Eight
million dollars paid in return for a promise not to compete could be retained
as separate property when selling a health food business as part of a matrimonial
property settlement. Business goodwill
was included in the $72 million price paid for the business. The restraint of trade agreed by the husband
curtailed his future business activity and payment for this restraint was to be
treated as his personal property.
When the 31 year marriage
of Mr & Mrs Thompson ended in 2002 their most valuable asset was the
Nutra-Life health food business established nearly twenty years previously. They owned the business through a family
trust: the MLT Trust. It was agreed the
business would be sold and initial valuations gave an indicative value of $40.7
million. In December 2006 the business
was sold for $72.3 million to Next Capital Health Ltd. The sale came with conditions.
The court was told Mr
Thompson was required as part of the sale to take a 19.9% holding in Next at a
price of $12 million and to become a director of Next. He was also required to sign a “non-compete”
contract prohibiting him from working in opposition to Next for the longer of
five years from the sale or two years from the date he stopped being a director
of Next. The restraint operated
worldwide (excluding Africa and the Americas).
He was paid eight million dollars in return for this restriction on his
future business activities.
Evidence was given
that the $72.3 million paid to MLT Trust by Next amounted to $22.9 million for
Nutra-Life’s tangible business assets and the remainder of $49.4 million for
its business goodwill and brands. MLT
Trust paid Mr Thompson $1.39 million as a bonus on negotiating the sale. The net worth of the MLT Trust was divided
50/50 between two trusts, one each in the names of Mr & Mrs Thompson.
Mrs Thompson argued
the eight million dollars paid separately for the restraint of trade was
matrimonial property. It was derived
from their health food business which was a matrimonial asset.
The Court of Appeal
said the $72.3 million paid by Next and treated as matrimonial property
included payment for business goodwill attached to Nutra-Life. The eight million paid to Mr Thompson was to
secure his agreement not to use his personal skills and industry experience in
the future in any way that would prejudice Next’s business interests. By agreeing to this restraint, Mr Thompson increased
the value of Nutra-Life and the price paid for the business.
Thompson
v. Thompson – High Court (30.8.13) & Court of Appeal (8.04.14)
14.015