In this article we highlight some alarming case law which (until over-turned on appeal) meant that Veolia was unable to prevent disclosure to a local activist of the complete financial model for the Nottinghamshire Waste Management PFI.

Confidential information is a well-recognised species of property, protected by the common law, and recognised in other relevant statutes such as FIA 2000, as well as in EU law such as the 2004 Directive. Confidential information may well constitute the life blood of an enterprise.”  

Confidential information can be the life blood of an enterprise”: so said Lord Justice Rix in his Court of Appeal judgment in Veolia v Nottinghamshire1 in October 2010. All private sector parties working with local authorities owe Lord Justice Rix a debt of gratitude.

For the 12 months prior to Rix LJ’s judgment, amazingly the law provided little or no protection for any confidential information provided to a local authority. And you might be shocked to know that any applicable contractual confidentiality obligations of the local authority were, for all practical purposes, unenforceable. In fact, as a result of Mr Justice Cranston’s judgment in the court of first instance2, Nottinghamshire County Council was obliged to disclose to a local campaigner Veolia’s entire financial model for the 2006 Nottinghamshire Waste Management PFI.

This position arose due to a major gap in the wording of the Audit Commission Act 1998. Under this Act “persons interested” are entitled to inspect and make copies of the accounts of a local authority “and all books, deeds, contracts, bills, vouchers and receipts relating to them”. Although the Act prohibits disclosure of information obtained by any person acting on behalf of the Audit Commission, critically it does not mention any restriction on the use or disclosure of information obtained by “persons interested”. As a consequence it was held at the court of first instance that Mr Dowen, a local campaigner, was entitled to inspect and take copies of all contracts relating to the local authority’s accounts, which included a full copy of the project agreement Nottinghamshire Waste Management PFI. It was held that the statutory duty to disclose set out in the Audit Commission Act 1998 “trumps the confidentiality obligations in the contract”.

Veolia appealed to the Court of Appeal where, fortunately, common sense prevailed. The courts, as you would expect, are very reluctant to interpret legislation so as to plug gaps or apparent errors in statutes as passed by Parliament. Their role is to interpret, not legislate. However, where literal wording in a statute has startling or unreasonable consequences, the courts will ordinarily not construe general words in a statute as overriding fundamental human rights3. The intention to override such rights must be expressly stated or appear by necessary implication. This method of interpretation of black letter law is known as “reading down”.

Interestingly, in the Veolia case Rix LJ stated that confidential information is a well-recognised species of property, protected by the common law and recognised in other statutes such as the Freedom of Information Act 2000, as well as the European Convention on Human Rights (ECHR). Article 1 of the ECHR states that “every natural or legal person is entitled to the peaceful enjoyment of his possessions”. This includes companies. Further, the 2004 Procurement Directive4 provides that contracting authorities shall not disclose “information forwarded to [them] by economic operators which they have designated as confidential; such information includes, in particular, technical or trade secrets and the confidential aspects of tenders”.

Rix LJ held that the state cannot interfere with rights to confidential information without justification and accordingly he saw “no difficulty” in reading down section 15(1) so as to provide an exception for confidential information. As a result Mr Dowen was not entitled to inspect and take copies of Veolia’s5 confidential information.

The Court of Appeal judgment therefore provides useful clarification of the law and reassurance that it is possible to protect confidential information despite recent legislation and the increasing trend to maximum transparency in public sector affairs. Companies should be aware that their confidential information is property which can be protected like any other asset. In negotiating PPP contracts it is therefore totally reasonable to insist on proper protections to ensure confidentiality is maintained for valuable confidential information. It is important to note, however, that rights under the ECHR can be waived or varied by agreement: accordingly, great care should be taken, wherever possible, to avoid any such clauses in PPP contracts.