Benham was a partner in a ship-broking firm which hoped to act in negotiations between the Spanish and Portuguese Governments and ship builders. He had also been approached for advice by a shipbuilding company. He received information while acting for the firm suggesting that it could be reconstituted as a builder of warships and acquire a yard he discovered in Bilbao. He used that information to help write a prospectus for the ship-building company’s reconstruction, and made profits for himself as a result of the reconstruction.
Held: Mr Benham was not liable to account to his partners. It was no part of the firm’s business to advise on corporate reconstructions or to build ships. Even though Mr Benham had learnt of the information whilst on the firm’s business, he owed no fiduciary duty to his partners which prevented him from making use of the information as he did.
Lindley LJ said: ‘The answer, however, to this claim is short and conclusive. It was no part of the business of H. Clarkson and Co to promote or reconstruct companies, nor to advise them how to improve the management of them. All such matters are quite foreign to the business of H. Clarkson and Co . . He never was in fact acting for his firm in this matter, nor did his partners ever suppose he was, or treat him as so acting. Nor is it true in fact that Mr Benham or the company for which he was acting ever derived any benefit from his connection with the firm of H. Clarkson and Co. It is clear law that every partner must account to the firm for every benefit derived by him without the consent of his co-partners from any transaction concerning the partnership or from any use by him of the partnership property, name or business connection; but the facts of this case do not bring it within this principle. It is equally clear law that if a partner without the consent of his co-partners carries on business of the same nature as, and competing with that of the firm, he must account for and pay over to the firm all the profits made by him in that business, but the facts of this case do not bring it within that principle. Dean v. MacDowell (1878) 8 Ch. D. 345 shews that a partner is not bound to account to his co-partners for profits made by him in carrying on a separate business of his own, unless the case can be brought within one or other of the two principles to which I have alluded, even if he carries on such separate business contrary to one of the partnership articles. As regards the use by a partner of information obtained by him in the course of the transaction of partnership business, or by reason of his connection with the firm, the principle is that if he avails himself of it for any purpose which is within the scope of the partnership business, or of any competing business, the profits of which belong to the firm, he must account to the firm for any benefits which he may have derived from such information, but there is no principle or authority which entitles a firm to benefits derived by a partner from the use of information for purposes which are wholly without the scope of the firm’s business, nor does the language of Lord Justice Cotton in Dean v. MacDowell warrant any such notion. By ‘information which the partnership is entitled to’ is meant information which can be used for the purposes of the partnership. It is not the source of the information, but the use to which it is applied, which is important in such matters. To hold that a partner can never derive any personal benefit from information which he obtains as a partner would be manifestly absurd. Suppose a partner to become, in the course of carrying on his business, well acquainted with a particular branch of science or trade, and suppose him to write and publish a book on the subject, could the firm obtain the profits thereby obtained? Obviously not, unless, by publishing the book, he in fact competed with the firm in their own line of business.’
Bowen LJ said: ‘I think that when Lord Justice Cotton said that a partnership was entitled to the profits which arose out of information obtained by one of the partners as partner, he was speaking of information to which the partnership was entitled in the sense in which they are entitled to property. I think you can only read the sentence in which the expression occurs in that way. It is as follows: ‘Again, if he makes any profit by the use of any property of the partnership, including, I may say, information which the partnership is entitled to, there the profit is made out of the partnership property’. The language, like all Lord Justice Cotton’s language, is perfectly precise and neat. He is speaking of information which a partnership is entitled to in such a sense that it is information which is the property of the partnership – that is to say, information the use of which is valuable to them as a partnership, and to the use of which they have a vested interest. ‘ and ‘As regards the use by a partner of information obtained by him in the course of the transaction of partnership business, or by reason of his connection with the firm, the principle is that if he avails himself of it for any purpose which is within the scope of the partnership business, or of any competing business, the profits of which belong to the firm, he must account to the firm for any benefits which he may have derived from such information, but there is no principle or authority which entitles a firm to benefits derived by a partner from the use of information for purposes which are wholly without the scope of the firm’s business, nor does the language of Cotton LJ in Dean v MacDowell warrant any such notion. By ‘information which the partnership is entitled to’ is meant information which can be used for the purposes of the partnership. It is not the source of the information, but the use to which it is applied, which is important in such matters. To hold that a partner can never derive any personal benefit from information which he obtains as a partner would be manifestly absurd.’
Lindley LJ, Bowen LJ
[1891] 2 Ch 244
England and Wales
Cited by:
Cited – O’Donnell v Shanahan and Another CA 22-Jul-2009
The claimant appealed against dismissal of her petition for an order for the defendants to purchase her shares at a fair value, saying that they had acted unfairly toward her. Her co-directors had acquired, for another company of which they were . .
Lists of cited by and citing cases may be incomplete.
Updated: 04 August 2021; Ref: scu.374030 br>