Directors' Duties & Good Faith: Saxon Woods v Costa

A genuine belief is not a defence

Can a director who honestly believes they are acting in the company's best interests, break the law simply by acting on that belief alone, without telling the board? The Supreme Court's answer, in Saxon Woods Investments Ltd v Costa [2026] UKSC 21, is yes.

The case is the clearest statement yet that section 172(1) of the Companies Act 2006 — the duty to promote the success of the company — is not satisfied by good intentions. It requires loyal conduct, and that conduct is tested by what a director does, not only by what they privately believe.

What happened in Saxon Woods v Costa

Francesco Costa was a director and chairman of Spring Media Investments Limited. Under the company's shareholders' agreement, the board was required to pursue an "Exit" strategy by the end of 2019.

Mr Costa believed a later sale would achieve a better return. Acting on that belief, he took personal control of the sale process, delayed it, rebuffed his fellow directors' requests for information, and misled the board into thinking the company was on track to meet its obligations under the shareholders' agreement.

Then Covid-19 hit in 2020, destroying any prospect of a beneficial sale.

Saxon Woods, a minority shareholder, brought an unfair prejudice claim under section 994 of the Companies Act 2006.

The Supreme Court's ruling

Lord Briggs gave the sole substantive judgment, with Lord Sales, Lord Hamblen, Lord Burrows and Lady Rose in agreement. Mr Costa's appeal was dismissed unanimously. The Court's reasoning:

● Section 172(1) governs conduct, not just thinking. A director's good faith is judged by what they do, as well as what they believe.

● Section 172 codifies the common law fiduciary duty of loyalty. A fiduciary cannot discharge that duty simply by asserting they believed they were acting properly.

● Reading section 172 as Mr Costa proposed would let individual directors pursue a covert, dissenting strategy, something the Court called "thoroughly disruptive" to a company's governance under its constitution.

● Confining good faith to a director's thought process, rather than their conduct, would be "a recipe for chaos and paralysis in corporate governance."

● Mr Costa's concealment and sabotage of the exit strategy was manifestly disloyal, and the Court found he had acted in bad faith.

Notably, the Supreme Court reached this conclusion on the broader good faith requirement within the fiduciary duty of loyalty, rather than by applying the objective dishonesty test.

Why this matters for directors

1. Good faith means acting loyally, not just thinking loyally

A genuine belief that a strategy is best for the company does not entitle a director to pursue it covertly, in defiance of the board's collective decision.

2. Dissent has to go through the boardroom

A director who disagrees with the board's strategy must raise that disagreement with fellow directors and take part in the board's collective decision-making, not act unilaterally.

3. Concealment and deception are incompatible with fiduciary duty

Deliberately misleading the board is a breach of duty, even where the director sincerely believes the company will benefit in the long run.

4. The board acts collectively

Under a typical corporate constitution, management power sits with the board as a whole, not with any individual director. Directors should know their company's constitutional provisions on board decision-making.

5. Delegated powers must be used for their intended purpose

Where the board delegates responsibility to a director, that power must be used for the purpose it was given for, not to pursue a contradictory agenda.

Frequently asked questions

What is section 172 of the Companies Act 2006?

Section 172(1) requires a director to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. Saxon Woods v Costa confirms this duty extends to conduct, not just belief.

What is a director's fiduciary duty of good faith?

It is the duty of loyalty a director owes to the company, requiring them to act honestly and in the company's interests. Following Saxon Woods v Costa, a fiduciary cannot satisfy this duty merely by asserting a genuine belief, their conduct must reflect that loyalty too.

Can a director be liable for breach of duty even if they believed they were acting in the company's best interests?

Yes. The Supreme Court held that a genuine, honestly-held belief does not excuse a director who conceals their strategy from the board or acts unilaterally against its collective decisions.

What should a director do if they disagree with the board's strategy?

Raise it with the board directly and participate in the collective decision-making process. Acting covertly to pursue a different agenda is not a lawful alternative, however sincere the underlying belief.

How KaurMaxwell can help

Saxon Woods v Costa is a live issue for boards navigating disagreement, delegated authority, or exit and sale processes, and it can also feed directly into shareholder disputes under section 994.

Our Corporate & Commercial, Insolvency & Restructuring, and Litigation teams advise directors and boards on duties, governance and disputes arising from exactly this kind of conflict. If you have concerns about a decision affecting your company, as a director, a board, or a shareholder talk to us.