Gregg v Burrowes & Ors (trading as PricewaterhouseCoopers)

[2023] NSWSC 895

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Gregg v Burrowes & Ors (trading as PricewaterhouseCoopers) [2023] NSWSC 895

Hearing dates:

27 July 2023

Date of orders:

11 August 2023

Decision date:

11 August 2023

Jurisdiction:

Equity - Duty List

Before:

Hammerschlag CJ in Eq

Decision:

Declaration that Recommendation that the plaintiff be required to retire does not satisfy the requirements of the Partnership Agreement made on 8 April 1997

Catchwords:

CONTRACTS — PARTNERSHIP — where the plaintiff is a partner in an accountancy firm — where the Partnership Agreement contains a provision giving the Board of Partners, by final and binding determination, power to require a Partner to retire from the partnership — where the power must not be exercised unless the Partner has acted in a manner which is materially inconsistent with the standard of conduct expected of a Partner, or has acted in a manner which may damage the reputation of the firm — where the Partnership Agreement stipulates a procedure that must be followed in respect of a determination which requires Management to make a Recommendation to the Board of Partners that the Partner be required to retire, which Recommendation must specify Management’s reasons for forming its view and making the Recommendation — where Management purported to make a Recommendation to the Board of Partners that the plaintiff should be required to retire as a Partner — whether the Recommendation satisfies the requirements of the Partnership Agreement to specify Management’s reasons for forming its view and making the Recommendation — HELD — it does not

Cases Cited:

Algoni Pty Ltd v Secretary, Department of Industrial Relations (1985) 3 NSWLR 515

Andersen v Umbakumba Community Council (1994) 126 ALR 121

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Harofam Pty Ltd v Scherman (2013) 42 VR 372; [2013] VSCA 104

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65

Minister for Immigration & Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259; [1996] HCA 6

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35

Shoalhaven City Council v Firedam Civil Engineering Pty Limited (2011) 244 CLR 305; [2011] HCA 38

Tickner v Chapman (1995) 57 FCR 451; [1995] FCA 987

Vanstone v Clark (2005) 147 FCR 299; [2005] FCAFC 189

Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17

Zhu v Treasurer (NSW) (2004) 218 CLR 530; [2004] HCA 56

Texts Cited:

Macquarie Dictionary, 8th ed (2020).

Category:

Principal judgment

Parties:

Richard Gregg (Plaintiff)
Kevin Burrowes & Ors (trading as PricewaterhouseCoopers ABN 52 780 433 757) (Defendants)

Representation:

Counsel:
A Moses SC with K Anderson (Plaintiff)
M Darke SC with E Bathurst (Defendants)

Solicitors:
Company (Giles) (Plaintiff)
Corrs Chambers Westgarth (Defendants)

File Number(s):

2023/00229420

TABLE OF CONTENTS

INTRODUCTION

THE FACTS

The Partnership Agreement

Events prior to the Recommendation

The R&Q penalty

The Tax Scandal breaks

The Recommendation

Further announcement and correspondence

THE PROCEEDINGS

CONSIDERATION

CONCLUSION

JUDGMENT

INTRODUCTION

1. There has, from about January of this year, been extensive media coverage about alleged misuse of confidential government information by the accounting firm styled PricewaterhouseCoopers (PwC or the Firm). It has been reported that PwC was, in its professional capacity, given confidential information by the Australian Taxation Office (ATO) in relation to tax planning which, contrary to its obligations, PwC passed on to clients and others (the Tax Scandal – being the description used by the parties themselves).

2. The plaintiff (Gregg) is, and since 1 July 2013 has been, a partner in PwC. He is in PwC’s Research and Development (R&D) team, which is part of PwC’s Private Clients Practice. The R&D team is responsible for advising clients in relation to the federal Research and Development Tax Incentive scheme, under which certain entities whose aggregated turnover is less than a specified threshold can receive a refundable tax offset equal to their corporate tax rate, plus a premium. The R&D team does not provide advice on other Australian tax matters but advises solely on the specific R&D provisions in income tax legislation.

3. The PwC partnership is constituted by a deed made on 8 April 1997 (the Partnership Agreement) between partners who attested it, together with other persons, including Gregg, who were subsequently admitted to the partnership.

