In THG PLC & Others -v- Zedra Trust Company (Jersey) Ltd [2024] EWCA Civ 158 the Court of Appeal was asked whether there was an applicable limitation period to a petition under section 994 Companies Act 2006 (also known as an Unfair Prejudice Petition).
Prior to this case it was accepted that no limitation period applied to Unfair Prejudice Petitions because Unfair Prejudice Petitions were not considered to be subject to the provisions contained the Limitation Act 1980 (“Limitation Act”).
As a result, it had been accepted by the Courts (but never actually argued and decided) that there was no limitation period applicable to Unfair Prejudice Claims, and that the doctrine of laches did not strictly apply to the statutory remedies available under the Companies Act 2006.
- Giving the leading judgment in a unanimous decision, Lewison LJ held that the Limitation Act did apply to Unfair Prejudice Petitions, with the limitation date being determined by the remedy claimed rather than the underlying cause of action.
- It was decided that the remedies sought pursuant to an Unfair Prejudice Petition would be subject to a 12-year limitation period from the date upon which the cause of action accrued under section 8 of the Limitation Act, save for where the claim is for compensation or monetary relief, in which case there is a 6-year limitation period under section 9 of the Limitation Act.
Analysis
This judgment will be surprising to most practitioners and academics who, for decades, held the well-regarded view that the Limitation Act did not apply to Unfair Prejudice Petitions. But as with most unprecedented decisions, this will raise numerous questions.
- One question relates to the judgment handed down in Smith v RBS, before the Supreme Court 2 months prior.
- That case identified that some types of claims were not subject to any statutory limitation “at all”, one such example being an Unfair Prejudice Petition.
- As a result, it would not be surprising if the decision in THG PLC -v- Zedra is appealed before the Supreme Court.
There are good policy grounds for introducing a limitation period to Unfair Prejudice Petitions; it ensures that good cases are pursued and enforced within a reasonable time (particularly where the petitioner is claiming prejudice), whilst discouraging stale claims; delay impoverishes the evidence available to determine claims, prolongs uncertainty, and impedes the definitive settlement of the parties’ mutual affairs.
It should also be highlighted that whilst there was no limitation period for issuing an Unfair Prejudice Petition, unjustified delays resulting in prejudice or an irretrievable change of position are significant factors a Court would consider in exercising its discretion to grant or refuse a particular remedy under section 996 Companies Act 2006.
The most commonly awarded remedy in Unfair Prejudice Petitions is for the purchase of the shares of any members of the company by the other member (i.e. buy-out order).
- Lewison LJ clarified that with a buy-out order, there is no money judgment or any entitlement to money unless and until a party executes a transfer in exchange for the purchase price.
- Therefore, this remedy falls within the 12-year limitation period providing ample time for a petitioner to issue an Unfair Prejudice Petition.
- Despite this, delays should be avoided as a Court may make a buy-out order based on the value of the company at a historic date and not at the date of the order.
It is not uncommon for Unfair Prejudice Petitions to encounter some delays, often when acting for a shareholder of an SME who is also a director of the company. In such instances, solicitors need to ensure that they advise clients on the 2 limitation periods which may arise from a single cause of action, as well as compliance with their fiduciary duties.
Where a shareholder is not a director of that same company and is thereby not privy to the day-to-day management of the company, it may be some time before they learn of the prejudice they are suffering. Where there has been a concealment from the petitioner either deliberately or in bad faith, then section 32 of the Limitation Act would postpone the running of time until the petitioner has or could have reasonably discovered the concealment.
For the reasons explained, it would be prudent for Unfair Prejudice Petitions to be advanced without delay. This would prevent against the argument that the petitioner’s conduct amounted to a waiver or acquiescence in relation to changes in the way the affairs of the company are conducted, with the result that the petitioner is unable to rely on those changes as being unfairly prejudicial.
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