The Supreme Court's judgment in Saxon Woods v Costa provides important guidance on the scope of a director's statutory duty to promote the success of a company.
Published: 29 October 2026
Authors: Lauren Moroney
The Supreme Court’s decision in Saxon Woods Investments Ltd & others v Costa provides important guidance on the scope of a director’s duty to promote the success of the company under section 172 of the Companies Act 2006 (the 2006 Act). The judgment addresses the relationship between a director’s business judgment, collective board decision-making, and the fundamental fiduciary duty of good faith owed to the company.
The decision confirms that a director cannot avoid liability under section 172 simply because they honestly believed that their actions were in the company’s best interests. Where a director secretly acts to undermine or circumvent decisions that properly fall within the authority of the board, they may be acting in breach of their duty of good faith, even if they subjectively considered that their actions were beneficial to the company.
The judgment will also be of interest to insolvency practitioners considering breach of duty claims against directors on behalf of the companies to which they are appointed.
Facts
The dispute arose from the management of a company (Spring Media Investments Limited) (the Company) in which Saxon Woods Investments Ltd (Saxon Woods) was a shareholder and Mr Costa was a director.
In 2016, a shareholders’ agreement was entered into under which the parties (including Saxon Woods and various other investors) agreed to work towards a sale of the Company (or its shares) by the end of 2019. Mr Costa, however, believed that postponing a sale beyond that date would ultimately produce a better financial outcome. Acting on that belief, he covertly pursued a strategy designed to delay the sale process.
That strategy did not produce the intended result. Following the significant impact of the Covid-19 pandemic on the Company’s business, the anticipated increase in value failed to materialise. Saxon Woods subsequently presented an unfair prejudice petition under section 994 of the 2006 Act.
Earlier judgments
The first instance Judge held that Mr Costa’s conduct amounted to unfair prejudice. However, the court was not satisfied that his actions constituted a breach of section 172 or involved dishonesty.
Both parties appealed. Saxon Woods challenged the finding on section 172, whilst Mr Costa cross-appealed against the unfair prejudice findings. The Court of Appeal allowed Saxon Woods’ appeal and dismissed Mr Costa’s cross-appeal.
A significant aspect of the Court of Appeal’s reasoning concerned the nature of “prejudice” for the purposes of section 994.
The Court held that prejudice need not be financial in character. Although it could not be established that a sale would necessarily have been achieved by the end of 2019, Mr Costa’s actions had deprived the company of the opportunity to pursue the agreed strategy and attempt to achieve such a sale.
That lost opportunity was itself capable of constituting prejudice. By deliberately causing the company to depart from its agreed obligations, Mr Costa had engaged in conduct that was unfairly prejudicial to Saxon Woods as a shareholder.
The Court of Appeal also concluded that section 172 encompasses a core fiduciary requirement of honesty and loyalty towards the company.
The Court found that Mr Costa had acted contrary to that duty by secretly pursuing a course of conduct designed to frustrate the agreed corporate strategy. His conduct therefore breached the statutory duty to promote the success of the company.
Supreme Court decision
Mr Costa appealed to the Supreme Court, where his appeal was dismissed unanimously. The Supreme Court upheld the Court of Appeal’s reasoning and ordered an unconditional buy-out of Saxon Woods’ shares by Mr Costa.
In doing so, the Court provided substantial clarification on the proper interpretation of section 172(1). Section 172(1) 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.”
The central issue was whether the requirement of good faith governed only the director’s state of mind and decision-making process, or whether it also extended to the director’s conduct.
Mr Costa argued that section 172 focused solely on the director’s subjective belief as to what would promote the company’s success. On that analysis, a director who genuinely believed their actions would benefit the company could not be in breach even if they acted covertly.
Saxon Woods contended that the statutory obligation was broader, requiring not only honest thought processes but also conduct consistent with a director’s fiduciary obligations.
Although the Supreme Court accepted that a strictly grammatical analysis might lend some support to Mr Costa’s interpretation, it concluded that Saxon Woods’ construction was clearly preferable for three principal reasons:
- consistency with the previous common law around directors’ fiduciary duties which the 2006 Act sought to codify, under which conduct of the nature of Mr Costa’s was “so obviously disloyal” that there was no previously reported case on the point
- consistency with the broader statutory context and purpose of Chapter 2 of the 2006 Act as a whole, which aims to codify directors’ duties in a way that promotes harmony with the governance of a company in accordance with its constitution
- it strained credulity to think that the drafters of the 2006 Act intended section 172 only to require a director to think, but not act, in good faith, since this “would be a recipe for chaos and paralysis in corporate governance”.
Key takeaways
Corporate disputes
The Supreme Court’s decision serves as a significant restatement of the importance of collective board governance and fiduciary loyalty.
Whilst directors retain broad discretion to exercise their own commercial judgment, that discretion must be exercised within the framework established by the company’s constitution and through proper board processes. Directors are not entitled to circumvent those processes by secretly implementing their own preferred strategies.
The judgment makes clear that section 172 is not solely concerned with what a director thinks; it is equally concerned with how a director behaves. Even where a director genuinely believes that they are acting in the company’s best interests, they may still breach their statutory duties if they act covertly, undermine board authority, or pursue objectives that conflict with decisions that should be made collectively.
For directors and shareholders alike, the decision provides welcome clarity that the duty of good faith remains rooted in the traditional fiduciary concepts of honesty, loyalty and adherence to proper corporate governance.
Insolvency claims
The Supreme Court’s decision will also assist Insolvency Practitioners who bring breach of duty claims either on behalf of the companies to which they are appointed, or pursuant to section 212 of the Insolvency Act 1986. Broadly, these claims are made further to a breach of duty by the directors of a company, including section 172 of the 2006 Act, and seek repayment of any loss flowing from that breach from the misfeasant director(s).
It is important to note that the underlying action to claims arising out of insolvency will often take place when the company was already insolvent. If a company is solvent, what constitutes ‘the success of the company’ is by reference to its members and their interests. If a company is insolvent, the directors must instead consider the interests of the company’s creditors.
Therefore, when considering whether a breach of duty has occurred in an insolvent scenario, the Court will consider whether the directors’ actions were, in good faith, in the interests of creditors. The Supreme Court’s decision may widen, or at least simplify, insolvency practitioner claims where directors have tried to hide over optimistic decisions or gambles in the hopes of saving the company and paying off creditors.
It is invariably sensible for directors to seek both legal and insolvency advice when their company begins to struggle financially. The Supreme Court’s decision has only amplified the importance of advice to ensure that directors do not inadvertently breach their duties, despite their best intentions.