The expanding scope of shareholder protection

In a significant judgment handed down by the Court of Appeal in Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708, the court has clarified two important aspects of company law: first, that prejudice for the purposes of an unfair prejudice claim under section 994 of the Companies Act 2006 need not be financial in nature, and second, that directors’ duties under section 172 of the Companies Act 2006 (duty to promote the success of the company) require more than subjective belief. They demand objective honesty.

For clients, this means that rights under shareholder agreements must be respected in both form and substance, and that directors who act unilaterally or opaquely, however well-intentioned, risk personal liability.

Background: A delayed exit and a disregarded right

The dispute arose from the failure of Spring Media Investments Ltd (the Company) to pursue an “Exit” by 31 December 2019, as required under a shareholders’ agreement (SHA). Saxon Woods Investments Ltd (SW), a 22.33% shareholder, alleged that the Company, under the de facto control of its chairman, Mr Francesco Costa, had failed to act in good faith to achieve that Exit, thereby frustrating SW’s ability to realise the value of its investment.

The High Court found that Mr Costa had indeed caused the Company to breach its obligations under the SHA, but declined to find that he had breached his fiduciary duties. The judge also made a conditional buy-out order, requiring SW to prove at a second trial that a binding offer of at least $75m would have been received but for the breach.

Both parties appealed against different aspects of the judge’s decision.

The Court of Appeal’s key findings

Prejudice need not be financial

The Court reaffirmed that prejudice under section 994 does not require financial loss. As Snowden LJ explained (at [90]), it is well established that prejudice amounting to a disregard of a member’s rights, even without financial consequences, may constitute prejudice.

In this case, Mr Costa’s conduct deprived SW of the opportunity to exit the Company in accordance with the agreed timetable. That, the Court held, was sufficient to establish prejudice even if no binding offer would ultimately have materialised.

This is a welcome clarification for minority shareholders: the loss of a contractual or procedural right (e.g. breach of articles of association) can itself be prejudicial, particularly where it affects the shareholder’s ability to realise value or participate meaningfully in corporate governance.

Directors’ duties: honesty is not just subjective

Perhaps more striking is the Court’s treatment of Mr Costa’s conduct under section 172 of the Companies Act 2006. The High Court had accepted that Mr Costa “sincerely believed” he was acting in the Company’s best interests by delaying the sale. But the Court of Appeal found this approach flawed.

Drawing on Ivey v Genting Casinos [2017] UKSC 67, the Court held that honesty under section 172 must be assessed objectively. A director cannot escape liability simply by asserting a subjective belief in the correctness of their actions. As the Court put it (at [122]):

“The requirement that the director acts in good faith includes, as a core fiduciary duty, a requirement that the director acts honestly towards the company.”

Mr Costa had misled the board and concealed the true nature of his strategy. He caused the Company to fail to work in good faith towards the Exit, as it was contractually obliged to do under the terms of the SHA. That conduct, the Court of Appeal held, was inherently dishonest and a clear breach of his fiduciary duty under section 172.

This ruling reinforces that fiduciary duties are not a matter of personal belief. Directors must act transparently and in accordance with their company’s contractual obligations and agreed governance frameworks. Where they fail to do so, courts will not hesitate to find a breach, even in the absence of financial harm.

Remedy: A buy-out without conditions

The Court of Appeal overturned the High Court’s conditional buy-out order and instead ordered Mr Costa to purchase SW’s shares unconditionally, at a value to be determined as at 31 December 2019.

The Court rejected the argument that the Covid-19 pandemic, which later devastated the Company’s value, should affect the valuation. Mr Costa had taken a “gamble” by delaying the sale, and he could not now complain when that gamble failed.

This approach underscores the remedial flexibility under section 996. Where a director’s conduct is both unfairly prejudicial and in breach of fiduciary duty, the court may use its discretion to fashion a remedy that reflects not just the loss suffered, but the need to protect the integrity of corporate governance.

Conclusion

The decision in Saxon Woods v Costa is a powerful reminder that corporate governance is not a matter of discretion, even for majority controllers or founding directors. The case confirms that:

• Minority shareholders can seek relief for procedural or strategic unfairness, not just financial harm.
• Directors must act transparently and honestly. They cannot justify misleading conduct by claiming to act in the company’s long-term interests, and engaging professional advisers will not protect them if they do not give full disclosure of relevant information to all of the directors and those advisers.
• Courts will enforce shareholder agreements robustly, especially where exit rights are frustrated or governance processes are undermined.