Directors’ Duties: What Does Saxon Woods v Costa Mean for Company Directors?

The Supreme Court unanimously dismissed the appeal and upheld the Court of Appeal's decision.  In doing so, it provided valuable guidance on how section 172 should be interpreted and applied as follows:

• Good faith requires more than honest belief: The Supreme Court rejected the argument that section 172 is purely subjective. While a director's honest belief remains important, the duty to act in good faith is not concerned solely with what a director thinks. It also applies to how a director behaves when exercising their powers and carrying out their responsibilities. A director cannot justify conduct simply because they personally believe the outcome will benefit the company.
• Directors owe a duty of loyalty: The Court confirmed that section 172 must be interpreted alongside the wider fiduciary obligations owed by directors. As a result, directors must act loyally towards the company and its governance structures. Conduct that is deceptive, obstructive or designed to circumvent collective decision-making may amount to a breach of duty, even if undertaken with positive intentions.
• Board decisions must be taken collectively: A key theme running through the judgment is the importance of collective board decision-making. The Supreme Court emphasised that directors must bring their views and concerns to the Board openly and honestly. Whilst directors are entitled to disagree with colleagues and challenge proposed strategies, they are not entitled to pursue secret campaigns designed to undermine decisions that fall within the board's collective responsibility. The Court made clear that there is no right for a director to "go it alone".

Practical Implications of the Supreme Court’s Decision

The Supreme Court’s decision is likely to have significant implications beyond shareholder disputes which was the relevant context in this case. 

For directors, the key takeaway points are:

• Good intentions will not excuse disloyal conduct: The Supreme Court’s decision confirms that a director cannot rely on the argument that they were acting in what they perceived to be the company's best interests if they have acted dishonestly or disloyally in pursuing that objective. Directors will be judged not only by the outcome they seek to achieve, but also by the manner in which they seek to achieve it.
• Directors must use proper governance channels: Where a director disagrees with the Board's chosen course of action, the appropriate response is to raise concerns openly, seek to persuade fellow directors, and record any dissent through proper governance processes. If a director fundamentally disagrees with the direction of the company, resignation may be the appropriate course. What they cannot do is pursue an alternative strategy in secret.
• Delegated powers must be used for their intended purpose: Where directors are entrusted with responsibility for a particular project or transaction, those powers must be exercised consistently with the purpose for which they were delegated. A director cannot use delegated authority to pursue personal objectives or undermine agreed corporate strategy.
• Transparency remains essential: Directors should ensure that key decisions, disagreements and strategic discussions are properly documented, that information is shared openly with fellow board members, and that governance processes are followed carefully. Clear communication and accurate records remain critical safeguards against disputes of this nature.

The Supreme Court’s decision in this case is likely to be particularly relevant when reviewing directors’ conduct in the context of insolvency.  

Claims involving breach of duty and misfeasance frequently require courts to assess directors’ decision-making, and this case provides useful insight into the approach the courts will take. 

 The key takeaways for insolvency practitioners are therefore:

• The Supreme Court has confirmed that section 172 is not governed purely by a subjective test.
• A director’s genuinely held belief will be taken into account but is not determinative, particularly where the evidence demonstrates unreasonable or bad faith conduct.
• The courts will assess directors’ conduct by applying an objective standard.