Graw, Stephen --- "Making Partners Accountable Rochwerg v Truster Reaches Australia" [2020] JCULawRw 7; (2020) 26 James Cook University Law Review 75

---

MAKING PARTNERS ACCOUNTABLE – ROCHWERG v TRUSTER REACHES AUSTRALIA

STEPHEN GRAW^[*]

ABSTRACT

The relationship between partners is governed by the terms of their agreement (if any), the fiduciary duties they owe one another and the provisions of the relevant Partnership Act. The latter two can be varied but, in the absence of a variation, the rights co-exist.

One aspect of the relationship affected by both the partners’ fiduciary duties and the Partnership Act provisions (and, quite often, by some express term of their partnership agreement) is the obligation to act for the common good. In equity it is encapsulated in the ‘no conflict’ and ‘no profit’ rules. They are reinforced by three sections of the Partnership Acts – imposing duties ‘to render true accounts and full information of all things affecting the partnership’, to account to the firm for any non-consensual benefit derived ‘from any transaction concerning the partnership or from any use ... of the partnership property, name or business connexion’ and not to carry on ‘any business of the same nature as and competing with that of the firm’ or, at least not to do so without the consent of the other partners.

Much of the case law on the partners’ duties to account have concentrated on their fiduciary obligations or on individual sections of the Act, with virtually no analysis of how the sections interact (or could interact) with each other. That has been rectified by a decision of the Court of Appeal for Ontario, adopted in Australia by the Supreme Court of Victoria. Unfortunately the Victorian decision falls short of a complete analysis and, while it is a useful addition to the jurisprudence, it remains up to future courts to define the exact parameters of the relationships between those three sections.

I INTRODUCTION

A Partners’ Fiduciary Duties

It is trite law that partners owe one another fiduciary duties.^[1] They, together with the terms of the partnership agreement (if any) and the provisions of the relevant Partnership Act, govern the relationship between the partners.

They include the duty of utmost good faith which requires, inter alia, that the partners all act for the common good rather than in their own personal interest. That in turn means that they may not use their positions as partners or the knowledge or influence that they gain through their involvement in the partnership to make a personal profit. Nor may they put themselves in situations where there could be a conflict between their duties or interests as a partner and any duties or interests that they have outside the partnership.^[2]

James LJ described the applicable principles in Dean v MacDowell, saying:

[I]t is quite clear also that in partnership matters there must be the utmost good faith, and that there is to that extent a fiduciary relation between the parties. That is to say, one partner must not directly or indirectly use the partnership assets for his own private benefit. He must not, in anything connected with the partnership, take any profit clandestinely for himself, nor must he carry on the business of the partnership or any business similar to the business of the partnership in his own or another name separate from it, otherwise than for the benefit of the partnership.^[3]

That limitation can be explained on a number of possible bases. In Parker v McKenna,^[4] for example, James LJ explained it on the basis that partners are agents of one another. One consequence of that relationship is, of course, that ‘no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal’.^[5]

In Birtchnell v Equity Trustees, Executors and Agency Co Ltd^[6] (‘Birtchnell’) Dixon J justified the duty more broadly in terms of the nature of the partnership relationship itself saying, ‘the relation is based, in some degree, upon a mutual confidence that the parties will engage in some particular activity or transaction for the joint advantage only’.^[7]

Whatever the justification, one obvious situation in which partners would breach their fiduciary duties would be, as James LJ said in Dean v MacDowell, if they were to be involved in some other business that was being carried on in competition with their firm’s business.^[8] In such cases the consequence of their breach is that they would hold any benefit they received as constructive trustee for the members of the partnership as a whole^[9] and would be liable to account to their fellow partners^[10] who can elect either an account of profits^[11] or equitable compensation,^[12] an election they need not make until after judgment.^[13] The defaulting partners are, however, personally liable to bear any loss they sustain and cannot seek contribution from their fellow partners.

Importantly, they cannot avoid their liability to account by arguing that the other partners suffered no loss as a result of their breach^[14] or, even, that they could not have obtained the benefit themselves – because they were unable or simply unwilling to be involved in the competing business or transaction.^[15]

That, however, does not mean that they are absolutely precluded from having, and benefitting from, outside interests; all that is required is that they disclose them and obtain their fellow partners fully informed consent first^[16] – although the onus of proving both full disclosure and fully informed consent lies on the partner intending to become involved in the competing business or, otherwise, to benefit from what would, in the absence of that consent, be a breach of his or her fiduciary obligations.^[17]

That is, an agreement between the partners that one (or more) of them will be allowed to act outside the parameters of their duty to act only for the common good, and to retain the benefits of doing so, can override the otherwise applicable fiduciary duty to use their best endeavours solely for the benefit of the firm as a whole. As Mason J put the principle in Hospital Products Ltd v United States Surgical Corp (‘Hospital Products’):

... it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the partners. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.^[18]

The permission to involve themselves in outside interests from which they will benefit personally can be included in either the original partnership agreement or some formal or informal variation of it. The Partnership Acts themselves all expressly provide for such variations, saying:

The mutual rights and duties of partners, whether ascertained by agreement or defined by this Act, may be varied by the consent of all partners, and such consent may be either express or inferred from a course of dealing.

That reference to the power to vary ‘the mutual rights and duties of the partners, whether ascertained by agreement or defined by this Act’ (emphasis added) could be seen to limit that power, at least by implication, to exclude any obligations that arise because of the partners’ fiduciary duties. After all, fiduciary duties need not arise under the express terms of the partnership agreement nor under the provisions of the Act but could, instead, be simply implied in equity. That is not, however, the case. It has always been a defence to any allegation of breach of fiduciary duty that the alleged ‘breach’ was something done with the informed consent of the other partners.^[19] Therefore, any agreement permitting what would otherwise be a breach of that duty will allow the partner involved to engage in the outside activity without having to account to his or her partners for any benefit that he or she receives.

B Corresponding Provisions in the Partnership Acts

Each of the state and territory Partnership Acts, all of which are based on the Partnership Act 1890 (UK), reinforce the partners’ fiduciary (and contractual) rights and duties by providing a number of specific statutory ‘obligations’^[20] which apply unless they are excluded or varied by ‘any agreement expressed or implied between the partners’.^[21] They include a ‘no private profits’ rule which reads:

If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, the partner must account and pay over to the firm all profits made by the partner in that business.^[22]

That section, which flows directly from the partners’ obligation to avoid conflicts of interest,^[23] does, however, have a limited possible application in that, before a partner can be made liable under it, the other partners must establish that the other business was ‘of the same nature’ as the partnership’s business and that it did in fact compete with that business.

Establishing that the other business was ‘of the same nature’ as that of the firm is always a question of fact, although the degree of ‘sameness’ required is simply that the two businesses must contain identical elements and be carried on in the same market^[24] so there is, necessarily, some degree of potential rivalry between them.^[25]

Similarly, whether the other business competes with the partnership business is also always a question of fact. Accordingly, even if the separate business is of a similar nature it must also actually compete. If it does not there is no breach of duty and no obligation on the affected partner to account.

Consequently, in Trimble v Goldberg^[26] the plaintiff, Goldberg, was held not to be entitled to an account because there was no element of competition between the venture in which his partnership had been involved and another similar venture that his partners, Trimble and Bennett, had undertaken without offering to include him.

