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Directors’ pension fraud claim rejected


In KeyMed (Medical & Industrial Equipment) Ltd v Hillman and Woodford [2019] EWHC 485 (Ch), Marcus Smith J has rejected a claim that two company directors conspired over several years to improve the value of their pensions at the expense of their employer.

The claim was brought by the UK subsidiary of Olympus Corporation (“Olympus”) against Michael Woodford, the former President and CEO of Olympus, who blew the whistle on a multi-billion-dollar fraud at the company shortly after becoming CEO. The UK subsidiary (“KeyMed”) was the company in which Mr Woodford had worked for almost 30 years prior to his promotion to the Olympus CEO role. In its claim, KeyMed alleged that Mr Woodford and a fellow director, Paul Hillman, dishonestly conspired to set up an ‘executive pension scheme’ into which their pensions were transferred and (a) not to retain in the scheme a provision capping increases to pensions in payment by reference to Inland Revenue limits that were no longer in force and (b) to fund the scheme on an ‘unduly conservative’ basis, meaning that the company paid more in pension contributions than it might otherwise have done. Though the creation, terms and funding of the executive scheme were approved by the other directors, KeyMed contended that the approvals were not sufficiently fully informed to amount to valid consent.

Both Mr Woodford and Mr Hillman vigorously denied any wrongdoing and, following a 4-week trial in the Chancery Division, Marcus Smith J rejected the claim. Having reviewed the evidence, he concluded that Mr Woodford and Mr Hillman acted honestly and in accordance with their directors’ duties. In particular, both the setting up of the executive scheme and the decision not to retain the cap on increases in pensions in payment had been openly explained to, discussed with and approved by the other directors who thereby gave informed consent on behalf of the company. The Judge further held that the conservative funding basis that had been adopted was in fact in KeyMed’s interest and had also been properly approved.

At trial, KeyMed sought to pursue an alternative case of non-dishonest breach of fiduciary duty against Mr Hillman alone. Marcus Smith J held that the alternative case was not open on the pleadings, and that in any event there was no breach of duty as alleged.

The judgment is here.

Simon Salzedo QC and Stephen Midwinter QC appeared for the Defendants, instructed by Simmons & Simmons LLP.