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.

“I honestly thought it was best”: Supreme Court confirms that directors must act in good faith when taking steps to promote the success of the company.

All company directors are required under section 172 of the Companies Act to act in the way they consider, in good faith, would be most likely to promote the success of the company.

Most directors will at some point find themselves in a genuine disagreement with their board; it is a healthy aspect of leading a robust business.

However, in the case of Saxon Woods Investments Limited v Francesco Costa [2026] UKSC 21, the Supreme Court has made it clear that how a director handles that disagreement matters just as much as what they believe. Getting it wrong can amount to a breach of duty, regardless of the sincerity of the director’s intentions.

The case in a nutshell

Spring Media Investments, a creative services group in the fashion beauty and luxury sectors, had a shareholders’ agreement committing the parties to work in good faith towards the sale of the business by the end of 2019.

Its chairman at the time, Mr Costa, thought a later sale would achieve a better price. Mr Costa did not obtain board approval for this but instead secretly ran his own strategy to delay the sale. The Court found that Mr Costa kept fellow directors and shareholders at arm’s length from the sale process, he deflected their enquiries, allowed the board to believe the company was on track to meet its obligations, and used delaying tactics to hold up sale timings.

These delay tactics worked; but then the pandemic arrived, destroying the prospect of a good sale.

The trial judge accepted that Mr Costa genuinely believed he was acting in the company’s best interest in his approach. On the traditional, subjective reading of the duty in section 172 of the Companies Act 2006, the judge found no breach. The Court of Appeal disagreed, and the Supreme Court has now unanimously upheld that outcome.

What the Supreme Court decided

Section 172 requires a director to act in the way they consider, in good faith, would be most likely to promote the success of the company. Mr Costa’s argument was, in essence, that this is a test of a director’s state of mind; if the belief is honest, the duty is satisfied.

The Supreme Court rejected that argument. Good faith under section 172 governs a director’s actual conduct, not just their thinking. A director must not only hold an honest belief about what is best for the company, they must also pursue it loyally and openly.

Concealing a strategy from the board, misleading fellow directors, and/or covertly frustrating a course that the board has settled on is not acting in good faith, whatever the director privately believes.

Interestingly, the Supreme Court reached the same outcome as the Court of Appeal by a different route. The Court of Appeal had framed the issue around dishonesty, meanwhile, the Supreme Court’s reasoning was based on good faith and the fiduciary duty of loyalty from which section 172 derives.

That framing arguably makes the principle broader; conduct can fall short of good faith without needing to be characterised as dishonest.

Why this matters

The judgment does not create a new express duty to be collegiate. However, it gives real teeth to something good governance codes have long assumed. The management of a company is entrusted to the board as a whole, and loyalty to the company means respecting the collective process. While dissent is legitimate, secrecy is not.

For directors, the practical rule of thumb is simple: disagree in the boardroom, not around it. It is completely fair to raise a dissenting view and argue its merits. However, if the board decides otherwise, the director is duty bound to implement the collective decision. Director should not therefore nod along in meetings while secretly steering the company in a different direction. To do some would subvert the collective process of decision making by the board.

What should boards and shareholders do?

If you suspect a director is covertly pursuing their own agenda, there are a few steps that may be worth considering. For example, it is important to preserve the record; board minutes, emails, advisor instructions and information requests were central in this case. Document what happened, what was disclosed and what was not.

It is also worthwhile testing the information flow on any major transaction. The board collectively should instruct and receive reports from advisers such as banks and lawyers. Part of the case against Mr Costa was that the instructions to advisors quietly diverged from what the board believed to be occurring.

If there is a problem, the response should be carefully calibrated; how and when concerns are raised can affect both the evidence and critical relationships, particularly in owner-managed and PE-backed businesses, where a director may also be a significant shareholder.

The bottom line

Saxon Woods has confirmed that a director who says “I honestly thought I was doing the right thing” will nevertheless be in breach of duty if their behaviours involve concealment and misleading the board or undermining an agreed strategy.  Good faith is about what directors do, not just what they think.

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