Reflective loss – Court of Appeal decision mirrors the position in Gardner v Parker

In the case of Malhotra v Malhotra & Anor[1], the claimant, Mr Rakesh Malhotra, had given a cross-undertaking in damages in support of a without notice injunction, which was later discharged.

The defendants, Mr Rajinder Kumar Malhotra (first defendant) and Mr Rajiv Malhotra (second defendant) sought damages under the cross-undertaking and, at an interim hearing, applied for an order for an inquiry as to damages.

In deciding whether to make such an order, the court had to consider whether the defendants' damages claim would fall within the rules on reflective loss, i.e. where a loss claimed by a shareholder is merely reflective of a loss suffered by the company, which is not recoverable.

The court applied the reasoning in Gardner v Parker[2] that the claimant must demonstrate that there was no reasonable doubt that the relevant loss would be irrecoverable under the reflective loss rule. At this interim stage the claimant was unable to overcome this "high hurdle" and the court granted the order sought by the defendants, namely the inquiry as to damages. For the full facts of the case and commentary please click here.

[1] Malhotra v Malhotra & Anor [2014] EWHC 113 (Comm) (31 January 2014)

[2] Gardner v Parker [2005] BCC 46