- In a significant decision for corporate governance and minority shareholders’ claims under English law, the UK Supreme Court has clarified the standard of conduct required of a company director when the director genuinely disagrees with the board as to the conduct of the affairs of the company.
- In Saxon Woods Investments Ltd v Costa [2026] UKSC 21, the Supreme Court unanimously held that a controlling director who secretly pursues a strategy contrary to that adopted by the board may breach their fiduciary duties, even where they genuinely believe that their actions will ultimately benefit the company.
- This landmark decision confirms that a director’s duty to act in good faith extends not only to a director’s assessment of what is in the company’s interests, but also to the manner in which that assessment is implemented. It provides important guidance in situations involving delegated authority and strategic disagreements, which may lead to shareholder claims.
- In this alert, we consider the Court’s reasoning, the practical implications for individual directors and companies – as well as for their D&O insurers.
This case concerns an unfair prejudice petition made by the minority shareholders of a company, Spring Media Investments (SMI), against the chairman of the board and controlling director (Mr Costa). Under English law, an unfair prejudice petition is a statutory remedy available to shareholders under sections 994-996 of the Companies Act 2006, alleging that the company's affairs have been conducted in a manner that is unfairly prejudicial to their interests. The court may grant discretionary relief, most commonly ordering the purchase of the petitioner's shares by the majority shareholder(s).
In this case, the minority shareholders, Saxon Woods Investments (Saxon Woods), claimed that the chairman, Mr Costa, acted in deliberate disregard of their rights as shareholders by intentionally delaying the company sale process in breach of the shareholders’ agreement (the SHA), which stated that “The Company and each of the Investors agree to work together in good faith towards an Exit no later than 31 December 2019”.
The Supreme Court summarised [at 20] the tactics that Mr Costa used to achieve his own (slower) programme for the sale of the business:
a) His primary focus was to ensure that no other director or shareholder (other than Mr Uberoi) had any knowledge of or involvement in the Exit process.
b) He aggressively rebuffed any attempt by his fellow directors to obtain knowledge about the Exit process.
c) He misled the board by giving them the impression that the company was fulfilling its obligations under the SHA, whereas, to his knowledge, it was not.
d) He knew that the instructions he had given to the company’s advisors in connection with the sale did not encompass achieving a 2019 Exit in accordance with the SHA, and he failed to disclose this to the board.
e) He employed delaying tactics in the progress of the sale.
Mr Costa achieved his strategic objective of delaying any sale beyond the end of 2019. Unfortunately for him, the company and its investors, the prospect of a beneficial sale was then completely destroyed by the adverse impact of the Covid pandemic upon its business in and after 2020.
The minority shareholders petitioned the Court to make an order for Mr Costa to buy out Saxon Woods’ shares in the company at a price reflecting the value which they would have had if the agreed strategy had been followed, and an Exit achieved in 2019, prior to the onset of the pandemic.
At first instance, the High Court agreed with Saxon Woods that Mr Costa had been conducting SMI’s affairs in an unfairly prejudicial manner but did not find that Mr Costa’s conduct had amounted to a breach of fiduciary duty (under section 172 of the Companies Act 2006) or involved dishonesty on his part. Therefore, the judge held that Saxon Woods was entitled to a buy-out order requiring Mr Costa to purchase its shares but only if Saxon Woods could establish that, absent the acts of unfair prejudice committed by Mr Costa, a third-party offer exceeding USD 75 million net of debt would have been received by the end of 2019 by SMI.
Both Saxon Woods and Mr Costa appealed.
Before the Court of Appeal, Saxon Woods argued that Mr. Costa had breached his fiduciary duties under section 172 of the Companies Act 2006 by covertly pursuing a strategy that was contrary to the company’s obligations under the SHA. Saxon Woods further contended that the High Court had erred in making a conditional buy-out order and had misunderstood the nature of the prejudice suffered, namely being denied the opportunity to exit the company at a certain date as prescribed by the SHA.
The Court of Appeal agreed with Saxon Woods and overturned the decision of the High Court. It found that Mr Costa had acted in breach of fiduciary duty under section 172 of the Companies Act 2006 by deliberately misleading the board and causing the company to breach the SHA. The Court of Appeal thus confirmed the buy-out order and removed the conditions put by the High Court.
Mr Costa appealed to the Supreme Court.
Before the Supreme Court, Mr Costa argued that a director who chooses to take the single-handed and covert route, genuinely believing that to be the best course for the company, cannot be held by the Court to have committed a breach of fiduciary duty to the company because section 172(1) of the Companies Act 2006 provides that: “(1) A director of a company 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…”.
