Good faith in action, not just belief: the UK Supreme Court’s decision in Saxon Woods Investments Limited v Costa and its significance in the Cayman Islands
May a company director depart from a strategy his board has agreed, in the sincere belief that he knows a better route to the company’s success? In Saxon Woods Investments Limited v Costa [2026] UKSC 21, the Supreme Court held that, whatever the answer, a director cannot pursue his own strategy by concealing it from, and misleading, his fellow directors. The Court confirmed that the good faith duty is not confined to a director’s sincerely held view of the company’s best interests; it also governs the means by which the director acts.
The decision is an authoritative statement of the content of the fiduciary duty of loyalty, and is likely to be influential in the Cayman Islands. The decision will interest directors, those who advise or appoint them, and stakeholders affected by directors’ conduct.
INTRODUCTION
A company’s business is managed by its board, acting by majority where its members disagree. A director who takes a divergent view must bring it openly to his colleagues and participate in the board’s collective decision-making process; he cannot covertly implement his own strategy in defiance of the board. Saxon Woods concerned a director, Mr Costa, whom the board had entrusted with conducting the sale process of Spring Media Investments Ltd (the Company). Mr Costa sincerely believed that a sale later than the board’s agreed timetable would produce a much better financial return for the Company, and so pursued his own strategy without the board’s knowledge.
The question for the Supreme Court was whether Mr Costa could rely on his sincere belief to justify his covert conduct for the purposes of the duty to act in good faith. The Court held that he could not.
DIRECTORS’ DUTIES IN THE CAYMAN ISLANDS
In the Cayman Islands, directors’ duties derive from common law and equity. Chief among them is the duty to act in good faith in what the director considers to be the best interests of the company. It is the content of that duty which Saxon Woods considered. Although the decision concerned section 172 of the English Companies Act 2006, the Supreme Court’s reasoning was expressly grounded in the antecedent common law fiduciary duty of loyalty, the Cayman counterpart of which continues to govern directors of Cayman Islands companies.[1]
BACKGROUND
The Company was the holding company of a group providing creative services in the fashion, beauty and luxury brand sectors. Mr Costa was a director of the Company until October 2025 and served as chairman until July 2024; he also held a substantial indirect interest in the Company.
A shareholders’ agreement (the SHA) committed the Company and its investors to work together in good faith towards an exit – broadly, a sale of the Company – no later than 31 December 2019, failing which the board was to instruct an investment bank to cause an exit. The board entrusted the conduct of the sale process to Mr Costa, who did not pursue the sale in accordance with the SHA. To achieve his own slower timetable, he:
- ensured that no other director had knowledge of or involvement in the exit process;
- rebuffed his fellow directors’ enquiries;
- gave the board the impression that the Company was performing its SHA obligations when he knew it was not; and
- employed delaying tactics.
Mr Costa successfully delayed the sale beyond 2019, but the pandemic then destroyed the prospect of a beneficial exit.
Saxon Woods, a shareholder, presented a minority shareholders’ petition against Mr Costa for relief from unfair prejudice. The trial judge found unfair prejudice to be established, but held that Mr Costa’s conduct had not amounted to a breach of duty because of his sincere belief, applying a subjective test.[2] The Court of Appeal allowed Saxon Woods’ appeal, holding that Mr Costa’s deception of the board had been dishonest, applying an objective test of dishonesty.[3] Mr Costa appealed.
THE DECISION
The Supreme Court dismissed the appeal. The question was whether a director is required by section 172 to act, or merely to think, in good faith.[4] The Court held that the requirement of good faith extends to a director’s conduct in pursuit of the company’s success, and is not confined to his thought process.[5]
The Court noted the importance of protecting a director’s commercial judgment. Courts should not substitute their own assessment for a sincerely held view of what will best promote the company’s success.[6] What that belief does not do is give the director carte blanche to pursue his objective by whatever means he chooses. The duty of loyalty from which section 172 derives has long been enforced by reference to objective standards, and it was never enough for a fiduciary simply to assert that he believed his conduct was consistent with his duty.[7]
On the facts, the Court held that the breach was clear. Mr Costa’s conduct was manifestly disloyal and he had acted in bad faith towards the Company.
TAKEAWAYS FOR STAKEHOLDERS
- Sincere belief is not a licence for covert means.
The central message for directors – including independent directors who serve on Cayman boards – is that a sincerely held view about the best course for the company does not justify the pursuit of that view by covert or disloyal conduct. Even where the board has delegated a specific task to a director, if they come to a different view on how it should be carried out, they should take that view to the board rather than act on it covertly.
- Business judgment remains protected.
Saxon Woods leaves the protection of directors’ business judgment intact. A director remains free to form his own commercial view, and the court will respect a sincerely held judgment about what best serves the company without imposing its own. However, that protection attaches to the decision itself, not to the way the director goes about implementing it. The practical line, for boards and their advisers, is between the substance of a commercial decision, which is for the board, and a director’s conduct towards his colleagues, which is measured against an objective standard of loyalty and good faith.
The judgment also recognises that a company’s entry into a contract does not necessarily prevent its board from reconsidering the agreed course if circumstances change. The Court expressly declined to decide whether departure from the SHA would itself have constituted a breach of duty. It observed that any decision to change course – even if that involved a breach of contract – would be a matter for the business judgment of the board.
- Exculpation may present a separate hurdle in the Cayman Islands.
