Shareholder disputes: the landmark ruling of THG PLC vs Zedra

Andrew Meech, Director and Joint Head of Commercial Litigation at JCP Solicitors, explains the impact of THG Plc Ors V Zedra Trust Company on the procedure of unfair prejudice petitions within a company.

An unfair prejudice petition occurs when a minority shareholder believes they have been unfairly treated or their rights have been disregarded by the company or other shareholders.

THG Plc Ors V Zedra Trust Company (Jersey) Ltd [2024 EWCA Civ 158 Decision]  

Prior to THG plc and Ors V Zedra Trust Company, it was accepted that no limitation period applied to unfair prejudice petitions.

However, Lewison LJ, giving the leading judgment, held that the Limitation Act 1980 did apply to unfair prejudice petitions with the limitation date being determined by the remedy claimed.

It was determined that the remedies pursued through an unfair prejudice petition would be bound by a 12-year limitation period starting from the date the cause of action arose, as outlined in section 8 of the Limitation Act 1980. However, exceptions apply in cases seeking compensation or monetary relief, where a 6-year limitation period under section 9 of the Limitation Act 1980 is applicable.

What impact does the ruling have?

THG Plc vs Zedra Trust Company (Jersey) Ltd became a landmark case in shareholder disputes, as it demonstrated the profound impact shareholder disagreements can have on corporate entities. What is more, it challenged 40 years of legal precedent to decide that unfair prejudice petitions are subject to statutory limitation periods under the Limitation Act 1980.

Unfair prejudice claims allow a minority shareholder, creditor or stakeholder, to seek relief from the court if they believe that the affairs of the company are being conducted in a manner that unfairly prejudices their interests. This might involve excluding them from management or decision-making, diversion of corporate opportunities, mismanagement of corporate assets that unfairly impacts them, breach of fiduciary duties by majority shareholders and/or directors.

In unfair prejudice petitions, encountering delays is not uncommon, particularly for shareholders in an SME who also hold a directorial position within the company. Additionally, a shareholder who is not a Director of the company - and therefore lacks insight into the operations of the company - may not become aware of any prejudice they are suffering. Therefore, it is extremely important that when a shareholder has knowledge of the prejudice, they obtain legal advice as soon as possible on the limitation periods that may apply to them.

What could this mean for my business?

The ruling in this case holds significant implications for the future of shareholder disputes in the corporate landscape. Although the ruling favoured one party in the decision, the key takeaway for business owners and shareholders should be the time the case took. Following the long-drawn-out legal battle, the shareholder agreements were clearly delineated to mitigate the risk of future conflicts.

As the primary relief often pursued in unfair prejudice proceedings involves an order requiring the respondent to purchase the petitioner’s shares, which is not a claim for the recovery of money, the applicable limitation period will be 12 years from the date the cause of action arose.

The case therefore emphasises the need for robust corporate governance practices and diligent, expert oversight to safeguard shareholder interests and embed trust into stakeholder working practices. When you are writing your shareholder agreements, always consult an expert corporate lawyer to support you with exact responsibilities, rights and decisions. This will help businesses maintain transparency and accountability, and allow business owners to better navigate the nuanced, complex principles around shareholder disputes.

For advice and guidance on shareholder disputes, contact Andrew Meech on 03333 208644 or email hello@jcpsolicitors.co.uk.