Saxon Woods Investments Limited and others (Respondents) v Francesco Costa (Appellant) [2026] UKSC 21
14th July 2026
The Supreme Court has today handed down judgment in Saxon Woods Investments Limited and others (Respondents) v Francesco Costa (Appellant) [2026] UKSC 21, in which Edward Davies KC and Jack Rivett acted for the successful respondent / petitioner, Saxon Woods Investments Limited (“Saxon Woods”), instructed by Genevieve Quierin and Adam Polonsky of Stephenson Harwood LLP.
The decision confirms that the determination of a breach of a director’s duty under section 172 under Companies Act 2006 is not a purely subjective test (as the appellant had sought to argue), but an essentially objective one.
Background
The proceedings concerned a petition under section 994 of the Companies Act 2006 which Saxon Woods had presented in relation to the affairs of a company called Spring Media Investments Limited.
At first instance, the High Court had found that the Company had acted in breach of a requirement in a shareholders’ agreement to work in good faith towards an exit (which was defined as a sale of all or substantially all of the Company’s share capital) by a particular date, and that Mr Costa (who was the Chairman and a substantial investor in the Company) was responsible for the Company’s breach. The Judge also found that Mr Costa had misled the board of directors by giving them the impression that steps were being taken with a view to achieving a sale by the target date, when in fact they were not.
The High Court concluded that, in the circumstances, Saxon Woods had suffered unfair prejudice. However, it declined to make an unconditional order that Mr Costa purchase Saxon Woods’ shares. Instead, the Court held that Mr Costa would only be required to purchase Saxon Woods’ shares if, at a further trial, the Court were satisfied that the Company would have been sold for more than US$75 million net of debt but for the Company’s breach of the exit provisions. Moreover, the Judge rejected Saxon Woods’ case that Mr Costa had acted in breach of his duty under section 172 of the Companies Act 2006 on the basis of a finding that Mr Costa did sincerely believe that he was acting in the best interest of the Company by deferring the exit process.
Saxon Woods and Mr Costa both appealed to the Court of Appeal. In a judgment handed down on 9 June 2025 ([2025] EWCA Civ 708), the Court of Appeal dismissed Mr Costa’s appeal, holding that the first instance judge had been correct to hold that the Company had breached the shareholders’ agreement.
By contrast, the Court of Appeal allowed Saxon Woods’ appeal. Amongst other things, the Court of Appeal held that, in addition to being responsible for the Company’s breach of the exit provisions, Mr Costa had breached his section 172 duty and had acted dishonestly. It accordingly set aside the Judge’s order and made an unconditional order that Mr Costa purchase Saxon Woods’ shares.
Mr Costa then appealed to the Supreme Court against the finding that he had breached his section 172 duty and the relief ordered by the Court of Appeal.
The decision of the Supreme Court
The principal argument advanced by Mr Costa on his appeal to the Supreme Court was that the section 172 duty was a purely subjective one. In support of his position, he cited numerous authorities in which it had been described as such.
The Supreme Court rejected this argument. By reference to previous case law, the context and purpose of section 172 and commercial reality, the Supreme Court held that it was the duty of the Court to address questions of breach of duty by directors by applying an essentially objective test, as opposed to a purely subjective one. When considering an allegation of breach, the Court will start by accepting the business judgment of the board, providing their belief is, as a matter of fact, found to be genuine, and to that extent (and in that sense) the test is subjective. However, directors do not thereby obtain carte blanche to do whatever they want, regardless of whether, objectively speaking, their conduct involves what any reasonably well-informed observer would regard as plain bad faith. Accordingly, the Supreme Court dismissed Mr Costa’s appeal and upheld the order of the Court of Appeal.
The decision of the Supreme Court is a highly significant one, not just because it is the first occasion on which the highest court has considered the proper interpretation of the duty under section 172(1), but also because of its rejection of the purely subjective test for a breach of section 172.
