Case 010367 & 010368 & 010486 - Eircom Employee Share Ownership Trust and the Department of Finance

Application for a review of the decision of the Department of Finance to release correspondence between the Eircom Employee Share Ownership Trust and the Department of Finance - whether correspondence seeking an amendment to legislation is given in confidence or subject to a duty of confidence - section 26(1)(a) and 26(1)(b), whether background material supplied in order to assist the understanding of a query is subject to a duty of confidence - section 26(1)(b)

Case Summary

Facts

Following an offer to purchase Eircom in June 2001 the Eircom Employee Share Ownership Trust (ESOT) initially sought clarifications, from the Chef Inspector of Taxes, of the tax implications for its members of accepting the offer. When it appeared that acceptance of the offer would result in a tax disadvantage occurring to the ESOT's members, it wrote to the Department of Finance pointing out the difficulties that would arise and seeking a commitment from the Minister for Finance to propose amending legislation in the subsequent Finance Bill. Following a request received under the FOI Act the Department decided that all the correspondence including the letter to the Chief Inspector of Taxes should be released. The ESOT appealed the Department's decision to the Information Commissioner.

Decision

The Commissioner found that the correspondence concerned with seeking a change to the legislation was not given in confidence (section 26(1)(a)) or subject to a duty of confidence (section 26(1)(b)). However the Commissioner was satisfied that a duty of confidence applied to the "background material" supplied to the Chief Inspector of Taxes which was supplied in order "to assist the Inspector understand the nature of a query put to it". The same information was subsequently copied to the Department of Finance by the Eircom ESOT. The Commissioner commented that in this case the background information was of an essentially private nature relating to the ESOT's business affairs.

The correspondence also contained certain financial or commercial information relating to the ESOT. However the Commissioner found that section 27(1)(b) or (c) (commercially sensitive material) could not apply to this material at the time of her decision as this information had subsequently been disclosed in the ESOT's website and/or through the annual returns filed by Valentia Telecommunications with the Companies Registration Office.

Date of Decision: 24.09.2003

Our Reference: 010367 / 010368 / 010486

24.09.2003

Eircom ESOT c/o KPMG Tax Advisers 1 Stokes Place St. Stephen's Green Dublin 2

Dear KPMG

I refer to your application on behalf of the Eircom Employee Share Ownership Trust ("the ESOT") for a review of the decision of the Department of Finance ("the Department") to grant access under the Freedom of Information Act, 1997 ("the FOI Act") to certain records relating to the ESOT.

Background

I have now completed my review of the Department's decision in accordance with the provisions of the FOI Act, 1997, as amended by the Freedom of Information (Amendment)Act, 2003. Accordingly, all references in this letter to particular sections of the FOI Act, except where otherwise stated, refer to the 1997 FOI Act as amended. In carrying out my review, I have had regard to the following :

• your applications for review,
• your submissions to the Department of 23 August 2001 and 4 December 2001,
• your submissions to this Office dated 30 August 2002, 17 October 2002, 30 July 2003 and 25 August 2003,
• your telephone discussion with Mr Nutley of 15 July 2003 and
• your meeting with Mr Kelly and Mr Nutley of 21 August 2003.

I have also examined the Department's decision and the records to which the Department decided to grant access.

Scope of Review

The records to which the Department decided to grant access are those numbered 1 to 11 in the Department's decision which issued to you on 6 and 13 September 2001. Copies of these records were also enclosed with Mr Nutley's letter to you of 9 August 2002. I note that the record numbered 4 by the Department, an appendix to the note to the Minister, is a copy of part of record numbered 5.

My review is concerned solely with whether the Department's decision to grant access to these eleven records is justified.

Findings

The starting point of my analysis is section 34(12)(a) of the FOI Act, which provides that a decision to grant a request to which section 29 applies is presumed to have been justified unless the person to whom the information relates shows to the satisfaction of the Information Commissioner that the decision was not justified. In other words the onus is on the ESOT as the party objecting to release of the records to show to my satisfaction that the Department's decision was not justified.

