Exemptions and the public interest test pt2

14 December 2004

Hazel Grant, Rachel Fetches

For part I, please click here.

When the Freedom of Information Act 2000 (the “FOIA”) comes into force in January 2005 it is anticipated that information requests about contracts between private companies and the public sector will be a significant area of activity. As such, public authorities may be considering the application of the exemptions under s.41 (information provided in confidence) and s.43 (commercial interests) on a regular basis.

Both public authorities and private companies will have to consider the effect of these exemptions on their relationships, the negotiation and structure of contracts, the transmission of information between the parties and the retention of information after completion of the contract. Also, as the FOIA applies retrospectively, consideration must be given as to existing contracts and the existing information that may have to be disclosed.

The two exemptions

Section 41 of the FOIA provides that:

  1. Information is exempt information if:
    1. It was obtained by the public authority from any other person (including another public authority), an
    2. The disclosure of the information to the public (otherwise than under the FOIA) by the public authority holding it would constitute a breach of confidence actionable by that or any other person.

Section 43 of the FOIA provides that:

  1. Information is exempt information if it constitutes a trade secret.
  2. Information is exempt information if its disclosure under the FOIA would, or would be likely to, prejudice the commercial interests of any person (including the public authority holding it)

Both exemptions contain an exemption from the duty to confirm or deny whether the authority holds the information. For s.41, the exemption applies where, if a public authority were to comply with that duty, compliance would constitute an actionable breach of confidence. For s.43, the exemption is where compliance would prejudice the commercial interests of any person. However, there is no exemption from the authority’s duty to confirm or deny that it holds information about a trade secret.

There is no requirement within the FOIA for an authority to consult or notify third parties when they decide to disclose third party information. So, in the absence of a contractual provision requiring consultation, authorities can disclose information without informing the third party.

There is also a degree of overlap between the two exemptions, some commercial information or trade secrets may have the characteristics of confidential information. Indeed, information that is potentially confidential may be exempt elsewhere, for example, where it relates to defence or is about a person.

Confidential Information

The exemption under s.41 is an absolute exemption for confidential information and, as such, the public authority does not need to consider the public interest test in deciding whether or not to release information that falls within the exemption. The exemption is not, however, as wide as it would first appear because it only covers information that, if disclosed, would, or would be likely to, give rise to an actionable breach of confidence by any person (whether or not they were the party who passed the information to the public authority). Thus merely stating information is confidential will be insufficient to bring it within the remit of the exemption.

It is worth noting that it only applies to information passed to the public authority and, therefore, cannot be used to exempt from disclosure the public authority’s own confidential information. Also, there must be an actionable breach of confidence so the party who has passed the information to the authority must have legal redress against the authority’s disclosure. Under s.81 (2) a government department which is not a Northern Ireland department cannot claim that disclosure of any information would constitute an actionable breach of confidence by any other government department. The same is true as between Northern Ireland government departments, though strangely there is no prohibition on such a claim by a Northern Ireland government department against a non-NI government department.

Other individuals must establish that an obligation of confidence attaches to information, which has the legal characteristics of confidential information and is not trivial. The court has recognised the public interest in the maintenance of confidences puts a duty of good faith and trust on the recipients of confidential information. To bring an action for breach of confidence, the claimant must establish the three conditions set out in Coco v A.N. Clark (Eng.) Ltd [1969] RPC 41:

  • firstly, that the information should have the necessary quality of confidence, which means that it should not be in the public domain. The case of Thomas Marshall (Exports) Ltd v Guinle [1979] 1 Ch 227 elaborated on this and, in addition, the owner must reasonably believe (an objective test) that the information is confidential or secret and that release of the information would be a detriment to him or give his rivals an advantage. The court will also take into account any usages or trade practices.
  • secondly, the information must have been “imparted in circumstances importing an obligation of confidence”.
  • thirdly, the information has been or will potentially be used without the owner’s authority.

