Nicita v Ernst & Young [2025] ACTSC 478

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title: Nicita v Ernst & Young Citation: [2025] ACTSC 478 Hearing Dates: 15 – 16 October 2025 Decision Date: 24 October 2025 Before: Mossop J Decision: (1) The proceedings are dismissed. (2) The plaintiff is to pay the defendant’s costs. (3) Liberty is granted to either party to seek an alternative order in relation to costs by filing and serving written submissions limited to not more than three pages and any evidence in relation to costs within seven days of the date of this judgment. Catchwords: PARTNERSHIP – BREACH OF PARTNERSHIP AGREEMENT – Termination for just cause – where plaintiff charged with common assault arising from his conduct towards a bar manager (caught on CCTV) – where plaintiff had already been given “first and final warning” due to comments made at Miami Vice-themed Christmas party – where question of “just cause” to be determined under partnership agreement by the sole opinion of managing partner – where, if managing partner finds just cause, termination is at managing partner’s absolute discretion – whether termination decision reasonably open to managing partner and made in good faith – whether termination power enlivened by plaintiff’s private conduct – where decision separately affirmed by internal appeal – termination within power given by partnership agreement – proceedings dismissed Legislation Cited: Crimes (Sentencing Procedure) Act 1999 (NSW), s 10 Partnership Act 1963 (ACT), s 5(1) Taxation Administration Act 1953 (Cth) Cases Cited: Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 Bartlett v Australia & New Zealand Banking Group Ltd [2016] NSWCA 30; 92 NSWLR 639 Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 Cameron v Murdoch (1986) 60 ALJR 280 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Johnson v Snaddon [2001] VSCA 91 Lewis v Estate of Juan Martinez [2025] NSWCA 2 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104 Pooley v Driver (1876) 5 Ch D 458 Watson v George (1953) 89 CLR 409 Parties: Leonard Joseph Nicita (Plaintiff) Ernst & Young (Defendant) Representation: Counsel D Mahendra (Plaintiff) R Yezerski SC with P Bindon (Defendant) Solicitors People + Culture Strategies (Plaintiff) Kingston Reid (Defendant) File Number: SC 264 of 2024 MOSSOP J: Introduction

1. The plaintiff, Leonard Nicita, was a partner in a firm known as Ernst & Young (EY). His interest in the partnership was terminated as a result of a decision made by the Country Managing Partner of EY, David Larocca, on 6 November 2023. Mr Larocca’s decision was subsequently confirmed on 11 December 2023 by an appeals committee provided for by the relevant partnership agreement (the Appeals Committee).

2. The plaintiff has brought proceedings claiming that the decision of Mr Larocca involved breaches of the partnership agreement and has sought damages for those breaches.

3. The plaintiff argued that the power in the partnership agreement to terminate a partnership interest for “Just Cause” was not enlivened because the incident giving rise to the termination did not involve conduct as a partner of the firm but instead occurred in his private life and because, at the time of the termination, he had given notice of his retirement from the partnership. The plaintiff also argued that the decision to terminate his interest in the partnership was not made reasonably or in good faith because an alternative course available to Mr Larocca was to put the plaintiff on “garden leave”, something which was provided for by the partnership agreement and would have resulted in him being paid during a period of notice.

4. For the reasons that follow, neither of these arguments demonstrates any breach of the partnership agreement and, as a consequence, the plaintiff’s claim fails. The claim is therefore dismissed.

Facts

The plaintiff and EY

5. The plaintiff’s partnership with EY relevantly began in November 2021, when he joined the firm as a senior partner in the Transaction Tax team (with a formal commencement date of 1 December 2021). That Transaction Tax team was within the International Tax and Transaction Services Group.

6. At the time of joining the firm, the plaintiff signed a “Joining Deed” whereby he acceded to, ratified, and agreed to be bound by an earlier form of the partnership agreement, which included the first schedule to that agreement (the Regulations). The Regulations included clause 18.2 in its current form.

7. When the plaintiff joined the partnership of EY in November 2021, it was the second time he had been a partner of the firm. The plaintiff had earlier been a partner between July 2013 and December 2015.

