Limitation and unfair prejudice petitions: the legend of Zedra

In a recent landmark decision, the Supreme Court has resettled the limitation position for unfair prejudice by holding that no statutory limitation period applies to petitions under section 994 of the Companies Act 2006. The decision has a number of practical implications for directors and shareholders in relation to section 994 petitions.

In its landmark decision in THG plc v Zedra Trust Company (Jersey) Ltd, the Supreme Court has resettled the limitation position for unfair prejudice by holding that no statutory limitation period applies to petitions under section 994 of the Companies Act 2006 (2006 Act) (section 994) ([2026] UKSC 6). By a majority, the court reversed the Court of Appeal's controversial departure from over 40 years of "received wisdom" and rejected the line of authority that, in effect, made limitation turn on the particular remedy sought.

The decision has a number of practical implications for directors and shareholders in relation to section 994 petitions. However, uncertainties remain in several areas, including how far the decision will affect the application of limitation periods beyond section 994 petitions, in particular for insolvency claims.

High Court decision

Zedra Trust Company (Jersey) Ltd was a minority shareholder in THG plc. In July 2016, the directors of THG elected to allot bonus shares by capitalising distributable reserves but, crucially, decided that those shares were to be allotted to only four shareholders, excluding Zedra.

In January 2019, Zedra issued an unfair prejudice petition under section 994 against THG and nine of THG's directors. Most of the complaints were struck out. In July 2022, Zedra applied for permission to amend its petition in order to include the bonus share issue.

Zedra alleged that, had it been allotted the shares, it would have converted them immediately before THG's initial public offering in 2020 and sold the shares at £5 a share. The failure to allot it the bonus shares resulted in an approximate loss of over £1.8 million. Zedra therefore claimed equitable compensation against the directors to redress this loss, contending that they had breached their fiduciary duties to act in good faith, for proper purposes and fairly, by discriminating against Zedra.

THG argued that it had a potential limitation defence as the conduct that Zedra claimed was unfairly prejudicial had taken place in July 2016 and the claim for equitable compensation for breach of fiduciary duty was a new cause of action that did not arise out of substantially the same facts, so was subject to a six-year limitation period under section 35(3) of the Limitation Act 1980 (1980 Act) (see box "The Limitation Act 1980").

The High Court decided in favour of Zedra and allowed the amendments ([2023] EWHC 65 (Ch)). It relied on the Court of Appeal decision in Bailey v Cherry Hill Skip Hire Ltd as authority that no limitation period applies to section 994 petitions ([2022] EWCA Civ 531). THG appealed.

Court of Appeal decision

The Court of Appeal controversially allowed THG's appeal ([2024] EWCA Civ 158; www.practicallaw.com/w-042-7683). While recognising that its decision was contrary to 40 years of "undoubtedly received wisdom", it held that it was not bound by Cherry Hill Skip Hire and preferred the decision in Collin v Duke of Westminster ([1985] QB 581). In Collin, the Court of Appeal had said that section 8(1) of the 1980 Act (section 8) applies in principle to section 994, although section 8(2) imposes a shorter time limit if another provision of the 1980 Act is relevant.

The court therefore held that section 994 petitions are subject to:

• A 12-year limitation period under section 8 where the petitioner pleads only non-monetary relief.
• A six-year limitation period under section 9 of the 1980 Act (section 9) where the petitioner pleads monetary relief.

The court found that, as Zedra was seeking only equitable compensation, its claim fell within section 9. Therefore, a six-year limitation period applied and the amendments were time-barred. Zedra appealed to the Supreme Court.

Supreme Court decision

The Supreme Court had to address three questions:

• Are section 994 petitions caught by section 8 as "specialty" claims and therefore subject to a 12-year limitation period?
• Are section 994 petitions that seek monetary relief only caught by section 9 and therefore subject to a six-year limitation period?
• Do section 994 petitions constitute equitable relief within the meaning of section 36(1) of the 1980 Act so that sections 8 and 9 do not apply?

