Section 172 good faith governs conduct as well as belief: Saxon Woods v Costa
![Section 172 good faith: Saxon Woods v Costa [2026] UKSC 21, Supreme Court judgment of 14 July 2026](https://bratby.law/wp-content/uploads/2026/07/section-172-good-faith-saxon-woods-header.png)
In short: in Saxon Woods v Costa [2026] UKSC 21, the Supreme Court held that section 172 good faith governs a director’s conduct as well as honest belief. A director may challenge the board’s strategy but may not secretly frustrate it. The ruling has practical implications for nominee directors, joint ventures and industry-owned companies.
A director who disagrees with the board must take the disagreement back to the board. Honest conviction does not permit a director to conceal a competing strategy, misuse delegated authority or obstruct the course that the board has collectively chosen.
That is the practical effect of the Supreme Court’s unanimous judgment of 14 July 2026 in Saxon Woods Investments Ltd v Costa [2026] UKSC 21. The decision preserves judicial respect for honest business judgment while rejecting the proposition that good faith under section 172 of the Companies Act 2006 concerns only what a director believes.
Key findings from Saxon Woods v Costa
- Good faith under section 172 applies to a director’s conduct in pursuing a strategy, not only to the director’s state of mind. Source: Supreme Court judgment, paragraphs 51 to 61.
- A genuine belief that a different course would benefit the company does not excuse a covert, single-handed campaign against the board’s decision. Source: Supreme Court judgment, paragraphs 57 to 63.
- The same conduct may breach section 171 by departing from the constitution or using delegated powers for an improper purpose. Sources: Supreme Court judgment, paragraphs 50 and 58, and Companies Act 2006, section 171.
- The Court expressed no concluded view on whether the shareholders’ agreement fixed the company’s route to success. It said only that a company contract cannot altogether close off board reconsideration and that any change of course is for the board. Source: Supreme Court judgment, paragraph 64.
- The immediate buy-out order was a case-specific remedy for unfair prejudice, not an automatic consequence of every section 172 breach. Sources: Supreme Court judgment, paragraphs 65 and 66, and Companies Act 2006, section 996.
The table’s nominee-director and governance points are practical inferences from the Court’s reasoning, not findings made about nominee directors.
| Issue | Position after Saxon Woods | Governance distinction |
|---|---|---|
| Disagreement with board strategy | A director may form and argue a different view. | The disagreement belongs in the board’s collective process. |
| Delegated authority | It must be used for the purpose for which the board conferred it. | The mandate determines the permitted use of delegated powers. |
| Nominee or constituency interests | They do not replace duties owed to the company. | The director’s statutory role remains separate from the shareholder’s contractual rights. |
| Dissent after a board decision | Covert obstruction or misleading the board is not protected by sincere belief. | A recorded dissent does not authorise later obstruction; reconsideration remains with the board. |
What the Supreme Court decided
The facts are simple. Spring Media and its investors agreed to work towards a sale by 31 December 2019. The board delegated the sale process to its chairman, Francesco Costa. Costa preferred a later sale at a higher valuation. He kept other directors out, delayed progress and led the board to believe that he was following the agreed strategy. The pandemic then removed the exit opportunity.
The trial judge found unfair prejudice but no section 172 breach because Mr Costa sincerely believed that he was serving the company. The Court of Appeal reversed that conclusion and ordered him to buy the petitioner’s shares. The Supreme Court dismissed his appeal. Lord Briggs, with all four other justices agreeing, held that Mr Costa’s conduct was disloyal and in bad faith towards the company. The board was the means through which the company made the relevant decision; concealment from the board was therefore concealment from the company.
Good faith still protects business judgment
The judgment does not replace the director’s honest assessment with the court’s view of commercial success. Section 172 still asks what the director considers, in good faith, would most likely promote the company’s success. That deference does not extend to the means used to pursue the view. Section 172 applies good faith to the director’s conduct as well as the director’s assessment of the company’s interests.
The Supreme Court treated the fiduciary duty of loyalty as the governing framework. It did not need a separate objective test for dishonesty. It also observed that Mr Costa’s actions engaged both limbs of section 171: he undermined the constitution and used delegated powers for a purpose contrary to the mandate given by the board.
Nominee directors and joint venture boards
The court did not decide a special rule for nominee directors. Its reasoning nevertheless matters to joint ventures and industry-owned companies whose boards include directors appointed by shareholders or participant groups. Under section 170, the statutory duties are owed to the company. Section 173 requires independent judgment, subject to section 173(2): acting in accordance with an agreement duly entered into by the company, or in a way authorised by its constitution, does not infringe that duty. Those qualifications do not authorise a director to bypass the board’s decision-making process.
A nominee director can present the appointing shareholder’s perspective, test the proposal and vote against it. A clear minute may evidence dissent, but it is not a legal safe harbour for later obstruction. If the shareholder has consent, reserved-matter or exit rights under a shareholders’ agreement, the shareholder may exercise them in its own capacity. Saxon Woods supports keeping shareholder-level rights separate from the director’s use of board powers.
Shareholders’ agreements, board authority and remedy
The Supreme Court deliberately left one issue open. A company may contract to follow a strategy, but that does not necessarily prevent its directors from reconsidering the strategy if circumstances change, even where a different course could breach the contract. Paragraph 64 places that reconsideration with the board as a matter of collective business judgment. It does not permit one director to make the change covertly.
The remedy is fact specific. The proceedings were an unfair-prejudice petition under section 994. Section 996 gives the court broad power to make such order as it thinks fit. The Court of Appeal ordered an immediate purchase by Mr Costa of Saxon Woods’ shares at their pro rata undiscounted value on 31 December 2019, with valuation to follow. The Supreme Court held that the Court of Appeal was entitled to make that order. It did not hold that every breach of section 172 produces a personal buy-out obligation.
Viewpoint
I see the judgment as a governance decision more than a new test of commercial judgment. It preserves a director’s freedom to form a different view but insists that disagreement remains within the company’s constitutional machinery.
For joint ventures, the practical drafting point is to keep board authority and shareholder rights distinct. In my experience, workable joint-venture documents keep these routes separate. The delegation identifies its purpose and reporting requirements; the shareholders’ agreement identifies decisions reserved to shareholders. When those routes are clear, a nominee director can argue a constituency’s position without confusing appointment with authority.
Frequently asked questions
What did Saxon Woods v Costa decide?
The Supreme Court held that good faith under section 172 applies to a director’s conduct as well as the director’s honest assessment of the company’s interests. A sincere belief did not excuse covertly frustrating the board’s agreed strategy.
Does section 172 still use a subjective test?
Yes, for the director’s business judgment. The court does not substitute its view of commercial success merely because a decision proves wrong. The conduct used to pursue that judgment must nevertheless satisfy the director’s fiduciary duty of loyalty and good faith.
Can a nominee director follow the appointing shareholder’s instructions?
A nominee director may bring the shareholder’s perspective to the board but owes the statutory duties to the company and must exercise independent judgment. The shareholder exercises any consent or reserved-matter rights in its own capacity; those rights do not enlarge the nominee director’s powers.
Does a shareholders’ agreement fix the company’s strategy?
The Court did not decide that point. It said a company contract cannot altogether prevent the board from reconsidering strategy when circumstances change. Any change is for the board collectively, not one director.
For advice on directors’ duties, joint venture governance or shareholders’ agreements, contact Rob Bratby at Bratby Law. The interaction between shareholder rights and board authority also arises in deal structuring and negotiation.
