On 14 July 2026, the Supreme Court (Lord Briggs) handed down its unanimous judgment in Saxon Woods Investments Limited and others v Francesco Costa [2026] UKSC 21. The Court held that a director cannot rely on a sincere belief that they are acting in the company’s best interests to justify covert and disloyal behaviour that subverts the board of directors’ agreed strategy.
The ‘good faith’ obligation in section 172 of the Companies Act 2006 (“s.172”) applies not only to a director’s state of mind but also to their conduct, the assessment of which will be determined by reference to whether the director’s subjective state of mind would be characterised as disloyal applying objective standards.
Summary
Section 172(1) provides that:
“A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole […]”
The key question the Supreme Court was asked to consider was whether the requirement of good faith in s.172 is determined purely by reference to a director’s subjective state of mind, i.e., is a director free to pursue a course of conduct that involves, for example, lies, deception or disloyalty, if he genuinely believes it is most likely to promote the success of the company? Or it determined by reference to whether the director’s subjective state of mind would be characterised as disloyal applying objective standards. It favoured the latter formulation.
The Supreme Court held further that the good faith obligation applies both to a director’s intentions and his conduct. To confine it to the former would, in Lord Briggs’ words, “be a recipe for chaos and paralysis in corporate governance, and destructive of the collegiality of the board of directors as a whole.”
We explore the Supreme Court’s decision below.
The Facts
Saxon Woods, represented by Stephenson Harwood, is a minority shareholder in Spring Media Investments Limited (the “Company”). Mr Costa is a high-net-worth individual who is a substantial indirect shareholder in the Company, and who was, until July 2024, chairman of the Company’s board.
Pursuant to a shareholders’ agreement (the “SHA”), the Company and its shareholders were required to work together in good faith towards an exit (i.e., a sale of the shares in the Company or its assets) by no later than 31 December 2019. The Company’s board of directors entrusted the conduct of the sale process exclusively to Mr Costa.
Mr Costa, who believed that a sale later than by the end of 2019 would be likely to generate a better financial return for the Company, was found by the trial judge to have deliberately delayed the progress of the sale, whilst excluding shareholders and directors from the decision-making process and misleading the board into believing that the exit obligations in the SHA were being fulfilled. No exit occurred by the end of 2019 (nor to this date), and the Company breached the SHA.
In 2021, Saxon Woods brought an unfair prejudice petition alleging that Mr Costa’s conduct was, inter alia, in breach of the SHA and his duty under s.172.
Earlier Judgments
At first instance, the High Court held that Saxon Woods had suffered unfair prejudice, but found that Mr Costa had not breached his s.172 duty. Applying the test in Regentcrest Plc (in liquidation) v. Cohen [2001] BCC 494, the trial judge concluded that Mr Costa had not acted dishonestly because he sincerely believed he was acting in the Company’s best interests. On that basis, the trial judge ordered a conditional buyout order that Mr Costa purchase Saxon Woods’ shares at their 2019 value, provided it could be proved (in a separate quantum hearing) that a final offer of more than $75 million net of debt would have been received for the Company by the end of 2019.
The Court of Appeal unanimously dismissed Mr Costa’s appeal and allowed Saxon Woods’ appeal. It held that Mr Costa had acted dishonestly (applying the objective test in Ivey v Genting Casinos (UK) Ltd (trading as Crockfords Club) [2017] UKSC 67; [2018] AC 391) and had therefore breached his s.172 duty. The Court of Appeal replaced the conditional order with an unconditional order that Mr Costa buy Saxon Woods’ shares at their undiscounted value as at 31 December 2019.
For a more detailed analysis of the earlier judgments, please refer to our article on the High Court’s decision here, and the Court of Appeal here.
Mr Costa appealed to the Supreme Court on the grounds that there had not been a breach of the duty under s.172, because the concept of ‘good faith’ under s. 172 is purely subjective and that it relates only to the director’s state of mind, and not to his actions.
The Supreme Court’s judgment
In deciding the appeal, the Supreme Court considered one central question: Is the requirement of good faith in s.172 determined solely by reference to a director’s subjective state of mind, or by reference to whether the director’s subjective state of mind would be characterised as disloyal applying objective standards?
