Received in confidence

Wednesday 4 July 2007

First published in NZLawyer, 22 June 2007, based on an extract from a paper presented at the 2007 Advanced Competition and Fair Trading Law conference.

During a 'dawn raid', how can a company's confidential and commercially sensitive information be protected? Roger Partridge, Partner, and Simon Ladd, Senior Associate, explain.

In the life of a company, few events are more disruptive than being the target of a Commerce Commission investigation. The Commission has broad statutory powers, reinforced by the threat of criminal sanction, to compel the provision of information, whether by notice requiring production of documents or attendance at an interview or, more invasively still, through the execution of a search warrant – sometimes referred to as a 'dawn raid'.

Inevitably, during the execution of a warrant, the documents the Commission wishes to seize will include confidential and commercially sensitive information. The consequences of seizure of such information include the risk of disclosure of that information to other participants in the investigation, who may be competitors or customers of the company, as well as to the Commission's experts and outside counsel.

The company also faces the possibility of disclosure of the information as a result of an Official Information Act 1982 (OIA) request or discovery where proceedings follow the investigation (whether the company is a party to those proceedings or not). The documents the Commission wishes to seize may also include information that is legally privileged, such as the company's legal advice regarding its financial and tax matters, commercial transactions, disputes, or even the Commission's investigation. In one matter in which we were involved, the Commission sought to seize internal legal counsel's files concerning the Commission's investigation, presumably in order to provide the Commission with a 'road map' as to relevant issues and individuals for that investigation.

While the Commission is not entitled to seize privileged information (see, for example, Telecom Corporation of New Zealand Ltd v Commerce Commission [1991] NZAR 155 and Commerce Commission v Fullers Cruises Northland Ltd (1999) 13 PRNZ 412 at 416), the Commission's staff will very often be unable to identify whether such material is present or likely to be present. Consequently, one of the critical issues to be managed during the execution of a warrant, and subsequently, is protecting the company's confidential, commercially sensitive, and privileged information.

Protecting confidential information

The Commission is entitled to remove information that is confidential and commercially sensitive. There are, however, a number of simple practical steps a company can take, usually after the warrant has been executed, to protect confidential information.

The Commission often casts the net wide when drafting a search warrant for authorisation by the court. However, because it faces cost and other constraints, it may not, in fact, want to receive large volumes of information irrelevant to the investigation that will then need to be reviewed. By engaging with the Commission staff regarding the scope of the warrant at an early stage of the search, it may be possible to identify the information that is really sought, narrowing the scope of the information that is removed.

Confidentiality should always be asserted so that the claim to confidentiality is formally on the record. At the very least, a written request should be made that the Commission will consult before any confidential information is disclosed to third parties, that disclosure will be on expressly confidential terms, and that other participants in the investigation will not be permitted to retain a copy of any documents they are shown. Similarly, confirmation should be sought that the Commission will consult before providing information in response to an OIA request from a third party.

Confidentiality orders

The company can, of course, ask the Commission to exercise its discretion to make a formal confidentiality order under section 100 of the Commerce Act 1986 (Act): The Commission has discussed its approach to the exercise of its discretion to make a confidentiality order in a number of decisions, including Re Application for Confidentiality Order (1984) 4 NZAR 292 at 294 and Re Fisher & Paykel Ltd (1987) 1 NZBLC (Com)104,177, in which the Commission described its approach in detail:

• The Commission has a discretion under section 100 to make orders for the purposes of its proceedings with the result that information is exempted from the OIA's general principle that information is to be publicly available unless one of the exceptions in that Act applies.
• The onus is on the information provider to establish that information should not be disclosed.
• To be protected, information must be confidential. It must be secret in the sense that it is known only by the particular business by which it is used and is not public knowledge. It will have value so that its use by others will cause or be likely to cause detriment or loss to the owner.
• Where information is confidential in this way, the Commission must balance two conflicting interests in the circumstances of the case. The first is that disclosure of the information may result in serious prejudice to its provider. Further, the Commission must seek as far as practicable to uphold the principle that persons should not be discouraged from being frank with the Commission in relation to information which will assist the Commission.
• The conflicting interest that must be weighed is the consideration that justice should be done in public, and the public should know the decision, and what is considered to be in the public interest.

