“We were unhappy that, because of the nature of commercial negotiations, we had to keep the settlement terms confidential but we can now be open about the good deal we have made for Bedfordshire residents.”
Cllr Madeline Russell, Leader of Bedfordshire County Council
Background
In 2001, Bedfordshire County Council entered into a £250 million, 12-year outsourcing agreement with Hyder Business Services Group Limited. There were a number of problems and Bedfordshire CC was described as being deeply dissatisfied with the performance of Hyder.
Notice of Termination – As a result of these problems, Bedfordshire CC served a written ‘Notice of Termination’ under the outsourcing agreement on
Repudiatory Breach – Hyder denied it was in breach and, in response to the Notice of Termination, claimed that Bedfordshire CC was in repudiatory breach of the outsourcing agreement. Hyder therefore accepted that the outsourcing agreement would come to an end following the Notice of Termination, subject only to Hyder’s right to claim damages against Bedfordshire CC.
Settlement – It was therefore clear that the outsourcing agreement would terminate on
Bedfordshire CC Gives Full Disclosure
Bedfordshire CC is a public authority for the purposes of the Freedom of Information Act 2000 and is therefore required to disclose the information it holds on request unless it is exempt from disclosure.
A local newspaper, the Times & Citizen, made a request under the FOIA 2000 for details of the settlement agreement with Hyder. While Bedfordshire CC was reported as initially refusing the request, it has now disclosed the information requested. What is surprising is that Bedfordshire CC have not restricted the disclosure to the headline terms of the settlement. Instead it disclosed a copy of the settlement agreement itself and the legal advice it received on the terms of the settlement agreement.
Settlement Agreement – Bedfordshire CC disclosed a virtually complete copy of the settlement agreement (save for the redaction of some details in the schedules about transferring employees and contracts). It shows that Bedfordshire CC withdrew its Notice of Termination and replaced it with a voluntary termination under which Bedfordshire CC paid a one off sum of £6.75 million to terminate the relationship, including £4.70 million for assets and £2.05 million for goodwill, contracts and services provided by Hyder.
It is interesting to note that one of the schedules to the settlement agreement is a joint press release. This, rather ineffectually, stated that “[Bedfordshire CC] and [Hyder] are pleased to announce that they have reached satisfactory terms over the termination of their Strategic Partnership. The precise details of the settlement remain confidential”.
Legal Advice – Bedfordshire CC also disclosed the legal advice it received from Tony Childs of Mayer, Brown, Rowe & Maw on the terms of the settlement agreement. The legal advice sets out the background to the matter and some of the major problems Bedfordshire CC encountered under the outsourcing agreement. Whilst noting that the negotiation of the settlement agreement had led to some late nights, the advice concluded that Bedfordshire CC had “held out for and struck a hard and favourable bargain” which was “an extremely favourable commercial settlement from the point of view of [Bedfordshire CC]”.
Why Did Bedfordshire CC Disclose?
There are a number of exemptions that Bedfordshire CC might have considered to withhold, or at least limit the scope of, the information disclosed. These are considered briefly below.
Actionable Breach of Confidence – The terms of the settlement would have been exempt if their disclosure amounted to an actionable breach of confidence (FOIA 2000, s 41). In addition, had this been the case, Hyder could have sought an injunction to prevent disclosure by Bedfordshire CC. However, the terms of the settlement agreement, clarifying the common – law confidentiality obligations, expressly prevented the application of this exemption. Clause 3 states:
“The Parties agree to keep confidential the terms of this Agreement save that (for the avoidance of doubt) the Parties and their legal advisers may disclose this Agreement … pursuant to a court order or by compulsion of law”.
Given the wording of this clause, Bedfordshire CC’s disclosure of this information would not have amounted to an actionable breach of confidence as it was made under compulsion of law, in this case under the FOIA 2000.
Commercial Prejudice – The terms of the settlement would also have been exempt if their disclosure would “prejudice the commercial interests of any person” (s 43) and the disclosure was not in the public interest. In this case there was clearly a very strong public interest in at least the headline details of the settlement being made available, though it is not clear if the full disclosure made by Bedfordshire CC was entirely necessary.
What is more interesting to consider is how the public interest test was approached. It is clear from the quote at the head of this article that Bedfordshire CC were not minded to keep the terms of the settlement agreement confidential and, in the absence of any secondary action for breach of confidence, Hyder would have had no power to prevent disclosure had it disagreed with Bedfordshire CC’s assessment of the public interest test.
Could Disclosure Have Been Avoided? – In theory, a stronger confidentiality clause could have been included in the settlement agreement. If this had been sufficient to make disclosure of the information under the FOIA 2000 an actionable breach of confidence, it would have made this information exempt from disclosure under the Act. While this approach is attractive in theory, there are a number of reasons why this approach would not have been successful:
· Bedfordshire CC would have been unable to accept a blanket confidentiality ban as it would need the right to disclose the key financial details in its next set of accounts;
· such a blanket ban, while not strictly prohibited by the FOIA 2000, would not be in the spirit of the legislation and therefore accepting such a restriction would have attracted criticism from the Information Commissioner; and
· the duty of confidence under the settlement agreement could have been overridden by the public interest in disclosing this information. Therefore, even with stronger confidentiality obligations, the courts may not have found an actionable breach of confidence (for example, see W v Edgell [1990] 1 All ER 835).
Notwithstanding these points, it seems inevitable that there would be a request under the FOIA 2000 for disclosure of this information. It is therefore surprising that the settlement agreement did not at least oblige Bedfordshire CC to notify, and consult with, Hyder once a FOIA request was made.
It would also have been possible to include more information in the initial press release. If this had set out the headline terms of the settlement, the press would not have needed to use FOIA to obtain this information and the public interest in disclosing the remaining information would have been much weaker.
Comment
The settlement agreement, and its subsequent release under the FOIA 2000, generated a great deal of unwanted publicity for Hyder. Whilst fuller initial disclosure might have avoided some of this unwanted publicity, the main lesson is that those who contract with the public sector must be aware of the dangers of FOIA and protect their information accordingly.
The settlement agreement and legal advice are available here
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The press release from Hyder on the settlement agreement is available here < http://www.hbs.uk.com/hbs/content/pr_Bedfordshire_Sep_2005_p1.asp >.
Richard Cumbley is a Managing Associate in and Peter Church is a Professional Support Lawyer in the Information Technology and Communications Department at Linklaters: www.linklaters.com
