The reference to "our historic sales figures" was a reference to Lifeplan's historical sales figures. Woff had taken those figures directly from a confidential Lifeplan document showing historical new business inflows which he had emailed to his personal email address on 17 August 2010.
Section 6.3, entitled "Geographical Spread", contained an estimate of the percentage inflows to be attributed to each State. Again, the source of the information in that section was a confidential Lifeplan document.
Section 11 was in the following terms:
"11. Market Reaction of [Australian Unity]
The reaction of Australian Unity to the loss of its entire funeral fund sales team (the other two members have indicated their intention to resign) is unpredictable. However, all indications suggest that they will do nothing as their eyes seem to be clearly fixed on developing other market segments and so they are more likely to simply sit back and take heart at the short term expense savings they will now enjoy."
Appendix C, entitled "Visitation Plan", was a reproduction of the "2010/2011 Travel, Accom & Entertainment Expense Budget" attachment to Woff and Corby's email to Hughes of 5 August 2010, which, as already mentioned, was very similar in layout and form to a Lifeplan document bearing the same title.
Appendix D, entitled "Bonus Rate Comparison ('Untaxed') - Funeral Plan Management ('FPM')", was a schedule of returns of various funeral funds. It set out the bonus rate earned on 11 different funds involving seven different fund managers for each year from 1996 to 2009. Tellingly, the heading contained a reference to FPM, not FPA. Woff prepared Appendix D by using a confidential Lifeplan document with the same heading that he had emailed to his private email address on 17 August 2010.
Appendix E was entitled "Foresters Profit Revenue Model" and was similar in layout and form to the document of the same description which Woff sent to Hughes on 5 August 2010, which, as already mentioned, was similar in layout and form to a Lifeplan document.
Hughes submitted the BCP to the Foresters Board meeting held on 30 August 2010. The Board considered that the proposal was attractive and resolved to invite Woff and Corby to present the proposal to the Board at a subsequent meeting. The Board also directed Hughes to ascertain whether Woff and Corby were constrained under their employment contracts with Lifeplan by any covenant preventing or restricting them from accepting positions as employees of Foresters in competition with Lifeplan. The minutes of the meeting of 30 August 2010 recorded the following:
"6.10 Funeral fund proposal:
The CEO [Hughes] confirmed he had been in discussions with Noel Woff the General Manager of Funeral Plan Management concerning the possibility of he and his Sales Manager pursuing a Funeral Bond initiative with Foresters. The CEO told the Board that he was suggesting they consider the proposal and if interested get Noel and his associate in to review and discuss matters of interest. After discussions it was agreed that a meeting be convened with Noel Woff and his associate Richard Corby but that the CEO should [first] address the following matters with them:
(a) Are there any restrictions in them setting up the proposed structure in opposition to Funeral Plan Management in their current employment contracts;
(b) How long they anticipate Foresters continuing to remunerate them; and
(c) Is it necessary for the commission payment to be channelled through a separate company."
Hughes made inquiries of Woff and Corby and was advised that there was no contractual limitation which prevented either of them from accepting employment with Foresters. He invited Woff and Corby to make a formal presentation to the Board at a Board meeting planned for 13 September 2010.
From 30 August 2010, Woff continued to send emails from his Lifeplan email address to his private email address attaching numerous confidential Lifeplan documents. They are essayed in the primary judge's reasons. On 7 September 2010, Woff sent from his Lifeplan email address to his private email address an email of which the subject was "Recipe". It was comprised of speaking notes for the meeting with the Board of Foresters and notes of questions which Woff expected the Board might ask together with his proposed answers to those questions. The "Recipe" recorded that "competitors" in the market would be "very vulnerable" between October 2010 and March 2011 and that there would be confusion in the market when the new business was established. It is apparent from the following section of the "Recipe" that the "competitors" were Lifeplan and FPM:
"There will be firms that follow and fill in stationery order forms simply because they wont [sic] know any better.
But there will also be firms that will fill in our documentation and then mistakenly deposit the funds with the wrong entity. We can expect a lot of that to happen.
So we need to capitalise on the confusion." (emphasis in original)
Later in the "Recipe", in a list headed "Why will firms come to us?", the following statement appeared:
"There will be confusion in the market after we leave and lines of demarcation between fund management firms will be blurred (and to be honest we may at times let this happen)".
There was also a statement to the effect that the biggest challenge for those pursuing the proposal would be in securing one of Lifeplan's major clients at the time, Tobin Brothers Funerals ("Tobins"), in year one.
On 9 September 2010, Woff and Corby wrote to their accountant who was dealing with the incorporation of FPA and the establishment of a trust enclosing a copy of their proposal to Foresters. The letter stated that:
"This information is extremely confidential given it contains figures relating to funeral industry participants. For the sake of good order could you please read the attached confidentiality deed that we can sign at our initial meeting."
