Shareholders’ ‘unfair prejudice’ claims not time-limited

Corporate disputes specialist James McBurney and litigation expert Chris Dryland, both of Pinsent Masons, said the UK Supreme Court’s judgment (71-page / 497KB PDF) would be welcomed by shareholders that consider they have been unfairly prejudiced, but said there were legal reasons the court had given – as well as practical ones – for pursuing unfair prejudice claims expeditiously.

Under section 994 of the Companies Act 2006, a shareholder in a company can apply to court for a finding that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of all or some shareholders, including at least themselves, or that an actual or proposed act or omission of the company, including an act or omission on its behalf, is or would be so prejudicial.

Where the courts consider a section 994 application to be well-founded, they have a wide discretion to “make such order as it thinks fit for giving relief in respect of the matters complained of”.

The case before the Supreme Court concerned an unfair prejudice complaint raised by Zedra Trust Company (Jersey) Ltd (Zedra) against THG plc (THG), a company Zedra holds a minority shareholding in.

Zedra originally filed its complaint to the High Court of England and Wales in January 2019 in relation to the conduct of THG’s affairs but applied for permission to amend its petition in June 2022 to raise issue with its exclusion from the allotment of bonus shares which THG plc issued in July 2016. Zedra has claimed it was financially disadvantaged by this and sought an order requiring THG’s directors to pay compensation equalling the value of what it claimed it lost, which the Supreme Court has estimated to be almost £2 million. THG challenged the complaint made by Zedra on the basis that it was time-barred.

Before the High Court, THG argued that section 994 complaints constitute an ‘action to recover any sum recoverable by virtue of any enactment’, for the purposes of section 9 of the Limitation Act 1980, to which a six-year limitation period applies. The High Court disagreed, finding in 2023 that Zedra’s complaint was not time-barred.

When THG raised an appeal, the Court of Appeal ruled that section 994 complaints can constitute an ‘action upon a specialty’, to which a 12-year limitation period attaches under section 8 of the Limitation Act, as well an ‘action to recover any sum recoverable by virtue of any enactment’ under section 9.

Because the longer section 8 limitation period is disapplied where claims are covered by a shorter limitation period prescribed in the Limitation Act, the Court of Appeal examined Zedra’s complaint in the context of a six-year limitation period. In its 2024 judgment, it determined that Zedra’s complaint was raised out of time on the basis that more than six years had passed before Zedra was granted permission to bring its amended complaint.

Zedra, though, brought an appeal before the Supreme Court, which has now issued a final ruling on the matter. The court considered that section 994 complaints neither constitute an ‘action upon a specialty’ nor an ‘action to recover any sum recoverable by virtue of any enactment’. It said there is no limitation period in the Limitation Act that governs section 994 applications, meaning Zedra’s claims are not time-barred.

McBurney said: “One point to note for potential claimants, is that the Supreme Court emphasised that, whether or not there is a statutory limitation period, the court in addressing an application under section 994 may take account of an unjustified delay when exercising its discretion to grant or refuse a particular remedy.”

Dryland added: “Claimants should still not delay in bringing a claim. From a practical perspective, the greater delay, the more difficult it might be for the claimant to prove its claim, in terms of the documentary and witness evidence that remains available to it.”