Before elaborating on my findings I believe it would be useful to give a general description of the records involved. The records consist of five letters from KPMG, who were acting on behalf of the ESOT, to the Department . The letters are dated between 14 June 2001 and 21 June 2001. Attached to the letter of 14 June 2001 is a copy of a letter from KPMG to the Chief Inspector of Taxes seeking "approvals, clearances and confirmations" from the Chief Inspector of Taxes in relation to the tax implications for the ESOT if it accepted a particular proposal in relation to the sale of Eircom. The remaining letters from KPMG to the Department relate to the seeking of an undertaking from the Minister for Finance to amend legislation so that an Approved Profit Sharing Scheme (APSS) can acquire securities, other than ordinary shares in a founding company, from an ESOT. I note that you have described this correspondence as simply informing the Department of certain weaknesses in the tax legislation governing ESOTs and APSSs. I have addressed this aspect of your argument in my findings below. A number of the letters from KPMG include detailed financial information relating to the ESOT such as its share structure and debt at that time. The remaining records consist of an internal briefing note prepared by Department officials for the Minister and confirmation from the Department that the Minister would propose a suitable amendment in relation to all ESOTs in the Finance Bill, 2002. I note that this amendment was subsequently agreed and published in the Finance Bill, 2002 and Finance Act, 2002.

In your submissions you claim that the records are exempt from release on the grounds that the information in the records was given in confidence to the Department and that the information is commercially sensitive. You have also argued that it is "inequitable that the mere passage of time" can allow information to be released now that may not have been released at the time of the requests in August 2001. While I apologise for the delay in completing this review I make no comment on whether the information would have met the requirements of section 26(1) or 27(1) at the time although I note that the Department found that section 26(1)(a) did not apply at the time of its decision in September 2001. It also decided that the public interest required release of the records at that time. I am satisfied having regard in particular to the High Court judgement in the matter of Minister for Education and Science v. Information Commissioner [2001] IEHC 116 (31 July, 2001) that my review is a de novo review, or in other words my decision is to be made in light of the facts and circumstances applying at the date of my review.

I will now consider the application of the relevant sections of the FOI Act to each of the records.

Information Obtained in Confidence

Section 26(1)(a) and 26(1)(b) of the FOI Act provide protection for information obtained in confidence by public bodies.

Duty of Confidence

I note that you have claimed that the information in the correspondence given to the Department, some of which is repeated in the records created by the Department, is subject to a duty of confidence owed by the Department to the Eircom ESOT and that disclosure of the information would therefore result in a breach of a duty of confidence.

Section 26(1)(b) of the FOI Act provides that a request for access to a record shall be refused:

"if disclosure of the information concerned would constitute a breach of a duty of confidence provided for by a provision of an agreement or enactment ...or otherwise by law".

As you have not pointed to any particular agreement or enactment that provides for a duty of confidence I have considered whether there is a breach of an equitable duty of confidence. The correct tests to apply in deciding whether there is a breach of an equitable duty of confidence are set out in the case of Coco v. A. N. Clark (Engineers) Limited F.S. R. 415. (which is accepted as reflecting the Irish law on the subject - see, for example, House of Spring Gardens Limited v. Point Blank Limited [1984] I.R 611). The tests require that:

(1) the information has the necessary quality of confidence about it;
(2) the information was imparted in circumstances imposing an obligation of confidence and;
(3) there is an unauthorised use of that information to the detriment of the party communicating it.

I have carefully examined the information in each of these records. In this case the information can be divided into two types : (i) correspondence to the Department relating to the seeking of an undertaking from the Minister for Finance to amend legislation and (ii) some financial information relating to the ESOT. This same information is repeated in the internal memoranda created by the Department.

I note that you contend that this correspondence was not concerned with seeking to have the legislation changed but rather with pointing out weaknesses in the legislation as it pertained to ESOTs in general. I do not accept this as an accurate description of the correspondence involved. It is clear from the records before me that the initial correspondence with the Office of the Chief Inspector of Taxes was prompted by the offer from Valentia Telecommunications. KPMG was initially seeking clarifications from the Office of the Chief Inspector of Taxes regarding a number of issues including

SECTION DELETED

In the circumstances and having examined the contents of these records I believe it is fair to describe the correspondence as seeking to have the Minister for Finance amend legislation relating to ESOTs. However having examined the records and taking into account the points made in your submissions I accept that included in this correspondence is information of a private nature relating to the ESOTs business affairs and I have taken this into consideration in my findings.

