Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd

[2018] HCA 43

HIGH COURT OF AUSTRALIA

KIEFEL CJ,
GAGELER, KEANE, NETTLE AND EDELMAN JJ

ANCIENT ORDER OF FORESTERS IN VICTORIA
FRIENDLY SOCIETY LIMITED  APPELLANT

AND

LIFEPLAN AUSTRALIA FRIENDLY SOCIETY
LIMITED & ANOR  RESPONDENTS

Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited

[2018] HCA 43

10 October 2018

A37/2017

ORDER

1.Appeal dismissed.

2.Special leave to cross-appeal, limited to the grounds in paragraphs 2 and 3 of the respondents' notice of cross‑appeal, granted.

3.Cross-appeal allowed.

4.Set aside order 2 of the orders made by the Full Court of the Federal Court of Australia on 16 June 2017 and, in its place, order that Ancient Order of Foresters in Victoria Friendly Society Limited account to Lifeplan Australia Friendly Society Limited and Funeral Plan Management Pty Ltd for profits in equity in the sum of $14,838,063.

5.The appellant pay the respondents' costs of the appeal and cross-appeal.

On appeal from the Federal Court of Australia

Representation

R Merkel QC with D C Gration and Z E Maud for the appellant (instructed by TurksLegal)

N J Young QC with P W Collinson QC and M D Douglas for the respondents (instructed by Ashurst Australia)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited

Equity – Knowing assistance in breach of fiduciary duty – Remedies – Account of profits – Causation – Where employees of first respondent breached fiduciary duties to respondents by assisting appellant, and then joined appellant – Where appellant knowingly assisted in breaches of fiduciary duty – Where primary judge found profits of appellant's business not direct result of appellant's knowing assistance – Whether account of profits available.

Equity – Knowing assistance in breach of fiduciary duty – Remedies – Account of profits – Assessment of quantum – Whether knowing assistant obliged to account for entire capital value of business acquired – Whether account of profits may be ordered in respect of anticipated profits.

Words and phrases – "account of profits", "actual profits", "anticipated profits", "as a result of", "but for", "causation", "disgorgement" "knowing assistance", "material contribution".

1. KIEFEL CJ, KEANE AND EDELMAN JJ.   We agree with the orders proposed by Gageler J.  In our view, however, when the facts of the case are fully appreciated the issues of causation and the quantification of the benefit for which Ancient Order of Foresters in Victoria Friendly Society Ltd ("Foresters") should account to Lifeplan Australia Friendly Society Ltd ("Lifeplan") and Funeral Plan Management Pty Ltd ("FPM") may be resolved without the need for any revision of principle. 

2. An examination of the facts of the case shows that Foresters knowingly took advantage of Messrs Woff and Corby's dishonest and fraudulent design, which involved breaches of fiduciary duty, in order to enhance its business by appropriating the business connections of its competitors.  It succeeded in doing so.  In such a case, equity requires that Foresters account for the full value of the enhancement.

3. Gratefully accepting the summary by Gageler J of the findings and reasons of the courts below, we proceed to explain why we take this view.

   Causation

4. Foresters submitted that its liability to account and disgorge should be confined to those profits that are the direct result of each of the particular acts by which it committed the equitable wrong of knowingly assisting Woff and Corby in a dishonest and fraudulent design to breach their fiduciary obligations to Lifeplan and FPM[1].  By focusing on each act of knowing assistance and its direct consequences, rather than the overall effect of Foresters' wrongful conduct, the submission ignores the obvious reality that Foresters' particular interactions with Woff and Corby resulted, as they were always apt to do, in the wholesale acquisition by Foresters of the business connections that Lifeplan and FPM had with funeral directors, these connections being, as Foresters well knew, essential to Lifeplan and FPM's funeral fund business[2].

   [1]See Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 140 [111]; [2007] HCA 22.

   [2]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 416 [147], 417 [152], 421 [171]; Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 15‑16 [41].

5. Another way of putting this point is to say that Foresters could not limit its liability to disgorge profits by claiming that only limited profits were caused by particular acts of knowing assistance when the consequences of those acts were inseparable from the consequences of Woff and Corby's general scheme of breach of fiduciary duty.  This point is further reinforced by the cross‑appeal, which relied upon other acts by Woff and Corby for which Foresters was said to be vicariously liable.  Although it is unnecessary to decide this issue of vicarious liability, it should be noted that there is no novelty in equity attributing to one person the wrongful acts of another[3].  As Lord Millett observed in Dubai Aluminium Co Ltd v Salaam[4], the Court of Chancery recognised vicarious liability of partners in this manner at least as early as 1842[5].

   [3]Majrowski v Guy's and St Thomas's NHS Trust [2007] 1 AC 224 at 229 [10].

   [4][2003] 2 AC 366 at 395 [104].

   [5]Brydges v Branfill (1842) 12 Sim 369 [59 ER 1174].

6. In Consul Development Pty Ltd v DPC Estates Pty Ltd[6], in a passage accepted as authoritative by both sides in the present case, Gibbs J said that:

   "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 has received as a result of such participation."

   [6](1975) 132 CLR 373 at 397; [1975] HCA 8. To similar effect see at 387 per McTiernan J.

7. So described, the liability to account and to disgorge benefits encompasses "any benefit" received by the knowing participant in a breach of fiduciary duty "as a result of" that participation.  The benefit of a business connection is such a benefit.  Foresters' submission fails to come to grips at all with the fact that the benefit that Foresters stood to gain, and in fact acquired, from its participation in the various acts of disloyalty by Woff and Corby was not sporadic deposits from retail customers; it was the business connections of Lifeplan and FPM. 

8. In addition, Foresters' submission, by framing the issue as involving an enquiry as to whether there was a causal connection between each of the particular acts of Foresters, whereby it participated in the strategy formulated by Woff and Corby, and particular deposits associated with its new business, diverts attention away from the significance of the circumstance that Foresters' acts of participation in the disloyalty of Woff and Corby were not only informed by, but were also an integral part of, the strategy for despoiling the business of Lifeplan and FPM. 

9. Whether a benefit can be said to be obtained "as a result of" knowing participation in a breach of fiduciary duty by another contrary to the principles of equity is a question of causation or contribution that depends on "a precise examination of the particular facts" of the case, rather than upon attempts to refine the expression "as a result of", as if that phrase has some determinate operation of its own that may be discerned and applied independently of the equitable principle of which it is part[7].  The equitable disgorgement principle with which we are concerned is a "prophylactic rather than a restitutionary principle"[8].  It is sufficient to show that the profit would not have been made but for dishonest wrongdoing.  Further, whatever may be the position for wrongdoing that is not marked by dishonesty[9], a defendant cannot avoid liability to disgorge profits dishonestly made by showing that those profits might have been made honestly.  This is not an approach to causation that is unique to dishonesty in equity.  A defendant who is liable to compensate for deceit cannot avoid that liability by showing that the loss would have been suffered even without the deceit; and it is sufficient that the deceit was an inducement to engage in the conduct that occasioned the loss even if there were other inducements[10].  And in taking an account of profits for dishonest infringement of intellectual property rights, courts do not reduce the profit by reference to opportunity cost, that is, the revenue that would have been received by a lawful alternative[11].  As Lord Radcliffe said in the context of disgorgement of profits for a breach of fiduciary duty involving non-disclosure, "it is neither here nor there to speculate whether, if he had done his duty, he would not have been left in possession of the same amount of profit"[12].  For these reasons, the deterrent effect of an order for disgorgement of profits should not be diminished by acceding to Foresters' attempt to confine the scope of the causal enquiry implicit in the expression "as a result of".

   [7]Jenyns v Public Curator (Q) (1953) 90 CLR 113 at 118‑119; [1953] HCA 2. See also Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at 426 [122]; [2013] HCA 25.

   [8]Jones, "Unjust Enrichment and the Fiduciary's Duty of Loyalty", (1968) 84 Law Quarterly Review 472 at 474.

   [9]Glister, "Accounts of Profits and Third Parties", in Degeling and Varuhas (eds), Equitable Compensation and Disgorgement of Profit, (2017) 175 at 196.

   [10]Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483; Barton v Armstrong [1976] AC 104 at 118-119; Gould v Vaggelas (1984) 157 CLR 215 at 236, 250-251; [1984] HCA 68; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 366; [1986] HCA 68; Standard Chartered Bank v Pakistan National Shipping Corpn (Nos 2 and 4) [2003] 1 AC 959 at 967 [16].

   [11]Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 111, 114, 125; [1993] HCA 54; Celanese International Corp v BP Chemicals Ltd [1999] RPC 203 at 220 [41].

   [12]Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 at 15. See also Murad v Al-Saraj [2005] WTLR 1573 at 1591 [67], 1601 [105]-[107]; Conaglen, "The Extent of Fiduciary Accounting and the Importance of Authorisation Mechanisms", (2011) 70 Cambridge Law Journal 548.

