Dear Colleagues;

An interesting decision today from the High Court of Australia in Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited [2018] HCA 43 (10 October 2018) http://www6.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/2018/43.html . The case involves questions of liability for knowing assistance of breach of fiduciary duty, causation in such claims, and how to calculate an account of profits as a remedy.

In brief, two employees of Lifeplan (a funeral company) formed a detailed business plan to use the confidential information they had obtained while working at that company (including contacts with funeral directors) to “steal”  a large part of the business of Lifeplan and transfer it to the Foresters company. They were extremely effective in doing so, as vividly demonstrated by a graph attached to the main plurality decision here shows (I think in fact this is a case where the graph would almost have won the liability case on its own- it demonstrates a sharp fall in Lifeplan’s business after implementation of the scheme in 2010, almost exactly matched by a sharp upturn in Forester’s business). [If anyone has problems seeing the graph online, as I did, I found it downloaded in the rtf file.]

The 5-member HC bench all agreed that Foresters could be held liable as knowingly concerned in the breach of fiduciary duties by the former employees. There was a 4-1 split, however, on a cross-appeal point. The Full Federal Court had ruled that the account of profits should stop after 5 years (the terms of the original “business plan” presented to Foresters), leading to an award of some $6.5 million. But the majority here (Kiefel CJ, Keane and Edelman JJ in a joint judgment, Gagelar J in an individual decision which was the main one) hold that in fact the correct amount to be awarded should be the value of the whole funeral business of Foresters, which had really been fairly tiny before the scheme. They preferred a “but for” causation analysis rather than isolating individual aspects of profit made by specific breaches of duty. They award some $14.8 million. (Nettle J was in dissent on this point, preferring the Full Court decision.)

Other colleagues here will be able to give a better analysis than I can of specific features of the decision relating to equity and remedies. I was struck, however, by an interesting passage in Gagelar J’s judgement where his Honour compares the approaches of equity and common law to causation issues: see [88]-[90] and ff. I think our colleague Katy Barnett is planning to comment on the “Opinions on High” blog soon.

Regards

Neil

 

 

 

NEIL FOSTER

Associate Professor, Newcastle Law School

Faculty of Business and Law

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