Many private contracts will set out a contractual obligation of confidence, which will fulfil the second limb of a breach of confidence, and will also put a person who accidentally receives the information on notice, but will not necessarily satisfy the first and third elements of the test. However, a contractual obligation is not necessary to impose the duty of obligation as it may be implied by the nature of the information or the relationship of the parties.

As such only information which genuinely has the characteristics of the first limb of the test can be classified as confidential under the s.41 exemption. In the past business information such as sales figures, customer lists and marketing projections have all been afforded protection on grounds of confidentiality. It will be interesting to see if case law on freedom of information will recognise confidentiality in such information.

When can confidential information be disclosed?

The easiest way to avoid a breach of confidence is to obtain the consent of the party to disclose the information. This may be possible where, for example, some time has elapsed since the authority received the information and the other party decides that disclosure will no longer be detrimental. In certain circumstances disclosure can be required by law, but where this is the case it is unlikely that a request for information will be made under the FOIA.

The most likely defence for a public authority that chooses to disclose confidential information is that there is an overriding public interest in the disclosure. So, despite the fact that the exemption is absolute and not subject to the FOIA’s public interest test, the public interest will still be a consideration. The courts have recognised the difference between the disclosure of information which is in the public’s interest to know and disclosure information that is merely of interest at the level of public curiosity. In describing the public interest test to consider here, the Information Commissioner’s guidance (www.informationcommissioner.gov.uk) notes that, “Confidentiality is recognised as an important thing in itself. In balancing confidentiality against the public interest, the task is not to weigh up the impact upon the individual against the good of society, but rather the good of society against the importance of preserving confidences.”

Exemption for Commercial Information

The exemption under s.43 is qualified and so when a public authority decides that information does fall within the exemption then they must apply the public interest test (see Part 1 of this series in Freedom of Information, Volume 1, Issue 2, page 6) and consider whether the public interest in maintaining the exemption outweighs the public interest in disclosing the information. Under this exemption “information” includes information passed to it by another party and the public authority’s own information. Section 43 is structured to cover two types of information: trade secrets and commercial interests.

Trade Secrets

The first part of the exemption for trade secrets is class-based, that is, information falling within this exemption will be protected as a whole. If the information falls within the exemption and satisfies the public interest test it will be exempted as a whole and the public authority will not have to consider whether some parts of the information or a redacted version of the document could be disclosed.

A “trade secret” is not defined by the FOIA and is not a defined concept in English law; it is confidential commercial information that is used for the purpose of a trade. The Information Commissioner’s guidance states that a trade secret is something which gives a company a “competitive edge” over its rivals and links the trade secret to the generation of the company’s profits. The guidance also advises authorities to consider whether the release of this sort of information would be clearly detrimental to the company or advantageous to its rivals. Also, the authority should consider whether the information is already in the public domain or if it is easily replicable by a competitor in the field.

Commercial Information

The second part of the s.43 exemption protects information that if disclosed would prejudice the commercial interests of any person. Thus, in applying the public interest test to information that falls within the category of “commercial information”, the public authority must consider first whether there would be any harm would result if the exemption were not available.

Commercial information is a wider concept than both confidential information and trade secrets and much more information held by the authority may fall within this exemption. This is especially true given the increased reliance on private organisations to carry out public functions. The Information Commissioner’s guidance draws a distinction between financial and commercial interests; something may be detrimental to financial interests without a corresponding detriment to commercial interests. This may mean that the Information Commissioner will approach the use of this exemption quite strictly: the Information Commissioner gives an example that setting Council tax levels would affect the financial, not commercial, interests of a local authority and therefore such information would not be exempt.

Once an authority considers that the information requested falls within the category of commercial interests, it must first consider whether any harm would arise from the disclosure of the information. The Information Commissioner notes that public authorities should consider the impact of release on commercial activity, competitiveness, and reputation. In addition, the authority should consider the perspectives of all parties who could be affected, including the authority itself. The authority should consider if the information is commercially sensitive, for example, profit margins or methodologies could be highly relevant to a business’ success. Finally, the authority should make a judgement as to whether a particular disclosure would be likely to cause prejudice.