The partnership between the three had been formed in 1902 for the express purpose of buying and reselling some real estate and shares in a property development company (the ‘Sigma Syndicate’) which were owned by Holland. Holland was leaving South Africa and wanted to dispose of his South African assets before he did so. In the course of finalising the purchase on behalf of the partnership Trimble discovered that the board of the Sigma Syndicate was willing to sell other land that that company owned in central Johannesberg. He believed that there was a profit to be made by acquiring it and asked Bennett to join him in the purchase. Goldberg subsequently found out about the second purchase and sued, arguing that, on general partnership law principles, he was entitled to a share of the profits of that subsequent transaction. His action failed. Lord MacNaghten explained the Privy Council’s reasoning saying:

The purchase was not within the scope of the partnership. The subject of the purchase was not part of the business of the partnership, or an undertaking in rivalry with the partnership, or indeed connected with it in any proper sense.^[27]

Therefore, before there can be any obligation to account, at least under this rule, the businesses must be, in fact, of the same nature as that of the partnership and it must also ‘compete’ with it. It is not enough that there be some incidental connection between the partner’s own personal business and that of the firm or, worse, that the partner simply uses information or connections that he or she acquired through membership of the firm to further his or her own interests in the other business.

For example, in Aas v Benham^[28] it was held that the defendant, a member of a ship-broking partnership whose business involved acting as an intermediary between ship-buyers and ship-builders, had not breached the prohibition on competing with his firm when he assisted with the restructuring and incorporation of a company that was involved in ship-building (for which services he was paid and, later, appointed as a director of the restructured company). That was despite the fact that he used information he had obtained in the course of the ship-broking partnership’s business, and through his connection with the firm, and had also even occasionally used the partnership’s name and office paper in correspondence about the incorporation of the ship-building company.

His partners in the ship-broking firm had sued for a declaration that all of the receipts from his participation in the other venture were properly the property of the firm and had sought an account of those benefits. The court held that for the application to succeed those partners had to show, either, that he had derived the receipts through carrying on the business of the firm or by engaging in another business that was of the same nature as and which competed with the business of the firm. Neither applied. Ship-broking and ship-building were quite separate businesses, the firm had never been involved in the latter (and had never wanted to be) and, apart from the fact that Benham had used information he acquired through his involvement in his firm’s business, there was no ‘sameness’ or ‘competition’ between the two businesses at all. Benham was entitled to retain the receipts and his partners were not entitled to an account. As Lindley LJ put it:

... 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.^[29]

II THE ISSUE WITH THE DECISION IN AAS V BENHAM

A major problem with the decision in Aas v Benham was the fact that Benham’s opportunity to engage in the restructuring and incorporation activities that produced the benefits he received arose through his involvement in the partnership’s business.

That however was not enough, by itself, to make him liable to account to the other members of his firm. The Court found that, while he would have been liable to account if he had used information he had obtained in the course of carrying on the partnership business, or by reason of his connection with the firm, for any purpose within the scope of the partnership business, or for any purpose which would compete with the partnership business, he was not liable to account to the firm for any benefits he obtained if the information was used for purposes wholly outside the scope of the partnership business, and which did not compete with it.^[30]

The relevance, for liability purposes, of using information obtained in the course of carrying on the partnership business, or by reason of the partner’s connection with the firm, when engaged in the outside activity was also referred to in Trimble v Goldberg. After noting that Trimble and Bennett’s additional purchase of land from the Sigma Syndicate had not been within the scope of what the partnership had been created to do, was not part of its business, was not an undertaking in competition with its business, nor even connected with it in any proper sense,^[31] Lord McNaghten went on to say:

Nor was the information on which it seems Trimble acted acquired by reason of his position as partner, or even by reason of his connection with the Sigma Syndicate.^[32]

It seems therefore that while the use of information acquired in the course of one’s activities while engaged in the partnership’s business might be relevant to the question of any potential obligation to account, that will only be the case if that information is then used, outside the partnership, for some purpose which was either within the scope of the partnership business, or would compete with the partnership business. Use of information per se need not necessarily invoke a liability to account.

That potential anomaly was subsequently addressed in the Partnership Act 1890 (UK). It contained three, potentially-related provisions, all of which were based on the general law provisions that required partners to act for the common good rather than in their own personal interests. They dealt with the duty of partners to render true accounts and full information on all things affecting the partnership (s 28), their duty to account for private profits (s 29) and their duty not to compete with their firm (s 30). Equivalent provisions were included in the Partnership Acts in all other jurisdictions within the common law world, including in the Australian states and territories and the Canadian provinces, when they adopted the substance of the UK Act, usually with only minimal changes.

The courts, both in the UK and elsewhere, subsequently analysed, discussed and explained how those individual sections applied (usually by reference to the common law and equitable principles on which they were based), but how they interacted, or could interact, with each other was never really broached.

III ROCHWERG V TRUSTER

In 2002 that omission was rectified when the question was squarely addressed by the Court of Appeal for Ontario in Rochwerg v Truster.^[33]

A The Facts

The parties had been partners in an accounting practice, Rochwerg Truster Zweig (referred to in the judgments as ‘RTZ’). Rochwerg had a relationship with the directors of Teklogix International Inc (‘Teklogix’) which he had developed over time as a result of work he had done for the company through his various firms (which, ultimately, included RTZ). The company had an international business which it ran through a number of subsidiaries (including a subsidiary in Ontario, Teklogix Inc).

As a result of his relationship (he was considered ‘a trusted advisor’) Rochwerg was appointed a director of both the parent company and its Ontario subsidiary. He advised his partners of those appointments and told them that, as he would be attending board meetings in firm time, his director’s fees would be paid to the firm.

He later discovered that his appointment also entitled him to participate in Teklogix’s ‘Key Employee Stock Plan’ (KESP’) under which he could purchase common shares and obtain stock options in the company at discounted prices. He exercised those rights and acquired both shares and options in Teklogix in his wife’s name. Importantly, however, he did so without informing his partners.

When his (by then) former partners became aware of both purchases they demanded that he account to the partnership for any interest he had in either the shares or the options, arguing that the scope of the partnership’s business during the relevant period included:

... the giving of advice and counsel to Teklogix and that was what Rochwerg did after he became a director and whilst he was still a partner ... in RTZ and during the time that he obtained the right to invest and did invest in Teklogix shares under the KESP plan.^[34]

For his part Rochwerg argued that what he had done was simply to invest in shares in Tecklogix, something that was not within the scope of the partnership’s business. He also argued that, in any case, there was a clear difference between what he had done as a director (conducting the affairs and setting policy for the company) and the mere giving of advice and counsel which was what he had done in his role as a member of the RTZ partnership. He also noted that he had acquired the expertise that he employed in his role as a director of the company over some 33 years as a chartered accountant (not simply during his time as a partner in RTZ) and that he had not used confidential information gained through his membership of the firm in discharging his duties as a director of the two companies.

B In the Ontario Superior Court of Justice

In the Ontario Superior Court of Justice^[35] the question was, perhaps surprisingly, fought solely on the question of whether Rochwerg was liable to account to his fellow partners because he had breached his fiduciary duty not to compete with the RTZ partnership’s accounting business. The three statutory provisions for breach of which he might also have been made liable were not argued at all.

