The High Court has recently considered the competing interests in confidentiality, commercial sensitivity and open justice. The fiercely fought litigation arose out of an aggressive battle for corporate control. The decision - which favours the value of public justice over commercial interests in privacy - is a good example of the competing interests inherent in public systems adjudicating private and commercially sensitive disputes.
The application was for a confidentiality regime to be put into place in the course of proceedings arising out of the battle for control of a company, Coroin Limited, that owns three prominent London hotels - Claridge's, the Connaught and the Berkeley. Mr McKillen owned a substantial shareholding in Coroin. The litigation stemmed from an acquisition by certain individuals, brothers Sir David and Sir Frederick Barclay, of a company that also held a significant shareholding in Coroin. The Barclay brothers made no secret of their desire to obtain control of Coroin or the hotels that it owned. Their acquisition of the corporate shareholder was the first major step in their plan to achieve that control. Other steps that they had taken included the purchase of bank loans to another shareholder secured on his shares and the purchase of Coroin's bank facilities totalling some £660million, secured on the company's assets.
McKillen commenced proceedings, alleging that Coroin's affairs had been conducted in a manner unfairly prejudicial to him, and also brought an action for damages, alleging a conspiracy to injure by unlawful means, based on many of the same allegations. An important part of his case related to pre-emption rights. He alleged that arrangements between the Barclay brothers and another major shareholder had triggered rights of pre-emption, entitling him to acquire a sufficiently significant proportion of Coroin's shares to take him to a position of over 50% of the equity.
As one of the principal issues in the case, the defendants raised the question of whether, even if McKillen had been offered shares on a pre-emption basis, he would have been able to afford to purchase them. If he did not have that ability then, however well-founded his claims, they argued that he had suffered neither prejudice nor loss.
Disclosure was eventually given on the issue of McKillen's ability to have purchased the shares at the relevant time. This caused him to bring an application which sought the imposition of a confidentiality regime over that information, imposing restrictions on the defendants' access to, and use of, a substantial number of documents and associated written and oral evidence. He also sought an order that the part of the trial dealing with that issue, including the oral evidence of witnesses, be held in private.
The application was put on two bases.
First, it was said that if the defendants had access to the documents and evidence, there was a real risk that they would use it to damage McKillen, either by frustrating his attempts to raise funds to purchase the shares if he were to succeed in the litigation, or by taking other steps to put pressure on him, such as purchasing and enforcing loans made to him. Second, it was argued that:
- the documents and evidence concerned his personal financial circumstances;
- disclosure in court could be damaging to him; and
- in any event, he was entitled to the protection of private and confidential information.
The court began by recounting the fundamental principles at issue. It noted that:
- the principles of open and natural justice are fundamental features of the legal system;
- any departure from those principles is permitted only if it is necessary in the interests and administration of justice;
- the burden of establishing that it is necessary to do so lies firmly on the party which seeks it;
- any departure must be supported by clear and cogent evidence, to be subjected to careful scrutiny; and
- sitting in private is the last resort and is a viable option only if any other course would be unworkable.
The court went on to consider the commercial interests at play and whether the evidence of prejudice and the risk of interference were strong enough to justify the imposition of a restrictive regime on the defendants. It was held that the evidence did not justify such an order. Although the judge found the Barclay brothers to be prepared to use any means which appear lawful to obtain control of Coroin, he did not find the evidence that they would go further and interfere in the respects that were alleged to be substantial. He found that the chances of an approach to potential funders were remote and that the prospects of a general destabilisation campaign were not great.
The court was equally dismissive of the arguments that parts of the trial be conducted in private. McKillen had submitted that:
- the hearing would be concerned with confidential information relating in particular to personal financial matters;
- the negotiation of terms with possible third-party funders was confidential and commercially sensitive, and that disclosure of such details might jeopardise the negotiation of future financing by McKillen; and
- the parties might adversely react to the disclosure in open court of the terms of the negotiations, such that McKillen's ability to deal with them in future, whether in this matter or more generally, would be jeopardised.
The court remained unconvinced. In relation to each of these points, it found as follows:
- There is a distinction between purely personal financial matters and commercial or business financial matters. The court rejected the submission that all of an individual's financial circumstances are personal, irrespective of whether they relate to his or her business. Commercial information does not become personal financial information simply because a decision is taken to conduct some of that business in a personal (rather than a corporate) capacity.
- The arguments based on possible prejudice and jeopardy to the financing and funding of a purchase of shares, and to future dealings with such funders more generally, were speculative and inherently improbable.
The application highlights the inherent risks in airing sensitive, private disputes in a public forum. It is also a reminder that in litigation between parties that are engaged in battles both within and outside the courtroom, there are likely to be difficulties in protecting commercially valuable and sensitive information that would, in other circumstances, normally be kept carefully guarded. The decision reinforces the proposition that no matter how great the commercial sensitivities, cogent evidence will be required before the court will consider it appropriate to make inroads into the fundamental principles of open justice.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription