Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited & Anor [2017] HCATrans 210 (20 October 2017)

Last Updated: 25 October 2017

[2017] HCATrans 210

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Adelaide No A26 of 2017

B e t w e e n -

ANCIENT ORDER OF FORESTERS IN VICTORIA FRIENDLY SOCIETY LIMITED (ACN 087 648 842)

Applicant

and

LIFEPLAN AUSTRALIA FRIENDLY SOCIETY LIMITED (ACN 087 649 492)

First Respondent

FUNERAL PLAN MANAGEMENT PTY LTD (ACN 003 769 640)

Second Respondent

Application for special leave to appeal

BELL J
NETTLE J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 20 OCTOBER 2017, AT 9.30 AM

Copyright in the High Court of Australia

MR R. MERKEL, QC: If the Court pleases, I appear with my learned friend, MR D.C. GRATION, for the applicant. (instructed by TurksLegal)

MR N.J. YOUNG, QC: If the Court pleases, I appear with my learned friend, MR P.W. COLLINSON, QC, for the respondents. (instructed by Ashurst Australia)

BELL J: Yes, Mr Merkel.

MR MERKEL: If the Court pleases. The two main and related issues that arise as a consequence of the Full Court’s decision to order an account for profits in this matter are, first, the roles of causation and equitable discretion in determining whether there is a sufficient connection between a breach of fiduciary duty and the profits claimed to be attributable to the breach.

In respect of that issue, we say that the Full Court wrongly conflated the two issues by treating the sufficiency of the connection as being able to be established by policy considerations of fidelity, trust and conscience rather than taking two steps. One is, is there a sufficient connection in a causation sense and, if there is, what proportion of the profits claimed should be attributable to the breach of duty?

But the second and related question is whether an account of profits can be ordered in respect of anticipated profits and income rather than actual profits made or realised and by the court adopting a net present value approach at looking at a future income stream of contracts entered into in the first four and a half years of the business it was a warning - income not yet earned on the net present value basis, rather than looking at actual profits realised. In that sense we say in this context, which is not a property or trust context, but in this context it has travelled beyond any of the previous orders made by the courts in that regard.

We say that two other issues of importance also arise. The first concerns the application of the Court of Appeal decision in Novoship in England where the court said that the rules governing an account of profits for a knowing assistant should not be the same as those for - who are in a fiduciary relationship and whether that should be law in Australia also arises.

BELL J: The Full Court considered Novoship and distinguished respects in which the Australian law departs from the approach taken by the Court of Appeal in that case but, as I read the judgment, Novoship was not argued below.

MR MERKEL: No, it was not, your Honour, and one of the problems with what happened - and we do not criticise the Full Court because it was not argued - but one of the problems thrown up by Novoship is whether the knowing assistant who does not owe a duty should stand in exactly the same situation on causation and sufficiency in connection and also on equitable principle to the person in breach of the duty.

We say that throws up a very important aspect. What Novoship did decide is that the “but for” test should not be applied in its simple way as it was here to a knowing assistant and we say that raises its own set of questions but it is linked closely to the first two questions because it all comes back to, if the answer to a sufficiency of connection is yes then there is an equitable discretion as laid out in Warman as to how the court should approach an apportionment between profits attributable to the breach of duty and profits that were not attributable but independently earned.

The last question which we say is also of substantial importance is the decision by the court that the principles informing an account for profits in equity will also inform the exercise of the statutory discretion for compensation under section 1317H of the Corporations Act which your Honours will appreciate applies to all civil penalty provisions so that has in its bare form, far-reaching and quite considerable ramifications to how an account of profits might be claimed in respect of the civil penalty provisions in the Corporations Act. Can we go straight to the first question - - -

EDELMAN J: Just your two questions as you put them at the outset, are they any different from ground 2 and ground 3?

MR MERKEL: In our special leave application, your Honour?

EDELMAN J: Yes.

MR MERKEL: No, they really treat those two grounds, 2 and 3, as just really raising the same sort of question.

EDELMAN J: Grounds 1, 4 and 5 are effectively then submissions that are subsumed within 2 and 3.

