The Case

Mr Corby and Mr Woff, employees of Lifeplan Australia Friendly Society Ltd (Lifeplan), used confidential information belonging to Lifeplan to create a business plan, which they then successfully implemented for their new employer, Ancient Order of Foresters Friendly Society in Victoria Ltd (Foresters). Foresters was a direct competitor of Lifeplan (in investment and prepaid funeral products) and far less profitable than Lifeplan.

Lifeplan commenced proceedings in the Federal Court against Foresters. Lifeplan alleged Foresters had profited from Mr Corby and Mr Woff’s breaches of the contractual and fiduciary obligations they owed to Lifeplan.

The alleged breaches were:

• Mr Woff emailing confidential business and financial documents owned by Lifeplan to his external private email, which he later used to formulate a business plan he implemented for Foresters;
• meeting with representatives of Tobin Brothers Funerals, and making false and misleading statements about Lifeplan to secure a 3-year contract in favour of Foresters and themselves;
• soliciting business from funeral directors on behalf of Foresters and themselves;
• obtaining a database of contact details of funeral directors from Lifeplan;
• using Lifeplan’s printer, Matgraphics and Lifeplan’s templates to produce customised, pre-paid funeral contracts with branding for Foresters and their new company;
• copying Lifeplan’s documentation for use in their new business with Foresters; and
• developing their proposed business while employed by Lifeplan.

Verdict

At first instance, while the Judge found Mr Corby and Mr Woff had breached their contractual and fiduciary duties, and Foresters had engaged in the breaches, the Judge determined that the profits Foresters earned subsequent to employing Mr Woff and Mr Corby were not attributable to one or more of the breaches. The Court held there was a lack of connection between a particular breach and particular profits. As such, no account of profits was ordered to be paid by Foresters to Lifeplan.

Lifeplan appealed to the Full Federal Court.

The Full Federal Court determined that Foresters:

• had relied heavily on the business plan that contained Lifeplan’s confidential information;
• had relied heavily on the knowledge that Mr Woff and Mr Corby held and used to solicit funeral directors;
• had knowingly and actively participated in the breaches of Mr Woff and Mr Corby of their contractual and fiduciary duties;
• would not have made the profits they did without the breaches of duty in which Foresters was knowingly involved; and
• were obliged to account to Lifeplan for the profits they made in the amount of $6,558,495.

Lessons For You

New employers must not use confidential information that employees bring with them from previous employers. An account of profits order can be imposed on the new employer with respect to any profits made in the business as a result of using that confidential information.

Employees generally will have express contractual duties not to use their employer’s confidential information, however they also have implied duties and statutory duties by virtue of the Corporations Act 2001 (Cth) not to use confidential information for their own benefit or to the detriment of their previous employer. These implied and statutory duties exist and operate irrespective of whether or not the employees have express contractual obligations.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.