They just don’t get it. You know that the course of action you have explained is the best route to success, but they disagree. You know that, ultimately, everyone will benefit if they follow your views, but they don’t understand that. Do you ignore them and carry on regardless? Or do you adhere to the majority view? When “you” are a director and “they” are the board, in the decision in Saxon Woods Investments Ltd & Ors v Costa [2026] UKSC 21, the Supreme Court has found that, by covertly subverting the board’s decision, even if genuinely believing that to be in the company’s best interests, a director may breach their fiduciary duty of loyalty, codified by section 172 of the Companies Act 2006.
Summary
With others, Mr Loy founded Spring Studios Limited (“SSL”) in 1996. In 2012, Mr Loy decided to expand the business into New York and so sought external investment. Mr Loy was introduced to Mr Costa, who invested into the business through an investment vehicle. After further rounds of investment and a restructuring, SSL was transferred to Spring Media Investments Limited (“the Company”). Mr Costa was a director and chairman of the board of the Company.
In 2016, the Company and its shareholders entered into a new agreement in which they agreed that they would work together in good faith towards the sale of the Company no later than 31 December 2019. At the time of the agreement, Saxon Woods Investments Limited (“Saxon Woods”), a nominee of a trust settled by Mr Loy, had a minority interest in the Company. Mr Loy ceased to be CEO of the Company in 2017, and the Company entrusted the conduct of the sale process to Mr Costa. However, Mr Costa did not believe that a sale before the end of 2019 would result in the best financial return. As a result, Mr Costa pursued a course of action to prevent this from happening, including adopting delaying tactics, withholding information from fellow shareholders and directors about the progress of the sale, misleading the board and by providing instructions to the Company’s advisors that did not encompass a 2019 exit.
Mr Costa achieved his aim, but then the COVID pandemic completely destroyed any prospect of a beneficial sale.
Saxon Woods presented a minority shareholders’ petition against Mr Costa, seeking an order that he buy out its shares in the Company at a price reflecting the value they would have had if the agreed sale strategy had been implemented. At trial, the judge held that Saxon Woods’ case on unfair prejudice had been made out, but Mr Costa’s conduct had not amounted to a breach of fiduciary duty, pursuant to s.172 of the Companies Act 2006 and nor had he been dishonest.
On appeal, applying the objective test of dishonesty, the Court of Appeal found that Mr Costa’s deception of the board had been dishonest and therefore not in good faith.
Mr Costa appealed to the Supreme Court, which considered the scope of the s.172 duty and, in particular, whether the requirement of good faith is confined to the director’s subjective belief or also governs their conduct in pursuing that belief.
Breach of s.172
s.172 provides that 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”. Pursuant to s.170(1) of the 2006 Act, this general duty is owed to the company, rather than to its shareholders.
Given that s.172 is expressly based on common law rules and equitable principles (s.170(3) and (4) of the 2006 Act), Lord Briggs, with whom the other Lords agreed, traversed the law on business judgement prior to the 2006 Act. He accepted the longstanding principle that it is for directors to exercise their business judgement in managing the affairs of a company and the court will not interfere with this if the directors act bona fide in what they consider to be the best interests of the company. However, Lord Briggs could not trace any authority or academic writing suggesting the principle extended to a case where one director had pursued his own judgement as to the best way to promote the company’s best interests by a covert strategy, which directly conflicts with the business judgement and strategy resolved on by the board as a whole. Lord Briggs remarked that he would have been surprised to find one because: “such conduct would appear to be obviously disloyal by a fiduciary, and contrary to the mode of governance of the company laid down by its typical constitution. It would not appear to be acting bona fide or, in the English translation, in good faith.”
Lord Briggs then went on to consider the travaux preparatoires leading to the 2006 Act and the construction of s.172. He found that a duty not to covertly or otherwise subvert the management of the company’s affairs by the board as a whole was best regarded as part of the s.172 general duty. In particular, Lord Briggs referred to a previous decision of the Court of Appeal, which held that a director’s duty to disclose his misconduct to the board fell within the duty of loyalty, which is the predecessor to the s.172 duty.
Although the rigorous application of grammatical rules might have resulted in a finding that meant the requirement for good faith in s.172 only governed the director’s thinking, rather than his conduct, Lord Briggs preferred an alternative view. Namely, that the requirement for good faith extended to the director’s conduct. This view was consistent with caselaw preceding the 2006 Act; it was consistent with s.172 when read in context; and it strained credulity to think otherwise. As to the latter, Lord Briggs considered that, were the position different: “Far from promoting corporate success in the modern world, it would be a recipe for chaos and paralysis in corporate governance, and destructive of the collegiality of the board of directors as a whole which all stakeholders in limited companies are entitled to expect.”
Conclusion
Needless to say, the Supreme Court found Mr Costa to have acted in breach of s.172 given that his conduct was manifestly disloyal to the Company and he acted in bad faith towards it.
Practical takeaway
A director may disagree with the majority view of the board, and may seek to persuade colleagues that a different course would better promote the success of the company. But, unless the company’s constitution provides otherwise, management authority lies with the board acting collectively. A dissenting director cannot covertly pursue an alternative strategy, conceal that from the board, or mislead fellow directors in order to frustrate the board’s decision. If disagreement persists, the director must use proper governance channels rather than taking matters into their own hands.