A special Board meeting of Foresters was convened for 13 September 2010 for the purpose of receiving and considering Woff and Corby's proposal. Woff made his presentation supported by Corby. The minutes of the meeting recorded that Woff and Corby's proposal involved them promoting a Foresters funeral bond through funeral directors in a similar manner to their work with FPM. They also recorded that the proposal involved Woff and Corby becoming employees of Foresters and establishing a marketing company and receiving a commission through that company. The Board directed Hughes to write to Woff and Corby advising them that Foresters was interested in "moving discussions forward", although there remained a number of matters to be resolved.
On 20 September 2010, Hughes wrote to Woff and Corby, saying, among other things:
"Please accept this letter as Foresters Friendly Society's expression of interest in moving forward with your proposed Funeral Fund venture. This expression of interest is absolutely conditional on there being no employment restrictions on either Noel Woff or Richard Corby under employment arrangements with their current employer.
You will appreciate that Foresters do not wish to engage in litigation with your current employer regarding employment issues or intellectual property matters.
…
In measuring the traction of the product the Board will rely heavily upon your predictions of sales/growth that you provided in your written proposal document.
…
We ask that you review this proposal and come back to us with your comments and recommendations. We trust the proposed arrangement is reasonably in line with your expectations and will be happy to discuss any problems you may have, we are confident that we can come to [a] mutually suitable arrangement and can develop a satisfactory basis to move the joint venture forward." (emphasis added)
The emphasised paragraph was included at Fleming's direction and the reference in it to "your written proposal document" was a reference to the BCP. Woff and Corby responded by letter dated 27 September 2010 that, subject to the resolution of matters they identified, they were ready to proceed.
In October and November 2010, Woff and Corby, while still employed by Lifeplan, undertook a review of the rules and disclosure documents of the Foresters Funeral Fund. During this period, Woff suggested amendments to the Fund rules and created new disclosure documents for the Fund, which he sent to Hughes. One of the new disclosure documents contained in excess of 25 sentences or paragraphs that had been copied from a Lifeplan document. Other documents prepared by Woff for Foresters during this period which were prepared using Lifeplan documents included stationery request forms, funeral benefit claim forms, marketing flyers and pre-paid funeral contracts.
Corby handed in his resignation from Lifeplan on 28 October 2010. His resignation was effective on 25 November 2010, and he commenced employment with Foresters on 6 December 2010. Woff resigned from his employment with Lifeplan on 1 December 2010. His resignation was effective on 29 December 2010, and he commenced employment with Foresters on 4 January 2011. From the time Woff and Corby became employees of Foresters, the Foresters Funeral Fund grew substantially and Lifeplan's funeral bond business diminished. At 30 June 2010, the balance of the Foresters Funeral Fund was $13,238,399; by 30 June 2013, it had grown to $62,940,608. For funeral bonds written from 2011 onwards, Foresters earned a 2 per cent management fee calculated by reference to the amounts in the Fund.
The primary judge's findings
As already intimated, the primary judge found that the BCP was extensively based on confidential Lifeplan information. In summary:
(1) Section 3 of the BCP copied phraseology in a confidential Lifeplan document that Woff had sent to his private email address on 17 August 2010;
(2) Section 4.1 of the BCP was prepared using reports that had been written by an external consultant engaged to undertake research exclusively for Lifeplan that Woff had sent to an external email address on 15 February 2010;
(3) the table in Section 4.2 of the BCP was prepared using a confidential Lifeplan spreadsheet that Woff had sent to his private email address on 17 August 2010;
(4) the strengths, weaknesses, opportunities and threats analysis in Section 5 of the BCP was prepared, at least in part, by reference to confidential Lifeplan documents that Woff had sent to his private email address on 17 August 2010;
(5) the historical sales figures in Section 6.2 of the BCP and the geographical spread figures in Section 6.3 were prepared using confidential Lifeplan documents that Woff had sent to his private email address on 17 August 2010;
(6) Appendix B to the BCP was prepared using information from two confidential Lifeplan spreadsheets that Woff had sent to his private email address on 19 July 2010 and 17 August 2010;
(7) Appendix C to the BCP was prepared using information from a Lifeplan document;
(8) Appendix D to the BCP was prepared using a confidential Lifeplan document that Woff had sent to his private email address on 17 August 2010; and
(9) the structure and form of Appendix E to the BCP followed the structure and form of a Lifeplan document.
The primary judge found that Woff and Corby had acted in breach of the fiduciary duties they owed to Lifeplan and FPM by preparing the BCP using the above information. The primary judge also found that Foresters was aware of circumstances which would indicate to any honest and reasonable person that the BCP was based on confidential information. As his Honour observed, the annual inflows and contract numbers in Appendix B were sufficient to found that conclusion, as were the words and table in Section 4.2, the table in Section 6.2 and the heading to Appendix D. His Honour therefore concluded that Foresters knowingly assisted Woff and Corby in their breaches of fiduciary duty with respect to the BCP.
