Legal Briefing

Commercially sensitive information and the nincompoop’s law

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Public Sector | 01 July 2012

‘Freedom of Information Act. Three harmless words. I look at those words as I write them, and feel like shaking my head ‘til it drops off. You idiot. You naïve, foolish, irresponsible nincompoop. There is really no description of stupidity, no matter how vivid, that is adequate. I quake at the imbecility of it.’

Not everyone will share Tony Blair’s view that the introduction of the Freedom of Information Act (FOIA) 2000 was one of his greatest mistakes while in office, but the strength of his feelings about it give an indication of the potency of FOIA 2000. Although his concern particularly related to cabinet and other policy-forming discussions within government, FOIA 2000 and the parallel regime under the Environmental Information Regulations (EIR) 2004 have significance in relation to the disclosure of commercially sensitive information held by public bodies. This can be a double-edged sword for businesses: on the one hand, there is an opportunity to obtain information that could be commercially valuable, on the other, there is the risk of exposure of commercially sensitive information that has been given to public bodies. In a number of recent cases, light has been shone on how commercially confidential information will be treated under the two disclosure regimes.

THE DISCLOSURE REGIMES: BASIC PRINCIPLES

Unsurprisingly, the basic structures and provisions of the two disclosure regimes are similar. The EIR 2004 applies to environmental information, which is very broadly defined in Regulation 2, and FOIA 2000 applies to all other information. Under each regime there is a prima facie obligation to disclose information on request. In FOIA 2000, this is expressed as a right for the person requesting information ‘to have that information communicated to him’ and in EIR 2004 it is expressed as a duty on the public authority holding the information to ‘make it available on request’. This difference in expression is of no practical effect. Under both regimes there are a series of qualifications to the right of access to information – under FOIA 2000 these are described as ‘exemptions’ and under EIR 2004 as ‘exceptions’. Although the grounds for refusing to supply information are similar, they are by no means identical. Under FOIA 2000 there are two types of exemption: absolute exemptions, which, if engaged, permit the public authority to refuse to disclose information without further consideration; and, qualified exemptions, which permit non-disclosure only if the public interest in that non-disclosure outweighs the public interest in the information in issue of being disclosed. Under the EIR 2004 all of the exceptions are qualified, requiring the public interest balance to favour non-disclosure before the exception can be relied on.

One of the areas of difference, potentially anyway, between the two regimes lies in the public bodies to whom the information disclosure requirements apply. Under FOIA 2004 this is straight forward – the Act lists each of the public bodies, which include central and local government, regulators, universities, NHS bodies, police forces and a hugely diverse range of other entities. The EIR 2004, unhelpfully, does not have a complete list. The EIR 2004 does apply to all of the public bodies that are subject to FOIA 2000 but in addition apply to any other bodies that carry out ‘functions of public administration’ or, in certain circumstances, are under the control of a public authority. The breadth of the reach of the EIR 2004 has been considered in a number of cases: there have been decisions that the Port of London Authority is a public body and that Network Rail is not. Most recently, it has been decided that privatised water companies are not subject to EIR 2004 (Smart Source Drainage and Water Reports Ltd v Information Commissioner and 19 Water Companies [2011]).

THE COMMERCIAL INTERESTS EXEMPTION/EXCEPTION

The principal exemptions/exceptions that are likely to be relevant to cases involving information that is commercially sensitive are those under s43 FOIA 2000 and Regulation 12(5)(e) EIR 2004. Section 43 FOIA 2000 provides a qualified exemption where information is a trade secret and, separately, where disclosure of information ‘would or would be likely to prejudice commercial interests of any person (including the public authority holding it)’. Regulation 12(5)(e) provides a qualified exception where the disclosure would adversely affect ‘the confidentiality of commercial or industrial information where such confidentiality is provided by law to protect a legitimate interest’.

RECENT CASES

The s43 FOIA 2000 exemption has been considered in two recent cases. In Visser v Information Commissioner and the London Borough of Southwark [2011] the original request for information was for a business plan of a company that managed leisure facilities for the London Borough of Southwark. Southwark consulted the company, Fusion Lifestyle, and then disclosed part of the relevant plan (over objections from Fusion) but agreed to withhold a one-page profit and loss account, on the ground that disclosure would be likely to prejudice the commercial interests of Fusion. The case on prejudice was that disclosure of the profit and loss account would amount to disclosure of ‘the Fusion approach and methodology to income projections and managing costs’ and this would be of ‘significant and material’ interest to Fusion’s competitors. This was challenged but was accepted by the Tribunal, which upheld the Information Commissioner’s decision that Southwark did not need to provide the information to the requester. An unusual feature of the case was that the Tribunal accepted that the information in the profit and loss account remained commercially sensitive despite the fact it was, on the face of it, out of date – the business plan was for the year 2007-08 and was two years old when request for disclosure was made.

Often in prejudice to commercial interest cases the age of the information will be a central factor – sensitivity and therefore prejudice normally decreases over time. In Visser the Tribunal was persuaded by what it described as cogent and compelling evidence that the age of the information was largely irrelevant and that the commercial sensitivity had not diminished. Having accepted that disclosure would prejudice the commercial interests of Fusion, the Tribunal still had to consider the overall public interest balance. It readily concluded that the public interest was in favour of non disclosure. It did so for three reasons:

  1. because of the likelihood of direct commercial harm to Fusion;
  2. because, consequent upon 1, there would be an adverse effect on competitiveness within the market of supplying leisure facilities management; and
  3. because of the significant free standing public interest in maintaining commercial confidences.

