THG Plc & Others v Zedra Trust Company (Jersey) Ltd

Hearing dates: 7–8/02/2024

Approved Judgment

This judgment was handed down remotely at 10.30am on 23/02/2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction

The issue on this appeal is whether there is a limitation period applicable to a petition under section 994 of the Companies Act 2006 (“the 2006 Act”) alleging that the affairs of a company are being or have been conducted in a manner that is unfairly prejudicial to the petitioner; and if so, what it is. In a judgment dated 18 January 2023, Fancourt J, Vice-Chancellor of the County Palatine, said “no”. His judgment is at [2023] EWHC 65 (Ch).

Because the question is one of principle, it is unnecessary to set out the alleged facts in any detail. The petition was presented on 7 January 2019. The original Respondents to the petition were THG plc and 14 named individuals who were or had been directors of the company. The number of relevant individual directors has now been reduced to 9. The petition originally made a number of complaints, all of which have been struck out or dismissed. But on an application to re-amend the petition issued on 22 June 2022, and heard on 16 December 2022, the judge allowed Zedra to plead that it had been wrongly excluded from a bonus share issue on 11 July 2016. His judgment was given on 26 January 2023. The re-amended petition, so far as relevant to this appeal, 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. There is a specific allegation that the directors acted “in bad faith and/or for improper purposes in order to prejudice Zedra's interest as a minority shareholder”. The petition goes on to allege that the effect of that exclusion was to dilute Zedra's shareholding. Accordingly, the petition alleges, Zedra lost the right to additional shares which it would have sold. The loss to Zedra is therefore said to be the additional amount which it would have realised on the flotation of THG in September 2020. The principal claim for relief is for an order that the relevant directors pay equitable compensation to Zedra to redress that loss. It was accepted before the judge that that complaint passed the merits threshold for permission to amend. But it was objected that permission should not have been granted because there was an arguable limitation defence. The judge rejected that argument. He held that the question what, if any, relief should be granted lies in the discretion of the court; and that that was a matter to be decided at trial, although considerations of delay in issuing the petition would be relevant. His main reason for doing so was that he considered himself bound by the decision of this court in Bailey v Cherry Hill Skip Hire Ltd [2022] EWCA Civ 531, [2023] Bus LR 14. It will be necessary to return to that decision in due course.

Although the practice is to refuse permission to amend where there is an arguable limitation defence, we are not asked to decide the appeal on that basis. Rather, we are asked to decide, as a matter of principle, whether any limitation period applies to a petition under section 994; and if so, what that period is.

Unfair prejudice

The ability of a member of a company to present a petition alleging unfair prejudice is a creature of statute. A remedy (short of winding up the company) was first introduced by the Companies Act 1948, although at that time the remedy was founded on “oppression”. The Companies Act 1980 recast the remedy as one based on unfair prejudice. It has been through several iterations since then and is now contained in the 2006 Act.

Section 994 of the 2006 Act relevantly provides:

“(1) A member of a company may apply to the court by petition for an order under this Part on the ground–

(a) 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), or

(b) 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.”

In O'Neill v Phillips [1999] 1 WLR 1092 Lord Hoffmann explained the meaning of the statutory expression “unfair prejudice”. He pointed out that the concept of fairness is used in a commercial context; and that the terms on which someone agrees to participate in a company is regulated by the company's articles of association and (sometimes) by collateral agreements between shareholders. He also explained that company law had developed seamlessly from the law of partnership, which was treated by equity as a contract of good faith. Thus, he said:

“The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.”

Although Lord Hoffmann said that equitable considerations might lead to the conclusion that conduct had been unfair, I consider that he was doing no more than interpreting the statutory concept of unfairness. I do not consider that he was suggesting that the ability to present a petition alleging unfair prejudice was itself seeking an equitable remedy or that the procedure would be subjected to the approach of a court of equity.

Section 996 provides:

“(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.

(2) Without prejudice to the generality of subsection (1), the court's order may–

(a) regulate the conduct of the company's affairs in the future;

(b) require the company–

(i) to refrain from doing or continuing an act complained of, or

(ii) to do an act that the petitioner has complained it has omitted to do;

(c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;

(d) require the company not to make any, or any specified, alterations in its articles without the leave of the court;

(e) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly.”

An order for the payment of money is not specifically on the menu in section 996 (2), but that section is expressed to be without prejudice to section 996 (1). In a previous round of this litigation in Re The Hut Group Ltd [2021] EWCA Civ 904, [2021] 2 BCLC 373 David Richards LJ said at [66]:

“Zedra's complaint is of conduct by the directors which was unfairly prejudicial to its interests as a member. The relevant conduct took the form of alleged breaches by the directors of their statutory duties. This formulation of unfair prejudice is entirely in line with the approach adopted by this court in Re Saul D Harrison & Sons Plc and by the House of Lords in O'Neill v Phillips. It is not dependent on showing a fiduciary or statutory duty owed by directors to shareholders personally. Once unfair prejudice is established, the court has the wide powers to grant relief conferred by s.996, as discussed above, and they plainly include the power to order wrongdoing directors to pay compensation to the petitioner.”

Clearly then, although not specifically mentioned, an award of compensation is one form of relief that the court can grant if it finds a petition to be well-founded.

Stale claims

There is a strong public policy against the raising of stale claims. In Cholmondeley v Clinton (1820) 2 Jac & W 1, 140 Sir Thomas Plumer MR sitting in the Court of Chancery put it this way:

“The statute is founded upon the wisest policy, and is consonant to the municipal law of every country. It stands upon the general principle of public utility. Interest reipublicae ut sit finis litium, is a favorite and universal maxim. The public have a great interest, in having a known limit fixed by law to litigation, for the quiet of the community, and that there may be a certain fixed period, after which the possessor may know that his title and right cannot be called in question.”

In Board of Trade v Cayzer Irvine & Co [1927] AC 610, 628 Lord Atkinson said:

“The whole purpose of this Limitation Act, is to apply to persons having good causes of action which they could, if so disposed, enforce and to deprive them of the power of enforcing them after they have lain by for the number of years respectively and omitted to enforce them....