Dispute Resolution analysis: The Court of Appeal has rejected 40 years of "received wisdom" among company law practitioners and has held that a limitation period of either twelve or six years (depending upon the relief sought) applies in respect of petitions under section 994 of the Companies Act 2006.
THG Plc and others v Zedra Trust Company (Jersey) Limited [2024] EWCA Civ 158
What are the practical implications of this case?
This is a decision of the utmost importance to company law practitioners and others involved in bringing and defending unfair prejudice petitions under section 994 of the Companies Act 2006. For 40 years, it had been widely understood by 'received wisdom' that no applicable limitation period applied to unfair prejudice petitions under section 994 of the Companies Act 2006 and its predecessor provisions. So ingrained was that assumption that decisions of the High Court and Court of Appeal such as Bailey v Cherry Hill Skip Hire [2022] EWCA Civ 531 had proceeded on the agreed and assumed basis that Respondents were not entitled to raise limitation as a ground of defence. The Court of Appeal has overturned that received wisdom and concluded that in general a limitation period of 12 years applies and if the petition seeks a money judgment as part of the relief pleaded, a shorter period of 6 years applies. This shorter limitation period will not affect the majority of petitions which seek an order that the Respondent buy the Peititoner's shares (or vice versa). Where, however, a petition involves a prolonged period of distinct instances of allegedly unfairly prejudicial conduct, Respondents should be alive to the prospect that some of the older allegations (which allegations may otherwise be the most meritorious) may be struck out on the basis that they are time-barred.
What was the background?
An unfair prejudice petition was presented on 7 January 2019. The Respondents to the petition were THG Plc and 14 named individuals who were current and former directors of the company. All the complaints in the original petition were struck out or dismissed. However, on 22 June 2022, the petitioner, Zedra, applied for permission to re-amend the petition to plead that it had been wrongly excluded from a bonus share issue on 11 June 2016. This application was heard on 16 December 2022 and in a judgment given on 26 January 2023 permission was given. The re-amended petition alleges that the directors were in breach of their statutory duty to act lawfully, in good faith, for proper purposes and fairly as between different shareholders when exercising the power to allot shares and the power to capitalise profits and appropriate the capitalised profits to shareholders. It was alleged that the directors acted in bad faith in such a way as to dilute Zedra's minority shareholding. The loss to Zedra is alleged to be the additional amount which it would have realised on the flotation of THG in September 2020. The relief sought was for an order that the relevant directors pay equitable compensation to Zedra to redress that loss. The application for permission was not opposed on the basis of the merits threshold and that was conceded. It was argued, however, that there was an arguable limitation defence. The Court of Appeal was asked not to leave that question to trial but to determine whether, as a matter of principles, there is a limitation defence applicable to unfair prejudice petitions and, if so, what the applicable limitation period is.
What did the court decide?
In granting permission, to amend, the Judge, Mr Justice Fancourt had concluded that he was bound by the decision of the Court of Appeal in Bailey v Cherry Hill Skip Hire [2022] EWCA Civ 531. However, in this judgment the Court of Appeal noted that it had been presented as common ground between the parties in Bailey that no applicable period of limitation applied to unfair prejudice petitions under section 994 of the Companies Act 2006. Following dicta in cases such as Re Hetherington [1990] Ch. 1, the Court of Appeal concluded that it was not, therefore bound to follow Bailey. An unfair prejudice petition was an "action" and therefore fell within the broad scope of the Limitation Act 1980. That statute does not expressly mention unfair prejudice petitions anywhere. Unfair prejudice petitions are caught within the scope of section 8 of the Limitation Act 1980 which imposes a limitation period of 12 years for actions upon a specialty. Section 8 is itself disapplied in the event that another provision in the 1980 Act prescribes a shorter limitation period. Section 9 provides a limitation period of 6 years for 'an action to recover any sum recoverable by virtue of any enactment'. The Court of Appeal accordingly reasoned that a general 12 year limitation period applies to unfair prejudice petitions but a shorter period of 6 years applies where the relief sought includes a money judgment. The usual order of a share buyout is not a money judgment and so a petition claiming only a buyout order would not trigger the shorter limitation period in section 9. In light of the nature of the relief sought here being a money judgment and the events concerned having occurred more than 6 years prior to the application to amend, the Judge had erred in granting permission to Zedra.
Case details
- Court: Court of Appeal, Civil Division
- Judges: Lord Justice Lewison, Lord Justice Arnold and Lord Justice Snowden
- Date of judgment: 23 February 2024
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