There was a contrasting outcome in a second s43 case, Cranfield University v Information Commissioner and Dr Helen Pick [2011]. In 2006 Cranfield had entered into a 22-year contract with the Ministry of Defence (MoD) to supply academic training courses on military-related subjects. The contract followed a tendering exercise. In 2009, MoD informed Cranfield that it had to make substantial savings – with the result that the fee paid to Cranfield would be reduced by 20%. That, in turn, led Cranfield to begin a redundancy process for some of its staff and in the course of that process Dr Pick, a union representative made a request under FOIA 2000 for disclosure of information relating to the pricing of the contract with MoD. Cranfield refused to supply the information, asserting that it would prejudice its commercial interests to do so. At the Tribunal hearing it was not disputed that the pricing information would be of use to a competitor of Cranfield if the MoD contract came up for re-tender (and the Tribunal held that the information could be used by a competitor in a re-tender by showing a ‘price to beat’) – but there was a serious dispute about whether a re-tender was likely. Cranfield tried to establish that a re-tender might come about in a number different ways – but to no avail. The Tribunal conducted a detailed critical analysis of Cranfield’s evidence and was wholly unpersuaded. With barely disguised relish, it pointed to the fact that Cranfield in its own correspondence with MoD had asserted that the services it provided under the contract were ‘value for money and competitive’ and held that on that basis MoD had no incentive to push for a re-tender. The consequence of the finding that a re-tender was not a realistic possibility was that the s43 exemption was not engaged at all – because there was in fact no risk of prejudice – and so the Tribunal did not need to go onto undertake the public interest balance.

The third case, Jones (on behalf of Swansea Friends of the Earth) v Information Commissioner, The Environment Agency and SI Green (UK) Ltd [2011] was under the EIR 2004. SI Green is a landfill site operator and, as a condition of obtaining a permit from the Environment Agency to operate a landfill site near Swansea, had to put in place financial guarantee arrangements. Such arrangements, which are a standard requirement for the grant of permits in the case of landfill sites with long-term liabilities, are intended to ensure that there is adequate financial provision in place to discharge the obligations under the permit for as long as the landfill site poses a hazard. To fulfil the requirement in this case, SI Green entered into a performance agreement with the Environment Agency and a bond. When the disclosure request was made, the Environment Agency provided both the performance agreement and the bond but redacted from the disclosed documents information showing the amount that SI Green was required to secure for each year of operation of the landfill site and going forward for a period of 60 years after the planned conclusion of operations.

The Tribunal decided that this information was not confidential within the terms of Regulation 12(5)(e). To reach that conclusion it, correctly, considered the common law test for confidentiality as set out in Coco v AN Clark (Engineers) Ltd [1969] and focused in particular on the second limb of that test – ‘that the information must have been imparted in circumstances importing an obligation of confidence’. The Tribunal concluded, in light of the evidence it received, that the information had not been ‘imparted’ (or provided) by SI Green to the Environment Agency but had been created by the Agency and SI Green together during an ‘iterative’ negotiation as to the correct level of financial provision. Consequently the information was not subject to a duty of confidentiality provided by law and was therefore outside scope of the EIR 2004 exception. Although it did not need to do so, the Tribunal went on to consider the public interest test on the assumption that the information did fall within the exception. It concluded that it was in the public interest for the information to be disclosed. One of the principal arguments against disclosure was that, using the information, SI Green’s competitors would be able to calculate SI Green’s underlying operating costs. The Tribunal considered the evidence on this and rejected it – it was simply not persuaded that the information could be ‘reverse engineered’ to produce something that would actually be useful to any competitor.

LESSONS TO BE LEARNT

These three recent cases demonstrate the need for those businesses that have to supply commercially sensitive information to public bodies to be aware of the risk that such information will be disclosed pursuant to one of the two regimes. There are practical steps that can be taken to mitigate that risk:

  • Before supplying information, seek agreement that the public body will consult you before making any decision on disclosure. As a matter of good practice, a public body should do this anyway, but obtaining express recognition that this will happen is a useful precaution. Although it will still be for the public body to take the decision on disclosure, this at least gives the opportunity to influence that decision.
  • In relation to particularly sensitive information, consider whether it needs to be provided at all. The decision on whether to provide information is likely to be driven primarily by the commercial, regulatory or other purpose of the particular transaction but the risk of later disclosure should be factored into the decision-making process.
  • When confidential information is supplied, clearly identify it as such.
  • In particular if it gets to the stage of tribunal proceedings, it is important not to ‘overclaim’. Tribunals will examine the evidence supporting an assertion of likely commercial harm with a very sceptical eye. A targeted and focused claim stands a much better chance of being accepted.
  • Consider the full range of exemptions/exceptions. Although s43 and Regulation 12(5)(e) are most likely to be relevant, the other exemptions/exceptions under FOIA 2000 and EIR 2004 range widely and might just assist in any given case.

By Adam Chapman, partner,