It's Not (Just) What You Do: Saxon Woods v Costa and the Loyalty of the Senior Employee

The judge who heard Francesco Costa give evidence distilled his state of mind into a single line: “they wouldn’t like it now if they knew, but they will thank me in the long run.” The belief was found to be entirely sincere. Yesterday the Supreme Court held, unanimously, that the sincerity was beside the point.

Good faith, it turns out, is something a fiduciary does, not something he feels.

A Sale Conducted in the Dark

Saxon Woods Investments Ltd v Costa [2026] UKSC 21 concerned Spring Media Investments Ltd, the holding company of a creative services group serving the fashion, beauty and luxury sectors. Its shareholders’ agreement committed the company and every investor to “work together in good faith towards an Exit no later than 31 December 2019”. Mr Costa, chairman and a substantial indirect investor, was entrusted by the board with the conduct of the sale. He considered that timetable commercially premature.

What followed was not a boardroom argument but a covert campaign. He kept the exit process to himself, aggressively rebuffed fellow directors who asked about it, gave the board the impression that the company was complying with the shareholders’ agreement when he knew it was not, and instructed the company’s advisers on a basis that never encompassed a 2019 sale. The trial judge found that, from Mr Costa’s perspective, “almost the worst possible outcome would have been a firm offer in late 2019 to purchase the Company for $100m capable of being accepted by the shareholders”.

The delaying tactics worked. Then the pandemic arrived, and the prospect of any beneficial exit was destroyed. Saxon Woods, a 22.33% shareholder, presented an unfair prejudice petition under s.994 of the Companies Act 2006.

Three Courts, Two Theories of Good Faith

The deputy High Court judge ([2024] EWHC 387 (Ch)) found unfair prejudice made out but acquitted Mr Costa of any breach of s.172(1). Applying the subjective test in Regentcrest plc v Cohen [2001] 2 BCLC 80, he asked whether Mr Costa genuinely believed he was acting in the company’s best interests, found that he did, and made only a conditional buy-out order. The Court of Appeal ([2025] EWCA Civ 708) reversed him, holding that the deception of the board was dishonest on the objective test in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67, and substituted an unconditional order that Mr Costa buy out Saxon Woods at the undiscounted 2019 value.

Mr Costa’s appeal to the Supreme Court was, at its core, grammatical. Section 172(1) requires a director to act “in the way he considers, in good faith, would be most likely to promote the success of the company”. On that wording, good faith qualifies the considering, not the acting. Read that way, the section “should” have protected him: his considering was sincere, and everything else was mere implementation.

Lord Briggs, for a unanimous court, accepted the grammar and rejected the conclusion.

What the Supreme Court Decided

The good faith requirement extends to the director’s conduct in pursuit of what he believes best for the company, and carries at least some objective content when that conduct is challenged in court. On the appellant’s construction, a director with a sincere belief could deploy conduct involving “lies, cheating, deception, dishonesty or disloyalty” and remain untouchable under s.172. Lord Briggs described that reading as straining credulity: far from promoting corporate success, it would be “a recipe for chaos and paralysis in corporate governance”.

Respect for business judgment survives intact. Re Smith and Fawcett Ltd [1942] Ch 304 remains the touchstone: directors must act bona fide in what they consider, not what a court considers, to be the company’s interests, and the court will not second-guess the merits. But the deference attaches to the judgment, not to the manner of its pursuit. A genuine belief gives no “carte blanche” to implement a dissenting view by covert or disloyal means; as Lord Briggs put it, “the individual director cannot go it alone”.

One doctrinal refinement matters for pleaders. The Court of Appeal had reached the same result through Ivey dishonesty; the Supreme Court preferred a broader footing. Where the defendant already owes a fiduciary duty of loyalty, that duty supplies the analytical framework, and there is no need to elaborate it with the Ivey test at all. Dishonesty may be evidence of bad faith; it is not the gateway.

The Employment Law Dimension

Why should an employment practitioner read a Companies Act appeal about a fashion-industry holding structure? Because the people this judgment governs are, overwhelmingly, employees.

Almost every executive director holds a service agreement, and disputes about senior people rarely arrive neatly labelled. A team move is pleaded as breach of fidelity, breach of fiduciary duty and conspiracy in the same claim form. A summary dismissal of a director-employee turns on the same conduct viewed through two lenses at once. Springboard injunctions, exit negotiations and bonus disputes all live on this borderline.

The threshold has always been that employment is not, of itself, a fiduciary relationship. University of Nottingham v Fishel [2000] ICR 1462 requires the court to identify with care the particular duties undertaken and to ask whether the employee has placed himself in a position where he must act solely in the employer’s interests. Ranson v Customer Systems plc [2012] EWCA Civ 841 confirms that the contract is where the analysis begins and usually ends. The ordinary employee owes fidelity, in the Faccenda Chicken Ltd v Fowler [1987] Ch 117 sense; the fiduciary owes single-minded loyalty, in the Bristol and West Building Society v Mothew [1998] Ch 1 sense.

The gap between those two obligations is precisely where Saxon Woods bites. Consider disclosure of one’s own wrongdoing. A mere employee is under no general duty to volunteer his own misconduct: that has been the law since Bell v Lever Brothers Ltd [1932] AC 161, in which two executives kept their private cocoa speculation to themselves and kept their severance money too. A director is different: Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244 located the duty to disclose one’s own misconduct inside the fundamental duty of loyalty, and practitioners have been litigating on Arden LJ’s analysis for twenty years while commentators doubted its foundations.

Saxon Woods ends the doubt. Lord Briggs quotes and adopts Fassihi at length, alongside Etherton J’s statement in Shepherds Investments Ltd v Walters [2006] EWHC 836 (Ch), the classic competing-venture case, that the breach lies in carrying out the acts of promotion “without first disclosing the intention to do them”. The whole disclosure line, the workhorse of executive misconduct and team move litigation, now carries the express approval of a unanimous Supreme Court.

And the Regentcrest shield has been cut down to size. A genuine belief that a course serves the company still answers an attack on the merits of a business decision. It no longer answers an attack on concealment, obstruction or deception in that decision’s execution. The departing director who assembles his new venture behind a screen of reassurances cannot say, when found out, that his heart was pure.

None of this will startle anyone who practises in this field. The implied term of trust and confidence has been assessed objectively since Malik v BCCI [1997] IRLR 462; an employer’s benign motive does not sanitise destructive conduct. Company law has now caught up with a proposition employment law absorbed a generation ago.

What This Means in Practice

• Advising the departing director. The preparatory-steps analysis in Shepherds Investments now has Supreme Court weight behind its central hinge: disclosure. Steps that are unobjectionable if disclosed may be a breach of duty if concealed, so the advice must address candour with the board, not merely the content of the steps.
• The misconduct dismissal. Where the employee is a director, a dismissal grounded on concealment or deception of the board can be justified by reference to breach of s.172 without proving Ivey dishonesty. Bad faith is the broader and easier target.
• Pleading discipline. Against a fiduciary, plead breach of the duty of loyalty on the conduct itself, and reserve dishonesty for where the evidence truly supports it. Against a non-fiduciary employee, Saxon Woods gives you nothing that Faccenda and the express terms do not.
• Resisting overreach. Employers will be tempted to read this case as raising the standard for every senior employee. It does not. Fishel and Ranson still control the threshold question, and nothing in Saxon Woods converts an ordinary contract of employment into a fiduciary relationship.

Mr Costa’s belief was genuine, his commercial instinct arguably sound, and his conduct a breach of fiduciary duty all the same.

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