The Supreme Court ‘turn back the clock’ on limitation applying to unfair prejudice petitions.

Did the Limitation Act historically apply to unfair prejudice claims?

No.  The statutory time limits under the Limitation Act 1980 (the “Limitation Act”) were not considered by practitioners to apply to unfair prejudice petition claims filed under s994 Companies Act 2006.  Such claims were therefore often brought based on conduct going back years, or even decades in some cases.  This approach – and assumption that there was no statutory limitation period for unfair prejudice petitions – was based on over 40 years of “received wisdom”.

However, equitable limitation defences have always (and still are) available.  And these are often raised in circumstances where a shareholder has delayed, or acquiesced, in bringing their claims.

How did the Limitation Act apply following the Court of Appeal’s decision in Zedra?

We previously discussed the facts of Zedra and the implications of the Court of Appeal’s decision here.

In summary, in February 2024 the Court of Appeal (controversially) determined that the following limitation periods applied to unfair prejudice petitions:

• a 12-year limitation period in respect of claims based only on non-monetary relief (or “actions based upon a speciality”) (section 8 of the Limitation Act); and

• a 6-year limitation period in respect of claims that include monetary relief (section 9 of the Limitation Act).

What is the current position following the Supreme Court decision?

The Supreme Court reversed the Court of Appeal’s decision.
In making that decision it determined that:

1. Unfair prejudice petition claims are not caught by section 8 as “actions based upon a speciality” and are therefore not subject to a 12-year limitation period.

This was because “speciality” claims are limited to claims that enforce obligations that only exist because they are created by deed or statue.  However, as section 994 of the Companies Act 2006 was found not to create any obligations (but rather to enable relief to be obtained for unfair prejudice), it was held not to be an “action upon a speciality”.  And unfair prejudice petition claims are therefore not caught by section 8 of the Limitation Act.

2. Unfair prejudice petition claims that seek monetary relief only are not caught by section 9 and are therefore not subject to a six-year limitation period.

This was because the Supreme Court considered that section 9 of the Limitation Act cannot apply to statutory provisions that confer such a wide discretion as to remedies (with section 996 of the Companies Act providing that the court can make such order as it thinks fit for giving relief).  And it also determined that if a court orders the payment of a monetary sum, that sum was not “recoverable by virtue of” sections 994 to 996 of the Companies Act.

What does this mean in practice?

The Supreme Court has therefore ‘turned back the clock’ and resettled the law to confirm that sections 8 and 9 of the Limitation Act do not apply to unfair prejudice petition claims.

This will be welcomed by shareholders who may otherwise have had their unfair prejudice claims defeated by those sections of the Limitation Act.  And in particular will benefit minority shareholders (and non-directors) who may not have access to the information relevant to their claims at an early stage.

However, this does not mean that the court will not take into account any delay in bringing unfair prejudice proceedings.  The court has always had (and still has) a wide discretion. So, any claimant who has unreasonably delayed presenting their petition and/or acquiesced in the alleged unfairly prejudicial conduct may still not succeed with their claims.

The principle of ‘laches’ can also still be relied upon.  This means that delay may defeat a petition, particularly where that delay amounts to a waiver of the act complained of, or if the result of giving relief from “unfair prejudice” would be unjust.

For those reasons, legal advice should always be obtained as soon as possible in respect of any potential shareholder claim (despite the Supreme Court’s recent landmark decision).

Our Disputes Team has extensive experience bringing and defending petitions for unfair prejudice under s.994 of the Companies Act 2006.  These range from previously advising a billionaire owner of a media outlet on an unfair prejudice petition arising from a minority stake in a TV network, to defending a reported unfair prejudice claim arising from the breakdown of a former motor racing team/property investment business.  If you need advice, please get in touch.