MR MERKEL: I think that is a fair comment, your Honour, although, when I take your Honours to the way in which the Full Court did approach it - and I must say the Full Court was very frank in what it was doing. It was frank in that it regarded the “but for” test as giving a causal connection but conscious of the fact that it had to be a sufficient causal connection which was laid down in the plurality judgment in Maguire v Makaronis.

Their Honours found the sufficiency of the connection by reference not to attributing the profits to the breach but by looking at equitable policy considerations such as fidelity, honesty, trust to say that informs the sufficiency and then the court found itself in a dilemma because the logic of the argument that it had accepted from the appellant, which is Lifeplan, was that a trust was thrown over the whole of the proceeds of the business because in effect they were claiming the benefit of the whole of the business because of the employment of Woff and Corby and reliance on confidential information which was not used to generate profit.

So their Honours cut back on that by then looking at policy considerations and saying, well, we will only give four and a half years of the benefit of contracts entered into which goes into an income stream for the next seven or so years, but I will explain that in a moment. So it got into this dilemma and had to frankly admit that logic does not really explain the answer.

We say that cannot be so because if one looks at Warman, the Court went out of its way to say this is a notoriously difficult area but arrived at a result of attributing two years’ profits to the breach of duty by a process which was strictly logical and explicable but the Court, in effect, by drawing on an equitable discretion at large, weighing up and evaluating all the policy factors, had to arrive at a conclusion which it could not justify by reason. So we say that underlying that approach must be an error. Could I take your Honours to application book page - - -

BELL J: The approach that the Court adopted was to look at the business concept plan, which contemplated a business over a period of five years to make a six month allowance from that and to then fix on the four and a half years of the net present value of the anticipated profits. That is the logic that the Court applied, was it not?

MR MERKEL: Well, it used that as a factor but, your Honour, the breach of duty was not having a five-year plan. The breach of duty was the employment of confidential sales information - - -

BELL J: Yes.

MR MERKEL: - - - which gave the Board of Foresters confidence to employ Woff and Corby but the information - - -

BELL J: But the breach was tied up intimately with the confidential information in the plan and the “but for” causation was that Foresters would not have proceeded but for being satisfied on the basis of the BCP; that was the essence of it, was it not?

MR MERKEL: That was the essence of it, your Honour, but it is overstating the issues and the findings of the trial judge to say that the plan itself and the achievement of it was related to the - was based on the confidential information because the plan was a plan over five years which was no more than a business plan.

It was believed to be achievable and the misuse of confidential information informed that belief but the trial judge found that apart from use of some of the sales information in January and March when they were put to board meetings, there was no longer a use of that information and the Full Court took a broader view but it said, well, at least there may have been use for at least six months but it was not a case where any of the information was found to have been used in a way that could make the profits earned attributable to it, other than in that initial period.

EDELMAN J: The profits earned were attributable in a causal sense. All of the profits earned had a causal attribution in the sense that they would not have been earned but for the breaches. What you are really arguing about is not causation in a strict sense of “but for” causation. You are arguing about the limitations that one should put upon causation and whether or not those limitations – in common law they would be called remoteness or scope of liability – should be limitations that also apply to an account of profits and whether they should be the subject of discretionary or policy considerations.

MR MERKEL: Yes, your Honour, that is a fair way of describing what we are putting. That is why we say that we do not dispute the “but for” test gives a causal connection but the test that is to be applied is that that relates to the sufficiency of the causation and the sufficiency of the connection and there we agree with your Honour, and this has come up in the articles we refer to, I think in footnote 8 to our submissions, where there are articles by your Honour, articles by Justice Kirby, the honourable Mr Gummow - - -

EDELMAN J: I think my views were quite embryonic. There is a much more useful analysis in Barnett’s book on Accounting for Profits for Breach of Contract in Chapter 7.

MR MERKEL: Yes, your Honour, and what we say, even when the honourable Mr Gummow was commenting on Novoship, his Honour referred to the requirement of a material contribution and in the word “material” or “sufficiency” of connection, lie the factors your Honour Justice Edelman put to me. The first step must take into account remoteness, novus actus and policy considerations that would look at why you are asking the question.

We say the present case draws that issue out very starkly because the profits that are claimed to be subject of the account relate to an actuarial calculation which is that the average life of each of the contracts, because they relate to a funeral expense, so that there is an actuarial calculation which broadly speaking would have an average of eight to 10 years for each contract between when purchased and when the person dies, when the contract comes to its end.