Against that background, Mandel J held that Rochwerg was not liable to account for the value of the shares and stock options, essentially because the partnership did not carry on the same business as Teklogix and the two businesses were not in competition.^[36] In reaching that determination his Honour relied heavily on the judgment in Aas v Benham which he expressly found to be ‘still good law’.^[37]

On the issue of a partner’s general liability to account for any benefits received from carrying on a competing business without the consent of the other partners, he cited that passage in Aas v Benham where Lindley LJ (as he then was) had said:

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 ... 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 profits made by him in that business ... Dean v MacDowell 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.^[38]

His Honour also found that Rochwerg could not be liable to account for the shares and stock options he had acquired merely because he had applied information and knowledge, acquired professionally over his working life, while carrying out his role as a director of Teklogix. In support of that finding he again cited Lindley LJ where, in the immediately following passage, he had said:

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.^[39]

His Honour’s judgment was, therefore, based entirely on the same general law provisions that were the basis on which Dean v MacDowell and Aas v Benham were decided^[40] – without, as indicated earlier, any reference at all to the equivalent statutory provision which prohibits partners from competing with their firms unless they have the consent of their fellow partners. That was somewhat surprising because the Ontario Partnerships Act^[41] contains a section to that effect (s 30) in terms that are almost exactly equivalent to the corresponding UK and Australian sections.^[42] Nor was there reference to any other section or sections (in particular Partnerships Act RSO 1990, c P.5 ss 28 and 29(1)) that might have been relevant to the question before the Court.^[43]

C In the Court of Appeal for Ontario

Rochwerg’s former partners appealed, arguing that, as a partner, his failure to disclose the investment opportunities or benefits he had received from Teklogix was a breach of both his fiduciary duties, including his duty of utmost good faith, and his statutory duties under the Ontario Partnerships Act. Therefore, they said, he was obliged to account.^[44]

While accepting that partners do owe each other fiduciary duties, Rochwerg denied that liability. He argued that a partner’s duties to account are ‘confined to matters falling within the “scope of the partnership”, or to the conduct of a business of the same nature as, and competing with, the partnership business.’^[45] Neither, he said, applied in his case.

The Court of Appeal’s judgment was delivered by Cronk JA.

Her Honour first outlined the possible bases on which Rochwerg might have been liable to account for the benefits he received through his directorships. She said that that liability could occur under general equitable provisions, as it had in Aas v Benham, under the statutory provisions requiring partners to ‘render true accounts and full information of all things affecting the partnership’^[46] and to ‘account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership or from any use by the partner of the partnership property, name or business connection’^[47] or because his acceptance of the directorships, and his activities as a director, placed him in a position of conflict between his obligations as a partner not to carry on any business of the same nature and competing with that of the firm (thereby giving rise to a duty to account under s 30^[48]).

In relation to the last of those three possibilities her Honour immediately concluded that Rochwerg’s acceptance of the directorships and his activities as a director had not involved such a breach and, to that extent, she agreed with Mandel J’s conclusion in the court below.^[49]

However, she then went on to find that Rochwerg had breached his equitable duties of good faith and had also breached his duties under ss 28 and 29 of the Ontario Partnerships Act, both of which rendered him liable to account.

On the general equitable duty of good faith question her Honour referred to Dean v MacDowell^[50] and Aas v Benham^[51] noted that the three judges in the latter case had all, in various terms, referred to the obligations imposed on partners not to use partnership assets, directly or indirectly, for their own personal gain, not to make secret profits from ‘anything connected with the partnership’, and not to engage for their own personal benefit in competing or similar businesses,^[52] unless those actions were taken with the consent of the other partners.^[53] Consequently, she said, to escape liability to account an affected partner has to show that the activities in question were ‘wholly without the scope of the firm’s business’.^[54]

Those fundamental obligations, she said, had been reinforced by the House of Lords in Regal (Hastings) Ltd v Gulliver (‘Regal (Hastings’),^[55] citing that passage in Lord Russell of Killowen’s judgment where he had said:

The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account.

Accordingly partners can be required to account not only for profits clandestinely made from the firm’s business or from competing with it but also from misusing partnership property or opportunities even though that use may have been for a purpose entirely unconnected with the purpose of the firm’s business. They may also be liable to account for profits made by using information obtained in the course of their partnership activities and cannot escape that liability merely by asserting that they were acting personally and not as members of the partnership. As Lord Hodson subsequently described the principle:

... no person standing in a fiduciary position, when a demand is made upon him by the person to whom he stands in the fiduciary relationship to account for profits acquired by him by reason of his fiduciary position and by reason of the opportunity and the knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he made profits with the knowledge and assent of the other person^[56] (emphasis added).

Therefore, even though Rochwerg had failed to disclose his investments in Teklogix because, in his view, they were ’a personal investment [that had] nothing to do with the firm’^[57] he was liable to account because, in not disclosing the opportunity, he had breached his fiduciary duties of utmost good faith and full disclosure.

The fact that he had honestly believed that disclosure was not required was irrelevant. The KESP entitlements were part of an overall rewards package and were as much a part of his compensation as were the director’s fees he received, and which he had quite properly disclosed and paid over to the partnership. Like those fees his entitlement to the KESP rights came about because of the professional relationship between his firm and Teklogix. It was therefore a matter ‘concerning the partnership’ and had arisen because of his use of the ‘business connection’ between his firm and the company which, although it had its origins in a personal relationship between Rochwerg and the founders of Teklogix, by the time of his appointment it was based on the relationship between the company and the RTZ firm as a whole. The directorships had arisen because of that association and business connection.^[58]

As regards the statutory obligations her Honour noted that when the Partnership Act 1890 (UK) was passed it was based largely on the pre-existing general law principles.^[59] Consequently, there is a distinct similarity between the content and scope of those obligations and the potential liability that flows from any application of the pre-existing principles – and a significant overlap between their respective effects.

In the Ontario context the previous general law obligation to account for private profits is enshrined in s 29(1) of its Partnerships Act, the duty not to compete appears in s 30 and the duty to render true accounts and full information of all things affecting the partnership is in s 28.

As regards the relationship between those provisions there is, in particular, a clear distinction between the obligations that are imposed by ss 29(1) and 30, which is similar to the distinction between the equivalent equitable duties, with breaches of s 30, like its equitable equivalent, requiring proof of competition – while breaches of s 29(1) do not.

With Rochwerg’s failure to disclose the opportunities that his directorships gave him, that distinction was important. While Mandel J in the court below did not refer to the Partnerships Act provisions at all, he did apply the equitable equivalent of the s 30 obligation and, on that basis, had quite properly found that, in the absence of any element of competition between the partnership and Teklogix, there was no obligation to account. However, his decision had taken no account of the fiduciary obligations that now have their equivalents in the Ontario Partnerships Act’s 29(1) and s 28 or, indeed, of the parallel requirements in those sections.

That omission was significant because, on the facts, it was clearly open for the partnership to argue that there had been breaches of both those general law duties and their statutory equivalents and, accordingly, that, despite the absence of competition between the two businesses, Rochwerg could still be liable to account to his firm for the undisclosed benefits under, in particular, s 29(1).

