LEGAL UPDATE: Directors’ duties – good faith and collective decision making
In the recent case of Saxon Woods Investments Limited and others v Francesco Costa [2026] (SW v FC [2026]) the Supreme Court has provided clarity in relation to the duty of loyalty and good faith.
SW v FC [2026] makes clear that a company’s board of directors acts collectively and it is not open to a director to subvert board decisions even if the director believes their actions are in the best interests of the company.
The duty of loyalty and good faith is set out in section 172 of the Companies Act 2006 which provides that:
“A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole…” that section then goes on to list various factors a director must consider in the discharge of that duty.
SW v FC [1026] concerned the conduct “FC”, one of the directors of Spring Media Investments Limited (Company). Saxon Woods Investments Limited was a minority shareholder of the Company. There was a shareholders’ agreement in place where the parties agreed to work towards an exit by the end of December 2019. However, FC considered a later exit may be better for the Company and, on that basis, sought to covertly undermine the agreed 2019 exit. Then, of course, Covid struck which meant that a better exit could not be achieved.
At first instance, the High Court dismissed the claim that FC has breached his duty of loyalty and good faith on the grounds that FC had subjectively believed that what he was doing was in the best interests of the Company. On that basis, FC was found to have acted in good faith. However, neither the Court of Appeal nor the Supreme Court supported that finding (but for different reasons).
The Court of Appeal found the conduct to be dishonest and therefore not in good faith. The Supreme Court focussed on whether or not the conduct was in good faith and, while dishonesty is a good indicator that conduct was not in good faith, there was no need for dishonesty to be present to find a lack of good faith.
The Supreme Court found that the section 172 duty of loyalty and good faith includes a duty not to subvert board decisions. That corporate decision making in communal. That it would make no sense if an individual director could depart from board decisions if they thought it was in the best interests of the company (but the board as a whole did not). Accordingly, part of a director’s duty of loyalty and good faith is not to subvert the management of the company’s affairs by the board as a whole. This means that an individual director (no matter how well intentioned) must not unilaterally depart from a board decisions. If an individual director does not agree with a board decision then that director should air their view at the next available board meeting. The board may then collectively make an informed decision on how to proceed.
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Victoria Spellman is a Partner in the Corporate & Commercial Team at Barker Gotelee Solicitors.