So, for example, taking it to an extreme point of remoteness, for a contract entered into on 30 June 2015, which is four and a half years or really five years after the date of the breach, the income stream would start on 30 June 2015 and go for eight years, up to 2023. But that is an income stream but the business itself may have been making losses; that income stream may not be contributing to a profit, it may be an accumulated loss.

So that is why we say it is an anticipated profit which is the quantum leap. One of the reasons it would appear the court was driven to this situation is because it found that policy considerations should dictate an account of profits but for the first five years there are accumulated losses, so there were no profits. Therefore, the court was in effect directed by persuasive argument on the part of our learned friends to say look, these contracts constitute an asset. We look at their net present value, we calculate it by a discount rate that experts agree upon and then we look at an - - -

BELL J: Was it not your expert who first proposed this approach?

MR MERKEL: I do not think so, your Honour. My understanding is that this was an approach picked up by a whole of business valuation on the part of the applicants and this was responsive evidence. If that method was to be used, it was to be a lower discount rate. There was dispute about the discount rate and then when it came before the Full Court, there was agreement on what would be a discount rate.

But in High Court cases, looking at an account of profits, reference has been made from time to time to the assistance one might get from commercial accounting principles. Could this net present value or would it, in the normal course of accounting, be included as an asset realised or a capital profit? There was no evidence of that kind here. We had accountants and we had actuaries agreeing on the net present value but not evidence that the net present value of these contracts would normally be recorded in books of account as a realised capital profit. Now, there may be some dispute about that but we say that certainly the Full Court did not rely upon this being an established practice.

EDELMAN J: Well, it was not a realised profit. It was an unrealised profit.

MR MERKEL: Unrealised anticipated profit - - -

EDELMAN J: Yes.

MR MERKEL: - - - because if one is throwing an umbrella over the business, as our learned friends sought to, they needed to take into account, not only future income streams but future outgoings in respect of those income streams and to see whether those income streams were in fact going to realise a net profit. So we say that the court’s reliance on these policy considerations drove it into this situation but it does raise - - -

EDELMAN J: Why would not, at least for section 1317H, the concerns or the limits that are to be placed upon causal profits not be the same considerations as the limits to be placed upon causal losses, given that profits and losses are seemingly treated within that provision as bound together by the same policy considerations.

MR MERKEL: There would be good reason for them both to be treated in the same way because it is compensatory. It is not informed by the same policy as equity would inform an account of profits. It is treated as compensation and principles governing losses would logically govern profits, particularly given that we are covering such a wide range of civil penalty provisions.

EDELMAN J: Why then would it not be said that at some point there needs to be a cut off of the profits to which your client is liable to account and the approach that the Full Court took was as good as any to work out where those profits become too remote?

MR MERKEL: Your Honour, because the Full Court did not apply a causation test to that question. If it applied a remoteness test it would have been confronted by the difficulty of how could it be said that income streams in 2023 were not remote or too remote. It leapfrogged over remoteness and novus actus and those sorts of matters by applying the policy considerations. Can I take your Honour to where that - - -

EDELMAN J: But it did not so much leapfrog over them as bundle them all up together within a single causation inquiry. It is really just labels we are talking about, is it not?

MR MERKEL: We say, with respect, it is stronger than that, your Honour. Could I go to page 221 of the application book, starting at paragraph 61 at 220, where your Honours refer to the “but for” test; then at 63 they refer to Warman and then about the last sentence of paragraph 63, they say:

The strictness of the rule of undivided loyalty informs the application of remedy –

and then down at paragraph 64, halfway through the paragraph:

There is no call to generalise about the adequacy or not of the so-called but-for test. The facts should be examined to ascertain the causal relationship between the breaches and the profits to assess whether it is sufficient to conform with the policy of the rule to attribute a liability to account for those profits.

