Saxon Woods Investments Limited v Francesco Costa & Ors

The court found that the company's affairs were conducted in a manner unfair to the petitioner under section 994 of the Companies Act 2006 and that Mr Costa was responsible for that conduct. The judge accepted that there was doubt whether that conduct caused material financial prejudice because the shareholders had a common minimum threshold of US$75 million net of debt below which an offer would have been rejected. The court therefore directed a separate Quantum Trial to determine what a final binding offer would have been and whether a buy-out remedy under section 996 would be justified. An injunction was granted restraining the company from using company funds to indemnify or finance Mr Costa's litigation because such payments were not permitted by law.

Background and parties: This is a first-instance hearing following the judge's earlier liability findings of 22 February 2024. The petitioner, a minority shareholder (Saxon Woods) in Spring Media Investments Limited, petitioned under section 994 of the Companies Act 2006 alleging unfair prejudice arising from the conduct of the company and its chairman, Mr Francesco Costa, in relation to the agreed sale process under the shareholders' agreement (SHA).

Nature of the claim and relief sought: The petition alleged unfair prejudice by reason of delay and conduct that prevented an exit by the contractual deadline (31 December 2019). The petitioner sought relief under section 996 including a buy-out order, and relief to prevent the company indemnifying or funding Mr Costa's litigation costs.

Issues for decision: (i) whether the company and/or Mr Costa breached the SHA and acted unfairly under section 994; (ii) whether the petitioner showed material prejudice such as loss of the opportunity to exit; (iii) what relief under section 996 was appropriate if unfair prejudice was established; (iv) whether the company could lawfully finance or indemnify Mr Costa's defence; (v) consequential matters including costs and permission to appeal.

Court's reasoning and disposition: The judge concluded that the company's affairs were conducted unfairly and that Mr Costa was responsible, but there was real doubt whether that conduct deprived the petitioner of any material financial benefit because shareholders had previously agreed that offers below US$75 million net of debt would not have been acceptable. Because valuation evidence was not before the liability trial, the court directed a Quantum Trial limited to valuation by expert evidence to determine what a final binding offer a well-informed buyer would have made on or before 31 December 2019. If that offer would have exceeded the threshold, the first respondent must purchase the petitioner's shares at 22.33% of that valuation. The court refused the various applications for permission to appeal on the principal grounds advanced, reserved costs for the quantum stage, and granted an injunction preventing the company making payments to fund Mr Costa's litigation, holding such payments unlawful.

First-instance disposition: the court held that the company's affairs were conducted in a way unfair to the petitioner under section 994 and that Mr Costa was responsible. However, because of uncertainty as to causation and the extent of any financial prejudice, the court did not make an immediate buy-out order; instead it directed a Quantum Trial to determine the valuation counterfactual and whether the conditions for a buy-out under section 996 are met. The court granted an injunction restraining the company from using company funds to indemnify or finance Mr Costa's litigation and reserved costs to the judge who will hear the Quantum Trial. Applications for permission to appeal were refused on the principal grounds advanced.