4. The Partnership Agreement provides for specific roles to be played by designated partners and various partner sub-groups, including a Board of Partners and a group defined as “Management”. It provides that Management may make a written Recommendation to the Board of Partners that a Partner be required to retire, and for the Board of Partners to require a Partner to retire if, after giving the partner an opportunity to make submissions, the Board, in its absolute discretion, so determines. The Board of Partners may, in such a case, determine the terms of the retirement which may, it seems, include retirement without payment of any financial benefit.

5. On 3 July 2023, Gregg was given written notice that a Recommendation that he be required to retire had been made and received.

6. Gregg contends that the Recommendation is ineffective because it does not meet the requirements of the Partnership Agreement. By these proceedings, in which he cites the members of the Board of Partners as defendants, he seeks a declaration to that effect.

7. The issue for determination is: does the Recommendation meet the requirements of the Partnership Agreement?

8. I have concluded that the answer is no. My reasons follow.

THE FACTS

The Partnership Agreement

9. References to clauses are, unless otherwise stated or the context indicates to the contrary, references to clauses in the Partnership Agreement.

10. Clause 23 is in the following terms:

23.    Mandatory Retirement

23.1    The Board of Partners may, on the recommendation of Management, determine that a Partner is required to retire from the Partnership.

23.2    The Board of Partners must not require a Partner to retire under this clause 23 unless the Partner:

(a)    has committed a material breach of this Agreement; or

(b)    has acted in a manner which is materially inconsistent with the standard of conduct expected of a Partner, or in a manner which may damage the reputation of the Firm.

23.3    The following procedure must be followed in respect of a determination that a Partner is required to retire from the Partnership:

(a)    if Management forms the view that, having regard to any of the matters in clause 23.2, the Partner should be required to retire, it must make a recommendation to the Board of Partners that the Partner should be required to retire (“Recommendation”). The Recommendation must specify Management’s reasons for forming its view and making the Recommendation;

(b)    Management must promptly provide a copy of the Recommendation to the Partner (the date the copy is provided being the “Notice Date”);

(c)    the Partner may within 14 days after the Notice Date make written submissions, or oral submissions (in a manner determined by the Board of Partners) to the Board of Partners in respect of the Recommendation; and

(d)    after considering any submissions made by the Partner, the Board of Partners must as soon as reasonably practicable, and in any event within 28 days after the Notice Date, determine in its absolute discretion whether or not the Partner should be required to retire, and the terms of any retirement.

23.4    Any determination of the Board of Partners under clause 23.3(d) is final and binding on the Partner, and must be notified in writing to the Partner as soon as possible. Pursuant to the determination the Partner will, without any further act, cease to be a Partner on the date determined by the Board of Partners.

11. Clause 1 is headed “Definitions”. It contains, amongst others, the following definitions:

“Board” or “Board of Partners” means the PricewaterhouseCoopers Board of Partners constituted under clause 10.

“Management” means the Country Senior Partner and/or any one or more persons appointed to a Management Position by the Country Senior Partner, either acting alone or jointly, and an express reference to Management carrying out a function in this Agreement is a reference to the Country Senior Partner and/or any such of the person or persons appointed to a Management Position and given that function (including, by implication, as part of a set of functions) by the Country Senior Partner.

12. Clause 10.1 is part of a clause headed “Appointment and Tenure of the Board of Partners”. It provides, relevantly, that the Board of Partners consists of a maximum of 10 Partners holding office as members of the Board of Partners (other than the Country Senior Partner), the Country Senior Partner and a maximum of 3 Appointed Board Members.

13. Clause 23A is headed “Retirement on Notice” and provides for the Board of Partners, on the Recommendation of Management, to effect the retirement of a Partner by providing the Partner with six months’ notice in writing. It does not contain a provision (equivalent to cl 23.3(d)) entitling the Board of Partners to determine the terms of retirement on notice. To the contrary, cl 23A.5 provides that the Partner will receive a lump sum income distribution.

14. Clause 32 is headed “General Obligations of Partners”. Clause 32.2(a) provides that partners shall be just and faithful to each other in all transactions relating to the business of the Firm. Clause 32.2(d) provides that partners shall behave in a professional and business-like manner at all times. Clause 32.2(f) provides that partners shall act in all matters in utmost good faith.