The policy is undivided loyalty which was referred to in paragraph 63 but then one can see in paragraph 67, top of page 223:

Equity here is concerned broadly with the enforcement and support of fidelity, conscience and trust and trust and the stopping of the gain from infidelity, breach of trust –

Then if one jumps ahead to paragraphs 87 and 88, one can see that the court applied those policy considerations rather than causation. So, if one goes to 87, your Honours, at the top of page 228:

The choice of the end point against which to make the valuation is not driven by any logical analysis beyond the recognition that it should support and fortify the underlying principles being vindicated: fidelity, trust and honesty. The causal connection is one that vindicates those considerations and one which might be seen to act as an encouragement against being swayed to participate for personal gain in the dishonest breaches of others –

Then at 88:

The BCP and the considerations in relation to commencing the business contemplated a five-year plan. Terminating the valuation of the contracts at 30 June 2015 would adequately and proportionately account for sufficient capital profits to fulfil the above objectives.

So, what the court has done is looked at the issue of sufficiency of connection by reference to whether those policy considerations are sufficient to justify the account being ordered in respect of the net present value of the contracts entered into over the first four and a half year period.

We say the court did not, with respect, apply a causation test of the kind your Honour Justice Edelman put to me because the question of remoteness was nowhere adverted to - the question of whether really the profits were entirely attributable to the lawful competition Foresters was entitled to engage in, and did engage in, through employment of two employees who did not breach their duties in respect of the conduct of that business, so the entirety of the profits of this business was earned by lawful conduct.

So, the “but for” test took you very little into the derivation of any profit, so the trial judge we say, with respect, was correct in arriving at the conclusion he did of applying a strict causation test, saying the profits were not attributable to the breach and therefore the first leg of the inquiry, is there a sufficient connection, had to be answered, no. Therefore, you never got to the second leg.

By the court conflating those two issues, we say it did sidestep and not apply the rules of causation which we have set out in footnote 8, I think. My time is up, your Honours, but at footnote 8 of our submissions, can I just draw your Honours attention to that at page 249, where we set out the various passages of text writers and extrajudicial writings which say that this is an outstanding question which requires resolution and we say this case is a vehicle to resolve the questions of causation and remoteness discussed in the articles and referred to in various decisions of the court and we say Warman does not provide the answer.

BELL J: Those questions would be raised by your grounds 2 and 3.

MR MERKEL: Yes, your Honour.

BELL J: You accept that your proposed grounds 1, 4 and 5 add nothing to the points that you seek to ventilate. They are, as Justice Edelman put to you, in the nature of submissions.

MR MERKEL: I think that is right except, your Honour, 4 and 5 go to the second question of actual versus anticipated profits.

EDELMAN J: That is ground 3.

BELL J: Is not that your ground 3?

MR MERKEL: I think ground 3 goes to the discretion, your Honour, but 4 and 5 go to whether there should be a line drawn between profits made and anticipated profits, so that raises that related but arguably separate point that you cannot make an order of the kind made here, your Honours. Sorry, I am looking at the questions, your Honour, sorry.

BELL J: Yes.

MR MERKEL: Sorry about that, your Honour. If the Court pleases, they are the submissions we put.

BELL J: Yes. Yes, Mr Young.

MR YOUNG: If the Court pleases. The course we would like to take is to give a short answer to each of the four points or grounds my learned friend articulated orally at the start of his submissions and then develop some of those points. As to the first point concerning causation, which my learned friend coupled with what he called equitable discretion, in our submission, there is a fallacy underpinning the formulation of that ground.

The special leave grounds are presented as if the Full Court’s decision turned on a “but for” question of causation and solely turned on it. That is simply not so. The Full Court found there was an ongoing causal contribution that was material to the success of Foresters’ business and I will take the Court to the passages in a moment.

What the Full Court was addressing when it considered policy considerations was the question of how much profit should be captured by the account, which is the very same issue within the framework of which the High Court in Warman addressed policy considerations.

EDELMAN J: And how that profit should be captured.

MR YOUNG: Yes, and how, having regard to the need to balance a range of factors and not to produce extreme or inappropriate results that might produce a windfall. So the whole characterisation of the decision by my learned friend is flawed. I will develop those points. Can I then deal with the net present value of the contracts point that my learned friend mentioned as his second point. Both parties advanced an alternative form of account as being one based on the net present value of secure contracts entered into in the early years of the business that was launched by Foresters.