If the authority has decided that disclosure would prejudice a person’s commercial interests they must then consider the public interest test. The Information Commissioner cites several factors to consider: accountability for public expenditure, protection of the public, circumstances in which the information was received, competition, and timing. As noted earlier (ref to earlier article), the public interest test is context sensitive and the timing of release and the current political climate can affect the consideration of whether it is in the public interest to disclose the information or not.

Issues Arising during Public Procurements

Section 45 FOIA puts a duty on the Lord Chancellor’s Department (the Department of Constitutional Affairs) to provide guidance to public authorities as to how to discharge their obligations under the FOIA. The Lord Chancellor’s Code of Practice on the Discharge of Public Authorities’ Functions (the “Code”) is available on the Department of Constitutional Affairs website (www.dca.gov.uk).

Part VIII of the Code sets out authorities’ duties in regards to freedom of information and public sector contracts. The Code states that authorities cannot “contract out” of their obligations under the FOIA. Unless the information would fall within an exemption under the FOIA, authorities will have to disclose the information in response to an information request. The Code urges authorities to resist confidentiality clauses relating to the terms of the contract, its value and performance. Any acceptance of confidentiality provisions must be for good reasons that can be justified to the Information Commissioner. Under Part IX of the Code, authorities are advised that they should only accept confidential information from a third party if it is necessary to the exercise of the authority’s functions and would not otherwise be provided.

In seeking to have a consistent approach to disclosure under the FOIA, the Office of Government Commerce has drafted model confidentiality and freedom of information clauses (http://www.ogc.gov.uk) and plans to issue fuller guidance on the area at the end of November 2004. These clauses set out the definition of confidential information and suggest that it may be preferable to specify what the parties consider to be confidential information and the length of time the information should remain confidential. However, the model clauses also ask the contractor to acknowledge that such lists or schedules are of indicative value only and that the authority might be obliged to disclose the information under Part 1 of the FOIA.

Commentators (see Freedom of Information, Volume 1, Issues 1 and 2) have noted that such decisions should be agreed at the tendering stage so that commercially sensitive bid information does not have to be disclosed once it is passed to the authority. Private contractors should carefully consider what information should be supplied to public authorities during bids and negotiations. It may also be prudent to put all information which is agreed to be confidential in schedules so that, where necessary, the main contract can be disclosed without breaching confidentiality (see Patricia Barratt’s article in Freedom of Information, Volume 1, Issue 1, page 6, for other practical steps companies should take).

As noted earlier, the FOIA does not require any consultation with third parties if their information is to be disclosed. In fact, there is no statutory right for a third party whose information has been disclosed to appeal that decision to the Information Commissioner. Part VII of the Code advises that where disclosure cannot be made without the consent of a third party (for example, if it would cause an actionable breach of confidence) then the authority should consult that party with a view to obtaining consent unless to do so would be disproportionately expensive. In fact, the Code states that where any interests of a third party may be affected the authority should consider if it is appropriate to consult the third party even where disclosure does not give rise to legal rights. Consultation should take place where the third party can assist the authority in determining the applicability of an exemption or the balance of the public interest. The Code does, however, remind authorities that the decision to disclose rests with them and that refusal to respond or give consent does not preclude release of the information. Parties who will be passing on information to a public authority should, therefore, seek a contractual right that the public authority will consult them. This could also be reinforced by requiring that the authority will appeal decision notices and enforcement notices to release trade secrets and/or confidential or commercially sensitive information, with the contractor providing an indemnity for the authority’s costs.

Conclusion

The exemptions for confidential information and commercial information are likely to be subject to many requests and, potentially, legal actions for breach of contract. Lobby groups, investigative journalists, commercial competitors and disappointed bidders are all likely to consider making requests to authorities about such information. In opening up government and increasing transparency, both public authorities and private contractors will find there are difficult decisions to make. Recognising this fact, the Information Commissioner states that “While the Act strongly encourages openness it does not encourage recklessness.”

First published in the Freeedom of Information Journal Edition 3.