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The case concludes the long-running dispute in Saxon Woods v Costa regarding a breach of duty for failing to involve other directors in an exit process.
The Supreme Court has held that a director of a company breached his duty under section 172 of the Companies Act 2006 when he failed to involve his fellow directors – and concealed information from them – regarding the process for achieving an exit, even though he genuinely believed it was the best course of action.
However, the Supreme Court overturned the Court of Appeal’s reasoning, adopting an approach founded less on concepts of dishonesty and more on an assessment of the director’s good faith. In doing so, the court affirmed that the test for assessing a breach of section 172 remains both partly subjective and partly objective.
The court also emphasised the principle that company decision-making is the collective responsibility of the company’s board, and that (absent specific authorisation) individual directors are not at liberty to take significant decisions unilaterally without consulting their fellow board members.
In essence, the court framed the issue as follows:
“Can [a director] simply act single-handedly in driving the company towards his preferred objective, if necessary concealing what he is doing from his colleagues. … Is the choice between those alternative courses simply one for that director, with which the court is powerless to interfere...?”
The judgment is important for company directors when considering how to act when looking to promote their company’s success.
What happened?
We reported on the High Court’s decision in February 2024 and on the Court of Appeal’s decision in June 2025. For more detail on the background of the case, you can read our previous in-depth piece on the Court of Appeal's decision.
In short, Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708 concerned a company owned by several investors. These included Mr Loy (who had founded the business), Mr Costa and Mr Uberoi. Mr Costa and Mr Uberoi were also directors.
(All three individuals had invested in the company through trusts or corporate vehicles, but, for ease, we will refer to them as if they had been the shareholders of record.)
The company and its shareholders had entered into a shareholders’ agreement (SHA), which contained the following clause:
“6.2. Investment Period. The Company and each of the Investors agree to work together in good faith towards an Exit no later than 31 December 2019 (the “Investment Period”). In addition, the Company and each of the Investors agree to give good faith consideration to any opportunities for an Exit during the course of the Investment Period.”
The SHA defined an “Exit” as a sale of the shares in the company, or of its business and assets, on arm’s length terms.
Mr Costa and Mr Uberoi instructed a financial adviser to run a process to realise value in the company. Importantly, the instruction was not limited to pursuing an Exit by the end of 2019 and did not specify a deadline for any proposed transaction.
In practice, Mr Costa controlled the sale process, liaising with the financial adviser and feeding only selected information back to the board. It is clear that Mr Costa intended to keep the rest of the board at a distance, with the High Court describing his mindset as one of: “they wouldn't like it now if they knew, but they will thank me in the long run”.
Mr Loy became concerned that the sale process would not be completed by the end of 2019. He asked Mr Costa for information on the company so he could engage with potential buyers himself (alongside the process run by the financial adviser), but Mr Costa declined to provide that information.
Subsequently, Mr Loy introduced a potential buyer to the company. However, Mr Costa declined to entertain the offer. Instead, he preferred to delay an Exit until after the end of 2019, as he believed it would create more value for the company and its shareholders.
In short, the company did not achieve an Exit by 31 December 2019. In 2020, lockdowns were imposed due to Covid-19 in territories in which the group operated, damaging its business.
Mr Loy applies to the High Court
Among other things, Mr Loy claimed that, by deliberately withholding information on the sale process from the board, Mr Costa had breached his duties to the company, most notably his duty under section 172 of the Companies Act 2006 to promote the company’s success for the benefit of its shareholders.
For more information on a director’s duty to promote the success of the company, see the box “What is the duty in section 172?” below.
The High Court found that Mr Costa had not breached his duties to the company, including his duty under section 172. Although there had been no effort to act in good faith in accordance with the SHA, Mr Costa had behaved in a way which he sincerely believed would maximise value for the company.
On appeal, the Court of Appeal disagreed, finding that, even if Mr Costa had genuinely believed that his actions were in the best interests of the company and its shareholders, his conduct had fallen below the standard required of directors.