The primary judge found, too, that Foresters was aware that Woff and Corby, while still employed by Lifeplan, approached Lifeplan funeral director clients to solicit their business for Foresters and FPA. This was a breach of fiduciary duty by Woff and Corby which Foresters knowingly assisted. Woff and Corby had also committed breaches of fiduciary duty by attempting to solicit for Foresters the business of Tobins, and making disparaging remarks regarding Lifeplan and FPM in the course of doing so. On the evidence, however, the primary judge did not think that Foresters had the requisite knowledge to have knowingly assisted those breaches of fiduciary duty.
The primary judge found that Woff and Corby's involvement in reviewing and preparing rules and disclosure documents for the Foresters Funeral Fund while they were still employed by Lifeplan "went well beyond the conduct a current employee may permissibly undertake" and amounted to a breach of their fiduciary duties. Foresters, through Hughes, played an active role in this conduct and thus knowingly assisted those breaches.
The primary judge also determined that the Lifeplan confidential information included in Appendix B to the BCP had the potential to influence and did in fact influence Foresters in at least two ways: (1) by giving Foresters confidence that the annual sales targets set out elsewhere in the BCP were achievable, or might be achieved; and (2) at a more general level, by giving Foresters confidence that Woff and Corby knew what they were talking about. It played a real and non-peripheral part in Foresters' decision to proceed. His Honour concluded that Foresters would not have proceeded in the absence of the BCP.
The primary judge further found, however, that the only subsequent use of the Lifeplan confidential information contained in the BCP (scil after the Board meeting of 13 September 2010) was the use of the annual sales figures of funeral directors in Appendix B to the BCP. At least some of those figures appeared in reports by FPA to the Board of Foresters in January 2011 and March 2011.
In the result, the primary judge held that Lifeplan and FPM were not entitled to an account of the profits generated by Foresters in relation to the Foresters Funeral Fund in 2011 and subsequent financial years, because:
"The confidential information was not used to generate any of these profits. There is nothing to suggest that the information in Appendix B, the table in section 4.2, the information as to geographical spread or Appendix D were used to generate profits. The use of some of the information in Appendix B by FPA in its Board Reports in early 2011 is not a use that generated profits. The fact that the proposed business would not have gone ahead without the BCP and that the confidential information with respect to which I have found Foresters had knowledge within the relevant legal test, played a part in Foresters' decision to proceed, is not sufficient to conclude that the profits claimed were attributable to those matters."
The Full Court's reasons
The Full Court took a different view of the matter. As their Honours conceived of Woff and Corby's breaches of fiduciary duty, they comprised a wholesale plundering of Lifeplan's confidential information and business records as part of an orchestrated plan to take as many of Lifeplan's clients as quickly as possible into a new venture with Foresters; the use by Woff and Corby of crucial Lifeplan confidential information for the preparation of the BCP; and the later utilisation of that information to structure and conduct operations in the new venture with Foresters, with the knowing involvement of Foresters. It followed, the Full Court held, that, because equity requires a person knowingly involved in a breach of fiduciary duty to account for the profits thereby gained, Foresters was required to account to Lifeplan for the profits generated in the new venture:
"Without the dishonest taking advantage of the information and without the breaches, Mr Woff and Mr Corby would not have been employed by Foresters, and Foresters would not have expanded its business in this segment in the hands of Mr Woff and Mr Corby as it did. Put another way, without the breaches of duty in which Foresters was knowingly involved, without Messrs Woff and Corby taking advantage of their positions and of the confidential information taken from their employer, Foresters would not have made the profits it did from the business written in the venture with Messrs Woff and Corby. To conclude that such is a sufficient causal connection to found a liability to account for profits of the business would not be to extend the causal relationship beyond the expressions of profits actually made by reason of the breaches; rather, it would be to fashion the remedy in a way that, in terms of a causal attribution, would conform to and enforce, and not undermine the strictness of the duty by fashioning the remedy to fit the nature of the case and the particular facts."
The Full Court considered, however, that in the circumstances of this matter, it would carry the remedy of account to extremes to require Foresters to account to Lifeplan for all of the profits generated by Foresters in the new venture. Proportionality demanded due recognition of the fact that, although Foresters would not have entered into the new venture were it not for its knowing involvement in Woff and Corby's breaches of fiduciary duty, none of the breaches of duty resulted directly in the generation of any profits. It was the setting up and conduct of the new venture which had that effect and that dictated that the account of profits be limited accordingly.
The Full Court further observed that, in those circumstances, the extent of the required limitation was not entirely susceptible to logical analysis. What appeared to be critical was that Woff and Corby's breaches of fiduciary duty, and Foresters' knowing involvement in them, delivered to Foresters the plan for the first five years of the new venture. Thus, the Full Court concluded that limiting the account to the net present value of funeral bond contracts written up to 30 June 2015 would ensure that Foresters accounted for the benefit it derived from the five year plan while recognising the reality of the contribution of factors unrelated to the breaches of duty. As the Full Court expressed it:
"The BCP and the considerations in relation to commencing the business contemplated a five-year plan. Terminating the valuation of the contracts at 30 June 2015 would adequately and proportionately account for sufficient capital profits to fulfil the above objectives. They are capital profits that would not have been made had the breaches in which the participation occurred not been committed. But the limitation to that date gives due recognition to the other factors to which we have made mention and which affect an assessment of the proportionate consequences of the breaches and participation therein. The setting of the date at 30 June 2015 sets the account within the framework of the five‑year business plan, with a modest deduction of six months. It sets an account for the period of planning for the new business that was the central focus of the behaviour that constituted the breaches and the participation.
