The Supreme Court’s 2026 ruling in Saxon Woods Investments Ltd v Costa has put Section 172 of the Companies Act 2006 firmly back in the spotlight. For directors and shareholders of UK companies, the judgment clarifies what “good faith” actually constitutes in practice. It confirms that good intentions alone will not protect a director who acts covertly or disloyally toward the board.
If you are involved in a shareholder or boardroom dispute, or simply want to understand how your duties as a director stand after this ruling, this article sets out what you need to know.
In brief
The Supreme Court has confirmed that a director’s duty to act in good faith under Section 172 of the Companies Act 2006 is not purely about intent.
Conduct matters too. In the case of Saxon Woods Investments Ltd v Costa, a director who genuinely believed they were acting in the company’s best interests was still found to have breached their fiduciary duty because they concealed information from the board and pursued a covert strategy without authority. Good faith requires both honest intent and transparent, loyal conduct.
What Section 172(1) of the Companies Act 2006 says
Section 172 of the Companies Act 2006 sets out one of the most important duties a director holds. It requires a director to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
In exercising that duty, directors must have regard to a range of factors, including:
- The likely long-term consequences of decisions
- The interests of employees
- The company’s relationships with suppliers and customers
- The impact of operations on the community and environment
- The desirability of maintaining a reputation for high standards of business conduct
- The need to act fairly as between members of the company
On its face, Section 172 is framed subjectively: it asks what the director “considers” to be in the company’s best interests. The Saxon Woods case has significantly sharpened how that subjective test operates.
What happened in Saxon Woods Investments Ltd v Costa
The background
Spring Media Investments Limited was a company with an agreed strategy to sell the business by 31 December 2019. Mr Costa, as chairman, disagreed with that strategy. Rather than challenge it openly, he delayed the sale process without the board’s knowledge, withheld information from fellow directors, and misled the board while pursuing his own preferred approach.
He genuinely believed a later sale would achieve a better financial outcome for the company. The Covid-19 pandemic subsequently damaged the company’s value. Saxon Woods Investments Ltd, a shareholder, brought an unfair prejudice petition against him.
The judgment
The Supreme Court ruled unanimously against Mr Costa. Lord Briggs, giving the leading judgment, held that the good faith requirement in Section 172 applies to a director’s conduct as well as their state of mind. A sincere belief that an action will benefit the company does not justify concealment, deception, or the unauthorised subversion of a collectively agreed board strategy.
The court rejected the idea that a purely subjective standard of good faith could cover covert and disloyal behaviour, describing such an approach as “a recipe for chaos and paralysis in corporate governance.”
You can read the full Supreme Court judgment here.
How this ruling clarifies a director’s fiduciary duty
A fiduciary duty is a legal obligation to act in the best interests of another party. For a director, that party is the company and its members. Before this ruling, there was room for argument that Section 172 operated as a purely subjective test: if a director believed they were acting in the company’s interests, that belief might be enough.
Saxon Woods closes that argument. The court established that good faith must be assessed against an objective standard of loyalty and honesty. Directors can disagree with board decisions, but they must do so openly and through proper governance processes.
The judgment is clear that the following conduct will constitute a breach of duty, regardless of a director’s sincere commercial motivations:
- Withholding information from fellow directors
- Misleading the board
- Exceeding or misusing delegated authority to pursue an unapproved strategy
This has direct implications for directors of owner-managed businesses, startups, and companies where shareholders also sit on the board. The consequences of crossing the line are significant, as the Saxon Woods case illustrates.
Speak to Ignition Law about directors’ duties and boardroom disputes
Whether you are a director seeking to understand your obligations after this ruling, or a shareholder concerned that a fellow director may be acting in breach of their duties, taking early legal advice is important.
Ignition Law advises directors and shareholders on fiduciary duties, boardroom governance, and disputes. Our team provides practical, commercially focused guidance to help you navigate complex situations before they escalate.
If you are facing a situation involving a director’s conduct, you may also find our guide on how to remove a director who is also a shareholder a useful starting point.
Contact Ignition Law today to discuss your situation with a specialist.
