The Delaware Chancery Court has settled a dispute between a special limited partner and general partner over an expense assumption payment provision contained in a partnership agreement by applying the plain meaning standard. At issue was a default provision involving millions of dollars in expense assumptions that were to be automatically applied if, following good faith negotiations, the special limited partner and general partner could not agree upon an alternative allocation. The court declined to adopt a different interpretation of the provision because it diverged from the partnership agreement's plain meaning despite the special limited partner's claim that the provision "produces an unconscionable and absurd result."
The provision contains an annual expense assumption payment escalator calculated by multiplying 1.05 by the expense assumption payment in effect during the preceding year. Although the intent of the provision was to provide for a 5% increase, the calculation resulted in the increase being equal to 105% of the preceding year's expense assumption payment amount. Thus, as a result of imprecise drafting, the expense assumption payment increased by $50,088,510 rather than $2,385,167.15.
In ruling for the general partner, the court stated that its role is not "to rewrite the contract between sophisticated market participants, allocating the risk of an agreement after the fact, to suit the court's sense of equity or fairness." Further, since the dispute was governed by the express terms of the partnership agreement, the doctrine of good faith and fair dealing was inapplicable.
Great-West Investors LP v. Thomas H. Lee Partners LP, C.A. No. 5508-VCN (Del. Ch. Jan. 14, 2011)