“Members only club”: Court of appeal upholds appropriateness of confidentiality rings/clubs for discovery
A recent decision of the Court of Appeal shows that the Irish courts are willing to impose confidentiality rings in specific circumstances.
The decision is helpful for entities concerned that competitors may use litigation to obtain access to their confidential or commercially sensitive information and so gain a commercial advantage.
The decision was given in Goode Concrete v CRH plc & Ors. We acted for CRH Plc and Roadstone Wood Limited
What is a Confidentiality Ring?
The risk that confidential or commercially sensitive information might have to be disclosed to a competitor in litigation can be a real concern for commercial parties, particularly where the disclosure might give a competitor an unfair commercial advantage. To prevent this, the courts can put in place what is known as a ‘confidentiality ring’ or a ‘confidentiality club’, restricting access to and use of the information in question.
While the parameters of a confidentiality ring will vary depending on the nature of the case and the sensitivity of the relevant documentation, typically the court will limit access to the documents to the party’s lawyers and any experts retained by the party, precluding access by the parties themselves. The lawyers and experts concerned will be required to undertake not to reveal the contents of the documents to their clients or other third parties.
The protection of confidential information in this manner is well established in English law and is particularly common in competition proceedings or proceedings involving trade secrets or intellectual property rights. However, the Irish courts have traditionally been reluctant to curtail discovery rights in this way. One argument against their use is that they are not strictly necessary as parties to litigation impliedly undertake to only use information exchanged on discovery for the purpose of the existing proceedings. However, this offers little comfort to the party handing over sensitive commercial information as the reality is that the other party cannot “unsee” it and may therefore gain an unfair commercial advantage.
The Goode Concrete case
In Goode Concrete, the High Court established a confidentiality ring, on the defendants’ asking, to limit access to commercial information relating to the defendants’ pricing strategy, cost base and successful tenders. The Court was satisfied that it was not necessary for the purposes of the litigation for the plaintiff to see this information.
The confidentiality ring comprised the plaintiff’s legal advisors and independent expert advisors only, and they were directed to provide an undertaking to the High Court not to disclose the substance or tenor of the relevant documentation. The plaintiff’s solicitors were also directed to undertake that any expert later instructed in the proceedings would treat the documentation similarly.
The Court of Appeal has now upheld this approach and dismissed an appeal brought by the plaintiff. The decision shows how a court, when considering an application to establish a confidentiality ring, must balance the plaintiff’s right to have access to the information needed to progress its claim against the defendant’s right to protect its business interests from possible abuse of discovered materials.
Here are some of the key points from the Court of Appeal decision:
- the proceedings were competition law proceedings and the Court took the view that a confidentiality ring was necessary to avoid creating an unfair situation in which the plaintiff would walk away from the proceedings with “a legal loss but a commercial win”;
- confidentiality rings are standard practice in appeals before the Competition Appeals Tribunal in the UK and are also catered for in the EU Damages Directive;
- the plaintiff’s arguments as to the possible negative implications of the establishment of a confidentiality ring on future competition law proceedings and/or on the principle of open justice were not persuasive;
- there was detailed evidence before the High Court as to the commercial sensitivity of the documentation requested;
- the individuals behind the (insolvent) plaintiff company still operated in the same market as the defendants;
- the plaintiff did not adequately explain how it would be prejudiced if it (as opposed to its advisors) were debarred from access to the material.
- the Court was of the view that an analysis of material of the nature ordered to be discovered (i.e. pricing strategy etc.) is precisely the role which is expected of an expert.
- an undertaking offered by the individual parties behind the plaintiff not to use the documentation for any collateral purpose was of “little practical use” to the defendants who had no real way of policing it.
The decision is certainly a welcome development and it shows that the Irish courts are willing to impose confidentiality rings in specific circumstances and are developing procedures to protect disclosure of certain information which might give a competitor an unfair commercial advantage. However, it should not be assumed that the Irish courts will establish confidentiality rings without detailed evidence as to the commercial sensitivity of the information and/or documentation concerned.