The agonies attending when a partnership split is endlessly litigated have been on full display in this saga of friendship lost and the latest judgment in the case represents another unwelcome suppository for the liquidator on the losing end.
As iNO’s previously reported, liquidators and former friends Steve Kugel and Anthony Warner have been locked in attritional litigation for almost a decade over the question of whether their former business arrangement was a partnership or something else.
Warner brought the arrangement to an end back in 2014, keeping most of the appointments and obtaining from Kugel his shares in two of the partnership companies – CRS Warner Kugel Pty Ltd (CWK), which has since been renamed named Clarence Street Partners Pty Ltd (CSP) and Debtfree Pty Ltd.
Kugel commenced proceedings in 2015 seeking a half share of the fees Warner was collecting on the basis that the pair had been in partnership.
Warner resisted that characterisation, arguing that the practice they’d shared was no more than two businesses conducted by CWK and Debtfree.
The contest was resolved in Kugel’s favour in 2018 with NSW Supreme Court judge Guy Parker finding that the relationship had been a partnership and that Work In Progress (WIP) accrued on the administrations as at the date of dissolution in September 2014 constituted a partnership asset, for which Warner was obliged to account.
Warner appealed and lost. As is detailed in Shazbot Pty Ltd v Warner Capital Pty Ltd (No 5) [2023] NSWSC 1322 the pair then engaged in a scrap over how the WIP was to be accounted for before Justice Parker made orders on September 6 this year finally determining their monetary obligations and entitlements.
The orders included judgment for Kugel against Warner and CWK, jointly and severally, in the sum of $750,000 and judgment for Kugel against Warner and Debtfree, jointly and severally, in the sum of $34,000.
While the question of costs and interest on costs remains unresolved Kugel sought to have confirmed his entitlement to interest on his costs up to the beginning of the 2018 trial.
Warner resisted, arguing that the case Kugel intended to run “had not been properly pleaded, leading to the trial proceeding on an entirely different basis. In such circumstances, (Warner’s) counsel submitted, the plaintiffs ought not be compensated for their delay in obtaining monetary judgments”, but his honour was unpersuaded.
“The delay was not in bringing the proceedings or in claiming interest, but in articulating the claim in the manner run at hearing,” he said.
“Different considerations must apply to delay of that kind, which is commonplace in commercial litigation (even if these proceedings may have taken longer to proceed to hearing than might have been expected).
“In my view, it does not justify withholding full recompense to Mr Kugel for his share of the partnership funds for which the defendants were, on my findings, accountable.”
While that resolves the question of interest on Kugel’s costs orders in respect of costs are still to come and who would bet this pair can’t find another reason to wage war?
Further reading:
Partnership stoush for trial but who’ll do the tax?
Liquidator appeals partnership finding
Ownership scrutinised as ex-partners fight over WIP
Bitter partnership dispute edges closer to end game
Ex-mates to go toe to toe over failed partnership
So, from what I read, it is possible to value the WIP of an insolvency practice, the long way (2015-2023), by spending millions of dollars on, legal fees and expert witnesses after conducting an exhaustive review and full accounting of the WIP collected. The simpler way is to agree the value, do a deal and each party move on. This just shows how litigious Insolvency Practitioners are.