It is well known that the Freedom of Information Act 2000's
right of access to information held by public authorities came into force on 1
January 2005. It is also known that commercial entities dealing with or
otherwise providing information to public authorities could be affected by the
changes. For example, individuals,
competitors, journalists or potential claimants may request and sometimes
obtain commercially sensitive information originally supplied by those
entities.
Public authorities transacting with such entities are
likely to find that contractual negotiations include a request for inclusion of
a clause requiring consultation prior to disclosure under the Act. Questions may arise as to what liabilities a
public authority could face if it were to breach that clause, given that the
circumstances surrounding such a breach would usually entail the public
authority's compliance with a statutory duty to disclose information to the
requesting party. Could a public
authority find comfort in the notion that compliance with that statutory duty
might trump a contractual obligation and therefore exclude contractual
liability? In all likelihood, the short
answer is no and that a failure to comply with a contractual consultation
clause may render the authority liable for damages. This article considers this issue by reference to relevant New
Zealand case law under that country's Official Information Act 1982.
Consultation
as a prerequisite to disclosure under the Freedom of Information Act
("FOIA")
Where an authority is in doubt as to whether its
disclosure would constitute a breach of confidence, or might otherwise fall
under an exemption, it can be expected to consult with the party from whom the
information was obtained. To some extent this issue is now covered in the
Secretary of State’s Code of Practice on the Discharge of Public Authorities'
Functions Under Part I of the Freedom of Information Act 2000 (the "FOIA
Code") as revised in November 2004.(1)
The FOIA Code states that in some cases it will be necessary to consult, directly
and individually, with third parties to determine whether or not an exemption
applies to information requested, or to reach a view on whether the Act’s
disclosure obligations arise in relation to that information. It also states
that in a range of other circumstances it will be good practice to do so: “for example where a public authority
proposes to disclose information relating to third parties, or information
which is likely to affect their interests, reasonable steps should, where
appropriate, be taken to give them advance notice, or failing that, to draw it
to their attention afterwards.” The
Code states further that it may also be appropriate to consult third parties
about matters such as whether any further explanatory material or advice should
be given to the applicant together with the information in question. Such
advice may, for example, refer to any restrictions (including copyright restrictions)
which may exist as to the subsequent use which may be made of such
information.(2)
One may note that the FOIA Code's expectation of
consultation “in some cases” is neither precisely defined nor statutory in
nature.(3) One might argue on public law grounds that consultation is mandatory
where confidential or commercially sensitive information is at stake, but these
arguments, although strong, are not necessarily robust.(4) Perhaps more importantly, breach of a public
law obligation does not, without more, give rise to an action for damages
against the public authority. For these
reasons, companies transacting with public authorities may wish to include
contractual consultation clauses to ensure, to the extent one can, that their
counterparty public authorities will be subject to a contractually binding
obligation to consult. For example,
they may want to include a term stating that no confidential information shall
be disclosed except where:
- the public authority has consulted the other contracting party on the proposed disclosure or at least reasonably informed that party of the proposed disclosure (within, for example, 7 days of receipt of a request, to enable that party to respond); and
- disclosure is required by law, under FOIA or otherwise.
Are such
clauses binding? The Astra
Pharmaceuticals case
If properly drafted, this kind of
clause ought to enable companies to protect their commercial position as best
they can prior to the proposed disclosure.
Such clauses have been employed in other jurisdictions with freedom of
information legislation, perhaps most notably, from the perspective of case law
on their validity, in New Zealand.
The key case is Astra
Pharmaceuticals (NZ) Limited v Pharmaceutical Management Agency Limited.(5) The
Pharmaceutical Management Agency ("Pharmac") is New Zealand's
regulatory body responsible for determining which pharmaceutical products are
subsidised from public funds. It
frequently enters into contracts with suppliers setting out the terms on which
their products will be subsidised. In
this case, Astra Pharmaceuticals had entered into such a contract for its anti-ulcerant drug Losec (a
proton pump inhibitor ("PPI")).
It sued and sought damages from Pharmac for breach by Pharmac of the confidentiality obligations
in that contract.
Prior to
the contract, the PPI therapeutic subgroup, to which reference pricing had been
applied (the effect of which in general terms is to subsidise each product in the subgroup at a
level equating to the price of the lowest priced product), consisted of Losec
and Zoton. To limit expenditure across
the anti-ulcerant therapeutic group (which consisted of the PPI subgroup and an
H2 antagonist subgroup ("H2As")), Pharmac had
placed restrictions on subsidisation of drugs in the PPI subgroup to the extent
that they were only subsidised if the patient had first been treated with H2As,
had seen a specialist, and had an endoscopy.
Astra wanted these restrictions lifted.
In October 1997 Pharmac agreed to lift the restrictions in
return for Astra's agreement to reduce the average daily cost ("ADC")
of the drug (which, through reference pricing, automatically lowered the level
of public subsidy for all drugs in the PPI sub-group) and to guarantee a cap on
the level of total Pharmac expenditure across the entire anti-ulcerant
therapeutic group. The contract
provided that, in general, reference pricing should continue, but there would
be an exemption from the reference pricing system where any reduction in the
ADC of Losec’s subgroup was the outcome of a cross deal by Pharmac with another
company.
Importantly for present purposes, the Losec contract also
contained a confidentiality clause in respect of information each party
provided to the other in the course of negotiating the contract. Under that clause, a prerequisite to
disclosure, even under the Official Information Act 1982 (NZ) (similar to
FOIA), was that "the other party ha[d] been reasonably informed prior to
any such disclosure". In addition,
Pharmac could not disclose the information "for the purposes of
consultation [in relation, for example, to other subsidisation proposals]
unless it [had] consulted with [Astra] before releasing that
information."
