Unfair prejudice

Section 994 CA 2006 provides a mechanism for shareholders to petition for relief from the court if their interests are being unfairly prejudiced. Members of a company can apply to the court for an order if:

• the company's affairs (as to which, see our previous article) are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including, at the very least, the petitioner); or
• an actual or proposed act or omission of the company (or on its behalf) is or would be so prejudicial.

If the petitioner is successful, the court has a wide discretion as to the relief to be granted. A non-exhaustive menu of the possible relief is set out at section 996 CA 2006. Whilst the relief is most commonly an order requiring the purchase of the petitioners’ shares by other members, other forms of relief are possible, including the court regulating the conduct of the company’s affairs or granting monetary relief.

Limitation – 40 years of convention overturned

It had been commonly accepted that statutory limitation periods under LA 1980 did not apply to unfair prejudice petitions. A number of previous judgments had accepted this, most notably the decision in Bailey v Cherry Hill Skip Hire Ltd [2022] EWCA Civ 531, in which it was stated that “There is no statutory period of limitation applicable to unfair prejudice petitions”. All the key legal textbooks on the subject area accepted that this was the position.

Rather than strict limitation periods, the concepts of laches and acquiescence would apply to stale unfair prejudice claims – put simply, the court could use its discretion to strike out claims where the petitioner had waited too long or accepted a certain state of affairs for a lengthy period before petitioning for relief.

Step forward the Court of Appeal in the case of THG Plc & others v Zedra Trust Company (Jersey) Limited [2024] EWCA Civ 158, who have blown this well-established convention away.

The claims advanced in the case had been whittled down to one remaining complaint – that the petitioner, Zedra, had been wrongly excluded from a bonus share issue in July 2016, with the effect that the petitioner's shareholding was diluted and it had lost the right to acquire (and subsequently sell) additional shares. The petitioner sought an order that the relevant directors should pay it compensation for its loss, a claim for monetary relief. The respondents had applied to strike this claim out on the basis that it was out of time.

In making its decision, the Court of Appeal considered that it was not bound by the decision in Bailey, holding that the limitation point in Bailey had not been the subject of argument, that the Judge’s statement on the point (as set out above) was based on assumption that the “received wisdom” on the point was correct, and, as such, they could look at the question afresh.

12 years, or 6 years?

The COA carried out an extensive review of the pertinent case law, and came to the conclusion that unfair prejudice petitions are “actions upon a specialty”, as set out at section 8 LA 1980, and are therefore generally subject to a limitation period of 12 years. That limitation period will apply to all claims for non-monetary relief made in unfair prejudice petitions.

However, the position is not entirely straightforward. Under LA 1980, section 8 is disapplied if a shorter limitation period is prescribed elsewhere. If a petitioner is seeking monetary relief, then section 9 LA 1980 will apply, which governs actions to recover any sum recoverable under statute (given that the relief is being sought under sections 994 and 996 CA 2006). This has a shorter six-year limitation period.

That shorter limitation period was held to apply here. As Zedra, the petitioner, was only seeking monetary relief and was beyond the six-year limitation period, its claim was held to be time-barred.

But what about delay and acquiescence?

Despite its findings on limitation, the Court of Appeal did not fully answer the question of whether a petitioner’s delay in advancing its claim or acquiescence to a state of affairs remains relevant to whether they should be permitted to petition for relief. That question was left open for another day and another decision, with the statement:

“It may that on particular facts it could be seen that the claimant had acquiesced in the state of affairs of which he complains, with the consequence that the court's discretion would not be exercised in his favour even if he were to prove all his allegations. In such a case it would, I think, be possible for the court to give summary judgment in the defendant's favour. Although this question was mentioned in oral argument, it was not the subject of any developed submissions. I therefore prefer to leave that question to a case in which it matters.”

Comment

The Court of Appeal’s decision has changed the limitation landscape for unfair prejudice petitions, laying down clear statements of principle. A number of petitioners will be assisted by this – a 12-year period in which to bring claims is generous. On the flip side, disclosure costs in some actions could be increased as a result, as parties might be required to provide disclosure of documentation going back many years, in respect of claims which might once have been regarded as stale.

Petitioners will need to pay particular attention to how they plead their claims, and the relief they are seeking, bearing in mind that actions for monetary relief are subject to the shorter six-year limitation period.

The decision also leaves unanswered questions, most tellingly what the interplay and balance will be between the new limitation periods and the court’s ability to strike out or summarily dismiss claims where the petitioner has delayed or acquiesced to a particular state of affairs. The Court of Appeal’s decision may be being appealed, so those questions may be answered sooner rather than later.

"The received wisdom for over 40 years has been that unfair prejudice petitions are not subject to any periods of limitation. That was the assumption made, without the matter being argued, in Cherry Hill. However, as Lewison LJ has clearly explained, when that assumption is challenged, it can be seen that there is nothing to support it." - Source:
https://www.bailii.org/ew/cases/EWCA/Civ/2024/158.html