10. Foresters' submission also ignores the obvious reality that Foresters' participation was not merely that of a passive recipient of the benefits of the success of the Woff and Corby strategy.  Foresters provided the commercial vehicle which would acquire and exploit the business connections to be appropriated from Lifeplan and FPM[13].  That vehicle was necessary to enable Woff and Corby to implement the strategy of despoliation that they had devised.  There was no suggestion in the evidence that the strategy could have been implemented by Woff and Corby acting alone or, indeed, with any other competitor in the market. 

    [13]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 6‑7 [18]‑[21], 7 [25], 12‑14 [34]‑[36].

11. That Foresters' role was crucial to the implementation by Woff and Corby of the strategy devised by them is confirmed by the urgency and diligence with which Woff and Corby pursued Foresters' participation[14], and the absence of any suggestion in the evidence that they ever had it in mind to pursue their strategy either by themselves or with some other participant.  Given the knowledge and experience of Woff and Corby of this particular market[15], there is no reason to suppose that their appreciation of the central importance of the participation of Foresters to the success of their strategy was not soundly based.  And there is no reason apparent from the evidence to decline to attribute the same level of understanding to Foresters.

    [14]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 410‑417 [117]‑[152].

    [15]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 466‑467 [429]; Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 13‑14 [35]‑[36].

12. As a matter of fact, the strategy proposed by Woff and Corby to acquire the valuable business connections of Lifeplan and FPM with funeral directors succeeded, and could only have succeeded, by reason of the knowing participation of Foresters.  Accordingly, the quantification of the benefit to be disgorged by Foresters requires an assessment of the attributable value of the business connections acquired by Foresters as a result of its participation in the disloyalty of Woff and Corby. 

    Quantification

13. Once it has been determined that a benefit or advantage has been caused by the acts of knowing assistance, there remains the question of quantification of the benefit to be disgorged.  While it is true that equity will not require an errant fiduciary or a participant in a breach of fiduciary duty to account for an advantage which the breach of fiduciary duty has not caused or to which it has not sufficiently contributed[16], where causation is sufficiently established the onus is upon the errant fiduciary or participant to show that he or she should not account for the full value of the advantage.  That onus is not discharged by mere conjecture or supposition giving the benefit of the doubt to a proven wrongdoer.  The requirement of proof conforms with the obligation of a party charged with a breach of fiduciary duty to show why the full value of an advantage obtained in a situation of conflict of duty should not be disgorged[17].

    [16]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557, 561; [1995] HCA 18.

    [17]Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 398; [1929] HCA 24.

14. There are two ways in which the wrongdoer might discharge that onus and reduce the extent of the liability to disgorge profits.  The first way, which can involve notorious difficulties in attribution of costs, is by proving his or her entitlement to an allowance for costs incurred, and labour and skill employed[18].  No issue of an allowance arises, or was relied upon, in this appeal because it was accepted that the expenses included in the discounted cash flow included an amount for the work and effort of Woff and Corby. 

    [18]Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 111.

15. The second way, which was the focus of this appeal, is by demonstrating that the benefit or advantage is beyond the scope of the liability for which the wrongdoer should account for profits.  A wrongdoer might prove that some profit or benefit is beyond the scope of liability for which he or she should account if the profit or benefit has no reasonable connection with the wrongdoing.  For example, in Frank Music Corp v Metro‑Goldwyn‑Mayer Inc[19], the Ninth Circuit Court of Appeals accepted that a copyright infringement by MGM Grand Hotel Inc in a performance at the MGM Grand Hotel entitled the plaintiffs to the profits directly from the performance.  It also entitled the plaintiffs to a proportion of indirect profits, including from the consequential increase in hotel room bookings which were held to have a "sufficient nexus" with the performance[20].  But the direct profit from the performance to be disgorged was limited to nine per cent because the copyright infringement comprised only the substantial part of Act IV in a ten‑act performance.  Nor did it entitle the plaintiffs to any profits made by the liable parent company, Metro‑Goldwyn‑Mayer Inc, as a result of "the advertising value" of the hotel.

    [19]886 F 2d 1545 (1989). See also Polar Bear Productions Inc v Timex Corp 384 F 3d 700 at 714, fn 11 (2004).

    [20]886 F 2d 1545 at 1553 (1989).

16. No precise test has been prescribed for determining when it will be inequitable to account for a benefit on the basis that it has no reasonable connection with wrongdoing.  Nor is there any need for such a test.  All of the circumstances must be considered, including the nature of the conduct.  It is pertinent here that the profits were from deliberate and dishonest conduct, and were those desired to be achieved[21].  The advantage to be valued in this case was not limited to the flow of funds derived during the five‑year period identified in the "Funeral Fund Business Concept" ("the BCP") prepared by Woff and Corby to encourage Foresters to participate in the despoliation of the business of Lifeplan and FPM.  No doubt, as the Full Court held, the confidence in the success of the proposed strike against Lifeplan and FPM engendered by the five‑year projections in the BCP influenced the decision of Foresters to fall in with Woff and Corby[22]; but the advantage to be obtained was not limited to what might be obtained by way of deposits during that period.  The advantages of the business connections appropriated from Lifeplan and FPM were to be enjoyed by Foresters for as long as those connections could be retained in its business. 

    [21]Restatement Third, Restitution and Unjust Enrichment, §51 citing Falk v Hoffman 135 NE 243 at 244 (1922).

    [22]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 12 [33].

17. It is important to bear steadily in mind that the onus was upon Foresters to show that it would be inequitable to require it to account for the whole of the advantage it acquired by its acquisition of the business connections of Lifeplan and FPM[23].  Before the adoption and implementation of the Woff and Corby strategy for the despoliation of the funeral fund business of Lifeplan and FPM, Foresters' funeral fund business was not very profitable, if it was profitable at all[24].  The evidence demonstrated that, after the implementation of that strategy, there was a compelling correlation between the increase in the profitability of Foresters' funeral fund business and the decrease in the profitability of the business of Lifeplan and FPM.  Annexure A to these reasons is a graph which shows the inflows into the funeral funds of Lifeplan and FPM on the one hand, and Foresters on the other, since 1999[25].

    [23]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 561‑562.

    [24]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 3‑4 [6].

    [25]This graph was tendered in evidence.  It was prepared from the published annual reports of the relevant entities obtained from the Australian Securities and Investments Commission website.

18. There was no attempt by Foresters to prove that there was any reason to expect an increase in the profitability of its business apart from the success of the Woff and Corby strategy.  Foresters adduced no evidence to show that what was, on any view, an extraordinary increase in the profitability of its business could be explained by any circumstance other than the success of the Woff and Corby strategy. 

19. It is also important that one not be distracted by the consideration, which seems to have weighed heavily with the primary judge, that once Woff and Corby had terminated their employment with Lifeplan they would be at liberty to solicit the business connections of Lifeplan and FPM for their own benefit and, should they so choose, for the benefit of Foresters[26].  So much may be accepted.  But with the benefit of hindsight it can be seen that the success of the Woff and Corby strategy was assured by the arrangements that were being put in place before their employment with Lifeplan came to an end.  Those arrangements were put in place, as Foresters knew, with a view to their immediate implementation so as to maximise the likelihood that Lifeplan and FPM would not be able to respond effectively to protect their business connections[27].  In this regard, it can be seen that the timing of the departure of Woff and Corby from their employment with Lifeplan was geared to the implementation of the sudden strike strategy.  Foresters did not seek to prove that the implementation of the sudden strike strategy that was in place before the end of Woff and Corby's employment with Lifeplan did not contribute to funeral directors moving to Foresters in preference to remaining with Lifeplan and FPM.  Nor did Foresters seek to prove the likely difference between the value of any migration to Foresters' new business by funeral directors unaffected by the sudden strike and the value of the business connections actually appropriated by Foresters. 

    [26]Cf Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 464 [419], 470‑471 [443]‑[444].

    [27]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 408 [100], [103], 409‑410 [111], 446‑447 [326].

1. That requiring Foresters to account for the entirety of the advantage that it obtained by its knowing assistance is not inequitable may be demonstrated by considering the following hypothesis.  If, while Woff and Corby remained in the employ of Lifeplan, they had become aware of the same strategy devised by other employees of Lifeplan and FPM, and they were loyal employees undistracted by their self‑interest and the assistance in that regard forthcoming from Foresters, they would have moved to ensure that Lifeplan and FPM's business connections were shored up and kept secure against the threat that Foresters posed.  It is not to be supposed that such efforts would not have been successful.