Events prior to the Recommendation

The R&Q penalty

15. PwC apparently has an internal procedure for the imposition on partners of a financial penalty, called a Risk and Quality (or R&Q) penalty, by way of an adjustment to the partner’s performance income. The Court was informed from the bar table that an R&Q penalty may be imposed as part of a performance review, but the Court was not favoured with any details on how this procedure works. The criteria for the imposition of such a penalty and its true economic effect were not explained.

16. Nevertheless, the evidence establishes that in August 2021, such a penalty was imposed on Gregg on the basis of an asserted repeated failure by him to comply with risk management engagement processes in the conduct of a number of matters for which he was responsible.

17. The evidence shows that the penalty was set at “20% of performance income” and was apparently $80,116. The evidence does not identify the financial or accounting period, if any, to which the penalty related, but it must have been before August 2021 when the penalty was imposed.

18. Under cover of an email dated 17 August 2021, Martina Crowley, PwC’s National Private Clients Leader, sent Gregg a file note recording an earlier discussion between her, Gregg, and another partner, Wayne Plummer, concerning the imposition on Gregg of the R&Q penalty. She enquired whether Gregg wished to discuss the penalty further. The email concluded, “We would be happy to discuss the finalisation of the matter to enable you to concentrate on the future”. Gregg responded, “No need for further discussion. Please finalise the matter”.

The Tax Scandal breaks

19. At the end of 2017, the ATO obtained information revealing that there may have been breaches of confidentiality by PwC having disclosed to clients and others, confidential information which had been given to it in a professional capacity by the ATO. The matter was investigated in the Senate. The details of which committees considered it and what they thought or found are not necessary to recount.

20. On 28 May 2023, the Acting Country Senior Partner of PwC, Kristin Stubbins (Stubbins), directed that Gregg go on special leave, commencing immediately, pending an internal review. He was informed that he was to have no contact with partners or staff of PwC, that he was not to visit the premises of the Firm, and that he was not to access its computers or communicate with the media.

21. On 29 May 2023, Stubbins published a media statement containing a public apology on behalf of PwC.

22. She acknowledged that PwC had displayed a clear lack of respect for confidentiality, did not have adequate processes and governance in place, and had a culture at the time in its tax business that had allowed inappropriate behaviour and had not, until now, always properly held its leaders and those involved to account. She announced that PwC had commenced an investigation and as a result, had stood down nine unnamed partners (it can safely be inferred that Gregg was one of them).

23. An exchange of correspondence between PwC and Gregg about him being stood down followed, which, for present purposes, it is not necessary to detail.

The Recommendation

24. On 3 July 2023, Stubbins sent the following letter to Gregg:

25. The attached Notice follows:

26. I will refer to the Notice attached to the 3 July 2023 letter as the Recommendation. The Recommendation has been redacted to protect the identity of PwC clients referred to in it.

Further announcement and correspondence

27. On 3 July 2023, PwC released a media statement announcing that it had reached conclusions in its investigation into the handling of confidential Treasury information and past failures in professional, ethical or leadership responsibilities. It announced that eight partners had exited or were in the process of being removed from the partnership. It stated that Gregg had been given notice of PwC’s findings against him and a process had started under the Partnership Agreement to remove him from the partnership. I infer that this was a reference to the Recommendation. What effect, if any, these statements might ultimately have in the context of the possible further operation of cl 23 is a matter for conjecture.

28. On 4 July 2023, Gregg’s solicitors wrote to PwC’s solicitors taking the position that the Recommendation was invalid and requesting further particulars.

29. On 11 July 2023, solicitors acting for PwC provided certain documents and further particulars to Gregg.

30. On 18 July 2023, PwC’s solicitors sent two letters to Gregg’s solicitors taking issue with Gregg’s claim that the Recommendation was invalid and acknowledging that the Recommendation was not based on a finding or assertion that Gregg misused the government’s confidential information.

THE PROCEEDINGS

31. By Summons sued out of this Court on 19 July 2023, Gregg seeks a declaration that the Recommendation is not valid because it does not adequately specify Management’s reasons for forming its view that Gregg should be required to retire and making the Recommendation.

