in Johnson, and perhaps most clearly expressed by Lord Millett at 62E and 66D-F (cited at paragraphs 29 and 30 above).  The approach suggested by Mr Steinfeld appears to me to be more consistent with that of Thomas J in Christensen -v- Scott [1996] 1 NZLR 273, discussed in Johnson at 65E-66E with disapproval by Lord Millett, and, indeed, discussed at 43E-45F by Lord Cooke of Thornton.  As with many points relating to reflective loss, Mr Steinfeld’s arguments in this connection appear to me to be not without force, although not without difficulties either.  However, in light of the decision and reasoning in Johnson, as subsequently applied in this court, those arguments could only be determined in the House of Lords, and then only if it was appropriate for their Lordships to reconsider the rule against reflective loss.
Conclusion
76.	In these circumstances, I am of the view that the decision of Blackburne J was correct, and it follows that Mr Gardner’s appeal must be dismissed.
Mr Justice Bodey:
77.	I agree.
Lord Justice Mance:
78.	I also agree.
Order: Appeal dismissed. Any ancillary issues to be dealt with at a later date.
(Order does not form part of the approved judgment)