The consequence of applying this measure of profit to 30 June 2015 with a valuation date of 30 April 2015 was agreed in the supplementary joint report to be $6,558,495."
The Full Court ordered accordingly that Foresters account to Lifeplan and FPM in the sum of $6,558,495.
Alleged factual errors
Counsel for Foresters contended that the Full Court erred in finding that Foresters knowingly assisted Woff and Corby's breaches of fiduciary duty in respect of their preparation of "other documents" for Foresters, meaning thereby stationery request forms, funeral benefit claim forms, marketing flyers and pre‑paid funeral contracts.
That contention should be rejected. It is true that the primary judge did not find in terms that Foresters knowingly assisted Woff and Corby in misappropriating those documents. But as the Full Court stated, consistently with the findings of the primary judge, the facts were as follows:
"In October and November [2010], Mr Woff and Mr Corby were preparing documentation for the new business, including disclosure documents and marketing flyers and communicated with Mr Hughes about these. The preparation of the suite of documents to give to prospective funeral funds was important. The easier and more seamless the task of signing up to the new business was made, the greater the likelihood of attracting business. Mr Hughes was consulted by Mr Woff about this in November. The disclosure documents, stationery request forms, funeral benefit claim forms, marketing flyers and pre‑paid funeral contracts were created from Lifeplan's documents."
Those being the facts, it is accurate to say that Foresters knowingly assisted Woff and Corby in the preparation of the "other documents".
Counsel for Foresters contended that the Full Court erred in characterising the BCP "as a body of information to be used by the [Foresters] board to measure the success of the venture" and in stating that "[t]he BCP … was to play an important role … in the implementation of the decision [to go ahead with the new venture]". In counsel's submission, that went well beyond, and ran counter to, the primary judge's finding that the significance of the confidential information in the BCP was that it gave the Board of Foresters confidence that the sales targets in the BCP were achievable and that Woff and Corby knew what they were talking about.
That submission should also be rejected. Reference has already been made to the large quantity of Lifeplan confidential documents and information misappropriated by Woff and Corby and used to prepare the BCP. On any reasonable view of the matter, the BCP is aptly described as a body of information to be used by the Board of Foresters to measure the success of the new venture and which played an important role in the implementation of the Board's decision to go ahead with the new business. More accurately, as the Full Court put it:
"[The BCP] was a document based on confidential information taken in dishonest breach of fiduciary obligation. It was a document that enabled the Foresters' board to evaluate the worth of the commercial opportunity against the risk to be undertaken, and to make the commercial decision with the confidence of knowing that it was privy to the detail of Lifeplan's strategies, financial analyses and up-to-date results."
Counsel for Foresters contended that the Full Court erred in finding that Foresters was guilty of "active participation in a dishonest breach of fiduciary duty" in relation to the BCP, by going well beyond the finding of the primary judge that Foresters assisted in the breach of fiduciary duty "because it was open to it, through Mr Hughes and Mr Fleming, to require Mr Woff and Mr Corby to remove [Lifeplan's] information from the BCP before it was presented to the Board of Foresters".
That contention should also be rejected. In terms, what the Full Court found was that:
"Looking at the contents of the BCP, it discloses detailed information, some of which expressly, and plainly, came from Lifeplan's records. The information throughout the document was of such detailed specificity and commercial importance, including historical financial information, that no honest and reasonable person, not shutting his or her eyes to the obvious, could conclude other than that the document was based on Lifeplan's confidential information brought by current employees of Lifeplan who were seeking to persuade the board of Foresters to make a decision to attack the business of Lifeplan for the joint future benefit of the employees and Foresters. This was not mere knowledge gained in a role of spectator to another's wrong. The members of the board of Foresters, not just its chairman and CEO (Messrs Fleming and Hughes, respectively) knew or should be taken to have known (by the standards of honest and reasonable people) that they were being supplied with confidential business information of a competitor by the competitor's current employees, in order to have them make a decision to enter into a business relationship with the current employees of the competitor to the likely commercial disadvantage of the competitor, and the likely and intended commercial advantage of their company and the employees. This was not mere knowledge; this was active participation in a dishonest breach of fiduciary duty."
Regardless of whether that finding goes beyond the primary judge's characterisation of Foresters' participation as comprised of its failure to require Woff and Corby to remove Lifeplan's confidential information from the BCP, the finding is correct. Woff and Corby's taking of Lifeplan's confidential information and use of it in preparing the BCP was, as the Full Court said, a wholesale plundering of the confidential information of Lifeplan of which Foresters, by the standards of an honest and reasonable person, undoubtedly should have been aware.
