The Supreme Court has just settled a question that comes up more often than most directors realise: if you sincerely believe you know better than your fellow directors, can you act on that belief covertly, mislead your board, and still claim you’ve done nothing wrong under Section 172?
The answer, at the time of writing, is no.
The case is Saxon Woods Investments Limited v Costa [2026] UKSC 21.
Section 172, in full
Everything in this case turns on the wording of section 172(1) of the Companies Act 2006:
(1) 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, and in doing so have regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
Section 170(1) makes clear this duty is owed to the company itself, not to individual shareholders. The duty applies to all directors.
The problem
Spring Media Investments had a shareholders’ agreement. It committed the company and its investors to sell the business by the end of 2019. Francesco Costa, the chairman, was given the job of running that sale.
Mr Costa thought waiting longer would get a much better price. So he ran his own process instead of the agreed one and kept his fellow directors and shareholders away from it. He misled the board into thinking the company was on track to meet its 2019 obligations when it wasn’t. He gave instructions to the company’s advisers that didn’t match what the board had agreed, and he didn’t tell anyone.
Unfortunately for Mr Costa and all of the shareholders: Covid hit in 2020 and wiped out the sale opportunity completely.
The trial judge’s view
At first instance, the judge accepted that Costa hadn’t set out to hurt the company. His summary of Costa’s mindset: “they wouldn’t like it now if they knew, but they will thank me in the long run.” The judge found Mr Costa’s belief genuine, and so he held there was no breach of section 172. However, the judge did find that the minority shareholders had suffered unfair prejudice and so made a conditional buy-out order.
The Court of Appeal’s view
The Court of Appeal disagreed. It found Costa’s conduct dishonest, applying the objective test from Ivey v Genting Casinos, and ordered an unconditional buy-out of the petitioning shareholder’s stake at 2019 values.
What Costa argued on appeal
Costa’s case to the Supreme Court had two limbs:
- Section 172 only requires good faith in what a director thinks, not in how he acts. This would mean that if his belief was genuine, his conduct in pursuing it, however deceptive, is beside the point.
- A director isn’t automatically in breach of the duty just because his chosen route happens to involve the company breaching a contract, provided he genuinely believed that route served the company’s interests.
What the Supreme Court decided
The appeal failed and the buy-out order remained the remedy to which the minority shareholders were entitled. The court held that good faith under Section 172 governs conduct as well as belief. This means that a sincere belief that pursuing a certain course of action will benefit the company as a whole is not enough. The director’s conduct must also be in good faith.
For Mr Costa, that meant he could not escape liability for breach of Section 172 on the basis of his sincere belief that he was going to do the best thing by all shareholders by trying to achieve a better price for the shares. His conduct in hiding his lone-wolf strategy and engaging in delaying tactics was not in good faith and so he was in breach of Section 172.
On Costa’s second argument, whether the shareholders’ agreement itself fixed the company’s strategy so tightly that no departure was ever permissible, the Court declined to decide. The court said it was a genuinely difficult question and left it open.
The outcome
Appeal dismissed. Costa must buy out Saxon Woods’ shares at their full undiscounted 2019 value.
Why this matters if you’re a director, or dealing with one
This case gives some welcome clarity to a fact pattern we see constantly in shareholder and director disputes: a director convinced he’s right, secretly working around his colleagues instead of persuading them.
The lesson is straightforward. If you disagree with the board’s strategy, the duty of good faith requires you to say so, argue your case, and let the board decide collectively. What it doesn’t permit is running your own parallel plan in secret and hoping to be vindicated by results. Sincerity of belief was never going to be enough, and the Supreme Court has now confirmed it in terms that leave little room for argument.
If you’re a shareholder who suspects a director is freelancing behind the board’s back, or a director trying to work out where the line sits before you act on a strong conviction, we deal with exactly this kind of dispute at Pinpoint Lawyers. Get in touch and we’ll talk it through.