Defining Disloyalty: Jersey takeaways on directors’ duties following the UK Supreme Court’s decision in Saxon Woods Investments Ltd v Costa

In Saxon Woods Investments Ltd v Costa [2026] UKSC 21, the UK Supreme Court held that, if challenged in court, the question of whether a company director has acted in good faith includes an objective element. In this update, we look at the Supreme Court’s reasoning and consider the wider significance of the judgment for the corporate governance of Jersey companies.

Background

Mr Francesco Costa was, until October 2025, a director of Spring Media Investments Ltd (the Company). He also had a substantial indirect interest in the Company through a Luxembourg entity.

In 2016, the Company and its then shareholders, including Saxon Woods Investments Ltd (Saxon Woods), entered into an amended shareholders’ agreement (SHA). A key feature of the SHA required the Company and its shareholders to work together in good faith towards an ‘Exit’, namely the sale of all or substantially all of the Company’s issued equity share capital, or its business or assets, no later than 31 December 2019.

The board delegated conduct of the sale process to Mr Costa. However, rather than conduct the sale process in accordance with the SHA, Mr Costa engineered delay, thereby frustrating an Exit by the end of 2019. He did so because he genuinely believed that a later sale would produce a better financial return.  The trial judge summarised his state of mind as: ‘they wouldn’t like it now if they knew, but they will thank me in the long run’ .¹

With hindsight, Mr Costa’s decision to delay the sale process was disastrous: the Covid pandemic in and after 2020 ‘completely destroyed‘² the prospect of a beneficial Exit after 31 December 2019.

Saxon Woods brought proceedings for relief from unfair prejudice and, in so doing, alleged breach of fiduciary duty against Mr Costa.  At first instance, Saxon Woods succeeded with unfair prejudice but not breach of fiduciary duty.  This latter finding was overturned by the Court of Appeal, following which Mr Costa appealed to the Supreme Court.

Applicable law in England and Jersey

The allegation of breach of fiduciary duty concerned the statutory duty of directors under English law to promote the success of the company (section 172 of the UK Companies Act 2006 (CA 2006)):

‘A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole… ‘ (the s172 Duty).

This is worded similarly – but not identically – to the equivalent statutory provision in Jersey (Article 74(1)(a) of the Companies (Jersey) Law 1991 (the CJL 1991)):

‘A director, in exercising the director’s powers and discharging the director’s duties, shall act honestly and in good faith with a view to the best interests of the company…’ (the Article 74 Duty).

Both the English and Jersey formulations of the duty are modelled on, and influenced by, the pre-existing common law on directors’ duties, including the dicta of Lord Greene MR in Re Smith and Fawcett Ltd [1942] Ch 304 that the court will not interfere with business decisions made in good faith by directors in what they consider to be the best interests of the company. English and Jersey authorities and textbooks have described the test for breach of this duty as subjective.³

The issue on appeal

The key issue for the UK Supreme Court was: what standard of conduct is required of a company director when he genuinely disagrees with his fellow directors as to the best route to achieving success for the company?

In normal circumstances, a director cannot ‘go it alone’ and cut out his fellow directors by singlehandedly and covertly pursuing a course of action in direct conflict with an agreed mandate given by the board. But if he genuinely believes that what he is doing is in the best interests of the Company, does this mean that his duties under s172 of the CA 2006 are discharged?

The Decision

The UK Supreme Court unanimously held that Mr Costa was in breach of the s172 Duty. The requirement to act in good faith applied to both Mr Costa’s thought process and his conduct. The view of the director as to what specifically is in the best interests of the company is necessarily subjective but assessing whether a director’s conduct was in good faith involves ‘at least some objective element’ .⁴

Assessed objectively, Mr Costa’s covert delaying tactics and misleading of the board were manifestly disloyal and amounted to bad faith towards the Company – even if his motivation was to benefit the Company and its investors.

