Saxon Woods Investments Limited v Francesco Costa

A director’s duty under section 172 of the Companies Act 2006 requires honesty towards the company. The court must ascertain the director’s actual knowledge or belief about the facts, then assess the honesty of the conduct by the objective standards of ordinary decent people. A sincere belief that the conduct will ultimately benefit the company does not permit deliberate deception of its board.

For an unfair prejudice petition, prejudice need not be financial. Depriving a member of a contractual opportunity to exit may itself suffice. Once unfair prejudice is established, section 996 permits relief addressing both past and future prejudice. A fiduciary breach may justify an unconditional, non-discounted buy-out without strict proof that the same sale would otherwise have occurred.

Saxon Woods Investments Limited held 22.33% of Spring Media Investments Limited. Its shareholders’ agreement required the company and its investors to work together in good faith towards an exit by 31 December 2019 and to consider exit opportunities in good faith. The High Court held that Francesco Costa, the company’s chairman and de facto controller, caused the company to breach those obligations. It conditionally ordered him to purchase Saxon Woods’ shares if a second trial established that a binding offer exceeding US$75 million net of debt would have been received.

Both parties appealed from the liability judgment, [2024] EWHC 387 (Ch), and the consequential decision, [2024] EWHC 1056 (Ch). The principal issues concerned the construction and breach of the exit obligations, unfair prejudice under section 994 of the Companies Act 2006, Costa’s duty under section 172, and the proper relief under section 996.

1. Disposition. Saxon Woods’ appeal was allowed and Costa’s appeal was dismissed. The conditional order and proposed second trial were set aside. Costa was ordered unconditionally to purchase Saxon Woods’ shares, without a minority discount, at their pro rata share of the company’s open market value on 31 December 2019. The High Court was to determine that value on expert evidence.

2. The agreement required the parties to work in good faith towards achieving an exit by 31 December 2019. It did not merely require work during the investment period towards an exit at some unspecified later time. Costa pursued a strategy contrary to that obligation, so the company breached the first sentence of article 6.2.

3. A transfer of the company’s shares to a new legal entity could constitute a sale of all or substantially all the shares even if some existing shareholders held equity in the purchasing entity. The requirement for arm’s-length terms protected the other investors. The company’s refusal to engage with Metric’s expressions of interest also breached its obligation to give good faith consideration to exit opportunities.

4. Costa’s conduct was unfairly prejudicial under section 994 of the Companies Act 2006. Saxon Woods had a membership right to the benefit of the company’s exit obligations. Deprivation of the opportunity to pursue an exit was itself prejudice, whether or not an exit would ultimately have occurred. Prejudice need not be financial.

5. Section 172 requires a director, in everything done for the company, to act in good faith in the way the director considers most likely to promote its success for the members as a whole. Good faith includes honesty towards the company. The director’s knowledge or belief about the facts is ascertained subjectively, but the honesty of the conduct is judged objectively by the standards of ordinary decent people.

   Costa deliberately misled the board to conceal his obstruction of the agreed exit strategy. His sincere belief that investors would eventually benefit did not make that conduct honest. Deliberately deceiving a board will always, or almost always, breach section 172, subject only to possible wholly exceptional circumstances. Costa also knowingly pursued his own preferred objective contrary to the definition of corporate success agreed by all members.

6. Section 996 confers a wide discretion to correct past unfair prejudice and cure it for the future. Leaving Saxon Woods invested under the control of a director who deliberately disregarded its rights and deceived the board created an unacceptable continuing risk. No protective regime would be effective. The fiduciary breach justified an unconditional buy-out, whose terms were not confined by strict contractual “but for” causation.

1. Court of Appeal (Civil Division): In [2025] EWCA Civ 708 , allowed Saxon Woods’ appeal, dismissed Costa’s appeal, set aside the conditional order and ordered an unconditional purchase at the shares’ non-discounted pro rata value on 31 December 2019.
2. High Court, Companies Court: In [2024] EWHC 387 (Ch) , held that Costa caused unfairly prejudicial breaches of the shareholders’ agreement but had not breached section 172 or section 174 of the Companies Act 2006. In [2024] EWHC 1056 (Ch) , made the purchase conditional upon a second trial establishing a binding offer exceeding US$75 million net of debt.