$6 million profits to be handed over following confidentiality breach

Two employees of Lifeplan breached their fiduciary duties to their employer by approaching a competitor, Foresters, with a business plan that contained Lifeplan’s confidential information. In doing so they sought to convince Foresters’ Board to enter into a joint venture and adopt the business plan for their own future benefit and for the benefit of Foresters.

The Federal Court held that the employees had taken advantage of their positions with Lifeplan by misusing and disclosing Lifeplan’s confidential information and ordered them to hand over their profits of approximately $50,000 from the venture. However, the Court did not also hold Foresters liable.

On appeal. the Full Federal Court held that Foresters was also liable and ordered it to hand over $6m in profits obtained from the joint venture to Lifeplan. In reaching this decision, the Full Court considered:

1. The business plan contained information that was clearly based on Lifeplan’s confidential information.
2. Foresters’ Board knew or should have known by the standards of honest and reasonable people, that this confidential information was being supplied by a current employee of Lifeplan.
3. By adopting the business plan and entering into a business relationship with current employees of a competitor, Foresters knew of the breach and actively participated in it.
4. Without the breaches of duty in which Foresters was knowingly involved, Foresters would not have made the profits that it did from the business venture.

Lesson for employers

Entering into a business plan with an employee or former employee of a competitor is not without risk. Such business proposals should be thoroughly scrutinised to ensure they do not contain confidential information that was inappropriately obtained. Where a business is aware of a potential breach of fiduciary obligations, it cannot disregard this and can be held liable for knowing involvement with significant consequences.

Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited [2017] FCAFC 74