The Court of Appeal in Veolia ES Nottinghamshire Ltd v Nottinghamshire CC [2010] EWCA Civ 1214 has overturned the High Court's controversial decision that the Audit Commission Act 1998 (the "ACA") permits public access to documents relating to a local authority's accounts, even where those documents contain commercially confidential information belonging to a private contractor.

Key points

  • The local authority was not required under section 15 of the ACA to disclose commercially confidential information contained in a PFI contract, including the contracting company's financial model and profit margin.
  • The right to property, protected by Article 1 Protocol 1 European Convention on Human Rights ("ECHR") can extend to commercially confidential information, there being no reason why such information cannot be a "possession" within the scope of that right.
  • There is a strong public interest in maintaining the confidentiality of commercially valuable information. The result of failing to protect such confidentiality would be potentially anti-competitive in deterring private contractors from entering into PFI contracts.

Background

The claimant, Veolia, held a waste management contract with the local authority. A local elector (and member of an environmental pressure group), Mr Dowen, applied to the council to inspect certain schedules to the contract and related invoices under section 15 of the ACA, which entitles an interested person to inspect and make copies of a local authority's audited accounts, and other documents relating to them. Prior to making the request under the ACA, Mr Dowen had made attempts to obtain the information under the Environmental Information Regulations but these requests had been refused on the basis of the exception for commercially confidential information (regulation 12 (5) (e)). Ultimately the Information Commissioner upheld the authority's decision to withhold the information on that basis.

The documents sought contained commercially confidential information, including details of payments made by the local authority and the contractual mechanisms for calculating them. Veolia brought proceedings to restrain the local authority from disclosing such confidential information. However, the High Court held that section 15 of the ACA imposed no duty to keep commercial confidentiality and that the local authority was required to disclose the documents notwithstanding their commercial sensitivity.

The appeal

Mr Dowen subsequently applied for access to further contractual documents, which related to Veolia's financial model and profit margin. Veolia appealed against the High Court's decision on three principal bases:

  1.  the documents did not fall within the meaning of documents "relating to" "accounts to be audited" under section 15 ACA;
  2.  the confidentiality of the commercially sensitive information should be preserved under common law and/or the European Convention on Human Rights ("ECHR") and/or Directive 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (the "Directive"); and
  3.  the disclosed information was permitted to be used only for the purposes of an audit under the ACA.

Documents relating to the audited accounts

Veolia submitted that the phrases "relating to" and "accounts to be audited" should be construed narrowly such that only those documents specifically referred to in the high level summaries of the statements of accounts would be open to inspection under the ACA. The Court rejected these arguments, ruling that the language of the ACA was wide and that the contract and invoices in question were plainly within its scope.

Right to preserve confidential information

Veolia argued that section 15 should be read down to preserve the confidentiality of the information under:

  • common law.
  • Article 8 ECHR / Article 1 Protocol 1 ECHR.
  • the Directive.

In respect of the common law, following the decision in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21, the Court considered that, as there was no express abrogation in the ACA of the right to preserve confidential information, the statute should not be taken to have this effect.

The Court considered it possible that the right to a "private life" under Article 8 ECHR could be engaged to protect confidential information relating to the professional or commercial activities of legal persons (such as Veolia). It also found that confidential information could fall within the concept of "possessions" for the purpose of Article 1 Protocol 1 ECHR. Any disclosure of confidential information would therefore amount to an interference with Veolia's property rights, which could only be permitted if justified on grounds of public interest. The Court observed that the points considered by the Information Commissioner in relation to the public interest for and against disclosure were "almost entirely identical" to the factors which fell to be considered in relation to Article 1 Protocol 1 for the purpose of achieving a proportionate balance between private rights and public interests.

The Court acknowledged that there was a public interest in transparency, but judged that this was outweighed by the public interest in the preservation of commercially significant confidential information, noting that "[i]f the penalty for contracting with public authorities were to be the potential loss of such confidential information, then public authorities and the public interest would be the losers, and the result would be potentially anti-competitive."

Finally, the Court held that it was not necessary to decide whether this contract was regulated by the Directive, which prohibits the disclosure of confidential information relating to public works contracts in certain circumstances. This was because Article 1 Protocol 1 (and perhaps Article 8 ECHR) provided sufficient reason for reading down section 15 of the ACA so as to exclude confidential information from disclosure. In conclusion, the Court found that such information should be protected from inspection.

Limiting the use to which accessed information may be put

The Court was divided on whether the third ground fell to be decided in this appeal. Rix LJ was of the opinion that it did, and that there was an implicit rule that the accessed information could be used only for the purposes of the audit (it was not clear in this case whether Mr Dowen sought to obtain the documents for reasons relating to the audit or for other reasons relating to the council's environmental policies). However, the majority (Etherton LJ and Jackson LJ) held that the issue did not arise for decision.

Comments

The judgment will be welcomed both by public authorities and private contractors. The High Court decision had raised concerns that private contractors would be unable to preserve the confidentiality of information contained in PFI contracts. Such information could then have fallen into the hands of competitors or subcontractors. Public authorities feared that this possibility would deter private contractors from tendering for PFI contracts.

The Court of Appeal, however, recognised that there was a strong public interest in maintaining the confidentiality of commercially valuable information. Its decision brings the regime under the ACA more into line with the Freedom of Information Act and the Environmental Information Regulations, which both provide the possibility of protection from disclosure on the basis of commercial confidentiality. Interestingly, however, the Information Commissioner's decision is now under appeal so it is still at least possible that disclosure may be ordered by that route.