In doing so the Court of Appeal concluded that a director’s duty under section 172 includes a duty to act in good faith. It said that an assessment of good faith involves both a subjective test, asking what the director in question actually believed, and an objective test, asking whether the director’s mental state could, “by ordinary standards”, be described as dishonest.
In deciding whether a director has been dishonest, the Court of Appeal said that the test in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67 (Ivey) applied. This is the modern, objective test that is now used for the purposes of criminal law and some dishonest civil wrongs. Although an objective test, it nonetheless focusses on the state of mind of the individual in question, asking whether they had acted dishonestly. It does not address a situation where an individual has acted inappropriately but, viewed both subjectively and objectively, was not dishonest.
Mr Costa appealed the court’s decision to the Supreme Court.
The directors of a UK company owe certain duties to the company. These directors’ duties are set out in sections 171 to 177 of the Companies Act 2006. For the most part, they replace and continue the previous collection of somewhat imprecise fiduciary duties that directors owed to a company by virtue of acting as its agents and as custodians (in legal terms, “quasi-trustees”) of its assets.
Perhaps the most well-known of these is the duty in section 172 to promote the success of the company for the benefit of its members as a whole. This duty pervades everything a company’s directors do and requires them to make decisions with the good of the company itself in mind, subordinating any other priorities.
For a standard commercial company, the “members” are its shareholders and the duty normally equates to maximising the profit available to return to those shareholders.
In discharging their duty under section 172, directors are required by law to “have regard to” certain matters, including the long-term consequences of their decisions, the company’s employees, suppliers and customers, the community and the environment, the company’s business reputation and the need to act fairly as between the members of the company.
These factors can compete with each other, and the directors have freedom to ascribe the weight they deem appropriate to each factor. None of the factors overrides the directors’ overarching duty to promote the company’s success.
These factors have taken on even greater prominence in recent years. Since 2019, large companies have been required to include a “section 172(1) statement” in their strategic report, setting out how the directors have had regard to the various factors when discharging their duty under section 172.
The courts have scrutinised section 172 on numerous occasions and helpfully set out some guiding principles that apply when deciding whether a director has complied with their duty.
As a starting point, the courts recognise that the directors of a company – as individuals with industry and technical expertise, as well as experience and knowledge of the company’s operations and strategy – are best placed to decide what decisions are in the company’s interests.
As a result, judges will not interfere with the decisions of directors, nor will they substitute their own views on the course of action directors should have taken, unless they feel that the directors have acted dishonestly, in bad faith or deliberately contrary to the company’s interests.
When assessing whether a director has acted honestly or dishonestly (and, therefore, whether they have complied with their duty in section 172), a court will ask two questions:
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Did the director honestly and genuinely believe that their conduct would promote the company’s success? This is the subjective test, which goes to the mental state of the director.
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Did the director act in good faith by the standards of ordinary decent people? This is the objective test, which asks whether an ordinary person could really regard the director as having met the standard required of them.
The objective test provides a buffer against directors whose judgment has become so clouded they can no longer distinguish between proper and improper behaviour. The subjective test affords directors latitude to reach their own conclusions based on their appraisal of the circumstances.
In some ways, these tests are merely two sides of the same coin.
The objective test does not examine the director’s commercial decisions – it does not ask whether an ordinary decent person would have made the same decision when deciding what is likely to promote the company’s success. Rather, it examines the director’s behaviour, asking whether an ordinary decent person would have gone about managing the company’s affairs in the same way.
For this reason, the courts sometimes describe the test as a purely subjective one (albeit analysed from multiple angles): was the director acting honestly and in good faith?
What did the Supreme Court say?
The Supreme Court upheld the decision that Mr Costa had breached his duty under section 172. However, it gave different reasoning from that of the Court of Appeal.
The judges agreed that a director’s duty under section 172 incorporates an element of good faith. They expressly rejected Mr Costa’s argument that section 172 allows directors to do anything provided they genuinely believed that it would promote the company’s success, as this would effectively give directors carte blanche to do whatever they want.
