Summary
The Supreme Court’s decision in Saxon Woods v Costa is now the leading authority on the scope of the good‑faith obligation under section 172 of the Companies Act 2006 (‘CA 2006’).
The Court unanimously held that a director’s genuine belief that they are acting in the company’s best interests will not excuse conduct that is misleading, exclusionary, or inconsistent with the duty of loyalty owed to the board.
The judgment recalibrates the boundary between legitimate business judgment and fiduciary loyalty, with significant implications for unfair prejudice petitions, shareholder agreements, and corporate governance.
The Facts
The proceedings concerned an unfair prejudice petition under section 994 CA 2006, which Saxon Woods had presented in relation to the affairs of Spring Media Investments Limited.
Spring Media Investments Limited was subject to a shareholders’ agreement requiring all parties to work in good faith towards a sale of the business by 31 December 2019. The board delegated the sale process to Mr Costa, its chairman and a substantial indirect shareholder.
Mr Costa considered that postponing the sale would maximise value for shareholders. Rather than openly presenting this view, he misled fellow directors regarding progress towards a sale, excluded them from key communications, and instructed advisers in ways that undermined the agreed 2019 exit strategy. When the Covid‑19 pandemic intervened, the prospect of a profitable sale evaporated, leaving minority shareholder Saxon Woods significantly disadvantaged.
The Proceedings Below
High Court
The trial judge found unfair prejudice under section 994 CA 2006 but accepted that Mr Costa genuinely believed delaying the sale was in the company’s interests. On that basis, the judge held there was no breach of section 172. The remedy was a conditional buy‑out, dependent on proof that a 2019 sale would have exceeded $75 million net of debt.
Court of Appeal
The Court of Appeal overturned the section 172 finding. It held that the judge’s own factual findings, particularly the misleading and exclusionary conduct, compelled the conclusion that Mr Costa had acted in breach of his duty. The Court ordered an unconditional buy‑out valued as at 31 December 2019.
The Supreme Court’s Decision
The central issue was whether the good faith requirement in section 172 depends solely on the director’s subjective belief, or whether that belief must also satisfy the objective standards of fiduciary loyalty.
The Supreme Court unanimously dismissed the appeal, favouring the latter approach.
Good Faith Is Not Purely Subjective
The Court held that section 172 contains both subjective and objective elements. A director must genuinely believe they are acting in the company’s interests, but they must also act in good faith. Conduct that is covert, misleading, or disloyal cannot be reconciled with the obligation of good faith merely because the director sincerely believed it would produce a better commercial outcome.
Board Collegiality Matters
The Court emphasised that directors must act transparently, respect the board’s collective authority, and avoid unilateral strategies that undermine collective decision‑making.
No Need to Prove “Dishonesty”
The Court did not rely on the Ivey dishonesty test. Liability arose from breach of fiduciary duty and failure to act in good faith, rather than by reference to the criminal‑law standard of dishonesty.
Shareholder Agreements Are Not Immutable
The Court did not hold that the shareholders’ agreement permanently fixed the company’s strategy. The problem was the means (misleading conduct and exclusion) not the fact that Mr Costa disagreed with the 2019 sale timeline.
Practical Implications
The decision confirms that section 172 does not provide a purely subjective shield. Directors who mislead colleagues, conceal material information or undermine collective decision-making will face a stronger basis for allegations of breach. Equally, contractual obligations requiring parties to work in good faith towards an agreed exit strategy have real legal force and cannot be quietly circumvented.
Where there are allegations of failure to act in good faith, internal emails, adviser communications, and board minutes will be central.
Conclusion
Saxon Woods v Costa is an important clarification of the scope of section 172 CA 2006. The decision confirms that while a director’s genuine belief remains an essential element of the statutory duty, good faith is not assessed in isolation from the director’s conduct. Misleading fellow directors, excluding the board from material decisions, or deliberately frustrating agreed corporate strategy may amount to a breach of duty, even where the director honestly believes they are acting in the company’s best interests.