2. As to the suggestion that it would be inequitable to require Foresters to disgorge the full value of the business connections it acquired because some of the business connections appropriated from Lifeplan and FPM might in due course return to them, it is to be noted that Foresters did not demonstrate that any of its increased profitability was generated by matters other than the business connections that were appropriated from Lifeplan and FPM[28].  Nor did Foresters make any attempt to prove that any of the business connections appropriated by Foresters expired after the effluxion of five years, or were likely to endure only for a short period thereafter, rather than over the lifetime of the business newly established by its acquisition of these connections.  It is noteworthy that nothing in the BCP predicted that these connections, once detached from Lifeplan and FPM and attached to Foresters, would be likely, over time, to return to Lifeplan and FPM.  Once again, Woff and Corby's view of the market may be taken to be soundly based given their knowledge and experience of that market.  This point is graphically illustrated by Annexure A to these reasons, which shows the decline of the business of Lifeplan and FPM and the corresponding increase in the business of Foresters, closely matching the BCP predictions.

   [28]Cf Warman International Ltd v Dwyer (1995) 182 CLR 544 at 561.

3. In all these respects, the present case is readily distinguishable from Warman International Ltd v Dwyer, where the profits awarded were limited to the first two years' exploitation of the business opportunity appropriated by the defendants.  In that case, the evidence showed that the advantage misappropriated was apt to endure only for a short period, and, even during that period, was of diminishing value[29].  The present case can similarly be distinguished from Kao Lee & Yip v Koo Hoi Yan, where Ma J followed Warman, finding that the relevant business would have been lost to the principal after a year so that after that time the profits were too remote from the breach of fiduciary duty[30].

   [29](1995) 182 CLR 544 at 550‑551, 565‑566.

   [30][2003] 3 HKLRD 296 at 340 [143], 343-344 [158]. See also Mitchell, "Causation, Remoteness, and Fiduciary Gains", (2006) 17 King's College Law Journal 325 at 339.

   The accounting

4. It is well established that a liability to account for profits will include profits that have been made[31].  However, Foresters submitted that this was the limit of the profits for which it could be called to account.  In particular, Foresters submitted that the net present value of funeral bond contracts was an assessment of anticipated future profits rather than actual profits, and was therefore irrecoverable.

   [31]Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 at 34; [1968] HCA 50; Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 111.

5. This submission is not consistent with principle or authority.  As to principle, to confine the account in this way would sever the process of accounting for, and disgorgement of, profit from its rationale in the principle of ensuring that the wrongdoer should not be permitted to gain from the wrongdoing[32].  As to authority, the liability to account for a profit was described in Warman as concerned with "a profit or benefit"[33] in language divorced from a confined conception of benefit as accrued profit in narrow accounting terms.  In any event, it is artificial to require disgorgement of realised profits but not to allow unrealised profits that will be realised upon performance of the relevant contract where there is no reason to expect that performance will not occur.  As Millett LJ said in Potton Ltd v Yorkclose Ltd[34]:

   "Unrealised profits are actual profits.  Profits are made when they are earned, recognised when they are brought into the accounts, and realised when they accrue, that is to say when a legal right arises to receive payment.  As a matter of ordinary accounting practice, profits are seldom recognised before they accrue, but this is a matter of prudence only; in a proper case they may be recognised before they accrue.  Whether or not recognised, however, they are not profits which could or should have been made or which are merely capable of being made, but profits which have actually been made though not yet realised."

   [32]Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 at 262.

   [33]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557. See also at 559 quoting Chan v Zacharia (1984) 154 CLR 178 at 204-205; [1984] HCA 36.

   [34][1990] FSR 11 at 15.

   Conclusion

6. Given the facts of the present case, there was no principled basis for requiring Foresters to disgorge anything less than the value of the business connections appropriated by Foresters from its participation in the disloyalty of Woff and Corby. It is unnecessary to consider the scope and effect of s 1317H of the Corporations Act 2001 (Cth).

   ANNEXURE A

7. GAGELER J.   This appeal and cross-appeal, from a judgment of the Full Court of the Federal Court[35] on appeal from a judgment of a single judge of the Federal Court[36], provide occasion to restate the principles which govern the ordering of an account of profits against a knowing participant in a dishonest and fraudulent breach of fiduciary duty.

   [35]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1.

   [36]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384.

   The facts

8. The fiduciaries in question were Mr Woff and Mr Corby.  Each was an employee of Lifeplan Australia Friendly Society Ltd ("Lifeplan").  Through its wholly owned subsidiary, Funeral Plan Management Pty Ltd ("FPM"), Lifeplan engaged in the business of providing funeral products – retail investment contracts under which a customer would make payments (sometimes in a lump sum and sometimes in instalments) which were to be managed in a fund for a fee and the capital-guaranteed sum of which was to be paid out on the customer's death to a funeral director to meet the expenses of a pre-arranged funeral.  FPM marketed the funeral products through distribution arrangements which it had established with funeral directors throughout Australia.  Mr Woff was a senior manager at FPM and had direct oversight of its marketing and distribution arm.  Mr Corby was FPM's national sales manager.  In 2010, Lifeplan's inflows of funds from funeral products were in the order of $68 million.

9. Ancient Order of Foresters in Victoria Friendly Society Ltd ("Foresters") also engaged in the business of providing funeral products, initially on a scale much smaller than that of Lifeplan.  In 2010, Foresters' inflows of funds from funeral products were in the order of only $1.6 million.  Foresters' provision of funeral products appears not then to have been generating profit. 

10. In July 2010, while still employed by Lifeplan, Mr Woff and Mr Corby surreptitiously proffered to Foresters a proposal to develop Foresters' funeral products business in a way that would capture for Foresters much if not all of the existing business of FPM.  The proposal which they proffered involved Foresters employing Mr Woff and Mr Corby, entering into a marketing agreement with a company to be formed by Mr Woff and Mr Corby to be called Funeral Planning Australia Pty Ltd ("FPA"), and through FPA embarking on a systematic course of action to win over funeral directors through whom FPM was then distributing its funeral products. 

11. Mr Woff and Mr Corby formalised the proposal in a detailed five-year business concept plan ("the BCP") which they presented to Foresters for consideration by its Board of Directors in August 2010.  The BCP was fairly characterised by the Full Court as "a comprehensive plan presented by employees of Lifeplan to Lifeplan's actual and prospective competitor, prepared utilising valuable confidential information of their employer (and to a significant degree recognisable as such) that set out a detailed strategy to attack the commercial base of that employer in order to win as many clients as possible from the employer after they left it, and so to take as quickly as possible the business presently enjoyed by Lifeplan and replicate its success for the benefit of the new prospective employer"[37].  Given the significance of the BCP to the determinative issue in the appeal and the cross-appeal, a summary of some of the most striking features of the BCP is warranted. 

    [37](2017) 250 FCR 1 at 12 [32].

12. The introduction to the BCP described it as a document prepared by FPA for the Board of Foresters "to discuss the concept of working together to develop a successful funeral fund operation".  The introduction described FPM as "the largest and most successful operator" in the Australian funeral fund industry and described Mr Woff and Mr Corby as "FPM's two key employees".  The introduction continued by explaining that Mr Woff and Mr Corby "have now established their own niche marketing company, FPA, which they present to the Board of Foresters as an opportunity to, in a very short timeframe, replicate the success enjoyed by FPM".

13. Appended to the BCP were detailed schedules.  One was headed "New Business Acquisition Timeframe".  It listed by name the funeral directors to be won over to Foresters.  In relation to nearly all of the named funeral directors, it listed figures for the annual inflow of funds and the number of investment contracts generated through that funeral director.  It specified the year in which the business of each named funeral director was projected to be won and the annual inflow projected to be generated through that funeral director in that year.  Another of the appended schedules was headed "Visitation Plan".  It set out in detail a costed program of visits to funeral directors designed to win their business.  Another of the appended schedules was headed "Foresters Profit Revenue Model".  It set out a financial model which translated the total annual inflows projected to be generated through the funeral directors to be won over to Foresters in each of the five years of the BCP into projected revenue and profit figures for each of those years.  The source of revenue was an ongoing management fee fixed as a percentage of the accumulated payments of each customer.

14. Within the body of the BCP, a table headed "Five Year Sales Projections" summarised the projected total annual inflows of funds together with the total number of funeral directors whose business was projected to be won for each of the five years of the BCP.  The projections in the table began with inflows of $10 million from 40 funeral directors in the first year and ended with inflows of $45 million from 300 funeral directors in the final year.  Another table within the body of the BCP, headed "Historical Sales Performance", was introduced with the explanation that "[w]ith any projections for a start up entity there are the obvious questions of accuracy" and that "[a]s a means to give validity to what has been presented we submit our historic sales figures which have been achieved in an environment of more players and intensive competition".  The table set out annual sales figures for each year from 2000 to 2010. 

