Directors’ Good Faith: Saxon Woods v Costa Case Study

A director who sincerely believes he is helping the company can still breach his duty of good faith if he pursues that belief by deceiving the board. That is the central holding of the UK Supreme Court in Saxon Woods Investments Ltd v Francesco Costa, decided on 14 July 2026.

The ruling matters well beyond England. India’s Section 166(2) of the Companies Act, 2013 uses the same language of “good faith”, and Indian courts have long drawn on English company law. For every executive, nominee and independent director on an Indian board, this case sets a clear standard: honest intentions do not excuse covert methods.

Case at a glance

Item	Detail
Case	Saxon Woods Investments Ltd & Ors v Francesco Costa [2026] UKSC 21
Court	Supreme Court of the United Kingdom (unanimous; judgment by Lord Briggs)
Date of judgment	14 July 2026
Provision	Section 172(1), UK Companies Act 2006 (duty to promote the success of the company)
Company	Spring Media Investments Ltd
Result	Director’s appeal dismissed; breach of Section 172 upheld
Core principle	Good faith governs a director’s conduct, not only his state of mind

Facts

Spring Media Investments Ltd had a shareholders’ agreement signed in May 2016. Under it, the company and its investors agreed to work together in good faith towards an “Exit”, meaning a sale of the company or its assets, no later than 31 December 2019.

The board handed sole charge of the sale process to its chairman, Mr Francesco Costa. He was also a substantial indirect shareholder. Saxon Woods was a minority shareholder.

Mr Costa honestly believed that selling later would fetch a better price. Rather than persuade the board, he acted on his own view in secret. The trial judge found that he:

• deliberately slowed down the sale process;
• kept other directors and shareholders out of the decision-making; and
• misled the board into believing the exit obligations were being met.

No sale happened by the 2019 deadline. The Covid-19 pandemic then wiped out the prospect of a profitable exit, and the company was in breach of the shareholders’ agreement. In 2021, Saxon Woods filed an unfair prejudice petition, the UK counterpart of an oppression and mismanagement petition in India.

Journey through the courts

All three courts agreed the minority was unfairly prejudiced. They differed on whether Mr Costa broke his statutory duty, and on why.

Court	Test applied	Breach of s.172?	Remedy
High Court	Purely subjective test from Regentcrest v Cohen (2001): did he honestly believe he was acting in the company’s interest?	No, because his belief was sincere	Conditional buy-out of Saxon Woods’ shares at 2019 value, only if a final offer above USD 75 million (net of debt) was proved
Court of Appeal	Objective dishonesty test from Ivey v Genting Casinos (2017)	Yes, because deceiving the board was dishonest	Unconditional buy-out at undiscounted pro rata value as at 31 December 2019
Supreme Court	Fiduciary duty of loyalty, judged by objective standards, applied to conduct as well as belief	Yes, conduct was manifestly disloyal	Appeal dismissed; Court of Appeal’s outcome stands

The Supreme Court reached the same result as the Court of Appeal but by a broader route. Dishonesty can be evidence of bad faith, the Court said, but the real question is whether the director breached his duty of loyalty.

The issue and the Supreme Court’s reasoning

Issue: Is “good faith” under Section 172 judged only by the director’s own honest belief? Or is it judged by whether his state of mind and conduct would be seen as disloyal by objective standards?

Mr Costa argued for the first view: if he truly believed delay was best, he could not be in breach. Lord Briggs, for a unanimous Court, rejected this for three reasons.

1. Consistency with the earlier law: Section 172 codifies the old fiduciary duty of loyalty. That duty was always measured by objective standards and covered conduct, not just intentions. Relying on cases going back to In re National Funds Assurance Co (1878), the Court held that a director cannot defend plainly disloyal conduct by saying he believed he did nothing wrong.
2. Context and purpose of the statute; Sections 170 to 177 work together to support governance under the company’s constitution. Using powers delegated by the board to push a strategy the board had rejected was an abuse of power. That also engaged Section 171 (acting within powers), and an overlap between duties does not prevent a separate breach of Section 172.
3. Practical sense; A purely subjective test would let any single director quietly override the board whenever he felt he knew better. Lord Briggs warned this would bring chaos and paralysis to corporate governance and destroy the collegiality of the board.

What the Court did not change: courts will still respect a director’s genuine business judgment and will not substitute their own view of commercial strategy. The new limit is on how a director pursues that judgment, not on what he believes.