8. As a partner, the plaintiff was subject to a firm policy entitled “FP 100 Standards of Professional Behaviour” effective from 8 December 2021 and a firm policy entitled “FP 107 Workplace Behaviour” effective from 16 February 2022.

The May 2022 incident

9. In May 2022, there was a Christmas party for the EY tax practice. This had been deferred from 2021 as a result of the COVID-19 pandemic. The Christmas party had a “Miami Vice” dress-up theme. At that party, the plaintiff had an interaction with another partner of the firm (Person A) which gave rise to a complaint to management. That complaint was subsequently described by Mr Larocca in the following terms: The specific complaint made was that at a Sydney Tax function on Friday 20 May you made comments to the complainant to the effect that you thought she was beautiful, you wanted to sleep with her and, when the complainant said she was married, you noted that most of your affairs are with married women.

10. In his evidence to the court, the plaintiff denied that he had said that he wanted to sleep with Person A, but did say that he had complimented her on her fancy dress, suggested they should go out to dinner and, when she had said that she was married, asked her whether she was happily married. When she told him that she was, he said “ah yeah, but you will be surprised since being single that I have probably been with more married women than other single women”.

The consequences of the May 2022 incident

11. About two weeks later, the plaintiff was contacted by the Head of Human Resources at EY and notified of the complaint. He said that he “was totally shocked and relayed [to her] my recollection of what occurred, believing it to be innocuous”. The Head of Human Resources told him that there was no need for any further investigation.

12. On 3 June 2022, he received a call from Mr Larocca. There was a dispute about the tone and content of that telephone call. It is unnecessary to make findings about the precise tone or specific words used. However, Mr Larocca made a contemporaneous note which recorded that he had told the plaintiff that he was “very disappointed with his behaviour” and that it was “completely unacceptable from anybody, let alon[e] a partner, let alone a senior partner, let alone a senior partner [who] has just re-joined the Firm”. He identified the various sanctions that would be imposed. The plaintiff indicated that he completely understood and assured Mr Larocca that it would not happen again. Mr Larocca said that, if it did, the plaintiff “won’t be here”. The plaintiff said that he was keen to apologise to Person A.

13. The same day, the plaintiff was sent an internal memorandum which recorded in summary form the circumstances giving rise to the complaint in the manner referred to above at [9]. The memorandum indicated that the complainant was reasonably offended and embarrassed by the plaintiff’s comments and said that the behaviour constituted a breach of the “Workplace Behaviour Policy, EY Values, and EY Code of Conduct” and was inconsistent with the plaintiff’s leadership position within the firm. It indicated that the following consequences would follow: - You will apologise to the complainant in a manner acceptable to her. - A financial sanction of 4% of income ($52,000) will be applied to your FY22 income. - This memorandum serves as a first and final warning against further instances of inappropriate behaviour which may result in more significant sanctions, including termination. - You confirm to me that you have attended (or are scheduled to attend) our Partner Bystander Intervention Training.

14. Although the plaintiff did not agree in his evidence that he had said some of the words attributed to him in the summary reproduced above at [9], he never communicated that disagreement to Mr Larocca and, as a consequence, it was reasonable for Mr Larocca to proceed subsequently on the basis that the plaintiff had admitted that conduct.

Ongoing work at the firm

15. In June 2023, a number of partners resigned from EY to go to another business. This led to the plaintiff’s workload increasing because of the need to assist with the work that would otherwise have been undertaken by those partners. He perceived that he was not receiving appropriate assistance from other partners who were trying to “grab” clients rather than helping and taking on work. He spoke to Scott Grimley, Tax and Law Leader of EY Oceania, and said that he was considering resigning and would take the weekend to think about it. That led to Mr Grimley seeking to persuade him to stay. At the end of June 2023, three more partners from the Transaction Tax team resigned to go to another business. That meant that seven of the 17 mergers and acquisition tax partners had departed the firm within three weeks. In July 2023, steps were taken within EY to address the consequences of the departures of those partners.

