Court of Appeal Finds S.8 & 9 of the Limitation Act 1980 Apply to Unfair Prejudice Claims

27 March 2024

It has long been the convention that petitions by minority shareholders under s.994 of the Companies Act 2006  (‘CA 2006’) were not limited by the periods set out respectively in s. 8 and 9 of the Limitation Act 1980 (‘LA 1980’) with reliance generally placed on the concepts of laches and acquiescence by respondents to prevent stale claims. The Court of Appeal in THG Plc & Others v Zedra Trust Company (Jersey) Limited [2024] EWCA Civ 158 have ended that line of thinking with their judgment handed down on 23.02.24.

Minority shareholders under CA 2006 may lodge a petition in the Insolvency and Companies Court for the relief set out under s.996 CA 2006 which includes inter alia:

  1. In general terms such relief as the Court sees fit in respect of the matters complained of – this provision is incredibly flexible and able to be moulded to the circumstances of the case;
  2. Regulate the future conduct of the company;
  3. Require the company to do or refrain from doing a certain act;
  4. Require no modifications of a company’s articles without leave of the Court; and
  5. Provide for the purchase of shares in the company from any member of the company (whether minority or majority shareholder).

Such a power arises for relief if the petitioner can prove to the relevant standard under s.994(1):

  1. That the company’s affairs 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 least himself), or
  2. That an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.

Lord Hoffman set out in the well-known case of O’Neill v Philips [1999] 1 WLR 1092 what was meant by the statutory expression under CA 2006 of “unfair prejudice.” He pointed out that the concept of fairness is used in a commercial context; and that the terms on which someone agrees to participate in a company is regulated by the company’s articles of association and (sometimes) by collateral agreements between shareholders (i.e. such as shareholder agreements). He also explained that company law had developed seamlessly from the law of partnership, which was treated by equity as a contract of good faith. Thus, he said:

“The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.”

The lead judgment of Lewison LJ in THG Plc has dismissed the conventional thoughts on limitation which he described as the hitherto “received wisdom.” A series of cases over the years have relied on this convention such as in Re Grandactual Ltd [2006] BCC 73 where Sir Donald Rattee struck out a 9 year old issue asserting his understanding as follows:

“…that [s 994] is not subject to any period of limitation, but relief under [s 996] is always within the discretion of the court. I do not consider that the court should countenance such proceedings in the circumstances that I have described nearly ten years after the event.”

In 2018, Fancourt J heard argument that laches applied to an unfair prejudice petition with LA 1980 to be applied by analogy. In his judgment in Re Edwardian Group Ltd [2018] EWHC 1715 (Ch) at [751] without reference to any particular authority stated:

“In my judgment, the right approach is to consider how the delay in question should affect the exercise of the court’s discretion under section 996 to make such order as it thinks fit. There is no statutory time limit for issuing a petition, nor does the equitable doctrine of laches strictly apply where the relief sought is not equitable relief. However, unjustified delay resulting in prejudice or an irretrievable change of position (the essential ingredients of a defence of laches) are likely to be significant factors in the exercise of the court’s discretion to grant or refuse a particular remedy. So too is any evidence that the Petitioners have previously acquiesced in the state of affairs of which they now complain, which is the basis of a number of the authorities to which I was referred. If, in view of the delay and the reasons for the delay, it is unfair or inappropriate in all the circumstances for the Petitioners to obtain the relief that they seek, the Court will exercise its discretion to refuse it.”

The well-know practitioner text of Joffe on Minority Shares (6th Ed) states at paragraph 6.286:

“There are no statutory limitation periods applicable to claims under CA 2006 s 994. However, a petitioner with full knowledge of the relevant facts who delays in bringing the petition … runs the risk of being taken to have accepted or acquiesced in the position; and may have difficulty in persuading the court that he is in a position to assert that his interests have been prejudiced.”

In Bailey v Cherry Hill Skip Hire [2022] EWCA Civ 158, the judgment of Fancourt J was approved by Andrews LJ stating at [36]:

“There is no statutory period of limitation applicable to unfair prejudice petitions. It was common ground before us that where there has been delay in the issue of a petition under section 994, the correct approach is that which was adopted by Fancourt J in In re Edwardian Group Ltd … para 571.”

Lewison LJ has held that such comments were not binding on the Court of Appeal as in effect it was taken as read that this was the common position on the law with no argument or examination in Cherry Hill of the history of the law on this point. This judgment does go through the history and thus is binding establishing that LA 1980 does have application to unfair prejudice claims. The starting point is under the 12 year limitation period of s.8 on the basis that an action for unfair prejudice was considered to be an action “on a speciality.” However, limitation is 6 years under s.9 of LA 1980 if the action is for the recovery of monetary relief under statute (obviously here under the relief available under s.996).

The result in THG Plc was that the claim for monetary relief by Zedra for being 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 was dismissed.

The judgment is a mixed blessing. Twelve years is a long time for a stale claim to sit and then be brought in my view. It brings with it additional disclosure burdens with parties struggling to gather records that they may have deleted after 7 years as part of their standard data purge. Having had experience recently of cases stemming from over 20 years ago (but concealed thus delaying limitation under s.32 LA 1980), the problems of data recovery are substantial and when obligated to look at old records can lead to increased costs. On the positive side, it does allow for the most part a more extended period for a wronged party to seek relief.

I do not think though this is the end of the story. The Court of Appeal at paragraph 126 of the judgment challenged whether or not if the 12 year rule under s.8 applied whether a respondent could challenge a petition on the grounds of delay and have it dismissed even though within the statutory period. Lewison LJ ducked this point as it did not need to be decided stating:

If and to the extent that a limitation period applies to a claim, the claimant has, at least in principle, the full statutory period within which to bring his claim. It would thus normally be inappropriate to strike out the claim merely because of delay. 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.”

This will therefore need to be further argued in the future.

If you would like to instruct Marcus Croskell in connection with an unfair prejudice petition or other company law matter please contact the clerks on 01473 214481 or contact them here.


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