Supreme Court holds that a director must act, not merely think, in good faith

On 14 July 2026, the Supreme Court held that section 172 of the Companies Act 2006 requires a director to act, and not merely to think, in good faith. A director who disagrees with the board may not pursue his own strategy by covert means. The decision clarifies rather than changes the law. Lord Briggs read section 172 consistently with the fiduciary duty of loyalty from which it derives (at paragraphs 53 to 55 and 59).

The Facts

The company was Spring Media Investments Limited. On 20 May 2016, the company and its shareholders executed a shareholders’ agreement. By clause 6.2 the parties were to “work together in good faith towards an Exit no later than 31 December 2019” (at paragraph 14).

That exit was never achieved. Francesco Costa, a director and then chairman, was entrusted with the sale process. He believed that a later sale would produce a much better return (at paragraph 19). He kept other directors out of the process, rebuffed their requests for information and misled the board. He also instructed advisers on terms that excluded a 2019 exit, without telling the board (at paragraph 20). The pandemic then destroyed the prospect of a beneficial exit (at paragraph 22).

The First Instance Judgment

Those events led Saxon Woods Investments Limited, a minority shareholder, to present an unfair prejudice petition under sections 994 to 996 of the Companies Act 2006 (at paragraph 23). The judgment does not record the date on which the proceedings were brought.

At trial, Mr Simon Gleeson, sitting as a deputy judge of the High Court (at paragraph 5), found unfair prejudice but no breach of section 172. He made only a conditional buy-out order (at paragraph 24).

The Court of Appeal Decision

The Court of Appeal reversed the trial judge on breach. It ordered an unconditional buy-out of Saxon Woods’ shares at their pro rata undiscounted value on 31 December 2019 (at paragraph 25). Mr Costa appealed. The central question was whether good faith under section 172 governs a director’s conduct or only his thinking. He also challenged the Court of Appeal’s use of an objective test of dishonesty (at paragraph 27). A second reason of the Court of Appeal, that the shareholders’ agreement itself fixed the company’s strategy, was argued without permission to appeal (at paragraph 28).

The Supreme Court Decision

On the central question, Lord Briggs asked, at paragraph 60, “Is a director required by section 172 to act, or merely to think, in good faith?” He held that the director must act in good faith. Good faith applies to the director’s conduct as well as his thought process (at paragraph 59). A genuine belief does not give a dissenting director “carte blanche” to implement his view by any means (at paragraph 56). Lord Briggs then said, at paragraph 61, “His conduct was manifestly disloyal to the Company, and he acted in bad faith towards the Company.”

That conclusion made the dishonesty analysis unnecessary. Lord Briggs said, at paragraph 62, that “it is unnecessary to elaborate it by reference to the Ivey case.” On the shareholders’ agreement, he said, at paragraph 64, “I would prefer to express no concluded view as to this second reason”. He held, at paragraph 65, that “the trial judge’s exercise of discretion as to remedy cannot stand.” The immediate buy-out order therefore stood, and the appeal was dismissed (at paragraph 66).

Key Takeaways

The reasoning rests on the constitutional role of the board. Lord Briggs found no authority before 2006 extending deference to a director who covertly pursued his own view against the board (at paragraph 33). Covert subversion of the board’s collective determination is a breach of section 172 (at paragraphs 61 and 64). Lord Briggs accepted, at paragraph 64, that later circumstances may require directors to reconsider an agreed course. Any change remains “a matter for the business judgment of the board”. Whether a contracted strategy alone binds the directors is left open.

Taken together, the decision confirms that section 172 is a duty of loyal conduct. Sincere belief protects a director’s judgment, not covert action against the board.

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