Now, one needs to understand that the nature of these funeral contracts was that once the moneys were deposited, they could not be withdrawn. They remained in the hands and being managed and producing income through until the death of the policy holder. So it was a secure flow of income and there was no reason why, as a matter of equity, that could not be used as a measure of the appropriate boundary for profits that should be captured by an account.

EDELMAN J: You may be right but is there any case which has ever recognised that an account of profits extends to profits to which you have a future right but which have not yet accrued?

MR YOUNG: Yes, because there are cases that recognise a capital profit should be the subject of the account and that capital profit might take the form of a shareholding.

EDELMAN J: But a shareholding, the profit has accrued - - -

MR YOUNG: No.

EDELMAN J: - - - when the value of the shares have gone up you have an entitlement immediately to sell.

MR YOUNG: Well, it depends how the value of the shares are valued. If they are 100 per cent of the shares in a company, for instance, as in the Warman Case, with one of the two companies, and I cannot remember which, ETA or BTA, that was 100 per cent owned by the defaulting party, Dwyer. The other one was a joint venture. The High Court postulated that you would value the shares and you could value the shares in the first of those cases by reference to a net present value of the business that was held by that company.

Here, the two individuals, Woff and Corby, have a 25 per cent interest in a joint venture company with Foresters. So this, in many ways, was a joint venture. Foresters had a 75 per cent interest. You could value their interest by reference to future cash flows with an appropriate discount arrangement. So there are cases where, and it was acknowledged below and both sides accepted, that an account could be structured by reference to a capital profit. This, granted, was a slightly unusual form of capital profit but that was driven by the very nature of these secure contracts that provided the income flow and it was a way of trying to measure all of the benefits and advantages derived through the ongoing use of confidential information.

EDELMAN J: Why do you then discount the first five years of losses?

MR YOUNG: The losses are not being discounted. There were losses in the first five years but that is an accounting exercise. In the same period as the Full Court pointed out, the value of funds under management in the case of Foresters, went from something like $4 million to $68 million and there was a corresponding diminution in the income flow to Lifeplan and that was the starting point for the Full Court’s analysis that where do we draw the line, the boundary, as to what would be too extreme in the case of an account and what would be an appropriate means of capturing the real benefit that undeniably was being granted.

NETTLE J: So, it was the losses incurred in the first five years, subtracted from the net present value of projected future income?

MR YOUNG: Yes, that is right.

NETTLE J: Thus, fully brought to account.

MR YOUNG: Yes, they were and to answer your Honour Justice Bell’s question, and I am developing this point about.....more than I intended to at the outset, the position is that the Foresters’ expert propounded this as a fullback way of doing an account; that was Mr Jackson. This appears in paragraph 72 to 74 at page 224 of the application book. Paragraph 72, there is a reference to Foresters’ expert. Then Lifeplan’s expert responded by adopting the same alternative, expanding upon it and as the court points out at paragraph 74 the approach:

originated in the evidence put forward by Foresters -

So there was no disagreement but that this was an appropriate means based on a joint expert report ultimately before the Full Court, of determining the question of how much of the profits should be captured by an account.

Now, can I then turn very briefly to my learned friend’s next point which was Novoship. The Novoship distinction that common law causation tests should apply to a knowing assistant is inconsistent with a long line of High Court authority that runs through Consul down to Warman and includes lower court, intermediate Court of Appeal decisions like Grimaldi. So, everything that the Full Court said about the inapplicability of that decision was exactly correct. Now, the last - - -

EDELMAN J: It depends what proposition that decision is thought to stand for. I mean, if the decision is thought to stand for the proposition that there are some limits that are going to be placed upon causal in the sense of “but for” profits, that will mean that no recovery is possible. Then that is not inconsistent with that line of authority in Australia, is it?

MR YOUNG: The proposition that some limits be placed - no, for reasons I will develop.

EDELMAN J: Or even limits that mean that the profits are beyond the scope of the duty which has been breached.

MR YOUNG: Yes, let me accept that for a moment but that was not the Court of Appeal’s approach in England. Their approach was to apply to an equitable wrongdoing knowing participation involving dishonest participation in that case in England. They applied common law tests of causation and remoteness and so on which has never been a course that courts in Australia have followed in relation to equitable wrongdoing.

