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

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Ben Jackson - Trainee Solicitor

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Directors’ Duties  What Does Saxon Woods v Costa Mean for Company Directors
The Supreme Court’s recent decision in Saxon Woods Investments Limited and others v Costa provides important guidance on the limits of directors' duties under section 172 of the Companies Act 2006.

In summary, the Supreme Court’s judgment confirms that a director cannot secretly pursue their own strategy contrary to the strategy agreed by the Board, even when a director believes that their actions will ultimately benefit the company.

The Court’s significant decision in this case is a reminder that directors' duties are rooted not only in good intentions, but also in loyalty, transparency and proper corporate governance.

Our Insolvency and Restructuring Lawyers explore the case below.
  

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Background to the Dispute

The case concerned a company called Spring Media Investments Limited (the Company), the holding company of a creative agency group which provided services to businesses in the fashion, beauty and luxury brand sectors.  

Mr Costa was a director of the Company and the chairman of the Board.  

Whilst Mr Costa was not himself a shareholder in the Company, he held a substantial indirect interest in it through a Luxembourg entity.  

The First Respondent, Saxon Woods Investments Limited (Saxon Woods), held 22.33% of the shares in the Company as at 31 December 2019. 

On 20 May 2016, a new shareholders' agreement was executed in respect of the Company, replacing an earlier shareholders' agreement from 2013.  

The shareholders' agreement provided that the Company, its shareholders and its investors would work together in good faith towards achieving a sale of the Company by no later than 31 December 2019.  

The Company delegated the conduct of the sale process exclusively to Mr Costa. 

The sale process was not carried out in accordance with the shareholders' agreement because Mr Costa believed that delaying the sale beyond 2019 would be likely to generate a better financial result for the Company and its investors. 

Rather than presenting his views openly to the Board and the investors, Mr Costa embarked on a different course.

 He took sole control of communications with the Company's investment bank, withheld information from fellow directors and created the impression that the Company was progressing towards a sale within the agreed timetable when, in reality, he was deliberately pursuing a slower exit strategy.

Mr Costa's approach delayed the sale process beyond 2019. However, when the Covid-19 pandemic struck in early 2020, the business suffered a significant downturn and the opportunity for a profitable exit was lost.

Saxon Woods subsequently brought a petition under section 994 of the Companies Act 2006 alleging that Mr Costa’s conduct had caused unfair prejudice to them as a shareholder and was in breach of the shareholders' agreement and section 172(1) of the Companies Act 2006.  Saxon Woods sought an order that Mr Costa purchase its shares.    

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Background to the Dispute

The High Court and Court of Appeal Decisions

At first instance, the High Court dismissed the section 172(1) claim on the grounds that Mr Costa had acted in good faith, as he had subjectively believed that what he was doing was in the best interests of the Company.  Saxon Woods appealed to the Court of Appeal.    

The Court of Appeal disagreed with the High Court’s decision, holding that Mr Costa's deliberate deception of his fellow directors amounted to a breach of fiduciary duty and that section 172(1) required Mr Costa’s conduct to be honest according to the standards of ordinary people.  Mr Costa therefore appealed to the Supreme Court.

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The High Court and Court of Appeal Decisions

Why Did the Case Reach the Supreme Court?

The central issue before the Supreme Court was what standard of behaviour is required of a company director (who owes a duty of loyalty to the company and who is required to act in good faith) when a director genuinely disagrees with his or her fellow directors as to the best way forward for achieving success for the company? 
  

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Why Did the Case Reach the Supreme Court

What Did the Supreme Court Decide?

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.

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Contact our Insolvency & Restructuring Team

Our Insolvency & Restructuring team has significant experience in dealing with breach of duty and misfeasance claims against directors. 

We act for both insolvency practitioners bringing such claims and directors defending these claims.

Please contact us today if you need assistance. 

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Ben Jackson

Trainee Solicitor

Ben attended the Myerson Vacation Scheme in 2025 and, following its successful completion, was offered a training contract with the firm. He began his training contract on 7 September.

Alongside his role at Myerson, Ben is studying at the University of Law as he works towards completing his SQE2 examinations.

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