Case Digest No. 15 · Company and shareholder disputes
Unfair prejudice, directors’ good faith and honesty
Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708
The Court of Appeal held that the section 172 duty to act in good faith includes an obligation to act honestly towards the company and addressed prejudice and the remedial discretion under section 996.
Court of Appeal
[2025] EWCA Civ 708
September 2025
Decision at a glance
The question, answer and consequence.
- Legal question
- The central issue was unfair prejudice, directors’ good faith and honesty.
- Court's answer
- The Court of Appeal held that the section 172 duty to act in good faith includes an obligation to act honestly towards the company and addressed prejudice and the remedial discretion under section 996.
- Practical consequence
- The judgment connects unfair-prejudice analysis with directors' duties of good faith and honest decision-making. It helps distinguish poor governance or commercial disagreement from conduct capable of supporting relief under section 994.
Factual background
The Company, Spring Media Investments Limited, was the holding company for a group of companies providing creative services to existing brands. The Petitioner, Saxon Woods Investments Limited, was at all material times the holder of 22.33% of the shares in the Company. The First Respondent, Mr Costa, was at all material times the chairman of the Company and, although not himself a shareholder, the holder of a substantial indirect interest in the Company. A shareholders agreement was entered into on 27 February 2013, and novated, amended and restated on 20 May 2016. A board meeting was held on 20 November 2018 at which it was resolved that the Company, led by the First Respondent, would hire an investment bank to commence the exit process, as set out in the shareholders agreement. The Petitioner argued that, thereafter, the First Respondent caused the Company to breach its obligations regarding the provisions for exit in the shareholders agreement as no exit was achieved at all.
Issue
The central issue was unfair prejudice, directors’ good faith and honesty.
Procedural history and reasoning
[2024] EWHC 387 (Ch) and [2024] EWHC 1056 (Ch) Mr Simon Gleeson (sitting as a Deputy High Court Judge) FINDINGS OF FACT Found that the Company, as a result of Mr Costa’s conduct, failed to work in good faith towards an Exit by 31 December 2019 (the “Investment Period”) and failed to give good faith consideration to opportunities for an Exit by that time. The judge found that Mr Costa regarded himself as “the Company”, and his “primary focus at all times appears to have been to ensure that no director or shareholder…had any knowledge of or involvement in the Exit process” (at 163). Mr Costa gave assurances to the other directors that he was doing everything in accordance with the investment bank’s advice, but no bard member knew exactly what the investment bank had actually been instructed to do (at 163). The judge also found that “Mr Costa had formed the view that he did not want to sell the Company until he was confident that he could get a good price for it, and that he did not expect this to happen until 2020 at the earliest” (at 164 to 166).
Ultimately, the judge found that “Mr Costa therefore cannot rely on the argument that it was the board who had caused the Company to breach its obligations, since the Board’s decisions in the matter were the result of the fact that he had misled it” (at 202). CONCLUSIONS ON ISSUES RAISED BY THE PETITION The judge found that the Company breached Article 6.2, by not working in good faith towards an Exit by the end of 2019 and by failing to give good faith consideration to offers received, and that this breach was the result of Mr Costa’s conduct. However, the judge rejected the Petitioner’s contention that Mr Costa had acted in breach of his duties as a director under s172(1) and s174 of the Companies Act 2006. He concluded that the Company’s affairs had been conducted in a manner that was unfairly prejudicial to the Petitioner, and that the Petitioner was, conditionally at least, entitled to an order that its shares be purchased by Mr Costa.
The condition to the purchase order was that a final offer for the shares in the Company would have been received from a third party by the end of 2019 in an amount that was greater than US$75 million, net of debt. The judge directed a second trial, at which it would be determined whether such an offer would have been received. THE EXIT PROVISIONS Article 6.2 Investment Period The Company and each of the Investors agree to work together in good faith towards an Exit no later than 31 December 2019 (the “Investment Period”). In addition, the Company and each of the Investors agree to give good faith consideration to any opportunities for an Exit during the course of the Investment Period.
Decision and key points
The Court of Appeal held that the section 172 duty to act in good faith includes an obligation to act honestly towards the company and addressed prejudice and the remedial discretion under section 996.
- The s172 Companies Act 2006 requirement that a director acts in good faith includes a requirement that they act honestly towards the company.
- Whether or not the Petitioner would have been in a better position, the fact that the First Respondent’s conduct deprived the Petitioner of an opportunity was in itself prejudice within s994.
- A remedy under s996 can not only seek to put right past unfair prejudice but can seek to cure it for the future.
Why this decision matters
The judgment connects unfair-prejudice analysis with directors' duties of good faith and honest decision-making. It helps distinguish poor governance or commercial disagreement from conduct capable of supporting relief under section 994.
Particularly relevant to: Shareholders, directors, companies and contentious corporate teams.