Saxon Woods Investments Ltd & Ors v Costa [2026] UKSC 21

Mr Costa, a company director, covertly pursued his own sale strategy for the company, concealing it from and misleading the board, contrary to the agreed Exit strategy. The Supreme Court held this breached section 172 of the Companies Act 2006, requiring good faith in conduct, not just belief.

Facts

Spring Media Investments Limited (the Company) was the holding company of a group providing creative services in fashion, beauty and luxury sectors. Mr Francesco Costa was a director and chairman, having invested in the business alongside its founder, Mr Loy. Saxon Woods Investments Limited held 22.33% of the Company’s shares.

In May 2016, the Company, its shareholders and Mr Loy executed a Novated, Amended and Restated Shareholders’ Agreement (SHA). Clause 6.2 required the parties to work together in good faith towards an ‘Exit’ no later than 31 December 2019. Following Mr Loy’s departure as CEO in January 2017, the board delegated conduct of the sale process to Mr Costa.

Mr Costa believed a later sale would produce a better return and pursued a strategy of delaying the Exit beyond 2019. The trial judge found that Mr Costa: (a) ensured no other director or shareholder (except Mr Uberoi) had knowledge of the Exit process; (b) aggressively rebuffed enquiries from fellow directors; (c) misled the board into believing the Company was fulfilling its SHA obligations; (d) gave instructions to advisors inconsistent with a 2019 Exit and did not disclose this; and (e) employed delaying tactics. The Covid pandemic subsequently destroyed the prospect of a beneficial Exit.

Saxon Woods brought an unfair prejudice petition under sections 994–996 of the Companies Act 2006. The trial judge found unfair prejudice but held Mr Costa had not breached section 172, applying Regentcrest, because he sincerely believed he was acting in the Company’s best interests. The Court of Appeal reversed, finding a breach of section 172, and ordered an unconditional buy-out.

Issues

Two principal issues arose:

1. Whether the test for breach of the section 172(1) duty is purely subjective (turning only on the director’s genuine belief), or whether the requirement of ‘good faith’ extends objectively to the director’s conduct — in particular, whether a director acting covertly to subvert a strategy resolved upon by the board breaches section 172.
2. Whether a director breaches section 172 simply by procuring the company to act in breach of contract, where the strategy for success has been contractually determined (the SHA point).

Arguments

Appellant (Mr Costa)

Counsel submitted that, provided a director genuinely believes his preferred course is most likely to promote the success of the company, it is entirely for him how to act, even if he conceals his conduct from or misleads fellow directors. The requirement of good faith in section 172(1) governs only the director’s thought process, not his conduct. It was argued no objective test applies to determine breach of section 172. On the second issue, procuring a breach of contract is not per se a breach of section 172 if the director genuinely believes it in the company’s interests.

Respondents (Saxon Woods)

Saxon Woods contended that good faith extends to conduct as well as thought, and that although the court will not second-guess a director’s genuine business judgment, an objective element applies when the director’s conduct is challenged.

Judgment

Lord Briggs (with whom Lord Sales, Lord Hamblen, Lord Burrows and Lady Rose agreed) dismissed the appeal.

The prior common law

The Court reviewed the pre-2006 Act position, starting with Lord Greene MR’s classic statement in Re Smith and Fawcett Ltd [1942] Ch 304, that directors must exercise discretion bona fide in what they consider to be in the interests of the company. However, this principle concerned board decisions, not the conduct of a single dissenting director acting covertly. No prior authority extended judicial respect for business judgment to a director pursuing a covert strategy contrary to a strategy resolved upon by the board.

The Court cited older authorities suggesting bona fides applied to conduct, including Sir George Jessel MR in Re National Funds Assurance Company (1878) 10 Ch D 118, and Cotton LJ in Re Marzetti’s Case (1880) 42 LT 206, 209:

…directors are confidential agents with the liabilities of trustees, but they have a large discretion and if they act bona fide they are relieved and are not liable for want of judgment or error …

Construction of section 172

The Court held that a duty not to subvert covertly the management of a company’s affairs by the board is best regarded as part of the section 172 duty. Reasoning was fourfold: (i) primary responsibility for promoting success is reposed in the board; (ii) an individual director must bring his independent view to the board rather than pursue a covert alternative strategy; (iii) Chapter 2 of Part 10 is directed at supporting corporate governance in accordance with the constitution; and (iv) authority (notably Arden LJ in Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244 and Etherton J in Shepherds Investments Ltd v Walters [2006] EWHC 836 (Ch)) supports assimilating disclosure obligations within the loyalty duty.