15. A section of the BCP headed "Strategy for Securing New Business" referred to the "target market" as funeral directors who had a characteristic trait of being loyal to fund managers but also "to individuals with a proven track record and proven service standards".  It expressed confidence that the funeral directors to be targeted, as identified in the New Business Acquisition Timeframe, would be won over to Foresters as a result of the latter loyalty prevailing.  It recommended that "at the earliest possible stage Foresters establish a new funeral benefit fund" with specified characteristics.  It also recommended "marketing collateral" which included tailored product disclosure documents and marketing flyers.  The costs to Foresters in the first year of implementation of the plan were specified to be in the order of $700,000 and were explained in some detail. 

16. Mr Woff and Mr Corby had prepared the BCP based on what could only be described, as it was by the Full Court, as their "wholesale plundering of the confidential information and business records of Lifeplan"[38].  Not only were the historical sales figures obviously those of FPM, but the figures itemised as the "annual inflows" and numbers of investment contracts in relation to the named funeral directors in respect of whom those figures were given, the planned schedule of visits to funeral directors, and the financial modelling of projected revenue and profit were all unmistakably derived from information of Lifeplan relating to the current business of FPM.

    [38](2017) 250 FCR 1 at 4 [8].

17. The primary judge and the Full Court found that that use of Lifeplan's confidential information in the preparation of the BCP must have been apparent to honest and reasonable persons in the position of members of the Board of Foresters[39].  Importantly from the perspective of the Board, and again as fairly characterised by the Full Court, the BCP was a document that enabled the 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"[40]. 

    [39](2016) 259 IR 384 at 456-457 [378]; (2017) 250 FCR 1 at 15 [41].

    [40](2017) 250 FCR 1 at 12 [33].

18. The Board considered the BCP at a meeting in August 2010.  Attracted to the proposal, but having some reservations, the Board invited Mr Woff and Mr Corby to speak at its subsequent meeting in September 2010.  In his oral remarks at that meeting, Mr Woff stressed that the sales projections in the BCP were realistic provided implementation of the BCP was immediate.  Implicitly referring to the impact of his and Mr Corby's imminent departure from Lifeplan and of the implementation of the BCP, Mr Woff told the Board that the ensuing period of six months was a "window" in which "our competitors will be very vulnerable".

19. The Board approved the BCP following the September 2010 meeting.  Critically, the primary judge and the Full Court found that Foresters would not have proceeded with the new funeral products business without the BCP and that the information confidential to Lifeplan which the BCP contained was at least material to Foresters' decision to proceed[41].

    [41](2016) 259 IR 384 at 446 [324]; (2017) 250 FCR 1 at 21-22 [66].

20. Foresters' Chief Executive Officer, Mr Hughes, wrote to Mr Woff and Mr Corby telling them of the approval soon afterwards.  The letter stated that "[i]n measuring the traction of the product the Board will rely heavily upon your predictions of sales/growth that you provided in [the BCP]".

21. Mr Woff and Mr Corby wasted no time in the implementation of the BCP.  To the knowledge and with the encouragement of Mr Hughes, Mr Woff and Mr Corby during the following two months and while they remained employees of Lifeplan:  revised the rules of the Foresters Funeral Fund to bring them into line with the recommendation made in the BCP; prepared product disclosure documents and marketing flyers for the new business; and approached a number of funeral directors designated to be targeted in the first year of the BCP. 

22. In November 2010, Mr Woff and Mr Corby incorporated FPA.  Mr Corby resigned from Lifeplan in the same month and commenced employment with Foresters at the beginning of December.  Mr Woff did not resign from Lifeplan until the end of December.  Two days after he resigned, Foresters entered into a marketing and service agreement with FPA.  Four days after that, Mr Woff joined Mr Corby as an employee of Foresters.  By the end of January 2011, the necessary revisions to the Foresters Funeral Fund rules had been approved by the Australian Prudential Regulation Authority and the product disclosure documents were in the process of final review. 

23. FPA subsequently reported monthly to Foresters in reports prepared in part by reference to the New Business Acquisition Timeframe appended to the BCP.  For their part, as foreshadowed in Mr Hughes' letter telling Mr Woff and Mr Corby of their approval of the BCP, Foresters' Board used the sales projection figures in the BCP to benchmark the performance of the Foresters Funeral Fund at least during the first six months of the Fund's operation. 

24. The new Foresters Funeral Fund business marketed by FPA proved highly successful.  Foresters' inflows and consequent profits from funeral products increased dramatically.  Lifeplan's inflows and consequent profits correspondingly declined.  Whereas in 2010, as already noted, Foresters' annual inflows had been in the order of $1.6 million and Lifeplan's in the order of $68 million, just two years later Foresters' annual inflows had risen to $24 million and Lifeplan's had fallen to $45 million.

25. In September 2011, Lifeplan's parent company wrote to Foresters complaining that "serious breaches of law and equity" appeared to have been committed by Mr Woff and Mr Corby.  The breaches then complained of included Mr Woff and Mr Corby making use of Lifeplan's confidential information in the establishment and operation of FPA. 

26. Foresters did not then think that there was anything in the complaint.  Nevertheless, Foresters took steps in an attempt to remove the cause of the complaint.  Those steps included notifying funeral directors in September 2011 that existing documents should no longer be used and issuing replacement documents at the start of October 2011.

27. Foresters terminated the marketing and service agreement with FPA in March 2013.  From that time, Foresters promoted the Foresters Funeral Fund itself.  FPA was placed in liquidation in June 2013. 

    The judgment at first instance

28. Lifeplan and FPM commenced a proceeding in the Federal Court against Mr Woff, Mr Corby and FPA.  Foresters was subsequently joined.  Lifeplan's and FPM's claims in the proceeding included that Mr Woff and Mr Corby had breached fiduciary duties owed to Lifeplan and FPM and that Foresters had knowingly assisted in those breaches.  The claims also included that Mr Woff, as an officer of Lifeplan and of FPM, had contravened provisions of the Corporations Act 2001 (Cth) and that Foresters was involved in those contraventions by reason of being knowingly concerned in them.

29. At an early stage in the proceeding, Lifeplan and FPM elected to claim accounts of profits rather than to pursue any claim for damages.  In their claim for an account of profits against Foresters, what they sought was the profits earned and to be earned through the operation of Foresters' funeral products business calculated on a net present value basis by reference to the net profit projected to be made on contracts entered into and projected to be entered into in each year of the operation and projected operation of the Foresters Funeral Fund.  Their primary claim was for the net present value of those projected profits on contracts entered into and projected to be entered into in every year of the actual and projected period of the operation of the Fund.  That is to say, their primary claim was for the entire value of Foresters' funeral products business.  Their alternative claim was for the net present value of those projected profits on contracts entered into and projected to be entered into up to a cut-off date to be determined by the Court.

1. The primary judge (Besanko J) found that, in addition to having breached obligations of confidence to Lifeplan and FPM, Mr Woff and Mr Corby had engaged in a number of breaches of their respective fiduciary duties of loyalty to Lifeplan and FPM[42].  The primary judge found that Foresters had knowingly participated in some but not all of those breaches of fiduciary duties[43]. 

   [42](2016) 259 IR 384 at 456 [377], 458 [384] and [386], 460 [398]-[399], 461 [402]-[403] and [405].

   [43](2016) 259 IR 384 at 457 [379], 458-459 [385] and [387]-[388], 460 [398], 461 [402], [404] and [406].

2. In language drawn from the declaratory orders which the primary judge went on to make and which were not disturbed on appeal, the precise conduct in which the primary judge found Mr Woff and Mr Corby to have engaged in breach of their fiduciary duties of loyalty to Lifeplan and FPM in respect of which he found Foresters to have knowingly participated was that: 

   .between July and December 2010, without permission, Mr Woff and Mr Corby took, used, disclosed to Foresters and retained Lifeplan's and FPM's confidential and valuable information to prepare and advance the BCP;

   .between October and December 2010 in respect of Mr Woff, and between October and November 2010 in respect of Mr Corby, while still employees of Lifeplan, Mr Woff and Mr Corby approached funeral directors for the purpose of soliciting their business; and

   .between September and December 2010, while still employed by Lifeplan, Mr Woff and Mr Corby were involved in the changes to be made to the rules governing the Foresters Funeral Fund and the preparation of Foresters' product disclosure documents.

3. The primary judge found that the same conduct on the part of Mr Woff constituted contraventions of obligations which Mr Woff had as an officer of Lifeplan and of FPM under ss 181, 182 and 183 of the Corporations Act and that Foresters was involved in the contraventions constituted by the last category of conduct set out above by reason of being "knowingly concerned" in them within the meaning of s 79 of the Corporations Act.