The final point my learned friend listed concerned the Corporations Act. Put quite shortly, there are two points. There is no reason to apply different principles by way of limiting what can be the subject of an account and secondly, that was very much a subsidiary argument. It would make no difference to the outcome unless the principal arguments concerning equitable accounts went the other way compared to the outcome in the Full Court.

NETTLE J: Could I just ask for you to go back to the last question?

MR YOUNG: Yes, your Honour.

NETTLE J: At paragraph 88 of the reasons for judgment of the Full Court, page 228 of the application book, Mr Merkel took us there as illustrating he said, the error in the approach of the Full Court in determining questions of remoteness as it applies in an equitable account of profits by reference to policy rather than principle of the kind which has been developed between Consul and Warman.

MR YOUNG: Well, one needs to understand the context of this discussion.

NETTLE J: Yes.

MR YOUNG: The context of this discussion is that there is factual causation. There is not only “but for” causation but there is an ongoing material contribution. Then, having worked that out, the Full Court said at the end of paragraph 67, last sentence page 223:

The more difficult question is assessing how much of the profits of the business after 1 February 2011 should be accounted for.

The balance of the discussion addresses that issue and that issue is one where the High Court in Warman said it comes down to a matter of judgment. It may be inappropriate to award the entire capital value of the business established in circumstances like this. It may be necessary to find some narrower boundary that does not produce a windfall gain. So they were going on to address the question of how much and the High Court said in Warman, it is not a matter of mathematical precision.

Now, everything that followed in the reasoning of the Full Court exactly follows the pathway of reasoning in Warman. That includes the reference to the onus being on the defendant, paragraph 84. If I go to 227, we can step through the reasons very quickly. The framework is again set by asking how much profit at paragraph 80. Then our submission that it is the entire value of the business is rejected at 82 and following. The passage of Warman is extracted, that you need to draw a boundary because to go beyond it may be inappropriate, depending on the facts. The onus is on the defendant.

Then in paragraphs 85 and following the Full Court mentions the same sort of criteria as mentioned in Warman, namely, you should not go to extremes – “a degree of proportionality” in paragraph 85; “a balancing of the factors” in 86; no mathematical precision in paragraph 87 and consideration of the purpose for imposing liability and the nature of the remedy in paragraph 88.

BELL J: Mr Young, what is the ongoing material contribution to which you refer?

MR YOUNG: Yes, can I detail that. Can I go back to the outset of the Full Court’s judgment at paragraph 8? That gives certain essential perspectives from line 39 to the end of the paragraph.

BELL J: Just taking that up, their Honours refer to:

the wholesale plundering of the confidential information and business records of Lifeplan –

Now, that was relevant to the material that was contained in the BCP, was it not?

MR YOUNG: No.

BELL J: No?

MR YOUNG: Not only.

BELL J: No?

MR YOUNG: The Full Court explains that over the page at 202. There was a taking of the entire database of clients. There was a taking of the documents used by Lifeplan and a copying of those documents so that clients could be approached seamlessly with the same documentation. The mail-out list was taken and they were the matters that were the subject of ongoing usage, as found by the trial judge, right through, beyond 2013, the trial judge said.

Now, when it came to the actual disposition of the case the primary judge did not give effect to the cumulative effect and ongoing effect of these breaches and that is where factually the Full Court differed. Can I mention three other matters and I know I am running short of time? The BCP was not just a chronicle of confidential information. It was a strategic business plan as to the firms to be approached and the point of time at which they should be approached and that business plan was implemented, as the Full Court said.

The business plan was used to set sales targets and budgets for the team that were going to go out and approach the former Lifeplan clients. The judge said that at paragraph 310 of the primary judgment and the Full Court adopted those findings. Could I go to the sequence of paragraphs at 210. They run from 29 through to 33 but can I just pinpoint a couple things? In the middle of paragraph 29:

a strategic plan to deal with all of Lifeplan’s existing clients.

Paragraph 30:

a planned schedule of visits to funeral businesses and a strategic plan to make use of documentation, which was, in fact, taken wholesale from Lifeplan –

Paragraph 32:

detailed strategy to attack the commercial base –

and then that is wrapped up in paragraph 33. So it was not just a piece of paper that ceased to have ongoing relevance at the time of the decision to set up the business. It was the strategic plan that was thereafter implemented to solicit the clients to Foresters’ new business. Now, that is the first point. The second point is that there was ongoing use of the BCP to measure success for six months and I think your Honour Justice Bell mentioned this - that is the Full Court at 69.

