As a result, the audit regulator is expected to publish the agreement statement and the particulars of fact and misconduct later this week.
These were initially going to be released when the FRC announced sanctions against the Big Four firm and audit partner Steve Denison last month, but were put on hold by the court proceedings.
Taveta, which owns several well-known high street stores including Top Shop, Topman and Miss Selfridge, sold BHS for £1 in 2015 to Dominic Chappell and his company, Retail Acquisitions.
The retail chain entered administration and all of its stores closed in 2016, resulting in the loss of 11,000 jobs and a £571m pensions deficit.
The PwC audit in question concerned BHS’ 2014 financial statements. It gave them a clean bill of health just five days before the sale.
PwC was subsequently fined a record £6.5m and Denison agreed to a 15-year ban on working as an auditor and a fine of £350,000. Both admitted to misconduct.
It has since emerged that Denison only spent two hours working on the completion of the BHS audit and backdated his audit opinion.
Taveta was given an advanced copy of the settlement agreement and particulars just four days before the FRC intended to publish the sanctions against PwC and Denison. It then discovered the criticisms of certain directors and employees and applied for an interim injunction.
It argued that four days was not enough time to provide a proper opportunity of responding when publication could cause Taveta, its directors and employees “serious and potentially irreparable harm”.
Sitting in the High Court, Mr Justice Nicklin decided that Taveta had shown there was a serious issue to be tried on three grounds. First, the particulars “arguably make implied criticisms of the Taveta personnel” which, if published, could be considered defamatory.
Second, as the particulars contained criticisms, did the FRC therefore owe a duty of fairness to Taveta to give it a fair opportunity to respond before publication? Third, was the FRC in breach of this duty?
Under normal circumstances, he said, he would have granted an injunction. However, the test was much stricter when applications were made against public bodies. “Applying that test, the court was not satisfied that Taveta’s case was ‘exceptional’ and so its application for an injunction was refused.”
He added that he was “minded” to grant Taveta a judicial review but not before he had heard further legal arguments.
The judge also made it clear that Sir Philip was not criticised in the documents and was not party to the proceedings.
Following the decision, Taveta said that it would be vigorously defending any claims or allegations. It stated, “Taveta’s sole concern was (and remains) to be given a fair opportunity to respond prior to publication, to those parts of the FRC’s report which unnecessarily criticise Taveta and which were so clearly biased on a partial and inaccurate view of the facts.”
Meanwhile, the FRC issued a statement saying it would consider the detailed judgment before publication. “We hope to do this as soon as possible in the public interest,” it added.
One person who will be pushing the FRC to publish as soon as possible is MP Frank Field, chair of the Work and Pensions Committee. As joint chair of the enquiry into the sale of BHS, he was responsible for describing Sir Philip and what happened to BHS as the “unacceptable face of capitalism”.
Commenting on the High Court decision, Field said, “Mr Justice Nicklin needed much wisdom to make this judgment.
“The High Court has put aside the special pleading of a plaintiff whose financial resources are almost unlimited. In doing so, it has struck a judgment that such individuals have a very high test to meet if they are to succeed in gagging a regulator, whose report is of interest to so many citizens.”
He added that he would be asking the Insolvency Service to reopen its investigation into BHS’ former directors in light of the FRC’s findings.
He pointed to the admission in Taveta’s own public submission that the FRC’s findings contained such serious criticisms of Taveta, its directors and its employees, that publication could “give rise to serious and potentially irreparable harm to the claimant and its directors and employees”.
“It goes on to describe the ‘sustained assault’ by the FRC on ‘the approach taken by management in preparing BHS’ 2014 financial statements’, publication of which would have ‘a very real potential to damage the reputation of the individuals concerned.”
According to Field, the FRC’s public submission stated, “After investigation, the executive counsel concluded that the basis of the going concern statement was obviously insufficient in the face of the pending sale; the assumptions behind the impairment review were not supported by evidence obtained by PWC and were not reasonable”.
In the court hearing, he said, Taveta’s QC Andrew Green suggested that description should be toned down to “optimistic”.