32. The Summons contains a prayer for a declaration that Gregg is entitled to further particulars of the Recommendation. This was correctly not pressed.

33. It is not in issue that if the Recommendation does not satisfy the contractual requirements for its validity under the Partnership Agreement, a declaration is appropriate to be made. The parties agreed that if a finding to that effect is made, the terms of the declaration should be left over for consideration.

34. Mr A Moses SC with Mr K Anderson appeared for Gregg. Mr M Darke SC with Ms E Bathurst appeared for the defendants.

35. The Court had the benefit of written and oral argument. The hearing was conducted economically by both sides and concluded within the day. I have taken all of the arguments into account, but will not restate them.

36. The hearing commenced with an application by PwC for an order that publication of significant parts of the Partnership Agreement be restricted to the Court and the parties and their legal representatives on the grounds that the material is confidential. I declined to make the order in circumstances where PwC itself had gone public on the Tax Scandal and the standing down of some partners, including Gregg.

37. The following initial observations are appropriate.

38. These proceedings concern only the validity or otherwise of the Recommendation. They do not concern the exercise or proposed exercise of the Board of Partners’ power to require Gregg to retire, except to the extent that the effective exercise of that power depends, relevantly, on an earlier valid Recommendation having been made. These proceedings do not concern the merit, or lack of merit, as the case may be, of any complaint against Gregg.

39. This is not a case concerning the sufficiency of reasons given by a court, arbitrator or other tribunal exercising jurisdiction or power. It is squarely a case about a contract and the qualities of a bargain. It does not involve the application of any principle beyond contractual principles. It does not concern the application of any legal precept that because the reasons are not to be specified by a court, they should be approached generously or not examined with a fine-tooth comb or “an eye keenly attuned to error”. [1] Authorities and learning concerning the adequacy of reasons given in a non-contractual setting (that is, other than because a contract requires them) are of limited assistance.

    1. Minister for Immigration & Ethnic Affairs v Liang (1996) 185 CLR 259 at 272; [1996] HCA 6.

40. PwC does not assert that Gregg committed a material breach of the Partnership Agreement within cl 23.2(a).

41. PwC does not assert, but eschews, that the Recommendation is based on Gregg having misused any confidential information.

42. Gregg does not assert that in making the Recommendation, Management did not act in good faith.

CONSIDERATION

43. The only controversy for resolution is whether the Recommendation complies with the contractual requirement in cl 23.3(a) that Management “specify” its “reasons” for forming its view and making the Recommendation.

44. A two-step process is required. First, the Court must determine what the phrase “specify reasons” in cl 23.3(a), on its proper construction, means. Second, the Court must determine whether, on that construction, the Recommendation specifies reasons.

45. The terms of the Partnership Agreement are to be construed by reference to the language used by the parties, the circumstances (including commercial considerations, if any) which it addresses, and the objects which it is intended to secure. The meaning of words chosen is to be determined objectively by reference to the text, the context and their purpose. The meaning which will be given to them is that which a reasonable businessperson would have understood them to mean. Preference is given to a construction supplying a congruent operation to the various components of the whole. Where the words chosen are open to more than one construction, the Court will prefer a construction which avoids consequences which are capricious, unreasonable, inconvenient or unjust. See Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [22]; Zhu v Treasurer (NSW) (2004) 218 CLR 530; [2004] HCA 56 at [82]; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [15]; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[51].

46. What does the requirement under cl 23.3(a) to specify reasons entail?

47. In Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 244 CLR 305; [2011] HCA 38 (“Firedam”), the High Court was concerned with an expert determination made under the terms of a building contract. The contract provided for an expert to determine, in binding fashion, issues in dispute, including the grant or refusal of extensions of time. The relevant clause required the expert to issue a certificate stating the expert’s determination and “giving reasons”. At [26]-[27], French CJ, Crennan and Kiefel JJ said (citations omitted):

26   …The content of the requirement to give reasons must reflect the nature of the expert determination process, which is neither arbitral nor judicial. It must also be informed by the nature of the issues to be determined. Judicial observations in other cases about contractual requirements to give reasons in expert determinations or in arbitrations must be read according to their context. It may be accepted, as a general proposition, that a mistake in the reasons given for an expert determination does not necessarily deprive them of the character of reasons as required by the relevant contract nor deprive the determination of its binding force. There are mistakes which may have that effect and others that will not.

