Lifeplan Australia Friendly Society Ltd v Woff

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FEDERAL COURT OF AUSTRALIA

Lifeplan Australia Friendly Society Ltd v Woff [2016] FCA 248

File number: SAD 99 of 2012
Judge: BESANKO J
Date of judgment: 15 March 2016
Catchwords:

EQUITY – fiduciary duties – consideration of fiduciary relationship between employer and employee – consideration of duty of confidence – breaches of fiduciary duties – where employee takes steps to establish new business while still employed – where employee takes confidential or valuable information prior to resigning – where employee uses confidential or valuable information for purpose of advancing a business proposal in their own interests – where employee solicits employer’s clients for new business venture

EQUITY – liability for breach of fiduciary duties – where former employee now employed with new employer – consideration of whether new employer can be vicariously liable for the equitable wrongdoing of its employee – consideration of knowing assistance and the second limb of Barnes v Addy

EQUITY – remedies – account of profits – consideration of when an account of profits might be granted – consideration of the measure of an account of profits – principles of causation – where no profit in consequence of breach – consideration of whether salaries of individuals can be recovered as profits

CONTRACTS – employment contract – breaches of terms implied in law – duty of fidelity and good faith – consideration of the relationship between implied contractual duties and the fiduciary duties an employee owes employer

CORPORATIONS – breaches of statutory duties of employees and officers – ss 181, 182 and 183 of the Corporations Act 2001 (Cth) – consideration of definition of “officer” – consideration of the relationship between statutory duties and the fiduciary duties an employee owes employer – involvement in breaches - s 79 of Corporations Act – consideration of power to award profits in relation to contraventions of Corporations Act – s 1317H(2) of Corporations Act

TORTS – inducing a breach of contract – consideration of elements of common law tort of inducing a breach of contract – where prospective employer induces employee to breach current contract of employment 

TORTS – passing off – consideration of elements of passing off – where similarities between disclosure documents, marketing flyers and other administrative forms – where some evidence of confusion in market – where no direct evidence that relevant consumers were actually deceived or likely to be deceived – where insufficient evidence of damage

Legislation:

Corporations Act 2001 (Cth) ss 9, 79, 180, 181, 182, 183, 232, 471B, 1317E, 1317H, 1317HD, 1317J

Life Insurance Act 1995 (Cth) s 16C, 21

Partnership Act 1890 (UK) s 10

Cases cited:

Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37

Apand Pty Ltd and Another v Kettle Chip Co Pty Ltd (No 2) (1999) 88 FCR 568

Australian Broadcasting Corporation v Lenah Game Meats Pty Limited [2001] HCA 63; (2001) 208 CLR 199

Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345

Australian Securities and…

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Details
Case
[2016] FCA 248
Decision Date

CaseChat Overview and Summary

Lifeplan Australia Friendly Society Ltd and Funeral Products Management Pty Ltd brought an action against Mr Woff, Mr Corby, and Foresters Funerals Ltd. The applicants alleged that Mr Woff and Mr Corby breached their fiduciary duties to Lifeplan, misused confidential information, and breached their contractual duties of fidelity and good faith. The applicants also alleged that Foresters was vicariously liable for the actions of Mr Woff and Mr Corby, and that Foresters was in breach of statutory duties under the Corporations Act. The applicants sought remedies including an account of profits, damages, and injunctive relief. The court had to determine the nature and extent of the fiduciary duties owed by Mr Woff and Mr Corby to Lifeplan, whether Foresters was vicariously liable for the actions of Mr Woff and Mr Corby, and whether an account of profits was appropriate in the circumstances. The court found that Mr Woff and Mr Corby owed fiduciary duties to Lifeplan, including duties of loyalty and confidence. The court found that Mr Woff and Mr Corby breached those duties by soliciting Lifeplan's clients for their own business, using confidential information to advance their own business interests, and taking steps to establish a competing business while still employed by Lifeplan. The court found that Foresters was not vicariously liable for the actions of Mr Woff and Mr Corby, as their actions were not in the course of their employment. The court found that an account of profits was appropriate in the circumstances, and ordered Mr Woff and Mr Corby to pay an account of profits to Lifeplan in the sum of $24,238 and $24,198 respectively. The court declined to make an order for an account of profits against Foresters, as there was no evidence of any profit made by Foresters as a result of the breaches.
The court ordered the applicants to file and serve draft minutes of order within seven days, and adjourned the proceeding for the making of final orders.

Orders

Orders of the court

1. The applicants file and serve within seven days draft minutes of order reflecting the conclusions expressed in these reasons and containing any other orders they seek.

