Keymed (Medical & Industrial Equipment) Ltd v Hillman & Anor

The court rejected KeyMed’s claim that two senior directors (Mr Woodford and Mr Hillman) had conspired to prefer their personal pension interests over those of the company by creating and administering a separate “Executive Scheme”, disapplying an historical "pensions in payment" limit (the PIP limit), amending spousal benefits and adopting an unduly conservative funding and investment strategy.

The judge analysed directors' duties (including the statutory codification of the common law in the Companies Act 2006, notably sections 171–174 and the duties relating to conflicts in sections 175–177), trustees’ powers and duties, and the law of unlawful means conspiracy. On the facts found, the court concluded there was no dishonest conduct by the defendants, KeyMed had not proved the alleged breaches of duty or the alleged conspiracy, and the trustees’ funding and investment choices lay within a range of reasonable approaches.

This was a first‑instance claim by KeyMed that two long‑serving directors and trustees, Paul Hillman and Michael Woodford, had breached duties to KeyMed and conspired to prefer their own pension interests. The dispute arose from:

• the creation of a new Executive Scheme in 2007 to which the executive members transferred;
• the disapplication (in the Executive Scheme) of a pre‑A‑Day Inland Revenue restriction on increases to pensions in payment (the "PIP Limit");
• a 2009 amendment removing a spousal reduction that benefited Mr Hillman; and
• purportedly unduly conservative funding and investment strategies adopted for the Staff and Executive Schemes and a series of special contributions.

The court set out the factual and statutory pensions background (A‑Day, the Pensions Act 2004, the Finance Act 2004, Revenue limits and the Pension Protection Fund) and identified the legal issues: directors’ duties to act within powers and for proper purposes, the duty to promote the success of the company (section 172), the duty to exercise independent judgment (section 173), care and skill (section 174), duties about conflicts and disclosure (sections 175–177), duties of trustees and the tort of unlawful means conspiracy.

Key procedural and factual matters included that the Executive Scheme decision in principle was recorded in board minutes for December 2005, Mercer (the actuary) advised on options in 2005–2006, the Revenue Limits were voluntarily retained for the Staff Scheme after A‑Day (but that decision was not the product of a detailed board or trustee ratification process), and detailed Executive Scheme documentation was implemented in November 2007. The trustee and company decision‑making and contemporaneous documents were reviewed closely.

The judge considered who knew what and when about the Revenue Limits, the PIP Limit and the proposed Executive Scheme, and whether KeyMed’s board or trustees had given informed authority for the disapplication of the PIP Limit so far as the Executive Scheme was concerned. The court also examined the factual circumstances of the 2009 spousal amendment and the funding/investment strategy decisions and payments of special contributions over a number of years.

On the issues the judge framed and decided, the court found (i) the Executive Scheme was proposed to address an identified pension security issue (the PPF effect on high‑paid executive members) and the defendants’ interests were declared; (ii) the voluntary retention of Revenue Limits in the Staff Scheme was implemented at an administrative level without subject‑matter scrutiny and the consequences for the PIP Limit were only drawn to the defendants’ attention in mid‑2006; (iii) the corporate approvals and documents implementing the Executive Scheme and the removal of the PIP Limit were given effect in November 2007 with KeyMed directors’ assent; (iv) the 2009 spousal amendment was put and agreed with the company’s signatories knowing the effect; and (v) the funding and investment decisions, though conservative, were within the trustees’ powers and within the range of reasonable approaches and had been accepted and supported by KeyMed.

Consequently the judge held KeyMed had not proved the alleged dishonest breaches of directors’ duties, had not established unlawful‑means conspiracy, and no fiduciary or tortious liability to KeyMed was made out in respect of the trustee decisions. The judge therefore dismissed the claim.

The claim is dismissed. The court found on detailed factual and documentary analysis that KeyMed had not proved dishonest breaches of directors’ duties by Mr Woodford or Mr Hillman, nor an unlawful‑means conspiracy: the Executive Scheme and related changes were implemented with informed corporate processes (albeit imperfectly documented), the trustees’ funding and investment choices were within reasonable bounds, and KeyMed failed to show the pleaded unlawful means.