Directors beware: "they'll thank me later" offers no defence for breaches of directors' duties or a shareholders' agreement

The Court of Appeal’s significant judgment in Costa (Re Spring Media Investments Ltd) [2025] EWCA Civ 708 offers a stark reminder that a director's sincere belief that they are acting in a company's best interests does not excuse a deliberate decision to mislead their board or to cause their company to breach a shareholders’ agreement.

For our earlier analysis of the High Court decision, see Does a failure to pursue an exit amount to unfair prejudice?

Practical implications

The following key points are highlighted by the Court of Appeal decision:

• Honesty is an objective standard: a director's subjective belief that they are promoting the company's success is not a complete defence. When determining a director’s duty to act in good faith pursuant to section 172 of the Companies Act 2006 there is an objective duty of honesty. Directors cannot act dishonestly, albeit sincerely, on the basis that the shareholders may “thank me in the long run”.
• Breach of SHA as breach of duty: when shareholders contractually define what "success" looks like (in this case, working in good faith towards an Exit by a specific date) a director who knowingly causes the company to breach that agreement is in breach of his duty to promote the success of the company for the benefit of the members as a whole.
• Under s 996 of the Companies Act 2006, the court has the discretion to look to the future to cure unfair prejudice. The Court of Appeal found that where a director had acted in breach of their fiduciary duty it would be unjust to leave the petitioning minority shareholder locked into the company controlled and managed by that director.

What was the background?

At the heart of this case was an alleged breach of a shareholders’ agreement – a familiar battleground in corporate disputes. As is often the case, the conflict between the parties involved complex internal dynamics and deep emotional roots.

In this case, the shareholders’ agreement (the SHA) entered into between Spring Media Investments Limited (the Company) and its shareholders required the parties to agree to work together in good faith towards the sale of the Company by 31 December 2019 (an Exit) and to give good faith consideration to any opportunities for sale before that date. Failing this, they would appoint an investment bank to secure an Exit.

Mr Costa, the chairman of the Company (who held a controlling interest) took full control of the Exit process but deliberately frustrated the process. He did not want to pursue a sale by December 2019 as valuation exercises indicated the Company would be in a much better financial position to Exit in 2021. When the original founder of the Company and a shareholder, Mr Loy, became concerned about the lack of progress to secure an Exit, he negotiated two offers in principle to buy the Company. These were dismissed by Mr Costa, who viewed Mr Loy as hostile, and Mr Costa refused to engage with either proposal.

An Exit was not achieved by 31 December 2019. By this point, the directors had instructed an investment bank to explore both an Exit and a potential capital fundraising instead. The instructions to the bank were limited, with no reference made to the original 31 December 2019 deadline nor any other timeframe communicated.

Subsequently, the onset of the Covid pandemic resulted in the share value of the company plummeting.

The claim

In High Court proceedings, Saxon Woods, the Petitioner and a shareholder in the Company, alleged that Mr Costa had caused the Company to breach its SHA obligations to pursue an Exit, and to subsequently engage an investment bank to "cause" one. It alleged that Mr Costa misled the board of the Company, giving the impression that steps were being taken to achieve a sale, when they were not.

Saxon Woods asked the Court to find (i) a breach of the SHA by the Company caused by Mr Costa’s conduct, and (ii) a breach of directors’ duties by Mr Costa, together resulting in unfair prejudice to Saxon Woods as a shareholder. 

The High Court found that the Company had been in breach of the SHA which had caused unfair prejudice to Saxon Woods. However, the court held that Mr Costa had not breached his fiduciary duties to the Company.

Both parties appealed this decision: Mr Costa on the basis that there had been no breach of the SHA by the Company as a result of his conduct; and Saxon Woods on the finding that Mr Costa had not been in breach of his duties as a director.

The Court of Appeal found in favour of Saxon Woods on both grounds.

Fiduciary duties

Saxon Woods alleged that Mr Costa had acted contrary to his duty under section 172 to act in a way that the director considers, in good faith, would be most likely to promote the success of the Company.

The High Court determined that although Mr Costa had misled the board and failed to pursue an Exit in good faith, this did not equate to a breach of fiduciary duties because he genuinely believed that his actions would benefit the Company.

The Court of Appeal disagreed with this approach, clarifying that the duty of good faith in this context includes an objective duty to act honestly towards the company. It was not enough for Mr Costa to have sincerely believed that he was acting in the best interests of the Company; an approach described as “they wouldn’t like it now if they knew, but they will thank me in the long run” ([208])[1]. This would allow a director to “do anything provided that he (subjectively) considered that it was the course most likely to promote the success of the company”[2] and would make the director the “sole arbiter” of the Company’s best interests. 

Instead, the Court of Appeal placed emphasis on the “good faith” aspect of section 172, which introduced an objective standard of honesty. As Mr Costa had not acted honestly objectively in deliberately misleading the board of the Company, he was in breach of his fiduciary duty under s 172.

Unfair prejudice

This case continues the trend of English courts seeing an increase in unfair prejudice petitions brought by shareholders who feel aggrieved by the conduct of a company caused by the directors. The decision illustrates how the drafting and interpretation of a shareholders’ agreement is crucial to establishing whether there was unfair conduct and demonstrates how contractual obligations can place a burden beyond the fiduciary duties of directors.

Saxon Woods’ case was that the Company did not comply with the SHA because it did not work in good faith towards an Exit and after the deadline passed, it did not engage an investment bank to secure an Exit. In its section 994 petition, Saxon Woods claimed Mr Costa’s conduct in causing the Company to be in breach of the SHA led to unfair prejudice to Saxon Woods.

The High Court found that it was clear that Saxon Woods had suffered unfair prejudice but questioned whether this caused any loss. To determine the loss, the Court ordered a further hearing to consider what the value of the final offer would have been. If it would have been at a value that the shareholders would have accepted, there would be unfair prejudice.

The Court of Appeal upheld the finding that the breach amounted to unfair prejudice for Saxon Woods and clarified that under s 994 financial loss was not a necessary condition for relief. The appeal court concluded that the position was fundamentally altered as a result of its finding that Mr Costa had acted in breach of his fiduciary duties under s 172 as well as causing the Company to breach the SHA. Conduct itself, particularly the failure to engage transparently regarding exit opportunities, was sufficient to justify a buy-out order to protect the minority shareholder, even if the precise value of a forgone offer remained uncertain.

[1] Paragraph 208, [2024] EWHC 387 (Ch)

[2] Paragraph 116, [2025] EWCA Civ 708

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2025