On 14 July 2026, the Supreme Court unanimously dismissed the appeal in the case of Saxon Woods Investments Limited and Others v Francesco Costa. The decision addresses the standard of behaviour required of a company director who disagrees with fellow directors about company strategy, and confirms that directors’ duty of good faith to promote the success of a company under section 172 of the Companies Act 2006 (“the Act”) requires them to both think and act in good faith.
In this article, Tim Constable and Jack Dunne discuss the Supreme Court’s decision, and analyse what this means for businesses and directors going forward.
Background
The appellant, Mr Costa, was chairman of the board of Spring Media Investments Limited (“the Company”) until July 2024, and a director until October 2025. The first respondent, Saxon Woods Investments Limited (“Saxon Woods”), held a 22.33% shareholding in the Company.
In May 2016, a new shareholders’ agreement (“SHA”) was signed in respect of the Company, under which the parties agreed to work together in good faith towards achieving a sale of the Company by no later than 31 December 2019. The Company delegated conduct of the sale process exclusively to Mr Costa.
Mr Costa believed that a sale after that date would likely generate a better financial return, so the sale was not carried out in accordance with the SHA. The impact of the Covid pandemic on the Company’s business then destroyed the prospect of any profitable sale.
Saxon Woods lodged a petition under section 994 of the Act (an unfair prejudice petition) on the basis that the conduct of the Company’s affairs was unfairly prejudicial to its interests as a shareholder.
The High Court decision
The Court found that Mr Costa had adopted a number of tactics to delay the sale, including:
- misleading the board by telling his fellow directors that its obligations under the SHA were being met;
- ensuring that no other director, save for one, had any knowledge of or involvement in the sale process; and
- failing to disclose to the board that his instructions to the Company’s advisers did not include any direction to achieve a 2019 exit.
The Court also held that Saxon Woods had suffered unfair prejudice and ordered Mr Costa to buy its shares, on the condition that the Company would have been sold for more than US$75 million (to be determined at a further trial).
However, the Court found that Mr Costa had not breached section 172 because he genuinely believed that he was acting in the Company’s best interests.
The Court of Appeal decision
The judgment was appealed by both Saxon Woods and Mr Costa.
The Court of Appeal dismissed Mr Costa’s appeal but allowed Saxon Woods’ appeal, ordering an unconditional buy-out of its shares by Mr Costa. The primary reason for this departure from the trial Judge’s order was that the Court of Appeal considered Mr Costa to have breached his duty under section 172 of the Act. It held that Mr Costa had acted dishonestly and not in good faith, and that it was not open to him to act upon his own assessment of the best strategy where that strategy had already been determined by the SHA.
Mr Costa appealed against these conclusions to the Supreme Court.
The Supreme Court decision
Mr Costa argued that the court should not interfere with directors’ subjective views (which had historically been its approach) merely because it takes a different objective view of what is in the best interests of a company.
The Supreme Court rejected that argument and held that the test to apply when considering potential breaches of section 172 of the Act is an objective one. It held that, while consideration of the board’s judgement involves an element of subjectivity, directors cannot simply do what they want where their conduct, assessed objectively, would be regarded as being in bad faith.
Separately, the Supreme Court confirmed that any overlap with other directors’ duties does not bar a claim under section 172. In this case, Mr Costa’s conduct may have represented a breach of section 171 (directors’ duty to act within their powers), but that did not mean that it could not also be a breach under section 172.
The Supreme Court therefore agreed that the trial Judge had erred in ruling that Mr Costa had not breached his duty under section 172 of the Act, and the appeal was dismissed.
Key takeaways
The main principles to draw from this decision are:
- Good faith under section 172 extends to conduct; not just belief.
- Directors who pursue their preferred course (in contradiction with the board’s decisions) by acting covertly will be in breach of section 172.
- Section 172 imposes a joint obligation on the members of the board to promote the success of a company, and individuals who substitute their own strategy for that of the board undermine the Companies Act framework.
What does this mean for you?
Following this ruling, directors will need to show not only that they believed they were acting in the best interests of a company, but also that their conduct met an objective standard of good faith. In practical terms, this means that a director who disagrees with the board’s strategy should raise that disagreement openly with the board and seek a collective decision, rather than covertly pursuing an alternative course.
It is important to note that, in this case, the Supreme Court did not decide that the existence of a SHA invariably prevents a board from changing strategy. It was the covert means by which Mr Costa pursued his own course which was the issue.
This decision makes board processes and governance records even more important. Where a particular strategic objective has been agreed, directors should ensure that their actions are consistent with that objective unless and until the board collectively decides to change course.
How can we help?
Contact our Commercial Disputes team for more information about how this decision may affect you. Our team of lawyers are experienced in advising companies, shareholders and directors on corporate governance issues, directors’ duties and shareholder disputes.
Tim Constable is a partner in our Commercial Disputes team and has over 30 years’ experience in domestic and international commercial disputes. Tim represents clients in the financial, professio... Read More
Jack is a Trainee Solicitor in our Commercial Disputes team. Jack studied LLB Law with European Legal studies at Newcastle University, with a year in Barcelona at Universitat Pompeu Fabra.... Read More
