Saxon Woods Investments Limited v Francesco Costa

The Court of Appeal allowed the appellant's challenge to the High Court judge's conclusion that the respondent was not in breach of his fiduciary duties. The court held that Mr Costa caused the company to breach Article 6.2 of the shareholders' agreement by failing to work in good faith towards an Exit by 31 December 2019 and by refusing to give genuine consideration to opportunities for an Exit. On the judge's factual findings that Mr Costa deliberately filtered information and misled the board, the Court found that his conduct was dishonest by the standards set out in Ivey and therefore in breach of the fiduciary duty in section 172 of the Companies Act 2006. The court exercised its broad discretion under section 996 to order a buy-out: it set aside the conditional purchase order made by the judge and directed an unconditional buy-out by Mr Costa at a pro rata share of the open market value as at 31 December 2019, to be determined by the High Court.

This appeal arises from a section 994 petition concerning Spring Media Investments Limited and the conduct of the company's affairs in relation to a shareholders' agreement (the SHA) containing Article 6.2 (the Investment Period and Exit obligations). The petitioner, Saxon Woods (holding 22.33%), complained that Francesco Costa (chairman and controlling influence) caused the company to fail to work in good faith towards an Exit no later than 31 December 2019 and failed to consider opportunities for an Exit, thereby unfairly prejudicing Saxon Woods.

The case came to the Court of Appeal from findings of Mr Simon Gleeson (Deputy High Court Judge) who found breach of Article 6.2 and unfair prejudice but concluded (on the judge's view of the mental element of fiduciary duties) that Mr Costa was not in breach of section 172. The judge directed a second trial to determine whether a qualifying offer in excess of US$75m (net of debt) would have been received by the end of 2019 and reserved costs.

Nature of the claim / relief sought: a section 994 petition for unfair prejudice and, in effect, a buy-out or equivalent remedy under section 996 to cure the prejudice.

Issues framed by the court:

• The proper construction of Article 6.2 of the SHA (the obligation to "work together in good faith towards an Exit no later than 31 December 2019").
• Whether expressions of interest from Metric qualified as an "Exit" for the purposes of Article 6.2.
• Whether Mr Costa's conduct that caused the company to breach Article 6.2 amounted to unfair prejudice to Saxon Woods and, if so, what relief should follow under section 996.
• Whether Mr Costa breached his fiduciary duty under section 172 of the Companies Act 2006 (and, alternatively, section 174).
• Appropriate counterfactuals and valuation assumptions for remedying the prejudice.

Court's reasoning (concise):

• Construction: Article 6.2 required the company and investors to work in good faith towards securing an Exit no later than 31 December 2019; the second sentence reinforced a duty to give good faith consideration to opportunities for an Exit within the Investment Period.
• Breaches of Article 6.2 were established on the judge’s unchallenged primary findings: communications were channelled through Mr Costa, Jefferies were not instructed to pursue an Exit by end 2019, and Mr Costa pursued delay in order to maximise his own position.
• On unfair prejudice: deprivation of the opportunity to effect an Exit by the Investment Period sufficed as prejudice under section 994; prejudice need not be purely financial.
• Fiduciary duty: the Court held that section 172 requires a director to act in good faith and honestly towards the company. Applying the two-stage approach from Ivey (first ascertain actual state of belief, then apply objective standards of ordinary decent people), the Court found Mr Costa's deliberate concealment and misleading of the board to be dishonest and thus in breach of section 172. The judge had applied an overly subjective test (Regentcrest §120) and therefore erred.
• Remedy: because the unfairly prejudicial conduct involved a breach of fiduciary duty and the respondent remained in de facto control, the Court considered a continuing minority investment unacceptable. The Court therefore exercised its discretion under section 996 to order an unconditional buy-out by Mr Costa at a pro rata share of the open market value as at 31 December 2019, to be determined by the High Court.

The court therefore allowed the appeal, set aside the conditional order of the High Court and substituted an unconditional buy-out remedy.

Appeal allowed. The Court of Appeal held that Mr Costa caused the company to breach Article 6.2 of the shareholders' agreement and, on the judge's unchallenged findings that he filtered information and misled the board, his conduct was dishonest by objective standards and therefore in breach of his fiduciary duty under section 172 of the Companies Act 2006. Because the unfairly prejudicial conduct involved a fiduciary breach and left the petitioner locked in under the control of the respondent, the court exercised its discretion under section 996 to order an unconditional buy-out by Mr Costa at a pro rata share of the open market value as at 31 December 2019, set aside the conditional relief previously ordered and remitted valuation to the High Court.

Appeal to the Court of Appeal from the Companies Court (Deputy High Court Judge Simon Gleeson). High Court liability judgment 22 February 2024 and consequential order 17 April 2024 (see [2024] EWHC 387 (Ch) and [2024] EWHC 1056 (Ch)). This Court heard the appeal and substituted relief on 9 June 2025 ([2025] EWCA Civ 708).