Why does 'confidential' does not always mean confidential in the North East business world

The latest scandal to complicate the lives of David and Victoria Beckham might not seem to have much immediate impact on the North East business community, but any business that has signed a confidentiality agreement could end up like the Beckhams and find information it previously thought was private is soon in the public domain. Paul Earnshaw, Partner with Crutes Law Firm in Newcastle, says that businesses in the region should be taking steps to ensure that their transactions don’t become public knowledge.

Confidentiality agreements have made national headlines recently with the Beckhams taking the News of the World to court to seek an injunction that would have stopped the newspaper publishing stories about their private lives. A former nanny of the couple, who had signed a confidentiality agreement as part of her contract, sold her story to the paper. The Beckhams failed, and the resulting headlines have not yet gone away, with much financial damage being inflicted on the value of the ‘Beckham brand’ in the process.

However, it is not just celebrities who expect their details to be kept confidential. Businesses in the region could unexpectedly find financial details of their transactions becoming publicly available to their customers, employees and competitors.

It is commonplace in company acquisitions for a confidentiality agreement to be required before a seller will disclose financial and commercially sensitive information and it is also becoming increasingly common for a confidentiality agreement to be entered into in relation to property matters.

Obviously, the best protection is to disclose as little as possible to as few people as possible.

However, this is easier said than done. In the business world, particularly in property transactions, it is becoming increasingly difficult to keep information secret. Property prices are recorded on the Land Register, a ream of information is provided on a Stamp Duty Land Tax form, more leases than ever before are registered with the Land Registry and, following the 2002 changes to Land Registry Rules, they can be accessed by anyone, and the Freedom of Information Act which came into force at the start of this year is taking disclosure even further.

Despite this, there are ways and means of keeping your business transactions private, such as:

• On property transactions, include the price of the transaction in the ‘Agreement for Sale’ rather than the ‘Transfer’. The latter has to be registered with the Land Registry, whereas an Agreement for Sale doesn’t.
• Be aware of what can become public information, and what can’t, e.g. Stamp Duty Land Tax forms are unavoidable and highly detailed, but are held by HM Customs and Revenue and not accessible to the public
• Remember that information that might be prejudicial to commercial interests can be exempted from documents registered at the Land Registry, for example rents in leases.
• Be aware that certain documents are protected by notices at the Land Registry. One type of notice requires disclosure of the document and one does not.
• Remember that any information you give to a public authority could well be disclosed under the Freedom of Information Act unless it is ‘confidential’ or would prejudice commercial interests.
• Only disclose information that is sufficient for a buyer to make a decision.

There is no doubt that it will always be difficult to prove where the ‘leak’ came from if information gets out into the public domain. Sellers also need to know that whether or not an injunction will be granted is a decision for the courts, and each case will be taken on its own facts. If the cat does get out of the bag then the purpose of the confidentiality agreement will have failed, and damages may not be an adequate compensation. The key is to control the information in the first place.

It is interesting that the reason given by the Judge for refusing to grant an injunction to the Beckhams was that this information was in the public interest. Commentators have said that they must take the rough with the smooth, and accept the bad publicity along with the good publicity. Does this mean that if a high-profile business leader who ‘actively seeks publicity’, for example Richard Branson or recently Alan Sugar, were seeking an injunction they would be treated differently to business leaders who keep their activities private?

That remains to be seen, but it is true that despite public support for a privacy law, there is unlikely to be one. This means that North East businesses will need to be increasingly careful as to when and how they provide ‘confidential’ information to clients and partners.

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