4. The primary judge ordered an account of profits in equity against each of Mr Woff and Mr Corby, and under s 1317H of the Corporations Act against Mr Woff.  Each was ordered to account for the sum of his drawings and distributions from a trust of which FPA was trustee[44].

   [44](2016) 259 IR 384 at 471 [446].

5. The primary judge declined to order any account of profits against Foresters, either in equity or under s 1317H of the Corporations Act.  In relation to the use and disclosure to Foresters of Lifeplan's and FPM's confidential information to prepare and advance the BCP, the reason which the primary judge gave for declining to order an account of profits was that the confidential information was not itself "used to generate profits"[45].  In relation to the approaches to funeral directors and preparation for the new business while they remained employees of Lifeplan, the reason which the primary judge gave for declining to order an account of profits related to the capacity of Mr Woff and Mr Corby to have engaged in that conduct after they left Lifeplan.  Whilst "the breaches in which Foresters participated might have led to FPA and Foresters being able to establish the proposed business earlier than might have been the case had there been no breaches", those breaches did not for that reason "lead to the profits earned and to be earned in relation to the Foresters Funeral Fund"[46].  His Honour noted that Lifeplan and FPM did not advance a case for an account of profits for a limited period on a "headstart basis"[47].

   [45](2016) 259 IR 384 at 470 [443].

   [46](2016) 259 IR 384 at 470-471 [444].

   [47](2016) 259 IR 384 at 464 [419], 471 [444].

   The judgment on appeal

6. Disavowing any attempt to formulate an exhaustive statement of the causal connection between breach of a fiduciary duty and a benefit obtained by a person who knowingly participated in that breach which is sufficient in equity to justify ordering an account of profits against that person, the Full Court (Allsop CJ, Middleton and Davies JJ) concluded that the primary judge's approach to ordering of an account of profits against Foresters was unduly narrow.

7. After emphasising the stringency of a fiduciary duty, the Full Court stated[48]:

   "Here, a central, but not comprehensive, feature of what happened was that Mr Woff and Mr Corby, with the full knowledge of Foresters, dishonestly breached their duty by, amongst other things, utilising confidential information to prepare the BCP for the consideration of the board of Foresters.  ...  Armed with this information, Mr Woff and Mr Corby were able to persuade Foresters, and, in receipt of the information, Foresters was able to decide, with a degree of business confidence, to employ them and to undertake the business strategy proposed by them.  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." 

   The Full Court continued:

   "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."

   [48](2017) 250 FCR 1 at 21-22 [66].

8. Turning to the precise scope of the profits for which it was appropriate to order Foresters to account to Lifeplan and FPM in equity, the Full Court noted that the breaches of duty by Mr Woff and Mr Corby did not transfer an extant business to Foresters but rather led to Foresters establishing a new business, the establishment of which "necessarily involved the deployment of capital, skill and expertise, and the undertaking of business risk"[49].  The Full Court took the view that the account of profits would be too extreme if it were to extend to the entire value of the Foresters Funeral Fund business.  Tailoring the order to the circumstances rather required the account of profits to be a proportionate response to the breaches of fiduciary duties by Mr Woff and Mr Corby and to give due recognition to the fact that the breaches did not result in "direct generation of profit"[50].  The order nevertheless needed to fulfil equity's remedial objectives of vindicating the principles of fidelity, trust and honesty which underlay imposition of the fiduciary duties which were breached and of serving "as an encouragement against being swayed to participate for personal gain in the dishonest breaches of others of their duties of fidelity"[51].

   [49](2017) 250 FCR 1 at 25 [85].

   [50](2017) 250 FCR 1 at 26 [85].

   [51](2017) 250 FCR 1 at 26 [87].

9. Having regard to those considerations, the Full Court formed the opinion that the proportionate response in the circumstances was to order that Foresters account to Lifeplan for the net present value of the profits made and projected to be made on contracts entered into by Foresters between the beginning of February 2011 and the end of June 2015.  The Full Court explained that its choice of the end point of June 2015 "sets the account within the framework of the five-year business plan, with a modest deduction of six months" and "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"[52].

   [52](2017) 250 FCR 1 at 26 [88].

10. The Full Court went on to hold that the same order for an account of profits was available and should be made against Foresters under s 1317H of the Corporations Act[53].

    [53](2017) 250 FCR 1 at 29 [117].

11. Allowing Lifeplan's and FPM's appeal, the Full Court accordingly supplemented the orders of the primary judge with an order that Foresters account to Lifeplan and to FPM for profits, in equity and under s 1317H of the Corporations Act, in the sum of $6,558,495.  The precise sum was based on expert evidence to which further reference will need to be made.

    The appeal and cross-appeal to this Court

12. Foresters sought special leave to appeal from the judgment of the Full Court.  Following a contested hearing[54], special leave to appeal was granted, but was limited to just two of the grounds on which special leave had been sought. 

    [54][2017] HCATrans 210.

13. The first ground of appeal on which special leave was granted is expressed in terms that the Full Court "erred in concluding that there was a sufficient causal connection between the profits the subject of the account of profits ordered against Foresters and the conduct that constituted its knowing participation in equity in breaches of fiduciary duty" by Mr Woff and Mr Corby (and that constituted its involvement in the contravention of ss 181, 182 and 183 of the Corporations Act by Mr Woff pursuant to s 1317H) "because the Full Court was satisfied that but for that unlawful conduct by Foresters the occasion for the making of the profit would not have arisen, notwithstanding that that conduct was not the real or effective cause of any profit derived by Foresters". The second ground of appeal is expressed in terms that the Full Court "erred in ordering the account of profits" based on contracts entered into by Foresters in its funeral products business for the period to the end of June 2015 "when no profits were actually made by Foresters from those contracts during that period" and "calculated on the basis of the net present value of future potential profits, which may or may not be made by Foresters from those contracts" after that period.

14. Neither in form nor in substance does either ground of appeal canvass any factual conclusion of the Full Court.  The first asserts an error of principle in the reasons given by the Full Court for ordering of an account of profits.  The second asserts error in the formulation of the precise order which it made.  Foresters' attempt in written and oral submissions to re-characterise the facts is rejected.  Foresters' appeal is to remain strictly confined to the two grounds on which special leave was granted. 

15. As was procedurally open to them as respondents to Foresters' appeal, Lifeplan and FPM on the hearing of the appeal sought special leave to cross-appeal on a number of grounds.  The first and second of those grounds combine to assert error on the part of the Full Court in failing to order Foresters to account for the entire capital value of Foresters' funeral products business.  Interpreted as confined to asserting error in the reasoning of the Full Court, those grounds are a reflex of the grounds on which special leave to appeal has been granted in that they turn on the application to the facts of the same principle of equity.  They alone are appropriate for the grant of special leave to cross-appeal. 

16. The remaining grounds on which Lifeplan and FPM sought special leave to cross-appeal included that the Full Court ought to have found that Foresters was vicariously liable for equitable wrongdoing by Mr Woff and Mr Corby from the respective dates of their employment by Foresters.  Vicarious liability for equitable wrongdoing was rejected as a matter of principle by the primary judge[55] and was not addressed in the reasoning of the Full Court[56].  Lifeplan and FPM conceded in argument that to hold Foresters vicariously liable for such wrongdoing as occurred after they had become employees of Foresters could add nothing of significance to Foresters' duty to account on the basis of having knowingly participated in Mr Woff's and Mr Corby's breaches of fiduciary duty when they were still employees of Lifeplan.  The cross-appeal in those circumstances presents as an inappropriate vehicle for exploring any question of vicarious liability for equitable wrongdoing.

    [55](2016) 259 IR 384 at 456 [374].

    [56]See (2017) 250 FCR 1 at 30 [121]-[123].

17. Discrete issue was joined in argument on Foresters' appeal as to whether an order for an account of profits is available to be made under s 1317H of the Corporations Act.  In the result, that issue of statutory construction need not be determined.

18. For reasons to be explained, Lifeplan's and FPM's cross-appeal is to be allowed.  The Full Court's order for an account of profits is on that basis to be set aside and Foresters is to be ordered to account to Lifeplan and to FPM in equity for the total capital value of the business in the sum of $14,838,063.  As before the Full Court, no distinction was drawn by the parties to the appeal between the positions of Lifeplan and FPM in relation to the framing of an order to account.

    The equitable principles

19. The fiduciary duty that an employee has to an employer within the scope of the relationship of employment, no less than the fiduciary duty that any other person in a fiduciary position has to any other person to whom the fiduciary duty is owed within the scope of the venture or undertaking in respect of which the person in the fiduciary position has undertaken or assumed a responsibility to act in the exclusive interests of that other person[57], is a duty of "absolute and disinterested loyalty"[58].  That duty of loyalty is imposed in equity by means of two overlapping "proscriptive obligations"[59].  Each proscriptive obligation, or "theme"[60], is "descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies"[61]. 

