Balancing Directors Fiduciary Duty as against Contractual Obligations: The perceived best interests of the company and its shareholders do not override lawful contractual obligations

28 March 2024

Saxon Woods Investments Limited v Costa [2024] EWHC 387


On 22 February 2024 the High Court handed down the approved judgment of Mr Simon Gleeson in the case of Saxon Woods Investments Limited v Costa [2024] EWHC 387.

In his judgment Mr Gleeson provides an excellent comprehensive summary on the interaction and complexities of directors’ duties, unfair prejudice and contractual obligations and the relevant case law.

The case involved the question as to whether Spring Media Investments Limited (the “Company”) had breached a clause in a shareholders’ agreement (“SHA”) which required the Company and its shareholders to work towards an “Exit” by 31 December 2019 and to give good faith consideration to any opportunities for a sale prior to that date (“Clause 6.2”). In the event no Exit was achieved by that date the SHA provided that the board of the Company should instruct a merchant bank to “cause” an Exit.

“Exit” was defined as “the sale of all or substantially all of (i) the issued equity share capital of the Company; or (ii) the business or assets of the Company… each case on arms-length terms as part of a single transaction or a series of transactions”.

The Petitioner, Saxon Woods Investments Limited was a 23% minority shareholder in the Company, a hold ingentity for a group of companies that provide creative services to luxury fashion and beauty brands with subsidiaries based in London, New York and Milan. Francesco Costa, the First Respondent was a director, chairman and an indirect beneficial owner of the Company via a corporate shareholding with a controlling interest. Mr Costa felt that complying with the strict provisions of Clause 6.2 was not in the best interests of the Company and the Shareholders. The Petitioner argued that the First Respondent had caused the Company to breach its obligations under Clause 6.2. The Petitioner further claimed that the conduct of the First Respondent (i) was in breach of his fiduciary duties to the Company; and (ii) resulted in unfair prejudice to the interests of the Petitioner pursuant to s994(1) of the Companies Act 2006. No claim was brought by the Petitioner against any other Shareholder.



The Court found that the Company was indeed in breach of Clause 6.2 and in doing so it rejected defence arguments that:

  • Complying with Clause 6.2 would have been a breach of fiduciary duty, on the basis that the board of the Company believed that proceeding with an Exit in accordance with Clause 6.2 would not maximise the potential return for the shareholders and that Clause 6.2 was subject to an implied director’s duties override that took precedence over the contractual obligation in Clause 6.2. The Court held that an argument that it would have been a breach of fiduciary duty to complete a deal today rather than waiting for a better deal down the line was not a sustainable one. This was a pure commercial decision for the board.
  • The fact that some shareholders in the Company had an equity interest in a proposed purchaser/investor meant that the transaction would not constitute an Exit for the purposes of Clause 6.2. The Court said that as the shareholding interests were not mirrored in the proposed purchaser this was not accepted.

  • That once the 31 December 2019 date had passed there was no fixed timetable for completing the Exit. The Court found an implied term existed meaning that the Exit must take place as reasonably practicable and within a reasonable time after that date and that time was of the essence of the whole arrangement.

The Court concluded that the Petitioner, as a minority shareholder had suffered unfair prejudice as a result of the breach and that the First Respondent, as Chairman of the Company was responsible for the breach. The Court ordered relief against the Company and the First Respondent for unfair prejudice and breach of obligations under the SHA.

The Court stated that had the Company complied with Clause 6.2 it would probably have had one or two conditional offers on the table to consider before the 31 December 2019. The loss suffered by the Petitioner will therefore be calculated by attributing a value of the best offer which the Company would have received at the time and applying that to the Petitioner’s shareholding. There is to be a further quantum hearing to determine the value of such hypothetical offer.



The case is a stark reminder of the importance of not ignoring lawful contractual provisions in shareholder agreements and assuming that a perceived, (even if validly held) opinion that an alternative course of action by the board may be in the better interests of the company, does not override that contractual obligation. The case also shows how a court can grant relief in unfair prejudice actions regardless of the parties involved and highlights the importance of acting in good faith in M&A transactions.

John McMahon
Partner - Corporate, Commercial
John McMahon is a Partner Solicitor at Spencer West. He specialises in M&A, Corporate Finance, MBO/MBI, Rights issues, Start Ups, Shareholder Agreements, Finance and Security, Joint Ventures, Restructuring.