I think that it is important to record that in Coco v. A. N. Clark (Engineers) Limited F.S. R. 415, Costello, J. characterised the obligation of confidence which is based on equity as a duty to act in good faith and as a moral obligation. In relation to your correspondence which relates to the seeking of an undertaking from the Minister for Finance to amend legislation, it does not seem to me that information consisting of an unsolicited request to amend legislation, albeit to the benefit of a number of people including the person making the request, can become the subject of a moral obligation on the part of a Government department not to disclose that request, particularly where that request has been considered and acted upon. I find it impossible to accept that, in this particular case, the release of these records by the Department would amount to "unconscionable behaviour" on its part. In addition you have not shown and it is not clear to me, as to what detriment would arise to the ESOT from disclosure of the correspondence in question, i.e correspondence which relates to the seeking of an undertaking from the Minister for Finance to amend legislation .

I also note from the Department's decision that when considering the application of section 26(1)(a), it did not consider that it needs to continue to receive this information or that disclosure of the information could prejudice the future supply of this type of information from KPMG or anyone else. The purpose of the correspondence was to grant a benefit to the ESOT so as to make the bid from Valentia Telecommunications more attractive . As such it is clear to me that you had a particular interest in supplying this information to the Department. In the circumstances and having regard to the context in which this information was supplied I do not consider that it was imparted in circumstances imposing an obligation of confidence on the Department. In the circumstances, and bearing in mind the requirements of section 34(12) referred to above, I find that section 26(1)(b) does not apply.

I have carefully examined the financial information relating to the ESOT contained in these records. In order for information to have the necessary quality of confidence the information must be concerned with private or secret matters rather than information which is trite or which is already in the public domain. Mr Nutley explained in his letter of 24 July 2003 that almost all of the financial information relating to the ESOT is now publicly available on the ESOT's website, www.esop.eircom.ie, or through the Annual Returns filed by Valentia Telecommunications with the Companies Registration Office. For example, details relating to the proposed share rights attached to each class of share, which is set out in the appendix to one of the letters from KPMG dated 21 June 2001, is detailed in issue 3 of the 'ESOP Extra' on the ESOP website. Information regarding the ESOT's debt at the time and since, is regularly updated in issues of 'ESOP Extra' while the identity of shareholders and the amount, per centage of shares owned, together with voting entitlements is also set out in the annual returns lodged by Valentia Telecommunications with the Companies Registration Office. The information in Appendix 4 attached to the letter dated 21 June to the Department (record numbered 11) is reproduced in 'ESOP Extra 3' under the heading "Summary of Valentia Share Capital'. I have carefully examined the records and with the exception of the information described below I am satisfied that all of the financial information is available or can be easily deduced from information which is now in the public domain. As this information is available to the public it can no longer be said that that the financial information relating to the ESOT contained in the letters from KPMG has the necessary quality of confidence and therefore section 26(1)(b) cannot apply to this financial information.

The main exception to my findings is the letter from KPMG to the Office of the Chief Inspector of Taxes dated 11 June (record numbered 2) which was attached to the letter to the Department of Finance dated 14 June. I accept that the letter to the Office of the Chief Inspector of Taxes was provided for a different purpose than the letters to the Department of Finance. It is clear from the letter that it was concerned with seeking clarifications of the tax laws as they pertain to the ESOT in order to assist the ESOT's assessment of the bid. Included in the letter are detailed plans concerning the ESOTs intention to use certain funds, how the ESOT manages its borrowings, how the security for the ESOT's debt will transfer and references to the possible quotation of some shares. This is information which to the best of my knowledge is not in the public domain and was provided as background material to assist the Office of the Chief Inspector of Taxes understand the nature of the query put to it. In general, there may be circumstances in which persons providing information or opinions which are intended to influence legislation also provide information of an essentially private nature about themselves or their business. I accept that the information in this letter is information of an essentially private nature about the ESOT and is information which meets the three tests set out above in relation to deciding whether there is a breach of an equitable duty of confidence.

