Supreme Court Confirms Directors Must Act In Good Faith – But Good Faith Is Not Just About What They Believe

The Supreme Court has just handed down an important ruling for company directors and the boards they sit on. In Saxon Woods Investments Limited v Costa [2026] UKSC 21, the Court confirmed that the duty to act in good faith under section 172 of the Companies Act 2006 is not simply a question of what a director honestly believed. It also asks whether their conduct, viewed objectively, actually was in good faith.

What happened

The case centred on a director who had been given sole responsibility for selling a company. The director genuinely believed that delaying the sale would ultimately deliver a better outcome for the company and its shareholders. Therefore he kept his fellow directors and shareholders in the dark about what he was really doing, and gave them a misleading picture of progress. The sale never went ahead, and the company was later hit hard by the pandemic.

In the first instance, the High Court found that this fell short of a breach of the section 172 duty, as the director had genuinely believed he was acting in the company’s best interests and therefore was not dishonest and did not breach his fiduciary duties. The Court of Appeal disagreed, and the Supreme Court has now firmly confirmed that the director was in fact not acting in good faith and therefore not in the company’s best interests.

Why it matters

The director’s case rested on a narrow interpretation of section 172, that the words “in good faith” only qualify what a director considers, and not their conduct. On that reading, a director who genuinely believes a course of action is right could pursue it by whatever means necessary, including deception of the board, without breaching their duty.

The Supreme Court rejected that. Good faith, the Court held, governs conduct as well as belief. Directors are entitled to their own judgment about what’s best for the company, and the courts will not second-guess a genuinely held business view. But how a director goes about pursuing that view is judged objectively. Covert dealing, misleading colleagues, or undermining the collective decision-making of the board will not be excused simply because the director thought they knew best and therefore amounts to a breach of section 172.

The Court found that a purely subjective test would effectively let any director override the board so long as they convinced themselves it was for the company’s good. That would invite exactly the kind of boardroom chaos the statutory duties were designed to prevent.

The practical takeaway for boards

This is a useful reminder and clarification, which highlights the risk for directors who are tempted to go it alone. A few points worth keeping in mind:

• Good intentions are not a defence on their own. If a director’s actions wouldn’t stand up to objective scrutiny, genuine belief in the outcome won’t save them.
• Where a board or shareholders’ agreement has set a process, departing from it unilaterally and covertly carries real legal risk, even if the director’s judgment ultimately proves correct.
• Boards should keep clear, contemporaneous records of authority given to individual directors on sensitive projects such as a sale process, and expect and document regular, honest reporting back.
• Minority shareholders now have further confirmation that unfair prejudice and breach of fiduciary duty claims can succeed even where a director’s stated motive was the company’s success, if the means used were not conducted in good faith.

For directors and boards here in Northern Ireland, this decision is a timely prompt to revisit how authority is delegated on major transactions, and how that authority is reported on and checked.

If you’d like to talk through what this means for your board or a specific transaction, please get in touch.

Scott Smid

Senior Solicitor

This article is for general information only and does not constitute legal advice.