    [57]Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 at 574-575 [11]-[12]. See also Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 407-409; [1929] HCA 24.

    [58]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 104; [1984] HCA 64, quoting Phelan v Middle States Oil Corporation 220 F 2d 593 at 602 (1955). See also Bristol and West Building Society v Mothew [1998] Ch 1 at 18; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at 344-345 [174].

    [59]Friend v Brooker (2009) 239 CLR 129 at 160 [84]; [2009] HCA 21, citing Breen v Williams (1996) 186 CLR 71 at 93-94, 113, 135-137; [1996] HCA 57 and Pilmer v Duke Group Ltd (In liq) (2001) 207 CLR 165 at 197-198 [74]; [2001] HCA 31.

    [60]Chan v Zacharia (1984) 154 CLR 178 at 198; [1984] HCA 36.

    [61]Concut Pty Ltd v Worrell (2000) 75 ALJR 312 at 318 [26]; 176 ALR 693 at 700; [2000] HCA 64, quoting United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 799.

20. "The first", often referred to as the "conflict rule", "is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict:  the objective is to preclude the fiduciary from being swayed by considerations of personal interest."[62]  The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal[63].

    [62]Chan v Zacharia (1984) 154 CLR 178 at 198.

    [63]Chan v Zacharia (1984) 154 CLR 178 at 199.

21. "The second", often referred to as the "profit rule", "is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it:  the objective is to preclude the fiduciary from actually misusing [the fiduciary's] position for [the fiduciary's] personal advantage."[64]  The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self-interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal.

    [64]Chan v Zacharia (1984) 154 CLR 178 at 198-199.

22. Consistently with the objective of imposing each obligation, in neither case does the benefit or gain to the fiduciary need to be at the expense of the principal[65], though it may be.  And in neither case does the fiduciary need to act dishonestly or fraudulently[66], or otherwise than in good faith[67], though again the fiduciary may do so.  Where a fiduciary does act dishonestly and fraudulently, however, the dishonest and fraudulent character of the breach of fiduciary duty is not without consequence for the intensity of the equitable remedies available against the defaulting fiduciary.  More important for present purposes is that the dishonest and fraudulent character of the conduct of the fiduciary gives rise to the potential for similar remedies to be available in equity against another person who might knowingly participate in the fiduciary's breach.

    [65]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 562; [1995] HCA 18.

    [66]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 558, discussing Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 (note) and Boardman v Phipps [1967] 2 AC 46.

    [67]Chan v Zacharia (1984) 154 CLR 178 at 199.

23. Knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty is conduct which is regarded in equity as itself unconscionable and as attracting equitable remedies against the knowing participant of the same kind as those available against the errant fiduciary[68].  Knowing participation in a dishonest and fraudulent breach of fiduciary duty includes knowingly assisting the fiduciary in the execution of a "dishonest and fraudulent design" on the part of the fiduciary to engage in the conduct that is in breach of fiduciary duty[69].  The requisite element of dishonesty and fraud on the part of the fiduciary is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour[70].  Correspondingly, the requisite element of knowledge on the part of the participant is met where the participant has knowledge of circumstances which would indicate the fact of the dishonesty on the part of the fiduciary to an honest and reasonable person[71]. 

    [68]Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 397-398; [1975] HCA 8; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 164 [179]; [2007] HCA 22.

    [69]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 159 [160].

    [70]Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 at 636 [124].

    [71]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 163-164 [174]-[177].

24. That is not to say that other participatory conduct by non-fiduciaries in other breaches of fiduciary duty cannot attract equitable remedies[72].  The extent to which such conduct might do so does not now arise for consideration; the conduct of the fiduciaries and the non-fiduciary in the present case was squarely within the accepted paradigm.

    [72]Cf Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at 356-358 [242]-[248]. See also Gummow, "Knowing Assistance", (2013) 87 Australian Law Journal 311.

1. The breaches of fiduciary duty on the part of Mr Woff and Mr Corby consisted of conduct in breach of the profit rule which formed an integral element of a concerted course of conduct to gain part of their existing employer's business for FPA (a company they controlled) and for Foresters (a competitor of their employer).  Foresters knowingly participated in those breaches of fiduciary duty by Mr Woff and Mr Corby by choosing to take up and to implement the business plan proposed to Foresters by Mr Woff and Mr Corby in the form of the BCP with knowledge of the conduct which constituted those breaches of fiduciary duty in circumstances which would have indicated the dishonest and fraudulent nature of that conduct to an honest and reasonable person. 

2. Those circumstances were sufficient to render Foresters, no less than Mr Woff, Mr Corby and FPA, liable as a "constructive trustee".  Traditionally, that label has been ascribed both to a fiduciary in breach of a proscriptive obligation[73] and to a knowing participant in a dishonest and fraudulent breach of a proscriptive obligation imposed on a fiduciary[74].  The label was long ago explained to serve no purpose other than to indicate amenability to the range of remedies traditionally available in equity against a trustee who is in breach of a similar proscriptive obligation[75].  The remedies available against each, at the option of the person to whom the proscriptive obligation is owed by the fiduciary, centrally include an order for equitable compensation and an order to account[76].  Ordinarily, declaration of a constructive trust is warranted only if other equitable orders are not capable of doing complete justice in the circumstances of the case[77]. 

   [73]Eg Chan v Zacharia (1984) 154 CLR 178 at 199.

   [74]Eg Barnes v Addy (1874) LR 9 Ch App 244 at 251-252.

   [75]Rolfe v Gregory (1865) 4 De G J & S 576 at 579 [46 ER 1042 at 1044]. See also Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at 290 [47]-[48]; [2009] HCA 44; Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at 404 [141].

   [76]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 556; Maguire v Makaronis (1997) 188 CLR 449 at 468; [1997] HCA 23.

   [77]John Alexander'sClubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at 45 [128]; [2010] HCA 19.

3. The equitable remedy of account is a personal order.  The order operates to require that a defendant pay to a plaintiff the monetary value of a benefit or gain to the defendant.  Although commonly referred to as an "account of profits", there is no reason why a benefit or gain to be made the subject of an account must answer the description of a "profit" in conventional accounting terms.  Nor is there any reason why that benefit or gain must answer the description of "property" or must have sufficient certainty as to be capable of forming the subject matter of a trust.  The benefit or gain can be expectant or contingent.  Indeed, it is commonplace that a benefit or gain the subject of an account might encompass an ongoing business.  And it is commonplace that the benefit or gain to be made the subject of an order to account might extend to the whole of the ongoing business or be limited to a part of the business identified by reference to both a specified scope of commercial activities and a specified period of commercial activities which need not be confined to a past period but may be a period which extends into the future.

4. The amenability of a knowing participant in a dishonest and fraudulent breach of fiduciary duty to a personal order to account for the monetary value of a benefit or gain has sometimes been described as an "accessorial" liability.  The description is useful in a case such as the present in highlighting that it is the dishonest and fraudulent breach of fiduciary duty which gives the character of unconscionability to the knowing participation and which exposes the knowing participant to equitable remedies.  The description would have the potential to mislead were it to be taken further[78]:

   "The reference to the liability of a knowing assistant as an 'accessorial' liability does no more than recognise that the assistant's liability depends upon establishing, among other things, that there has been a breach of fiduciary duty by another.  It follows ... that the relief that is awarded against a defaulting fiduciary and a knowing assistant will not necessarily coincide in either nature or quantum.  So, for example, the claimant may seek compensation from the defaulting fiduciary (who made no profit from the default) and an account of profits from the knowing assistant (who profited from his or her own misconduct).  And if an account of profits were to be sought against both the defaulting fiduciary and a knowing assistant, the two accounts would very likely differ."

   [78]Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427 at 457-458 [106]; [2011] HCA 48 (footnote omitted).

5. More useful, to my mind, is the description of the amenability of a knowing participant in a dishonest and fraudulent breach of fiduciary duty to a personal order to account as an "ancillary liability", emphasising that it is the knowing participation in the dishonest and fraudulent breach by the defaulting fiduciary that renders the participant liable to account "as if" a fiduciary[79].

   [79]Williams v Central Bank of Nigeria [2014] AC 1189 at 1198 [9].

6. The principles by which a fiduciary is assessed as liable to account for the monetary value of a benefit or gain obtained in circumstances of breach of a fiduciary obligation "express the policy of the law in holding fiduciaries to their duty"[80].  Holding the fiduciary to account in circumstances of breach of a fiduciary obligation has been explained to serve two purposes.  One is preventing the unjust enrichment of the fiduciary.  The other, more general, purpose is removing the incentive for the fiduciary to act other than in the sole interests of the principal[81]. 

   [80]Maguire v Makaronis (1997) 188 CLR 449 at 468.

