17 October 2012Print This Post

The price of open justice

Katie Simmonds and Richard Berry look at the circumstances in which it is possible to hold commercial trials in private, or at least keep confidential information out of the public domain

Privacy: arbitrations are generally heard behind closed doors

Few commercial disputes go all the way to trial. But when they do, there is a price to having one’s day in court. Trials in England are, of course, generally held in public. This means that all evidence is given in public, and all documents referred to during the trial enter the public domain, often at the expense of confidentiality. In today’s world where social media has blurred the boundaries between private and public, the importance of retaining confidentiality is more important than ever.

However, is it possible for commercial trials to take place in private? Whilst the court has power to conduct its proceedings in private, it is clear that it will only rarely do so in commercial matters. This article explores the various ways in which confidentiality can be protected in commercial matters.

Principle of open justice is not absolute

The principle of open justice is a cornerstone of English law and the law of other liberal democracies because it is a crucial component of the Rule of Law. Lord Neuberger, the then Master of the Rolls, said at the Judicial Studies Board annual lecture in 2011: “We live in a country which is committed to the rule of law. Central to that commitment is that justice is done in public – that what goes on in court and what the courts decide is open to scrutiny.” Justice must be done and be seen to be done.

The principle of open justice is not absolute. Sometimes, justice is better served by a case being heard in private. The overriding objective in the Civil Procedure Rules requires the courts to deal with a case justly, which includes so far as is practicable “ensuring the parties are on an equal footing… [and] ensuring that it is dealt with expeditiously and fairly” (CPR 1.1(2)(a) and (d)).

The exceptions to open justice, where hearings take place in private, relate to family proceedings, usually involving children or vulnerable adults, or criminal proceedings where there is a risk of a threat to national security. In commercial cases, the parties are rarely able to retain the confidentiality of commercially sensitive information because the hearings are almost always held in public. The power to order that a hearing takes place in private is limited and contained in CPR 39.2, which is discussed below.

What confidentiality means

Confidential information is information that is not in the public domain. Confidential information may be protected by the law of confidentiality in the following scenarios:

(a)    Where that information is disclosed in circumstances “importing an obligation of confidence” (i.e. would a reasonable person have realised that upon reasonable grounds the information was being given to them in confidence? (Coco v AN Clark (Engineers) Limited [1969] RPC 41));

(b)    Where confidentiality arises from the relationship between the parties (the employment relationship being the most obvious example); or

(c)     Where there is a contractual obligation of confidentiality; this is probably the easiest way to ensure an obligation of confidentiality, although the information must also be confidential in the first place.

Confidential information that might attract protection includes:

  • Recipes which are not apparent from the final product, such as trade secrets;
  • Financial information;
  • Customer lists;
  • New inventions while the filing of a patent application is pending; and
  • Discoveries, scientific theories or mathematical methods.

Whilst confidentiality remains a ‘right’ before proceedings are issued, once a claim is commenced the ongoing duty of disclosure overrides this. The receiving party can only use any material that has been disclosed to him for the purpose of those proceedings, except where the document has been read in court, the court permits otherwise or the parties agree otherwise (CPR 31.22(1)).

The publicity of the contents of a document, or even just publicity of the fact of the document’s existence, can be prejudicial to the commercial interests of the party involved. This balance should be considered before proceedings are issued.

The general rule is that hearings must take place in public (CPR 39.2(1)), although there is a list of (mainly non-commercial) matters that may be heard in private. However, the courts are able to hear other cases in private (including commercial cases) where “it involves confidential information (including information relating to personal financial matters) and publicity would destroy that confidentiality” (CPR 39.2(c)).

The courts have been very careful not to erode the principle of open justice; just because they can hear a matter in private, does not mean they will. Two of the other scenarios in which the courts may hear cases in private are where “publicity would defeat the object of the hearing” and where the court “considers this to be necessary in the interests of justice” (CPR 39.2(a) and (g)).

But it is really the interests of justice in the case that matter when it comes to deciding whether to hold a hearing in private – not whether there would be any commercial prejudice to a litigant beyond the hearing of the case.

Arbitration claims are, as a rule (CPR 62.10), heard in private, making them an attractive method of resolving disputes. Therefore, when commercial parties contract to do business, by agreeing an arbitration clause in the event of a dispute (or even after a dispute has arisen), they are entitled to confidentiality in the first instance before the chosen arbitrator, and then are given a further guarantee of confidentiality if there is a challenge to the arbitrator’s ruling in the courts.

Protecting confidential information

Parties involved in commercial litigation are often more likely to achieve some protection of confidential information during the disclosure and inspection process. The disclosure process can be particularly damaging to a party as they are under a duty to disclose all documents in their possession, even those that are prejudicial to their case.

The court may, for example, dispense with or limit standard disclosure (CPR 31.5) – disclosure could, for example, be “for lawyers’ eyes only”. A party may apply to withhold disclosure of a document under CPR 31.19(1) but only on the ground that it would damage the public interest, which is unlikely in most commercial disputes.

Where inspection of documents is concerned, there is more scope for escaping the spotlight because CPR 31.3 permits a party to argue against permitting inspection where inspection would be disproportionate. So, if the subject-matter of the dispute is not the confidential information that a commercial party fears will be publicised, it is well worth considering making this argument at the disclosure stage.

Further, the court may restrict the use of a document that has already been disclosed under CPR 31.22(2), although arguably there should be a good reason why the disclosing party did not previously apply to withhold disclosure.

A good recent example of the courts’ general attitude is McKillen v Misland (Cyprus) Investments Ltd [2012] EWHC 1158 (Ch). The High Court refused applications to exclude the defendants from part of the trial, for part of the trial to be held in private and to make some of the evidence available to some of the defendants’ representatives only.

The judge decided that excluding the defendants from part of the trial would involve a “wholesale departure from the principle of natural justice”. The confidential information that related to personal financial matters, which the claimant sought to protect was primarily business information and the fact that the claimant had chosen not to do business through companies did not make it personal information.

In Pink Floyd Music Ltd and anor v EMI Records Ltd [2010] EWCA Civ 1429, the Master of the Rolls decided that having a private hearing or anonymising the parties, because of the alleged commercial sensitivity of a ‘percentage of receipts figure’ in a commercial agreement, was completely unjustified; if any protection was necessary, it would stretch no further than prohibiting the mention of the figure outside the proceedings and restricting third-party access to court documents containing the figure.

Other options

Litigants in commercial disputes do have some ability, however, to retain confidentiality. If part of a document is privileged, such as legal advice, that part may be redacted. Even more importantly for commercial litigants, commercially sensitive information which is also irrelevant may be redacted.

The problem, of course, is that the other side in the litigation will often claim that the information is relevant and may make an application for specific disclosure on that basis. A party may wish to adopt this tactic, but may face cost consequences in the event that an application for specific disclosure is successful.

Another tactic that is often adopted is to disclose documents containing certain redacted confidential information, usually on a without-prejudice basis, prior to proceedings being issued in order to facilitate settlement negotiations. This tactic has the advantage of there being no risk of a costs order, as the parties are not yet at the disclosure stage. More significantly, of course, it may avoid publicity of the confidential information.

In summary, there are limited circumstances in which parties can maintain commercially sensitive information confidential once proceedings are issued.

Katie Simmonds is a partner and Richard Berry is a solicitor at Burlingtons Legal LLP

 

By admin


Leave a comment

We encourage you to be part of the Litigation Futures community but please note that all comments will be moderated before posting. We draw your attention to clause 5 of the Terms and Conditions of the site, which deals with user-generated content.