The court decided that the answer to these questions was an issue of statutory interpretation. Although it was sympathetic to the public policy objective that stale claims should not be allowed to proceed and advocated for the finality of litigation, it concluded that these policy considerations have a limited role in statutory interpretation. The court ultimately answered each of these questions with a definitive "no". In relation to the third question, it decided that Zedra was not claiming equitable relief.

A deeper dive into the rationale

The judgment considers the history of the meaning of "specialty" found both in historic statutes and common law in the UK and other Commonwealth countries.

Section 8

The court held that the essence of a specialty claim is that it is an action to enforce an obligation created by deed or statute only; that is, but for the deed or statute, the cause of action would not exist. It referred to this as the "narrow Collin view". In contrast, the "wider Collin view" takes a broader approach that section 8 applies to any claim that can be brought under a statutory provision.

In the court's view, sections 994 to 996 of the 2006 Act do not create any obligations so the Court of Appeal had been wrong to hold that section 8 applied. The court therefore rejected the wider Collin view, although these were obiter comments as it did not need to decide the point definitively.

Section 9

The court was influenced by the wide discretionary powers available under section 996; that is, the court may make such order as it thinks fit. Despite what a petitioner may plead, relief is at the court's election; for example, the court can order non-monetary relief even if a petitioner only pleaded for monetary relief, and vice versa. Limitation should apply to the cause of action and not be dependent on the ultimate relief granted.

The court found that section 9 cannot apply to statutory provisions that confer such wide discretion as to remedies. If it were to apply it would be unworkable and lead to arbitrary results because different limitation periods would apply depending on how the relief was pleaded. In a number of cases, the courts had taken a so-called "look-and-see" approach where, in discretionary cases, the court would look at the true nature of the relief sought, such as whether the primary relief is monetary or non-monetary, and then decide which limitation period to apply (Re Priory Garage (Walthamstow) Ltd [2001] BPIR 144; Re Farmizer (Products) Ltd [1997] 1 BCLC 589; Hill v Spread Trustee Co Ltd [2006] EWCA Civ 542, www.practicallaw.com/5-203-1827). However, the court concluded that this look-and-see evaluative process is particularly ill-suited to deciding whether an action is time-barred.

Impact of the decision

The Supreme Court's decision will be welcomed by minority shareholders that may not have access to information at an early stage to bring a petition. Equally, directors may take comfort in the fact that this is not an opening of the floodgates for petitions unconstrained by time. The court was clear that the equitable doctrines of laches and acquiescence will continue to be applied to block, or temper, the grant of relief where appropriate. Using a sporting analogy, limitation no longer stops a section 994 petition getting out of the blocks but laches or acquiescence can still make it fall at the final hurdle. The decision does not remove the need for petitioners to act in good time.

However, the decision could have wider implications beyond section 994 petitions, particularly for insolvency law, given the disapproval of the wider Collin view and the look-and-see approach.

On the one hand, the court has overturned the Court of Appeal's controversial decision and reimposed 40 years of "perceived wisdom" to resettle the law of unfair prejudice. On the other, as Lord Burrows put it in his dissenting judgment, the decision to reject the look-and-see approach overhauls 65 years of established law. Cases such as Priory Garage and Hill are significant cases in insolvency law and limitation periods in relation to transactions at an undervalue, preference claims and transactions defrauding creditor claims. Despite the court saying that it was not overruling these cases, it did find that they were wrongly decided as regards section 9 and that the parties in those cases were wrong to rely on the wider Collin view as regards section 8. As a result, this appears to have allowed some uncertainty to creep in and to hover over the status of those cases until the issue comes before the Supreme Court again.

Lord Burrows' dissenting judgment touches on proposals for legislative reform in relation to the law of limitation made by the Law Commission as far back as 2001. It remains to be seen whether a stricter, more predictable limitation regime could be brought in but, for now, a flexible and discretionary approach prevails.