Directors’ duties: what to do when you disagree with the board

Charles Mather, solicitor in our regulatory and compliance team, considers the implications of a recent Supreme Court judgement on directors’ duty to promote the success of their company and the standards expected when one director disagrees with the rest of the board.

In Saxon Woods Investments Limited and others v Costa [2026] UKSC 21, the Supreme Court confirmed that a director cannot rely solely on a genuine belief that they are acting in the company’s best interests if the way in which they pursue that objective is disloyal to the company or subverts the board’s collective decision-making.

The practical message for directors is clear: robust challenge remains an important part of good governance, but disagreements must be raised openly, documented properly and resolved through the company’s decision-making processes.

What happened in the case?

The dispute concerned Spring Media Investments Limited. Its shareholders had entered into a shareholders’ agreement under which they agreed to work together in good faith towards a sale of the company by the end of 2019. If a sale had not taken place by that date, the board was required to appoint an investment bank to pursue an exit.

Mr Costa, the company’s chairman and a director, believed that delaying a sale would produce a better return for shareholders. However, rather than putting that view openly to the board and seeking to persuade his fellow directors, he pursued his preferred course covertly and obstructed the agreed exit strategy.

Saxon Woods, a minority shareholder, brought an unfair prejudice petition. The High Court found that Mr Costa genuinely believed he was acting in the company’s interests and therefore had not breached section 172 of the Companies Act 2006. The Court of Appeal disagreed, and Mr Costa appealed to the Supreme Court.

What did the Supreme Court decide?

The Supreme Court dismissed the appeal. It held that Mr Costa had acted in breach of his duty under section 172.

Section 172 requires a director to act in the way they consider, in good faith, would be most likely to promote the company’s success for the benefit of its members as a whole. Although the director’s assessment of what will promote the company’s success remains largely subjective, the good-faith requirement is not confined to the director’s internal belief about the desired outcome. It also applies to the director’s conduct in pursuing that outcome.

Mr Costa’s genuine view that delaying the sale would benefit the company did not give him authority to act alone, conceal his intentions or undermine the course adopted by the board. The court described his conduct as manifestly disloyal and in bad faith towards the company.

The judgment emphasises that responsibility for managing a company ordinarily rests with the board as a whole. A director who disagrees with the board must raise their concerns, explain their position and participate in the proper decision-making process. They cannot secretly substitute their preferred strategy for the board’s decision.

The Supreme Court’s reasoning went beyond dishonesty alone.

The central question was whether the director had acted in good faith and loyally towards the company. Dishonest conduct may provide strong evidence of bad faith, but the fiduciary obligation is not reduced to a standalone test of dishonesty.

The court did not decide that causing a company to breach a contract will automatically amount to a breach of section 172. That question remains fact-sensitive. However, a director cannot use a claimed commercial justification to excuse covert or disloyal conduct towards the company and its board.

What does the decision mean for directors?

The judgment is an important reminder that directors’ duties govern both the ends pursued and the means used to pursue them.

If you disagree with the board’s proposed course, you should:

• ask for the issue to be considered formally by the board;
• explain your concerns and put forward any alternative strategy openly;
• provide the information needed for the board to assess both approaches;
• disclose any personal interests or conflicts;
• ensure your position, the board’s decision and the reasons for it are recorded accurately; and
• seek advice before taking further action if you believe the board’s decision conflicts with your duties or the company’s contractual commitments.

A director is not required to suppress a genuine disagreement. On the contrary, robust challenge is an important part of effective corporate governance. The director must, however, raise that challenge through the company’s proper governance arrangements rather than conducting a competing strategy behind the board’s back.

Practical implications for companies and shareholders

Boards should use the judgment as an opportunity to review how they manage disagreement and delegated authority. Companies should:

• confirm which decisions require collective board approval;
• make the scope and limits of delegated authority clear;
• record the information considered, alternative views raised, decision reached and authority given;
• establish a process for escalating significant disagreements or deadlock; and
• review whether the articles of association and shareholders’ agreement provide clear approval and dispute-resolution mechanisms.

The case also illustrates the potential overlap between a breach of directors’ duties and an unfair prejudice petition. Conduct which undermines an agreed corporate strategy may expose a director not only to a claim by the company but also to significant personal consequences in shareholder litigation, including an order to purchase another shareholder’s shares.

Early advice may be particularly important where there is board deadlock, a disputed contractual commitment, a potential conflict of interest, concern that a director is acting outside their authority, or a complaint from a minority shareholder.

If your business is dealing with a board-level disagreement or wants to strengthen its governance arrangements, Harrison Drury’s corporate governance and dispute resolution specialists can advise on directors’ duties and shareholder risks. Call 01772 258 321.

Charles qualified as a solicitor in our Regulatory & Compliance team in 2024. He supports and advises individuals and organisations on a wide range of contentious and non-contentious issues, including regulatory and local authority investigations and prosecutions, insolvency, and data protection.