The Supreme Court has clarified that a director’s duty to act in good faith under section 172 of the Companies Act 2006 applies to how the director behaves, as well as what the director genuinely believes.
In Saxon Woods Investments Limited and others v Costa [2026] UKSC 21, the director believed that delaying a proposed company sale would ultimately produce a better result. However, he pursued that strategy without properly involving the rest of the board and misled fellow directors about the steps being taken.
The judgment confirms that directors may disagree about commercial strategy. What they cannot do is secretly override the company’s collective decision-making process because they believe their preferred approach is better.
What did the Supreme Court decide in Saxon Woods v Costa?
Spring Media Investments Limited was the holding company of a group providing creative services to businesses in the fashion, beauty and luxury sectors.
The company and its shareholders had entered into a shareholders’ agreement under which they agreed to work towards a sale of the business by 31 December 2019. If an exit had not been achieved by then, the board was required to engage an investment bank to pursue one.
Responsibility for conducting the sale process was delegated to Francesco Costa, who was a director and chairman of the board at the relevant time.
Mr Costa believed that delaying the sale beyond 2019 would create greater value for the company and its investors. However, the courts found that he pursued his preferred strategy without meaningful involvement from most of the other directors or shareholders.
The findings included that he withheld information about the sale process, rebuffed requests from fellow directors, gave the board the impression that the agreed strategy was being followed and did not disclose the full instructions given to the company’s professional advisers.
The trial judge found that Mr Costa sincerely believed he was acting in the company’s best interests. On that basis, the judge initially concluded that he had not breached section 172.
The Court of Appeal reversed that conclusion. On 14 July 2026, the Supreme Court unanimously dismissed Mr Costa’s appeal.
The Supreme Court held that his genuine commercial belief did not excuse the way in which he acted. His conduct was disloyal to the company and amounted to a breach of section 172.
What does section 172 require company directors to do?
Section 172 of the Companies Act 2006 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.
- The duty is owed to the company. It is not a separate duty owed directly to each individual shareholder.
- Directors are normally given considerable freedom to exercise commercial judgment. A court will not generally replace a genuine board decision with its own view simply because another strategy might have produced a better outcome.
- The Supreme Court did not remove that protection for genuine business decisions. Instead, it distinguished between forming a commercial judgment and the way in which a director tries to implement it.
- A director’s belief remains relevant. However, a genuine belief that a particular strategy is in the company’s interests does not provide permission to conceal material information, mislead the board or undermine the company’s constitutional decision-making process.
The judgment therefore confirms that good faith applies to conduct as well as thought. The duty is one of loyalty to the company, exercised through its proper governance structures.
Our guide to directors’ duties explains the wider statutory duties that directors in England and Wales must consider when making company decisions.
Can a director disagree with the rest of the board?
A director can disagree with fellow directors. Indeed, directors have a separate duty under section 173 of the Companies Act 2006 to exercise independent judgment.
Independent judgment does not mean that each director is entitled to run the company according to their individual preferences.
In most companies, responsibility for management is given to the board as a whole. Decisions are usually taken collectively at a properly convened board meeting or through a valid written resolution.
A director who believes that an agreed strategy is no longer in the company’s interests should raise the issue openly. They should explain their concerns, provide relevant information and allow the board to reconsider the matter.
The Supreme Court recognised that circumstances may change after a company enters into an agreement. Directors are not necessarily prevented from reconsidering an earlier strategy merely because the company has contractually committed to it.
However, any proposed change of direction remains a matter for the board’s business judgment. An individual director cannot use delegated authority to implement an incompatible strategy secretly.
This makes accurate agendas, board papers, minutes and resolutions particularly important. They can show what information was provided, which alternatives were considered and how the board reached its decision.
Further information about how corporate decisions should be taken is available in our guide to the board of directors and decision-making.
When can a failure of board governance lead to an unfair prejudice claim?
Saxon Woods Investments Limited brought an unfair prejudice petition under sections 994 to 996 of the Companies Act 2006.
An unfair prejudice petition allows a shareholder to ask the court to intervene where the company’s affairs have been conducted in a way that is both unfair and prejudicial to that shareholder’s interests.
Saxon Woods argued that Mr Costa was responsible for the company’s failure to follow the agreed exit strategy and that the value of its shareholding had been harmed as a result.
No sale took place by the end of 2019. The company’s opportunity to achieve a beneficial exit was subsequently affected by the impact of the COVID-19 pandemic on its business.
The Court of Appeal ordered Mr Costa to purchase Saxon Woods’ shares at their pro rata undiscounted value as at 31 December 2019. That value was to be determined at a further High Court hearing. The Supreme Court upheld the Court of Appeal’s approach.
This does not mean that every breach of section 172 will result in a director being ordered to buy another shareholder’s shares.
The appropriate remedy will depend on the nature of the proceedings, the loss or prejudice established and the court’s assessment of what is fair. In this case, the remedy arose within an unfair prejudice petition and reflected the particular history of the proposed company sale.
Directors and shareholders involved in similar disputes should consider both the company’s constitutional documents and the practical effect of the conduct complained of. Our guide to unfair prejudice petitions under section 994 explains when the court may intervene and the remedies it can order.
What should directors do when there is disagreement over company strategy?
Commercial disagreement between directors is not unusual and does not automatically indicate misconduct.
The risk increases when disagreement is handled outside the proper board process. A director who controls information, excludes others from a delegated project or presents an incomplete picture to the board may face allegations that they have breached their duties.
Directors should identify what authority has been delegated to them and whether the proposed action falls within that authority. They should also review the company’s articles, shareholders’ agreement and any existing board resolutions.
Where circumstances have changed, the director should place the relevant evidence before the board and explain why the existing strategy may need to be reconsidered. Material concerns should be recorded accurately in the board minutes.
A director should not assume that a sincere belief in the commercial merits of their position will answer every allegation. The process used to reach and implement a decision can be as important as the decision itself.
Directors should also take particular care where they have a personal interest in the outcome. Any actual or potential conflict should be disclosed and managed in accordance with the Companies Act 2006 and the company’s constitution.
Seeking advice at an early stage can help directors and shareholders clarify decision-making authority, preserve relevant evidence and prevent a strategic disagreement from developing into wider shareholder dispute proceedings.
Francis Wilks & Jones advises directors, companies and shareholders on directors’ duties, board disputes and unfair prejudice claims throughout England and Wales. We can help assess the company’s constitutional documents, the conduct of those involved and the practical options for resolving the dispute.