2. The proceeding be adjourned to a date to be fixed for the making of final orders.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The position with Foresters is somewhat different. Except for the fact that Mr Hughes has not searched for the FPA proposal to Tobins or caused any person at Foresters to carry out a search for this document, there appears to be a dispute about whether the orders for discovery have been complied with. In their closing written submissions, the applicants identified the deficiencies in Foresters’ discovery in similar terms to a letter from their solicitors dated 30 January 2014. I note that Foresters denied any deficiencies in the letter from their solicitors dated 12 February 2014. I am not prepared to find that Foresters deliberately failed to make proper discovery.The Facts I now set out my findings of fact. Many of the background facts are not in dispute as they are clearly established by the evidence of Mr Walsh or the documents put in evidence. Where there is a dispute, I will identify the dispute and the way in which I resolve it.Lifeplan and FPM Lifeplan described itself and FPM in its 2009 Disclosure Documents in the following terms. Lifeplan is a leading Australian specialist fund manager and provider of investment products. It is a provider of Funeral Bonds, tax effective investment products and Education Savings Plans. It holds an Australian Financial Services Licence. FPM is a wholly-owned subsidiary of Lifeplan and it is a specialist business dedicated to providing funeral benefits, investment management and customised administration services for funeral directors and their clients. Lifeplan and its funeral products are regulated by its constitution, the Corporations Act and the Life Insurance Act 1995 (Cth). Its funeral bond product is regulated by the Australian Prudential Regulation Authority (“APRA”) under the Life Insurance Act. Mr Walsh expanded on this description with particular emphasis on Lifeplan’s funeral bond business as follows. Lifeplan is in the business of funds management and the provision of investment products. In conjunction with FPM, Lifeplan provides professional administration, investment products and information on aspects of planning for a funeral in advance of a customer’s death. Lifeplan has been involved in the funeral products business since 1984. FPM promotes, markets and distributes Lifeplan’s funeral products. As at 2012, these products were sold through 250 Australian funeral directors. FPM both recruits and maintains relationships with funeral directors for this purpose. FPM has the capacity and had prior to 2012, promoted the products of entities other than Lifeplan. It previously promoted and distributed funeral bond products of another friendly society, KeyInvest Limited. FPM no longer promotes and distributes KeyInvest funeral bond products but does administer them on behalf of KeyInvest Limited. FPM’s business planning includes a strategy of seeking out and securing other friendly society funeral product providers. A funeral bond is a funeral investment product offered by a friendly society through a benefit fund. In the usual course, there is a requirement that the monies which have been invested be paid out only on the death of the client and used for the purpose of their funeral. The idea of a funeral bond is that it allows individuals to set aside funds to meet the costs of future funeral expenses.

Evidence

Evidence Before The Court

The applicants are not entitled to an award of an account of profits against Foresters. The applicants are entitled to an account of profits against Mr Woff in the sum of $24,238 and against Mr Corby in the sum of $24,198.The value of the Foresters Funeral Fund and the expert evidence Although it is not strictly necessary for me to do so, I propose to address the dispute between the experts as to the value of the Foresters Funeral Fund. I do that in case there is an appeal and I am found to be wrong. The modelling by the applicants’ experts is complex and is based on a number of assumptions. Foresters makes a number of submissions in relation to this approach which I will deal with later in these reasons. The applicants adduced evidence from Ms Dawna Wright who gave expert accounting evidence. Ms Wright is a senior managing director in the forensic accounting and advisory services practice of FTI Consulting. In that role, she provides forensic accounting, valuation and financial investigation services. Ms Wright has no actuarial qualifications. She was required to make assumptions in relation to the maturity rates which applied to pre-paid funeral products. For that purpose, she relied on the second expert witness called by the applicants, Mr Michael Dermody. Mr Dermody gave expert actuarial evidence. He is a Fellow of the Institute of Actuaries of Australia and a partner in the firm KMPG and a director of KMPG Actuarial Pty Ltd. Foresters adduced evidence from Mr Campbell Jackson who gave expert accounting evidence. Mr Jackson is a chartered accountant and he is a partner in the forensic dispute practice of Deloitte Touche Tohmatsu. In that role, he provides expert assistance in relation to forensic accounting issues and disputes. Like Ms Wright, in preparing his report he relied on the expert opinion of an actuary. In his case, he relied on the opinion of Ms Caroline Bennet who is an actuary and a partner of Deloitte Touche Tohmatsu. Ms Bennet specialises in the provision of actuarial consulting services, with a particular focus on life insurance and banking. Neither side challenged the expertise of the other side’s experts and I find that each expert had the necessary expertise to provide the opinions which they expressed. Each expert provided one or more written reports containing their opinions and those reports were exchanged between the parties. The experts then met and discussed their opinions. They then prepared a joint expert report which set out the matters upon which they agreed and the matters upon which they disagreed. There was a table annexed to the report which set out joint calculations and which was described in the report as Appendix A. Ms Wright was asked to value the business which is the Fund, including future business (i.e., policies to be written). Mr Jackson was not asked to do that, although he did value the business having regard to the policies in the Fund at particular points in time. The applicants and Foresters agreed that it would be appropriate for the experts to give evidence together and that is what occurred. Before that took place, the parties tendered a document which set out 10 issues to be addressed by the experts (R 26). An Amended Appendix A was tendered (R 25). The Amended Appendix A was the result of a meeting between Ms Wright and Mr Dermody shortly before trial. I reproduce that table below.