   [81]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558. See also Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 409 [413]-[414].

7. Holding the knowing participant in a dishonest and fraudulent breach of duty to account is explicable, and has been explained, as serving precisely the same purposes in precisely the same way[82]:

   "If the maintenance of a very high standard of conduct on the part of fiduciaries is the purpose of the rule it would seem equally necessary to deter other persons from knowingly assisting those in a fiduciary position to violate their duty.  If, on the other hand, the rule is to be explained simply because it would be contrary to equitable principles to allow a person to retain a benefit that [the person] had gained from a breach of [the person's] fiduciary duty, it would appear equally inequitable that one who knowingly took part in the breach should retain a benefit that resulted therefrom."

   [82]Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 397. See also Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 571 [121]; [2004] HCA 56.

8. The reasons for holding the dishonest and fraudulent fiduciary to account and the reasons for holding the knowing participant to account being the same, there is no reason why the principles by which the knowing participant's liability to account is assessed should be different from those by which the dishonest and fraudulent fiduciary's liability to account is assessed.  Notably, no distinction was drawn between the applicable principles in the reasoning of this Court in Warman International Ltd v Dwyer[83]. 

   [83](1995) 182 CLR 544.

9. The suggestion that a basis of differentiation might be found in the fact that the fiduciary alone has undertaken or assumed a responsibility to act in the interests of the person to whom the fiduciary duty is owed might have some force if and to the extent that an additional reason for ordering an account might be found in equity giving effect to that undertaking or assumption of responsibility by proceeding on the fiction that the undertaking or assumption of responsibility has been honoured.  To explain the liability of the errant fiduciary established by a personal order to account in that way is to treat the liability as equivalent in principle to the liability of a trustee established through the Chancery procedure of an account of administration in common form.  That procedure was one by which the trustee could be compelled to provide a verified statement of the affairs of the trust, following which a beneficiary who alleged that the trustee had not in that statement accounted for the monetary value of property which the trustee ought to have got in for the trust estate would by notice "surcharge" the trustee's account with the amount claimed to be omitted.  The surcharge, if upheld, would result in the amount which had been omitted by the trustee being treated as part of the trust estate[84].  The explanation of a fiduciary's duty to account in equivalent terms is not without modern adherents[85].  The difficulty is that it has an air of artificiality when sought to be applied to a breach of a proscriptive obligation by a person in a fiduciary position whose undertaking or assumption of responsibility to act in the interests of another person never encompassed the holding of property for the benefit of that other person.  Even in those circumstances where the additional explanation of the fiduciary's liability might have credence, the additional reason for holding the errant fiduciary liable seems to me to provide a meagre basis for treating the knowing participant in the fiduciary's dishonest dealings more tenderly than the dishonest fiduciary.  Those circumstances, however, were not the circumstances in Warman; nor are they the circumstances of the present case.

   [84]See Devonshire, Account of Profits, (2013) at 48-49; Stuckey and Irwin, Parker's Practice in Equity (New South Wales), 2nd ed (1949) at 269; Williams and Guthrie-Smith, Daniell's Chancery Practice, 8th ed (1914), vol 1 at 369, 420-421, 919.

   [85]Eg Millett, "Equity's Place in the Law of Commerce", (1998) 114 Law Quarterly Review 214 at 225-227; Millett, "The Common Lawyer and the Equity Practitioner", (2015) 6 UK Supreme Court Yearbook 193 at 194-195.

10. The principles applicable to the assessment of liability to account for a dishonest and fraudulent breach of fiduciary duty, like many principles of equity, "have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case"[86].  Sufficiently for the circumstances of the present case, and consistently with the reasoning in Warman, they can be stated as follows.

    [86]Consul Development Pty Ltd v DPC EstatesPty Ltd (1975) 132 CLR 373 at 393, quoting Boardman v Phipps [1967] 2 AC 46 at 123 and New Zealand Netherlands Society "Oranje" Incorporated v Kuys [1973] 1 WLR 1126 at 1130; [1973] 2 All ER 1222 at 1225. See also Jenyns v Public Curator (Q) (1953) 90 CLR 113 at 118-119; [1953] HCA 2.

11. The "cardinal principle of equity" is "that the remedy must be fashioned to fit the nature of the case and the particular facts"[87].  Contrary to approaches which have emerged in some English cases since Warman[88], identification of a benefit or gain for which a defendant fiduciary or knowing participant is to be ordered to account is the outcome neither of judicial discretion nor of the determination of a mere factual issue of causation.  Identification of the benefit or gain is a matter of judgment informed by equitable principle[89].  However contestable the judgment to be made might be on the facts of a particular case, the judgment to be made is one which admits only of a unique outcome which, once made, falls to be appraised on appeal according to a standard of correctness[90].

    [87]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559. See also Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at 278-279 [1]; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at 402-403 [503].

    [88]See Murad v Al-Saraj [2005] WTLR 1573 (discussed in Devonshire, Account of Profits, (2013) at 69-70) and Novoship (UK) Ltd v Mikhaylyuk [2015] QB 499 (discussed in Gummow, "Dishonest Assistance and Account of Profits", (2015) 74 Cambridge Law Journal 405 and in Turner, "Accountability for Profits Derived from Involvement in Breach of Fiduciary Duty", (2018) 77 Cambridge Law Journal 255).

    [89]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559.

    [90]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 567.

12. Equity is not ignorant of questions of causation.  What it stresses is that questions of causal nexus in a remedial context must be addressed by reference to the equitable obligation breach of which is to be vindicated by the remedy that is sought[91].

    [91]Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at 502 [44]; [2003] HCA 15.

13. The benefit or gain for which a fiduciary or knowing participant is liable to be ordered to account must, as a baseline requirement, have a causal connection to the fiduciary's breach of equitable obligation.  The requisite causal connection was explained in Warman to exist if the benefit or gain has been obtained "by reason of" the fiduciary position, where the relevant breach is of the conflict rule, or if the benefit or gain has been obtained "by reason of" the fiduciary taking advantage of an opportunity or knowledge derived from the fiduciary position, where the relevant breach is of the profit rule[92]. 

    [92](1995) 182 CLR 544 at 557, 563. See also Maguire v Makaronis (1997) 188 CLR 449 at 468.

14. Despite an earlier influential formulation which can be read as indicating to the contrary[93], the causal connection which must exist for a knowing participant to be liable to account for a benefit or gain is not between the benefit or gain and the conduct which constitutes knowing participation.  To require a causal connection of that nature would recast knowing participation as a free-standing head of liability divorced from the fiduciary obligations which it is the purpose of equity's imposition of liability on the knowing participant to enhance. 

    [93]Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 397.

15. Foresters' first ground of appeal therefore proceeds on too narrow an understanding of equitable principle in assuming that a knowing participant cannot be liable to account unless there is a causal connection between the benefit or gain and the conduct which constitutes knowing participation.  Foresters' first ground of appeal is equally mistaken insofar as it asserts a requirement for a court to determine the "real or effective cause of any profit derived".

16. A causal connection between a fiduciary's breach of fiduciary obligation and a benefit or gain sufficient for the fiduciary or knowing participant to be liable to the equitable remedy of account will exist if the benefit or gain to the fiduciary or knowing participant would not have been obtained "but for" the breach, in the same way as a causal connection sufficient for the fiduciary to be liable to the equitable remedy of compensation will exist if a loss to the person to whom the fiduciary obligation is owed would not have been sustained but for the breach[94].  Because the concern of equity is to vindicate the equitable obligation that has been breached, the "but for" connection will be sufficient even though other contributing causes might be in play.  That the fiduciary's breach of fiduciary obligation is dishonest and fraudulent is also good reason for treating a sufficient causal connection as existing if the dishonest and fraudulent breach can be concluded to have played a material part in contributing to the benefit or gain of the fiduciary or knowing participant even in circumstances where it cannot be concluded that the benefit or gain would not have been obtained but for the breach. 

    [94]Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 215; Maguire v Makaronis (1997) 188 CLR 449 at 469-470; O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272-278; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 588-589 [21], 621-622 [135]; [2000] HCA 65; Youyang Pty Ltd v Minter EllisonMorris Fletcher (2003) 212 CLR 484 at 504 [51].

17. Obviously enough, as with any other question of causation in equity, the causal connection between a fiduciary's breach of fiduciary obligation and a benefit or gain must be judged using common sense and "with the full benefit of hindsight"[95].  And as with other questions of causation in equity[96], the inquiry into causation is not to be constrained by normative limitations imported from the common law.  To introduce those limitations would risk confusing distinct legal policies underlying distinct bases of legal liability and limiting equity's capacity to mould equitable relief to the circumstances of the individual case. 

    [95]Cf Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 556, adopted in Target Holdings Ltd v Redferns [1996] AC 421 at 438-439.