16. On 6 July 2023, the plaintiff had a meeting with Mr Larocca at which his remuneration for the 2023 financial year was set at $1.35 million, with a bonus of $50,000. There was discussion of a remuneration trajectory to $2 million by 2026. The 4 August 2023 incident

17. On the evening of 4 August 2023, the plaintiff had attended a fundraising function for the Sydney University Rugby Club. The plaintiff had purchased a table for 10. He invited some clients and EY staff members. While the event started at midday, the plaintiff only arrived between 2:30pm and 3pm. At about 5pm, four EY staff members who had attended the event left to continue drinking somewhere else. At about 7pm, the plaintiff and his girlfriend (and a friend of hers) went to meet up with the EY staff members at Dean & Nancy bar. They stayed there with the staff members until 9pm, when the four staff members indicated that they were going to go to one of their houses to have further drinks. His girlfriend’s friend also left. Between 10pm and 10:30pm, the plaintiff paid the bill. That bill was $2,380.79 and the plaintiff added a tip of $250. The amount of $2,380.79 eventually ended up being claimed as an expense from EY.

18. Having paid the bill, the plaintiff discovered that his jacket was missing. The jacket contained his keys, which he needed to get into his apartment. There was, however, a jacket left behind which had a name tag on it that indicated that it belonged to one of the EY staff members, Person B. The plaintiff called Person B and another EY staff member to ask if they had accidentally taken the wrong jacket. When the plaintiff spoke to Person B, Person B was adamant that he had not taken the plaintiff’s jacket, but he sounded intoxicated. The plaintiff asked the bar staff whether a jacket had been handed in. They checked and advised there had not. He then asked whether he could check the CCTV footage to see whether someone had stolen his jacket. The bar staff checked with the bar manager and returned saying that the bar manager was refusing to check the cameras. The plaintiff then asked to speak to the bar manager. There was a discussion between the plaintiff and the bar manager. This was captured on CCTV. The CCTV footage was without sound, but the plaintiff’s evidence, which was uncontradicted, was that the bar manager had said “you guys in your expensive suits and sluts in short skirts think you own the place, but you don’t”. The CCTV footage shows the plaintiff pushing the bar manager with his hand and then moving forward and bumping him with his chest. The bar manager made a comment to him about the incident having been caught on CCTV and pointed to the location of the CCTV camera. The bar manager called police, who attended. The plaintiff was charged with common assault. The police were shown the CCTV footage, including the CCTV footage which showed that, in fact, Person B had taken the plaintiff’s jacket.

The plaintiff does not accept the remuneration letter

20. On 31 August 2023, the plaintiff received a letter concerning his remuneration. That reflected the figures that had been discussed earlier. The plaintiff responded by email saying that he was happy with the letter and would sign it once he was back in the office. However, after the plaintiff learnt that a particular person whom he had suggested for recruitment would not be recruited, the plaintiff sent an email indicating that he was not going to sign the 31 August 2023 letter. He felt that the particular performance rating which he was required to achieve under the terms set out in that letter was not achievable without the support of that recruit.

The response to the 4 August 2023 incident

21. The plaintiff did not inform Mr Larocca about the incident on 4 August 2023 or the criminal charge, but Mr Larocca learned of it in around September 2023. Senior EY personnel, Scott Grimley (Tax and Law Leader) and McGregor Dixon (Director, Executive Office and Partner Matters), inquired into the incident, including in a Teams meeting with the plaintiff on 18 October 2023. The plaintiff explained the circumstances of the incident. It was suggested to him that he might need to disclose the matter to the NSW Law Society because he held a practising certificate.

22. On 2 November 2023, Mr Larocca and Mr Grimley held a meeting via Teams with the plaintiff to ascertain his full version of events relating to the bar incident. During that meeting, Mr Larocca used a script (described as a “talk track”) that had been prepared in advance by in-house lawyers for the purposes of the meeting. That script, which Mr Larocca said that he “largely followed”, included the following in relation to the context for the meeting: I understand that you intend to have the proceedings dismissed and have (or will be) taking steps in this respect. I am obviously very concerned about the impact of this charge on you both personally and professionally. However, given that EY Partners and Staff are aware of the charge, we are concerned that the charge will soon receive media attention and EY will be contacted by the media for a statement and/or our clients will ask questions. Amongst other things, the Senate is sitting at the end of next week, so if the charge receives media attention, I may also be asked questions by the Senate in relation to the charge and your role as a partner of the Firm. So that’s the public brand context.

