Supreme Court delivers a stark warning to directors: “good faith” is not a get out of jail free card
The Supreme Court has sharply clarified the limit of a director’s duty to act in good faith under section 172 of the Companies Act 2006 – sending a clear message that subjective belief that you are acting in a positive manner alone is no longer enough to justify a director acting independently of the other directors.
Saxon Woods Investments Limited and others v Francesco Costa [2026] UKSC 21 exposes what happens when a director puts his own vision of the company’s future above a binding shareholders’ agreement and the collective will of the board.
Background to the case
Francesco Costa, chairman and a controlling indirect shareholder of Spring Media Investments Limited (the company) was determined to delay the company’s sale. The company was subject to a shareholders’ agreement requiring the parties to work together in good faith towards an “Exit” (a sale of the company or its assets) by 31 December 2019, with good faith consideration of opportunities during that period.
Mr Costa believed a later sale would maximise value and, contrary to the shareholders’ agreement and the board’s collective approach, took steps to delay the process. This included:
- controlling the sale process exclusively;
- misleading the board about compliance with the shareholders’ agreement;
- actively concealing information and rebuffing inquiries from fellow directors.
In 2020, the COVID pandemic resulted in the loss of the opportunities for a beneficial exit.
A minority shareholder (Saxon Woods Investments Ltd) brought an unfair prejudice petition under s.994 of the Companies Act 2006. Alleging that the way in which the affairs of the company had been managed resulted in their position being prejudiced.
While the High Court found unfair prejudice, it held there was no breach of s.172 because Mr Costa subjectively believed he was acting in the company’s best interests. The Court of Appeal reversed the s.172 finding, and the Supreme Court unanimously dismissed Mr Costa’s further appeal on 16 July 2026.
The Supreme Court’s ruling on Section 172
Section 172(1) provides that a director “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”, having regard to various factors, including long-term consequences, employees, business relationship, community/environmental impact, reputation, and fairness between members.
The central issue was whether the “good faith” requirement is purely subjective (i.e. genuine belief that the director is promoting the company’s success suffices) or also encompasses the director’s conduct, assessed objectively.
Key findings:
- Good faith applies to both belief and conduct. A director’s sincere belief in the commercial merits of a strategy does not provide a defence if the means used to pursue it involve disloyalty, such as misleading the board, concealment, or subverting collective decision-making.
- The duty reflects the fiduciary duty of loyalty. Directors cannot “go it alone” or even act covertly against the board’s agreed position, even if they disagree with it. The board (not individual directors) bears collective responsibility for management under the company’s constitution.
- Director actions must align with genuine business judgement. The court will not normally intervene and make retrospective decisions related to the decision-making of the board (exceptions including illegal acts which are outside the scope of this case) but will objectively assess whether the director’s actions in implementing those decisions align with the standard of loyalty and honesty expected of a fiduciary. Misleading fellow directors is fundamentally inconsistent with good faith.
The Supreme Court upheld the Court of Appeal’s finding of breach and the unconditional buy-out order for the minority shareholder’s shares.
Practical implication for directors and companies
This judgement reinforces that s.172 is not a shield for covert or manipulative behaviour. Directors should:
- raise dissenting views openly at board level and seek collective decisions;
- ensure transparency in strategic processes, especially where shareholders’ agreements or board resolutions set a clear direction; and
- document decision-making carefully, particularly regarding conflicts or differing views on strategy.
For companies with joint venture, shareholders agreements containing good faith or exit provisions, or boards with strong personalities, the case serves as a timely reminder of the high standard of loyalty expected. Breaches can lead not only to unfair prejudice claims but also personal liability for directors and adverse costs/orders.
Conclusion
Saxon Woods v Costa confirms that the duty under s.172 requires directors to act with integrity in both their intentions and their methods. It draws a clear line between legitimate, transparent disagreements about a company’s best interests – which the law continues to protect – and covert pursuit of personal view at the expense of board oversight, which it does not. Subjective belief is necessary but not sufficient where conduct falls short of objective standards of honesty and loyalty.
This decision provides welcome clarity and should encourage more collaborative and transparent boardroom governance.
If you have questions about directors’ duties, board governance, or minority shareholder remedies following this decision, please get in touch with our Corporate Commercial team.