The Indian lens: Section 166 of the Companies Act, 2013

Indian law arguably sets a higher bar than the UK provision Mr Costa tried to read narrowly. Section 166(2) requires a director to “act in good faith” to promote the company’s objects for the members as a whole, and in the best interests of the company, its employees, shareholders, the community and the environment. It does not contain the UK phrase “in the way he considers”, which was the textual hook for Mr Costa’s subjective argument.

Point	UK: Companies Act 2006	India: Companies Act 2013
Good faith duty	s.172(1): act in the way he considers, in good faith, to promote success	s.166(2): act in good faith to promote objects and best interests of company and stakeholders
Acting within powers	s.171	s.166(1): act per the articles of association
Care, skill, independent judgment	s.174, s.173	s.166(3)
Conflicts and undue gain	s.175 to s.177	s.166(4) and s.166(5)
Minority remedy	Unfair prejudice petition (s.994)	Oppression and mismanagement (ss.241 and 242) before the NCLT
Buy-out remedy	Court may order purchase of shares	NCLT may order purchase of a member’s shares under s.242(2)(b)
Penalty for breach	Civil liability	Civil liability plus fine of ₹1 lakh to ₹5 lakh under s.166(7)

Three practical takeaways for Indian practice:

• The argument for a purely subjective test is weaker in India: Because Section 166(2) uses no “he considers” wording, an Indian director would find it even harder to rely on private belief to excuse deceiving the board.
• Delegation is not a licence: Boards routinely delegate deal-making to an MD, chairman or committee. Saxon Woods supports the view that using delegated power to defeat the board’s own decision breaches both s.166(1) and s.166(2).
• Oppression petitions gain a sharper tool: Minority shareholders before the NCLT can cite this reasoning where a promoter-director quietly stalls an agreed exit, IPO or strategic sale under a shareholders’ agreement.

A note of balance: Indian courts remain deferential to genuine board decisions. In Tata Consultancy Services v Cyrus Investments (2021), the Supreme Court of India declined to treat contested board decisions as oppression in themselves. Saxon Woods fits that approach. It protects the board’s collective judgment against one director who goes around it.

Lessons for boards and independent directors

The lesson is simple: disagree openly, never covertly. Specific steps follow from that.

For executive and delegated directors

• Use delegated authority only for the purpose and strategy the board approved.
• If you believe the board is wrong, bring it back to the board with reasons. Do not act on your own view in secret.
• Report progress on mandated transactions accurately and on time. Misleading status updates are now strong evidence of bad faith.

For independent directors

• Ask for documented milestones and regular reports on any delegated transaction, especially exits, sales and fundraises with contractual deadlines.
• Test management reports against third-party evidence such as banker updates, bidder correspondence and data-room logs.
• Record dissent and concerns in the minutes. Schedule IV of the Companies Act, 2013 expects independent directors to safeguard minority interests and to report concerns about unethical behaviour.

For companies and shareholders drafting agreements

• Pair any “best efforts” or “good faith” exit clause with reporting duties and fixed review points.
• Consider a drag-along, a put option or a clear buy-out formula as a fallback if the deadline is missed.
• Spell out which decisions need board or shareholder approval, so a single director cannot quietly block them.

Conclusion

Saxon Woods v Costa closes a gap that let directors hide behind good intentions. A director may hold any honest view about strategy, but he must pursue it openly, through the board, and within the powers given to him.

For Indian boards, the case is persuasive rather than binding authority. Its logic, however, fits closely with Section 166 and the Schedule IV code for independent directors. Expect it to be cited before the NCLT in oppression petitions and in director-liability disputes in the months ahead.

This article is for general information and academic discussion only, and is not legal advice.

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References

Judgment analysed

1. Saxon Woods Investments Ltd and others v Francesco Costa [2026] UKSC 21 (Supreme Court of the United Kingdom, judgment of 14 July 2026, Lord Briggs).

Statutes

2. Companies Act 2006 (United Kingdom), c. 46, ss. 170 to 177 and s. 994.
3. Companies Act, 2013 (India), Act No. 18 of 2013, s. 166, ss. 241 and 242, and Schedule IV (Code for Independent Directors).

Cases cited

4. Regentcrest plc (in liquidation) v Cohen [2001] 2 BCLC 80; [2001] BCC 494 (Chancery Division).
5. Ivey v Genting Casinos (UK) Ltd (t/a Crockfords Club) [2017] UKSC 67; [2018] AC 391.
6. In re National Funds Assurance Company (1878) 10 Ch D 118.
7. Tata Consultancy Services Ltd v Cyrus Investments Pvt Ltd (2021) 9 SCC 449 (Supreme Court of India, judgment of 26 March 2021).