Overview
In the case of Saxon Woods Investments Ltd v Costa [2026] UKSC 21, the Supreme Court has delivered an important clarification of directors' duties under section 172 of the Companies Act 2006 (the Act). A director's sincere belief that they are acting in the company's best interests cannot excuse conduct that is disloyal, dishonest, or inconsistent with their fiduciary obligations.
What Happened
Spring Media Investments Limited (the Company) entrusted one of its directors (Mr Costa) to progress and execute a shareholder agreement exit strategy that was approved by the board. Genuinely believing that a slower sales process would generate a better financial return for the Company and its investors, Mr Costa delayed implementation of the agreement. When asked, he misled his fellow board members and rebuffed their attempts to obtain knowledge about the exit. Unfortunately for Mr Costa, Covid hit, his strategy collapsed, and there was no better deal to be had.
Saxon Woods Investments Limited brought a minority shareholders' petition against Mr Costa for relief from unfair prejudice under sections 994-996 of the Act. The trial judge found unfair prejudice but held that Mr Costa had not breached his fiduciary duties under sections 172 or 174 of the Act. The trial judge based this on his finding that Mr Costa truly believed what he was doing was in the best interests of the Company. The Court of Appeal disagreed, finding that Mr Costa had breached his fiduciary duties by acting dishonestly in concealing what he was doing from the board. The Supreme Court has now dismissed Mr Costa's further appeal, but on a subtly different and more far-reaching basis. The Supreme Court unanimously confirmed that a genuine belief in one's own strategy, in defiance of that approved by the board, is no defence to disloyalty. Good faith under section 172 of the Act governs what a director does, not just what they privately believe.
Why It Matters
The Supreme Court's judgment closes what Lord Briggs described as a surprising gap in the authorities. Although directors' duties under section 172 of the Companies Act 2006 have generated extensive litigation, there had been no prior authority directly addressing whether a director could deliberately mislead the board and subvert an agreed corporate strategy while avoiding liability because they genuinely believed the outcome would ultimately benefit the company. As the Court observed, Mr Costa's objective of obtaining a higher price for the Company was not itself objectionable. The problem was that he pursued that objective through concealment, withholding information from fellow directors, and frustrating the board's agreed upon strategy.
The Court rejected Mr Costa's argument that section 172 is satisfied whenever a director subjectively believes that his actions will promote the company's success. Instead, the Court focused on the requirement that a director act "in good faith." At paragraphs 51 to 53, Lord Briggs explained that good faith in section 172 is not confined to a director's internal thought process. Rather, it governs the director's conduct as a whole. A director cannot satisfy section 172 by holding an honest belief that the result will benefit the company if the means adopted are inconsistent with the director's duties of loyalty and honesty.
Central to the Court's reasoning is the proposition that the statutory duties must be interpreted consistently with the common law and equitable principles from which they derive. As Lord Briggs noted, section 172 must be read through the lens of section 170(4), which requires the statutory duties to be interpreted and applied in the same way as the corresponding common law and equitable rules. The statutory duty therefore cannot be separated from the traditional fiduciary principles of loyalty, fidelity, and honest dealing that have long governed the conduct of directors.
The judgment repeatedly characterizes section 172 as an expression of a director's fundamental duty of loyalty. Drawing on the classic statement in Bristol and West Building Society v Mothew, Lord Briggs emphasised that fiduciary duties are ultimately concerned with loyalty rather than mere competence. A director who loyally but mistakenly pursues a poor commercial decision may not be in breach of fiduciary duty. By contrast, a director who deliberately deceives colleagues, conceals material information or secretly pursues a personal strategy contrary to the agreed interests of the company acts disloyally, even if he sincerely believes that everyone will eventually benefit.
This decision affirms that a director's subjective business judgment is still respected and courts will not second-guess what a director thinks is best in a business sense for the company. But as Lord Briggs concluded, "the individual director does not thereby obtain carte blanche" to implement his view "by any means, however covert or disloyal, he thinks necessary." The alternative, subjective-only reading of section 172 was also dismissed on policy grounds. Lord Briggs's explained that relying on the director's subjective judgment alone would be "a recipe for chaos and paralysis in corporate governance and destructive of the collegiality of the board of directors as a whole which all stakeholders in limited companies are entitled to expect."
The practical implications are clear. The duty to act in good faith under section 172 is, at its core, a duty of loyal and honest stewardship. Directors are judged by both the ends they seek to achieve and also by the loyalty, candor, and honesty with which they pursue them.
Practical Takeaways for Boards and General Counsel
Boards and general counsel should take two things from this decision:
- Delegation is not abdication. Entrusting a project to one director does not suspend the board's collective right to be kept informed and to decide strategy by majority.
- Good faith is measured in conduct, too. A director's intention is important, but so is their conduct when considering the fiduciary duties of loyalty and candor.
For boards and general counsel, the decision reinforces the importance of clear delegation, regular reporting, and transparency where individual directors are entrusted with implementing board-approved strategy.
