UK Supreme Court rules on directors’ duties, good faith and unfair prejudice

14 July 2026, the UK Supreme Court held that a director cannot rely on a sincere belief that he or she is acting in the company’s best interests to justify covert and disloyal behaviour that subverts the board of directors’ agreed strategy.

In Saxon Woods Investments Ltd and others (Respondents) v Francesco Costa (Appellant) [2026] UKSC 21, the appeal concerned the standard of behaviour required of a company director, as a fiduciary who owes a duty of loyalty to the company, and who is required to act in good faith, when the director genuinely disagrees with his or her fellow directors as to the best way forward for achieving success for the company.

Spring Media Investments Ltd (SMI) was a company incorporated in England and Wales. It was the holding company for a group of companies that provide creative services to existing businesses in the fashion, beauty and luxury brand sectors. The appellant, Francesco Costa, was a director at all material times until October 2025, and chair of the board until July 2024. Costa was not himself a shareholder in the company but held a substantial indirect interest through a Luxembourg entity. The first respondent, Saxon Woods Investments Ltd, held 22.33% of the shares as at 31 December 2019.

The business was originally founded in 1996 as Spring Studios Ltd (SSL) by its initial chief executive Mark Loy, and two other individuals who left soon afterwards. On 20 May 2016, a new shareholders’ agreement was executed in respect of SMI replacing an earlier shareholders’ agreement from 2013. The parties to the agreement were: SMI, SSL, and all the invested shareholders including Saxon Woods and Loy.

Under the agreement, SMI and the investors agreed to work together in good faith towards achieving an ‘exit’ – the sale of SMI or its shares – by no later than 31 December 2019. Although the conduct of the SMI’s affairs was primarily entrusted by its constitution to its board of directors, it delegated the conduct of the sale process exclusively to Costa.

The sale process was not carried out in accordance with the agreement because Costa believed that a sale later than by the end of 2019 would be likely to generate a better financial return for SMI and the investors. The trial judge found that Costa had adopted various tactics to achieve his objective of effectuating a later sale.

These included: ensuring that no other director (save for one) had any knowledge or involvement in the sale process, misleading the board by giving his fellow directors the impression that SMI was fulfilling its obligations under the agreement (whereas to his knowledge it was not) and failing to disclose to the board that his instructions to SMI’s advisors in connection with the sale did not encompass achieving a 2019 exit.

Costa ultimately achieved his strategic objective of delaying any sale beyond the end of 2019. Unfortunately for Costa, SMI and the investors, the prospect of a profitable exit was destroyed by the adverse impact of the Covid Pandemic on SMI’s business in and after 2020.

Saxon Woods presented a minority shareholders’ petition against Costa for relief from unfair prejudice under sections 994-996 of the Companies Act 2006 (CA 2006). It did so on the basis that Costa had been personally responsible for SMI’s failure to abide by the agreed exit strategy, so that he should be ordered to buy out Saxon Woods’ shares in SMI at the price reflecting the value which those shares would have had if that strategy had been followed and an exit achieved in 2019.

At the trial, the judge held that Saxon Woods’ case on unfair prejudice had been made out, but Costa’s conduct had not amounted to a breach of fiduciary duty under section 172 CA 2006 or involved dishonesty on his part. The judge therefore made only a conditional buy-out order requiring Costa to buy Saxon Woods’ shares at the value they would have had at the end of 2019 if it could be proved at a later hearing that, had SMI complied with the agreed exit strategy agreed in the SHA, a final offer of more than USD75 million net of debt would have been received for SMI by the end of 2019.

Both Saxon Woods and Costa appealed. The Court of Appeal dismissed Costa’s appeal and allowed Saxon Woods’ appeal. The Court of Appeal ordered an unconditional buy-out by Costa of Saxon Woods’ shares, with the exact value (as at the end of 2019) to be determined at a further hearing in the High Court. The primary reason for the Court of Appeal’s departure from the trial judge’s order was that it considered that Costa had been in breach of fiduciary duty under section 172 CA 2006.

In the Appeal Court’s view, Costa’s deception of the board was dishonest according to the modern objective test of dishonesty in Ivey v Genting Casinos (UK) Ltd (t/a Crockfords Club) [2017] UKSC 67; [2018] AC 391, and therefore not in good faith. In addition, the Appeal Court held it was not open for Costa to formulate or act upon his own judgment about a strategy for the success of the company, since that had been conclusively determined by the shareholders’ agreement. Costa appealed against both conclusions to the Supreme Court.

The Supreme Court unanimously dismissed the appeal. Giving the judgment, Lord Briggs said it was a long-standing principle that the court would not interfere with the exercise of the business judgment of directors in managing the affairs of a company provided that the directors acted bona fide in what they considered to be in the best interests of the company.

The directors’ duty as articulated in Re Smith and Fawcett Ltd [1942] Ch 304 was understood as a fiduciary duty of loyalty, and the test to determine whether that duty had been breached, whether by the board or by individual directors, was described as ‘subjective’.

‘Subjective’ in this context meant that the court would not interfere with the view that directors actually and genuinely held merely because it formed a different objective view of what was really in the best interests of the company. This principle had come to be applied not only to decisions of the board, but also to decisions or acts of individual directors, in deciding whether a particular act was a breach of fiduciary duty.