27   A deficiency or error in the reasons given by an expert may affect the validity of the determination in two ways:

1.    The deficiency or error may disclose that the expert has not made a determination in accordance with the contract and that the purported determination is therefore not binding.

2.    The deficiency or error may be such that the purported be the case that the provision of reasons is a necessary condition of the binding operation of the determination, the deficiency or error will have the result that the determination is not binding.

…

48. At [39], Gummow and Bell JJ said (citations omitted):

39   Two provisions of cl 4 require immediate comment. First, the certificate must state the determination and give “reasons”. Secondly, the Expert “acts as an Expert and not as an arbitrator”. The character and quality of the “reasons” in any particular instance may be expected to respond to the nature of the issues before the Expert for determination. Decided cases in which there is consideration by a court of alleged failure in performance of an express or implied requirement for the giving of reasons by a valuer of land or shares, or by an appraiser on a rent review, will not readily assist in dealing with provisions of a contract for building public works. In many instances, as in the present case, the issues before the Expert may require consideration of many and detailed claims of a factual and evaluative nature.

49. The approach to be taken to evaluating the requirement under cl 23.3(a) to give reasons is the same which the High Court took in Firedam.

50. The sub-clause is to be considered in the context of cl 23.3 and the Partnership Agreement as a whole, and with the objects it intends to secure clearly in mind. The character and quality of reasons for the purposes of cl 23.3(a) must respond to the nature of the issue to which it relates and the consequences which giving them (or not giving them, as the case may be) may bring.

51. No doubt, the overall object which cl 23 seeks to secure is the protection of the partnership, by providing a mechanism to force the retirement of a partner who has transgressed (and who, by implication, is therefore not considered fit to continue in that role).

52. Within that context, however, the clause imposes strict limits on the circumstances in which the power may be exercised, and it stipulates a procedure that must be followed before the power is exercised, including a requirement that Management specify its reasons for making the Recommendation.

53. The submissions of both sides seemed to emphasise the role of reasons as being to facilitate an opportunity on the part of the partner, who might lose valuable economic and proprietary rights, to be heard, before the power is exercised. No doubt, that is part of the object which specifying reasons intends to secure.

54. An equally important function of the reasons is, however, to enable the Board of Partners justly and faithfully, and in utmost good faith, to make a determination. It should be borne in mind that a determination that a partner be required to retire, affects not only the partner, but the partnership. It would not be in the interests of the partnership to require a partner, who might be a valuable contributor, to retire where the merits do not justify it. A function of the reasons is to put the Board of Partners in a position properly to evaluate the matter.

55. Clause 23 has four components:

1. clause 23.1, which confers the power to require retirement;

2. clause 23.2, which puts a brake on the exercise of the power by limiting it to where the Partner has committed a material breach of the Partnership Agreement, has acted in a manner which is materially inconsistent with the standard of conduct expected of a Partner, or has acted in a manner which may damage the reputation of the Firm;

3. clause 23.3, which imposes the procedure that must be followed if the power is to be exercised; and

4. clause 23.4, which dictates the effect that the exercise of the power has.

56. As a matter of text, cl 23.3(a) uses the word “specify” rather than the word “give”, and it uses “reasons”, not “grounds”. [2] The Macquarie Dictionary defines “specify” as “to mention or name specifically or definitely; state in detail”. [3] By contrast, the Macquarie Dictionary defines “give” as “to deliver freely; bestow; hand over”. [4] In its ordinary English meaning, “specify” imports clarity and precision. A requirement to specify reasons is stricter than a requirement merely to give them. [5]

    2. In a statutory context and therefore of limited assistance, the word “grounds” has sometimes been viewed as a narrower one than “reasons”: see, eg, Algoni Pty Ltd v Secretary, Department of Industrial Relations (1985) 3 NSWLR 515 at 525ff.

    3. Macquarie Dictionary, 8th ed (2020); see also Andersen v Umbakumba Community Council (1994) 126 ALR 121 at 125 per von Doussa J quoting the Oxford English Dictionary, meaning 2.

