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

A director’s proper-purpose duty concerns the purpose for which a power is exercised, while the duty to promote the company’s success is concerned with the director’s good-faith belief. A director’s conflict must be declared before the company enters the transaction, but declaration does not discharge the other duties owed to the company. Pension-scheme trustees do not generally owe fiduciary or tortious duties to the sponsoring employer merely because they may consider its interests. Conservative funding and investment strategies are not improper merely because they favour scheme security. The court dismissed the claims because the alleged breaches and conspiracy were not proved.

KeyMed alleged that its former directors, Paul Hillman and Michael Woodford, preferred their pension interests to those of the company. The allegations concerned the creation of an Executive Scheme, removal of a pensions-in-payment limit, amendment of a spousal-benefit rule, and conservative funding and investment strategies. KeyMed also alleged breaches of directors’ duties, trustee duties, a duty to report misconduct, and unlawful-means conspiracy.

The court determined the scope of the pleaded case, the duties applicable to directors and pension trustees, and whether the impugned decisions were dishonest or otherwise improper.

1. Disposition. KeyMed’s claims failed. The court found no dishonest or other breach of the directors’ duties, no breach of any duty allegedly owed by the defendants as scheme trustees, no actionable failure to report misconduct, and no unlawful means conspiracy.
2. Directors’ duties. The proper-purpose rule required identification of the power exercised, its proper limits, and the subjective purpose actuating its exercise. The duty under section 172 of the Companies Act 2006 was subjective: the question was whether the director honestly believed the conduct promoted the company’s interests. Section 174 was objective, but the pleadings did not advance a distinct objective case.
3. Conflicts. The relevant statutory duty was section 177 of the Companies Act 2006. It required timely and sufficiently full disclosure of a director’s interest. Disclosure did not relieve the director from the other duties owed to the company.
4. Pension trustees. The defendants, as trustees, owed their primary duties to scheme beneficiaries. They could consider the employer’s interests where consistent with the trust’s purpose, but the law did not generally impose simultaneous fiduciary or tortious duties to the employer. No special circumstances were pleaded.
5. Executive Scheme and PIP limit. The Executive Scheme was established to address the Pension Protection Fund risk affecting executive members, without enhancing their existing benefits. The PIP limit had fallen away by operation of the post-A-Day regime unless voluntarily retained. Although its retention had occurred without proper consideration, KeyMed later gave informed consent to its removal from the Executive Scheme.
6. Funding and investment. Conservative strategies were within the range of reasonable approaches open to the trustees and were also in KeyMed’s interests because they reduced the risk of future unfunded liabilities. The spousal-benefit amendment was knowingly approved and executed.
7. Pleadings and conspiracy. The Particulars of Claim confined KeyMed to a dishonest case. Since no unlawful breach of duty was established, the conspiracy and alleged duty to report misconduct also failed.