23. During that meeting, the plaintiff described the incident on a number of occasions as being “innocuous”. He was keen to provide Mr Larocca with a link to the CCTV footage, which Mr Larocca then viewed during the course of the meeting. The plaintiff was attempting “to demonstrate that it was merely a push in mitigating circumstances”. However, Mr Larocca was initially confused because, although the plaintiff had said he did nothing wrong, what Mr Larocca saw in the CCTV footage indicated to Mr Larocca that the behaviour was unacceptable. The plaintiff had not made a disclosure to the NSW Law Society by the time of that meeting.

The plaintiff following the meeting

24. Following the meeting, the plaintiff thought that Mr Larocca and Mr Grimley were “searching for excuses to berate and bully [him]”. In his affidavit, he said: I became upset from this treatment. After working past midnight almost every day for four months without a break and with no support from leadership, who had not only now dismissed the whole strategy I had initially outlined, but had taken active steps to actually thwart it, my feelings were compounded. I was confused as to why David suddenly appeared to hate me so much after all I had sacrificed for the Firm. Without a strategy to hire new Partners and with the majority of staff already having left the Firm, I could not see any light at the end of the tunnel for at least 12 months. I recall helping my daughter that evening with her Maths study for her Year 10 exams and felt happiness for the first time in weeks and realised that my physical and mental health would not survive if I continued working at the Firm under these conditions and with the toxic culture created by David’s leadership. I [called] both Reid and Daryn to relay what had happened and that I felt I needed to resign. Mr Larocca following the meeting

25. On the evening of 2 November 2023, Mr Larocca spoke to Mr Grimley about the matter and reflected on what action should be taken. He reached the view that the appropriate outcome was to terminate the plaintiff’s membership interest in the partnership for “Just Cause”. At 9:25pm that evening, he sent an email to Mr Grimley, Mr Dixon, Daryn Moore and staff of EY’s General Counsel Office setting out his thinking on the issue. That was in the following terms: Hi all Scott and I spoke earlier this evening. I am landing on Len being terminated for just cause, for the following reasons: • Context: Len is on a first and final warning (June 2022) where he gave me a [very] strong assurance that I will never hear from him again on behavioural matters. This was a behavioural matter, in a bar involving senior EY staff. Len admitted it occurred in full. • The nature of the incident at the bar. Having viewed the footage (Len provided it to Scott and I on the call), I have concluded that: o this is not what is expected of a partner (let alone a senior partner or one on a first & final warning). o adding to this is that Len was very keen to provide it to me so that (I assume) I could conclude that this wasn’t an issue I needed to be concerned about. It did the opposite. This tells me Len doesn’t understand what is expected of a Partner at EY, let alone the fact he is on a first and final warning and his assurances (above) to me o according to him, there were clients present and (I think at the time) staff also present. Staff look to partners for role modelling behaviour. Clients look to our partners to portray the EY brand. A clear situation of brand damage to EY, particularly post our Culture Review where expectations are very clear. o Importantly, I am not making a judgment on whether this is ‘assault’ or not. That is a matter for the police. • The fact he has not at any stage reported the police charge to me. He has an obligation under the Partners Agreement to disclose to me any circumstance that may affect his position as a partner of the firm. Over and above this, I expect a partner – particularly one on a first and final warning – to know he must report this, and to action it. • The fact he has yet to notify the Law Society, knowing he must do this within 7 days (which he also knows has expired). Further, he didn’t demonstrate any particular concern with this issue. • Other matters – that I acknowledge I probably can’t go back to Len specifically on, but am comfortable I can go back ‘generally’ given the sufficient evidence that has come forward: o The matter relating to the jacket, including the dollars/[redacted] situation. Len had ample opportunity to tell me about this and he failed to [do] this. o The EY law partners coming forward below. o The fact the police charge is in the market and highly likely to emerge publicly. Given Len’s failure to notify me, notify the Law Society and his characterisation of what happened this elevates the potential brand damage to the Firm. Unless anyone has a different view and/or Jodie/Genevieve advise I do not have a legal basis based on the above, I propose we move down this path and do so quickly. I have asked Mac to flag with Claire Cardno as EOG Chair my directional recommendation. Regards David

The plaintiff’s membership interest is terminated for “Just Cause”

28. On 3 November 2023 at 1:18pm, Mr Larocca replied to the plaintiff’s email seeking a time to discuss it later that day and indicating that the email was not to be taken as EY’s acceptance of the plaintiff’s retirement. At the plaintiff’s request, the meeting did not ultimately occur that day and was scheduled for 6 November 2023.

