High Court considers the perimeters of disclosure under audit clause

In the recent case of Transport for Greater Manchester v Thales Transport & Security Ltd [2012] EWHC 3717 (TCC), the High Court considered the extent to which a supplier must disclose information pursuant to an audit clause under a contract for the supply of goods and services.

The facts

The case concerned a dispute between Transport for Greater Manchester (TGM) and one of its suppliers (Thales), which had lodged claims for increased costs and an extension of time under the contract. Disagreements arose between the parties, following which TGM made various requests to Thales for information pursuant to audit provisions in the contract.

Thales refused to supply the documents or information requested by TGM, and bypassed a decision from TGM by referring its claims for increased time and costs to a third party adjudicator. TGM felt that Thales had acted prematurely in making the referral, and subsequently sought an order for specific performance to compel Thales to deliver up a range of documents.

The High Court was asked to consider the construction of the relevant clauses; and in particular the scope of information and documents potentially covered.

The decision

Mr Justice Akenhead found in favour of TGM in respect of a majority of the documents sought from Thales.

It was undisputed that TGM was only entitled to request documents in order to audit information supplied to TGM or to verify Thales' compliance with its obligations under the contract. Akenhead J held that, on the facts, TGM’s requests had been made for these purposes. The reality that the requests may have been triggered by the submission of substantial claims for additional costs from Thales was immaterial.

Comment

Although the decision itself was based on the facts and the construction of the clauses in question; it nevertheless provides useful guidance on the types of document likely to be disclosable under a typical audit clause, including documents that are commercially sensitive and those that reveal underlying supplier costs.

It would seem from this case that the scope for disclosure of such documents is potentially extremely wide. Parties that rely on or are affected by such audit clauses will need to be aware of this; the problems that may arise as a result and the safeguards that should be included where necessary.