Arden LJ in Item Software stated:

For my part, I do not consider that it is correct to infer from the cases to which I have referred that a fiduciary owes a separate and independent duty to disclose his own misconduct to his principal or more generally information of relevance and concern to it. So to hold would lead to a proliferation of duties and arguments about their breadth. I prefer to base my conclusion in this case on the fundamental duty to which a director is subject, that is the duty to act in what he in good faith considers to be the best interests of his company.

Etherton J in Shepherds Investments stated:

As Arden LJ so clearly stated in Item Software, in relation to a fiduciary’s duty to disclose his own misconduct to his principal, or, more generally, information of relevance and concern to his principal, the single and overriding touchstone is the fundamental duty of a director to act in what he considers in good faith to be in the best interests of the company. There is no separate and independent duty of disclosure.

Meaning of ‘good faith’

The critical question was whether the words ‘in good faith’ govern only the director’s thought process or extend to his conduct. Lord Briggs held that, although grammatically the former reading is arguable, the latter must be preferred for three reasons:

• Consistency with prior law: Equity has always applied an objective element in judging fiduciary conduct. Section 170(4) requires interpretation by reference to prior common law and equitable principles.
• Context and purpose: Chapter 2 of Part 10 is designed to operate harmoniously with corporate governance. A construction permitting covert, disloyal conduct would be disruptive.
• Credulity: It strains belief that the framers intended a purely subjective test permitting chaos and paralysis in corporate governance.

Application to the facts

Mr Costa’s conduct was ‘manifestly disloyal to the Company’ and in bad faith. His concealment from the board amounted to concealment from the Company. Although the Court of Appeal had focused on dishonesty applying Ivey v Genting Casinos [2017] UKSC 67, Lord Briggs preferred a broader analysis based on the requirement of good faith itself, noting that the Ivey test is unnecessary where a fiduciary duty of loyalty already supplies the analytical framework.

The SHA point

Lord Briggs expressed no concluded view on whether Mr Costa was independently in breach because the SHA had determined the route to success. Directors are not necessarily precluded from reconsidering a contractually agreed course if circumstances change; this remains a matter for the board’s business judgment. However, an individual director may not covertly subvert a prior collective determination.

Remedy

Because the trial judge had erred on breach of section 172, his discretionary remedy could not stand. The Court of Appeal was entitled to substitute the immediate buy-out order.

Implications

The decision clarifies that the good faith requirement in section 172(1) of the Companies Act 2006 extends to a director’s conduct, and not merely to his subjective thought process about what promotes the company’s success. Whilst the court will continue to respect a director’s genuine business judgment as to strategy (the subjective element), a director cannot rely on his sincere belief as a shield where he acts covertly, disloyally or in a manner that subverts the board’s collective governance.

The judgment reinforces the primacy of collective board decision-making under the typical corporate constitution. Individual directors who disagree with the majority must raise their concerns openly and cannot pursue their own competing strategy behind their colleagues’ backs, even if genuinely believing that course to be in the company’s best interests.

The decision is significant for directors, corporate advisers and shareholders. It confirms that Regentcrest and the subjective test do not confer a licence to act with impunity where conduct is objectively disloyal. It also confirms that concealment of material information from the board can itself constitute a breach of section 172, aligning with Arden LJ’s approach in Item Software.

The Supreme Court left open the broader question of whether a director procuring a company’s breach of contract is per se a breach of section 172, indicating this remains a matter of business judgment subject to the good faith requirement. The Ivey objective test of dishonesty was held unnecessary where a fiduciary duty already provides the analytical framework, though dishonesty may still be evidence of breach.

The case is likely to be regarded as an important restatement of the objective dimensions of directors’ fiduciary duties and their interaction with the statutory codification, particularly in the context of unfair prejudice petitions where directorial disloyalty causes shareholder loss.

Verdict: Appeal dismissed. The Supreme Court upheld the Court of Appeal’s order that Mr Costa purchase Saxon Woods’ shares at their pro rata undiscounted value as at 31 December 2019, holding that Mr Costa’s covert and misleading conduct amounted to a breach of his duty under section 172(1) of the Companies Act 2006.

Source: Saxon Woods Investments Ltd & Ors v Costa [2026] UKSC 21