The Court of Appeal recently overturned the High Court’s decision, prompting all of us to pay closer attention. All of us may be culpable of withholding the whole truth if we think it will benefit others around us. However, in a business setting, the Court of Appeal redefines the boundaries of honesty for directors.
In Saxon Woods Investments Limited v Francesco Costa [2025], the Court of Appeal overturned the High Court’s ruling. It held that a director’s duty to act in good faith includes fiduciary duties as an obligation to act honestly towards the company. But why does this matter?
This landmark decision is significant because it clearly states that directors cannot rely solely on their personal belief that they are “doing the right thing,” especially if their actions are dishonest.
Even if a director believes that concealing the truth serves the best interests of the company, intentional deception will almost always breach the duty to promote the company’s success.
The Court confirmed that honesty cannot be judged solely based on the director’s personal beliefs. Instead, it encompasses both a subjective element, i.e. the director’s genuine belief and an objective element that is measured against the standards of ordinary, decent people.
So how other people perceive the Director’s actions matters even if the intentions were well-meaning.
The Duty to Promote the Success of the Company
The key aspect of this case revolves around section 172 of the Companies Act 2006. This section requires directors to act, in good faith, in a manner that they believe will most effectively promote the success of the company for the benefit of all its members.
This statutory duty is not a simple box-ticking exercise. The law also requires directors to consider a (non-exhaustive) list of factors, including:
- The long-term consequences of decisions
- The interests of employees
- Relationships with suppliers and customers
- The impact of the company’s operations on the community and environment
- The need to act fairly between shareholders
Breach of these duties carries weighty consequences. A director could face personal liability, disqualification, or actions for unfair prejudice.
The Facts of Saxon Woods Investments Limited v Francesco Costa [2025]
The dispute centred around Spring Media Investments Ltd, in which Saxon Woods was a minority investor.
A shareholders’ agreement required all parties to “work together in good faith towards an Exit” by a specified date.
Saxon Woods alleged that Francesco Costa, the Company’s chairman and majority shareholder, failed to pursue exit opportunities in good faith and actively undermined potential sales.
They also claimed that Costa had acted in breach of his fiduciary duties to the Company by deliberately concealing relevant information from the board.
At first instance, the High Court made two key findings:
- Mr. Costa had caused the Company to breach the shareholders’ agreement by failing to act in good faith towards an exit.
- However, he had not breached his fiduciary duties as a director because he genuinely believed he was acting in the best interests of the Company.
The High Court applied a purely subjective test under s172, concluding that Costa’s sincere belief in his actions insulated him from liability even though he had misled his fellow directors.
Both parties appealed.
The Court of Appeal’s Decision
The Court of Appeal disagreed with the High Court’s narrow approach. It ruled that the duty to act in good faith cannot be divorced from the duty of honesty.
Key points from the judgment include:
- Honesty has both a subjective and an objective test. A director must genuinely believe their actions are in the company’s best interests,and those actions must be objectively honest by the standards of ordinary decent people.
- Deliberate deception is fundamentally inconsistent with directors’ duties. The Court stressed that deliberately deceiving the board “must, either always or almost always, be inconsistent with a director’s duty under s172.”
- Costa’s conduct breached his fiduciary duties. By concealing information and misleading the board, he acted dishonestly. His subjective belief that he was benefiting the Company did not save him.
Why This Case Matters
This ruling is a watershed moment in directors’ duties jurisprudence. It firmly establishes that “good faith” under s172 encompasses honesty, both subjectively and objectively.
So here are the key takeaways for directors are:
- Subjective belief is not enough. It is no defence to say “I genuinely thought I was helping the company” if the conduct would be regarded as dishonest by ordinary standards.
- Full disclosure is essential. Withholding information or providing misleading information to fellow directors is almost always a breach of duty.
- Board transparency is non-negotiable. Directors must allow the board to make informed, collective decisions. Concealment undermines governance and exposes directors to liability.
- Record-keeping matters. Boards should carefully document decisions, rationales, and the information considered. This can provide crucial evidence of acting in good faith if challenged later.
Final Thoughts
The Court did leave open the possibility that there could be “exceptional circumstances” where misleading the board might not constitute a breach of s172. But realistically, such cases will be vanishingly rare. It is difficult to imagine when deliberately deceiving your fellow board members could align with fiduciary duty.
For directors, the message is straightforward: honesty and transparency are essential to effective governance. A belief in acting for the greater good will not protect you if you conceal the truth.
In the wake of Saxon Woods v Costa, directors should revisit their practices around information sharing, board engagement, and decision-making. Upholding the spirit as well as the letter of s172 is no longer optional; it is a legal imperative.
If this case has raised any questions for you or your business, we are here to help. We assist many businesses with directors’ duties and shareholder matters. If you would like to discuss this further, please send an email to your usual manager, and they will be happy to chat.
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