    4. Macquarie Dictionary, 8th ed (2020). The clause in Firedam required the expert to “give” reasons.

    5. Also in a statutory context but consistent with this, see Harofam Pty Ltd v Scherman (2013) 42 VR 372; [2013] VSCA 104 at [10]-[14]; Vanstone v Clark (2005) 147 FCR 299; [2005] FCAFC 189 at [13]; Tickner v Chapman (1995) 57 FCR 451 at 480.

57. In evaluating what cl 23.3(a) requires by way of reasons, it seems to me that the following factors are pertinent:

1. a determination of the Board of Partners to require retirement is final and binding. There is no appeal or second chance. There is no requirement for the Board of Partners to give reasons;

2. the determination may involve loss by the partner of valuable economic and proprietary rights or loss by the partnership of a valuable partner;

3. the opportunity of the partner to make submissions is only “in respect of the Recommendation”. It does not extend any further. It follows that the Recommendation, together with any submissions, is the only basis upon which the Board of Partners makes a determination;

4. whereas cl 23.3(a) requires only that Management form a view (having regard to the matters specified in cl 23.2) that a partner should be required to retire, cl 23.2 (read with cll 23.3(d) and 23.4) requires the Board of Partners to determine that the partner “has” committed a material breach of the Partnership Agreement or “has” acted in one or both of the ways specified in cl 23.2(b). This imposes a stricter requirement than one simply to form a view;

5. there is imposed on all partners, including Management and the Board of Partners, a duty to be just and faithful and to act, in all matters, in utmost good faith. Each member of Management and the Board of Partners owes these duties both to the partner, and to one another;

6. the procedural requirements in cl 23.3 are for the benefit and protection of both the partner who might be forced to retire and the partnership as a whole.

58. In my view, having regard to the text and these factors, whilst perfection may not be required, to secure the objects of cl 23 and facilitate the congruent operation of its constituent parts and the Partnership Agreement as a whole (including cll 32.2(a) and (f)), the reasons specified under cl 23.3(a) must enable:

1. the partner to have a just, that is, an adequate and fair, opportunity to address the complaint; and

2. the Board of Partners acting in reliance on them, justly, faithfully and in good faith to make a determination that the partner:

1. has committed a material breach of the Partnership Agreement, has acted in a manner which is materially inconsistent with the standard of conduct expected of a Partner, or has acted in a manner which may damage the reputation of the Firm; and

2. should be required to retire.

59. This entails at least identifying the basal facts constituting the conduct of the partner upon which Management’s view is based (that is, what the partner did or did not do), sufficient to allow the partner fairly to traverse them and to enable the Board of Partners, acting justly, faithfully and in good faith, to make a determination that the partner be required to retire.

60. I think it also entails exposure of the actual path of reasoning by which Management has arrived at its view that the conduct identified meets one or more of the thresholds in cl 23.2 and why it holds the view that the circumstances warrant that the partner should be required to retire.

61. Initially, PwC put that if the Recommendation is inadequate, the subsequent correspondence with Gregg can be read as supplementing it. This contention was correctly abandoned. The correspondence was written on behalf of PwC, meaning the partnership (which still includes Gregg). The other participants (not Gregg) in the process provided for in cl 23 are Management and the Board of Partners. The PwC correspondence was written on behalf of neither. Besides, the Recommendation will, under the terms of the Partnership Agreement, stand or fall on its own merits. This follows, amongst others, from the fact that the time limits in cl 23.3(c)-(d) run without regard to subsequent correspondence.

62. PwC submitted that if the partner regards the reasons as inadequately specified, it is a matter that she or he can take up in their own submissions to the Board of Partners.

63. I reject this submission. The adequacy of the reasons is not to be measured against the possibility that the partner has the opportunity to point out deficiencies.

64. PwC also submitted that the adequacy of the reasons should be viewed in light of the partner’s own knowledge of the facts surrounding matters or circumstances identified in the reasons.

65. I also reject this submission. To accept it would be inimical to the requirement under the Partnership Agreement that reasons be specified. In addition, it cannot be assumed that Management or, more importantly, the Board of Partners, will know what the partner knows so as to enable the Board of Partners justly, and in utmost good faith, to make a determination.

