High Court Finds Sufficient Causal Nexus for Account of Profits Remedy: [2018] HCA 43

The High Court unanimously dismissed an appeal, and by majority, allowed a cross-appeal, from a judgement from the Full Court of the Federal Court of Australia in the case of Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43 on 10 October 2018. The case concerned breach of fiduciary duties of the Corporations Act 2001 (Cth) and whether there was a sufficiently causal nexus for the remedy of account of profits.

Background to Case

Lifeplan Australia Friendly Society Ltd (‘Lifeplan’) has been involved in the funeral products business through its subsidiary Funeral Plan Management Pty Ltd. This work involved the provision of investment products to meet the cost of pre-arranged funerals. Ancient Order of Foresters in Victoria Friendly Society Ltd (‘Foresters’) is also involved in the funeral products business. Noel Woff and Richard Corby were employed by Lifeplan in senior management positions at Funeral Plan Management Pty Ltd. They approached Foresters in 2010 with a plan to divert all of Lifeplan’s funeral products business to Foresters. They used Lifeplan’s confidential information and business records to create a five-year business concept plan, which assisted Foresters in attracting some of Lifeplan’s client base. Following this, Foresters experienced an increase in its inflow of its funeral products business, while Lifeplan’s inflows fell.

Decision of Primary Judge

Lifeplan and FPM commenced proceedings against Woff and Corby for breach of fiduciary duties contained in the Corporations Act 2001 (Cth) and also joined Foresters, arguing that it had knowingly assisted in these breaches. Lifeplan argued that it should be entitled to an account of profits for the entire value of Foresters’ funeral business. The primary judge found that Woff and Corby had breached their fiduciary duties and Foresters had knowingly assisted. An account of profits in equity and under the Act was ordered against both Woff and Corby, However the primary judge declined to order an account of products against Foresters. He found that the confidential information was not in itself used to generate the profits by Foresters.

Appeal to Full Court of the Federal Court

The Full Court of the Federal Court allowed an appeal from Lifeplan, finding that the primary judge’s formulation of the causal nexus was narrow regarding Foresters’ account of profits. The Full Court ordered that Foresters account for profits to the sum of $6,558,495.

Decision of the High Court

Foresters appealed to the High Court, arguing that the Full Federal Court made an error in concluding that there was a sufficient causal nexus between the profits and Foresters’ participation. The High Court found that Foresters’ knowing assistance of Woff and Corby’s breaches contributed to the success of its business and therefore rendered it liable. However, by majority, the Court allowed Lifeplan’s cross-appeal on the basis that there was no reason to restrict Foresters’ obligation to disgorge less than the entire capital value of the business it gained through its actions, holding that Foresters was liable to account for profits to the sum of $14,838,063.

Chief Justice Kiefel, and Justices Keane and Edelman stated:

‘An examination of the facts of the case shows that Foresters knowingly took advantage of Messrs Woff and Corby's dishonest and fraudulent design, which involved breaches of fiduciary duty, in order to enhance its business by appropriating the business connections of its competitors. It succeeded in doing so. In such a case, equity requires that Foresters account for the full value of the enhancement.’ [at 2]

They found that Foresters directly gained benefits from its ‘participation in the various acts of disloyalty by Woff and Corby’ [at 7]. They also noted the fact that Foresters provided the commercial vehicle used to exploit business connections from Lifeplan, which was necessary to allow Woff and Corby to implement their plan. Justice Gageler similarly said:

‘To sum up, what Foresters obtained by reason of the breaches of fiduciary duty by Mr Woff and Mr Corby in which Foresters knowingly participated was a business. Foresters obtained that business to the cost of the business which Lifeplan operated through Funeral Plan Management Pty Ltd. Foresters' business can be, and has been, appropriately valued in a manner which duly allows for all of Foresters' expenses and for all of Foresters' ongoing business risks. Foresters has failed to establish any reason for considering that an order that it account for the entirety of the business as so valued is inequitable.’ [at 119]

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Sources:

Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43, and judgement summary.

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