“I honestly thought it was best”: Supreme Court confirms that directors must act in good faith when taking steps to promote the success of the company.
All company directors are required under section 172 of the Companies Act to act in the way they consider, in good faith, would be most likely to promote the success of the company.
Most directors will at some point find themselves in a genuine disagreement with their board; it is a healthy aspect of leading a robust business.
However, in the case of Saxon Woods Investments Limited v Francesco Costa [2026] UKSC 21, the Supreme Court has made it clear that how a director handles that disagreement matters just as much as what they believe. Getting it wrong can amount to a breach of duty, regardless of the sincerity of the director’s intentions.
The case in a nutshell
Spring Media Investments, a creative services group in the fashion beauty and luxury sectors, had a shareholders’ agreement committing the parties to work in good faith towards the sale of the business by the end of 2019.
Its chairman at the time, Mr Costa, thought a later sale would achieve a better price. Mr Costa did not obtain board approval for this but instead secretly ran his own strategy to delay the sale. The Court found that Mr Costa kept fellow directors and shareholders at arm’s length from the sale process, he deflected their enquiries, allowed the board to believe the company was on track to meet its obligations, and used delaying tactics to hold up sale timings.
These delay tactics worked; but then the pandemic arrived, destroying the prospect of a good sale.
The trial judge accepted that Mr Costa genuinely believed he was acting in the company’s best interest in his approach. On the traditional, subjective reading of the duty in section 172 of the Companies Act 2006, the judge found no breach. The Court of Appeal disagreed, and the Supreme Court has now unanimously upheld that outcome.
What the Supreme Court decided
Section 172 requires a director to act in the way they consider, in good faith, would be most likely to promote the success of the company. Mr Costa’s argument was, in essence, that this is a test of a director’s state of mind; if the belief is honest, the duty is satisfied.
The Supreme Court rejected that argument. Good faith under section 172 governs a director’s actual conduct, not just their thinking. A director must not only hold an honest belief about what is best for the company, they must also pursue it loyally and openly.
Concealing a strategy from the board, misleading fellow directors, and/or covertly frustrating a course that the board has settled on is not acting in good faith, whatever the director privately believes.
Interestingly, the Supreme Court reached the same outcome as the Court of Appeal by a different route. The Court of Appeal had framed the issue around dishonesty, meanwhile, the Supreme Court’s reasoning was based on good faith and the fiduciary duty of loyalty from which section 172 derives.
That framing arguably makes the principle broader; conduct can fall short of good faith without needing to be characterised as dishonest.
Why this matters
The judgment does not create a new express duty to be collegiate. However, it gives real teeth to something good governance codes have long assumed. The management of a company is entrusted to the board as a whole, and loyalty to the company means respecting the collective process. While dissent is legitimate, secrecy is not.
For directors, the practical rule of thumb is simple: disagree in the boardroom, not around it. It is completely fair to raise a dissenting view and argue its merits. However, if the board decides otherwise, the director is duty bound to implement the collective decision. Director should not therefore nod along in meetings while secretly steering the company in a different direction. To do some would subvert the collective process of decision making by the board.
What should boards and shareholders do?
If you suspect a director is covertly pursuing their own agenda, there are a few steps that may be worth considering. For example, it is important to preserve the record; board minutes, emails, advisor instructions and information requests were central in this case. Document what happened, what was disclosed and what was not.
It is also worthwhile testing the information flow on any major transaction. The board collectively should instruct and receive reports from advisers such as banks and lawyers. Part of the case against Mr Costa was that the instructions to advisors quietly diverged from what the board believed to be occurring.
If there is a problem, the response should be carefully calibrated; how and when concerns are raised can affect both the evidence and critical relationships, particularly in owner-managed and PE-backed businesses, where a director may also be a significant shareholder.
The bottom line
Saxon Woods has confirmed that a director who says “I honestly thought I was doing the right thing” will nevertheless be in breach of duty if their behaviours involve concealment and misleading the board or undermining an agreed strategy. Good faith is about what directors do, not just what they think.
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