29. On 6 November 2023 at 11am, Mr Larocca met with the plaintiff and conveyed his decision to terminate the plaintiff’s membership interest for “Just Cause” with immediate effect. Once again, Mr Larocca followed a script prepared by in-house lawyers. Following the meeting, Mr Larocca emailed the plaintiff a termination letter confirming his decision in writing. That letter referred to the conversation on 18 October 2023, the conversation on 2 November 2023 and the conversation earlier on 6 November 2023. The letter continued: As discussed, I have considered the information that you provided in the October Meeting and the November Meeting and … make the following comments: 1. In failing to disclose the criminal charge to me on or around the time that the charge was laid, you failed to comply with your obligations under Regulation 8.4.7 of the Partnership Agreement. 2. You have not disclosed the charge to the Council of the Law Society which you are required to do as a holder of a practising certificate in accordance with section 51 of the Legal Profession Uniform Law (NSW). This disclosure failure is also inconsistent with your obligations under section 4 of FP 100 Standards of Professional Behaviour policy. 3. In the November Meeting, you provided me with a copy of the CCTV footage showing the Alleged Conduct. From my review of the CCTV footage, I have concluded that the CCTV footage showed behaviour that is inappropriate for a partner of the Firm and inconsistent with EY’s Global Code of Conduct. 4. In acting inconsistently with EY’s Global Code of Conduct, you have breached Regulation 8.4.4 of the Partnership Agreement. 5. I have become aware that you have also shared the CCTV footage showing the Alleged Conduct with a number of EY partners and staff. Additionally, as you would be aware, this all follows a first and final warning that was communicated to you on 3 June 2022, in respect of a complaint alleging inappropriate behaviour made by another partner of the firm, which you admitted to in full.

30. The letter identified that the plaintiff had an obligation to comply with clauses 8.2, 8.3, 8.4 and 8.4.7 of the Regulations. It continued: I consider that the comments set out above, taken as a whole, amount to a breach of EY’s policies and your obligations under the Partnership Agreement. Whilst you tendered your resignation to me on 3 November 2023, that resignation was not accepted. I am terminating your membership interest in the Firm by reason of “Just Cause”, effective immediately, in accordance with Regulation 18.2 of the Regulations to the Partnership Agreement. The Appeals Committee

31. On 17 November 2023, the plaintiff exercised his appeal rights under clause 18.4.2 of the Regulations. The letter from the plaintiff’s solicitor invoking the powers of the Appeals Committee raised a number of submissions, including that: (a) there was no power to terminate once notice had been given of a partner’s voluntary retirement and no power to reject a notice of voluntary retirement; (b) the plaintiff was protected because he was a protected whistleblower under the Taxation Administration Act 1953 (Cth); (c) the power to terminate had not been exercised by the Country Managing Partner in good faith; and (d) the construction of clause 18.2 was incorrect and the types of misconduct relied on by Mr Larocca were not sufficient to give rise to an absolute discretion to terminate where the firm had suffered no damage and it was not clear that the firm would suffer any damage in the future.

The partnership agreement

40. The EY Firm Partners’ Agreement Australia, effective from 1 July 2020, is a relatively short document which picks up and makes binding upon partners its terms as well as longer documents described as the “Regulations”, the “Supplementary Agreement”, the “Joining Deed” and potentially other documents. Clause 3.12 indicates that the partnership agreement is subject to and governed by the laws of the Australian Capital Territory.

41. For present purposes, it is only necessary to have regard to the terms of the Regulations. The relevant clauses of those regulations are as follows.