That sub-section has two branches. The first imposes an obligation to account whenever a non-consensual benefit is obtained from ‘any transaction concerning the partnership’; the second requires an account when the benefit arises ‘from any use of the partnership property, name or business connection’.

As Cronk JA found, Rochwerg’s failure to obtain his partners’ consent to take up the share and stock option entitlements for his own benefit rendered him liable to account under both branches. As her Honour noted, the trial judge had ‘focused in significant part on whether Rochwerg’s activities came within the “scope of the [RTZ] partnership” [and had] failed to consider that that term does not encompass the entire basis for accountability that was recognized by the English courts, and that informed the scope of Ontario’s legislation’ (emphasis added).^[60]

In particular, her Honour found that to be a transaction ‘concerning the partnership’ and, therefore, one which would trigger an obligation to account under the first branch of s 29(1), the transaction ‘need not ... relate to transactions or dealings falling within the scope of the partnership’s activities or services’.^[61] Instead, all that is required is that the transaction must relate to, be in respect of, refer to or be connected to the partnership ‘in the sense of a transaction affecting the interest of, or important to, the partnership.’^[62] Accordingly, although there must be some link between the transaction in question and the partnership, that link need not relate to activities or services that are within the ‘scope of the partnership’s business’.

Similarly, her Honour found that ‘the second branch of s 29(1), which contemplates misuse of the “partnership property, name or business connection” is not confined to misuse in situations falling within the scope of the partnership’.^[63]

Of course, Rochwerg’s potential liability would simply not have arisen if he had disclosed his entitlement to the share and stock options to his partners under both his equitable duty of utmost good faith and his obligations under s 28 and had obtained their consent for him to take up those entitlements for his own benefit – but that had not happened.

That, in turn, raised the question of the true ambit of the duty to disclose. Section 28 is headed ‘Duty as to rendering accounts’ and reads:

Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or the partner’s legal representatives.^[64]

Rochwerg’s partners argued that that obliged him to disclose the opportunities that his directorships had afforded him because they had arisen, ‘in the course of and in consideration for or response to, professional services that [he] is rendering to someone with whom the partnership has or had a professional relationship’.^[65]

Cronk JA agreed. Noting that ‘the standards imposed on partners are of the highest order’^[66] and that ‘bad faith, fraud or the deliberate withholding of information are not necessary to found liability to account’^[67] her Honour held that Rochwerg had been obliged under both s 28 and his fiduciary duty of utmost good faith to disclose his rights under the KESP if they ‘affected the partnership’.

Here they clearly did – for two related reasons. First, the entitlements were intended to reward Rochwerg for his work as a director and thus were a benefit derived from holding that office. Second, when he had been appointed as a director, Teklogix was a client of the partnership (and remained so, albeit with less involvement after it appointed another firm as its auditors) and any dealings between a partner and a client are matters ‘affecting the partnership’.

Did that mean though that there was also a breach of either or both branches of s 29(1) that would render Rochwerg liable to account? Cronk JA’s view was that it did.

Her Honour found that, while not every transaction between a partner and a client of the firm need be a matter ‘concerning the partnership’ (thereby falling within the first branch of the section) it would be if it involved the client paying the partner remuneration for services rendered or work performed. Here that was clearly what had happened. Rochwerg himself had recognised that liability when he disclosed and paid over to the partnership the fees he received as a director. There was no reason why the same principle should not apply to his non-fee receipts.^[68]

Her Honour also found that Rochwerg was liable to account under the second branch of s 29(1). He had been offered the directorships (and therefore the opportunity to partake in the KESP plan) because of his pre-existing relationship as Teklogix’s accountant and ‘valued advisor’, a relationship that had come about because of his membership of RTZ and its predecessor firms. It had also become an asset of RTZ when he joined it as a partner and Teklogix continued as a client.^[69] The benefits he had received were, therefore, not only derived without his partners’ consent from undisclosed transactions ‘concerning the partnership’, they were also derived through the undisclosed ‘use by him of the partnership ... connection’ with the company. He was liable to account.

IV THE AUSTRALIAN POSITION

In Australia the possible relationship between the state and territory Partnership Act provisions equivalent to Ontario’s ss 28-30 had not really been explored before the matter was considered by the Supreme Court of Victoria in 2019.^[70]

There had been a number of decisions on the accountability of partners for private profits derived through transactions ‘concerning the partnership’ or by using ‘the partnership property, name or business connection’ without the consent of their other partners or from carrying on a competing business of the same nature of that of the firm.

The most commonly cited example of the first of those categories is the High Court’s decision in Birtchnell.^[71] In that case a partner in a firm of land and estate agents which also engaged in land speculation had engaged in a number of development projects with one of the firm’s clients. His connection with the client and, therefore, his opportunity to participate in those transactions, had clearly come about through his involvement in the firm. The High Court held that his partners were entitled to an account. He had had a duty to disclose that the client had been willing to share profits in what was clearly a transaction ‘concerning the partnership’, he had not done so (or obtained their consent to his arrangement with the client) and, therefore, he was liable.^[72]

There are fewer Australian decisions precisely on point in relation to the second general category under which liability can arise, though Aas v Benham is generally accepted as settled authority.^[73]

However, until Chickabo Pty Ltd v Zphere Pty Ltd^[74] (‘Chickabo’) the possibility that a defendant who had carried on a business of the same nature as that of the partnership but who could not be held liable to account because it did not in fact compete might still be found liable under the ‘private profits’ provision, as had occurred in Rochwerg v Truster, had not been considered in Australia.

V CHICKABO PTY LTD V ZPHERE PTY LTD – THE FACTS

The facts of Chickabo Pty Ltd v Zphere Pty Ltd are in many respects very similar to the facts of Rochwerg v Truster. The parties were all corporate partners in the Moore Stephens (Vic) Partnership, a firm of chartered accountants. The first defendant, Zphere Pty Ltd (‘Zphere’), one of those corporate partners, was the trustee of the Graco Practice Management Trust and the fourth defendant Graco was its sole director. Graco was also a principal of the Moore Stephens (Vic) Partnership and, in that capacity, had been the ‘Relationship Partner’ in the firm’s dealings with the Swisse Wellness Group Pty Ltd (‘Swisse’). As the Relationship Partner he advised Swisse, and attended board, management and shareholders’ meetings for more than 15 years. In 2013 he was appointed to the boards of Swisse and a number of its subsidiaries as a non-executive director. He disclosed that to the other members of his firm and, instead of receiving directors’ fees, the firm billed Swisse for the work he did as part of the fixed fee arrangements that existed between it and Swisse.

In 2014 Swisse needed an injection of capital and, after seeking it from various financiers whose terms were unacceptable, it invited its executives, including Graco, to subscribe for shares. Despite an express provision in the partnership agreement requiring him to disclose and share all opportunities to invest with a client or with any entity in which a client had an interest,^[75] Graco did not disclose that opportunity to the partnership, citing confidentiality restrictions applicable to the offer (although he conceded at trial that he had not asked Swisse whether the offer could be extended to the other members of the partnership and that, if he had, it was likely that Swisse would have agreed).^[76]

Graco subsequently subscribed $203,780 for shares in Swisse through GFBR Nominees Pty Ltd (‘GFBR’), a company he controlled. When Swisse was subsequently taken over by Biostime, a Hong Kong company, GFBR sold its Swisse shares for a profit exceeding $11 million.

