Individuals made aware of confidential information due to a position of trust and confidence owe a fiduciary duty to preserve confidentiality and manage conflicts of interest. A number of recent high-profile examples demonstrate the significant commercial and personal consequences of allegations of a fiduciary breaching the duties owed to its principal.
All organisations and individuals should ensure that they understand their duties and implement (and regularly review and update) appropriate checks and balances to avoid conflicts.
The fiduciary duty to preserve confidentiality and manage conflicts of interest was last considered by the High Court of Australia in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43.
In that case, Woff and Corby were employees of Lifeplan Australia Friendly Society Limited (Lifeplan) which provided funeral products through its subsidiary, Funeral Plan Management Pty Ltd (FPM). By their employment, Woff and Corby became privy to Lifeplan’s confidential information and business records. The pair used this information to create a ‘5-year business concept’ plan (BCP) which involved siphoning Lifeplan’s business to Ancient Order of Foresters in Victoria Friendly Society Ltd (Foresters). The BCP was presented to Foresters board of directors who approved the proposal. Subsequently, both men left Lifeplan and commenced employment with Foresters. The BCP was then implemented through an agreement between Foresters and Funeral Planning Australia Pty Ltd (FPA) (Woff and Corby’s company). The BCP proved highly successful and extremely lucrative for Foresters.
Lifeplan complained to Foresters about Woff and Corby’s conduct and later instituted proceedings in the Federal Court of Australia against Woff, Corby, FPA and Foresters. The trial judge found that Woff and Corby had breached their fiduciary (and statutory) duties owed to Lifeplan and that Foresters had knowingly assisted in some of those breaches. Consequently, the Court ordered an account of profits against Woff and Corby (but not Foresters).
On appeal, the Full Court concluded that the primary Judge’s approach to not ordering an account of profits against Foresters was unduly narrow. In that, it would not have made the profits it did without Woff and Corby dishonestly taking advantage of Lifeplan’s confidential information, of which they had full knowledge. Consequently, the Full Court ordered Foresters to account to Lifeplan for the total present and projected profits made during the contemplated 5-year BCP. The matter was then the subject of an appeal to the High Court of Australia. The High Court went further, ordering Foresters to account for the entire capital value of Foresters’ funeral products business.
Fiduciary relationships are those based on trust and confidence. A fiduciary has a legal and ethical obligation to act in the best interests of another, and to place these interests above their own. Fiduciary duties include (among others) duties of undivided loyalty, due diligence, reasonable care and full and frank disclosure of any conflicts of interest and confidentiality.
Most industries are highly competitive. This environment can place fiduciary duties at risk due to pressures to procure new clients, meet financial targets, or secure professional advancement. These pressures are compacted by the current economy and concerns around job security. These factors can tempt individuals to use confidential information in a manner which they otherwise would not to gain personal or professional advantage in breach of their fiduciary obligations.
Employers should implement internal checks and balances to ensure its staff are not breaching their fiduciary obligations owed to clients and the business in their daily workflow. This may include an extensive review of internal policies and procedures to ensure they align with statutory obligations and, those regarding confidential information and managing conflicts of interests. This can reduce the risk of internal leaks and broader dissemination of sensitive information.
Employers should also conduct regular internal training for directors, executives, employees, and administrative staff to ensure they are aware of their obligations to protect confidentiality. This should include the possible sanctions for breaching this obligation, including potential civil and criminal penalties. The importance of regular ethics training is also reflected in the mandatory annual Continuing Professional Development requirements for both financial and legal advisors.
There are serious possible consequences where confidential information is not used for the intended and proscribed purpose. Any use of information for an ulterior purpose is likely to amount to a conflict of interest and a breach of fiduciary duty, exposing the breaching party to potential claims, reputational harm and, potentially, criminal charges.
If you have any questions arising from this update or have any concerns about your own fiduciary duties, please do not hesitate to contact Millie Richmond-Scott, Partner in Lavan’s Litigation and Dispute Resolution Team.
