Do statutory limitation periods apply to unfair prejudice claims?

5 April 2024

The "received wisdom" for several decades has been that unfair prejudice petitions under section 994 of the Companies Act 2006 are not subject to periods of limitation. However, in the landmark decision of the Court of Appeal (CA) in THG Plc v Zedra Trust Co (Jersey) Ltd [2024] EWCA Civ 158 (handed down on 23 February 2024), unfair prejudice petitions are now said to be subject to statutory limitation periods — although the length of this period will depend on the relief sought.

In THG v Zedra, the relief sought was that directors who had allegedly breached their duties in allotting shares and capitalising profits for an improper purpose should pay equitable compensation to Zedra to redress its loss. In the High Court, Mr Justice Fancourt had felt bound by the ratio of the earlier Court of Appeal decision in Bailey v Cherry Hill Skip Hire Ltd [2022] EWCA Civ 531 in holding that there is no limitation period directly applicable to a section 994 petition.

In allowing the appeal and representing a significant departure from "over 40 years’ received wisdom", wisdom now deemed to be incorrect, the CA held that it was not bound by Cherry Hill. Essentially, an assumption had been made in that case that no limitation period applies to unfair prejudice petitions, without the matter being argued. However, as Lord Justice Lewison explains in THG v Zedra, when that assumption is challenged, it can be seen that there is nothing to support it.

The key takeaways from the leading judgment of Lewison LJ are as follows:

  • A section 994 petition initiating proceedings falls squarely within the definition of "an action" for the purposes of the Limitation Act 1980, namely "any proceeding in a court of law". As such, even though unfair prejudice petitions are not expressly referenced within the 1980 Act, it’s still entirely possible for a petition to fall within the scope of that Act;
  • In principle, a petition seeking relief under section 994 of the Companies Act 2006 is subject to the limitation period in section 8(1) of the 1980 Act, namely 12 years from the date upon which the cause of action accrued, except where a shorter period of limitation is prescribed by that Act;
  • Where the only relief sought is for the payment of money (liquidated or unliquidated) in the form of compensation to the petitioner(s), which is relatively rare, the claim will fall within section 9(1) of the 1980 Act, for which a 6-year limitation period applies. Accordingly, on the facts of THG v Zedra, the claim for compensation was statute-barred. However, relief in the form or an order for a share purchase order is not to be treated as a claim for money caught by section 9.

On one final point, while the CA purports to introduce the application of a "bright line limitation period", this may not always mean that this is where the line will be drawn in terms of seeking relief after lengthy delays. While the imposition of a 12-year limitation period will not serve to defeat many complaints, this should not encourage petitioners to advance stale s.994 claims. This is because the courts may not necessarily be discouraged from striking out or summarily dismissing allegations of historical misconduct if it can clearly be seen, at an interim stage, that even though the petition was presented within the applicable limitation period, no reasonable judge could consider that such matters would justify the exercise of discretion to grant the relief sought at trial.

Legal disclaimer

The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions.

Before acting on any of the information contained herein, expert advice should always be sought.

The Dispute Adviser

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