In the previous edition of our Discussing Disputes series, we looked at the Supreme Court’s decision in Saxon Woods v Costa, where a director who genuinely believed that he was acting in the company’s best interest was still found to have breached his duties, because of the way he went about it.

A High Court judgment handed down two weeks later (Peter Waddell Holdco Ltd v Bluebell Cars Holding Ltd & Ors [2026] EWHC 2028 (Ch)) makes the same point but from the opposite direction. In the long running dispute over Big Motoring World, an investor had genuine and serious concerns about the conduct of the company’s founder and CEO. Those concerns were in a large part upheld, however, the investor still lost a central claim because of how it chose to act on them.

The case background

Peter Waddell’s backstory was a true rags-to-riches tale. From a childhood spent in care and spells of homelessness, Waddell had gone on to build Big Motoring World, a network of car dealerships, from scratch. According to 2021 annual accounts, the business had 525 employees and revenues of £371m.

In 2022, and planning a staged retirement, Waddell sold a minority stake to the private equity firm Freshstream. His holding company, PWHL, remained a majority shareholder and he remained CEO.

Because the minority stake gave Freshstream limited control of the company, the deal contained several protections – three that were central to the case are summarised below.

1. A call option that allowed Freshstream to buy a further 35%, and therefore gain majority control, at a price of not less than £72m
2. Step-in rights that could be exercised if the business underperformed against agreed financial triggers. These rights which would flip control of the board to Freshstream
3. A Material Default Event (MDE) process, allowing Freshstream to require the company to commission an independent investigation into an employee’s conduct, where there were reasonable grounds to suspect a breach of discrimination or harassment law likely to cause serious reputational damage.

Relations between Waddle and Freshstream deteriorated. The investor did not exercise the call option in the first option period. But on 7 March 2024, and without warning, it served a step-in notice, an MDE notice, and Waddle’s suspension under his service agreement. He was removed as a director in April and summarily dismissed shortly afterwards.

Waddell and his holding company challenged what had happened. His holding company also brought an unfair prejudice petition under section 994 of the Companies Act 2006.

What the court decided

Neither side won the case outright.

On the issue of Waddell’s dismissal, Freshstream won. The judge found that a number of the incidents relied on – including the use of racist and sexist language, and bullying and harassment of staff – occurred and amounted to gross misconduct. The wrongful dismissal claim by Waddle failed. Nothing in the judgment excuses that conduct.

On the central claim around the approach used for the removal however, the investor lost. In fact, the judge found that Freshstream had its own agenda, forming and executing a “preconceived and orchestrated plan” with the aim of removing Waddell and achieving permanent control without having to exercise the call option. The use of the MDE rights was found to be unlawful and unfairly prejudicial to Waddell’s holding company.

The reasoning behind the judgment provides some valuable insights.

The judge found that the relevant Freshstream individuals had not genuinely formed the “state of mind” contractually required before serving the investigation notice. The contract demanded a real suspicion and a genuine view about reputational harm; the court found that those were not genuinely held.

In addition, the scope of the investigation shifted once it was underway. Incidents were investigated that had not been identified in the original notice, and a number of the matters listed in the founding resolution were framed so vaguely that they could not be tied to a specific allegation at all.

The investigation was also accelerated by Freshstream. An interim view was requested from the independent investigator who provided it under protest and the MDE notice was served on the back of the report. The judge treated the conclusions as reached in haste and were not findings in the proper sense.

Two directors were found additionally to have breached their duty. In particular, the chair (appointed at the investor’s request and who succeeded Waddle as CEO) was found to have aligned himself with the minority investor against the majority shareholder. He acted in a conflict of interest, without good faith, and failed to exercise independent judgment.

Notably, however, the investor’s exercise of its step-in rights was found to be valid. It is therefore not accurate to portray Freshstream’s actions as a wholly unfounded power grab; rather, it was a case where some of the contractual devices were used properly and others were not.

What the outcome means

There is a particular lesson in this judgment for anyone tempted to bank up allegations for later use. The judge observed that issues related to Waddle’s conduct should have long before resulted in some form of disciplinary process – hopefully not dismissal, but instead limits on a CEO who, for all his serious faults, was “gifted” and “duly appointed”.

Allowing the conduct to continue unchecked until it became commercially useful for Freshstream was part of the problem rather than evidence of restraint.

Key lessons for boards, investors and founders include:

• Deal with conduct issues as they occur: Concerns about a senior individual’s behaviour should be addressed through the proper processes as they are flagged, not stored up to be used later. As this case shows, adopting this tactic undermines the credibility of any later action.
• Satisfy the conditions before initiating processes: Where a contractual right depends on a party holding a particular opinion or suspicion, that state of mind has to be genuine and it must exist at the time. A proper record of the decision and reasons supporting the decision are key.
• Keep the investigation within the terms of reference: An investigation that widens as it progresses is vulnerable to be attacked. If new matters emerge, deal with them properly rather than folding them into a process not designed to deal with them.
• Protect the investigator’s independence: This is established by giving proper terms of reference, allowing adequate time and providing the freedom to reach independent and objective conclusions.
• Investor-appointed directors owe their duties to the company: A director nominated by an investor is not the investor’s representative on the board. They still need to act in good faith and have a duty to avoid conflicts of interest.

The bottom line

Freshstream was right about the problem – Waddell’s conduct was serious and the court said so. However, the investor worked backwards from the outcome it wanted, ‘saving up’ allegations until it could push the founder out of the business and that strategy cost it the case. Being right about the problem is not a substitute for getting the process right.