Narrowing the principle of reflective loss

Primeo Fund (in official liquidation) v Bank of Bermuda (Cayman) Ltd & another [9 August 2021]

This case review was co-authored by Edward Hitchen, Trainee Solicitor, London.

In a judgment handed down on 9 August 2021, the Privy Council further refined the principle of “reflective loss” following the landmark Supreme Court decision in Sevilleja v Marex Finance (Marex) [2020]. 

The rule against reflective loss means that shareholders cannot seek relief for an injury to a company (resulting in a loss of share value), where the company itself has a cause of action against the same wrongdoer for such injury. Read alongside MarexPrimeo clarifies that the claimant’s shareholder status, which determines whether the rule operates, is assessed at the time loss is suffered rather than the time at which the claim is commenced.


Primeo (a Cayman Island company) was an investment fund and the respondents are professional service providers. The first respondent (R1) was appointed as Primeo’s administrator and the second respondent (R2) had been appointed as Primeo’s custodian. From inception, Primeo had placed a proportion of its funds with the now infamous Bernard L Madoff Investment Securities LLC (BLMIS) for investment. Primeo steadily increased its investments in BLMIS and the direct BLMIS investments became a major part of its investment portfolio. It also invested funds indirectly in BLMIS by buying shares in two feeder funds, Herald Fund SPC (Herald) and Alpha Prime Fund Limited (Alpha). 

In 2007, Primeo’s direct investments in BLMIS were transferred to Herald as consideration for new shares in Herald (the Herald transfer). Herald employed R2 as custodian and administrator. Alpha entered into a custodian agreement with the Bank of Bermuda Limited. R2 was the Bermuda Bank’s sub-custodian and sub-administrator for Alpha. 

In 2008, BLMIS collapsed when Mr Madoff’s Ponzi scheme was discovered . Primeo suffered heavy losses and was placed into voluntary liquidation on 23 January 2009.

Primeo issued proceedings, claiming losses suffered by making direct and indirect investments with BLMIS. Primeo submitted that had R1 and R2 performed their duties as administrator and custodian properly, the problems with the investments would have become apparent. Primeo would have then withdrawn its investments and not have placed further investments directly or indirectly with BLMIS. 

The Grand Court in 2017 dismissed Primeo’s claims. It stated that the claims infringed the reflective loss rule (on the basis that Herald and Alpha also had claims against R1 and R2 which covered the same loss and if they made recovery, that would eliminate the loss suffered by Primeo). Primeo’s appeal was similarly dismissed.

Primeo was however granted permission to appeal to the Privy Council. The key issue was whether Primeo could claim against R1 and R2 for losses suffered through making direct investments with BLMIS before the Herald transfer. 

The Privy Council judgment

The Privy Council allowed the appeal.

When to determine whether the reflective loss rule applies

Firstly, it was held that Primeo could claim in respect of the direct investments it made in BLMIS and for losses up to the time of the Herald transfer in 2007. In principle, until the Herald transfer, every time Primeo had its money misappropriated by BLMIS, it could have sued R1 and R2 in circumstances which did not bring the reflective loss rule into operation. Primeo suffered those losses and accrued those rights of action before it was a shareholder in Herald.

Significantly, it was decided that whether the reflective loss rule is applicable falls to be assessed as at the time the claimant suffers loss arising from the relevant breach, and not some later date which might be arbitrary, such as the date on which a claim is brought. 

Common wrongdoer

The Privy Council also held that the Court of Appeal was wrong to hold that the common wrongdoer requirement was satisfied in relation to R1 and R2, respectively.

Although R1 would have a corresponding onward claim against R2 in respect of R1’s liability to Primeo as administrator, this did not mean R2 should be treated as the common wrongdoer for the reflective loss rule. 

The Privy Council emphasised that the rule only applies to exclude a claim by a shareholder where the wrong in issue is committed by a wrongdoer against both the shareholder and the company. 

As Lord Reed explained in Marex, the reflective loss rule established in Prudential Assurance Co Ltd v Newman Industries Ltd (No2) [1982] (endorsed by the majority in Marex) “had no application to losses suffered by a shareholder which were distinct from the company’s loss or to situations where the company had no cause of action”.


This Privy Council decision confirms that whether a claim may be advanced depends upon the claimant’s status at the time the loss is suffered, rather than the time any claim is advanced. It is impossible however to predict whether this will impact the number of claims being made as it is very much fact specific. What is clear however is that the reflective loss rule will apply only when a claim concerns a wrong committed against both the company and the shareholder by the same wrongdoer. The principle therefore has a narrow application as a defence to shareholder claims. 

Whilst this judgment, alongside Marex, provides further clarity around the reflective loss rule, certain issues may be developed further. For example, in a judgment handed down by the Court of Appeal in Broadcasting Investment Group v Smith [07.01.21] earlier this year, Lord Justice Arnold considered it would be “well arguable that the rule in Prudential” may also “apply to indirect shareholders in appropriate circumstances”, which would be an expansion of the scope of the rule.

This may well be something that some will seek to test in the near future but for now, the rule remains narrow in scope.

Related item: Reflective loss and the impact on claims against directors and officers

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