What happens when a director genuinely disagrees with other directors regarding the best route to achieve the success of a company? Is that director entitled to defy the collective decision of the board and pursue his or her preferred option, even to the extent of concealing this decision from fellow directors? Or does the fiduciary duty of loyalty and the requirement to perform director duties in good faith compel him or her to be transparent with fellow directors and persuade them to his or her desired option? On 14 July 2026, and in Saxon Woods Investments Ltd & Others v Costa [2026] UKSC 21 (“Saxon Wood Judgment“), The Supreme Court of the United Kingdom (“Supreme Court“), the apex appeal court in the United Kingdom (“UK“), issued a decision providing useful guidance regarding the abovementioned corporate governance questions.

The South African company law has been influenced by the UK company laws; therefore, the Saxon Wood Judgment is useful for South African companies and directors.

What happened?

Mr Francesco Costa (“Costa“) was the director of Spring Media Investments Limited (“Spring Media“). He also had significant indirect interest in Spring Media through another entity. Saxon Woods Investments Limited (“Saxon Woods“) was a minority shareholder of Spring Media. In 2016, Spring Media and its shareholders concluded a shareholders’ agreement (“Shareholders Agreement“), in terms of which they agreed to work together in good faith to ensure that Spring Media would dispose of all its issued shares or sell its business by 31 December 2019. This process was referred to as “the Exit”.

Costa was appointed to implement the Exit. He did not do so in accordance with the Shareholders Agreement. He believed that Spring Media and its shareholders would realize better returns if the Exit was implemented after 2019. The Exit was consequently delayed. Costa employed various dishonest tactics to delay the Exit. He kept to himself all information regarding the Exit. He deceived his co-directors and the Spring Media shareholders into believing that the Exit was being implemented in accordance with the Shareholders Agreement.

Costa succeeded in delaying the Exit; however, in 2020 the prospects of the delayed Exit with better returns that Costa foresaw were destroyed by the advent of the COVID pandemic. Saxon Woods instituted proceedings against Costa based on unfair prejudice relief under sections 994-996 of the UK Companies Act, 2006 (“UK Companies Act“) requesting an order that Costa buys their shares in Spring Media at a price reflecting the value which they would have had if the Exit had been executed in terms of the Shareholders Agreement. The basis of the suit was that Costa was personally responsible for the inability of Spring Media to implement the Exit by the end of 2019.

The unfair prejudice claim succeeded in the trial Court. However, the Judge decided that Costa did not breach his fiduciary duties under section 172 of the UK Companies Act. Therefore, the buy-out was on condition that Saxon Woods proved at a different hearing that, if Spring Media had implemented the Exit in accordance with the Shareholders Agreement, an offer more than US$75m net of debt would have been received.

On appeal to the Court of Appeal, that Court ordered the unconditional buy-out by Costa of the Saxon Woods shares at their pro rata undiscounted value as at 31 December 2019, to be determined at a further hearing by the High Court. The Judges decided that Costa breached his fiduciary duties under section 172 of the UK Companies Act in disregarding the Exit mechanics and clandestinely pursuing his own decision.

Costa appealed to the Supreme Court.

What does section 172(1) of the UK Companies Act say?

Section 172 (1) of the UK Companies Act provides as follows –

“(1) 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, and in doing so have regard (amongst other matters) to —

• • • the likely consequences of any decision in the long term,
    • the interests of the company’s employees,
    • the need to foster the company’s business relationships with suppliers, customers and others,
    • the impact of the company’s operations on the community and the environment,
    • the desirability of the company maintaining a reputation for high standards of business conduct, and
    • the need to act fairly as between members of the company.” [Emphasis added]

The South African equivalent of section 172(1) of the UK Companies Act is section 76(3) of the Companies Act, No. 71 of 2008, as amended (“SA Companies Act“); it provides as follows –

“(3)        Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director—

• • • in good faith and for a proper purpose;
    • in the best interests of the company; and
    • with the degree of care, skill and diligence that may reasonably be expected of a person—
    • carrying out the same functions in relation to the company as those carried out by that director; and
    • having the general knowledge, skill and experience of that director.” [Emphasis added]

What were the arguments by Costa on appeal to the Supreme Court?

In regard to the decision by the High Court to apply an objective test in determining that Costa breached his fiduciary duties under section 172 of the UK Companies Act, Costa argued that it was impermissible to apply an objective test to determine whether a director has breached the duty now codified in section 172(1) of the UK Companies Act, whether as to dishonesty or any other aspect of the duty to seek the success of the company.

In regard to the decision of the High Court that it was not open to Costa to formulate, or to act upon, his own different judgment about the strategy for the success of Spring Media since that had been determined by the Shareholders Agreement, Costa argued that “a decision by a director to procure that his company act in breach of contract is not per se a breach of duty under section 172. The question depends upon whether the director genuinely believed that it was in the interest of the company and its shareholders to do so.”