Shortly thereafter Stephen Ring, the long-time managing director of, and effective major shareholder in Swisse arranged for Fiske Pty Ltd, the trustee of the Ring Family Trust, to pay an additional $4,861,000 to Glenaldon Pty Ltd (‘Glenaldon’), another company controlled by Graco which Graco had nominated as the recipient of that payment. That sum was the difference between what GFBR would have received after the Biostime takeover had it originally acquired 1% of the shares in Swisse and what it did receive for the shares that it had actually acquired (and, as Graco subsequently admitted, it was effectively a ‘top up’ of the proceeds he received from the investment^[77]). Although that additional money was characterised as a ‘gift’ from Ring to Graco’s family ‘in appreciation of your enormous financial, governance and mentoring support to our families over the last 17+ years,’ Graco’s partners argued that, because of its connection with his work in the firm, it was a receipt for which there was a duty to account.^[78]

Somewhat surprisingly (and in stark contrast to the position that formed the entire basis of Rochwerg v Truster, at least at first instance) it was not argued that Graco, Zphere, GFBR or Glenaldon were liable to account to the plaintiffs for breach of the fiduciary and statutory duty imposed on partners not to carry on any business of the same nature and competing with the business of the Moore Stephens (Vic) Partnership.^[79] That was particularly surprising because the business of the partnership (as submitted by the plaintiffs) included ‘offering to Partners the opportunity to invest in, and in association with, clients of the Partnership’,^[80] a contention which was specifically supported by cl 11.4(b) of the partnership agreement. It expressly required each partner to ‘offer to all the other Partners every opportunity of which he has knowledge to invest with a Client of the Practice or with an entity in which a client of the Practice has an interest’. Given that, it might have been expected that Graco’s failure to disclose the opportunity to invest in Swisse would have provided a clear basis on which he might have been liable to account to the other partners for the profits he made by doing so himself.

Instead, the plaintiffs’ argument concentrated on whether the first and fourth defendants, Zphere and Graco,^[81] might be liable under the general law for breach of either their fiduciary duties^[82] or the express provisions of the partnership agreement,^[83] or, alternatively, under either or both of the two branches of their statutory duty not to make private profits through transactions ‘concerning the partnership’ or involving ‘use of the partnership ... business connection’.^[84] The plaintiffs also argued that they should be held liable for breaching their statutory duty to give the partnership ‘full information of all things affecting the partnership’.^[85]

VI CHICKABO PTY LTD V ZPHERE PTY LTD – THE DECISION

The matter was heard before Sifris J (as his Honour then was) in the Commercial Court (a specialist court within the Supreme Court of Victoria where complex commercial disputes are dealt with by a panel of judges with commercial expertise). His Honour commenced by noting that: ‘It is in my view clear that had [Graco] asked [Swisse], he would have been permitted to put the offer or the Opportunity to the Partnership. In fact ... he conceded that but for the confidentiality restriction, he would have put the Opportunity to the Partnership. However, he decided not to ask’.^[86]

A The Breaches of Fiduciary Duty and of the Terms of the Partnership Agreement

His Honour then held that Graco had been a partner in the partnership (and was not simply the principal of Zphere, one of the corporate partners).^[87] As a result, he had owed fiduciary duties to both the Partnership and the other partners (though his Honour also held that, given Graco’s position in the firm, he would have owed those duties whether or not he had been formally classified as a partner in his own right^[88]). Those fiduciary duties included an obligation ‘not to profit from the relationship with Swisse and not to place himself in a position of conflict’. He had breached those duties and was, therefore liable to account to the other partners in the firm both under the general law^[89] and because he had breached cl 11.4 of the partnership agreement.

B Liability under the Partnership Act

His Honour then proceeded ‘to consider the extent of his liability under the Partnership Act’^[90] – examining whether and, if so, the extent to which ss 32 and 33(1) of the Partnership Act 1958 (Vic) applied to his actions.

The plaintiffs had submitted that the benefits Graco had derived (through the second and third defendants, GFBR and Glenaldon) were benefits that had been derived in contravention of s 33(1) from a ‘transaction concerning the partnership’ and the ‘use by him of ... the partnership business connexion’. Further, in breach of s 32, he had failed to ‘render true accounts and full information’ regarding the investment opportunity with Swisse, his investment and the payments he had received.^[91]

As already noted, there is effectively no case law in Australia on the extent to which the three sections dealing, respectively, with the duty of partners to render accounts (Victoria s 32^[92]), the accountability of partners for private profits (Victoria s 33(1)^[93]) and the duty of partners not to compete with the firm (Victoria s 34^[94]) interact (or can interact) with one another. The plaintiffs therefore sought to rely on the Court of Appeal for Ontario’s decision in Rochwerg v Truster, arguing that it was ‘relevant, precisely on point, and cited by Australian texts “as representing the law in this country as well”’.^[95] The defendants, for their part, argued that it was ‘not appropriate to have regard to the Canadian case law’, even though the legislation in both jurisdictions is in almost precisely the same terms^[96] (so it was manifestly clear that using the decision in Rochwerg v Truster as good persuasive precedent was entirely permissible). It is clear from Sifris J’s judgment that he accepted the plaintiffs’ submission and adopted and applied the same approach as the Court of Appeal for Ontario.

1. Liability under s 33(1) (Vic) – Private profits

Section 33(1) requires every partner to account to the firm:

for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership or from any use by him of the partnership property name or business connexion.

It therefore contains two elements:

a. the partner must derive a ‘benefit’; and

b. it must be derived either:

i. without the consent of the other partners, from any transaction concerning the partnership; or

ii. (also without consent) from any use by him of (in this case) a partnership business connexion.

Here, as Sifris J noted, it was clear that Graco had received a benefit (the two sums paid to GFBR and Glenaldon) – even though he had not received them in his own right. The payments made to those two entities had been made at Graco’s request and direction and, therefore, fell within the scope of s 33(1)^[97] – even under general principles.^[98] Further, as his Honour went on to note:

it would be contrary to the equitable principles that underpin s 33 to allow an errant partner to escape liability on the basis of where they directed the payment of a benefit in respect of which they ought to account. The focus is not on where or to whom the benefit was diverted, but by what means the partner obtained the benefit.^[99]

It was also clear that the partnership had not been aware of (and, therefore had not consented to) Graco receiving those benefits in a personal capacity – so his liability under the first limb of the section depended entirely on whether they had been derived from a transaction ‘concerning the partnership’. Sifris J held that it had.^[100]

In that, he was clearly correct. While there has been little case law on what constitutes ‘a transaction concerning the partnership’ two things are clear. First, as Isaacs J noted in Birtchnell, the term ‘cannot be confined to matters within the scope of the partnership’.^[101] That is, a partner’s liability to account under the first limb of s 33(1) extends well beyond the liability to account that arises under the Partnership Act’s ‘Duty not to compete’ section (Victoria s 34). Secondly, as Cronk JA noted in Rochwerg v Truster (and Sifris J accepted in Chickabo^[102]), ‘not every transaction between a partner and a firm need be a matter “concerning the partnership”’.^[103]

However, as her Honour then went on to hold later in the same passage, ‘where the transaction concerns compensation paid by the client to the partner for services rendered or work performed ... [that] ... is a matter “concerning the partnership”’.