BELL J: But can I just raise with you, if one goes to the primary judgment at application book 59, paragraph 192, the primary judge’s finding was:

The only subsequent use of the these documents –

which I take to be the documents referred to in the preceding paragraph that went into the BCP.

MR YOUNG: Yes.

BELL J: He indicates:

involved the use of the annual sales figures –

and so forth but his Honour seems to give rather less robust use to it than I read from your submissions.

MR YOUNG: Yes.

BELL J: That is the matter I am taking up with you.

MR YOUNG: Yes. The Full Court differed as to the significance of the use of those matters, but 192 is limited to documents captured within the four corners of the BCP, if you go through what is in paragraph 9.

BELL J: Yes.

MR YOUNG: There was a wider use of purloined material which is something that falls out of the judgment of the trial judge but he never brought that to bear when he assessed the matters of causation in paragraph 443. The Full Court did, so the major difference between the trial judge and the Full Court was a different view of facts, not a different view of the underlying principle about the need for a causal nexus and when the Full Court at paragraph - just before I do that, if I may, I will give a reference to two other areas where there is ongoing usage.

Paragraph 69 of the Full Court decision at page 224, which is the continued use of the information by the board in gauging success over six months. That is different than the two occasions mentioned by the judge at 192 and then, as well, and this is very important, the Full Court, at page 211, paragraphs 35 and 36. This lists the way in which the contract documents and other documents are going to be put to use in soliciting clients to produce a seamless transition.

Page 212 of the speaking notes for the decision by Foresters, Mr Woff’s speaking notes which talk about using all these documents to solicit clients -the Full Court takes that up at paragraphs 36 through 38 but the idea was to have seamless documentation to enable the solicitation of clients. The judge had made findings about the very same matter at page 74, paragraph 263.

This deals with the use of that documentation to solicit clients over a period from 2011 to 2013. Three instances were given. Mr Graham of Graham Family Funerals, Allison Monkhouse and can I direct the Court to about line 13 on page 75, FPA could offer seamless transition and the documentation was provided. That was 2012. Then, similar events occur in 2013. So, the Full Court has found an ongoing material contribution to the success of the business and it also found that it worked.

If I could go back to the Full Court at page 218, the Full Court opens its discussion at 53 with a description of what happened with this strategic plan. It was successful because Foresters’ business grew from a very small income flow of something like 4 million to 62.9 million by 2013 and there was a corresponding fall in Lifeplan’s income.

So that is the context and the factual context is important because there was no difference of principle. The principle that the Full Court applied has been endorsed by the High Court numerous times. It is set out in paragraph 64. The language comes directly out of Warman, Hospital Products and Chan v Zacharia. It is the language of “by reason of the taking advantage of opportunity or knowledge derived from my fiduciary position”. That was the broad nexus required on the authorities. You can sum it up with the word “attribution”, if you like, but it makes no difference.

The Full Court said there is no difference in principle between us and the primary judge but we look at the ongoing contribution of this wrongdoing to the success of the business well beyond the establishment of the business and we also recognise that the benefits and advantages cannot be approached by asking the question, was a particular piece of confidential information used to generate a particular amount of profit? That is not a realistic analysis. That is why the Full Court differed from the primary judge.

So, in our submission, on causation, the reality of the decision is that the decision turned on its special facts. The facts were addressed in the context of how much profit should be captured and the approach adopted by the Full Court to that question did involve reference to the policy of the remedy but that was exactly in line with the High Court’s approach in Hospital Products and in Warman. So, it does not really raise these questions of principle. It raises perhaps an interesting case but a case about the factual application of well-established principles concerning the taking of accounts in equity. If the Court pleases, those are our submissions.

BELL J: Thank you, Mr Young. Yes, Mr Merkel.

MR MERKEL: With respect, my learned friend has fallen into an error which we say the Full Court put a gloss on and that is that the wholesale plundering by Messrs Woff and Corby was not conduct in which Foresters was knowingly assisting. Can I take your Honours to the trial judge’s findings at page 120 starting at the bottom of 119. The trial judge – there were three areas of knowing assistance. One was the use of the BCP plan and his Honour made a finding that the use of – four lines down at page 120:

The use of some of the information . . . in early 2011 is not a use that generated profits.

