Woodford v AIG Europe Ltd & Anor, Court of Appeal - Queen's Bench Division, March 02, 2018, [2018] EWHC 358 (QB)

Resolution Date:March 02, 2018
Issuing Organization:Queen's Bench Division
Actores:Woodford v AIG Europe Ltd & Anor
 
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Neutral Citation Number: [2018] EWHC 358 (QB)

Case No: LM-2017-000031

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS

LONDON CIRCUIT COMMERCIAL COURT (QBD)

Royal Courts of Justice

Rolls Building, 7 Rolls Buildings

Fetter lane, London EC4A 1NL

Date: 2/03/2018

Before :

MRS JUSTICE MOULDER

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Between :

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Mr Midwinter QC (instructed by Noerr LLP) for the Claimants

Mr Kimbell QC and Mr Innes (instructed by DAC Beachcroft LLP) for AIG

Mr Mallin QC (instructed by Fieldfisher ) for the Second Defendant

Hearing dates: 5-8 February and 12 February 2018

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Mrs Justice Moulder :

Introduction

  1. This is a claim for legal expenses brought by the claimants, Mr Woodford and Mr Hillman, under a Directors and Officers (``D&O'') policy of insurance (the ``Policy''). The Policyholder is Olympus Europa SE & Co. KG (the ``Policyholder''). The Policy was underwritten by the first defendant, AIG Europe Limited (``AIG'').

  2. The legal expenses sought relate to the defence of a claim brought against the claimants by KeyMed (Medical and Industrial Equipment) Limited (``OKM''), a company in the Olympus group for alleged breach of directors' duties (the ``KeyMed claim''). The trial of the KeyMed claim is due to start in March 2018.

  3. AIG deny that the Policy applies to the KeyMed claim: in particular, AIG maintains, that the cover did not extend to breaches which were known about prior to 1 August 2015; alternatively that cover was lost because the Policyholder refused to provide information requested under the Policy.

  4. In the alternative Mr Hillman, the second claimant, brings a separate claim against OKM for a failure to maintain D&O insurance in accordance with the compromise agreement entered into with Mr Hillman on 22 November 2011.

    Background

  5. The background to this matter is that in 2011 Mr Woodford was CEO of Olympus Corporation Inc. (``Olympus''), having worked for the Olympus group for many years starting as a salesman moving to become a director of OKM and then CEO of Olympus. Mr Hillman held a number of roles with OKM based in the UK, becoming Group Managing Director in 2008, a position he held until a promotion in April 2011 to a role within Olympus and thereafter remaining a director of OKM until his employment terminated in November 2011.

  6. On 14 October 2011 Mr Woodford was dismissed following whistleblowing about the finances of the Olympus group. He subsequently settled his claim against Olympus for in the region of £10 million. Mr Hillman also left the Olympus group following the dismissal of Mr Woodford. He entered into a compromise agreement in November 2011.

  7. In 2007 a separate defined benefit scheme for executives (the ``Executive Pension Scheme'') was established at OKM. Mr Woodford and Mr Hillman were the trustees and beneficiaries of the Executive Pension Scheme. In May 2014 Mr Woodford proposed to transfer his pension out of the Executive Pension Scheme to a personal pension. The estimated transfer value was £64 million.

  8. The directors of OKM sought advice as to whether or not the transfer could be prevented and subsequently investigated the wider question as to whether or not the Executive Pension Scheme had been set up lawfully.

  9. It is OKM's case (as set out in its response dated 21 June 2017 to AIG's Part 18 request) that it was ``on or after, but not before'' 14 August 2015 that they first concluded that breaches of directors' duties had either probably occurred or that there was sufficient evidence of breaches to justify bringing civil proceedings.

  10. The claim form in the KeyMed claim was issued on 28 August 2015.

  11. The KeyMed claim was served on the claimants on 18 December 2015 and the claimants notified the claim to AIG on 23 March 2016.

  12. On 2 June 2016 AIG wrote confirming coverage under the Policy in respect of defence costs with respect to claims asserted by OKM against the claimants as former directors of OKM subject to certain conditions including to the effect that their right to deny coverage was reserved if circumstances should subsequently come to light that entitled them to deny coverage.

  13. On 21 July 2016 a meeting was held in Cologne between the claimants, AIG and their respective legal advisers. As a result of statements by Mr Woodford that the allegations had been in preparation since May 2014, AIG expressed the view that if Mr Kaufmann had known about breaches of duty prior to 1 August 2015 there would be no coverage under the Policy.

