Trimble v. Goldberg (1906)

Section 16 makes a partner account to the firm for a profit derived from a transaction of the firm, from the use of its property, business connection or name, and for the profits of a business of the same nature as and competing with that of the firm. Students reduce this to a slogan — a partner may not make a secret profit — and then get the problem question wrong, because the section is not a general rule against a partner earning money on the side. It is a rule about the business of the firm.

Trimble v. Goldberg is the case that draws the line. The facts contain everything that looks damning: a partner used information he had obtained through the partnership, he bought secretly, he shut his co-partner out, and he made a very large profit. He still did not have to account, because the purchase was not within the scope of the partnership. The case is also useful for the point examiners test at the top end: what the remedy would have been if the purchase had been forbidden.

Goldberg was a land speculator; Trimble was an auctioneer; Bennett was a merchant in Durban in a good financial position. By a partnership agreement dated 10 February 1902, the three became partners. The object of the joint adventure was the purchase and resale of certain properties belonging to a man named Hollard, consisting of 5,500 shares in the Sigma Building Syndicate Limited together with building and other real estate in Johannesburg and elsewhere.

There was nothing special in the agreement: profits and losses to be shared equally; no partner to dispose of his interest without the written consent of the others; and all dealings with partnership property to be transacted by and through Trimble, to whom the others gave powers of attorney.

The Sigma Syndicate had been formed in 1896 with a capital of £25,000 in 25,000 fully paid shares. Its board had the most extended powers, including any purchase, sale or exchange of immovable property. It had been formed to make a profit by purchasing and reselling a number of stands on Marshall Square and Government Square in Johannesburg.

Hollard, a wealthy man and a director of the Syndicate, was leaving South Africa and put all his properties on the market through Goldberg. The total price proposed was £94,566, of which the Sigma shares were put at £30,000. Goldberg had first intended to form a syndicate to buy, charging it a commission, but decided instead to buy on his own account; Bennett and Trimble joined him, and the partnership agreement followed. £12,500 was telegraphed in advance and Trimble went to Johannesburg to complete. The purchase deed was executed on 14 February 1902 at the proposed price, the £12,500 being taken as part payment and the balance secured by mortgage bonds.

After that purchase was settled, Trimble went with Hollard to see the Syndicate's stands. At Government Square he asked whether the Syndicate would sell the stands there in a block. Hollard thought the board would sell for £120,000 and referred him to the secretary. The Syndicate had tried without much success to sell; the board, holding 23,000 of the 25,000 shares, had decided to take £100,000 for the Government Square stands, and negotiations with the Government were proceeding on that footing. Trimble was not made aware of that, and after negotiation took an option to buy at £110,000. He told Bennett that from secret information he had gained he thought money was to be made, and asked him to join and finance the speculation. Bennett agreed. The directors were glad to accept, and Trimble and Bennett secured the Government Square stands for £110,000.

Goldberg was told nothing at the time, and did not hear of it until the end of 1902 or in 1903. Meeting Trimble in the street he said, on Trimble's uncontradicted evidence corroborated by an accountant who was present, that he thought Trimble might have let him have a share in it. Later he took a more exalted view of his rights, and in June 1904 he sued.

The trial judge, Smith J., found against Goldberg on the two contentions of fact. The alleged mandate to Trimble to buy on joint account was not proved. But the Supreme Court of the Transvaal reversed on one point: considering the purchased property, though not within the scope of the partnership adventure, yet indirectly connected with it and injurious to the common interest, it held on general principles that Trimble and Bennett were liable to account to their partner for the profit, and it regarded the secrecy as a damning proof of guilt.

1. Was the purchase of the Government Square stands within the scope of the partnership, or in rivalry with it, so as to require Trimble and Bennett to account?
2. Does secrecy alone entitle the excluded partner to share in the profit?
3. What would the remedy have been if the purchase had been expressly forbidden by the articles?

The appeal was allowed and the trial judge's order restored.

The purchase was outside the partnership. The subject of the purchase was not part of the business of the partnership, nor an undertaking in rivalry with the partnership, nor indeed connected with it in any proper sense. That is the whole of the ratio, and it decides the case. Their Lordships added that if the purchase from Hollard had been completed so as to make the partnership the absolute and unencumbered owner of the 5,500 Sigma shares, and those shares had been divided and registered in the partners' separate names, any one of the three would have had as good a right to buy property of the Syndicate offered for sale as any other shareholder or any member of the public.

The information point failed too. The way in which Trimble acquired his information may have been much to his discredit, as the Court of Appeal pointed out, but Goldberg was not in a position to complain of that — he was, after all, not averse to sharing the profit to which it had led.

Secrecy alone gives no claim. No doubt it would have been better if Goldberg had been told at the time. Lord Blackburn's observation in an analogous case, that it is generally advisable as a matter of prudence to let everything be above board, is a very proper sentiment. But there was no legal obligation on Trimble or Bennett to tell Goldberg what they were doing unless he had a right to take part in the speculation if he chose to do so. Their reason for silence was that they considered Goldberg an undesirable partner and not financially strong.

Even an express prohibition would not have produced this remedy. The Court of Appeal had treated the purchase as a breach of good faith and so a violation of a fundamental condition of the partnership. Their Lordships asked what would have followed if the purchase had been forbidden in express terms: the other partner discovering the breach might have claimed immediate dissolution, or even damages on proof of actual loss to the partnership. But a claim to share in the profits of the forbidden purchase would not have been warranted by principle or precedent. And here there was no loss to the partnership at all — only disappointment to the partner left out. Indeed the purchase was apparently an advantage to the partnership, since through it the Syndicate obtained £10,000 more for its property than it would have got by selling to the Government at its own price, and the partnership, as a shareholder in the Syndicate, was proportionately the gainer.

The conflict argument was a fallacy. It was said that the moment Trimble determined to buy, his interest and his duty conflicted: his interest was to buy cheap, his duty to sell the Sigma shares dear, and the value of the shares depended on the value of the stands. The fallacy lay in assuming that Trimble had anything to do with selling the stands, or any right to meddle with the conduct of the sale. That was in the hands of the directors, who were dealing with him at arm's length. It would be extravagant to suppose that he would have advanced the partnership's interests by retiring from a competition which actually raised the price of the stands and so improved the value of the Sigma shares.

A partner is not accountable for the profits of a transaction which is not part of the business of the partnership, nor an undertaking in rivalry with it, nor connected with it in any proper sense. Secrecy alone creates no liability to account, since the duty to disclose arises only if the co-partner had a right to take part in the transaction. Even where such a transaction is expressly forbidden by the articles, the remedies are dissolution or damages on proof of actual loss, not an account of the profits.

Section 16 has two limbs, and Trimble fails on both. Clause (a) requires the profit to have been derived from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name. The purchase of the Government Square stands was none of these; it was a transaction with the Syndicate's board, at arm's length, over property the partnership did not own. Clause (b) requires a business of the same nature as and competing with that of the firm. The Privy Council's finding that the purchase was not an undertaking in rivalry with the partnership is a finding that clause (b) does not bite.

Read Trimble against s. 9, which requires partners to be just and faithful to each other and to render full information of all things affecting the firm. The case shows that the duty of disclosure in s. 9 is tied to things affecting the firm; it is not a general duty to tell a partner about one's private ventures.