Ends don’t justify means for dishonest directors

The nature of directors’ duties to act in the best interests of their company has been clarified by the Court of Appeal in a recent shareholder dispute case.  In summary, it is an objective test and not one based on whether a director genuinely believes they are acting in the best interests of the company.

The issue

One of the issues to be decided in this case was whether a director had breached their fiduciary duty, specifically the duty which can be found in s.172 of the Companies Act 2006 (‘s.172’) to promote the success of the company for the benefits of the members as a whole.

The facts

The case revolved around the failure of the director to progress certain exit options in relation to the company.  Key elements of the decision making in this respect were not shared with other members of the board or shareholders.

A minority shareholder in the company claimed that this amounted to a breach of contractual arrangements and a breach of the director’s fiduciary duties.

Original decision

In the first instance decision the Judge found that the director had not breached the duty in s.172.  This was based on a finding that the director “did sincerely believe that he was acting in the best interests of the Company and its investors” in not progressing the exit options.

On that basis, the fact that the director may have failed to comply with contractual obligations, withheld information or even misled others did not mean that he was in breach of the duty.  This was consistent with a finding by the Judge that the director was not acting dishonestly.

Court of Appeal decision

The Court of Appeal was clear that the director’s state of mind was not determinative of the issue.  They rejected the position put forward by the director’s counsel in the appeal that “provided that the director believed he was promoting the success of the company, “the ends would justify the means””.

The Court of Appeal was clear that s.172 requires a director to act in good faith which “includes, as a core fiduciary duty, a requirement that the director acts honestly towards the company.”

Applying the correct test for dishonesty, the fact that the director had misled the board was dishonest behaviour and therefore was in breach of s.172.

Conclusions

The case is an important reminder of the nature and extent of directors’ fiduciary duties.  It is not enough that a director genuinely believes that what they are doing will promote the company’s success in the longer term, they must step back and consider whether a reasonable person, in possession of all the facts, would consider that they are acting honestly.

The ends may justify the means in a commercial context, but this does not trump the requirement for honesty that arises from a director’s fiduciary duty to their company.

Case reference

Saxon Woods Investments Ltd v Costa (Re Spring Media Investments Ltd) [2025] EWCA Civ 708 (09 June 2025)

How we can help

Our shareholder disputes team represents shareholders and directors in shareholder disputes and disputes around directors’ duties and has extensive experience in this area.