Good Intentions Are Not Enough

Court clarifies directors’ duty to act in good faith

Directors are often required to make difficult commercial decisions, and it is not unusual for board members to disagree on the best course of action. However, what happens when a director is so convinced that they are right that they pursue their preferred strategy without the knowledge or approval of the rest of the board? In Saxon Woods Investments Ltd v Costa [2026] UKSC 21, the Supreme Court considered the extent of a director’s duty to act in good faith under the Companies Act 2006 and delivered an important judgment on directors’ duties, board governance and the limits of individual decision-making.

The facts

The case centred on Spring Media Investments Limited, a holding company operating in the fashion and luxury brand sector. Under a shareholders’ agreement, the company and its shareholders had agreed to work towards selling the business by 31 December 2019.

Responsibility for managing the sale process was delegated to the company’s chairman, Francesco Costa. Although the board had endorsed the agreed exit timetable, Mr Costa believed that delaying the sale would ultimately achieve a much higher price. Rather than seeking the board’s agreement to change strategy, he secretly pursued a different course.

The courts found that Mr Costa deliberately delayed the sale while leading the board and shareholders to believe that he was working towards the agreed deadline. He withheld information, resisted attempts by others to monitor progress and concealed the fact that he had abandoned the agreed strategy. The trial judge summarised his thinking as effectively: “They may not like it now, but they will thank me in the long run.”

Unfortunately, events overtook that strategy. The Covid-19 pandemic severely affected the market, the anticipated sale did not proceed, and the value of the company fell dramatically.

A minority shareholder, Saxon Woods Investments Limited, brought proceedings alleging that Mr Costa’s conduct had unfairly prejudiced its interests. The High Court accepted that unfair prejudice had occurred but concluded that Mr Costa had not breached his statutory duty as a director because he genuinely believed he was acting in the company’s best interests. The Court of Appeal disagreed, and the case ultimately reached the Supreme Court, which unanimously upheld the Court of Appeal’s decision.

The issues

The Supreme Court was asked to decide what is required of a director who genuinely believes that the rest of the board is pursuing the wrong strategy.

Section 172 of the Companies Act 2006 requires directors to act in good faith in the way they consider would be most likely to promote the success of the company for the benefit of its members as a whole. Mr Costa argued that because he honestly believed delaying the sale would achieve a better outcome, he could not be in breach of that duty, even though he concealed his actions from the board.

The Court therefore had to consider whether a sincere belief that a different strategy is in the company’s best interests allows a director to act independently of, and contrary to, the board’s agreed decisions.

The decision

The Supreme Court unanimously rejected Mr Costa’s appeal.

The Court held that the duty under section 172 is not concerned solely with a director’s subjective belief. Good faith must also be demonstrated through the director’s conduct. A director cannot secretly pursue a personal strategy while misleading fellow directors, even if they genuinely believe that strategy will ultimately benefit the company.

The judgment emphasises that directors owe a fiduciary duty of loyalty to the company. Where a board has collectively agreed a strategy, an individual director who disagrees must raise those concerns openly and seek to persuade the board to change course. They cannot use delegated authority to undermine the agreed strategy behind the scenes.

The Court also confirmed that delegated powers must be exercised for the purpose for which they were given. Using those powers to frustrate the board’s agreed objectives was found to be a breach of both sections 171 and 172 of the Companies Act 2006.

Comment

This is an important decision on corporate governance and directors’ duties. The judgement makes clear that directors cannot justify secretive or misleading conduct simply because they honestly believe they know what is best for the company.

The case reinforces that board decisions must be made collectively. Directors remain free to challenge, question and debate strategy, but those disagreements must be aired openly rather than pursued through covert action.

From a practical perspective, directors should ensure that:

• disagreements are raised transparently at board level rather than acted upon privately;
• delegated authority is exercised only within the scope intended by the board;
• significant strategic decisions are supported by clear board discussions and properly documented decision-making; and
• board papers and minutes demonstrate how decisions were reached and why they were considered to promote the company’s success.

The judgment is likely to become a leading authority on directors’ duties under section 172 and serves as a timely reminder that good corporate governance depends not only on making the right decisions, but on following the right decision-making process.

If you’d like to discuss any of the issues raised by this article, please get in touch.  

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