A missed opportunity?

Contractors will have gained some comfort from the Court of Appeal's ruling in the Veolia contract disclosure case. But, writes John Sharland, a degree of uncertainty remains.

The Court of Appeal decision in Veolia v Nottinghamshire County Council [2010] EWCA Civ 1214 will do much to assuage the anxiety contractors may have felt about the disclosure of confidential information arising from the local government audit process. The High Court (Cranston J [2009] EWHC 2382) had ruled that Mr Dowen, a local government elector for the area of Nottinghamshire, was entitled to see parts of Veolia’s waste management PFI contract with the County Council, including invoices, formulae for calculating payments and the schedules showing deductions for defaults. This decision has now, to a large extent, been reversed by the Court of Appeal.

The Court of Appeal judgment is, however, distinctly curious. It is concerned with a different set of documents and a different set of legal principles from the High Court and one of the most important issues canvassed before the Court of Appeal – the use to which documents disclosed as part of an audit can be put – remains undecided.

The case arose from a request by Shlomo Dowen for access to documents relating to waste management in Nottinghamshire. Veolia, the waste management contractor, regarded some of this information as confidential but Nottinghamshire County Council decided that it was legally obliged to provide it under s15(1) of the Audit Commission Act 1998 (the ACA) which provides that:

“At each audit under the Act…any persons interested may … inspect the accounts to be audited and all books, deeds, contracts, bills, vouchers and receipts relating to them”.

The arguments in the High Court concerned the meaning of the word “accounts” and the expression “relating to”. The two questions were: first, did the “accounts” mean the high level summaries of the accounts or all the records of financial movements during the year? Second, did “relating to” mean that the documents had to be mentioned or referred to in the accounts or simply that there was some factual connection between the two. The judge in the High Court (Cranston J) gave both expressions a broad meaning. This must be right; the legislation would have provided such limited access as to be completely pointless if the interpretations argued for on behalf of Veolia were correct.

Veolia, on reflection, decided that it could live with the outcome of the High Court case. The documents were duly disclosed and there the matter would have rested if it had not been for Mr Dowen’s request for further contract documents. These included Veolia’s profit margin on the contract and its financial model. In an ordinary contract, the employing body would not expect to see a contractor’s profit margin on a contract. There would not necessarily even be a financial model. However, in a PFI contract, where there will need to be adjustments which affect operational costs throughout the remainder of the contract period, these documents are needed to calculate the effect of changes on the contractor’s profit margin. Veolia regarded these documents as highly sensitive and was strongly opposed to their disclosure.

The Court of Appeal agreed with Cranston J’s  interpretation of “accounts” and “relating to”. However, two new arguments were deployed before the Court of Appeal. These were:

1. Section 15(1) of the ACA needs to be “read down” so that it is seen as subject to requirements to preserve the confidentiality of the information
2. The public inspection provisions of the ACA only permit use of the disclosed information for the purposes of the Act itself so that even if information is disclosed, the obligation of confidence remains and the recipient of the information cannot use it for purposes unconnected with the audit.

As regards the first of the above arguments it was said that the disclosure requirements needed to be interpreted as being subject to confidentiality requirements derived from:

• English common law
• The provisions of article 8 (protection of privacy) and/or article 1 of the First Protocol (rights to property) of the European Convention of Human Rights (the ECHR)
• The provisions of article 6 of the EU procurement directive 2004/18/EC (regulation 43 of the Public Contracts Regulations 2006) which provides for the protection of confidential information provided by contractors

The first argument derived from the House of Lords decision in Regina(Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2003] 1 AC 563. In this case it was decided that legal professional privilege was a fundamental human right under common law which could only be overridden by express words or necessary implication. It was argued that the same principle applied to confidentiality.

The second argument was that disclosure of confidential information was a breach of Veolia’s right to property under article 1 of the First Protocol or alternatively a breach of its right to privacy under article 8. This was the argument that succeeded. The Court decided that it was not possible to state a test whereby confidentiality always took precedence (or not) but that decisions needed to be made on a case by case basis. In this instance, given the circumstances, the Court indicated that the disclosure of the first set of disputed documents (the invoices, formulae etc) could be justified, but that the disclosure of the second set of documents (the profit margin and financial model) could not be justified.

The Court of Appeal, having reached the view that the ECHR gave Veolia the protection it needed, indicated that there was no need to decide the whether the confidentiality provisions in the procurement directive applied.

The last point was the use to which the documents could be put. Mr Dowen’s aim was not to act as an unpaid assistant to the Council in carrying out its audit functions. He was a local resident, a member of a group called PAIN (People against Incineration) and he was supported in this litigation by Friends of the Earth. It is a reasonable assumption that he was intending to use the information he received to assist in his campaigns.

Veolia argued that even if the ACA granted unlimited access to interested persons, this information can only be used for the purpose of the audit. The people who receive it therefore have a continuing duty of confidentiality. This submission was supported by both the Council and the Audit Commission but not, unsurprisingly, by Mr Dowen.

Previously it had been assumed that once information had been disclosed as part of an audit there was no restriction on how the recipient used it. This was assumed to be the position in the case of Oliver v Northampton Borough Council [1987] 151 JP 44. The Divisional Court in that case said that the outcome was unfortunate in that it allowed a person who received this information to use it for an improper purpose but did not think there was anything they could do about it. (The outcome of this decision, which allowed for the disclosure of personal information, was later reversed by legislation.)

The Court of Appeal was divided on whether they should decide this final point. Rix LJ believed that it should, and would have decided that the information could be used only for the purpose of the audit. He thought that there was no good reason why a person inspecting information should be entitled to use it for purposes other than the audit. He would therefore have decided that this was an implied limitation. However, the majority considered that they ought not to express an opinion on this last ground, so this issue remains undecided.

The Court of Appeal decision then will give some comfort to contractors that important confidential information will be protected by the courts. The rejection of the argument that section 15 of the ACA should be interpreted in a highly restrictive way is to be welcomed. The interpretation of this section so that it is subject to rights of property and privacy under the ECHR is a fairly bold piece of statutory interpretation. It looks more like “reading in” than “reading down” since it requires the inclusion of an exception which is not mentioned in the statute. However, there is a sense in which this appeal could be regarded as a missed opportunity. In spite of the length of the judgment, there was no decision on the interesting point relating to commercial confidentiality under the EU procurement directive, nor on what was arguably, the most important point of all, the use to which the information could be put.

John Sharland is a partner at Sharpe Pritchard. He can be contacted on 020 7405 4600 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..