The obligation to account
As Gibbs J observed in Consul Development Pty Ltd v DPC Estates Pty Ltd, if the strict rule of equity that forbids a person in a fiduciary position to profit from his or her position is to be seen as designed to deter fiduciaries from being swayed by interests other than duty - "a rule to protect directors, trustees, and others against the fallibility of human nature" - it logically applies equally to other persons to deter them from knowingly assisting fiduciaries to violate their duty. Thus:
"a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty was owed for any benefit he [or she] has received as a result of such participation."
As was later observed in Warman International Ltd v Dwyer, the assessment of the profit derived as a result of a breach of fiduciary duty or knowing involvement in a breach of fiduciary duty is often difficult in practice. Frequently, the matter does not permit of mathematical exactness but only of reasonable approximation. The aim, however, is to determine as accurately as possible the true measure of the profit or benefit obtained as a result of the breach of fiduciary duty. That necessitates application of what is in effect, if not in name, an equitable conception of causation of whether the breach of fiduciary duty has materially contributed to the profit the subject of account, as opposed to legal tests of causation and remoteness. To that end, it is necessary to draw a distinction between cases where the breach of duty or knowing involvement results in the acquisition of a specific asset and cases where the breach of duty or knowing involvement results in the acquisition of a business opportunity.
As Warman demonstrates, where what is obtained as a result of a breach of fiduciary duty is a business opportunity, as opposed to a specific asset, the circumstances may dictate that the period of time over which profits are awarded should be limited. Thus, in Warman, profits were awarded for a limited period of the first two years of operation of the relevant businesses, because those businesses were built in part on a third party's ownership of local goodwill and local assembly rights and only in part on the breach of fiduciary duty. Similarly, in Kao Lee & Yip v Koo Hoi Yan, where in breach of fiduciary duty a partner at the plaintiff law firm had set up a rival law firm to which he had diverted work that would otherwise have flowed to the plaintiff firm, an account of profits of the rival firm was limited to a one year period.
Where what is obtained as a result of a breach of fiduciary duty is a business opportunity, it is also necessary to make a choice between awarding all of the profits of the business (whether over the whole of the life of the business or, as in Warman, for a limited time) or a percentage of the profits proportionate to the extent to which the breach of fiduciary duty has contributed to the business. As Mason J observed in Hospital Products Ltd v United States Surgical Corporation, referring to the judgment of Upjohn J in In re Jarvis, decd:
"One approach, more favourable to the fiduciary, is that he [or she] should be held liable to account as constructive trustee not of the entire business but of the particular benefits which flowed to him [or her] in breach of his [or her] duty. Another approach, less favourable to the fiduciary, is that he [or she] should be held accountable for the entire business and its profits, due allowance being made for the time, energy, skill and financial contribution that he [or she] has expended or made. … In each case the form of inquiry to be directed is that which will reflect as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his [or her] duty."
In Warman, the Court considered the second approach (of awarding the entirety of the net profits of the businesses for a period of two years) to be appropriate, because the businesses operated by the errant fiduciary and the third party had been carved out of the plaintiff's business. The Court had earlier remarked that, as a general rule, a court will not apportion profits in the absence of an antecedent arrangement for profit-sharing. A further possibility, as Mason J remarked in Hospital Products, is for a court to make an allowance for the errant fiduciary or knowing assistant's skill, expertise and expenses. The onus is on the defendant to establish that an account of profits should be reduced in this way.
Consistently with those considerations, it was open to the Full Court to order an account of the profits derived by Foresters from funeral bond contracts written up to 30 June 2015, a period equating roughly to the first five years of the new venture (with a modest deduction of six months). As is explained in what follows, if the Full Court had awarded anything less than that, it would have risked enabling Foresters to benefit from its knowing involvement in Woff and Corby's breaches of fiduciary duty. By contrast, to award Lifeplan and FPM the entire value of the Foresters Funeral Fund business, as contended for by them, would require Foresters to account for profits to which the breaches of fiduciary duty had not materially contributed and, to that extent, would make the exercise one of unwarranted punishment of Foresters and a vehicle for the unjust enrichment of Lifeplan and FPM.
As the Full Court observed in substance, the BCP and the other information provided by Woff and Corby to Foresters and received by Foresters in knowing involvement in Woff and Corby's breaches of fiduciary duty included the knowhow, client information, client goodwill, logistical systems and financial projections necessary for the conduct of the proposed new business for the first five years of its operations. Together they afforded Foresters an opportunity to commence and conduct the first five years of operations according to a five year plan and with a degree of confidence in the plan which would have been impossible in the absence of Woff and Corby's breaches of duty. It was, therefore, for the benefit of that opportunity that Foresters was liable to account, and the most logical and realistic measure of that benefit was the net present value of those profits derived from that initial period of operations.