42. Clause 1.1, the definition section, provides a definition of “Just Cause” which is significant because it is picked up in clause 18.2, the power to terminate the membership interest of a partner in the firm. It also includes a definition of “Requirements of Law” which informs the content of one of the obligations placed upon partners by clause 8.4. Relevantly, clause 1.1 provides: “Just Cause” means: (i) any breach of these Regulations; or (ii) any act of, or omission by, or occurrence in relation to, or a series of such acts of, omissions by or occurrences in relation to the relevant Partner, which is, in the sole opinion of the Country Managing Partner, of such a nature that the relevant Partner’s continuance as a Partner is likely to harm significantly the interests of the Firm or any Associated Entity; … “Requirements of Law” means, in relation to any Person, any law or regulation (including any professional regulation whether or not having the force of law), or any order or determination of any arbitrator or a court or other Governmental Authority, in each case, which is binding upon such Person or any of its property or to which such Person, or any of its property, is subject in accordance with established principles of international law;

43. What is notable about the definition of “Just Cause” is that it contains two components. The first component is a factual one, namely whether things within (i) or (ii) have occurred. It was accepted by the defendant that the factual question was not simply determined by the opinion of the Country Managing Partner: see, in an employment context, Bartlett v Australia & New Zealand Banking Group Ltd [2016] NSWCA 30; 92 NSWLR 639 at [31]. The second component is one of characterisation. That characterisation exercise is given to the “sole opinion” of the Country Managing Partner. While the existence of the factual matters in (i) or (ii) is a question of fact and not the opinion of the Country Managing Partner, once that factual matter is established, the characterisation exercise is one for the “sole opinion” of that person. The plaintiff submitted that the “sole opinion” must be formed on a basis which is not manifestly unreasonable (by analogy to Wednesbury unreasonableness: see Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223). The defendant described the “sole opinion” as reposing “absolute authority” in the Country Managing Partner, although accepted that the opinion had to be reached in good faith as required by clause 28.

Plaintiff’s arguments

53. The plaintiff did not advance all of the contentions that were outlined in the Amended Statement of Claim. In particular, the contention identified in the Amended Statement of Claim that amendments to the Regulations made in 2013 (which changed the termination provisions, including the definition of “Just Cause”) were not validly made was not pressed.

54. As identified in the plaintiff’s opening, the two arguments that were pressed were as follows: Firstly, this clause is clearly directed at Mr Nicita’s conduct as a partner. Not what he does in his social life. Not what he does in his private life. Secondly, even if this clause could potentially apply to conduct that Mr Nicita engaged in at the bar Dean & Nancy’s in Sydney, in circumstances where he had already resigned or given notice of his retirement from the partnership, the country managing partner could not, on any reasonable view of the world, have formed an opinion, a reasonable opinion, that Mr Nicita’s continuance as a partner is likely to harm significantly the interests of the firm or any associated entity. And the second plank to that is, of course, what I took your Honour to insofar as the good faith, express good faith obligation. And the fact that the partnership agreement itself contains a provision that would have permitted the country managing partner to put Mr [Nicita] on garden leave if for whatever reason he thought Mr Nicita shouldn’t remain at work or performing work pursuant to the partnership agreement. Plaintiff’s first argument

55. This argument appears to have two components: (a) that paragraphs (i) and (ii) of the definition of “Just Cause” could not apply to conduct in the plaintiff’s private life; and (b) that it was not reasonably open to Mr Larocca to conclude that the plaintiff’s conduct was “likely to harm significantly the interests of the Firm”.

56. Neither of these arguments can be accepted.

Private life

57. So far as the submission as to the definition of “Just Cause” and hence the operation of clause 18.2 is concerned, whether or not the provision extends to what could be described as private conduct depends upon the terms of the Regulations interpreted in their context as part of the partnership agreement.

58. There is nothing in the words of the definition of “Just Cause” that limits its operation to conduct in the partner’s work or conduct that might affect the ability of the partner to perform that work. So far as the factual component of the definition is concerned, there is no such limit in (i) (“any breach of these Regulations”) and there is no such limit in (ii) (“any act of, or omission by … the relevant Partner”). Nor is there any limit in clause 8.4.1 (which requires each partner to act in accordance with “Requirements of Law”) that limits this obligation to the partner’s conduct at or directly related to work. Rather, the connection to the business is provided by the characterisation component of the definition.