That is of course, entirely consistent with the more general statement of principle expounded by Dixon J in Birchnell that a duty to account will arise under s 33(1) where a partner ‘[takes] advantage for himself of an opportunity which arose in the transaction of the firm’s business in connection with one of its clients and of a nature which the firm was entitled to consider, and use for itself’.^[104]

Especially given the express provision regarding the obligation to share investment opportunities that was the substance of cl 11.4(b) of the partnership agreement to which Zphere and Graco were parties, it is clear that the opportunity that Graco took for himself fell precisely within the sort of behaviour that Dixon J found would trigger a liability to account.

Sifris J then went on to find that, in the circumstances, the defendants were also liable to account under the second limb of s 33(1) – for deriving a benefit, without his other partners’ consent, from a use of the ‘partnership connexion’.

In doing so, he commented that he found ‘no reason to depart from the approach taken in Rochwerg’ and noted that, as the plaintiffs had argued, ‘the case here is stronger as Graco did not possess a connection to Swisse prior to being introduced to the company by Mullen.’ [Mullen had been a childhood friend of Ring and had also been the firm’s original relationship partner for Swisse before transferring that role to Graco in or about 2000].^[105] Consequently, it was clear that Swisse had always been a client of the firm and not of Graco personally – so, Graco’s directorship derived from his position in the firm and its existing connection with Swisse. It was also clear that, in taking up the offer of shares, he had used that connection.

It therefore followed that the benefits he derived (albeit through GFBR and Glenaldon) ‘were benefits derived, without the consent of the other partners, from his use of a “partnership ... business connexion”’.^[106] He was therefore liable to account.

2. Liability under s 32 (Vic) – Duty to Render True Accounts and Full Information

On essentially the same factual basis on which he had held that Graco was liable under s 33(1), Sifris J also held that the opportunity to invest in Swisse, the investment itself and the payments Graco had received had all been ‘things affecting the partnership’ as that term appears in the Partnership Act’s ‘Duty to render accounts’ section (Victoria s 32). He had, therefore, also breached the statutory duty imposed by that section. However, his Honour then went on to note that, ’it is neither necessary nor desirable to discuss the consequences of this breach for two reasons’.^[107] First, he said, the remedy provided by s 33 was ‘specific, appropriate and applicable’ and any remedy under s 32 would not add anything further. More importantly though, and perhaps somewhat surprisingly given the plaintiffs’ overt reliance on Rochwerg, because ‘the matter was not specifically argued.’^[108]

3. Zphere’s Liability

As an adjunct to his Honour’s findings in relation to Graco he also found that Zphere was liable, as a fiduciary, for breach of its ‘no conflict’ obligations, and also for breach of its statutory duty under s 32 ‘to render true accounts and full information of all things affecting the partnership’. He did not, however, find it liable under s 33(1). That was because Zphere had not received a benefit (as Graco had) from any transaction concerning the partnership, nor from any use, by it, of the partnership name or ‘business connexion’. It may have ‘stood by’ while Graco (and GFBR and Glenaldon at his direction) received the benefits but that was not sufficient to establish liability under the section.^[109]

4. Liability of the Second and Third Defendants – GFBR and Glenaldon

GFBR and Glenaldon, the second and third defendants, had not been partners in the firm. Therefore they owed it no fiduciary duties. Nor did they owe it any obligations under the Partnership Act provisions – ss 32 and 33(1). They could however be held liable if they had either knowingly received property obtained in breach of fiduciary duty or had knowingly assisted in the fiduciary’s breach.^[110] This, his Honour found, was the case. Consequently, he found that they were liable, as accessories, both for knowingly receiving property obtained in breach of Graco’s fiduciary duty and knowingly inducing or procuring his breaches.

VII CONCLUSION

Aas v Benham has stood as good law for nearly 130 years – and it still is – but it is not now the be-all and end-all on the matter of partners’ liability to account. It was concerned with only one aspect of the partners’ duties and, even then, only one aspect of their general law duties – and took no account of the provisions of the Partnership Act 1890 (UK) which was not introduced until after the action had been commenced. Consequently, its provisions were not relevant to the matter then before the Court.

When the new Partnership Act was written its provisions were largely statutory consolidations of the common law and equitable rules that the courts had previously developed – but it was not intended to be, and was not enacted as, a Code. In fact it expressly provided that ‘the rules of equity and of common law applicable to partnership shall continue in force except so far as they are inconsistent with the express provisions of this Act’.^[111] The fiduciary duties which equity had imposed on partners prior to the Act also continued to apply, so it is perhaps not surprising that, in the area of partners’ accountability, there is still significant reliance on the principles that were developed by the pre-Partnership Act courts (as can be seen, in particular, in the manner in which the liability questions in Rochwerg v Truster were dealt with at first instance).

One consequence seems to have been that the inter-relationships between the Acts’ provisions dealing with, in particular, the statutory duties to render accounts, to account for private profits and not to compete with the firm has not been properly explored – or, at least, had not been properly explored before the decision of the Ontario Court of Appeal in Rochwerg v Truster.

It now has been, and the acceptance, in Australia, of the principles applied in that case is welcome. It is unfortunate though that Chickabo did not go as far as it might have in applying those principles and showing how the sections might operate together. It was argued (and decided) largely on the operation of the statutory duty not to derive (non-consensual) private profits. It did not consider, at all, the possible operation of the duty not to compete (s 34 in Victoria) or how it might intersect with the duty to account for non-consensual benefits derived from a ‘transaction concerning the partnership’ (s 33(1) in Victoria). That was somewhat surprising, especially as Sifris J specifically found, referring to cl. 11.4 of the partnership agreement, that ‘the benefits received were within, or incidental to the scope of the partnership business’ (emphasis added).^[112] There was therefore at least some potential for s 34 to apply and for Graco to have been held liable for breaching that duty – as well as for breaching his duties under both limbs of s 33(1).

Similarly, there was no discussion of the potential relationship between the duty to render accounts (s 32 in Victoria) and the duties under the other two sections (especially as they might have applied to Graco). That too was somewhat surprising in that the plaintiffs had specifically claimed that both Zphere and Graco had owed duties to the partnership under, inter alia, s 32.^[113] There was some (very brief) discussion of how that section might have applied to Graco in paras [129]-[132]^[114] but Sifris J quickly moved on to an analysis of Graco’s potential liability under s 33(1) and never returned to s 32 until (in para [163]) he found that he had been in breach of s 32, but without giving any substantive reasons – because, as he noted in the same paragraph, ‘the matter was not specifically argued’.

The possible connections between the three statutory provisions in cases where partners seek to benefit personally either by failing to disclose full information about ‘things affecting the partnership’, by obtaining non-consensual benefits from transactions concerning the partnership or the use of the partnership property, name or business connexion or by carrying on a business competing with the firm has however been recognized, at least in part, by the acceptance that the principles that the Court of Appeal for Ontario applied in Rochwerg v Truster apply equally in Australia. It will now be up to other courts to define the exact parameters of those connections.

