Directors’ Duties, Standards Of Behaviour And Unfair Prejudice: Beware Of Good Intentions

The UK Supreme Court recently handed down its unanimous judgment in Saxon Woods Investments Limited v Costa [2026]. The decision is significant because it confirms that the standard of good faith required of company directors in performing their duties extends to their conduct, not merely their belief that they are acting in the company’s best interests. How a director acts matters just as much as what they believe.

The case also demonstrates the power of the unfair prejudice remedy available to minority shareholders under section 994 of the Companies Act 2006 who are adversely affected by the way a company’s affairs are managed. For anyone involved in running or investing in a private company, the lessons are significant.

What happened?

Spring Media Investments Limited is a company that provides creative services to the fashion, beauty and luxury brand sectors. It was founded in 1996 by Mark Loy, who later sought external investment to fund expansion into New York. Francesco Costa invested and became chairman of the board.

In 2016, the shareholders entered into a shareholders’ agreement that required all parties to work together in good faith towards an exit by no later than 31 December 2019. Mr Costa was entrusted by the board to lead this process. However, he formed the view that delaying the sale would achieve a better price.

Rather than raising this with his fellow directors, he pursued a covert strategy of delay. He controlled all communications with the company’s advisers, ensured no other board member knew what instructions had been given, threatened directors who tried to speak to the advisers directly and gave assurances that the exit process was on track when it wasn’t. The trial judge summarised his state of mind as: “they wouldn’t like it now if they knew, but they will thank me in the long run.”

No exit was achieved by the deadline and the Covid-19 pandemic then devastated the company’s business and share value, destroying the prospect of any beneficial exit. As a result, Saxon Woods, a minority shareholder holding 22.33% of the company’s shares, brought an unfair prejudice petition (also known as a section 994 petition), asking the court for an order that Mr Costa buy out its shares at their 2019 value.

The Supreme Court’s decision

Although the High Court found that Saxon Woods had suffered unfair prejudice, it held that Mr Costa had not breached his duty under section 172 of the Companies Act 2006 because he sincerely believed he was acting in the company’s best interests.

This decision was reversed by the Court of Appeal, which held that good faith requires more than sincere belief and that Mr Costa’s deliberate misleading of the board was dishonest. Mr Costa appealed to the Supreme Court.

The Supreme Court unanimously dismissed Mr Costa’s appeal, holding that section 172 requires a director to act in good faith, not merely to think in good faith. A director cannot pursue a dissenting strategy covertly behind their colleagues’ backs, even if they genuinely believe it’s in the company’s best interests. Such conduct is “obviously disloyal” and undermines the board’s constitutional right to manage the company’s affairs collectively. The court noted that any other outcome would be “a recipe for chaos and paralysis in corporate governance.”

Practical tips and takeaways

For directors:

• Good faith means more than good intentions: although a court will not interfere in determining what constitutes the best interests of a company, a director’s duty to promote the success of the company involves conduct, not just thought. The court will look at what you did, not only what you believed
• You can’t do it alone: even if you’re convinced your preferred approach is better for the company, you must share your views with the board and allow a collective decision to be made. Pursuing a solo strategy in secret is a breach of duty
• There is a duty of clarity: directors must disclose relevant information to their colleagues and must not mislead the board. Controlling information flows or giving false assurances will be treated as a serious breach
• Collective decision making must be respected: the board has a constitutional right and responsibility to manage the company’s affairs. Subverting an agreed strategy through covert action undermines that right and exposes the director to personal liability
• Delegated authority must be used properly: if the board entrusts you with a specific task, you must carry it out in accordance with the board’s instructions, not use that authority to advance your own preferred agenda.

For minority shareholders:

• The unfair prejudice remedy is a powerful tool: section 994 of the Companies Act 2006 provides minority shareholders with a route to challenge conduct by the majority or a controlling director that disregards their interests or agreed terms
• A buyout order can be unconditional and at full value: this case confirms that the court can order the purchase of a minority shareholding at full value, without any discount for minority status, where unfair prejudice is proved
• Shareholders’ agreements matter: a well-drafted shareholders’ agreement defines obligations, timelines and what success looks like. It can form the foundation for holding directors to account if those commitments are not honoured
• Loss of opportunity can be enough: you don’t necessarily need to prove direct financial loss. The loss of an agreed opportunity, such as a planned exit, can itself constitute unfair prejudice.

The creation of this article was assisted by Flavia Halmajan, Paralegal in our Dispute Resolution team.