Overview

In its 14 July 2026 judgment in Saxon Woods Investments Ltd and others v. Costa [2026] UKSC 21, the Supreme Court unanimously dismissed the appeal of Mr Costa, the former chairman of the board, who covertly pursued his own strategy for the sale of the company (Spring Media Investments Limited or SMI) in defiance of the exit strategy to which the board had committed the company in a shareholders’ agreement. The decision resolves an important point of construction: the requirement in section 172(1) of the Companies Act 2006 (s.172(1)) that a director act “in good faith” includes both a subjective and objective element.

Background

The background to the dispute is set out in our earlier client alert. 

In summary, under a shareholders’ agreement executed in May 2016 (the SHA), SMI and its investors agreed to work together in good faith towards an “Exit” (a sale) no later than 31 December 2019. The board delegated the conduct of the sale process exclusively to its then chairman, Mr Costa.

Mr Costa believed a later sale would generate a better return for the company and the investors and adopted various tactics to achieve his objective of effecting a later sale. Unfortunately for Mr Costa, although he succeeded in delaying the sale, the adverse impact of the COVID-19 pandemic on the company’s business destroyed the prospects of a profitable Exit. 

The decisions below

The decisions of the High Court and Court of Appeal are addressed in detail in our earlier article. In summary, the trial judge held that Saxon Woods had been unfairly prejudiced but found that Mr Costa had not breached his fiduciary duties under s.172(1). Accordingly, the trial judge made only a conditional buy-out order of the shares. 

Saxon Woods successfully appealed the judgment and the Court of Appeal ordered an unconditional buy-out of Saxon Woods’ shares at their pro rata undiscounted value on 31 December 2019. The primary reason for the Court of Appeal departing from the first instance judgment was that the Court of Appeal considered Mr Costa was in breach of his fiduciary duties under s.172(1). In particular, the Court of Appeal held that the trial judge was wrong to focus solely on Mr Costa’s subjective state of mind and that the relevant test for dishonesty required an objective test which involved an assessment of whether Mr Costa’s conduct was “objectively honest by the standards of ordinary decent people” (see paragraph 115 of the Court of Appeal’s judgment, which adopted the modern objective test of dishonesty set out in Ivey v. Genting Casinos (UK) Ltd [2017] UKSC 67).

Mr Costa’s appeal

Mr Costa’s appeal to the Supreme Court advanced two grounds:

• First, he submitted that it has never been permissible to apply an objective test to determine whether a director has committed a breach of the duty now codified in s.172(1), whether as to dishonesty or any other aspect of the duty to promote the success of the company.  
• Second, and argued only on a de bene esse basis (this ground not having been the subject of an application for, or grant of, permission to appeal), Mr Costa contended that a director’s decision to procure that their company act in breach of contract is not, of itself, a breach of the s.172(1) duty. Instead, the question is whether the director genuinely believed that doing so was in the interests of the company and its shareholders.

The Supreme Court’s decision

The Supreme Court dismissed Mr Costa’s appeal, with the sole judgment being given by Lord Briggs. The key points arising from the judgment are as follows.

1. A duty not covertly to subvert the management of the company’s affairs by the board as a whole is properly regarded as part of the s.172(1) duty ([42]–[50]). A director who disagrees with the board’s strategy must bring their independent view to the board; they must not covertly pursue a different strategy other than that decided upon by the board ([44]).
2. It is no answer to a claim of breach of the s.172(1) duty that the matter complained of may fall within the scope of one of the other general duties of directors. The duty to promote the success of the company is closely related to the other directors’ duties and accordingly, where a director acts in breach of one of the other general duties they will also often be in breach of their duty under s.172(1) ([49]–[50]).
3. The appeal turned on the construction of s.172(1) and the meaning and effect of the requirement that the director act in good faith to promote the success of the company. A strict grammatical reading of s.172(1) might suggest that a director is only required to act in a way “he considers” is in good faith (i.e., good faith is to be assessed subjectively) regardless of whether the director’s conduct, assessed objectively, would plainly be regarded as bad faith. However, the Supreme Court rejected this view and held that the requirement for good faith extends not only to a director’s subjective view, but also to their conduct in pursuit of achieving what they believe is in the company’s best interests. In coming to this view, the Supreme Court highlighted that this conclusion (i) was more consistent with the equitable principles which s.172(1) codified, under which breaches of the duty of loyalty were assessed objectively; (ii) fitted the context and purpose of Chapter 2 (that it is intended to affirm rather than impede the proper governance of a company in accordance with its constitution); and (iii) avoided what would otherwise be “a recipe for chaos and paralysis in corporate governance” ([53]–[60]).
4. The long-standing rule that a court will respect the director’s business judgment as to the best way to promote a company’s interests remains intact. However, that does not give a dissenting director carte blanche to implement their own view by covert or disloyal means ([56]).
5. While the Supreme Court agreed with the Court of Appeal’s conclusion, it did so on a different basis. The Court of Appeal focused its analysis upon the conclusion that Mr Costa had been dishonest, applying the objective test for dishonesty set out in Ivey. However, the Supreme Court adopted a broader approach and held that where a defendant owes a fiduciary duty of loyalty (such as that contained in s.172(1)), the question is whether that duty has been breached. While dishonesty may be evidence of a breach, the duty itself supplies the analytical framework for assessing the director’s conduct and it is unnecessary to elaborate it by reference to the Ivey test of dishonesty ([62]).
6. Lord Briggs expressed no concluded view on the Court of Appeal’s further reasoning that the SHA determined the route to the company’s success – a point argued only de bene esse, without permission to appeal having been sought or granted ([28]). A contractual commitment to a particular strategy cannot close off any analysis by the directors as to whether the company would be better served by changing course, even where a change would involve a breach of contract ([63]–[64]).

Comment

The Supreme Court’s decision does not come as a surprise; it would have been odd if Mr Costa’s dishonest conduct had not amounted to a breach of his fiduciary duties under s.172(1). 

The decision confirms that the requirement of good faith in s.172(1) has both a subjective and objective element, albeit the approach of the Supreme Court was wider than the approach taken by the Court of Appeal. It follows that a director will be found to have breached their s.172(1) duty if objectively their conduct would be regarded as bad faith, notwithstanding that subjectively they considered that their conduct was pursuing the company’s best interests. 

The Supreme Court’s commentary on the Court of Appeal’s reasoning that Mr Costa was independently in breach of his s.172(1) duty simply because the SHA determined what was the route for success of the company is an interesting development. While the Supreme Court expressed no concluded view, the strong indication is that a director’s decision to depart from a contractually agreed strategy (e.g., an exit strategy set out in a shareholders’ agreement) will not necessarily give rise to a breach of s.172(1). 

For directors, the message is that disagreement must be aired openly: a director who cannot persuade the board must accept its decision or resign; sincerity of belief will not excuse concealment or deception. 

For boards, the case is a reminder of the governance risk in delegating a major transaction to a single director without meaningful reporting obligations. 

Client Alert 2026-152