Then his Honour dealt with the two other knowing assistant aspects which was approaching by Woff and Corby of competitors which preceded their employment and also the use of some information of Lifeplan in preparing documents which also occurred prior to their employment and which could have been done lawfully after their employment. His Honour said at 444, halfway through the paragraph:

In those circumstances, 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, but they did not lead to the profits . . . As I have said, the applicants have not advanced a case on a headstart basis.

Now, your Honour, the presiding judge was correct when you took my learned friend to paragraph 192 of his Honour’s, the trial judge’s reasons but could I also go – at 192 his Honour said, this is at page 59:

The only subsequent use of these documents (that is, after the Board meeting of 13 September 2010) involved the use of the annual sales figures-

in the two meetings in January and March, 2011. But can I take your Honours to paragraph 283 at page 79 where his Honour returned to that. At 283 his Honour said:

FPA provided monthly reports to the Board of Foresters –

that is Woff and Corby’s company and he then sets out what they did in January and March which explains the finding at 192. Could I also take your Honours to paragraph 298 at page 82 where Mr Fleming gave evidence which his Honour had accepted in the earlier part:

Mr Fleming said that the Board (meaning himself and the other members) did not make use of the BCP or the information contained in it after the meeting on 13 September 2010.

Could I take your Honours then to the paragraph my learned friend relies upon by the Full Court which is paragraph 69 which must be based upon those same findings of fact because the appeal was conducted without challenging his Honour’s findings. At 69 when their Honours refer to the “continuation of the use of the information”, it must be a reference back to the evidence I have just taken you to. They said it was:

utilised by the board of Foresters in gauging the success of the undertaking, at least in the first six months of the operation of the business -

which takes us back to the January and March meetings, no more than that. That is what the evidence was and that is how the case was conducted and what we are looking at is what is the gain acquired by the knowing assistance, not what is the gain by reason of the breaches of duty by Woff and Corby in which Foresters was not knowingly assisting.

By conflating the wholesale plundering which did occur but in which Foresters was not knowingly assisting, the Full Court - and what my learned friend has done, if that is what the Full Court has done, has conflated an issue which it is not open for it to do with the real vice of what occurred which was the use of confidential information in relation to the employment of Woff and Corby but not at any time after March 2011.

When my learned friend says the business of Lifeplan decreased as the business of Foresters grew, his Honour the trial judge made findings at paragraphs 8 and 10 that the growth of the business was a growth in lawful competition by Woff and Corby not engaging in breach of their duty or in any way in which Foresters was knowingly assisting during the period where its business had grown.

So what my learned friend ultimately is complaining about is lawful competition. So we say that the issues of principle which we say arise and the way in which the Full Court looked at sufficiency of connection by reference to policy arises fairly and squarely. On the issue of net present value, what was initially presented was a copyright case which was withdrawn the day before trial. Evidence was put in on experts on how one might value appropriation of property.

Now, it was always contested that a net present value approach is not a proper way of dealing with the breach of duty but in response to the case that was being put of net present value, of course, Foresters had its own expert putting in a different discount rate and suggesting different factors. So, we say, with respect, the issues of principle raised in grounds 2 and 3 and, I am sorry, I looked at the questions before your Honour, do arise in the present matter. If the Court pleases.

BELL J: The Court will adjourn briefly to consider the future conduct of the matter.

AT 10.24 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.31 PM:

BELL J: There will be a grant of special leave in this matter confined to grounds 2 and 3 of the application. Mr Merkel, what estimate do you put on?

MR MERKEL: I think probably a day, up to a day and a half, your Honour. It should be within a day – capable of being heard within a day.

BELL J: Mr Young

MR YOUNG: One day.

BELL J: Yes. I think, Mr Merkel, one day. If the parties would obtain from the Registry the draft set of directions in relation to the filing of submissions and bear in mind the need to adhere to the timetable.

MR MERKEL: If your Honour pleases.

BELL J: Yes, thank you.

AT 10.32 AM THE MATTER WAS CONCLUDED