All facts in this article have been sourced from publicly available information.
10 years on, FTI Consulting's work on the Lifeplan Australia Friendly Society Ltd ('Lifeplan') case against two of Lifeplan's former employees ('Former Employees') and the Ancient Order of Foresters in Victoria Friendly Society Limited ('Foresters') still offers rich and relevant insights into the intersection of forensic expert evidence and legal strategy in cases involving a claim for an account of profits.
The Lifeplan case broke new ground by including future profits in the account of profits compensation order. Viewed through the lens of forensic accounting, our work as an expert on quantum in the case reveals essential insights for legal practitioners on effectively engaging with financial experts for a best chance of achieving similar results. This article explores key issues: What should the legal reviews focus on when evaluating expert's work? What should one look out for when developing counterfactual scenarios? Finally, what are the circumstances in which future profits can be included as part of an account of profits? Our reflections boil down to four key points: engage experts early; invest in communication and collaboration; make sure models are both clear and compelling; and thoroughly scrutinise the counterfactual scenarios.
Part 1: Case Background
Lifeplan brought proceedings against the Former Employees and their new employer, Foresters (a competitor of Lifeplan), alleging that the Former Employees used proprietary business models to replicate Lifeplan's successful prepaid funeral business at Foresters. Lifeplan sought equitable compensation (account of profits) from the Former Employees and Foresters.
The Federal Court found that the Former Employees had acted in breach of their fiduciary and contractual duties and that Foresters had knowingly assisted in that breach. However, Foresters' liability was not established.1
On appeal, this decision was overturned by the Full Federal Court, which ordered an account of profits against Foresters in the sum of $6.5 million, being the net present value of profits made and projected to be made by Foresters from having operated the replicated prepaid funeral business for a period of five years.2
On cross appeal, in a four-to-one decision, the High Court overturned the Full Federal Court's decision and held that the account of profits should reflect the entire net present value of the prepaid funeral business, assessed at $14.8 million.3
Solicitors acting on behalf of the plaintiffs engaged FTI Consulting to provide an opinion of the account of profits Foresters derived from the prepaid funeral business established by the Former Employees. The Court needed answers to two questions. What would Foresters' market position and profitability have looked like had they not benefitted from Lifeplan's business model? What portion of Foresters' performance was attributable to the misuse of confidential information?
An account of profits is a legal remedy typically sought in cases involving breach of fiduciary duty and/or IP infringement. It differs from ordinary assessments of loss (which seek to put the plaintiff in the financial position it would have been in but for the alleged misconduct). Rather than quantifying a loss to a plaintiff, an account of profits seeks to disgorge the defendant from unjust gains. The 'actual' and 'counterfactual' scenarios assessed by the forensic accountant are, therefore, those of the defendant (rather than the plaintiff).
Part 2: Lessons for Lawyers
Engage Experts Early -A common pitfall in preparing an account of profit claim as a plaintiff is that the information needed to assess the gains made sits with the defendant. Lawyers preparing document discovery requests must ensure all necessary documents required to complete the claim assessment are obtained.
Often, the categories of documents discovered are too general as they are designed to identify as many documents as possible. The vagueness of the 'capture-all' discovery categories may result in a high volume of unnecessary, unmeaningful information being provided to experts. And even worse, the precise information needed may not be discovered at all.
Experts involved from the outset can help identify and define the types of documents and financial information required for their work. Further, with practical knowledge of accounting systems, accounting experts can help to describe specific financial reports that they know are likely to exist or are able to be produced from any commonly used accounting system.
Key takeaway: Engaging forensic accountants early helps to ensure the information they need is discovered efficiently, and enables a discovery of financial data required to link legal theory to financial reality.
Collaborate and Communicate Closely -During our work on the Lifeplan case, we worked closely with the legal team to understand the case theory, discuss information requirements, test assumptions with evidence and shape the financial models that calculate the account of profits to withstand the scrutiny of the opposing expert and the Court.
Through this process, we identified a need to rely on mortality probability tables to apply to the prepaid funeral fund to estimate future cash flows. Statistical information for the Australian population on this topic is publicly available and published by reliable sources. However, because we identified that it would be outside of our expertise to interpret those tables should the issue become contentious, the legal team decided to engage an actuarial studies expert to provide an opinion on which mortality probability tables were more applicable in this specific setting of Forester's prepaid funeral customers.