It is true, as the primary judge held, that there was no evidence of Foresters making direct use of the BCP after March 2011, at least in the sense of comparing actual performance to date with BCP projected sales figures to that date. But that is not to say that Foresters did not continue to benefit from the BCP throughout the first five years after commencing its new venture with Woff and Corby. On the evidence, the BCP was not only the basis on which Foresters determined to proceed with Woff and Corby's proposal but also the basis on which the business was in fact planned and structured. In the absence of evidence to the contrary, it is naturally to be inferred that the business was structured and conducted accordingly. And inasmuch as the BCP was not only the basis on which Foresters determined to proceed with the new business but also the basis on which the new business was planned and structured, here, as in Warman, it was appropriate to take as the starting point for the account of profits the entirety of Foresters' funeral bond business rather than attempt to apportion the profits to reflect the particular benefits which flowed to Foresters due to its knowing assistance of Woff and Corby's breaches of fiduciary duty.
Of course, Foresters incurred costs and expenses, including the cost of capital, and Foresters was required to engage managers and salespersons to provide the skills necessary to conduct the new business. But those costs were taken into account in the calculation of the net present value of the funeral bond contracts entered into in the first five years of the new venture. Hence, in financial terms, the net present value of the profits from contracts entered into in the first five years was a relatively accurate reflex of the net benefit to Foresters of its knowing involvement in Woff and Corby's breaches of fiduciary duty. Perhaps the calculation would have been even more accurate if, in addition to deducting the costs and expenses of generating the profits, there had also been deducted such if any proportion of the profits as was shown to be referable solely to the sales and management skills of the persons engaged in the business, as opposed to the benefit of Foresters being able to plan, structure and conduct the first five years of operations in accordance with the BCP. But beyond the identification of the costs and expenses incurred, Foresters did not attempt the task of identifying a share of profits which should be seen as properly attributable to its or its employees' sales and management skills alone. And, as was stated in Warman, it is for a defendant to establish that it is inequitable to order an account of the entire profits:
"If the defendant does not establish that that would be so, then the defendant must bear the consequences of mingling the profits attributable to the defendant's breach of fiduciary duty and the profits attributable to those earned by the defendant's efforts and investment, in the same way that a trustee of a mixed fund bears the onus of distinguishing what is his own." (footnotes omitted)
Plainly enough, however, the position changed at the end of year five because whatever business plan was followed after that date could not have been the BCP. Possibly, the planning and practices for year six and thereafter drew on experience that Foresters acquired in operating the business during years one to five, and, to that extent, it might be that the profits derived in year six and beyond also derived from the BCP. But the extent to which they might have done so could not have been at all significant. On the available evidence, the very large share of the funeral bond market which Lifeplan enjoyed prior to Woff and Corby's departure was at least partly due to Woff and Corby's personal sales and management skills, and, as employees unconstrained by contrary covenants, Woff and Corby were always free to leave Lifeplan, taking their personal sales and management skills with them, and set up in competition with Lifeplan.
To say so is not to doubt the benefit to Foresters of the BCP and other confidential information which Woff and Corby took in breach of their fiduciary duties, nor the advantage which Foresters derived by reason of Woff and Corby's solicitation of Lifeplan clients while still employed by Lifeplan. Had Woff and Corby left Lifeplan lawfully and set up with Foresters without breach of fiduciary duty, they could not have made any use of Lifeplan confidential information and they would have been prohibited from soliciting Lifeplan clients as long as they remained at Lifeplan. But there was also material in the BCP, such as the business strategies set out in Section 7, that was known to Woff and Corby as part of their personal sales and management skills and experience, and of which, therefore, they would have been lawfully entitled to make use after leaving Lifeplan. Nor would it likely have taken overly long for Woff and Corby after leaving Lifeplan lawfully to solicit the clients which they unlawfully solicited before leaving Lifeplan. Granted, there was a good deal of evidence at trial about items of Lifeplan proprietary stationery such as pre-paid funeral pads, produced by an external supplier, which Woff and Corby copied and used when at Foresters, and a Lifeplan funeral director mailing list which Woff and Corby used to send out marketing material on behalf of Foresters. But Lifeplan and FPM accepted at trial that Foresters could not be directly liable, as a knowing assistant or otherwise, in respect of that conduct by Woff and Corby. Furthermore, the various forms of stationery were not confidential since they were in use in the market place, where they could be seen and emulated with relative ease; and, although the client list was confidential, the clients were not. Given that Lifeplan's clients were in business as funeral directors, and presumably listed as such in publicly available sources, Lifeplan was always at risk of losing them to the lawful blandishments of its competitors.
