Is a director required by section 172 to act in good faith, or merely to think in good faith?

In Saxon Woods Investments Ltd v Costa [2026] UKSC 21, the Supreme Court has settled a question that long seemed obvious to anyone in corporate life yet had never quite been decided: does the good faith required of a director by section 172 of the Companies Act 2006 govern only what he thinks, or also what he does? The answer cost the director in this case a compulsory buy-out of a minority shareholder’s shares at full value. Writing as a lawyer qualified in both England and the British Virgin Islands, I set out below what the court decided and why it matters for BVI companies as much as for English ones.

The background

Spring Media Investments Limited is the holding company of a creative-services group. In 2016 its shareholders’ agreement recorded that the shareholders would work in good faith towards an exit (a sale of the company or its business) by no later than 31 December 2019, and the board delegated conduct of that sale process exclusively to one of its directors and former chairman, Francesco Costa.

Mr Costa had his own view. Believing that a later sale would yield a better return, he pursued that outcome covertly: he kept his fellow directors in the dark, rebuffed their enquiries, gave the impression that the company was meeting its obligations when it was not, and played for time. The judge captured his mindset memorably: they would not like it now if they knew, but they would thank him in the long run. He achieved the delay; then the pandemic arrived, and the prospect of a profitable exit was destroyed.

The courts below

Saxon Woods, a minority shareholder, petitioned for relief from unfair prejudice. At first instance ([2024] EWHC 387 (Ch)) the petition succeeded, yet the judge found no breach of duty: applying the subjective test in Regentcrest plc v Cohen, he accepted that Mr Costa had sincerely believed he was acting in the company’s best interests. The Court of Appeal ([2025] EWCA Civ 708) disagreed, held that the deception of the board had been dishonest and so in breach of section 172, and ordered an unconditional buy-out at undiscounted value.

What the Supreme Court decided

Mr Costa’s argument was elegant: provided a director genuinely believes his chosen course will promote the company’s success, how he pursues it is for him alone, and no court may call it a breach of section 172, however covert his conduct. The words “he considers, in good faith” govern the director’s thinking, not his behaviour.

The Supreme Court, in a judgment given by Lord Briggs, dismissed the appeal. Good faith, it held, governs a director’s conduct as well as his state of mind, for three reasons. First, that reading is truer to the pre-existing law, under which equity always assessed a fiduciary’s loyalty objectively; it was never enough to say that one meant well. Secondly, it fits the scheme of the general duties, which reinforce governance through the company’s constitution rather than allow one director to subvert it by concealment. Thirdly, the alternative strains credulity: a section 172 policing only private thoughts would license concealment and disloyalty behind a shield of professed sincerity, and invite chaos in corporate governance.

Two points repay attention. The court declined to put dishonesty, and the Ivey test, at the centre of its analysis: where a fiduciary duty of loyalty is already owed, that duty is the framework, and dishonesty is merely evidence of breach. It also left open whether a shareholders’ agreement fixes strategy for all time: circumstances may change, and a considered decision to depart, even at the cost of a breach of contract, may fall within the board’s business judgment. What the court would not countenance was one director arrogating that decision to himself by stealth.

Why this matters in the BVI

United Kingdom Supreme Court decisions do not bind the BVI courts, though they carry real persuasive weight, and a comparable BVI dispute would reach the Privy Council on final appeal, before a panel drawn largely from the same Justices. For a jurisdiction built on holding companies and joint-venture vehicles, the signal is a strong one.

The equivalent duty sits in section 120 of the BVI Business Companies Act 2004, which requires a director to “act honestly and in good faith and in what the director believes to be in the best interests of the company”. The wording tracks section 172 and shares its subjective flavour, so Saxon Woods answers any suggestion that such language licenses covert or disloyal conduct. If anything, the BVI provision reaches the result more directly, coupling good faith with an express requirement of honesty, while the proper-purpose duty in section 121 is already applied objectively.

My own view is that a BVI court on these facts would follow Saxon Woods without hesitation: the reasoning turns on principles of loyalty common to both systems, not on any quirk of the English statute.

The practical lessons hold on both sides of the Atlantic. A sincere belief that one knows best is no defence to disloyal conduct. A director who disagrees with the board must say so openly and, if outvoted, either accept the decision or step down, rather than pursue his own line in secret. A delegated mandate, such as running a sale, is a power to be used for its proper purpose, never a licence for a private agenda.

The message from the Supreme Court, and in all likelihood from the BVI courts in time, is a simple one: good faith is judged by conduct, not by conviction.