59. Further, when one examines the overall context in which the definition is situated, there is no proper basis for reading the terms of the definition in a confined way. The purpose of the Regulations is to regulate the operation of a partnership. The partnership agreement and the Regulations reflect the conditions upon which numerous people agree to join together with a view to making a profit. Because the overall purpose of the agreement is to create and advance the interests of a partnership, there is less reason to read its general terms in a restrictive manner. It is certainly not appropriate to read into such express terms of the Regulations the sort of restrictions that might be found in the common law relating to employment contracts which do not contain express provisions extending to conduct outside of employment.

60. That the definition covers private conduct, that is, conduct outside the person’s functions as a partner, is illustrated by an obvious example: a partner who murders her husband. It could not reasonably be contended that the obligation in clause 8.4.1 does not extend to such conduct because it was a murder committed at home and not in her capacity as a partner of EY. It would therefore satisfy the factual prerequisite of paragraph (i) in the definition of “Just Cause”. That would leave it open to the Country Managing Partner to decide whether or not the characterisation of that conduct led to the definition being met. The fact that, on this understanding of the scope of a partner’s obligations, private conduct might also extend to minor offences, such as speeding or illegal parking, does not indicate that the interpretation of the definition so as to cover private conduct is not businesslike and hence an inappropriate one. That is because of the characterisation component of the definition which requires the formation of an opinion in good faith about the significance of that conduct. That characterisation component of the definition is protective of the position of a partner because it is an additional requirement that must be satisfied before “Just Cause” is established and provides the connection with the interests of the firm, that is, the other members of the partnership.

Not reasonably open

61. So far as the second component of the argument is concerned, it was clearly reasonably open to Mr Larocca to conclude that the conduct of the plaintiff meant that the plaintiff’s continuance as a partner was “likely to harm significantly the interests of the Firm”. In that context, “likely” means “a real and not remote chance or possibility”, not “more probable than not”. Any formation of an opinion as to the potential for harm by the Country Managing Partner must be formed in good faith. That obligation probably would preclude a decision which was manifestly unreasonable but, if such a constraint did not arise from the good faith requirement, it would arise from giving the expression “sole opinion” a businesslike operation. In the present case, it was submitted that, on any reasonable view of the world, Mr Larocca could not, as a result of the 4 August 2023 incident, have formed a reasonable opinion that the plaintiff’s continuance as a partner was likely to harm significantly the interests of the firm. Counsel for the plaintiff submitted that this was the case for a variety of reasons, including that: (a) the connection with work was tenuous; (b) the incident was “somewhat innocuous”; (c) the plaintiff was provoked by the bar manager; (d) the plaintiff had already resigned at the time of the termination; (e) neither Mr Larocca nor Mr Grimley, and Mr Larocca in particular, spoke to EY staff or clients who were aware of the incident about what their reaction to it was; (f) there was no evidence that anyone present at Dean & Nancy bar knew that the plaintiff was a partner of EY at the time of the incident; (g) there was no evidence that, as a consequence of the conduct, clients decided they were going to withdraw the work they provided to EY or had threatened to do so; and (h) there were “plenty of other partners in the firm who have had section 10s [being a reference to dealing with a matter without conviction under s 10 of the Crimes (Sentencing Procedure) Act 1999 (NSW)] and it has been of no consequence”.

62. All of these matters could be matters taken into account in the formation of the opinion of the Country Managing Partner. However, considered individually or collectively, they do not demonstrate that the opinion actually formed by Mr Larocca was not formed in good faith or was so unreasonable as to be beyond the scope of the definition of “Just Cause”.

63. On the contrary, in the circumstances, it was reasonably open within the scope of the definition of “Just Cause” to reach the opinion that the plaintiff’s “continuance as a Partner [was] likely to harm significantly the interests of the Firm”. That opinion was a not unreasonable one because of the realistic prospect of damage to the EY brand, and hence the “interests of the Firm”, if a person with the track record that the plaintiff had was to continue as a partner. That track record included the May 2022 misconduct, the incident on 4 August 2023 which led to the plaintiff being charged by police, and failures to disclose the latter incident to the NSW Law Society and to the Country Managing Partner in circumstances which, it was reasonably open to conclude, indicated that the plaintiff did not fully appreciate his obligations under the Regulations. The opinion was also not an unreasonable one because it would be reasonably open to the Country Managing Partner to conclude that EY’s interests would be advanced by only having persons as partners who demonstrated higher standards of conduct in their personal as well as professional lives than demonstrated by the plaintiff. It could not be said to be unreasonable for a person in the position of Mr Larocca to conclude that, for a large firm performing professional services for large corporations and governments, the firm’s interests would be significantly harmed if it had a reputation for overlooking conduct such as that demonstrated by the 4 August 2023 incident on the part of a person who had previously been disciplined for workplace misconduct in the form of the May 2022 incident.

