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  4. Saxon Woods v Costa: Supreme Court Clarifies Directors’ Duties and the Limits of Business Judgment

The Supreme Court has clarified the limits of directors’ business judgment and provided important guidance on the scope of directors’ duties where an individual director disagrees with the board’s chosen course. While directors are entitled to exercise their own commercial judgment and challenge decisions with which they disagree, they cannot secretly pursue an alternative strategy contrary to the collective decision of the board. Saxon Woods Investments Ltd v Costa [2026] UKSC 21 reinforces the importance of collective decision-making and fiduciary loyalty in the boardroom.

Directors’ Duties in Saxon Woods v Costa: The Facts

Spring Media Investments Limited (the “Company”) was the holding company of a group providing creative services to businesses in the fashion, beauty and luxury sectors. Francesco Costa (“Mr Costa”) was a director and chairman of the Company and held a substantial indirect interest in it.

Under a 2016 shareholders’ agreement, the Company and its investors agreed to work towards an “Exit” by 31 December 2019. The Company’s articles provided that responsibility for management rested with the board, with decisions generally taken by majority. The board subsequently entrusted Mr Costa with responsibility for conducting the sale process.

Mr Costa believed that delaying the sale beyond 2019 would generate a better financial return for the Company and its investors. He therefore pursued a slower sale strategy contrary to the strategy agreed by the board. He sought to keep other directors and shareholders from knowing about or becoming involved in the Exit process, rebuffed requests for information, gave the board the impression that the Company was fulfilling its obligations under the shareholders’ agreement, failed to disclose the limited nature of his instructions to the Company’s advisers and employed delaying tactics.

Importantly, the trial judge found that Mr Costa genuinely believed he was acting in the best interests of the Company and its investors. He succeeded in delaying the sale beyond the end of 2019, but the Covid-19 pandemic subsequently destroyed the prospect of the beneficial Exit he had anticipated. Saxon Woods Investments Limited, a minority shareholder, subsequently brought an unfair prejudice petition in relation to Mr Costa’s conduct.

 

The Legal Issue Before the Supreme Court

What standard of behaviour is required of a company director, as a fiduciary who owes a duty of loyalty to the company, and who is required to act in good faith, when the director genuinely disagrees with his or her fellow directors as to the best way forward for achieving success for the company?

 

Supreme Court Decision: Directors Cannot Pursue Secret Alternative Strategies

The Supreme Court unanimously dismissed Mr Costa’s appeal.

The Court confirmed that it is for directors to exercise their business judgment in managing the company’s affairs, and that courts should not generally interfere where directors act bona fide in what they consider to be the company’s best interests. However, this does not permit an individual director to pursue a strategy contrary to the collective decision of the board.

Mr Costa was entitled to disagree with his fellow directors and seek to persuade the board to change course. He was not entitled to conceal his actions from the board and use delegated authority to pursue his preferred strategy. His genuine belief that he was acting in the Company’s best interests did not justify his conduct, and the Court held that he had breached section 172 of the Companies Act 2006. The same conduct could also amount to a breach of section 171.

The Court emphasised that this does not mean that a board can never change a previously agreed strategy. Circumstances may change, but the decision to change course must be made by the board collectively rather than by an individual director acting unilaterally.

 

Key Takeaways for Directors and Boards

  • Directors are entitled to disagree. A director can challenge the board’s decision, put forward an alternative strategy and seek to persuade fellow directors.
  • But directors cannot “go it alone”. An individual director cannot secretly pursue a strategy which conflicts with the collective decision of the board.
  • Good faith is not enough. A genuine belief that a course of action is in the company’s interests does not necessarily protect a director where the way in which they act is disloyal or undermines the board.
  • Delegated authority has limits. Directors must use delegated powers for their proper purpose and within the scope of the authority given to them.
  • Board oversight remains important. Clear delegations, appropriate reporting and effective information-sharing can help ensure that significant decisions remain subject to proper board oversight.
  • The subjective test has limits. The Supreme Court confirmed that a director’s genuine belief as to what is in the company’s best interests remains central to section 172, and the court should not substitute its own commercial judgment. However, that genuine belief does not permit a director to disregard the company’s constitutional arrangements, the board’s collective decision or their fiduciary duties.

How Waterfront Law Can Help With Directors’ Duties and Corporate Governance?

Saxon Woods provides a useful framework for directors and boards navigating disagreement, delegation and strategic decision-making.

  • Advising on board disagreements: Disagreement is permitted, but concealment is not. Where a director considers that the board is pursuing the wrong course, we can advise on how that disagreement should be raised, debated and properly documented at board level.
  • Supporting sensitive transactions: Transparency is particularly important in sale processes, financing rounds and other strategic transactions. We can advise boards and directors on appropriate information-sharing, conflicts of interest and governance arrangements, particularly where a director has a personal, shareholder or investor-aligned interest in the outcome.
  • Strengthening board processes and records: A robust decision-making process can be critical if a decision is subsequently challenged. We can advise on board resolutions, minutes and communications to ensure that key decisions and the basis for those decisions are properly recorded.
  • Reviewing delegated authority: Delegation does not permit a director to depart from the board’s instructions. We can help boards define the scope and purpose of delegated authority clearly and advise directors on the limits of their powers when implementing board decisions.

If you are a director or board facing a strategic disagreement, or a company reviewing its governance and delegation arrangements, our team can advise on the appropriate approach and help manage the associated legal and governance risks.

Want to discuss directors’ duties or any other topics covered in this article? Reach out to Andrew Gordon.