Limitation periods for unfair prejudice petitions following Zedra – a landmark case

Damian Carter provides an overview of a recent decision in the Court of Appeal impacting the procedure when bringing claims for unfair prejudice shareholder petitions, and how litigation funding can be used effectively in such disputes.

Shareholder disputes

If you are a shareholder of a company and you have been treated unfairly, for example if you have been excluded from management and participation in decision-making; if your shareholding is being diluted; or if you have been underpaid dividends, you may have an “unfair prejudice” claim against the other shareholders. These claims are governed by s.994 of the Companies Act 2006. Sub-section 1(a) states that a member of a company can apply to the court by petition for an order that the “company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself)”.

Limitation periods

A “limitation period” is the time period in which a claim has to be issued by a party who has suffered damages or loss as a result of another party’s conduct. What that period is depends upon the type of claim. For example, a claim for a simple breach of contract must be issued within six years from the date the cause of action accrued. All of this is governed by the Limitation Act 1980 (“the Act”).

Prior to the case of THG Plc v Zedra Trust Company (Jersey) Ltd [2024] EWCA Civ 128, it was accepted that “there is no statutory limitation period applicable to unfair prejudice petitions”, as held by Lord Justice Andrews in a case called Re Cherry Hill Skip Hire Ltd [2022] EWCA Civ 531. If there had been a delay in the issuing of the petition, the overarching principle was that “if, in view of the delay, and the reasons for the delay it is unfair or inappropriate in all the circumstances for the petitioners to obtain the relief that they seek, the Court will exercise its discretion to refuse it” (Re Edwardian Group Ltd [2018] EWHC 1715).

However, the Zedra case from earlier this year, changed this. The Court of Appeal considered whether claims brought under s.994 are subject to the Act, and held that they are. The length of the limitation period will depend on the relief sought.

Zedra concerned a bonus share issued in 2016 to a group of shareholders with shares in the same class, and with the same dividend rights. One of the members was excluded from the share issue and sought “equitable compensation” against the directors alleging that they had acted in bad faith. The court held:

• It was not bound by the Cherry Hill Skip Hire case;
• A petition is a “proceeding in a court of law” and would fall within the scope of the Act;
• An unfair prejudice claim is an action upon a “specialty” for the purpose of s.8(1) of the Act, and so the limitation period is 12 years from the date on which the relevant cause of action accrued, except where a shorter period of limitation is prescribed by another provision of the Act;
• The petitioner in this case was seeking to recover a sum (compensation) by virtue of an enactment (s.994) and therefore by virtue of s.9 of the Act, the limitation period was six years from the date on which the cause of action accrued (2016), and the claims were therefore statute barred;
• Where the petitioner is complaining that the affairs of the company have been conducted in a way in which is unfairly prejudicial, the cause of action is complete once the conduct complained of has taken place.

It should be noted that on 23 May 2024, the Supreme Court granted permission to appeal in Zedra, and so it is still very much an evolving picture.

Practical impact

Until (and unless) any appeal is successful, and the Court of Appeal’s decision is overturned, what this judgment means is that if you have a claim for unfair prejudice, a limitation period will apply. Whether that is six years or 12 years will depend upon the relief you are seeking. It is therefore more important than ever to seek early advice as soon as possible to ensure that any claim does not become statute barred.

How can funding help?

If a lack of funding is preventing you from exploring a potential unfair prejudice claim, third party litigation funding is a way to finance litigation with funds provided by a third party litigation funder. It is non-recourse financing - the funder only gets repaid (and is paid a multiple of its investment amount) if the claim is successful.

“Enable” is a bespoke all-in-one litigation funding product developed by Weightmans in conjunction with a broker, funder and insurer which mitigates the cost risks of litigation for commercial claims requiring litigation funding and adverse costs cover.