Disgorging Profits - Breach of Fiduciary Duty and Knowing Assistance

The High Court in Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited & Anor [2018] HCA 43 recently ordered the appellant (Foresters) to account to the respondents (Lifeplan) the sum of $14,838,063. Lifeplan, through its subsidiary Funeral Plan Management Pty Ltd ("FPM"), was in the funeral products business and provided pre-arranged funeral investment products. Foresters was also a smaller player in the funeral products market. Woff and Corby held management positions at FPM. In 2010, they approached Foresters with a plan to divert Lifeplan's business to Foresters. The plan was formalised in a five-year business concept plan ("the BCP") which utilised Lifeplan's confidential information to take as much of Lifeplan's client base to Foresters as possible. The plan was successful and annual inflows to Foresters grew from $1.6 million in 2010 to $24 million in 2012. By contrast, Lifeplan's inflows fell over the same period from $68 million to $45 million.

In the Federal Court, claims were made against Woff and Corby of alleged breaches of fiduciary duties and contraventions of the Corporations Act 2001 (Cth) and subsequent claims against Foresters alleged that it had knowingly assisted in those breaches. Lifeplan and FPM elected to claim an account of profits, instead of damages, for the entire value of Foresters' funeral products business. Besanko J held breaches of fiduciary duties and knowing assistance had occurred and an account of profits and under the Corporations Act was ordered against each of Woff and Corby. However, no account of profits was ordered against Foresters on the basis that confidential information was not itself "used to generate profits" by Foresters. The Full Court of the Federal Court allowed Lifeplan's appeal and held that the trial judge’s formulation of the causal nexus required was too narrow. Foresters was ordered to account for profits in the sum of $6,558,495.

On appeal to the High Court, Gageler J held: “The fiduciary duty that an employee has to an employer within the scope of the relationship of employment .. is a duty of "absolute and disinterested loyalty.” The majority held that: “Foresters provided the commercial vehicle which would acquire and exploit the business connections to be appropriated from Lifeplan and FPM. That vehicle was necessary to enable Woff and Corby to implement the strategy of despoliation that they had devised. There was no suggestion in the evidence that the strategy could have been implemented by Woff and Corby acting alone or, indeed, with any other competitor in the market.”

The High Court held that Foresters' knowing assistance of Woff and Corby's breaches had at least some bearing on the success of its funeral products business. A majority allowed Lifeplan's and FPM's cross‑appeal and held that there was no reason in principle to restrict Foresters' obligation to disgorge less than the entire capital value of the business it acquired. The Court held Foresters should account to Lifeplan and FPM in the amount of $14,838,063.

Nigel Wilson