Significant 5-person coram Singapore Court of Appeal decision clarifies the no reflective loss principle: Miao Weiguo v Tendcare Medical Group Holdings Pte Ltd (formerly known as Tian Jian Hua Xia Medical Group Holdings Pte Ltd) (in judicial management) and another [2021] SGCA 116
The Court of Appeal held that dicta in its previous decision Townsing Henry George v Jenton Overseas Investment Pte Ltd [2007] 2 SLR(R) 597 on the no reflective loss principle in company law is wrong.
The Court held that the principle only prevents claims by shareholders in the capacity as shareholders for diminution in value of shares or distributions received as shareholders as a result of an actionable loss suffered by the company.
The Court clarified that the policy underlying the rule is solely a company law one, not the general policy against double recovery, which otherwise would render the principle too broad.
Comment: Importantly, this means that a shareholder may sue a person: (a) in some other capacity, or (b) for any loss that’s not a diminution in value of shares or distribution.
Eg shareholder may sue in minority oppression in respect of acts that do not overlap with the subject of such actionable loss by company.
Eg shareholder may sue qua beneficiary of some trust, say a Quistclose trust, or the recipient of some misrepresentation.
This clarification is welcome especially when I’ve seen other counsels or judges getting confused about the scope of the no reflective loss principle.