    [96]Eg Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 214-216; Maguire v Makaronis (1997) 188 CLR 449 at 469-470, 472; Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at 500-504 [38]-[50].

18. The impact on equitable relief of other potentially contributing causes, which in the context of determining the scope of compensable damage for breach of a common law obligation might be examined as part of the inquiry into causation through the doctrinal lens of remoteness or of novus actus interveniens, is examined in the context of the equitable remedy of account through another lens and at a subsequent stage of analysis.

19. The reasoning in Warman makes explicit that where there is shown to exist a causal connection between a fiduciary's breach of fiduciary obligation and a benefit or gain to the fiduciary or knowing participant, the onus shifts to the defendant to establish that it is inequitable to order that the defendant account for the value of the whole of the identified benefit or gain[97].  The shifting of onus is explicable in part, but only in part, as putting the burden of proof of contested questions of fact on a party who is a proven wrongdoer.  The burden on the defendant is not just evidentiary; more fundamentally, it is persuasive.  The obligation of the defendant, imposed as an incident of "the fiduciary relation itself", is to "justify" the "private advantage" that has been obtained[98].

    [97]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 561-562, citing Sheldon v Metro-Goldwyn Pictures Corp 309 US 390 at 408 (1940).

    [98]Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 398.

20. Putting aside those cases in which equitable relief might be withheld on established discretionary grounds by reference to disentitling conduct of the plaintiff, the defendant needs to demonstrate, in order to establish that it is inequitable to order an account of the value of the whole of the identified benefit or gain, either that the benefit or gain is attributable in part to one or more other contributing causes by reference to which it is "practically just" that the benefit or gain be apportioned or that some allowance be made in favour of the defendant[99], or that there is some other reason why accounting for the whole of the gain would amount to a windfall to the plaintiff of such a nature or to such a degree that the accounting would fail to vindicate the purposes underlying equity's imposition of the fiduciary obligation that has been breached[100]. 

    [99]Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at 407-410 [520]-[531], quoting Erlanger v New Sombrero Phosphate Company (1878) 3 App Cas 1218 at 1279. See also Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 109-110.

    [100]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 561-562. See also Guinness Plc v Saunders [1990] 2 AC 663 at 701-702, quoted in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 382-383 [332].

1. Counsel for Foresters contended that the Full Court erred in finding[153] 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[154] 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".

   [153]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 16 [41].

   [154]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 457 [379].

2. That contention should also be rejected.  In terms, what the Full Court found was that[155]:

   "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."

   [155]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 15-16 [41].

3. 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

4. As Gibbs J observed in Consul Development Pty Ltd v DPC Estates Pty Ltd[156], 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"[157] – it logically applies equally to other persons to deter them from knowingly assisting fiduciaries to violate their duty.  Thus[158]:

   "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."

   [156](1975) 132 CLR 373 at 397; [1975] HCA 8. See also Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558; [1995] HCA 18.

   [157]Costa Rica Railway Co Ltd v Forwood [1901] 1 Ch 746 at 761 per Vaughan Williams LJ.

   [158]Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 397.

5. As was later observed in Warman International Ltd v Dwyer[159], 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[160].  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[161], as opposed to legal tests of causation and remoteness[162].  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.

   [159](1995) 182 CLR 544 at 558.

   [160]See also Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 111 per Mason CJ, Deane, Dawson and Toohey JJ; [1993] HCA 54. See and compare Devonshire, "Account of Profits for Breach of Fiduciary Duty", (2010) 32 Sydney Law Review 389 at 401-402; McInnes, "Account of Profits for Breach of Fiduciary Duty", (2006) 122 Law Quarterly Review 11 at 14.

   [161]See and compare Gummow, "Dishonest Assistance and Account of Profits", (2015) 74 Cambridge Law Journal 405 at 409.

   [162]See Lee, "Causation and Account of Profits for Breach of Fiduciary Duty", [2006] Singapore Journal of Legal Studies 488.  Cf Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at 500 [39]; [2003] HCA 15.

6. 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[163], 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[164], 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.

   [163](1995) 182 CLR 544 at 566-567.

   [164][2003] 3 HKLRD 296 at 343-344 [158]-[159].

7. 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[165] in Hospital Products Ltd v United States Surgical Corporation, referring to the judgment of Upjohn J in In re Jarvis, decd[166]:

   "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."

   [165](1984) 156 CLR 41 at 110; [1984] HCA 64.

   [166][1958] 1 WLR 815 at 820; [1958] 2 All ER 336 at 340.

8. In Warman[167], 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[168] 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[169].

   [167](1995) 182 CLR 544 at 568.

   [168]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 562.

   [169]Warman International Ltd v Dwyer (1995) 182 CLR 544 at 561‑562.

9. 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)[170].  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[171].

   [170]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 26 [88].

   [171]See Vyse v Foster (1872) LR 8 Ch App 309 at 333; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 109 per Mason J; Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 111, 114 per Mason CJ, Deane, Dawson and Toohey JJ, 123 per McHugh J; Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557, 561.

10. 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.

11. 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.

12. 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[172], 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)

    [172](1995) 182 CLR 544 at 561-562.

13. 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[173], 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.

    [173]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 470 [444].

14. 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[174].  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[175].  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[176]; and, although the client list was confidential, the clients were not[177].  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.

    [174]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 435-439 [261]‑[281].

    [175]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 453 [363].

    [176]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 437 [266].

    [177]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 439 [281].

15. 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[178].  It is also significant, as the primary judge found[179], 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.

    [178]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 396-397 [30].

    [179]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 397 [32], 401 [57].

16. 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[180], 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[181].  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.

    [180](1995) 182 CLR 544 at 565.

    [181]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 397 [30].

1. 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[182], it does have a bearing on the quantum of the account.  That is because, as was stated in Warman[183], 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.

   [182]Cf Fyffes Group Ltd v Templeman [2000] 2 Lloyd's Rep 643 at 672.

   [183](1995) 182 CLR 544 at 558.

2. The position in England, at least with respect to fiduciaries as opposed to knowing assistants[184], may now be different.  In Murad v Al‑Saraj[185], 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[186]:

   "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."

   [184]See generally Novoship (UK) Ltd v Mikhaylyuk [2015] QB 499.

   [185][2005] WTLR 1573.

   [186][2005] WTLR 1573 at 1591 [67].

3. Jonathan Parker LJ agreed[187], and observed that that was the effect of authorities such as Regal (Hastings) Ltd v Gulliver[188], Boardman v Phipps[189], Brickenden v London Loan & Savings Co[190] and Gwembe Valley Development Co Ltd v Koshy[191].  By contrast, Clarke LJ held that[192]:

   "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."

   [187][2005] WTLR 1573 at 1599-1605 [96], [99]-[123].

   [188][1967] 2 AC 134.

   [189][1967] 2 AC 46.

   [190][1934] 3 DLR 465.

   [191][2004] 1 BCLC 131.

   [192][2005] WTLR 1573 at 1611 [141].

4. As Clarke LJ further observed[193], with respect correctly, his Lordship's approach accords with this Court's approach in Warman.

   [193][2005] WTLR 1573 at 1613-1616 [148]-[158].

5. 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.

6. The primary judge eschewed[194] 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[195].  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[196].

   [194]Lifeplan Australia Friendly Society Ltd v Woff (2016) 259 IR 384 at 471 [444].

   [195]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 25 [81].

   [196]See also Kao Lee & Yip v Koo Hoi Yan [2003] 3 HKLRD 296 at 342-343 [156]‑[158].

7. Of necessity, that exercise involved a "judicial estimation of the available indications"[197], not mathematical precision, and thus was one about which reasonable minds might differ.  But, as the Full Court reasoned[198], 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.

   [197]General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819 at 826 per Lord Wilberforce; [1975] 2 All ER 173 at 179. See also Warman International Ltd v Dwyer (1995) 182 CLR 544 at 567.

   [198]Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at 26 [87]-[88].

8. 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[199], "[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.

   [199](1995) 182 CLR 544 at 559.

   Actual or anticipated profits

9. 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.

10. 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[200]:

    "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)

    [200](1993) 179 CLR 101 at 111 per Mason CJ, Deane, Dawson and Toohey JJ.

11. 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[201] that future profits are not a capital asset.

    [201](1987) 163 CLR 199 at 217; [1987] HCA 18.

12. 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 ColbeamPalmer Ltd v Stock Affiliates Pty Ltd[202] and also by this Court in Dart Industries.  It is also correct that, for the kind of accounting and taxation purposes considered in MyerEmporium, 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.

    [202](1968) 122 CLR 25 at 34; [1968] HCA 50.

13. 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[203].  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.

    [203](1968) 122 CLR 25 at 36.

    Conclusion

14. The appeal and the cross-appeal should both be dismissed with costs.