Plaintiff’s second argument

67. This argument challenges the decision to terminate the partnership of the plaintiff. It asserts that the decision was not made in good faith and hence was outside the scope of clause 18.2 because it was contrary to clause 8.2 insofar as that clause required a partner to act “reasonably” and in “good faith”.

68. The argument was that, in circumstances where the plaintiff had given notice of his retirement, allowing the plaintiff to serve out his retirement period or putting him on garden leave during that period would not have significantly harmed the interests of the firm and would have benefited the firm’s revenue and that the summary termination was disproportionate to any potential harm to the firm.

69. This argument cannot be accepted for at least four reasons.

70. First, so far as the framework in which the Country Managing Partner was required to make his decision, the general obligation upon all partners in clause 8.2 of the Regulations must be read in the context of the specific obligation in clause 28. The specific obligation in clause 28 applies when that person is performing the Country Managing Partner’s duties or exercising the Country Managing Partner’s powers under the partnership agreement. The obligation is to act “in what the Country Managing Partner considers the best interests of the Firm, including the interests of all Partners”. If there is any inconsistency between clause 8.2 and clause 28, the specific obligation upon the Country Managing Partner prevails so that the duties and powers are to be exercised in what that person considers to be the best interests of the firm, including the best interests of all partners, as distinct from an individual partner.

71. Second, even if clause 8.2 was the governing provision, there was no lack of reasonableness or good faith in making a determination under clause 18.2, which gives to the Country Managing Partner an “absolute discretion” as to whether to terminate the relevant partner’s membership interest. The fact that the power being exercised was a power to terminate the membership interest of a partner does not, of itself, indicate any breach of the obligation of reasonableness and good faith. It is an express power of termination provided for by the agreement between the partners. It is granted in the context of the partnership being a commercial undertaking. As was explained in Johnson v Snaddon [2001] VSCA 91 at [27] A partnership is a commercial undertaking, the principal object of which is to make profits, and the partners are entitled to pursue that objective robustly provided that they act honestly with each other and do not act in their own interests where to do so conflicts with the interests of the partnership.

72. In addition to the grant in clause 18.2 of the power to terminate, there is nothing in the evidence to suggest that the decision was made for some collateral purpose which would impugn the good faith exercise of the power. To the extent that a qualification of reasonableness (or perhaps more appropriately, the absence of unreasonableness) might be read within the scope of good faith or otherwise qualify the absolute discretion in clause 18.2, on no view could the exercise of power in the present case meet the high threshold that would be involved in such a qualification on the power. The fact that a different person or a person at a different time might have taken into account the various matters referred to by the plaintiff and reached a different conclusion as to whether or not to terminate the plaintiff’s membership interest in the firm says nothing of relevance about the exercise of power by Mr Larocca. There is no doubt that Mr Larocca’s exercise of power was within the scope of his “absolute discretion” having regard to his obligation in clause 28. Even in the absence of clause 28, in the circumstances nothing in clause 8.2 would have prevented Mr Larocca from reaching a decision to terminate the membership interest of the plaintiff pursuant to the express power to do so in his “absolute discretion”. That is because the simple existence of a general clause such as clause 8.2 does not preclude the exercise of specific powers given by the Regulations which may be contrary to the individual interests of one of many partners.

Conclusion

75. Both of the arguments that were advanced by the plaintiff at the hearing have been rejected. The plaintiff’s claim must therefore fail. It is appropriate that costs follow the event.

Orders

76. The orders of the Court are: (1) The proceedings are dismissed. (2) The plaintiff is to pay the defendant’s costs. (3) Liberty is granted to either party to seek an alternative order in relation to costs by filing and serving written submissions limited to not more than three pages and any evidence in relation to costs within seven days of the date of this judgment.

I certify that the preceding seventy-six [76] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop. Associate: Date: