Do you know what “specialty” means? Those who don’t will be pleased to learn that members of the Supreme Court disagreed on the scope of this term, which is found (among other places) in the Limitation Act 1980 (“the 1980 Act“). In a ruling which will prompt those advising corporates to think (yet) again about document retention, the Supreme Court confirmed, in THG Plc v Zedra, that no limitation period applies to unfair prejudice petitions.

Limitation of actions upon a specialty

Section 8 of the 1980 Act states that an action upon a specialty must be brought within 12 years of the date on which the cause of action accrued. After setting out the legislative history of section 8 and the case law (of England and Wales and other common law jurisdictions) referring to it, Lords Hodge and Richards, with whom Lords Lloyd-Jones and Briggs agreed, concluded that it is of the essence of an action upon a specialty that it is an action to enforce an obligation created by a deed or statute. The majority rejected the suggestion that the term embraced all proceedings for which a statute may make provision.

In the context of Zedra, which concerned an unfair prejudice petition, the majority noted that sections 994–996 of the Companies Act 2006, further to which a petition could be made, do not create any substantive obligations. While directors are subject to fiduciary obligations, and breach of those obligations may prompt a petition for relief under sections 994–996, those sections do not impose those obligations.

Limitation of statutory actions to recover money

Section 8 may be abrogated by any other provision of the 1980 Act which provides for a shorter limitation period. In Zedra, the Respondents pointed to section 9 of the 1980 Act, which states that an action to recover any sum recoverable by virtue of any enactment must be brought within 6 years from the date on which the cause of action accrued. The Appellants sought monetary relief by way of their section 994 claim, therefore, the Respondents argued, the claim was time barred.

Lords Hodge and Richards commented that a claim under section 994 is not a claim to enforce a liquidated or unliquidated obligation arising under a statute but is a claim that the court should make such order as it thinks fit for giving relief in respect of the matters complained of. The court has the widest possible discretion as to the orders it may make.

The majority continued that the court’s order may provide for the payment of a specified sum, by way of compensation or otherwise, but that is not a sum “recoverable by virtue of” sections 994–996 and the obligation to pay arises only by virtue of the court’s exercise of its very wide discretion. The application of section 9 to a petition would mean that a petition could proceed for any relief that the court considered fit other than a monetary order. Lords Hodge and Richards considered that such a result would border on the absurd. For this and other reasons, the majority held that section 9 of the 1980 Act does not apply to a petition under section 994, even if it includes a request for monetary relief.

The dissenting opinion

Stressing the importance of limitation periods, which protect defendants against stale claims, Lord Burrows expressed his disagreement with the majority. Lord Burrows agreed that there has never been a statutory definition of a specialty and it had been for the courts to decide, as a matter of statutory interpretation (taking account of the common law), what was meant. In this respect, Lord Burrows disagreed with the majority interpretation of the case law, which he considered favoured viewing the statute as the specialty (without adding the need for any obligation arising out of it).

Making a number of points that are difficult to argue with, Lord Burrows found it hard to see any good reason why the law would draw a distinction between obligations created by statute and other causes of action created by statute. Further, he did not consider it clear how one would distinguish between a cause of action that creates an obligation from one that does not and that it was at least arguable that all causes of action can be analysed in terms of rights and obligations.

Practical consequences

Regardless of how persuasive Lord Burrows’ arguments are, his view that the Appellant’s claim should be time barred is the minority view. Until there is legislative change (and I suspect, for the policy reasons given by Lord Burrows, there may well be), the consequence of the majority judgment is that there is (currently) no limitation period applicable to unfair prejudice petitions. 

The practical effect of the Supreme Court’s finding is that corporates and those advising them may wish to (re)consider the length of time certain documents are retained. In particular, where a company makes decisions that obviously impact upon its minority shareholders, it may wish to consider retaining the documents outlining why those decisions were taken beyond 12 years in order that it can defend itself effectively against potential claims.