  14. On 13 October 2016 AIG wrote to the broker, AON, with a series of questions for Mr Kaufmann as to when he became aware of the alleged breaches.

  15. On 12 December 2016 the head of the Policyholder's legal department responded to the letter asserting privilege.

  16. On 23 January 2017 the lawyers for AIG challenged the reference to privilege and sought an answer to the questions.

  17. On 3 February 2017 lawyers for the Policyholder responded seeking an extension of time.

  18. By letter of 7 February 2017 AIG revoked cover relying on the Policyholder's ``evasive reply'' as an ``indirect admission'' that knowledge of the breaches of duty existed before 1 August 2015 and further that AIG was exempted from its obligation to provide cover due to the Policyholder's ``deliberate breach'' of its obligation to provide information pursuant to clause 5.2 of the General terms and conditions of the Policy.

    The Policy

  19. The Policy is in German and under German law. The Policy consists of a certificate of insurance, a number of special conditions and a set of general conditions.

    Evidence

  20. For the claimants I heard oral evidence from Mr Woodford and Mr Hillman.

  21. For AIG I heard evidence from Mr Goldschmidt and Mr Unglaub both employees of AIG, and from Mr Seitz and Dr Achtmann of the law firm Bach Langheid Dallmayr Rechtsanwälte (``BLD'') who act for AIG.

  22. For OKM I heard evidence from Mr Williams, Mr Zangemeister and Mr Kaufmann. Mr Kaufmann was Executive Managing Director of the Policyholder at all material times. Mr Kaufmann reported to Mr Takeuchi who did not give evidence. The witness statement of Mr Wollenhaupt was admitted unchallenged.

  23. As the Policy is under German law, the court also has the benefit of reports produced by Professor Dr Brand instructed by the claimants, and Professor Dr Armbrüster instructed by AIG, dated 5 December 2017 and 6 December 2017 respectively as to issues of German law raised in the case. The experts also met and produced a joint memorandum dated 14 December 2017. Finally a supplemental report was produced by each of them in relation to the question of ``detriment'', each dated 7 February 2018.

  24. Professor Brand is the holder of the chair for tort law, insurance law and comparative law at the Faculty of Law and Economics of Mannheim University. Professor Armbrüster holds the chair for civil law, commercial and company law, private insurance law and private international law at the Free University of Berlin. From 2007-2013 he was also a judge at Kammergericht in Berlin. Both experts are therefore very well qualified to assist the court on the issues of German law which arise in this case. Where the evidence as to German law is agreed, the court has accepted the evidence as indicated in the judgment. Where the evidence is not agreed, it is for the court to decide between the conflicting testimony.

  25. The contractual relationships between insurer and the Policyholder are regulated in the VVG (Insurance contract code). However the regulations in this code that restrict the private autonomous freedom of design by the parties do not apply if the contract relates to a ``large risk'' which is the case here (paragraph 6 of Professor Armbrüster's report). This appears to be common ground (para 2a of the joint report).

  26. As the Policy is in German, the court has relied upon the translation provided by the parties and where extracts from the Policy are quoted in this judgment, the court is relying on the accuracy of such translation taking into account any evidence material to the construction of the relevant provisions.

  27. In relation to internal documents passing (principally) between Mr Kaufman, Mr Zangemeister and Mr Takeuchi from May 2014 to July 2015, OKM has asserted privilege and accordingly the court does not have before it these documents although a table of the documents for which privilege was claimed was produced.

  28. In preparing this judgment, the court has had the benefit of rereading counsels' written submissions; the fact that a particular submission has not been expressly addressed in the judgment does not mean that it has not been taken into account. The court has also had the benefit of reading the daily transcripts; again the fact that a particular piece of evidence has not been referred to does not mean that the court has not taken this into account in arriving at its conclusions.

    Issues for the court

  29. On the case advanced at trial the following principal issues arise for determination by the court:

    i) Did the Policyholder (or someone whose knowledge is attributable to the Policyholder as a matter of German Law) have knowledge of the alleged breaches of duty that form the subject matter of the KeyMed claim prior to 1 August 2015?

    ii) Is AIG entitled to decline cover in respect of the claimants' claim by reference to clause 5.5 of the Policy?

    iii) If AIG is not entitled to decline cover, to what sum are the claimants entitled by way of defence costs incurred to date?

    iv) If AIG is entitled to deny cover, is OKM in breach of the compromise agreement with the second claimant?

  30. Additional issues are listed in the List of Issues. It was accepted by AIG in submissions that the claimants are Insured Persons under the Policy (Issue 1). To the extent that the remaining issues need to be dealt with in the light of the court's findings on the principal...

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