Saxon Woods v Costa: a cautionary tale for directors

Factual background

The case concerned a petition under section 994 of the Companies Act 2006 (the "Companies Act") pursued by Saxon Woods Investments Ltd ("Saxon Woods") being a minority shareholder in Spring Media Investments Ltd ("Spring Media"). 

Saxon Woods held a 22.33% shareholding in Spring Media, while the Chairman of the Company, Francesco Costa, who was also the only respondent to the appeal, held a substantial indirect interest in the company which, when combined with the other investors which Mr Costa had introduced to the company and who were fully aligned with him, essentially owned the remaining 78% in Spring Media.

Of particular significance in the case were the "exit" provisions within the shareholders’ agreement (the "SHA").  The core of Saxon Woods' case was that Mr Costa caused Spring Media to breach its obligations under the SHA by failing to procure that Spring Media work with the investors in good faith towards an exit.  However, no exit was achieved. The SHA required all parties to work in good faith toward an exit by 31 December 2019. Despite a board resolution to appoint Jefferies LLC to lead the process, Costa failed to act, misled the board, and pursued his own strategy to delay the sale in hopes of a higher valuation.

Judgments

High Court

Saxon Woods' unfair prejudice claim alleged that Mr Costa’s actions harmed its interests and breached the SHA. Mr Simon Gleeson, sitting as a Deputy High Court judge, agreed that Mr Costa’s conduct was unfair and prejudicial but rejected claims that Mr Costa had breached his fiduciary duties under sections 172(1) and 174 of the Companies Act. It ordered Mr Costa to buy Saxon Woods' shares on condition that a final offer for the shares in Spring Media would have been received from a third party by the end of 2019 in an amount exceeding $75 million, net of debt, to be determined in a second trial.

Court of Appeal

Both Saxon Woods and Mr Costa appealed different aspects of the High Court judgment with the appeal being determined by Lord Justice Edis, Lord Justice Snowden and Lord Justice Zacaroli.  

The Court of Appeal found that Mr Costa had indeed breached his fiduciary duties under section 172 of the Companies Act. The Lord Justices emphasised that good faith requires both a subjective and objective test with Mr Costa’s concealment of material facts and his disregard for the SHA’s timeline amounting to a serious breach.

The Court of Appeal overturned the conditional buy-out and ruled that Saxon Woods should not remain a minority shareholder under a director who had acted unfairly. Mr Costa was ordered to purchase Saxon Woods' shares in Spring Media at their open market value as of 31 December 2019—before the COVID-19 pandemic significantly reduced the Spring Media's value.

The court rejected Mr Costa’s argument that delaying the exit was in Spring Media's best interests. As the judgment noted, Mr Costa gambled with other investors’ property without their consent—a risk he had no right to take.

Key takeaways for directors

• Respect shareholder agreements: These are binding and enforceable.
• Act transparently: Concealing information or misleading the board can breach fiduciary duties.
• Avoid conflicts of interest: Directors must not prioritise personal gain over agreed obligations.
• Document decisions: Especially when exercising commercial judgment in sensitive matters.
• Engage with offers in good faith: Ignoring credible opportunities can lead to legal consequences.

Conclusion

Saxon Woods v Costa reinforces that directors cannot override shareholder agreements for strategic convenience. Courts will protect minority shareholders and hold directors accountable when they do not act in good faith or breach their fiduciary duties.