Landmark ruling: statutory limitation periods apply to unfair prejudice claims

The Court of Appeal in THG plc and others v Zedra Trust Company (Jersey) Limited has unanimously ruled that limitation periods do apply to unfair prejudice petitions made under section 994 of the Companies Act 2006 (“the CA 2006”).

The judgment confirmed that the length of the limitation period will depend on the relief sought as different sections of the Limitation Act 1980 (the “LA 1980”) will apply to different claims. In summary the Court held that:

1. An unfair prejudice petition is an action upon a specialty under section 8(1) of the LA 1980, meaning the limitation period is 12 years from the date on which the relevant cause of action accrued.
2. Where the relief claimed is the payment of a sum of money, under section 9 of the LA 1980, the limitation is 6 years from the date on which the relevant cause of action accrued.

Background

Section 994 of the Companies Act 2006 allows a shareholder of a Company to present a petition to the Court where a company’s affairs are being conducted in a way that is unfairly prejudicial to the interests of the shareholders (whether individually or collectively), or when an act or proposed act would be unfairly prejudicial.

In this case, an unfair prejudice petition was presented to the Court by shareholders of THG plc (“Company”) on 7 January 2019, which made a number of claims that were subsequently struck out and/ or dismissed by the Court.

However, on 16 December 2022, Zedra Trust Company (Jersey) Limited (“Zedra”), a shareholder of the Company, was allowed to plead that it had been wrongly excluded from a bonus share issue in 2016. This petition alleged that the directors were in breach of their statutory duties and that, as a result of the bonus share issue, Zedra’s shareholding had been diluted and Zedra had lost the right to additional shares which it would have sold.

Given that more than 6 years had passed, the question of whether limitation had expired on the petition was referred to the Court of Appeal.

The Court’s legal reasoning

Does the LA 1980 apply?

The Court started by noting that the prevailing wisdom has been that limitation periods do not apply to unfair prejudice petitions. However, the Court also noted that none of the authorities cited had in fact directly decided the question.

The Court also noted that there is a strong policy against bringing stale claims. The Court of Appeal quoted Lord Sumption in Abdulla v Birmingham City Council [2012] UKSC 47:

“Delay impoverishes the evidence available to determine the claim, prolongs uncertainty, impedes the definitive settlement of the parties’ mutual affairs and consumes scarce judicial resources in dealing with claims that should have been brought long ago or not at all”.

The Court considered if a petition under section 994 of the CA 2006 was within the scope of the LA 1980. The LA 1980 imposes limitation periods in respect of different types of “action”. “Action” is defined within the LA 1980 as to include “any proceedings in a court of law”. The Court concluded that “in principle, therefore, it is possible for a petition presented under section 994 to fall within the scope of the 1980 Act.”

The Court then turned to the next question of whether section 8 of the LA 1980 applied to the petition. Section 8 provides that an “action on a specialty” has a limitation period of 12 years from when the cause of action has accrued. To fall under section 8, a claim must exist only because of a statute and not be derived from a contract or in tort. As a member of a company has no right to petition for relief for unfair prejudice except under section 994, the Court of Appeal found that unfair prejudice petitions are actions upon a specialty and are usually subject to a limitation period of 12 years.

As section 8 of the LA 1980 is disapplied if a shorter limitation period is prescribed by the LA 1980 (section 8(2)), the Court turned to consider if section 9 of the LA 1980 will apply. Under section 9 “an action to recover any sum recoverable by virtue of an enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued.” The Court held that where, as in this case, the right to go to Court is purely statutory and the only relief sought is the payment of money, the action falls within section 9 of the LA 1980 and a limitation period of 6 years applies.

What does this mean for future applications?

This decision will impact how unfair prejudice petitions and brought and what relief (being monetary or non-monetary) is sought to prevent petitioners falling foul of the limitation period.

One potential point to consider is that, prior to THG v Zedra, the policy of the Courts in relation to petitions under section 994 is to “discourage litigants from dredging up old grievances and encourage them to focus on a limited number of specific, current complaints.” In fact, the Law Commission has previously suggested that a far shorter limitation period of 3 years should be introduced in relation to section 994 petitions.

This decision clearly gives a far longer timeframe for potential claimants to bring a claim to Court which brings up the potential future debate of whether a Court can dismiss a claim brought within the limitation period on grounds of delay. The Court of Appeal did consider this issue within its judgment but ruled that as “it was not the subject of any developed submissions… [it] would prefer to leave that question to a case in which it matters.”

In practice, the most common relief sought in unfair prejudice proceedings is an order requiring the respondent to buy the petitioner’s shares (in other words, not a claim for recovery of money) – in which case the applicable limitation period will be 12 years from the date of cause of action accrued. However, given that different heads of relief claimed under the same statutory provision (section 994 of the CA 2006) will now attract different limitation periods, future claimants will have to consider carefully how to frame their case.