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Mulcahy and Co breached confidentiality and fiduciary obligations by using confidential client information to capitalise on an investment opportunity.
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Accounting firm, related party to pay $26m for ‘usurping’ client investment
12 April 2024
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Justice Jim Delany of the Victorian Supreme Court has ordered a Ballarat accounting firm, its director, and a related party to pay more than $26 million for relying on confidential information to act on a business opportunity at the expense of the firm's clients.
The accounting firm, Mulcahy and Co, was retained to advise two clients – Timothy Porter and Christopher Conheady - on the purchase of a Melbourne truck manufacturing business, Chris’s Body Builders.
Mulcahy and Co “usurped” the opportunity of those clients to invest in the business by acquiring a controlling interest in the business through a separate company, BFMM Investments.
In doing so, the Court held the firm's director Jamie Mulcahy had breached the confidentiality obligations owed under the firm's retainer with the clients, as well as its fiduciary duties.
Mulcahy was one of four directors of BFMM who the court found knowingly assisted the breaches. Justice Delaney ruled the blame fell mostly at his feet.
“It was he who conceived of the opportunity; he brought together the investors; he brought the opportunity to them and to BFMM; and he orchestrated the delivery of that opportunity to the company,” he said.
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“BFMM was formed to take advantage of that opportunity and that is the context in which it is properly found BFMM was his alter ego.”
The clients sought damages for breach of contract by the firm and its director tied to the amount it might have earned by investing in the company.
“We are extremely disappointed by the judgment and the decision in this case,” Mulcahy told sister title Accounting Times.
“The people in the community that know us and especially our clients understand that the way we have been portrayed in this is case is not the way we operate our business.”
“We also confirm we are in the process of appealing the decision,” he added.
Justice Delaney, in the initial trial decision published in 2021, said “There was by Mr Mulcahy… a ‘plain transgression of ordinary standards of honest behaviour. No honest [accountant] would do such a thing without having first obtained the consent of his or her [client]’.”
Mulcahy and his firm were ordered to pay the two clients a combined $9,664,891 with interest, while BFMM was ordered to pay $11,862,693 to one client.
With interest, the total figure is $26,249,391.02 plus incidental costs.
Conheady said he and Porter were “relieved” by the decision of the court, adding “We trusted [Mulcahy] with confidential information and he broke that trust.”
“Ultimately his betrayal meant we missed a significant business opportunity.”
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