Breaking up is hard to do

This pharmacy owner found terminating her stake in a partnership wasn’t as easy as first thought

Three NSW pharmacy owners have had a legal stoush over the ending of a 17-year partnership.

The partnership began in early 2000 when the plaintiff, who had previously operated two pharmacies in the Randwick area as a sole trader, sold a one-third interest in one of those pharmacies to each of the two defendants.

The owners have now acquired three pharmacies in the North Ryde district of NSW.

At a hearing held in late May, the Supreme Court of New South Wales heard that the plaintiff wished to extricate herself from the partnership without having to invoke the “pre-emption” procedure.

Under the pre-emption procedure, the other two partners would have priority in procuring the interest from the transferring partner.

The plaintiff argued that the partnership had already been validly terminated after she provided a notice of termination in October 2016.

The defendants contended that the notice was ineffective and that, while they did not oppose the plaintiff withdrawing from the partnership business, they should be allowed to purchase the plaintiff’s interest in the partnership at valuation rather than conducting a public sale.

The plaintiff argued that she could dissolve the partnership by notice because it had been entered into “for an undefined time” (Section 32, clause C of the Partnership Act 1892).

Justice Guy Parker found that while the terms of the Partnership Deed made it clear there was no specific period of time over which the partnership was to continue, at the same it was clear the partnership was to continue for the duration of the business.

He ruled that the Partnership Deed excluded termination by notice.

“The Deed confers no right on the partners to terminate it unilaterally,” said Justice Parker.

“The only unilateral step a partner can take which may result in termination is to invoke the ‘pre-emption’ procedure. This is quite inconsistent with termination merely on notice.”

He concluded that the plaintiff’s notice of determination was “ineffective” and that she “had no right to dissolve the partnership” under s 32(c).

Justice Parker suggested it may be that the plaintiff “would be better served” by trying to wind the partnership up using the pre-emption procedure before seeking an order for winding it up on the just and equitable ground.

The plaintiff has been given time to consider her position, and the judge reserved costs until she has decided which course to take.

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1 Comment

  1. Philip Smith

    Sounds like it’s going to be an expensive lesson.

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