In practice we have found the Commission will resist making a confidentiality order on the basis that “to do so would unduly hinder its investigation”. The Commission's further submissions in Re Fisher & Paykel Ltd also provide guidelines as to how it may respond to requests for confidentiality in relation to particular categories of information:

• genuine trade secrets such as production processes, investment plans, technical formulae, and strategic intentions are almost always granted confidentiality;
• where disclosure of other information for which confidentiality is claimed would be prejudicial to the participants (such as production volumes and prices which are not otherwise public), the information is usually kept confidential, but may be made available to counsel and expert witnesses;
• approximate market shares are usually published, although specific information as to precise market shares may be granted confidentiality;
• the identities of witnesses who fear commercial retaliation are kept confidential, but a general description may be given and their evidence may be made available in anonymous form; and
• broad submissions and expert testimony are very unlikely to be granted confidentiality, although specific facts referred to in the submissions or testimony may be if they are confidential.

Even where successful in persuading the Commission to exercise its discretion to make a confidentiality order, it should be borne in mind such orders are not permanent and will expire or can be revoked. Although section 100 does not contain an express power to revoke orders that have been made, and does not appear to contemplate such an implied power, the Commission will revoke confidentiality orders when the continuation of the order will, in its view, hinder the conduct of its investigation (for example, when it wishes to discuss information subject to the order with third parties). In any case, confidentially orders will expire at the latest at the conclusion of the investigation or inquiry to which they relate.

The inevitable expiry of any confidentiality order means a complete strategy for protecting confidential information should also include the practical steps outlined above.

The Commission's obligation of confidentiality

The High Court decision of Vodafone New Zealand Limited v Commerce Commission (12 October 2005, High Court, Wellington CIV 2005-485-1767, Justice Ronald Young) demonstrates that where the Commission receives information that is confidential in circumstances importing an obligation of confidence, it is constrained by the confidential nature of the information, irrespective of whether or not it concludes the circumstances of the case justify making a formal confidentiality order. In such a situation, if the Commission discloses the confidential information other than for its statutory purposes, it risks proceedings for breach of confidence in tort.

The court granted an interim injunction restraining the Commission from disclosing publicly certain information that Vodafone had provided to the Minister of Communications. The Commission reported to the Minister recommending regulation of mobile termination services. Telecom and Vodafone presented a 'reference offer' to the Minister as a commercial alternative to regulation. Vodafone provided documents in support of the offer to the Minister on a 'without prejudice' and 'commercial in confidence' basis. The Ministry subsequently asked Vodafone and Telecom to consent to the release of information to the Commission to enable the Commission to advise the Ministry. Vodafone agreed on the express basis confidentiality would be retained.

Contrary to that agreement, the Minister asked the Commission to reconsider its recommendation and, in that context, to consider Telecom's and Vodafone's offers. Although the Minister advised the Commission that the offers were made on a commercially confidential basis, the Commission decided it should make the information publicly available. Telecom consented to this, but Vodafone did not, and proceedings to restrain a breach of confidence were issued.

The court accepted there could be no argument that the elements of the claim – information having the quality of confidence, imparted in circumstances importing an obligation of confidence, and unauthorised use or threatened use of that information – were made out. The real question was whether there was a countervailing public interest of sufficient importance to outweigh the interest in maintaining confidentiality. The court accepted the Commission had found itself in an impossible position following the Minister's disclosure of the information on a basis inconsistent with his agreement with Vodafone, but concluded it was difficult to see why there would be any compelling public interest in disclosing the information.

Although not referred to in Vodafone, in The Stepping Stones Nursery Limited v Attorney-General [2002] 3 NZLR 414, the High Court upheld the general principle that a public body that comes into possession of confidential information in the course of its duties must not disclose that information except for the purpose of, and to the extent necessary, for the performance of its public duties.

Accordingly, the Commission must maintain the confidentiality of information received from third parties in confidence and must not disclose that information other than for its statutory purposes.

* This article discusses protection of confidential and commercially sensitive information during the execution of a warrant. For a copy of the conference paper upon which the article is based, and which also discusses managing a Commission search and protecting privileged information, please contact Simon Ladd.