Case Note: A Theoretical Retrial of Stein v Blake in the Context of the Companies Act 71 Of 2008, as Amended –the Reflective Loss Principle Revisited

  • Amrisha Raniga


It is trite law that a company is a separate legal entity[1], distinct from its shareholders and as such the company, and not its shareholders, is the legal and beneficial owner of any assets of the company.[2] An extension of the separate-entity principle is the ‘proper plaintiff rule’ where the company is the prima facie proper plaintiff to sue for damages in respect of any wrong alleged to have been done to it.[3]

However, conduct which merits a derivative action on behalf of the company may simultaneously result in a shareholder sustaining damages in his personal capacity, being a diminution in the value of his shares. Can a shareholder bring a personal action against the wrongdoer for the recovery of such a loss? The shares are, after all, assets in the hands of its holder[4] and thus a diminution of value is by definition a personal loss.[5] The possibility of a personal action has been met with judicial hostility as it has been perceived to be an attempt to circumvent the proper plaintiff rule.[6] This was the approach adopted in the seminal case of Prudential Assurance Co Ltd v Newman Industries Ltd[7] which is the founding authority on the ‘reflective loss principle’ (hereinafter referred to as “the Principleâ€).

The Principle only becomes relevant in circumstances where there is an overlap between the claim of a company and the claim of a shareholder.[8] Where the shareholder has a claim, which is distinct and separate from the claim of the company, the Principle finds no application.[9] The Principle has been articulated by Cheung[10] as-

“[W]here the company and the shareholder have co-existing causes of action against the defendant wrongdoer arising out of the same set of facts, the shareholder in a personal action cannot, in general, recover loss which is merely “reflective†of the loss suffered by the company.â€[11]


The immediate rationale behind the Principle is to prevent the harm of double recovery by the shareholder through the company and then again by way of a personal action.[12] But what if there is no risk of double recovery and the continued application of the Principle will lead to ‘an unwarranted and technical obstruction of justice’[13] or there are compelling policy considerations militating towards disapplication of the Principle? This note seeks to conduct a theoretical retrial of the English case of Stein v Blake[14], in which judgment was delivered by Millett L.J in the Court of Appeal in England on 13 October 1997, with such retrial being conducted within the milieu of the oppression remedy in s163 of the South African Companies Act[15] and restricted to the Principle.

Part I offers an exposition of the factual background of Stein and identifies the main legal issue in the judgment of the Court of Appeal which forms the subject matter of this note. It should be noted that a discussion of the judgment handed down by Lord Woolf MR, relating to the basis of application to set aside leave, is beyond the scope of this note and shall not be addressed. Furthermore, the court’s consideration of whom fiduciary duties are owed to by a director is also beyond the scope of this note. Part II offers a deconstruction of the Principle through selected policy and factual considerations which ought to have arisen in Stein. It advocates for a pragmatic approach according to the courts judicial discretion in certain circumstances. Part III advocates for the disapplication of the Principle in the context of the oppression remedy and argues that to do otherwise would take away from the very purpose of the remedy. An in-depth discourse on the remedy is beyond the scope of this note. Part IV delivers an equitable judgment to the retrial of Stein by utilising the remedy.


[1] Salomon v Salomon & Co Ltd [1897] AC 22 (HL), Giora Shapira ‘Shareholder Personal Action in Respect of a Loss Suffered by the Company: The Problem of Overlapping Claims and “Reflective Loss†in English Company Law’ (2003) 37 Int’l L. 137 at 137.

[2] Macaura v Northern Assurance Co Ltd [1925] AC 619; Sarah Worthington ‘Shares and Shareholders: Property, Power and Entitlement: Part 2’ (2001) 22(10) Comp.Law 307 at 308.

[3] Foss v Harbottle (1843) 2 Hare 461 contained in Jan J Roestorf NO and one other v Johns 2012 JDR 1176 (KZD) para 6; Pearlie KOH ‘Allowing Recovery for reflective Losses’ (2011) 23 SALJ 863 at 863.                                                                         

[4] JS McLennan ‘Companies, Shareholders and Reflective losses’ (2005) 17 SA Merc LJ 195 at 196.

[5] Christensen v Scott [1996] 1 NZLR 273 para 280 as contained in Charles Mitchell ‘Shareholders’ claims for reflective loss’ (2004) 120 (Jul) LQR 457-479 at 459.

[6] David Milman ‘Shareholder remedies and the scope of the reflective loss (or no reflective loss) principle (2005) 4 Co.L.N. 1-5 at 2

[7] [1982] 1 All ER 354 at 366-367.

[8] KOH op cit note 3 at 865.

[9] Johnson v Gore Wood & Co [2002] 2 AC 1 contained in McLennan op cit note 4 at 198

[10] Rita Cheung ‘The No Reflective Loss Principle: A View from Hong Kong’ (2009) 20(7) I.C.C.L.R 223-229

[11] Ibid at 223                                      

[12] McCrae v Absa Bank Limited 2009 JDR 0782 (GSJ) para 1 and 24

[13] McLelland v Hulett and Others 1992 (1) SA 456 (D) at 467H.

[14] Stein v Blake and Others [1998] 1 All ER 742 (hereinafter referred to as “Steinâ€)

[15] Act 71 of 2008, as amended (hereinafter referred to as the “Actâ€).

May 1, 2014
How to Cite
RANIGA, Amrisha. Case Note: A Theoretical Retrial of Stein v Blake in the Context of the Companies Act 71 Of 2008, as Amended –the Reflective Loss Principle Revisited. Inkundla, [S.l.], may 2014. Available at: <>. Date accessed: 09 aug. 2022.