When ‘I thought it was best’ isn’t enough: the case reshaping directors’ duties

The Supreme Court is due to hear the appeal in Costa v Saxon Woods Investments Limited in May 2026, a case that examines whether the duty of a director to act in “good faith” under section 172(1) of the Companies Act 2006 requires conduct that is objectively honest, or whether it is sufficient that the director subjectively believed they were acting in the company’s best interests.

The proceedings follow the Court of Appeal’s decision in June 2025 which overturned the High Court’s finding on the good faith test and held that Mr Costa’s conduct did not meet the standard of honesty required by ordinary commercial practice. The full case background can be read in the Court of Appeal’s judgment.

The facts

The dispute concerns Spring Media Investments Limited (“the Company”), where Mr Francesco Costa served as chairman, and in which he held an indirect controlling interest through investment vehicles. Saxon Woods Investments Limited (“SW”), a minority shareholder, alleged that Mr Costa obstructed an agreed exit process set out in a shareholders’ agreement (“SHA”). Under the SHA, shareholders undertook to work towards a sale by the end of 2019, failing which an investment bank would be instructed to pursue an exit.

Although several potential buyers were identified in 2019, no sale was achieved. SW argued that Mr Costa deliberately delayed the process to pursue his own preferred strategy, causing unfair prejudice to its position as a shareholder. Mr Costa maintained that he believed delaying a sale would ultimately create greater value for all shareholders.

SW brought an unfair prejudice petition under section 994 of the Companies Act 2006, asserting that Costa’s actions breached both the SHA and his duty under section 172(1) to act in the company’s best interests.

The proceedings

In February 2024 the High Court held that the company’s affairs had been conducted in an unfairly prejudicial manner and ordered a conditional buyout of Saxon Woods’ shares, but it found that Mr Costa had not breached section 172(1) because he genuinely believed delaying the sale was in the company’s best interests.

In June 2025, the Court of Appeal overturned the High Court on the directors’ duties point, holding that section 172(1) contains an objective honesty requirement and that Mr Costa’s actions breached that duty. It upheld the unfair prejudice findings.

The case is now proceeding to the Supreme Court, where the central issue will be whether the duty of good faith under section 172(1) requires objective honesty or whether subjective belief is sufficient. The appeal is listed for May 2026.

The judgment

The Court of Appeal made clear that a director cannot shield themselves behind a purely subjective belief that their actions serve the company’s best interests. Section 172(1) imposes an objective standard of honesty to be met by directors, and misleading the board is fundamentally inconsistent with this duty regardless of whether the director subjectively thinks it was the right thing to do. Where a director’s conduct falls short of that objective standard of honesty, the duty under section 172(1) is breached, regardless of their personal conviction.

The court found that Mr Costa had misled his fellow directors about the progress of the sale process, and it concluded that his personal conviction that shareholders would ultimately be grateful for that conduct could not excuse his behaviour or avoid a breach.

The Birketts view

For directors, the message is clear: good faith is not what you think is right, but what an honest director in your position ought to have done. Misleading fellow directors, controlling information, or quietly steering decision‑making to pursue a preferred strategy will expose a director to breach of duty findings, even if they genuinely believe their approach is in the company’s long-term interests.

Looking ahead to the Supreme Court hearing in May 2026, this case is likely to shape the future of directors’ duties in relation to S172(1). If the Supreme Court confirms the Court of Appeal’s approach, this will cement a more stringent, objectively anchored standard of good faith. For directors and shareholders, this is a development worth watching.