A recent Supreme Court decision has provided important guidance on the scope of directors’ duties under section 172 of the Companies Act 2006. The judgment confirms that directors cannot justify deceptive or disloyal conduct simply because they genuinely believe their ultimate objective is in the company’s best interests.

 

When good intentions are not enough

 

In Saxon Woods Investments Ltd v Costa [2026] UKSC 21, the Supreme Court considered whether a director who genuinely believed he was acting to promote the success of a company could nevertheless breach his statutory duties by secretly pursuing that objective without the knowledge or approval of the board.

 

The case arose from the management of Spring Media Investments Limited. Mr Costa, the company’s chairman and controlling shareholder, believed delaying the sale of the company beyond the date agreed in a shareholders’ agreement would achieve a significantly higher sale price. Rather than presenting his views to the board, he deliberately concealed his intentions while giving the impression that he was working towards the agreed sale timetable.

 

His strategy ultimately failed following the impact of the Covid pandemic, resulting in a substantial reduction in the company’s value.

Minority shareholder Saxon Woods Investments Ltd brought unfair prejudice proceedings, arguing that Mr Costa’s conduct had caused significant financial loss.

 

What the Supreme Court said

 

The Supreme Court unanimously upheld the Court of Appeal’s decision, confirming that a director’s duty under section 172 extends beyond simply believing that an intended outcome benefits the company. Although directors are afforded considerable discretion when exercising business judgment, that discretion does not permit them to act covertly or undermine the collective decision making of the board.

 

The Court emphasised that directors owe a fiduciary duty of loyalty to the company. Where a director fundamentally disagrees with fellow board members about the best course of action, the proper course is to raise those concerns openly, allowing the board to make a collective decision. Secretly pursuing an alternative strategy, even with good intentions, is inconsistent with those duties.

 

Good faith applies to both ends and means

 

Mr Costa argued that section 172 only required his belief about the desired outcome to be held in good faith. Since he genuinely believed delaying the sale would ultimately benefit the company, he contended that the manner in which he pursued that objective could not amount to a breach of duty. The Supreme Court rejected that argument.

 

It held that the statutory duty requires good faith to apply not only to the objective being pursued but also to the way in which that objective is achieved. A director cannot rely upon a sincere belief in the company’s best interests to justify dishonest, covert, or disloyal conduct. The Court also noted that allowing directors to secretly pursue their own agendas would fundamentally undermine corporate governance and the principle of collective board responsibility.

 

Dishonesty and directors’ duties

 

Although the Court of Appeal had concluded that Mr Costa acted dishonestly, the Supreme Court focused primarily on the underlying fiduciary duty of loyalty. The Court explained that dishonesty may demonstrate a lack of good faith, but liability under section 172 ultimately arises because a director has failed to act loyally and in good faith towards the company. The judgment reinforces that directors must act transparently with fellow board members and cannot place their own judgment above the collective decisions of the board.

 

Why this matters

 

The decision provides important clarification on the scope of directors’ duties under the Companies Act 2006.

While the courts will generally avoid second guessing commercial decisions made honestly by directors, they will intervene where directors seek to achieve those objectives through deception or by bypassing proper corporate governance procedures.

The judgment reinforces that directors’ fiduciary duties require both loyalty and transparency throughout the decision making process.

 

Practical lessons for directors and shareholders

 

This case provides several important reminders:

 

• Directors should openly discuss significant strategic disagreements with the board rather than acting independently.
• A genuine belief that an outcome benefits the company will not excuse dishonest or covert conduct.
• The board’s collective decision making role remains fundamental to good corporate governance.
• Minority shareholders may have remedies where directors misuse their powers or act unfairly to their interests.

 

How we can help

 

Our corporate disputes team advises directors, shareholders, and businesses on all aspects of directors’ duties, shareholder disputes, and corporate governance.

 

We can help you:

 

• Advise directors on their statutory and fiduciary duties.
• Represent shareholders in unfair prejudice claims.
• Resolve disputes concerning breaches of directors’ duties.
• Provide strategic advice on corporate governance and board decision making.

 

Obtaining early legal advice can often prevent disputes escalating and help protect both businesses and shareholders.

 

Contact us

 

If you require advice on directors’ duties, shareholder disputes, or corporate governance, contact us for expert guidance.