The letter to the Department dated 19 June (record numbered 3) appears to have been given to the Department in response to queries from the Department regarding the future use of certain preference shares. This letter also includes detailed information regarding the ESOTs reinvestments in relation to its debt and the use of preference shares. The note for the Minister's information (records numbered 4 and 5) repeats some of the information. Having examined this material and in light of my comments in relation to the information in the letter to the Office of the Chief Inspector of Taxes I am satisfied that section 26(1)(b) applies to the sections of this letter under the headings 'Debt' and 'ESOT Preference Shares' and therefore to the second last paragraph in the appendix to the note for the Minister's information commencing, " The proposal is that approximately..." to " ...use of redeemable preference shares".

In summary I find that section 26(1)(b) applies to the financial information described above but not to the correspondence concerned with seeking to influence legislation or to the financial information relating to the ESOT which is in the public domain.

Public Interest Defence

In considering the application of section 26(1)(b), it should be noted that an action for breach of confidence is subject to a public interest defence. I take the view that consideration should be given to the possibility of breaching the duty of confidence where there is a sustainable public interest defence for doing so. The grounds on which such a public interest defence may be sustained are quite narrow and include, for example, the revelation of wrongdoing or danger to the public. Having examined the records to which I have found that section 26(1)(b) applies which contain information relating only to the essentially private business affairs and information which is not in the public domain I cannot identify any public interest defence ground supporting the release of the records in question.

Section 26(1)(a)

As I have found that section 26(1)(b) applies to the record and parts of records as described above I need only to consider the application of section 26(1)(a) to the remaining records and parts of records. As indicated above this is (i) correspondence to the Department relating to the seeking of an undertaking from the Minister for Finance to amend legislation and (ii) the remaining financial information relating to the ESOT which is in the public domain.

However section 26(1)(a) cannot apply to the records created by the Department by virtue of section 26(2) which provides that 26(1) shall not apply to records created by a member of staff of a public body unless such disclosure would constitute a breach of a duty of confidence. I have already considered whether a duty of confidence exists in relation to those records.

I note that in his letter to you of 9 August 2002 Mr Nutley explained that for section 26(1)(a) to apply, four requirements must be met, namely:

• that the information was given in confidence,
• that the information was given on the understanding that it would be treated as confidential,
• that the disclosure of the information would be likely to prejudice the giving to the public body of further similar information from the same person or other persons in the future, and
• that it is of importance to the body that such further similar information should continue to be given to the body.

In relation to the first two requirements of section 26(1)(a) the Commissioner interprets the term "confidence" by reference to the following definition, which is derived from the law relating to a breach of a duty of confidence:

"A confidence is formed whenever one party ('the confider') imparts to another ('the confidant') private or secret matters on the express or implied understanding that the communication is for a restricted purpose." ("B" v. Brisbane North Regional Health Authority, (1994) 1 QAR 279, at paragraph 45, quoting from F. Gurry "Breach of Confidence" in P. Finn (Ed.) Essays in Equity; Law Book Company, 1985, p.111.).

It will be clear from what I have said in relation to certain financial information relating to the ESOT being in the public domain that I am not satisfied that the first two requirements of section 26(1)(a) apply to this information.

I note that in its decision letter of 6 September 2001 the Department found that the third and fourth requirements of section 26(1)(a) did not apply to either the financial information or your remaining correspondence relating to the seeking of an undertaking from the Minister for Finance to amend legislation. It did not consider that the disclosure of any of the information in your letters would be likely to prejudice the giving to it of further similar information or that it was of importance that it continue to receive such information or similar information. In relation to this latter point it would seem that the Department is best placed to judge whether it is important for it to continue to receive the information contained in your letters to the Department

In addition I do not accept that disclosure of the information in your correspondence seeking to amend legislation would be likely to prejudice the giving by you or other persons of similar information to a public body. In this case the outcome of your correspondence with the Department was a commitment by the Minister for Finance to amend legislation relating to ESOTs.
SECTION DELETION

I acknowledge that the amendments to the legislation were for the benefit of all ESOTs. However I am not satisfied that in a situation where an individual or organisation seeks to have legislation changed and benefits financially from that change, that disclosure of such correspondence would be likely to result in that individual or organisation not seeking to do the same at some point in the future. It also seems to me that the continued provision of such information to the Department is of greater importance to the applicant than to the Department and, under these circumstances, I am satisfied that neither the third or fourth requirements of section 26(1)(a) have been met in the case of the correspondence concerned with seeking an undertaking from the Minister for Finance to amend the legislation.