Whilst Mr Costa argued that all that matters is the director’s subjective state of mind, Lord Briggs (with whom all the other justices agreed) strongly rejected this for three key reasons:
1. Consistency with previous law
The Supreme Court established that s.172 codifies a long‑standing fiduciary duty owed by directors at common law. That duty, the Court said, has always been assessed by reference to objective standards of loyalty and honesty, and applies to a director’s conduct as well as their intentions.
Drawing on earlier authorities such as In re National Funds Assurance Company (1878) 10 Ch D 118, the Supreme Court emphasised that a director cannot defend what is, in substance, disloyal conduct by asserting that they had a genuine belief they were not doing anything wrong.
Whilst Lord Briggs was clear that the court will respect the business judgment of a director (i.e., the court will not substitute its own objective view of what is commercially best for the company), he observed that “there is no previous case in which the need to adhere to the respect for a director’s business judgment has been extended to the use of a purely subjective test of the conduct of a single director, in covertly seeking to implement his own dissenting view as to the company’s best interests in the face of, and so as to subvert, the contrary view resolved upon by the board. Such conduct is so obviously disloyal” [emphasis added].
In short, the codified duty in s.172 must be read consistently with the common law fiduciary duty of loyalty. A genuine belief about what is commercially best for the company does not excuse conduct that objectively falls short of the loyalty and good faith required of a fiduciary.
2. Consistency with context and purpose
Lord Briggs then examined s.172 within the wider framework of directors’ duties in ss.170-177 Companies Act 2006 which, he said, were “plainly directed at codifying a set of general duties in a way which will operate in harmony with the governance of a company in accordance with its constitution”.
On that basis, the Supreme Court rejected any reading of s.172 that would permit an individual director to pursue his own dissenting strategy by covert and disloyal means, in defiance of the board’s opinion as to the best business strategy for the company to follow. To do so would be “thoroughly disruptive to the good governance of the company in accordance with its constitution”.
Lord Briggs illustrated this by reference to s.171(a), which requires a director to act in accordance with the company’s constitution, and s.171(b), which requires a director to exercise their powers only for the purposes for which they are conferred. In the present case, the Company’s board had determined an exit strategy through the SHA, and responsibility for implementing that strategy was delegated to Mr Costa. Using that delegated authority to procure an “irreconcilably opposed strategy” was, in the Court’s words, a “plain abuse” of his powers and a breach of section 171.
The directors’ duties sections 171–177 are interlinked and must be read alongside each other. s.172 therefore cannot have been intended to be a free standing licence for directors to override the company’s constitution or the collective decision-making of the board.
3. Straining credibility
Finally, Lord Briggs found it “highly unlikely” that Parliament intended s.172 to regulate only the director’s state of mind and not their actions. Such a construction “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.”
Applying these principles, the Supreme Court endorsed the Court of Appeal’s finding that Mr Costa had breached his duty under s.172; noting that his conduct was “manifestly disloyal to the Company”, and that he had acted in bad faith towards it by covertly subverting the exit strategy determined by the board.
Whilst the Court of Appeal had reached its conclusion through the prism of dishonesty, by applying the objective test in Ivey, the Supreme Court took a broader view, resolving that a determination of honesty is relevant to deciding whether a director has acted in good faith, but it is not the whole picture. Rather, “where the defendant owes a fiduciary duty of loyalty, the question is whether that duty has been breached, and while dishonesty may be evidence of that, the duty itself supplies the relevant analytical framework”.
What this judgment means for directors
This judgment is highly significant and sets the standard of conduct required of company directors, particularly when, as in this case, a director disagrees with his or her fellow directors as to what is the best route to achieving success for the company.
We set out three key considerations for directors below:
- s.172 is both a subjective duty and an objective one: whilst the court will respect the business judgment of directors in the course of their duties, a director cannot justify covert, disloyal or deceptive behaviour through the subjective (albeit sincere) belief that they are acting in the company’s best interests.
- Delegated powers must be used for their intended purpose: when the board delegates functions to a director, that is not a licence for that individual director to single handedly drive the company towards their own preferred objective. Delegated power should be used solely for the purposes and strategies the board has approved.
- Directors must cooperate with the board: company constitutions typically confer management responsibility on the board as a whole. Individual directors should be loyal to the company as an entity, which in practice means working honestly and openly with other directors, especially where differences of opinion are held.
