A recent Court of Appeal case has highlighted the power – and risk – of good faith obligations in shareholders’ agreements, especially where one director controls the sale process.

In Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708, a minority shareholder succeeded in proving unfair prejudice because the company’s chairman ignored a contractual promise to work “in good faith” towards a sale by a set date. The case shows that those words carry real legal weight.

The story behind the dispute

Spring Media Investments was a creative agency for luxury brands. One of its founders, through Saxon Woods Investments, owned about 22% of the business. The chairman, Francesco Costa, controlled the majority and effectively ran the show.

The shareholders’ agreement from 2016 contained this straightforward promise:

“The Company and each of the Investors agree to work together in good faith towards an Exit no later than 31 December 2019.”

It also said that if no sale happened by then, the board must appoint an investment bank to make it happen as soon as reasonably practicable. Everyone understood that “Exit” meant selling the company or its business.

But when the time came, things went badly wrong.

The chairman who controlled everything

In November 2018, the board appointed Jefferies LLC to help with the sale. Costa took charge of the relationship. He controlled all communications, filtered information to the board, and kept the sale process to himself. Jefferies wasn’t even told about the company’s contractual obligation to achieve an Exit by 2019.

When potential buyers showed interest, including Metric Capital Partners, Costa didn’t pursue them. He later admitted that he didn’t want to sell until 2020 or later – when he thought the price might be higher.

Then Covid hit. The business value fell sharply, leaving the minority locked in.

The legal fight

The minority shareholder, Saxon Woods, brought an unfair prejudice petition. They argued that the company’s conduct – really Costa’s conduct – breached the shareholders’ agreement and deprived them of the agreed right to exit.

Costa claimed he genuinely believed waiting was best for everyone. The High Court accepted that he acted honestly, but found that his actions had still breached the agreement. It ordered him to buy out the minority if it could be proved that a genuine offer above US$75 million would have existed by 2019. Both sides appealed.

What is an unfair prejudice petition?

Under section 994 of the Companies Act 2006, any shareholder can ask the court to intervene if a company’s affairs are being run in a way that is “unfairly prejudicial” to their interests.

It’s most often used by minority shareholders who feel sidelined or mistreated by those in control. The test has two parts: the conduct must be prejudicial (causing harm or disadvantage), and it must also be unfair.

Typical examples include:

• Excluding a shareholder from management in a quasi-partnership business.

• Issuing new shares to dilute a minority’s interest.

• Diverting business or profits to another company controlled by the majority.

• Ignoring rights in a shareholders’ agreement – as happened in this case.

If the court agrees that there’s been unfair prejudice, it has very broad powers under section 996. The most common remedy is a buy-out order, where the majority (or the wrongdoer) must buy the minority’s shares at a fair value. But the court can also regulate the company’s future conduct or order compensation in other ways.

In short, an unfair prejudice petition is the main tool for minority shareholders who believe those in control have crossed the line. It’s not about punishing bad behaviour for its own sake – it’s about restoring fairness and protecting the value of the minority’s investment.

The Court of Appeal’s findings

The Court of Appeal sided squarely with the minority. It said:

• The phrase “work together in good faith towards an Exit no later than 31 December 2019” means what it says. It imposed a real obligation, not a loose aspiration.

• Costa’s behaviour – controlling and misleading the board – was the opposite of good faith.

• Even if an Exit might not have succeeded, the minority was deprived of the opportunity to achieve it, which was enough to be unfairly prejudicial.

• Costa’s conduct also breached his fiduciary duty under section 172 of the Companies Act. Good faith in this context requires honesty and fairness, not a subjective belief that “they’ll thank me later.”

Why this matters

This case is a warning to both controlling shareholders and company directors.

For majority owners, “working together in good faith” means doing what was agreed, not what you later decide is commercially convenient. You can’t ignore agreed timelines or keep others in the dark.

For minority shareholders, it’s a reassurance that good faith clauses can be enforced. Even if a sale never actually happens, being shut out of the agreed process can amount to unfair prejudice.

For business sellers, it’s a reminder that when you agree a timetable for an exit – whether under a shareholders’ agreement, investment deal, or earn-out – the other side must act genuinely to achieve it. If they don’t, the law can step in.

The takeaway

Good faith isn’t just corporate politeness. It’s a real obligation that courts are now enforcing firmly.

If you’re a shareholder or seller and your agreement includes good faith duties around an exit, make sure they are followed – and keep clear records of any delays, decisions, or deviations from the plan.

Because as this case shows, when a director takes control of the process and freezes everyone else out, “good faith” is the first casualty – and the courts won’t ignore it.