Costa further argue that –

• • “ [A] director who chooses to take the single-handed and covert route, genuinely believing that to be the best course for the company, cannot be held by the court to have committed a breach of fiduciary duty to the company...”; [at paragraph 2]

• • “[P]rovided only that the director genuinely believes that his preferred way forward for the company is the most likely to promote its success for the benefit of its members as a whole, then it is entirely a matter for the individual director how to act to secure that objective. If he conceals his chosen course of conduct from his fellow directors, and even actively misleads them for that purpose, then he cannot thereby be held by any court to have committed a breach of the duty to the company set out in section 172(1), even where (as here) the course chosen by him turns out to have been disastrous for the company.”; and [at paragraph 3]

• • “[T]he requirement for good faith only governs the director’s thinking, rather than his conduct…Thus if the director genuinely believes that a certain course for the company to take is best calculated to promote its success, then the director is free to adopt (indeed, perhaps is obliged to adopt: “must act”) any course of conduct he wishes to secure that the company takes that course, regardless whether, objectively speaking, his conduct involves lies, cheating, deception, dishonesty or disloyalty, ie what any reasonably well-informed observer would regard as plain bad faith.”. [at paragraph 51]

What were the arguments by Saxon Woods in response?

In response to Costa’s arguments, Saxon Woods argued that –

• • “[T]he requirement for good faith extends not merely to the director’s thinking but also to his conduct in pursuit of achieving what he believes is the best course for the company to take.” [at paragraph 52 and emphasis added]; and
  • “[E]ven though the court will not second guess the director’s genuine view about the best way forward for the company by its own objective assessment, nonetheless the requirement for good faith does involve at least some objective element, if the director’s conduct is challenged in court.” [at paragraph 52 and emphasis added]

What did the Supreme Court decide?

The Supreme Court decided unanimously that Costa breached his fiduciary duties and contravened section 172(1) of the UK Companies Act by pursuing his own preferred option and disregarding the decision to implement the Exit in accordance with the Shareholders Agreement.

In regard to the importance of respect for board comity and collective board governance, Lord Briggs said the following –

• • “…primary responsibility for promoting the success of the company for the benefit of its members as a whole is reposed by the typical company constitution upon its board, resolving disagreements between individual directors by majority.”; and [at paragraph 43 and emphasis added]

In regard to the interpretation of section 172(1) of the UK Companies Act and its requirement that a director acts in good faith, Lord Briggs said the following –

• • the codification of the duties of directors in the UK Companies Act was meant to operate in harmony with the governance of companies in accordance with their constitution, and this is “not achieved by a construction of section 172 which permits (and perhaps even requires) an individual director to pursue his own dissenting opinion about the best way to secure the company’s success by covert and disloyal tactics in defiance of the board’s opinion as to the best business strategy for the company to follow, even to the point of misleading the board. If the requirement of good faith is limited to the director’s thought process in forming his business judgment as to strategy, then section 172 would be likely to prove thoroughly disruptive to the good governance of the company in accordance with its constitution.”; [at paragraph 57 and emphasis added]

• • “Mr Costa was given by the board the delegated power to undertake the task of securing the Exit strategy resolved upon by the board by causing the Company to enter into the SHA [Shareholders Agreement]. To use his powers as director to procure an irreconcilably opposed strategy was a plain abuse of them.”; [at paragraph 58 and emphasis added]

• • “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) [which provides that duties codified in section 172 must be interpreted and applied in the same manner as the common law rules and principles] 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.”; [at paragraph 59 and emphasis added]

• • If directors were required by section 172 of the UK Companies Act to merely think, and not also act, in good faith “…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.”; and [at paragraph 60 and emphasis added]

• • “His [Costa’s] conduct was manifestly disloyal to the Company [Spring Media], and he acted in bad faith towards the Company [Spring Media]. His fellow directors were the human manifestation of the Company [Spring Media] so far as his conduct was concerned. To the extent that he concealed his intended sabotage of the Exit strategy from the board, he concealed it from the Company [Spring Media].”. [at paragraph 61 and emphasis added]

What does this mean for South African companies and directors?

In terms of section 5(2) of the SA Companies Act, where appropriate, a Court interpreting the SA Companies Act may consider foreign company law; therefore, the Saxon Woods Judgment would, where appropriate, be considered by a South African Court interpreting the SA Companies Act.

The following are lessons from the Saxon Woods Judgment for South African directors and companies –

• • once a dissenting opinion of a director regarding a certain course of action has been debated in the board of directors’ meeting and a majority decision taken, the dissenting director must subject himself or herself to the decision of the majority;

• • if the board of directors delegates to a director a board decision to implement a transaction, that director must act within the confines of the delegation and not use the opportunity to pursue his or her preferred strategy;

• • the exercise of a duty to act in good faith will be assessed subjectively (that is, what a director in issue thought was likely to promote the success of a company) and, if the decision is challenged, it will also be assessed by the Courts objectively (that is, whether a reasonably well-informed observer would consider the decision of a director to be honestly promoting the success of the company); and
  • to the extent that a company has concluded an agreement recording implementation of a transaction in a specific manner and within certain timelines, the director mandated to implement that decision on behalf of the board of directors must inform the board and get a new mandate if they honestly believe the decision recorded in the agreement no longer promotes the success of the company.

Author: Siphosethu Myeni (under supervision by Siyabonga Shandu).