Lloyd's Maritime and Commercial Law Quarterly
FIXING LIABILITY ON KNOWING PARTICIPANTS IN AUSTRALIA: HARD AND FAST
Eliza Wallace*
Kanaga Dharmananda†
Foresters v Lifeplan
In Ancient Order of Foresters in Victoria Friendly Soc Ltd v Lifeplan Australia Friendly Soc Ltd,1 the High Court of Australia has considered the quantification of an account of profits against a knowing participant in breach of fiduciary duty. This is welcome. Whilst it is clear that an account of profits is available against breaching fiduciaries and knowing participants, its quantification, in both contexts, has been underdeveloped. The decision provides clarity on a number of matters. Some important questions remain, including the precise scope of the causation requirement. The decision has also produced some significant differences between Australian and English law.
The case concerned two companies in the business of selling “funeral products”, essentially investment contracts customers may enter to arrange the payment of their funeral expenses. Lifeplan, through its subsidiary FPM, had a successful business providing these products throughout Australia. Foresters was another provider, smaller and less profitable than Lifeplan.
In 2010, two senior employees of FPM, Mr Woff and Mr Corby, approached Foresters with a plan to expand Foresters’ business by acquiring FPM’s customer base and marketing channels. They prepared a detailed “business concept plan” for Foresters, containing confidential information belonging to FPM, which set out the steps Foresters could take over five years to implement the plan. With the involvement of Woff and Corby, Foresters carried out the plan. It proved a success. Foresters’ profits increased substantially over the ensuing years, and FPM and Lifeplan’s profits decreased in direct proportion.
Lifeplan and FPM commenced proceedings against Woff and Corby for breach of fiduciary duty and against Foresters for knowing participation in breach of fiduciary duty, seeking an account of profits against all defendants. Woff and Corby were held to have committed various breaches of the fiduciary duties they owed to Lifeplan and FPM as employees, including by providing FPM’s confidential information to Foresters. They were required to account for the profits they had personally made.2
Foresters’ liability was more complex. The primary judge (Besanko J) held that Foresters had knowingly participated in some of Woff and Corby’s breaches of fiduciary duty, including the use of FPM’s confidential information in the business concept plan.3 He found that Foresters would not have carried out the proposal had it not received this plan.4 Despite this, Foresters was not liable to account for any of its profits, on the basis that the confidential information in the plan was not “used to generate” its profits5 and that Woff and Corby’s proposal could have been carried out legitimately after they left FPM.6
* Allen & Overy, Perth.
† SC, Quayside Chambers, Perth.
1. [2018] HCA 43 (to which the following unattributed citations are made).
2. (2016) 259 IR 384, 471 [446].
3. Ibid, 456–457 [378].
4. Ibid, 446 [324].
5. Ibid, 470 [443].
6. Ibid, 470–471 [444].
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