66. The Recommendation does not identify, or sufficiently identify, the basal facts constituting the conduct of Gregg upon which Management’s view is based. For this reason alone, it fails to meet the requirements of cl 23.3(a).

67. Additionally, it fails to expose the actual path of reasoning by which Management has arrived at its view that:

1. the conduct identified meets one or more of the thresholds in cl 23.2; or

2. how it has arrived at its view that the outcome should be that Gregg should be required to retire.

68. For the convenience of the reader, passages in the Recommendation are reproduced below.

69. Paragraphs 2, 8 and 9 of the Recommendation are, as I read them, intended to encapsulate the complaint against Gregg.

70. Paragraph 2 reads:

2.    The Partner has been a partner of the Firm since 1 July 2013 and was the leader of the Firm’s R&D tax incentive group from 1 July 2016.

71. Paragraphs 8 and 9 read:

Conduct

8.    On a number of engagements between 2015 and 2017 and in relation to the R&D practice as a whole at the time, the Partner:

a.   failed to adequately discharge his leadership role and/or professional responsibilities;

b.   failed to draw to the attention of Firm leadership the manner in which engagements were being undertaken so that there could be an appropriate review undertaken and steps taken to prevent any ongoing conduct occurring; and

c.    acted in a manner which damaged the Firm’s reputation with the ATO and created issues to the detriment of clients.

9.    In failing to discharge his responsibilities, the Partner in the roles set out in paragraph 2 above has acted in a manner that is materially inconsistent with the standard of conduct expected of a partner of the Firm with those roles and/or which has resulted in substantial and ongoing damage to the reputation of the Firm.

72. Paragraphs 3 and 4 read:

3.    There have been occasions where the Partner has failed to discharge his supervisory functions in relation to matters ([redacted] for FY16 and FY17) which resulted in a $100,000 R&Q penalty being imposed in FY21. There was also a dispute with one of the clients [redacted] for which the Partner was responsible seeking recovery of fees amounting to $130,000.

4.    On 23 April 2023, the firm received a letter of claim from solicitors acting for [redacted]. The letter contained a number of allegations relating to the services provided by the firm for the 2018 R&D tax incentive claim which are alleged to have caused losses of approximately $7.9 million. The Partner signed the Management Letter for the 2018 R&D tax incentive claim.

73. The reference in par 8(a) to a failure “to adequately discharge his leadership role and/or professional responsibilities”, appears to refer back to par 2 (which refers to Gregg being a partner from 1 July 2013 and leader of the Firm’s R&D tax incentive group from 1 July 2016) and to pars 3 and 4.

74. It will be observed that:

1. the chapeau to par 8 refers to a number of engagements between 2015 and 2017, but pars 3 and 4 refer only to FY16 and FY17, with the R&Q penalty being imposed in FY21. What engagements (if any) pertain to 2015 are not identified; [6]

2. paragraph 8(a) refers to Gregg’s leadership role and/or professional responsibilities without attributing any content to either;

3. paragraph 8(b) refers to engagements being undertaken without identifying them. It refers to an appropriate review without describing the nature of the review concerned. It refers to ongoing conduct without describing it;

4. paragraph 8(c) refers to Gregg having acted in a manner which damaged the Firm’s reputation with the ATO without identifying what he is said to have done which might have damaged that reputation. I have significant reservations about the notion that anyone can have a “reputation with the ATO” in any event. Additionally, it refers to Gregg having acted in a manner which created issues to the detriment of clients without either identifying the issues or the detriment.

5. the link, if any, between pars 3 and 4 and pars 8(b) and (c) is not made clear.

   6. The reason for the apparent discrepancy between the reference to an R&Q penalty of $100,000 in par 3 and the penalty of $80,116 referred to in the evidence was not elucidated.

75. Paragraph 3 refers to occasions where Gregg failed to discharge his supervisory functions in relation to matters (presumably only those within the parentheses). This is translated in par 8(a) into a failure to discharge his leadership role and/or his professional responsibilities. The nature and extent of Gregg’s supervisory functions, leadership role and professional responsibilities are not identified with respect to any particular matter, or at all. Neither the occasions upon which he is said to have failed nor the way in which he is said to have failed is identified.