Decision

Reasons for decision

As far as Tobins is concerned, FPA and Foresters did not secure the Tobins’ contract for 2011-2013. By the time Foresters secured the Tobins’ contract for 2014-2016, FPA had been wound up and Mr Woff and Mr Corby were no longer receiving any profits through that company.Conclusions with respect to the account of profits The applicants are not entitled to an award of an account of profits against Foresters. The applicants are entitled to an account of profits against Mr Woff in the sum of $24,238 and against Mr Corby in the sum of $24,198.The value of the Foresters Funeral Fund and the expert evidence Although it is not strictly necessary for me to do so, I propose to address the dispute between the experts as to the value of the Foresters Funeral Fund. I do that in case there is an appeal and I am found to be wrong. The modelling by the applicants’ experts is complex and is based on a number of assumptions. Foresters makes a number of submissions in relation to this approach which I will deal with later in these reasons. The applicants adduced evidence from Ms Dawna Wright who gave expert accounting evidence. Ms Wright is a senior managing director in the forensic accounting and advisory services practice of FTI Consulting. In that role, she provides forensic accounting, valuation and financial investigation services. Ms Wright has no actuarial qualifications. She was required to make assumptions in relation to the maturity rates which applied to pre-paid funeral products. For that purpose, she relied on the second expert witness called by the applicants, Mr Michael Dermody. Mr Dermody gave expert actuarial evidence. He is a Fellow of the Institute of Actuaries of Australia and a partner in the firm KMPG and a director of KMPG Actuarial Pty Ltd. Foresters adduced evidence from Mr Campbell Jackson who gave expert accounting evidence. Mr Jackson is a chartered accountant and he is a partner in the forensic dispute practice of Deloitte Touche Tohmatsu. In that role, he provides expert assistance in relation to forensic accounting issues and disputes. Like Ms Wright, in preparing his report he relied on the expert opinion of an actuary. In his case, he relied on the opinion of Ms Caroline Bennet who is an actuary and a partner of Deloitte Touche Tohmatsu. Ms Bennet specialises in the provision of actuarial consulting services, with a particular focus on life insurance and banking. Neither side challenged the expertise of the other side’s experts and I find that each expert had the necessary expertise to provide the opinions which they expressed. Each expert provided one or more written reports containing their opinions and those reports were exchanged between the parties. The experts then met and discussed their opinions. They then prepared a joint expert report which set out the matters upon which they agreed and the matters upon which they disagreed. There was a table annexed to the report which set out joint calculations and which was described in the report as Appendix A.

Ratio Decidendi

Legal Principle Established

The third class of amendments involved the addition of a claim under s 1317H(2) of the Corporations Act for the profits made by Foresters as a result of Mr Woff’s contraventions of the Act. Section 1317H is in the following terms:1317H Compensation orders—corporation/scheme civil penalty provisionsCompensation for damage suffered(1)A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if:(a)the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and(b) the damage resulted from the contravention.The order must specify the amount of the compensation.Note:An order may be made under this subsection whether or not a declaration of contravention has been made under section 1317E.Damage includes profits(2)In determining the damage suffered by the corporation or scheme for the purposes of making a compensation order, include profits made by any person resulting from the contravention or the offence.Damage includes diminution of value of scheme property(3)In determining the damage suffered by the scheme for the purposes of making a compensation order, include any diminution in the value of the property of the scheme.(4)If the responsible entity for a registered scheme is ordered to compensate the scheme, the responsible entity must transfer the amount of the compensation to scheme property. If anyone else is ordered to compensate the scheme, the responsible entity may recover the compensation on behalf of the scheme.Recovery of damage(5)A compensation order may be enforced as if it were a judgment of the Court. The applicants alleged in their Second Further Amended Statement of Claim that Mr Woff had contravened ss 180, 181, 182 and 183 of the Corporations Act. Whilst it was never made clear why s 1317H(2) had not been pleaded earlier, I accepted the applicants’ submission that the “liability” plea (i.e., the plea of the contraventions of the Corporations Act) was already in the Second Further Amended Statement of Claim and that the parties had addressed the issue of the profits made in the evidence filed for use at trial in connection with the claim in equity for an account of profits. In those circumstances, I allowed the amendment. Finally, the applicants sought to introduce a plea into their Statement of Claim that Foresters was vicariously liable for the conduct of Mr Woff and Mr Corby to the extent that such conduct occurred whilst each of them was employed by Foresters. This amendment was opposed by Foresters on the ground that it was not arguable that Foresters was liable for the equitable wrongdoing of Mr Woff and Mr Corby. I decided that the matter was arguable and that the amendment should be allowed. I have now had full argument on the issue and I have decided that Foresters is not vicariously liable for the equitable wrongdoing of Mr Woff and Mr Corby.Witnesses Mr Matthew Peter Walsh was the principal witness called by the applicants. He swore four affidavits which were read as his evidence-in-chief. The affidavits set out the applicants’ case, largely by reference to the documents which had been retrieved from Mr Woff’s computer, or discovered or produced on subpoena. At times, some of Mr Walsh’s statements were more in the nature of submissions rather than statements of fact.