Supreme Court backs Christine Thompson in $8M Nutra-Life restraint of trade clause
The Supreme Court has ruled an $8 million restraint of trade clause on Michael Thompson attached to the $80.3 million sale of Nutra-Life Health & Fitness in 2006 was relationship property, and his ex-wife Christine Thompson should be entitled to a share of it.
In a judgment released today, Chief Justice Sian Elias and Justices William Young, Susan Glazebrook, Terence Arnold and Mark O'Regan unanimously ruled in favour of Christine Thompson, setting aside decisions in lower courts that the $8 million payment was to protect the goodwill of Next Capital, which bought Nutra-Life, and that it couldn't be carved out from the purchase price.
Next proposed to buy the business for $72.3 million, of which $49.4 million was for the goodwill and intellectual property, and $22.9 million for the other assets, and another $8 million for a two-year restraint of trade clause. As part of the deal, Michael Thompson would remain a director of the company, and invest $12 million for a 19.95 percent stake. Of that, the $72.3 million was paid to ML Thompson Family Trust, which bought the shares in the company in 1994 from Health Foods International, an entity set up in 1989 and jointly owned by the Thompsons.
"If Mr Thompson had said that he was not prepared to give a covenant in restraint of trade, the court would have treated him as buying (or having sold) the business for $80 million and would thus have required him to account to Mrs Thompson for $40 million," Justice Young said in delivering the decision. "In conjunction with the way in which the transaction with Next was structured, the effect of the transfer of the HFI shares to the MLT Trust was to reduce by $4 million what would otherwise have been Mrs Thompson's share of the payout associated with the sale of the Nutra-Life business."
The Thompsons separated in 2002, and in 2006, Christine Thompson made an application to the Family Court over the transfer of shares to the MLT Trust. In 2007, there was an agreement between the Thompsons that the assets of the trust would be treated as relationship property, though Michael Thompson said there was never agreement to share the restraint of trade payment.
The Supreme Court said the Family Court's approach was "too austere" in deciding the trust's assets were relationship property, but the restraint of trade was not.
"We can see no reason why we should not give effect to the agreement and the only way we can see of doing so is to exercise the s 9(4) (of the Property (Relationships) Act) discretion in favour of Mrs Thompson and to declare that the $8 million payment is relationship property," the judgment said.
The Supreme Court remitted the case back to the Family Court to make orders necessary to give effect to the declaration, and awarded costs of $25,000 and disbursements to Christine Thompson.