Saxon Woods confirms that a director cannot answer objectively disloyal conduct merely by asserting that he sincerely believed he was acting in the company’s interests.
However, in the Cayman Islands, establishing breach may not be the end of the matter. Unlike in England, Cayman has no equivalent statutory prohibition on exempting directors from liability to the company. Appropriately drafted exculpation provisions in a company’s constitutional documents may therefore protect directors, subject to their terms and applicable legal limits.[8]
In Weavering, the Cayman Islands Court of Appeal held that the particular exclusion for “wilful neglect or default” could be overcome only if the company proved either that the director had made a deliberate and conscious decision to act, or to fail to act, in knowing breach of duty, or that the director at least appreciated that the conduct might constitute a breach and consciously decided to proceed regardless; negligence, however gross, was insufficient.[9] That is a subjective threshold and, in practice, a demanding one requiring proof of the director’s actual state of mind.
A director may therefore be found to have breached the underlying fiduciary duty but remain protected from liability if the applicable exculpation clause is engaged. Saxon Woods addresses whether the duty has been breached; Weavering addresses the separate question whether liability survives the relevant contractual protection. Those bringing or defending claims against directors should keep those questions analytically distinct.
- How a comparable Cayman claim might be pursued.
In Saxon Woods, the shareholder proceeded by a petition for relief from unfair prejudice under the English Companies Act 2006. There is no unfair prejudice regime in the Cayman Islands, but equivalent remedies are possibly available through a just and equitable winding up, as explained below.
The right course in the Grand Court for pursuing a breach of duty claim depends on who is complaining and what they seek to achieve.
- A liquidator (or the company itself) seeking to recover loss from a director. This is the most straightforward route: the company may issue proceedings directly against the director, acting through its liquidator where it is in liquidation.
- A shareholder wanting the company to pursue a claim the board will not bring. In this situation, the shareholder may seek to bring a derivative claim on the company’s behalf. However, this route is open only in limited circumstances. Broadly, the shareholder must show that those responsible for the wrongdoing control the company – so that it cannot bring the claim itself – and that the wrongdoing is of a kind the law treats as a “fraud on the minority”, meaning either dishonest conduct or the taking of the company’s property or opportunities for the wrongdoers’ own benefit.[10] Whether conduct of the kind seen in Saxon Woods would meet that test is not straightforward, particularly because a finding of disloyalty or bad faith does not necessarily amount to a finding of dishonesty or appropriation for the purposes of the derivative-action exception. Any recovery would in any event belong to the company, not the shareholder.
- A shareholder wanting to have its shares bought out. Under the English regime, a buy-out is the standard remedy for unfair prejudice. However, in the Cayman Islands, absent an enforceable contractual exit right, the principal route by which a shareholder could seek a court-ordered buy-out is by a petition to wind up the company on the just and equitable ground under the Companies Act.[11] Whether conduct of the kind seen in Saxon Woods would satisfy that jurisdictional threshold would depend on the full circumstances. The director’s deliberate concealment and misleading of the board could support a case of serious misconduct or lack of probity giving rise to a justifiable loss of confidence in management, but a breach of duty may not, without more, make winding up just and equitable.
However, even if the petitioner establishes that it is just and equitable for the company to be wound up, a buy-out is not guaranteed. While the Court may grant such a remedy, it is not obliged to do so. A buy-out remains a discretionary alternative to a winding-up order, and an aggrieved shareholder should not assume that establishing a just and equitable case will necessarily produce that remedy.
[1] Lord Briggs was explicit that section 172 was intended to codify, rather than change, the pre-existing common law, and must be interpreted by reference to the equitable principles that preceded it: Saxon Woods at [4], [56] and [59]; the interpretative direction derives from sections 170(3) and (4) of the Companies Act 2006.
[2] The test applied in Regentcrest plc (in liquidation) v Cohen [2001] 2 BCLC 80.
[3] The test applied in Ivey v Genting Casinos (UK) Ltd [2018] AC 391.
[4] Saxon Woods at [51] and [60].
[5] Saxon Woods at [53] and [59]-[60].
[6] Saxon Woods at [56].
[7] Saxon Woods at [54].
[8] Peterson and Ekstrom v Weavering Macro Fixed Income Fund Limited (in liquidation) (Weavering) [2015 (1) CILR 45] at [82]-[83]. In that case, article 182 indemnified the directors and excluded liability except where the liability arose through their own “wilful neglect or default”.
[9] Ibid at [95] and [117].
[10] A shareholder may bring the company’s claim derivatively only within the exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461, the principal exception being “fraud on the minority”. As the Privy Council stated in Tianrui (International) Holding Company Ltd v China Shanshui Cement Group Ltd at [37], this arises “where the wrongdoers are guilty of dishonest conduct or attempting to appropriate or have appropriated to themselves property or opportunities to which the company is entitled … and the wrongdoers are themselves in control of the company“. Under Order 15, rule 12A of the Grand Court Rules, where a defendant to a derivative action has given notice of an intention to defend, the plaintiff must also apply to the Court for leave to continue the action: Tianrui at [39].
[11] Sections 92(e) and 95(3) of the Companies Act (2026 Revision). Section 95(3) empowers the Court, on a petition presented by members as contributories, to make alternative orders in place of a winding-up order, including an order for the purchase of shares by other members or by the company.
