Last week, the Supreme Court delivered a landmark judgment on unfair prejudice claims which may come as a relief to minority shareholders. In THG Plc v Zedra Trust Company (Jersey) Ltd, the Supreme Court confirmed that there is no statutory limitation period for petitions under s994 of Companies Act 2006 (‘section 994’). This puts to rest the uncertainty created by the Court of Appeal and preserves the long-understood flexibility of unfair prejudice petitions.
This article explains what the case was about, the Supreme Court’s decision, and what it means for minority shareholders.
What is an unfair prejudice petition?
Section 994 allows a shareholder to ask the court for a remedy where the company’s affairs have been conducted in a way that is unfairly prejudicial to their interests. The court has broad discretionary powers in relation to these petitions. The court can, for example, require the buy-out of a shareholder’s interests, regulate the company’s future conduct or award compensation where appropriate.
The dispute in Zedra v THG
Zedra Trust Company (Jersey) Ltd (‘Zedra’) is a minority shareholder in THG Plc and issued a section 994 petition in 2019 raising several complaints about how the company had been run. Later, it sought to amend its case to add a further allegation that it had been wrongly excluded from a bonus issue of shares in 2016. Although the loss was not quantified it was thought to be in the region of £1.8 and £1.9 million.
THG Plc argued that the new allegation was time-barred under the Limitation Act 1980 as the bonus issue of shares occurred more than six years prior. The High Court disagreed. The Court of Appeal then overturned the High Court’s decision and held that unfair prejudice petitions were subject to limitation periods after all.
This ruling surprised many, as it conflicted with decades of accepted practice.
The Supreme Court’s decision
Last week, the issue was settled by the Supreme Court. By a majority of four to one, it held that unfair prejudice petitions are not subject to any statutory limitation period. Neither of the key limitation provisions relied upon by THG Plc, ‘actions upon a specialty’ or ‘actions to recover any sum recoverable by virtue of any enactment’, apply to unfair prejudice petitions.
The court gave several reasons for their decision:
Unfair prejudice petitions do not create any obligations.
Section 994 does not create any obligations but provides for remedies if there is or has been unfair prejudice in the conduct of a company’s affairs. For this reason, a claim under section 994 is not ‘an action upon a specialty’ and therefore a 12-year limitation period does not apply.
The remedies are discretionary in nature.
A petition under section 994 is not, itself, a claim for compensation. Even where the petitioner seeks a monetary award, the court is not bound by that request and has broad discretion to decide what form of relief is appropriate. It may award compensation, but it may equally choose a different remedy. Because any monetary payment arises only from the court’s discretion, rather than from a statutory right to recover a sum, a section 994 petition is not an ‘action to recover any sum recoverable by virtue of any enactment’ and the six-year limitation period does not apply.
Beware of the delay
Although there is no statutory deadline, delay is still an important consideration for all s994 petitions.
The court emphasised that the longer a shareholder delays, the more likely the court is to:
- refuse certain remedies;
- limit what relief is granted; or
- take the delay into account when assessing fairness.
The doctrine of laches (a delay that makes relief unjust) also still applies. If the delay has caused prejudice to other shareholders or the company, the court can refuse to act.
An important take away is that no limitation period does not mean there aren’t any consequences for delay in bringing a petition.
What it means for minority shareholders
For minority shareholders, the decision preserves valuable flexibility. Many instances of unfair prejudice only come to light years later, particularly after changes in management, ownership or disclosure of information. The Supreme Court’s decision ensures that such claims are not automatically shut out.
Nevertheless, petitioners should still act promptly.
Final thoughts
The Supreme Court’s ruling in Zedra v THG Plc confirms that there is no statutory limitation period for unfair prejudice claims offering much desired clarity after the Court of Appeal’s previous decision, it nevertheless reiterates the importance of staying vigilant, taking advice early and acting quickly.
If you are a shareholder concerned about how a company is being run, or a shareholder facing complaints from other shareholders, our Dispute Resolution team can help you understand your position and take effective steps as necessary.
This is only intended to be a summary and not specific legal advice.
