Can Directors Be Personally Liable Even When Acting in Good Faith?

On 14 July 2026, the Supreme Court of the United Kingdom delivered its decision in Saxon Woods Investments Limited and others v Francesco Costa [2026] UKSC 21, providing important guidance around a director’s duty to act in good faith.

The decision sends a clear message that a duty to act in good faith requires:

• objective good faith in conduct; and
• not just a subjective belief that the director is acting in the best interests of the company.

Takeaway from the Decision: What Does a Director’s Duty to Act in Good Faith Require?

The case provides an interesting case study of what directors ought to do when they are in disagreement with the other directors (or potentially the shareholders). For example, if a director honestly believes that a course of action is in the best interests of the company, is he or she bound to follow that course regardless of what the other directors think?

Can a Director Act Against an Agreed Board Strategy?

The Supreme Court found in this case that the director in question could not secretly pursue a different strategy to that approved by the board, particularly where that strategy conflicts with corporate governance documents or agreed objectives of the company.

A genuine belief that a director is acting for the company’s benefit will not excuse covert conduct, and adverse consequences may expose the director to personal liability.

While the decision deals with a specific duty under UK legislation, the case is relevant to duties owed by a director (or other fiduciary) generally.

What Happened in Saxon Woods Investments Limited v Costa?

Mr Costa was a director of Spring Media Investments Limited (“Company”), and the chairman of the board for the relevant period of time. He was being sued by the shareholders of the Company.

The Company executed an amended Shareholders Agreement in 2016 which provided that the Company and each of the shareholders “were to work together in good faith towards an Exit no later than 31 December 2019”.

Although the board entrusted Mr Costa with progressing the Exit, he genuinely believed delaying the Exit would produce a better return. Contrary to the board’s position, he covertly delayed the Exit process and misled the board. When the COVID-19 pandemic later affected market conditions, the shareholders lost the opportunity for a beneficial exit and sought an order requiring Mr Costa to buy their shares at the value they would have had at the end of 2019.

The key issue was whether Mr Costa had breached his duty under section 172(1) of the Companies Act 2006 (UK) which requires directors to act in good faith to promote the success of the company. Mr Costa argued that he had acted in good faith because he genuinely believed his strategy was in the company’s best interests. The shareholders argued that good faith required more than a director’s internal belief.

What Did the Supreme Court Decide?

The Supreme Court found that Mr Costa had breached his duty. It held that good faith must be assessed by reference to the director’s conduct, not only their subjective state of mind. Specifically, the Court stated:

59. …it was plainly the overall purpose of the codification of the directors’ general duties that it should take on board the relevant existing common law rules and equitable principles, and that they should continue to inspire the interpretation of the codified duties: see section 170(3) and (4). The section 172 duty has already been developed as a fiduciary duty of loyalty, in the conduct of which good faith (or bona fides as it was previously called) was an essential requirement. The interpretative tool mandated by section 170(4) clearly calls for the requirement of good faith expressed in section 172 to be applied to the director’s conduct, and not limited to his thought processes about company strategy.

 Straining credulity

60. I return to the simple question posed at the beginning of this judgment. Is a director required by section 172 to act, or merely to think, in good faith? The notion that the careful and experienced framers of this important codification of directors’ duties thought only the latter is highly unlikely. Far from promoting corporate success in the modern world, it would be a recipe for chaos and paralysis in corporate governance, and destructive of the collegiality of the board of directors as a whole which all stakeholders in limited companies are entitled to expect.

This article was prepared by Tony Peterson with research assistance from Emma Cummings, Law Student.