Saxon Woods disagreed with Mr Costa’s purely subjective interpretation of section 172. Saxon Woods argued that the requirement for good faith extends not merely to the director’s thinking but also to his conduct in pursuit of achieving what he believes is the best course for the company to take – and that there is an objective element to the assessment of the director’s conduct.
Agreeing with Saxon Woods, the Supreme Court unanimously dismissed Mr Costa’s appeal.
Lord Briggs, giving the judgment on behalf of the Court, held that a director cannot satisfy the duty under section 172 simply because s/he genuinely believes that his preferred course would promote the success of the company. The director must also act consistently with the duty of loyalty and good faith owed to the company.
Lord Briggs held that section 172 must be interpreted in light of the pre-2006 authorities on directors’ duties which “did not shrink from applying an objective test to determine whether the fiduciary’s conduct fell short…”. Applying those authorities to section 172, Lord Briggs held that [at 56]:
“It would in my view have required the clearest words [in section 172] to displace the entitlement, indeed duty, of the court to address questions of breach of fiduciary duty by directors in that objective way, let alone by the application of a purely subjective test. Of course, the court will start by accepting the business judgment of the board (or, as the case may be, the individual dissentient director), providing his belief is, as a matter of fact, found to be genuine. To that extent, and in that sense, the test is subjective. But the individual director does not thereby obtain carte blanche to seek to implement his dissenting view by any means, however covert or disloyal, he thinks necessary”.
Applying this reasoning, the Supreme Court found that the issue was not that Mr Costa disagreed with the agreed strategy, but the manner in which he sought to pursue his own approach. Although the director genuinely believed that postponing the sale would create greater value for the company and its shareholders, he pursued that objective secretly by excluding fellow directors from key aspects of the process, withholding information and misleading the board as to progress. The Supreme Court held that such conduct breached the director’s duty under section 172 notwithstanding his genuine belief that he was acting in the company’s best interests.
On that basis, the Supreme Court upheld the immediate buy-out order which the Court of Appeal made.
The duty of good faith pervades both belief and conduct
Saxon Woods is an important reminder that directors’ duties are concerned not only with the outcome a director seeks to achieve, but also with the way in which the director acts. The judgment confirms that section 172 of the Companies Act 2006 has both a subjective and a conduct-based dimension: a director’s belief as to what is best for the company remains important, but that is not enough. The director’s conduct must be objectively consistent with loyalty, transparency and the company’s governing constitution.
The duty of good faith does not override other duties
Lord Briggs held that the duty to act in good faith under s.172 must “affirm rather than impede the proper governance of the company in accordance with its constitution” [45]. The duty to act in good faith cannot be used by directors to override the duty under s.171 to act in accordance with the company’s constitution. As Lord Briggs points out, s.173(2)(b) expressly clarifies that a director’s duty to exercise independent judgment is not infringed by acting in a way authorised by the company’s constitution, i.e., implementing the company’s constitution takes precedence of the exercise of independent judgment by an individual director.
Collective board decision-making is paramount
The judgment reinforces the principle that companies are managed by the board collectively, not by individual directors acting on their own view of what should happen. As Lord Briggs says [at 43] “primary responsibility for promoting the success of the company for the benefit of its members as a whole is reposed by the typical company constitution upon its board, resolving disagreements between individual directors by majority”. Directors who disagree with an agreed course should raise their concerns with the board [at 44], seek reconsideration if appropriate, and ensure that any dissent is properly recorded. Acting alone, withholding material information or presenting a misleading picture to fellow directors may expose the director to personal liability, even where the director genuinely believes that their objective is in the company’s best interests.
It is significant that Lord Briggs framed his analysis by reference to a fiduciary duty of loyalty, rather than the narrower test of dishonesty applied by the Court of Appeal [62]. From the perspective of Directors’ & Officers’ Insurance, this may assist policyholders to rebut arguments that may be raised by insurers that cover is excluded because of a dishonesty / fraud / criminal conduct exclusion. As was demonstrated in this case, it is possible for a director honestly to believe they are acting in good faith but nevertheless in breach of their fiduciary duty of loyalty and good faith to the company.
For directors who disagree with a board’s strategy, it is increasingly important to record objections raised, and reasoning for decisions, to reduce the likelihood of potential shareholder claims. Ensuring that any dissenting views are properly recorded may serve to protect them from future exposure and preserve individual D&O insurance coverage if allegations of dishonest conduct are alleged more widely.
This judgment may also impact litigation risk. The case gives shareholders a stronger framework for alleging bad faith, disloyal conduct, concealment from the board and misuse of delegated authority. This will be particularly relevant where a company is operated by a dominant director (e.g., in the context of a founder-led business, a private equity-backed business or a family business). It is worthwhile reviewing the adequacy of D&O coverage.
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