Minority Shareholder Protection in Commercial Disputes | Key Lessons from Saxon Woods Investments Ltd v Costa
Our commercial litigation team regularly acts for clients involved in shareholder disputes and unfair prejudice claims. In this article we examine a Court of Appeal case regarding minority shareholder rights.
In Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708, the Court of Appeal clarified and reinforced important aspects of minority shareholder rights and the operation of sections 172 and 994 of the Companies Act 2006 (‘the Act’).
The Court held that section 172, which sets out the directors’ duties to promote the success of a company, requires objective honesty, in addition to subjective belief. Regarding section 994, it reaffirmed that prejudice, for the purposes of an unfair prejudice claim, does not have to be financial in nature.
This decision confirms the protection available for minority shareholders against the dishonest actions of directors such as, breaches of a company’s Articles of Association, which prevent them from effectively engaging in the governance of the company.
Stuart Southall comments upon this important Court of Appeal Judgment.
The Relevant Law
The Companies Act 2006 states:
S. 172 Duty to promote the success of the company.
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard, amongst other matters, to the:
- likely consequences of any decision in the long term,
- interests of the company’s employees,
- desirability of the company maintaining a reputation for high standards of business conduct, and
- the need to act fairly as between members of the company.
S. 994 Petition by company member
A member of a company may apply to the court by petition for an order that:
- the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members, including himself, or
- an actual or proposed act or omission of the company, including an act or omission on its behalf, is or would be so beneficial.
S. 996 Powers of the court
If the court is satisfied that a petition is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.
The court’s order may:
- provide for the purchase of the shares of any members of the company by other members of the company itself.
The Case in Focus | Saxon Woods Investments Ltd v Costa
Spring Media Investments Ltd (‘the company’) is the holding company for a group of companies which provides creative services to existing brands in the fashion, beauty and luxury brand sectors.
During its expansion process, Francesco Costa (Mr Costa), along with others, invested in the company and became a director. Further rounds of financing took place over a couple of years.
A Shareholders’ Agreement which had been agreed required, among other things, the company and each investor to work together in good faith towards achieving an ‘Exit’ by 31st December 2019, with the intent that one of the parties, Saxon Woods Investments Ltd (Saxon Woods), could realise the value of its investment in the company.
In the event that an ‘Exit’ was not achieved, the Shareholder’s Agreement contained provisions for an investment bank to be engaged to oversee the ‘Exit’ on specified terms, alongside complex provisions concerning share valuation.
An ‘Exit’ was not achieved and, in due course, Saxon Woods, a 22.33% shareholder in the company, alleged that under the de facto control of Mr Costa, the company had failed to act in good faith to achieve the ‘Exit,’ thereby frustrating its ability to realise the value of its investment. Apart from himself, Mr Costa represented shareholders owning around 77.67% of the shares in the company.
It was claimed that Mr Costa’s objective in deliberately delaying the ‘Exit’ was to, hopefully, secure a higher valuation in the future, but the COVID-19 pandemic intervened resulting in a significant reduction of the company’s value which severely prejudiced Saxon Wood.
A petition was brought pursuant to section 994 of the Companies Act 2006 and when the proceedings came before the High Court, it determined, among other things, that the company’s affairs had been conducted in a manner that was unfairly prejudicial to Saxon Woods. Additionally, subject to conditions, it was entitled to an Order that its shares be purchased by Mr Costa, and the Judge ordered a second Trial to determine the value of the shares.
However, the Judge rejected the contention that Mr Costa had acted in breach of his duties as a director.
Different aspects of this Judgment were appealed by both parties to the Court of Appeal.
The Court of Appeal’s Judgment
In respect of section 172 of the Act
The Court overturned the decision of the High Court Judge saying:
“the judge’s findings that Mr Costa had misled the Board and by doing so had concealed from them the fact that he was doing nothing to achieve a sale of the shares before 3 December 2019, and in fact was doing as much as he could to prevent it, could only have led to a finding that he was behaving dishonestly… and hence in breach of his fiduciary under section 172 [of the Companies Act 2006].”
“Deliberately deceiving the board of a company must, either always or almost always, be inconsistent with a director’s duty under section 172 [of the Companies Act 2006]."
Accordingly, the Court found that the conduct of Mr Costa had deprived Saxon Woods of its contractual right to participate in the ‘Exit’ process and constituted unfair prejudice.
In respect of sections 994 & 996 of the Act
The Court of Appeal overturned the High Court’s decision, holding that financial loss is not a prerequisite for relief under section 994.
The Court stated:
‘…section 996 gives the court a wide discretion to give relief in respect of the unfair prejudice that has been established… the purpose of the grant of relief is to put right and cure for the future the unfair prejudice that the petitioner has suffered at the hands of the respondents.’
The Court emphasised that:
- Non-financial prejudice, such as the denial of participation rights, can satisfy the statutory test for unfair prejudice.
- Honesty and good faith are overlapping but distinct concepts. A director who acts dishonestly cannot be said to be acting in good faith, even if they believe their actions are in the company’s best interests.
- The objective test of dishonesty, as affirmed in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67, applies to fiduciary duties. Mr Costa’s subjective belief in the merits of his strategy was irrelevant.
The Court concluded that Mr Costa’s continued involvement in the company posed an ongoing risk to minority shareholders. It therefore ordered an unconditional buy-out of Saxon Woods shares, valued as of 31 December 2019, before the impact of COVID-19.
How Can We Assist?
The Court of Appeal’s decision in Saxon Woods v Costa is a powerful reminder that corporate governance involves far more than individual discretion, it involves strict honest decision making in accordance with the requirements of section 172 of the Companies Act 2006.
Our team of commercial dispute solicitors has a wealth of experience advising and assisting clients involved in complex corporate issues and commercial disputes of every nature and routinely advises directors and shareholders on complex company law matters.
We also have lawyers with extensive expertise in Alternative Dispute Resolution (ADR). We are able to provide suitably equipped offices to conduct mediations with both private rooms and a ‘joint room’ for opening statements and ongoing discussions between the parties.
If we can be of assistance, please do not hesitate to contact our team using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through video conferencing or telephone.
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