The accounting experts then relied on the opinions of the actuarial expert as in input in the financial model to quantify profits.
Key takeaway: Regular check-ins with financial experts to critically examine the inputs and assumptions applied in financial modelling can shape and improve legal strategy. It is important that the engaged financial expert's training and experience is well understood, that any assumptions or sources relied upon by that expert fall within that area, and that your expert lets you know about any issues that fall outside of their expertise.
Ensure Clear and Transparent Models -In Lifeplan, the financial model prepared by FTI Consulting was accepted by the defendants' experts. However, the experts had differing opinions on the inputs to the model, resulting in a range of results.
The judgment of Justice Besanko delivered in the initial Federal Court proceeding shows that the Judge had a high level of engagement with the expert evidence and illustrates the Court's willingness to engage with sophisticated financial modelling — so long as it is clearly explained and transparently constructed.
His Honour scrutinised the assumptions, tested the credibility of the alternative models and of each expert, and delivered a reasoned decision for the preferred inputs to the agreed financial model.
Key takeaway: Legal teams should seek out experts that go beyond technical correctness. Reports must be clear, structured and able to stand up to cross-examination - but they must also be compelling and able to persuade the reader.
Scrutinise the Counterfactual -Perhaps the most intellectually demanding part of the engagement was constructing and defending the counterfactual scenarios.
In this case, we modelled Foresters' likely prepaid funeral fund growth based on historical financial performance. This involved assessing market trends, organisational capacity to sustain such growth, rates of new customer acquisition and churn of customers.
We also considered numerous 'cut-off' scenarios regarding the date to which the policies and prepaid funeral contracts written by Foresters should be taken into account.
As summarised in the Judgment, between the Experts, there were 120 sets of calculations, all accounting for different historical and future profit scenarios. The joint profits calculations initially ranged from nil gains to around $40 million.4
Notably, a clear distinction between actual and future profits was drawn, and both experts agreed it may be appropriate to calculate future profits from accumulated funds, leaving it to the Court to decide whether these profits were appropriate to be awarded in the claim.
Key takeaway: Lawyers must challenge the counterfactual just as rigorously as the numbers. Ask whether the assumptions make commercial sense, whether there is evidentiary support, and whether the conclusions follow logically.
Claim Future Profits in an Account of Profits -The High Court's ruling in the Lifeplan case to account for anticipated future profits not yet derived in the account of profits award is a key legal milestone, heralded by some lawyers as an extraordinary outcome.
Generally, accounts of profits encompass actual profits 'up to a point.' However, the nature of the prepaid funeral business is such that profit on a written prepaid funeral contract is earned over the life of the policy. This means that only a portion of the overall expected profits from a contract would have been earned and recognised up to a point in time, if the contract has not yet ended.
Accordingly, our assessment of profits included a calculation of the net present value of the expected future profits likely to be derived by Foresters from the 'live' prepaid funeral contracts it accumulated.
Nettle J stated, "Ordinarily, what is conceived of as an account of profits is an account of profits which have come in. (...) But that said, it does not mean that it is impermissible or inappropriate to assess the benefit derived by reason of a knowing involvement in a breach of fiduciary duty as being the net present value of profits likely to be derived by reason of the knowing involvement in the breach of fiduciary duty."5
Key takeaway: In claims for equitable compensation, where a defendant continues to benefit from a breach, legal teams should consider whether an assessment of future profits is appropriate and work with forensic accountants who can model it credibly.
Final Reflections
A decade later, Lifeplan v Woff remains a compelling case study in the power of well-prepared forensic expert evidence, and clients still ask us about it to this day. It underscores the importance of aligning financial modelling with legal strategy and the critical role experts play, not just in quantification but in shaping how the court understands the economic consequences of a breach.
For lawyers navigating similar cases, the lessons of Lifeplan still resonate: Start early, aim for clarity, build credible counterfactuals and above all, foster a collaborative relationship between legal and financial experts.
Footnotes
1: Lifeplan Australia Friendly Society Ltd v Woff, [2016] FCA 248, available at Link
2: Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited, [2017] FCAFC 74, available at Link
3: Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited, [2018] HCA 43, available at Link
4: Lifeplan Australia Friendly Society Ltd v Woff, [2016] FCA 248 at paragraph [456], available at Link
5: Lifeplan Australia Friendly Society Ltd v Woff, [2016] FCA 248 at paragraph [202], available at Link
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