Although the courts will always defer to the directors’ judgment as to what is likely to benefit a company, the actions of directors must still be judged by reference to objective standards.
However, they also found that, in essence, the Court of Appeal had adopted too narrow an approach when it proceeded on the basis that dishonesty in accordance with the test set out in Ivey would give rise to a breach of the section 172 duty.
The Supreme Court concluded that dishonesty is one element to consider when deciding whether a director has acted in good faith, but only as part of a broader, holistic assessment of the fiduciary duty of loyalty. Nevertheless, the outcome was the same: it is possible for a director to behave in a way that is honest and genuine and yet still fail to act in good faith.
The Supreme Court also found that, although not explicitly mentioned in section 172, the duty to promote the company’s success required directors to act collectively and not to conceal matters from each other or to “covertly or otherwise subvert the management” of the company.
The judges noted that the wording in several provisions of the Companies Act 2006 pointed towards the fact that a company’s affairs are managed collectively by its board as a whole, and not by individual directors. They also noted that most companies’ constitutions delegate management of the company in the first instance to the board as a body of individuals, rather than specific persons (although a company’s constitution may provide otherwise).
As a result, a director who acts alone without involving or disclosing matters to other members of the board is at severe risk of breaching their duty under section 172 to promote the company’s success, as well as their duty under section 171 to comply with the company’s constitution.
What does this mean for me?
The decision is not surprising but is helpful in shedding some light on exactly how a director’s duty under section 172 operates.
The court’s comments clarify that a director should be careful of withholding information from their fellow directors, even if they believe that to do so is the better course of action and is more likely to promote the company’s success.
Cases involving section 172 have generally focused on directors who cause deliberate harm to the company, often in pursuit of a private profit. The decision in this case indicates that a well-intentioned but sufficiently misguided director may also be in breach of the duty.
The consequences of this can be significant: while breach of a shareholders’ agreement will generally result in liability for the company or a shareholder, breach of section 172 will result in personal liability for the director.
In its decision, the Court of Appeal made the following comment:
“Deliberately deceiving the board of a company must, either always or almost always, be inconsistent with a director’s duty under section 172. We do not rule out the possibility of wholly exceptional circumstances where this may not hold good, but nothing of the kind exists in this case.”
To this, the Supreme Court added that allowing a director to behave in any way at all provided they believe they are acting in good faith:
“… would be a recipe for chaos and paralysis in corporate governance, and destructive of the collegiality of the board of directors as a whole which all stakeholders in limited companies are entitled to expect”
and that for an individual director to:
“covertly [seek] to implement [their] own dissenting view as to the company’s best interests in the face of, and so as to subvert, the contrary view resolved upon by the board … is so obviously disloyal”.
Both courts’ comments continue to leave open the possibility that there may be instances where it is appropriate to withhold information from one or more directors, such as where the board is considering bringing legal proceedings on behalf of the company against a director.
The Supreme Court’s interpretation is more supportive of an approach that considers the full context of a director’s conduct, rather than assessing dishonesty as a freestanding requirement.
In any case, outside these rare occasions, directors should ensure they divulge all relevant information to the entire board. The court’s comments underscore the principle that decision-making is a collective exercise that lies with the board as a whole, and not individual directors.
In addition, directors should ask themselves not only whether they genuinely believe that a particular course of action will promote the company’s success, but also whether a reasonable person would also regard them as acting honestly and genuinely.
Furthermore, the comments of all three courts on the exit process itself provide guidance for private capital investors who are approaching the end of their contractual investment timeline. For more details on these comments and some useful practical points, see our article on the previous decision of the Court of Appeal (link above).
Perhaps most importantly (but frustratingly), the court left open whether a shareholders' agreement can, by itself, dictate the “right” business strategy for the purposes of section 172 (and, by implication, whether the directors can effectively “fix” the framework for promoting the company’s success in advance). This is a complex question that will depend on the facts and circumstances in each case, and on which companies, their directors and any investors should seek legal advice.
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