How long do I have to bring an unfair prejudice petition?
An unfair prejudice petition is a legal claim made by a shareholder of a company when they feel they have been treated unfairly by the company’s management or other shareholders.
An unfair prejudice petition asks the court to intervene and correct the unfair treatment. Examples include exclusion from decision-making, dividend discrimination, misuse of company assets and unfair dilution of ownership but unfair prejudice can take many different forms depending on the specific circumstances of each case. The court has an extremely wide discretion as to what relief it can grant.
It is not unusual for the conduct complained of by the wronged shareholder to be cumulative in nature. It may well be that the shareholders have acted in a particular way over a sustained period of time. How long does an aggrieved shareholder have to bring an unfair prejudice petition?
Had you asked this question a few weeks ago the answer from Commercial Litigators, the courts at all levels, distinguished practitioner texts, and the Law Commission would have been that while acting promptly was important (because delay could show acquiescence to the conduct complained of and it could be taken into account by the court when exercising its discretion to award a particular remedy) there was no cut-off or long-stop date to bring an unfair prejudice petition.
Ask this question today and you will find the answer to be very different. This is because 40 years of ‘wisdom’ has just been shattered by the Court of Appeal in a decision which will be of interest to any minority shareholder whose interests have been harmed by the actions of a majority shareholder and any commercial dispute lawyers acting on their behalf.
The length of time that a party has to bring its claim is known as a limitation period. This is essentially a deadline for taking legal action. Most limitation periods are dealt with by the Limitation Act 1980 and there are specific time periods to bring different types of action. For example, an action for a breach of contract must be brought within six years of the cause of action accruing (i.e. the contract being breached). If an action is brought outside of the limitation period, then the defendant has an absolute defence. This means that they can apply to the court to have the claim dismissed early and without trial (called a strike out).
The recent judgment in THG Plc and Others -v- Zedra Trust Company (Jersey) Limited [2024] EWCA Civ 158 makes an important change to limitation for unfair prejudice petitions.
What is the present position?
Lord Justice Lewison, giving the leading judgment in the Court of Appeal, held that a 12-year limitation period applies to an unfair prejudice petition. This was because the action was on a “specialty” (a special type of contract such as a deed or a document signed under seal). Under section 8 of the Limitation Act 1980, an action on a specialty has a limitation period of 12 years.
That said, he went on to say that if the petition focused exclusively on a claim for the repayment of monies, then a shorter time period of six years would apply under section 9 of the Limitation Act 1980. However, this shorter limitation period, would be relatively rare because the usual remedy sought in an unfair prejudice petition is a buyout of the minority shareholder’s shares on a valuation. Although that remedy ultimately leads to an exchange of cash for the shares, it is not of itself a payment of money rather it is similar to an order that requires someone to do a particular act (specific performance).
What happens if you delay bringing an unfair prejudice petition generally?
Lord Justice Lewison also made some additional comments around what might happen if there is delay but the claim is still bought within the limitation period.
In such circumstances, the court might find that, because of the delay, the shareholder agreed to the conduct that ultimately led to the complaint in the petition (known as acquiescence). For example, if a petitioner has not been paid their dividend, and knows that they are not being paid for a sustained period of time then can they still bring a claim? Have they acquiesced to the conduct that they are now seeking to complain of?
Lord Justice Lewison gave guidance that in those circumstances, a petition would be vulnerable to a strike-out application, even if brought within the applicable limitation period.
What if you do not know about the unfairly prejudicial conduct?
Lord Justice Lewison did indicate that in circumstances where there has been a deliberate concealment of fraud performed on the minority shareholder (perhaps by virtue of the majority shareholders concealing their conduct from a minority shareholder) then the principles of section 32 of the Limitation Act 1980 would then apply. In that provision, the running of the limitation period is delayed until the date upon which the concealment is revealed to the petitioner.
Practical consequences of the judgment in Zedra
The decision in Zedra is, in my view, a very major development in relation to the law of unfair prejudice. Whilst historically claims still had to be bought promptly there is now a set timeframe within which actions must be brought.
Those considering bringing an unfair prejudice petition should act promptly once they become aware that their position as a minority shareholder is being unfairly prejudiced by the conduct of the majority. Their advisers will need to carefully consider the nature of the remedy that is being sought to establish the correct limitation period – If the remedy is solely for money (such as a claim for damages) then a shorter limitation period will apply.
A failure by a petitioner to act promptly could, at best, have an adverse effect on the available remedy, and at worst result in a petition being struck-out and an adverse costs order being obtained against the petitioner.
If you are a shareholder and you are facing the issues set out above, then you should contact commercial litigation solicitor, Peter Brewer at peter.brewer@clarkewillmott.com (Tel: 0345 209 1718). Peter is a partner specialising in complex contractual, shareholder, banking disputes and professional negligence claims.
Posted:
