High Court revisits causation and quantification in knowing assistance claims
In Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited  HCA 43, the parties each marketed and provided funeral plans. Two employees of Lifeplan approached Foresters with a proposal to assist Foresters to capture Lifeplan’s customers, divulging Lifeplan’s confidential information to Foresters. Foresters accepted the proposal and was found to have knowingly assisted the employees’ dishonest breach of their fiduciary duties to Lifeplan.
At first instance, the learned trial judge found that Foresters had knowingly participated in certain dishonest breaches of fiduciary duty by the employees, but that the confidential information in question was not itself “used to generate profits”. On appeal, the Full Court held that the trial judge’s approach to causation was too narrow; Foresters was ordered to account to Lifeplan for profits made and projected to be made by Foresters from contracts it entered into during a particular five year period spanning 2011-2015 (quantified at approximately $6.6m). In the High Court, Foresters challenged the finding that those profits were causally connected to the dishonest breaches, and instead sought to have the trial judge’s findings restored. Lifeplan cross-appealed, seeking the entire capital value of Foresters’ business, not just profits from contracts entered into in the five year period spanning 2011-2015 (quantified at approximately $14.8m).
The Court held that in deciding whether to order an account, no distinction should be drawn between accessorial and primary liability for dishonest breach of duty. Both wrongdoers are held liable to prevent unjust enrichment and to remove a fiduciary’s incentive to act otherwise than in the interests of the principal. So, Foresters as knowing participant in the employees’ dishonest breach, was liable to account for its profits.
Two questions then arose on the remedy of an account of profits:
1. to establish liability to account, what is the necessary causal nexus between breach and profit?
2. can future profit streams be taken into account in assessing the profits to be disgorged?
Foresters lost on both questions. The Court rejected Foresters’ contention that any account should be limited to gains arising directly from the breach of duty. Instead, the much looser ‘but for’ nexus was applied. The plurality (Kiefel CJ, Keane and Edelman JJ) noted that the relevant test was whether Foresters had received a benefit “as a result of” the breach (see Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, 397), and for that purpose “[i]t is sufficient to show that the profit would not have been made but for the dishonest wrongdoing”:  (Kiefel CJ and Keane and Edelman JJ). Similarly, Gageler J said that the relevant test was whether Foresters had received a benefit “by reason of” the breach (see Warman International Ltd v Dwyer (1995) 182 CLR 544, 557 and 563), and that the ‘but for’ test was sufficient:  and  (Gageler J). So, it followed, all of the profits of Foresters’ business were to be disgorged.
The Court confirmed that once an account is ordered, the onus shifts to the wrongdoer to establish any just allowances for costs incurred in making the profits or any gains that were not ill-gotten.
A majority (Nettle J dissenting) upheld Foresters’ cross-appeal, allowing it to recover the net present value of future profits. All five members of the Court accepted that whether the net present value of future profits should form part of the account will depend on the facts.
What is clear is that those seeking to profit from dishonest breaches of fiduciary duty must beware. Not only will they be held liable for direct proceeds of wrongdoing, but those proceeds may infect ‘honest’ gains, potentially leaving those knowingly assisting a dishonest breach liable for much more than they stood to gain by participating in the breach.