Although, as part of its consultation process with the
industry, Pharmac disclosed to Astra’s competitors that Losec was to be
de-restricted and that Astra had agreed to lower the ADC of Losec and manage an
expenditure cap across the anti-ulcerant group, the Court's judgment states
that the fact that there was an exemption from reference pricing was not
disclosed.
Subsequently, and albeit after initial refusal to an information request
under the Official Information Act which was taken to the Ombudsman, Pharmac
disclosed details of the Losec agreement to another company, Pharmacia and
Upjohn ("P&U"), whose competing PPI (Somac) had also been listed
on the Pharmaceutical Schedule (meaning it too was authorised to be state
funded). P&U then made a proposal
to Pharmac, which was accepted, which allowed it to compete on an equal footing
with Losec for a share of the PPI market.
Astra sued Pharmac.
Among other things, it claimed damages for breaches by Pharmac of the
confidentiality obligations in the Losec agreement. Astra's complaints concerned the provision of forecasts of
expenditure by Pharmac to P&U which were said to disclose Astra’s
confidential information and the disclosure to P&U of the Losec agreement
and in particular the clause dealing with the application of reference
pricing. Astra did not succeed in the
High Court but succeeded in part in the Court of Appeal. On the issues of confidentiality, the Court
of Appeal held that:
- Pharmac was in breach of its obligations under the confidentiality clause in disclosing certain market forecast and share data of Astra, and in disclosing, without first reasonably informing Astra, the provisions for exemption from reference pricing of Losec in the Losec Agreement.
- Had Pharmac not breached its confidentiality obligations, an agreement to lift restrictions on Somac would have come into effect four months later than it did. This part of the judgment contains a useful discussion of loss of chance principles and the Court's approach to Astra's argument that, had it been properly informed of the proposed disclosure, it would have sought injunctive relief.(6)
- Astra was entitled to be compensated for the breaches on the basis that Pharmac had an improper headstart in entering the Somac derestriction agreement which, when it came into effect, reduced the subsidy payable from public funds to Losec.
- Because Astra had not established that it had incurred loss due to the reduction in subsidy, damages were to be assessed in terms of the opportunity cost to Astra of the reduction.
One of Pharmac's points of cross-appeal was that there had
been no actionable breach of the confidentiality clause because Pharmac was
protected against such a claim by section 48 of the Official Information
Act. Section 48 provides that no
proceedings shall lie in respect of the making available of official
information in good faith, or for any consequences that follow from making it
available. The Court did not agree that this clause protected Pharmac. It said
Astra’s claim did not arise from making available official information or
consequences that followed from that.
Rather, it arose from a failure to notify Astra in advance that the
information would be made available, to which section 48 was not relevant.
Earlier in its judgment, the Court had commented on the
confidentiality clause in these terms:(7)
Comment
In the author's view, this logic
is directly applicable to contractual consultation obligations requiring a UK
public authority to consult an originator of information before disclosing it
under FOIA. Provided they are drafted
so as not to interfere with the temporal requirements of FOIA (e.g., the
expected time limit for complying with requests), they would not be
inconsistent with the terms of FOIA and therefore not invalid on the ground of
inconsistency with statute. Further,
section 56 of FOIA would not protect the public authority. That section states that the Act does not
confer any right of action in civil proceedings in respect of any failure to
comply with any duty imposed by or under the Act. The section is silent on duties arising in contract. It is virtually inconceivable
that a court would construe the provision in a way which excludes causes of action based on the breach of such duties.
The significance, for companies
and public authorities alike, is that the breach of such a clause would in
principle entitle the company to claim, from the public authority, damages
arising from the breach. In some cases
those damages may be minimal. In others,
like the Astra case above, they could be significant and give the company a
measure of commercial leverage which it might otherwise not have had.
Although an earlier version of the FOIA Code discouraged
public authorities from accepting confidentiality clauses, the kind of clause
outlined above is not a true confidentiality clause; it simply stipulates a
contractually permissible consultation procedure and recognises that disclosure
may subsequently be required by law. In
any event, some transactions may simply not go ahead if a public authority
refuses to include such a clause.
Conclusion
In the author's view, the conclusion is clear: a public authority which fails to comply
with a properly drafted contractual obligation requiring consultation or
notification prior to disclosure under the Act will not be able to argue
successfully that the Act somehow immunises it from liability for breach. To the contrary, it will expose itself to a
claim for damages for the harm suffered by its contractual counterparty as a
result of the breach.
Endnotes
(1) Available online at http://www.dca.gov.uk/foi/codesprac.htm
(2) See paragraphs 25-30 of the Code.
(3) One might argue, however, that at least a measure of
statutory prescription is found in section 45(2)(c) of FOIA which states that the Code of Practice must include provisions
relating to "consultation with persons to whom the information requested
relates or persons whose interests are likely to be affected by the disclosure
of information".
(4) One might argue, for example, that the nature of the
interests to be affected by disclosure are such as to warrant consultation as a
matter of procedural fairness, that a legitimate expectation of consultation
springs from the Code of Practice itself or past practice, or, at least, that whether to consult is a mandatory
relevant consideration.
(5) [2000] NZCA 345 (available online in full text via http://www.worldlii.org/nz/cases/NZCA/).
(6) Those who may find themselves advising companies in the
position of Astra may wish to read paragraphs 68 to 73 of the judgment.
(7) Paragraph 37 of the judgment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
