UK Supreme Court Rules Director Good Faith Duty Extends to Conduct, Not Just Mindset
UK company directors and in-house counsel advising corporate boards must revise governance protocols, as the UK Supreme Court has held that the statutory director good faith duty covers actual conduct, not just internal thought process, creating personal liability for covert or disloyal actions even if directors genuinely believed those actions benefited the company.
The UK Supreme Court unanimously ruled in Saxon Woods Investments Ltd v Costa [2026] UKSC 21 that the section 172(1) Companies Act 2006 requirement for directors to act in good faith applies to both internal decision-making and external conduct, overturning the lower court’s finding that a director’s genuine belief they were acting in the company’s best interests was sufficient to avoid liability. The court held that covert, deceptive, or disloyal conduct by a director, even if motivated by a belief it would benefit the company, breaches the statutory good faith duty. In-house counsel should work with boards to clarify delegated authority limits, implement mandatory board reporting for high-stakes decisions, require collective approval for deviations from agreed strategies, and provide regular director training on statutory fiduciary duties to mitigate personal liability risk.