Severe consequences for misusing confidential information for commercial benefit
Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited  HCA 43 concerned two employees of Lifeplan, a business engaged in providing products to meet the cost of prearranged funerals. While still employed at Lifeplan, the employees surreptitiously proffered a business plan, which relied on Lifeplan’s confidential information, to a competitor, Foresters. This business plan was to develop Foresters’ business in a way that would capture much (if not all) of the existing business of Lifeplan. Foresters’ board approved the business plan. The employees resigned from Lifeplan, and commenced employment with Foresters. Within two years following the implementation of the business plan, Foresters’ annual revenue increased from $1.6 million to $24 million and Lifeplan’s revenue decreased from $68 million to $45 million. The Full Federal Court held that the employees’ misuse of confidential information via the business connections mentioned in the business plan was a breach of their fiduciary duty to their employer and that Foresters had knowingly assisted in the breach.
The Full Federal Court ordered Foresters to account to Lifeplan for the present value of profits made and projected to be made on contracts entered into by Foresters during a certain period.
Foresters appealed to the High Court disputing, among other things, the calculation of the account of profits by the Full Federal Court. Lifeplan cross-appealed that it should be entitled to the full benefit Foresters received from its knowing assistance in a breach of fiduciary duties, which was in effect the total capital value of Foresters’ business.
By a majority of 4:1 the High Court held that, based on the facts of the case, there was no basis for requiring Foresters to account for anything less than the full value of the benefit of the business connections and other confidential information appropriated from its competitor, including in the future. The majority noted that once the causal link between the breach of duty and the benefit had been established, the onus lay on the errant fiduciary and its knowing assistants (in this case, Foresters) to demonstrate that they should not be liable for the full benefit received by their breach, which could be demonstrated by (among other things) showing that the benefit is ‘beyond the scope of the liability.’ The majority considered that Foresters did not prove that the benefit derived from its knowing assistance of a breach of confidentiality would expire after a particular period. Further, there was nothing to suggest that over time the business connections would return to Lifeplan.
The majority’s account of profits therefore encompassed the capital value of Foresters’ funeral fund business, including all future profits (with some allowances) in the amount of approximately $14 million.
This case serves as a reminder to parties that the penalties for taking advantage of information obtained by the misuse of confidential information are severe.
The full decision can be found here.