The UK Supreme Court justified this construction of the s172 Duty on three grounds:

1. Consistency with the common law: the s172 Duty was to be construed by reference to existing common law and equitable principles. Previous decisions applied an objective test to determine whether a fiduciary’s conduct fell short of the requirements of his or her duty of loyalty.  It was never enough for the fiduciary just to say that he genuinely believed that it did not.
2. Consistency with context and purpose: interpreting the s172 Duty as permitting (or even requiring) an individual director to covertly pursue his own dissenting opinion about the best way to secure the company’s success in defiance of the board’s opinion on business strategy would be thoroughly disruptive to the good governance of the company in accordance with its constitution.
3. Straining credulity: it would be unworkable if a director needed only, subjectively, to think in good faith, rather than also, objectively, to act in good faith. Far from promoting corporate success in the modern world, this would be a recipe for chaos and paralysis in corporate governance, and destructive of the collegiality of the board of directors as a whole, which all stakeholders in limited companies are entitled to expect.

Takeaways

There are a number of takeaways from the Saxons Woods litigation relevant to corporate governance of Jersey companies:

• The test for assessing good faith includes an objective element – the Supreme Court’s clarification of the common law duty of loyalty is likely to be persuasive to Jersey courts, given that Jersey customary law on directors’ duties is strongly influenced by English common law and equitable principles.
• The wording of Jersey’s Article 74 Duty is consistent with the Supreme Court’s decision on the test for loyalty – grammatically, the words ‘good faith’ in the s172 Duty appear to be part of the phrase ‘he considers in good faith’, which gave rise to semantic arguments before the Supreme Court on whether the test is wholly subjective. In finding that there was an objective element to the test, the Supreme Court opted to avoid ‘the rigorous application of grammatical rules’.⁵.  To the extent that any similar grammatical issue arises in the wording of Jersey’s Article 74 Duty, the conclusion reached by the Supreme Court is transferable to Article 74 of the CJL and consistent with its drafting.
• Jersey’s Article 74 Duty expressly includes a requirement of honesty as well as good faith – the Court of Appeal found that the core meaning of good faith requires honesty and focussed its analysis on whether Mr Costa had acted honestly⁶ (the Supreme Court itself took a ‘somewhat broader basis‘⁷ but did not overturn this reasoning). This emphasis on honesty aligns with the wording of Jersey’s Article 74 Duty, which, unlike the s172 Duty, expressly includes a requirement of honesty as well as good faith. The Court of Appeal’s analysis (in addition to the Supreme Court judgment) may therefore be of interest to Jersey practitioners or courts considering the scope of the Article 74 Duty and its express mention of the requirement of honesty.
• Agreements made in a SHA are likely to be relevant to identifying what course of action is in the best interests of the Company – the Supreme Court inferred from the Company’s participation in the SHA that pursuing an Exit in the manner provided for in the SHA was, at that point, in the Company’s interests within the meaning of s172 of the CA 2006. However, the Supreme Court declined to express a concluded view on whether the SHA itself independently determined the Company’s route to success.
• A breach of the duty of loyalty may amount to a breach of other general duties as well – the Supreme Court observed that Mr Costa’s conduct could also be said to breach both limbs of section 171 of the CA 2006: acting in accordance with the company’s constitution and exercising powers only for the purposes for which they were conferred. However, it is no answer to a claim for breach of the duty of loyalty that the matter complained of looks more like a breach of one of the other general duties. In some respects, the duties overlap.

Conclusion

The Supreme Court’s decision confirms the test to be applied in assessing compliance with the s172 Duty, and the common law duty of loyalty on which s172 of the CA 2006 is based.  The test includes an objective element, namely whether the conduct complained of amounts to bad faith when assessed objectively, notwithstanding the fiduciary’s subjective thought process.

The outcome of the Supreme Court’s decision – that covertly pursuing disloyal tactics in defiance of an agreed board mandate amounts to bad faith – may not come as a surprise. However, the methodology used to reach that conclusion is conceptually important, given the disruptive implications for corporate governance if Mr Costa’s argument had succeeded.

From a Jersey law perspective, the Supreme Court’s analysis of common law directors’ duties is likely to be relevant and persuasive to a Jersey court considering the parameters of Jersey’s customary law on this subject and, in certain respects, the Article 74 Duty, given the similarities between the English and Jersey formulations. The Court of Appeal’s consideration of the role that honesty plays in the duty of loyalty is also likely to be of interest.