---

^[*] Emeritus Professor of Law, College of Business, Law and Governance, James Cook University. Professor Graw was Head of the School of Law at James Cook University from 2002 to 2005 and again from 2007 to 2014.

^[1] Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384, 407 (Dixon J) (‘Birtchnell’); Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 68 (Gibbs CJ) and 96 (Mason J) (‘Hospital Products’).

^[2] These two aspects of the general equitable principle that persons in fiduciary relationships must account for personal benefits or gains are commonly referred as the ‘no conflict’ and ‘no profit’ rules: see, for example, Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 198-99 (Deane J) (‘Chan’), Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, 557-58 (the Court) (‘Warman’), Breen v Williams (1996) 186 CLR 71, 113 (Gaudron and McHugh JJ) and Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 [178] (the Court).

^[3] [1878] UKLawRpCh 121; (1878) 8 Ch D 345, 350-51.

^[4] (1874) LR 10 Ch 96. See also Regal (Hastings) Ltd v Gulliver [1942] UKHL 1; [1942] 1 All ER 378; [1967] AC 134n, 388 and 148, (Lord Russell of Killowen), 393 and 155 (Lord Wright) (‘Regal (Hastings)’).

^[5] Ibid 124. See also Cassels v Stewart (1881) LR 6 App Cas 64, 79 (Lord Blackburn).

^[6] [1929] HCA 24; (1929) 42 CLR 384.

^[7] Ibid 407-08.

^[8] See also the concurring judgments of Cotton LJ (at 353-54) and Thesiger LJ (at 355-56) and, for a more recent example of the principle being applied, Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd (2008) 66 ACSR 1; [2008] NSWSC 144 [51] (‘Lawfund’).

^[9] Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd [1958] HCA 33; (1958) 100 CLR 342, 350 (Dixon CJ, McTiernan and Fullagar JJ); Chan (n 2), 199 (Deane J).

^[10] Chan (n 2), 199 (Deane J); Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1, 17 (Bryson J in Eq); Hospital Products (n 1), 97 (Mason J). See also Breen v Williams (1996) 186 CLR 71, 82-83 (Brennan CJ); Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 464 (Brennan CJ, Gaudron, McHugh and Gummow JJ) (‘Maguire’); Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd (No 9) [2010] WASC 44, [623]-[626] (Murray J).

^[11] Colbeam Palmer Ltd v Stock Affiliates Pty Ltd [1968] HCA 50; (1970) 122 CLR 25, 34 (Windeyer J); Hospital Products (n 1), 107 (Mason J); Chan (n 2), 199 (Deane J); Dart Industries Inc v Decor Corporation Pty Ltd [1993] HCA 54; (1993) 179 CLR 101, 114-115 (Mason CJ, Deane, Dawson and Toohey JJ); Warman (n 2) 557 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).

^[12] Nocton v Lord Ashburton [1914] UKLawRpAC 31; [1914] AC 932, 952; Warman (n 2), 559 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ); Breen v Williams (1996) 186 CLR 71, 113 and 135-136.

^[13] Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1995] UKPC 54; [1996] AC 514, 521 (PC); Warman (n 2), 569-570 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).

^[14] Regal (Hastings) (n 4) 386; 144.

^[15] Birtchnell (n 1), 408-409 (Dixon J); Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373, 394-95 (Gibbs J); Warman (n 2), 557-58; Barescape Pty Limited v Bacchus Holdings Pty Limited (No 9) [2012] NSWSC 984 [175] (Black J) (‘Barescape’). See also Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 265 CLR 1 [9] (Kiefel CJ, Keane and Edelman JJ).

^[16] Phipps v Boardman [1966] UKHL 2; [1967] 2 AC 46, 109 (Lord Hodson): see also 101 and 104 (Lord Cohen); Maguire (n 10), 467 (Brennan CJ, Gaudron, McHugh and Gummow JJ); 496 (Kirby J); Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428 [30] (Davies J); Barescape (n 15) [154] (Black J).

^[17] Birtchnell (n 1), 398 (Isaacs J); Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd Pty Ltd (2010) 14 BPR 27,605; [2010] NSWSC 1106 [533].

^[18] [1984] HCA 64; (1984) 156 CLR 41, 97.

^[19] Maguire (n 10), 464 (Brennan CJ, Gaudron, McHugh and Gummow JJ); Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 [106]-[108].

^[20] NSW, s 24(1); Vic, s 28; SA, s 24(1); Qld, s 27(1); WA, s 34(1A); Tas, s 29(1); ACT, s 29; NT, s 28(1).

^[21] In all jurisdictions except WA and the ACT this qualification appears in the opening words of the section. In WA they are in s 34(1A) and in the ACT they are in s 29(10).

^[22] NSW, s 30(1); Vic, s 34; SA, s 30(1); Qld, s 33(1); WA, s 41; Tas, s 35(1); ACT, s 35(1); NT, s 34(1).

^[23] See, for example, Rochwerg v Truster (2002) 212 DLR (4^th) 498 [25].

^[24] See Barescape (n 15) [694].

^[25] See, for example, Glassington v Thwaites (1822) 1 Sim and St 124; 57 ER 50 where the business of publishing an evening paper was held to be ‘of the same nature’ as publishing a morning newspaper because ‘there is necessarily some degree of rivalry between a morning and an evening newspaper’ (Sir John Leach V-C), 131; 53.

^[26] [1906] UKLawRpAC 27; [1906] AC 494.

^[27] Ibid, 499.

^[28] [1891] UKLawRpCh 57; [1891] 2 Ch 244.

^[29] Ibid, 256.

^[30] Ibid, 255-56 (Lindley LJ); 257-58 (Bowen LJ) and 260-61 (Kay LJ).

^[31] See n 8 above.

^[32] Trimble v Goldberg (n 17), 499 (Lord MacNaghten).

^[33] (2002) 212 DLR (4^th) 498.

^[34] Rochwerg v Truster (1999) 1 BLR (3^rd) 257 at [43] (Mandel J).

^[35] Ibid.

^[36] Ibid [40] and [52].

^[37] Ibid [52].

^[38] Aas v Benham (n 28), 255.

^[39] Ibid, 255-56.

^[40] An approach that could be justified, as the Ontario Court of Appeal subsequently noted, under s 45 of the Ontario Partnerships Act (n 41) which provides that: ‘The rules of equity and of common law applicable to partnership continue in force, except so far as they are inconsistent with the express provisions of this Act’ – a provision equivalent to NSW, s 46; Vic, s 4; SA, s 1C(1); Qld, s 121; WA, s 6; Tas, s 5; ACT, s 5(1); NT, s 4(1): Rochwerg v Truster (2002) 212 DLR (4^th) 498 [9] and [43] et seq (‘Rochwerg’).

^[41] Partnerships Act RSO 1990, c P.5.

^[42] Ibid s 30. It is equivalent to the Australian state and territory Partnership Act provisions that are referred to in n 21 above.

^[43] Though as the Court of Appeal in Rochwerg (n 40) noted at [54], ‘it is not clear on the record before this court, whether the provisions of the Act were drawn to the attention of the trial judge, or whether the distinctions between the two branches of s 29(1) of the Act, or between ss 29(1) and 30, and their relationship to s 28 of the Act, were argued before him”.

^[44] Ibid [29].