76. Paragraph 3 refers to a dispute with a client (for which Gregg was responsible) seeking recovery of fees amounting to $130,000. The dispute is not described. No act or omission by Gregg pertinent to the dispute is identified. It is not said that any complaint was justified or that the fees were recoverable by the client or why.

77. Paragraph 4 refers to the Firm having received a letter of claim making a number of allegations. The allegations are not described. No act or omission by Gregg pertinent to the allegations is identified. It is not said that any allegation (whatever it may have been) was justified. The reference to Gregg having signed the Management letter provides no clue as to what the allegation is, if any, against him.

78. Paragraphs 3 and 4 thus do not identify the basal facts constituting the conduct in which Gregg is said to have engaged.

79. Paragraphs 5, 6 and 7 read:

ATO concerns

5.    A number of notices have been issued by the Australian Taxation Office (‘ATO’) in relation to the matters referred to in paragraphs 3 and 4 and the ATO’s investigation in relation to them is ongoing.

6.    On 5 June 2020, the ATO wrote to the Firm to conclude its Promoter Risk Review in relation to the introduction of the Multinational Anti-avoidance Law. That letter noted the ATO had observed “behaviours of concern” that fell below the standard expected of a major advisory firm and which the ATO sought to bring to the Firm’s attention. The ATO remarked that “it seems that PwC was primarily concerned with expanding its market share and winning new clients”. The letter also made clear that the Firm had broader responsibilities within the tax system.

7.    Following the determination by the Tax Practitioners Board (“TPB”), the ATO has expressed concerns in relation to culture within the tax practice at relevant times. The matters referred to in 3 above are a reflection of the culture that then existed in relation to some of the Firm’s tax services.

80. Paragraph 5 does not identify the notices or their contents.

81. Paragraph 6 does not describe the behaviours of concern. It refers to an ATO remark that PwC was primarily concerned with expanding its market share and winning new clients and made it clear that the Firm had broader responsibilities within the tax system. The paragraph does not identify the nature of the broader responsibilities referred to. More importantly, it does not identify any basal fact constituting conduct on the part of Gregg upon which Management has reached its view.

82. Paragraph 7 refers to the ATO having expressed concerns in relation to culture within the tax practice at relevant times. It does not identify those concerns or say that any of them were justified. No act or omission by Gregg pertinent to the concerns is identified.

83. Paragraphs 5, 6 and 7 thus do not identify the basal facts constituting the conduct in which Gregg is said to have engaged.

84. The consequence of the deficiencies identified above is that the Recommendation does not enable:

1. Gregg to have a just, that is, an adequate and fair, opportunity to address the complaint; or

2. the Board of Partners acting justly, faithfully and in good faith to determine that he:

1. has acted in a manner which is materially inconsistent with the standard of conduct expected of a partner, or has acted in a manner which may damage the reputation of the Firm; and

2. should be required to retire.

85. It follows from the Recommendation’s failure to identify the basal facts, that it does not disclose Management’s path of reasoning by which it reached its view that Gregg has acted in a manner which is materially inconsistent with the standard of conduct expected of a partner, or has acted in a manner which may damage the reputation of the Firm.

86. The Recommendation does not disclose any path of reasoning by which Management reached its view that the outcome should be that Gregg should be required to retire. In this context, and specifically, the Recommendation does not (amongst other things) disclose any path of reasoning which led to its view that the R&Q penalty affair, which was finalised by the imposition on Gregg of a financial penalty, has any part to play in its conclusion or what part.

CONCLUSION

87. The Recommendation does not comply with the requirement in cl 23.3(a) that Management specify reasons for forming its view and making the Recommendation. Gregg is accordingly entitled to declaratory relief.

87. Within seven days, the parties are to bring in Short Minutes of Order articulating the terms of the declaration. If they are unable to agree on those terms, the Court will settle them.

88. I provisionally order that the defendants are to pay the plaintiff’s costs. This order will solidify unless, within seven days, either party, in writing, notifies the other and my Associate that some other order is sought and provides a brief statement of the grounds. If such notice is given, this order will not take effect, and I will give directions for the determination of costs.

89. The exhibits are to be returned.

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Endnotes

Decision last updated: 11 August 2023