That is not to overlook that, by the end of year five, Foresters' business had increased dramatically and Lifeplan's business had reduced correspondingly. Nor is it to gainsay that, but for the breaches of fiduciary duty that informed the BCP, and hence Foresters' decision to embrace Woff and Corby's initiative, Lifeplan's relative position at the end of year five might conceivably have remained as it was at the beginning of year one. As against that, however, it is apparent that after its merger with Australian Unity, Lifeplan had already determined not to devote the same effort to marketing funeral bonds in future that it had in the past. It is also significant, as the primary judge found, that there was a perception among at least some funeral directors as at 2010 that one of Lifeplan's funeral benefit funds, "Funeral Benefits Fund No 2", had performed poorly and that the reasons that funeral directors may transfer from one fund to another - in this case from Lifeplan to Foresters - included the quality of the investment returns and the extent of the personal relationship with the salespersons representing the fund. Lifeplan's chances of retaining its previous market share were problematic even before Woff and Corby decided to jump ship.
Of course, Lifeplan and FPM's claim was not for what they lost by reason of Foresters' knowing participation in Woff and Corby's breaches of fiduciary duty but for an account of the profits which Foresters had gained. Still, as was held in Warman, when accounting for profits, the amount of what has been lost by the plaintiff may in some situations be relevant to what has been gained by the errant fiduciary or knowing assistant. And here that was the case. It was not suggested that, but for Woff and Corby's breaches of fiduciary duty or Foresters' access to the confidential information which informed the BCP, it would have been impossible or impracticable for Foresters over time lawfully to build the level of funeral bond business which it did. Nor is there reason to suppose that it could not have done so. Woff had become dissatisfied at Lifeplan after its merger with Australian Unity and Foresters was already in the funeral bond business when Woff and Corby came over from Lifeplan. Given Woff and Corby's innate sales and management skills and experience, there can be no doubt that with sufficient time, effort and resources they could have lawfully assisted Foresters to achieve the same results as were in fact achieved.
While such a consideration does not enable Foresters to escape liability to account for the profits it received by reason of its knowing assistance of Woff and Corby's breaches of fiduciary duty, it does have a bearing on the quantum of the account. That is because, as was stated in Warman, the object of the exercise is to determine as accurately as possible the true measure of the profit or benefit obtained as a result of the breach of fiduciary duty and, as has been stated, that necessitates a decision as to the extent to which the breach of fiduciary duty has materially contributed to the profit for which it is sought to make the fiduciary or knowing assistant liable to account.
The position in England, at least with respect to fiduciaries as opposed to knowing assistants, may now be different. In Murad v Al‑Saraj, the majority of the Court of Appeal of England and Wales held that it did not lie in the mouth of an errant fiduciary to protest that it would have been possible without breach of fiduciary duty to make a profit in fact made in breach of fiduciary duty. The majority ordered the defendant fiduciary to disgorge all his profits from entering into a joint venture with the claimants, notwithstanding the primary judge's finding that if the defendant had not breached his fiduciary duty and had properly disclosed certain information to the claimants they would have gone ahead with the venture and simply demanded a higher profit share. Arden LJ stated:
"The fact that the fiduciary can show that [the claimant] would not have made a loss [as a result of the breach of fiduciary duty] is, on the authority of [Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134], an irrelevant consideration so far as an account of profits is concerned. Likewise, it follows in my judgment from the Regal case that it is no defence for a fiduciary to say that he [or she] would have made the profit even if there had been no breach of fiduciary duty."
Jonathan Parker LJ agreed, and observed that that was the effect of authorities such as Regal (Hastings) Ltd v Gulliver, Boardman v Phipps, Brickenden v London Loan & Savings Co and Gwembe Valley Development Co Ltd v Koshy. By contrast, Clarke LJ held that:
"if the matter were free from authority I would hold that a person who makes a profit in the course of a fiduciary relationship must account for the profits he [or she] makes, that prima facie he [or she] must account for all the profits but that it should be open to him [or her] to show that it was always intended that he [or she] would make a profit from the transaction and to persuade the court if he [or she] can that, in the exercise of its equitable jurisdiction to order an account, in the circumstances of the particular case, he [or she] should not be ordered to account for the whole of the profits. Thus I would hold that, while the question what the claimant would have done if told the true facts, is irrelevant to the question whether the fiduciary should be ordered to account, it is or may be relevant to the extent of the account."
As Clarke LJ further observed, with respect correctly, his Lordship's approach accords with this Court's approach in Warman.
The point for present purposes, however, remains that, despite the significance of the advantage which Foresters gained by reason of its knowing participation in Woff and Corby's breaches of fiduciary duty, in essence that advantage was limited to the availability of a readymade plan in the form of the BCP for the first five years of operations and the advantage of winning over Lifeplan's clients more quickly than they otherwise could have been won over. In the market circumstances already mentioned, it would be unrealistic to conclude that the value of that kind of advantage endured beyond the first five years of operations.
