Baby, baby, baby, you're out of time
In the recent case of Sumitomo Mitsuitrust (UK) Ltd v Spectrum Galaxy Ltd BVIHC (COM) 2018/0172, Justice Jack considered the question as to whether an alleged breach of contract claim that fell outside the limitation period could nevertheless be relied upon in a BVI unfair prejudice claim. An earlier blog concerning amending pleadings at a late stage arose from the same set of proceedings.
The unfair prejudice claim concerned investments totalling US$15,226,000 into an open-ended BVI fund established to invest in mezzanine debt secured on real estate developments. Various of the borrowers to whom the Fund had extended loans had been unable to service or refinance the loans made by the Fund; and the Fund suspended redemptions as per the constitutional documents.
The claimants alleged that a side letter given to another of the investors in the Fund, granting certain benefits, was a breach of the Memorandum and Articles which: (a) required a special resolution of the existing shareholders in the class of shares comprising the Fund before the side letter could be issued; and (b) prevented a change in the claimants’ rights without a special resolution. These were pleaded as claims for breach of contract and warranty and were barred by the Limitation Act 1961. Likewise claims in negligence were similarly statute-barred. However, claimants claims sought relief for unfair prejudice under section 184I of the Business Companies Act 2004 arguing that the time-barred breaches of contract could nevertheless be relied on to show unfair prejudice.
It was held that there is no limitation period for claiming unfair prejudice, nor does the equitable doctrine of laches strictly apply where the relief sought is not equitable relief. However, unjustified delay resulting in prejudice or an irretrievable change of position (the essential ingredients of a defence of laches) are likely to be significant factors in the exercise of the court’s discretion to grant or refuse a particular remedy. If a claimant delays and takes financial advantage from the company, the Court may well find that there is no ongoing prejudice and that the claimant has elected to accept the position. Further, the Court may in its discretion refuse to give relief where there is excessive delay. The fact that the limitation period on the underlying matter of complaint has expired is a material, and often a very material, factor. In this case it was held that the delay was excessive, also taking into account that the claimants were on notice of the acts complained of as early as 2010. Accordingly, the Judge dismissed the claim.