You have suggested in your submissions that the ESOT and KPMG are entitled to confidentiality in dealing with the Department. Such a suggestion would seem to me to amount to a class exemption of all records supplied by entities such as KPMG and the ESOT. I do not accept that class exemptions can apply to the type of records which are the subject of this review. Each case must be considered on its own merits having regard to the contents of the records and the context in which they were created. Regard must also be had to the provisions of the particular exemption claimed. In this case, having regard to the contents of the records and the circumstances in which the Department received them, I am not satisfied that the provisions of section 26(1)(a) have been met.

Commercially Sensitive Information

You have also claimed that the records contain commercially sensitive information. I take it that your argument relates to sections 27(1)(b) and (c) of the FOI Act. Section 27(1) of the FOI Act requires a public body to refuse to grant a request if the record concerned contains :

"(b) financial, commercial, scientific or technical or other information whose disclosure could reasonably be expected to result in a material financial loss or gain to the person to whom the information relates, or could prejudice the competitive position of that person in the conduct of his or her profession or business or otherwise in his or her occupation, or

(c) information whose disclosure could prejudice the conduct or outcome of contractual or other negotiations of the person to whom the information relates".

It will be clear from my comments above that I accept that some of the information contained in your letters to the Department could be said to contain "financial or commercial" information. However the essence of the test in section 27(1)(b) and (c) is not the nature of the information but the nature of the harm which might be occasioned by its disclosure.

You have claimed that disclosure of information such as the ESOT's indebtedness to third parties and the share structure of the ESOT could have an effect on the marketability of ESOT shares in the future. SECTION DELETION
I have carefully examined each of the records involved. I have already found that almost all of this financial information relating to the ESOT is available on either the ESOT's website or from the Companies Registration Office. Therefore I do not accept that this information which is now in the public domain can result in the harm envisaged in sections 27(1)(b) and (c).

In relation to the remainder of your correspondence it is unclear to me and you have not explained how, disclosure of the correspondence which is concerned with seeking an undertaking from the Minister for Finance to amend legislation could result in a material financial loss or gain to the ESOT, could prejudice the competitive position of the ESOT, or could prejudice the conduct or outcome of contractual or other negotiations of the ESOT. Therefore I am not satisfied that sections 27(1)(b) or (c) apply.

Public Interest

Even if I were to accept that section 26(1)(a) or section 27(1)(b) or (c) applied I am required by sections 26(3) and 27(3) respectively to consider whether the public interest would, on balance, be better served by granting than by refusing to grant the request. In previous decisions my predecessor has attached a strong public interest in the openness and transparency of Government, particularly where representations made to Government are seeking to influence policy or legislation. In decision 98058 (available on my website www.oic.ie) the then Commissioner Kevin Murphy stated:

"As a general principle, I consider that it is in the public interest that views and representations which influence the legislative process should be open to public scrutiny ...."
"...the very enactment of the Freedom of Information Act suggests that significant weight should be attached to the public interest in an open and transparent process of government."

I concur with this view and in relation to the material which is concerned with the seeking of an amendment of legislation I am satisfied that, on balance, the public interest lies in granting access to this material. However I see no public interest in disclosing the financial information relating to the ESOT which is in the public domain.

the financial information relating to the ESOT which is in the public domain.

Decision

Having carried out a review under section 34(2) of the FOI Act, I hereby vary the decision of the Department in that I direct that access be refused to the following :

Record 2 : Letter dated 11 June from KPMG to the Chief Inspector of Taxes
All

Record 3 : Letter dated 19 June from KPMG to Department of Finance
Paragraphs headed 'Debt' and 'ESOT Preference Shares' only

Record 4 : Appendix to Note for Minister
Second last paragraph in the appendix to the note for Minister's information commencing " The proposal is that approximately..." to " ...use of redeemable preference shares".

Record 5 : Appendix to Note for Minister (copy)
Second last paragraph in the appendix to the note for Minister's information commencing " The proposal is that approximately..." to " ...use of redeemable preference shares".

A party to a review, or any other person affected by a decision of the Information Commissioner following a review, may appeal to the High Court on a point of law arising from the decision. Such an appeal must be initiated not later than eight weeks from the date of this letter.

Yours sincerely

Emily O'Reilly
Information Commissioner