Saxon Woods Investments Limited v Francesco Costa & Ors

The court held that the company and those directing its sale process did not comply with clause 6.2 of the Shareholders' Agreement (the obligation to work in good faith towards an Exit by 31 December 2019 and thereafter to instruct an investment bank to cause an Exit). The judge found that the chairman (the First Respondent, Mr Costa) controlled and filtered the sale process, declined to give good faith consideration to bids associated with the Petitioner, and thereby caused the Company to breach the SHA in a way that was unfairly prejudicial to the Petitioner under s.994(1) Companies Act 2006. The court rejected submissions that directors were automatically freed from compliance by a duty-based override or that Jefferies (the bank) had been instructed to meet the contractual timing requirement. The judge found no liability for breach of directors' duties under ss.171–177 on the facts because Mr Costa honestly believed his conduct was in the Company's interests, but concluded that his conduct nonetheless caused unfair prejudice. The remedy was not finally quantified: the court ordered a further hearing to determine quantum and directed that, if a hypothetical final offer exceeding $75m net of debt would have been obtained, Mr Costa must purchase the Petitioner’s shares at 22.33% of that valuation.

This was a s.994 petition alleging unfair prejudice because the Company and certain directors failed to implement an Exit required by the Shareholders' Agreement (SHA) by 31 December 2019.

Background and parties

• The petitioner, Saxon Woods, was a minority shareholder (about 22%) in Spring Media Investments Limited (the Company). The first respondent, Mr Francesco Costa, was chairman and a substantial indirect investor. The SHA contained Clause 6.2 (the Investment Period) requiring the Company and investors to work in good faith towards an Exit by 31 December 2019 and, if none occurred, for the board to engage an investment bank to "cause an Exit" thereafter. Clause 6.3 required shareholder cooperation in any Exit.
• The Company engaged Jefferies as financial adviser. Disputes arose over the conduct of the sale process, whether Jefferies’ mandate matched the SHA and whether offers such as those from Metric and THG received good faith consideration before the deadline.

Nature of the claim/application

• The petitioner sought relief under s.994(1) Companies Act 2006, claiming the Company breached clause 6.2, that Mr Costa had breached his duties as a director, and that the Company’s affairs were conducted in a manner unfairly prejudicial to the petitioner’s interests; the principal remedy sought was a buy-out of the petitioner’s shares (an order under s.996).

Issues framed

1. Construction of clause 6.2: whether directors were impliedly permitted to displace the contract by reference to their fiduciary duties, whether a commercial-reasonableness qualification applied, the meaning of "Exit" (including rollover/"newco" transactions), and whether the clause imposed an ongoing timetable after 31 December 2019.
2. Whether the Company complied with clause 6.2 and whether Jefferies’ mandate satisfied the post-2019 requirement to "cause an Exit".
3. Whether Mr Costa’s conduct caused the Company to breach the SHA and whether he breached statutory directors’ duties (ss.171–177 CA 2006) or was negligent.
4. Whether the petitioner had been unfairly prejudiced and, if so, the appropriate remedy and its quantification.
5. Whether the Company’s payment of Mr Costa’s legal costs under a contractual indemnity was permissible.

Court’s reasoning and conclusions

• Construction: the judge rejected an implied fiduciary-duty override which would excuse compliance with the clear timetable. Clause 6.2 required active steps to pursue an Exit by the prescribed date and, if no Exit occurred, to instruct an investment bank to cause an Exit thereafter; an implied obligation to act "as soon as reasonably practicable" after 31 December 2019 was read into the clause.
• Meaning of "Exit": the court held that a transaction effected through a purchaser vehicle in which some sellers rolled equity could still amount to a sale of "all or substantially all" where the economic character of the sellers’ post‑transaction holding materially changed (substance over form), so offers such as Metric’s could qualify as an Exit.
• Jefferies’ role and disclosure: Jefferies’ mandate, as evidenced, was broad and focused on finding investor interest rather than being contractually instructed to "cause" a sale to meet the SHA timetable; there was no evidence Jefferies had been given an instruction compelling a sale to meet the contractual deadline. Relevant communications between Jefferies and company officers were sparse in the documentary record; the court drew adverse inference from incomplete disclosure, particularly by Mr Uberoi.
• Breach and causation: the Company did not comply with its contractual obligations. The judge found that the conduct which caused that breach flowed from Mr Costa’s control of and filtering of the process and his unwillingness to give good faith consideration to bidders associated with the petitioner; accordingly, the petitioner proved unfair prejudice caused by the respondent’s conduct.
• Directors’ duties: applying the subjective standard of s.172(1) and Regentcrest, the judge concluded that Mr Costa honestly believed delay would maximise value and therefore did not, on balance of evidence, breach duties under ss.171–177 or s.174. The court therefore did not make findings of breach of fiduciary duty or negligence against him, but still held his conduct sufficiently connected to the unfair prejudice to justify relief.
• Remedy and next steps: the court found unfair prejudice but deferred quantification. It ordered a further "Quantum Trial" to determine the hypothetical final offer the Company would have obtained if the SHA had been complied with. The judge specified parameters for that hypothetical and concluded that if a final offer above $75m net of debt would have been obtained, the First Respondent must buy the petitioner’s shares at 22.33% of that valuation. If the hypothetical final offer would have been below that figure, no relief would be granted because the petitioner would have suffered no financial loss from the breach.
• Indemnity: the court indicated (and discussed legal principles) that the Company’s indemnification of Mr Costa to fund his defence raised serious issues; payments may not be allowable where the company is not a genuine protagonist and where the proceedings are effectively a shareholders’ dispute, and the contractual precondition for indemnity had not been complied with. The question remained to be determined.

The judgment therefore determines liability for unfair prejudice (in the petitioner’s favour) but remits quantification and certain ancillary matters for further hearing.

First instance: The petition under s.994(1) Companies Act 2006 was largely successful on liability. The court found the Company breached clause 6.2 of the Shareholders' Agreement and that the breach, caused by the First Respondent’s control and conduct of the sale process, amounted to unfair prejudice to the Petitioner. The judge did not find that Mr Costa breached his statutory directors’ duties (applying the subjective test) but held him sufficiently connected to the unfairly prejudicial conduct to justify relief against him. Quantum (valuation of loss and final buy-out price) was remitted to a further hearing; the court directed that, if the hypothetical final offer would have exceeded $75m net of debt, Mr Costa must buy the Petitioner’s shares at 22.33% of that valuation.