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What is a Partner Worth? Resolving Disputes When Partners Retire 

What is a Partner Worth? Resolving Disputes When Partners Retire

In the recent case of Trident Austwide Pty Ltd v Bagcorp Pty Ltd as trustee for the Rico Tea Trust [2024] NSWSC 479, the Supreme Court of NSW considered the value of a retiring partner’s entitlements. 

Parties and representation: The plaintiff is Trident Austwide Pty Ltd, a former partner in the Madura Tea Estates partnership. The defendants are the remaining partners, Bagcorp Pty Ltd, Headcrest Pty Ltd and Broadbond Pty Ltd.  

Issue in dispute: The main issue was the amount to which the plaintiff is entitled following its retirement from the partnership on 5 November 2021. The plaintiff claims that it was entitled to its share of the value of the partnership, including goodwill, without any discounts for lack of control or marketability. The defendants contended that the plaintiff’s interest should be valued on a market basis, with appropriate discounts applied. 

Background and proceedings: The partnership was formed in 2018 and carried on the business of growing, importing, blending, and selling tea. The partnership agreement contained clauses that allowed the remaining partners to purchase or require the sale of the retiring partner’s interest, but these clauses were not exercised. The plaintiff gave notice of its retirement in May 2021 and commissioned a valuation of its interest. The parties failed to reach an agreement and the plaintiff commenced proceedings in May 2022. The court appointed a referee to value the plaintiff’s interest. 

Decision and orders: The court held that the plaintiff was entitled to an account for its partnership share of the partnership property, including goodwill, at market value, as at the date of retirement. The court adopted the referee’s report, which provided the value of the plaintiff’s interest with and without discounts. The court rejected the defendants’ argument that the plaintiff had agreed to a market valuation with discounts and found that it would be unfair to apply discounts in this case. The court ordered the defendants to pay the plaintiff the amount of $4,245,162, plus interest and costs. 

Key Takeaways: a well drafted partnership agreement that contemplates how retiring partners are paid out significantly helps manage this type of dispute. That is particularly true when the partnership is to continue because the issue of whether ‘goodwill’ should be paid, and how it should be calculated, are known and predictable areas of potential disagreement. In this case there was such an agreement but the provision relating to the retiring partner’s entitlements was not engaged. Turning first to a written partnership agreement to determine how issues in dispute should be dealt with is a helpful way that this type of dispute can be resolved, or even avoided altogether. 

For more information about commercial litigation disputes, contact David Collins in the Mullane & Lindsay litigation team.

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