Summary
In the case of KeyMed v Hillman the High Court has confirmed that trustees have no fiduciary duty to the sponsoring employer, although they may properly consider the employer’s interests where those do not conflict with the interests of the scheme members or the purposes of the pension scheme.
KeyMed brought the case against two of its former directors, for fraudulent conspiracy and breach of duty. It claimed that they had conspired to increase their own pensions at the expense of the company. The two directors were trustees, as well as members, of the pension schemes in question.
The case
KeyMed claimed that the two defendants had breached their duty, in their capacity as trustees of the pension schemes, to the employer by:
- establishing executive pension arrangements for themselves and
- setting investment and funding strategies that were unnecessarily conservative.
KeyMed argued that the men, as trustees, owed the company a fiduciary duty to maximise investment returns (and so reduce expected future contributions required from the employer).
However, the judge noted that a fiduciary can serve “only one master”, so a trustee owes a fiduciary duty only to the scheme members. Introducing a second fiduciary duty would lead to trustees having a fundamental conflict of interest.
The judge ruled also that the funding and investment strategies being followed were not unduly conservative and that, therefore, the trustees were not in breach of their duty.
Comment
This is a useful clarification for trustees that, as long as there is no conflict of interest between the members and the employer, they may take the employer’s interests into account. However, where a conflict exists, they have a fiduciary duty to the members and not to the employer.