| SPOTLIGHT |
While many companies may be concerned about the confidentiality of commercial agreements after contractor Veolia was forced by the court to make commercially sensitive contract information public, it is important that councils and contractors alike retain a sense of perspective, writes John Sharland.
The case of Veolia v Nottinghamshire County Council [2009] EWHC 2382 (Admin) has come as a nasty shock to contractors who now realise that parts of their local authority contracts previously regarded as confidential – such as the pricing schedules – are likely to be open to public inspection during the audit process. However, the rights of access to interested persons to examine a local authority’s accounts are longstanding and well-known and date back to the early nineteenth century.
These provisions have been the subject of a substantial volume of case-law over the years. They are very familiar to local authority lawyers and finance officers. This case did not come about as a result of the innovative use of some obscure provision.
The background concerns a request by Mr Dowen, a local elector in Nottinghamshire, to inspect and take copies of documents relating to waste management in the area of the council. The council’s waste management contractor is a company called Veolia. It regarded some of the information requested as confidential - particularly the invoices, the formulae under which payments are calculated and the schedules showing deductions for contractor defaults. It did not want this information coming into the hands of its commercial competitors or sub-contractors. However, the local authority decided it was legally obliged to make this information available and Veolia challenged the decision.
Mr Dowen’s right to inspect the documents derives from s15(1) of the Audit Commission Act 1998 which provides that: “At each audit under this Act… any persons interested may… inspect the accounts to be audited and all books, deeds, contracts, bills, vouchers and receipts relating to them.”
The wording of this section gave rise to two arguments in the High Court, one about the meaning of the word “accounts” and the other about what was meant by “relating to”. The difficulty for Veolia was that their argument depended on the court accepting that these expressions should be given a strikingly narrow definition. The court rejected this approach, accepting that the accounts meant the general ledger account of the authority and all the accounts feeding into it. It was also decided that “relating to” meant simply that there had to be a nexus or connection between the relevant document and the accounts. Such a connection did not need to be apparent from the accounts themselves.
The court’s approach was consistent with the earlier case law on these provisions. A line of authority has indicated that considerations of confidentiality do not outweigh the clear disclosure requirements in the legislation. The most recent of these cases was Oliver v Northampton BC [1987] 151 JP 44 in which the Divisional Court ordered disclosure of the wages book for the staff at an entertainment centre. The court considered the result to be unfortunate in that it permitted disclosure of employees’ private affairs but considered that whether to give protection was a matter for Parliament. The legislation was amended to protect personal details. But, significantly, the provisions were never amended to protect commercial confidentiality.
One of the interesting aspects of the decision is that it highlights how much wider the disclosure obligations in the 1998 Act are compared with other legislation specifically designed to allow greater access to information. For instance, under the Freedom of Information Act (the FOIA) information can be treated as exempt if its disclosure “would or would be likely to prejudice the commercial interests of any person”. The disputed information in this case could have been treated as exempt from disclosure on this basis.
There is a similar exemption for commercial confidentiality in the Environmental Information Regulations. Likewise, under the Public Contracts Regulations, where there are specific requirements to disclose information to unsuccessful bidders, the information can be withheld if it “would prejudice the legitimate commercial interests of any economic operator”.
There is some speculation in the judgment on the reasons why the disclosure requirements under the 1998 Act are so wide when compared with other statutory requirements. It is probably a mistake to assume that there must be a consistent policy underlying a range of different legislative requirements. However, there are good reasons why the requirements relating to audit should not be the limited by the type of sweeping exemption which applies to requests under the FOIA.
First, there is a very limited time within which an interested person can make such a request. The documents referred to in section 15 only need to made available for 20 working days in a year. Second, although the court gave a wide meaning to the expression “relating to”, there is still a fairly limited category of documents to which the section applies. It does not, unlike the FOIA, give a right to request any information which the authority has in its possession. Third, and most importantly, in order for the right to scrutinise the accounts to be of any value the ability to inspect background documents is essential. The ability to see what payments are made to a contractor gives no information about the extent to which the local authority is getting value for money. In order to do this, it is necessary to see what services are provided for the money and how well they are being carried out. The disputed documents in this case were essential for any kind of appraisal of the value of the services.
It is understandable that contractors should feel aggrieved by having information which they regard as commercially confidential suddenly made public. It was acknowledged in the judgment that disclosure could be detrimental both to the contractor and the local authority.
However, in reality, how much of a problem is this? Contractors which do business with the public sector know that they are subject to public scrutiny. Their prices are already published. There will be public discussion about any failures or perceived failures in service delivery. The rights of inspection at audit represent a very long-standing obligation on local authorities to provide those interested with information about how public money is being spent. Compared with the importance of this principle the potential problems this judgment might cause contractors and authorities as a result of disclosure of commercially sensitive information pale into insignificance.
John Sharland is a partner of Sharpe Pritchard.
