14/12/2018

This case is a reminder of the potentially devastating commercial consequences of knowingly assisting in breaches of fiduciary duties owed by employees to their former employers to protect business connections and other confidential information.  In this case, the High Court ordered a business to account for its entire capital value of $14.8 million which included both actual and anticipated profits, and profits which may not have been the ‘direct result’ of knowing assistance in the breach.

While still employed by Lifeplan Australia Friendly Society Limited (Lifeplan), Mr Woff and Mr Corby secretly approached a Lifeplan competitor, Ancient Order of Foresters in Victoria Friendly Society Limited (Foresters) with a five-year plan to divert Lifeplan’s existing funeral products business (which was run through its subsidiary Funeral Plan Management Pty Ltd (FPM)) to Foresters.  The Foresters board approved the plan which was prepared by Mr Woff and Mr Corby using Lifeplan’s confidential information and business records.  Mr Woff and Mr Corby implemented the plan both while still employed by Lifeplan and after they subsequently became employed by Foresters.  The plan was very successful. Foresters’ profit increased enormously from almost no profit, while Lifeplan suffered an almost identical loss of profit.

The trial judge found that Mr Woff and Mr Corby had breached their fiduciary and statutory duties owed to Lifeplan as their employer and that Foresters had knowingly assisted in some of those breaches.  He ordered an account of profits against Mr Woff and Mr Corby but not Foresters (holding that the breaches in which Foresters knowingly participated did not cause Foresters to earn any profit).

The Full Court allowed Lifeplan’s appeal against Foresters and, after finding that the trial judge’s test for causation was too narrow, ordered Foresters to account to Lifeplan for the net present value of the present and anticipated profits to be made during the 5 year plan (totalling $6,558,495).

On appeal to the High Court, Foresters argued that:

  • it should be required to account for only those profits which were a “direct result” of its assistance; and
  • it should not be made to account for anticipated profits.

The High Court unanimously dismissed Foresters’ appeal.  A majority of the Court (Kiefel CJ, Keane and Edelman JJ, and Gageler J in a separate judgment) also allowed Lifeplan’s cross-appeal and held that Foresters should account for the total capital value of its funeral business totalling $14,838,063 (Nettle J dissented).

In rejecting Forester’s argument that it need only account for profits that were a “direct result” of its knowing assistance, the High Court held that:

  • the causal test applying to accounts of profit for breaches of fiduciary duty extends to assistance of dishonest and fraudulent breaches;
  • it is not necessary that the breach be the sole cause of the profit, and that it was sufficient to show that the profit would not have been made “but for” dishonest wrongdoing;
  • the focus should be on the overall effect of Forester’s wrongful conduct and not the direct consequence of each act of knowing assistance;
  • the benefit which Foresters stood to gain was not sporadic deposits from retail customers , but rather the Lifeplan business connections;
  • “any benefit” received “as a result of” participation in a dishonest breach of fiduciary duty is recoverable, and business connections constitute such a benefit; and
  • Foresters provided the commercial vehicle to exploit the business connections to be acquired form Lifeplan and its role was crucial to the implementation of the plan devised by Mr Woff and Mr Corby.

Further, in ordering that Foresters account for the entire capital value of its funeral business, the High Court held that:

  • Foresters had not shown any evidence that the extraordinary increase in the profitability of the business could be explained by any reason other than the success of Mr Woff and Mr Corby’s plan;
  • the arrangements devised for Mr Woff and Mr Corby prior to their move to Foresters and then the immediate execution of those arrangements when their employment with Foresters commenced was designed to ensure that Lifeplan would not be able to respond effectively to protect their business connections;
  • there was no evidence that any of the business connections appropriated from Lifeplan would expire after the 5 year plan (as opposed to continuing for the lifetime of the business); and
  • the contention that it should only be required to account for actual profits was not consistent with principle or authority.
Expertise Area
Our Experts
""

A one-stop shop for the most frequently asked legal questions by in-house counsel, providing expert tips, example clauses and usage guides.