^[45] Ibid [30].

^[46] Partnerships Act (n 41) s 28. Its equivalent in Australia are: NSW, s 28(1); Vic, s 32; SA, s 28(1); Qld, s 31(1); WA, s 39; Tas, s 33(1); ACT, s 33(1); NT, s 32(1).

^[47] Ibid s 29(1), equivalent to NSW, s 29(1); Vic, s 33(1); SA, s 29(1); Qld, s 32(1); WA, s 40(1); Tas, s 34(1); ACT, s 34(1); NT, s 33(1).

^[48] See n 42 above.

^[49] Rochwerg (n 40) [26] and [55].

^[50] Dean v McDowell (n 2).

^[51] Aas v Benham (n 28).

^[52] Rochwerg (n 40) [37] citing James LJ in Dean v MacDowell at 350-51 with additional support from Cotton LJ at 353-54, from Thesiger LJ at 355-56 and from Lindley LJ in Aas v Benham (n 28) at 255-56.

^[53] Parker v McKenna [1874] UKLawRpCh 130; (1874) 10 Ch App 96, 124 (James LJ). See also Regal (Hastings) (n 4) 388 (Lord Russell of Killowen; 393 (Lord Wright).

^[54] Aas v Benham (n 28), 256 (Lindley LJ).

^[55] Regal (Hastings) (n 4).

^[56] Phipps v Boardman [1966] UKHL 2; [1967] 2 AC 46, 105.

^[57] Rochwerg (n 40) [90].

^[58] Ibid [104].

^[59] Similar comments in the Australian context can be found in Birtchnell (n 1), 393 (Isaacs J).

^[60] Rochwerg (n 40) [54].

^[61] Ibid [56].

^[62] Ibid [58].

^[63] Ibid [59].

^[64] The same wording appears in the equivalent provisions in each of the Australian state and territory Partnership Acts with, in some cases, some slight modifications, none of which affects the substantive effect of those provisions: see NSW, s 28(1); Vic s 32; SA s 28(1); Qld, s 31(1); WA, s 39; Tas, s 33(1); ACT s 33(1); NT, s 32(1).

^[65] Rochwerg (n 40) [70].

^[66] Ibid [98].

^[67] Ibid [93].

^[68] Ibid [100].

^[69] Ibid [103].

^[70] Chickabo Pty Ltd v Zphere Pty Ltd [2019] VSC 73 (‘Chickabo’).

^[71] [1929] HCA 24; (1929) 42 CLR 384.

^[72] See also Chan (n 2), 199 (Deane J); Warman (n 2), 557 (the Court); Maguire (n 10), 467 (Brennan CJ, Gaudron J, McHugh J and Gummow J); Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 278 ALR 291 [394]-[407] (Murphy JA, with whom McLure P and Buss JA agreed) (‘Streeter’); and Barescape (n 15) [199] (Black J).

^[73] See, for example, Birtchnell (n 1), 396 (Isaacs J); 408 (Dixon J): cited with approval in United Dominions Corp Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, 11 and 13 (Mason, Brennan and Deane JJ) and in Lawfund (n 8) [51] (Brereton J). See also Streeter (n 72) [408] (Murphy JA, with whom McLure P and Buss JA agreed); Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1, 15 (Bryson J in Eq); Barescape (n 15) [138]-[140] (Black J); Edenham Pty Ltd v Meares (2016) 116 ACSR 251 [39]-[40] (Le Miere J).

^[74]Chickabo (n 70).

^[75] cl 11.4(b) of the Partnership Agreement – see ibid [8].

^[76] Ibid [22].

^[77] Ibid [153].

^[78] Ibid [28].

^[79] Partnership Act 1958 (Vic) s 34 (the equivalent of the Ontario Partnerships Act RSO 1990, c P.5, s 30).

^[80] Chickabo (n 70) [12].

^[81] The second and third defendants were, respectively, GFBR Nominees Pty Ltd and Glenaldon Pty Ltd. They were joined on the basis that they were accessories to Graco’s breaches of his fiduciary duties, because they had knowingly received a benefit (the monies) which they derived as a direct consequence of those breaches – and had also knowingly induced or procured breaches of fiduciary duty by Zphere or Graco. On both bases, it was argued, they were liable to account.

^[82] Chickabo (n 70) [31]-[33] and [36]-[37]. The plaintiffs also claimed that, in addition to his primary liability, Graco was also liable as an accessory to Zphere’s breach of its fiduciary duties.

^[83] Ibid [31] and [34]-[35].

^[84] Partnership Act 1958 (Vic) s 33(1).

^[85] Ibid s 32(1). See Chickabo (n 70) [34].

^[86] Chickabo (n 70) [29].

^[87] Ibid [69] and [111]-[121].

^[88] Ibid [40], [82] and [122].

^[89] Ibid [40] and [123]-[126].

^[90] Ibid [127].

^[91] Ibid [130].

^[92] The equivalent sections in the Partnership Acts of the other Australian jurisdictions are: NSW s 28(1); SA s 28(1); Qld s 31(1); WA s 39; Tas s 33(1); ACT s 33(1); NT s 32(1).

^[93] The equivalent sections in the Partnership Acts of the other Australian jurisdictions are: NSW s 29(1); SA s 29(1); Qld s 32(1); WA s 40(1); Tas s 34(1); ACT s 34(1); NT s 33(1).

^[94] The equivalent sections in the Partnership Acts of the other Australian jurisdictions are: NSW s 30(1); SA s 30(1); Qld s 33(1); WA s 41; Tas s 35(1); ACT s 33(1); NT s 34(1).

^[95] Chickabo (n 70) [142].

^[96] Ibid.

^[97] Ibid [145].

^[98] His Honour’s finding was entirely consistent with the approach in a line of other decisions where companies have been used as ‘a device or facade ... as the vehicle for the receipt of ... money’: Trustor AB v Smallbone [2001] 1 WLR 1197 [25] (Sir Andrew Morritt V-C). See also, for example, Lindsley v Woodfull [2004] 2 BCLC 131 [27] (Arden LJ).

^[99] Chickabo (n 70) [145].

^[100] Ibid [147] and [150]-[154].

^[101] Birtchnell (n 1), 394.

^[102] Chickabo (n 70) [148].

^[103] Rochwerg (n 40) [100].

^[104] Birtchnell (n 1), 417.

^[105] Chickabo (n 70) [158].

^[106] Ibid [162].

^[107] Ibid.

^[108] Ibid.

^[109] Ibid [169]-[170].

^[110] The two limbs of Barnes v Addy [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244 under which a third party can be made liable for the fraudulent conduct of (in that case) a trustee. For a discussion of its application in Australia see Farah Constructions Pty Ltd v Say-dee Pty Ltd (2007) 230 CLR 89.

^[111] Partnerhip Act 1890 (UK) s 46. Equivalent provisions appear in the Ontario Partnerships Act (s 45) and in each of the Australian states and territories: NSW s 46; Vis s 4; SA s 1C(1); Qld s 121; WA s 6; Tas s 5; ACT s 5(1); NT s 4(1).

^[112] Chickabo (n 70) [156].

^[113] Ibid [34].

^[114] There was more substantive, though still very brief, discussion of the application of the section to Zphere in ibid para [170].