Fagenblat v FGT Custodians Pty Ltd - [2004] VSC 196

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST

No. 6934 of 2000

MARK FAGENBLAT (WHO SUES IN HIS CAPACITY AS TRUSTEE OF THE MARK FAGENBLAT PRACTICE TRUST)	Plaintiff
v
FGT CUSTODIANS PTY LTD (FORMERLY FEINGOLD PARTNERS PTY LTD) (ACN 078 670 023)	Defendant

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JUDGE:	HABERSBERGER J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	11-13, 18-20 AUGUST 2003
DATE OF JUDGMENT:	3 JUNE 2004
CASE MAY BE CITED AS:	FAGENBLAT v FGT CUSTODIANS PTY LTD
MEDIUM NEUTRAL CITATION:	[2004] VSC 196

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Partnership – Solicitors – Valuation of goodwill on retirement of partner – Relevant factors – Capitalisation of future maintainable profits approach – Whether risk of retiring partner leaving employment and competing with continuing partnership to the detriment of its earnings should be taken into account in assessment of future maintainable profits or in fixing of capitalisation rate.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M.A. Dreyfus QC with Mr M.A. Robins	Nathan Kuperholz
For the Defendant	Mr L. Glick SC	Strongman & Crouch

HIS HONOUR:

The Hearing

The plaintiff, Mr Mark Fagenblat, is now the trustee of the Mark Fagenblat Practice Family Trust, which was a member of the legal practice, Feingold Partners Pty Ltd, until 30 June 2000. The other members of the partnership at that date were the Simon Feingold Practice Family Trust, the Edmund Gurgiel Practice Family Trust and the Ian Tuszynski Practice Family Trust. Feingold Partners Pty Ltd was the trustee of each of the members of the partnership. The directors of Feingold Partners Pty Ltd were Messrs Feingold, Gurgiel, Tuszynski and Fagenblat. Each of them was responsible for his own department within the practice – Mr Feingold headed up the property department, Mr Gurgiel the mortgage finance department, Mr Tuszynski the commercial department and Mr Fagenblat the litigation department.

This hearing has been concerned with the retrial ordered by the Court of Appeal of "the issue as to how much, if anything, the plaintiff is entitled to be paid in respect of the value of his interest in the goodwill of the partnership as at 30 June 2000, as raised in the amended statement of claim." The issue was limited to the value of the plaintiff’s interest in the goodwill of the partnership because the parties had previously agreed that Mr Fagenblat’s share in the assets of the partnership, apart from the goodwill, was $129,797.

The circumstances of the plaintiff leaving the practice are set out in detail in the judgments of Pagone J[1] and of the Court of Appeal[2] and it is unnecessary to repeat them. After a trial on a number of issues, on 17 December 2001 Pagone J gave judgment in favour of Mr Fagenblat in the sum of $375,399, together with interest, for the value of his 25% interest in the firm as at 30 June 2000. That judgment, other than the judgment dismissing the counterclaim, was set aside by the Court of Appeal by order made on 15 April 2003.…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Fagenblat v FGT Custodians Pty Ltd

Details

AGLC: Fagenblat v FGT Custodians Pty Ltd [2004] VSC 196
Case: [2004] VSC 196
Decision Date: 3 June 2004

CaseChat Overview and Summary

In the case of Fagenblat v FGT Custodians Pty Ltd, the dispute arose between the retiring partner, Fagenblat, and the continuing partners of a legal firm, represented by FGT Custodians Pty Ltd. The crux of the matter was the valuation of the retiring partner's share of the firm's goodwill upon retirement. The case was heard by the Federal Court of Australia, which was tasked with determining the appropriate factors to consider in such a valuation, particularly focusing on the capitalisation of future maintainable profits approach.

The legal issues before the court included whether the risk of the retiring partner leaving employment and potentially competing with the continuing partnership, thereby affecting the firm's earnings, should be considered in the assessment of future maintainable profits. Additionally, the court had to decide if this risk should instead be factored into the capitalisation rate applied to those future profits. These considerations were critical in determining the fair value of the retiring partner's share of the goodwill.

The court ruled that while the risk of the retiring partner's departure and potential competition could impact the firm's future earnings, this risk should not be directly incorporated into the assessment of future maintainable profits. Instead, the court held that such risks should be accounted for in the capitalisation rate. By adjusting the capitalisation rate, the valuation could adequately reflect the potential adverse effects on future earnings due to the retiring partner's departure. This nuanced approach ensures that the valuation process remains fair and equitable to all parties involved.

As a result of the court's reasoning, the final orders mandated that the capitalisation rate used in the valuation of the retiring partner's share of the firm's goodwill should be adjusted to reflect the risk of the partner's departure and potential competition. This adjustment was necessary to provide an accurate and fair valuation that appropriately considered all relevant factors.

Orders