A recent Court of Appeal decision has sent a clear message to company directors, that honesty is at the core of their fiduciary duties under the Companies Act 2006 and not subjective, but instead purely objective based on the existing legislation.

The case of Saxon Woods Investments Limited v Francesco Costa [2025] EWCA Civ 708 has been making headlines, after directors of the company attempted to argue that they were “doing the right thing”, despite their misleading conduct.

It is important that directors understand the outcome of this important case when it comes to their dealings with their board and fulfilling their obligations not to deceive them.

The case in brief

In this appeal case, a minority shareholder claimed unfair prejudice after the chairman and majority shareholder of Spring Media Investments, Francesco Costa, failed to work towards an agreed company sale and withheld information from the board.

The High Court originally found Costa had misled the board but decided he had not breached his duty under section 172 (s172) of the Companies Act, because he sincerely believed he was acting in the company’s best interests.

The Court of Appeal overturned this finding as it was fundamentally flawed, ruling instead that s172 requires directors to act both in good faith and honestly.

Importantly, this could not be based on their own opinions, but also objectively considered honest by most ordinary people.

By deliberately deceiving the board, Costa had acted in a way that would “either always or almost always, be inconsistent with a director’s duty under s172”.

As a result of his actions, Costa was ordered by the court to buy out Saxon Wood’s shares at their open market value as of 31 December 2019.

This is the date the company should have been sold under the exit provisions contained within the company’s shareholders’ agreement.

What is section 172?

This section of the Companies Act gives directors a duty to promote the company in a way that they consider “in good faith” would be most likely to promote the success of the company for the benefit of all its members.

As part of this duty, directors must consider a “non-exhaustive” list of factors, both short and long term, and ensure that their action is fair amongst members of the company.

Failure to meet these statutory requirements, as with many fiduciary duties, could result in a breach that leads to personal liability or disqualification.

What does this ruling mean for directors?

To help you understand what this means for you, we have summarised some of the points you need to consider when acting for your company:

• Good faith includes honesty: You cannot claim to be acting in the company’s best interests if you deliberately mislead or conceal information from your board.
• Subjective belief is not enough: Even if you genuinely think your decision will help the company in the long run, dishonesty will still put you in breach of duty.
• Objective test applies: Courts will judge your actions by what a reasonable person would consider honest, not just by your personal view.
• Consequences are serious: In this case, the court ordered Costa to buy out the minority shareholder’s stake, highlighting the real financial and reputational risks of breaching duties.

To protect your position as a director and ensure you are meeting your duties you should:

• Be transparent with your board and disclose relevant information in a timely fashion.
• Ensure decisions are taken collectively and collaboratively so that they do not serve the purpose of a single shareholder or narrow group.
• Document board discussion and decisions, including the reasoning behind it.

This ruling reinforces that section 172 is not a shield for directors who act dishonestly, even with good intentions.

Need guidance on your fiduciary duties? If you or other members of your board need guidance on your statutory duties under the Companies Act 2006, please get in touch.