Facts:
The appeal related to the granting of Zedra’s application to amend the petition under section 994 of the Companies Act 2006. The respondents resisted that amendment on the basis that the claim was time-barred under the 1980 Act and thus time limitations applied.
The petition was presented in January 2019 to the original respondents, THG plc and 14 named individuals (directors or former directors of the company). Most of the complaints in the original one were struck out or dismissed. Zedra made an application to amend the petition in June 2022 which was heard in December 2022 and a judgement was granted in January 2023. One of the re-amendments ‘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.’
Decision:
The Court of Appeal, in a unanimous judgment, held that they were not bound by the ratio of the earlier Court of Appeal decision in Bailey v Cherry Hill Skip Hire Ltd [2022] and that contrary to “over 40 years’ received wisdom”, limitation periods do apply to unfair prejudice petitions under section 994 of the Companies Act 2006.
The Court starts by explaining that unfair prejudice petitions are not mentioned in the Limitation Act 1980. The Court was not of the view that section 994 fell outside the scope of the Limitation Act 1980.
The Court ruled that the limitation period is 12 years under section 8 of the Limitation Act 1980, unless the claim is one for compensation or monetary relief whereas the limitation period is 6 years under section 9 of the same Act. Here as the Petitioner was claiming equitable compensation for the loss allegedly suffered from an unlawful exclusion from a bonus share issue, the claim amounted to an action to recover a sum and was subject to the shorter limitation period under section 9. As a result, the Petitioner was barred from bringing the claim. However, Lewison L J noted that a share buy-out order would not be caught by section 9 and would be subject to a 12-year limitation period.
The Court analysed the justification for the lack of a limitation period. One such reason is that ‘petitioners rely on a course of conduct as amounting cumulatively to unfair prejudice’. Lewison L J continued by stating that “Once conduct (whether individually or cumulatively) amounts to unfair prejudice, there is no particular reason why a petitioner should be in any more favourable position than any other litigant” in raising a fairness argument.
The Court of Appeal also held that the provisions of section 35 of the Limitation Act 1980 and CPR 17.4 apply to applications to amend an unfair prejudice petition.
Implications:
This judgement will send shockwaves through the company law world as the Court ruled that the received wisdom was incorrect. This judgement effectively puts an end to the assumption that the Limitation Act 1980 does not apply to unfair prejudice petitions. This decision might limit the number of potential claims, as any financial claims will be subject to a 6-year limitation. Practitioners will have to be careful while writing a petition, especially given that some forms of relief might be time-barred.
A point that was not clear from the judgement is whether an unfair prejudice can be considered continuing and, if so, whether this overcomes the limitation problem (although there are dicta to that effect). There is also a chance that this case might proceed to the Supreme Court.