The primary judge eschewed ordering an account of the profits deriving from that advantage because Lifeplan and FPM had not advanced a case on a headstart basis and because it was not "the traditional way in which profits for a limited period would be assessed". But as the Full Court appreciated, the strength of Lifeplan and FPM's case was that Foresters' new venture would not have gone ahead without the breaches of fiduciary duty by Woff and Corby in which Foresters knowingly participated. In that sense, the conclusion was ineluctable that Foresters derived the net profits of its expanded funeral bond business by reason of its knowing participation in Woff and Corby's breaches of duty. On that basis, one possibility would have been to order an account of all of the profits of the business for an indefinite period. But, as Warman made clear, and the Full Court rightly appreciated, an account of profits must be tailored to make it as much as possible a true measure of the profit or benefit obtained as a result of the breach of fiduciary duty and thereby to avoid its becoming an arbitrary punishment or a vehicle for unjust enrichment. For that reason, it was incumbent on the Full Court to gauge the extent to which Foresters' knowing involvement in Woff and Corby's breaches of fiduciary duty materially contributed to the profits of Foresters' business.
Of necessity, that exercise involved a "judicial estimation of the available indications", not mathematical precision, and thus was one about which reasonable minds might differ. But, as the Full Court reasoned, a five year cut‑off logically gave recognition to the contribution to profits of factors other than the breaches of fiduciary duty and, at the same time, supported the underlying principles of fidelity, trust and honesty which the obligation to account is calculated to achieve. As such, it was a choice of the most accurate means of estimation of the profits that Foresters derived as a result of its knowing assistance of Woff and Corby's breaches of fiduciary duty and so represented a principled exercise of equitable discretion. It should not be altered merely because other reasonable minds might have chosen differently.
Nor is it of concern that the Full Court's award of the net present value of the funeral bond contracts written up to 30 June 2015 was not "the traditional way in which profits for a limited period would be assessed". For, as was further emphasised in Warman, "[i]t is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts". And as has been explained, the adoption of the net present value of contracts entered into in what was roughly the first five years of Foresters' new venture was, in financial terms, an accurate reflex of the net benefit to Foresters of its knowing involvement in Woff and Corby's breaches of fiduciary duty.
Actual or anticipated profits
Counsel for Foresters contended that, as a matter of authority, an account of profits may be ordered only in respect of profits which have accrued, and for that reason that the Full Court erred by bringing to account the net present value not just of profits which had accrued to Foresters but also of profits which it was projected would accrue to Foresters. To understand that submission, a brief explanation of the calculation of profits relied upon by the Full Court is required. As mentioned, Foresters' profits with respect to funeral bond contracts derived from management fees that it charged under those contracts. For any particular contract, those fees would continue to be earned until the client's death, upon which the contract would be terminated. In calculating the net present value of contracts written up to 30 June 2015, the joint expert report upon which the Full Court relied included projected cash flows associated with those contracts. Foresters' submission was that projected income of this kind cannot form the basis of an account of profits.
The authority relied upon by Foresters in support of that submission was the following statement of the plurality in Dart Industries Inc v Decor Corporation Pty Ltd:
"As Windeyer J pointed out in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd, even now an account of profits retains its equitable characteristics in that a defendant is made to account for, and is then stripped of, profits which it has dishonestly made by the infringement and which it would be unconscionable for it to retain. An account of profits is confined to profits actually made, its purpose being not to punish the defendant but to prevent its unjust enrichment." (footnotes omitted)
Counsel submitted that the fact that the reference to profit which the defendant has dishonestly made was expressed in the present perfect tense dictated that profits must have come in before they may be brought to account. Counsel also contended that, although the Full Court had purported to treat Foresters' capacity to generate future profits as a capital asset capable of valuation by reference to the net present value of the projected stream of future profits, it was clear according to accounting convention and the authority of this Court's decision in Federal Commissioner of Taxation v Myer Emporium Ltd that future profits are not a capital asset.
Up to a point, those submissions may be accepted. Ordinarily, what is conceived of as an account of profits is an account of profits which have come in. That is what was ordered by Windeyer J in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd and also by this Court in Dart Industries. It is also correct that, for the kind of accounting and taxation purposes considered in Myer Emporium, a projected future stream of interest payments payable on a loan is not a presently existing asset. But that said, it does not mean that it is impermissible or inappropriate to assess the benefit derived by reason of a knowing involvement in a breach of fiduciary duty as being the net present value of profits likely to be derived by reason of the knowing involvement in the breach of fiduciary duty.
The context in which Windeyer J wrote in Colbeam was one of accounting for profits in respect of the unauthorised use of intellectual property during a particular period that had expired. And the context in which his Honour's remarks were adopted in Dart Industries was one in which this Court was called upon to decide whether general overhead costs should be allowed as a deduction when determining an account of profits. In neither case was there any need to consider future profits. Thus, the fact that their Honours spoke only of past profits in those contexts says nothing as to the appropriate way of accounting for the benefit of a business opportunity that is projected to generate profits into the future. And equally, the fact that, according to generally accepted accounting standards, the right of a borrower to receive a future stream of interest payments is not brought to account as a capital asset, or, therefore, characterised as such for fiscal purposes, says nothing as to the propriety of assessing the benefit of a business opportunity derived in breach of fiduciary duty by reference to the net present value of the future profits of the business.
Conclusion
The appeal and the cross-appeal should both be dismissed with costs.