Corporate Law LAW5073

“No Reflective Loss”

Principle
Johnson v Gore Wood & Co (2002)
Foss v Harbottle

Prepared by: Nor Shafinah Abd Halim

AM2304013075
Topic Overview

The "no reflective loss principle" states that

shareholders cannot individually sue for losses that
are merely a reflection of the losses suffered by the
company itself. This means that if the company has
already claimed compensation for a particular loss,
shareholders cannot bring separate legal actions seeking
compensation for the same loss. The principle aims to
prevent double recovery and ensures that legal
actions are brought in the best interests of the
company as a whole.
 Johnson v Gore Wood & Co Foss v Harbottle
(2002) (1843)

Brief
Mr. Johnson - majority shareholder Richard Foss - minority shareholder
Gore Wood & Co - firm solicitors Thomas Harbottle - company director
• Mr. Johnson sued the

Facts of solicitors for causing

financial losses to the
• Minority shareholders sued
the directors for

the Case
company due to
mismanagement.
negligence.

• The court said only the

• He won compensation but
company could sue, not
later tried to sue again
individual shareholders.
(second lawsuit) for the
same issue.
 Issues

The main issue in both cases revolves around the shareholders' rights to
sue for losses suffered by the company and whether such lawsuits would
lead to double recovery.

• Can shareholders sue twice for the same loss?

• Can minority shareholders sue directors directly?
 Johnson v Gore Wood & Co Foss v Harbottle
(2002) (1843)

• Majority rule and corporate

• "No reflective loss personality: Only the company,

Principles principle": Shareholders

can't sue twice for the
with the majority's approval, can
sue.

Involved same loss.

• The principle is indirectly
applied in the court's decision,
the court decided that only the
company, not individual
shareholders, could sue the
directors for losses suffered by
the company. This stops
shareholders from suing
separately for losses the
company should claim. It's about
avoiding double recovery and
making sure the company takes
legal action when necessary.
 Johnson v Gore Wood & Co Foss v Harbottle
(2002) (1843)

Judgement
• Mr. Johnson couldn't
• In Foss v Harbottle, the
bring a second lawsuit
court said only the
against the solicitors
and because of the "no
reflective loss principle."
company, not individual
shareholders, could sue

Reason
the directors. Allowing
It stops shareholders
individual lawsuits could
from suing again for the
lead to double recovery..
same loss the company
already claimed.
 Analysis of Principles
of Law Highlighted

• Both cases illustrate the importance of the "no reflective loss principle"
in preventing shareholders from seeking multiple recoveries for the
same loss.

• Overall, these principles promote fairness and efficiency in corporate

law by ensuring that legal actions are brought in the company's best
interests and prevent shareholders from exploiting the legal system
for personal gain.
Thank You