However, no authority prior to the enactment of the CA 2006 suggested that the court’s respect for the business judgment of directors extended to a case where one director had sought to pursue his or her own judgment as to the best way to promote the company’s interests by a covert strategy, concealed from fellow directors, to pursue an objective that directly conflicted with the business judgment and strategy already agreed by the board as a whole. Such conduct would appear to be obviously disloyal by a fiduciary, contrary to the mode of governance established by the typical company’s constitution, and not acting in good faith.

Counsel for the appellant submitted that the requirement of good faith meant only that the director’s thought process, rather than conduct, fell within the obligation of good faith, but the Supreme Court found there were powerful judicial statements to the contrary.

A duty not to covertly or otherwise to subvert the management of the company’s affairs by the board as a whole was not expressly mentioned in section 172 or elsewhere in Chapter 2 of Part 10 of the 2006 Act, which set out what are described as the general duties of directors. But such a duty was best regarded as part of the s172 general duty, rather than something completely separate from it. This was for a number of reasons:

1. Section 172 might be read as imposing a communal obligation to promote the success of the company on the members of the board.
2. If the primary responsibility of the board was to be discharged effectively, an individual director was obliged to bring his independent view of the way best to promote the success of the company to the attention of colleagues on the board and must not by covert conduct pursue some other strategy than that decided upon by the board.
3. There were numerous indications in Chapter 2 that it was intended to affirm rather than impede the governance of the company in accordance with its constitution.
4. The concept of assimilating specific duties by directors to make disclosure to the board within what was now the s172 duty was affirmed by authority.
5. It was no answer to a claim of a breach of the s172 that the matter complained of looked more like a breach of one of the other general duties, because the s172 duty was closely related to the other general duties, and a director who acted in breach of the other general duties would also often be in breach of duty under s172 as well. In this case, Costa’s conduct might have been characterised as a breach of both limbs of s171, but that did not exclude it from the ambit of s172.

When read in isolation, said the Supreme Court, it might be suggested that the language about good faith in s172 governed the director’s thinking, rather than his conduct. On this construction, it had been contended by the appellant, that if a director genuinely believed that a certain course for the company to take was best calculated to promote its success, then the director was free (and perhaps obliged) to adopt any course of conduct he or she wished to secure that the company took that course, regardless of whether, objectively speaking, such conduct involved lies, cheating, deception, dishonesty or disloyalty.

The alternative view supported by Saxon Woods was that the requirement for good faith extended not merely to the director’s thinking but also to his or her conduct in the pursuit of achieving what he or she believed was the best course for the company to take. Saxon Woods submitted further that, even though the court would not second guess the director’s genuine view about the best way forward for the company by its own objective assessment, the requirement for good faith did involve at least some objective element if the director’s conduct was challenged in court.

The Supreme Court found that while the rigorous application of grammatical rules might be said to favour the first of those alternatives, the second construction was clearly to be preferred for three main reasons:

1. It was more consistent with a codification of the existing law – according to which the court adopted an objective assessment to the determination of the extent of a fiduciary’s duty of loyalty, and alleged breaches of it.
2. It fitted s172 better into its context as part of Chapter 2, and with its purpose.
3. It strained credulity to think that the first alternative could have been intended, because of its consequences. The notion that the careful and experienced framers of this important codification of directors’ duties thought that a director was required by s172 only to think (and not also to act) in good faith was highly unlikely and would be a recipe for chaos and paralysis in corporate governance, and destructive of the collegiality of the board.

Accordingly, the Supreme Court held that the Court of Appeal was correct to have reversed the trial judge on the question whether a breach by Costa of his duty under s172 was made out on the facts: it clearly had been. However, while the Court of Appeal focused its analysis on a conclusion that Costa had acted dishonestly, applying the objective test laid down in Ivey, Lord Briggs’s analysis proceeded upon a broader basis, concentrating on the requirement for good faith rather than dishonesty on its own, even though the dishonesty question might form part of that wider enquiry.

The test for dishonesty elaborated in Ivey made sense in the context of legal duties that arose irrespective of a pre-existing or separate fiduciary relationship. But where the defendant owed a fiduciary duty of loyalty, the question was whether that duty has been breached, and while dishonesty might be evidence of that, the duty itself supplied the relevant analytical framework; it was unnecessary to elaborate it by reference to Ivey.

The outcome in this case – that there was a breach of s172 by Costa – was the same, so the order made by the Court of Appeal could not be impugned. Lord Briggs preferred to express no view as to the correctness of the Court of Appeal’s second conclusion that Costa had been independently in breach of the s172 duty simply because the shareholders’ agreement had determined the route for SMI’s success. This was unnecessary for the Supreme Court’s resolution of the appeal.

In its judgment, the Court of Appeal had been right to hold that the trial judge had erred in ruling that Costa did not act in breach of his s172 duty to SMI. That was an important matter relevant to the exercise of discretion as to the remedy to be ordered. For that reason, and the additional reasons given by the Court of Appeal’s judgment, the trial judge’s exercise of discretion as to remedy could not stand. The Court of Appeal was therefore required to exercise its discretion as to remedy afresh and was entitled to hold that the appropriate remedy was the unconditional buy-out order which it had made.

The full judgment of the Supreme Court can be accessed at https://supremecourt.uk/uploads/uksc_2025_0149_judgment_068a722678.pdf