In the recent case of Transport for Greater Manchester v Thales Transport Security Ltd the High Court was required to decide how widely to interpret the audit provisions of a services contract. The decision turned largely on the facts of the case and on the contract wording, but it serves as a useful reminder of the importance of tailoring audit clauses to the requirements of the contracting parties in each specific situation.
The case involved a contract under which Thales Transport Security Ltd (T) supplied a tram operating system to Transport for Greater Manchester (GM). During performance of the contract, T requested a number of extensions of deadlines and attempted to claim increased costs in order to complete the project. These claims resulted in a dispute between the parties and GM sought to rely on widely drafted audit provisions in the contract in order to obtain certain information which it contended would assist its understanding of T’s requests and claims. T refused to provide GM with most of the information it requested and GM sought an order from the court for specific performance for T to supply a wide range of documents.
The audit provisions of the contract:
| (a) | required T to maintain up to date records in relation to performance of its obligations under the contract; and |
| (b) | permitted GM and any auditor appointed under the contract wide rights to access and inspect records and documents in the possession of T for the purposes of auditing information supplied under the contract and for the purposes of verifying T’s compliance with its obligations. |
GM argued that it required the documents in order to audit information already provided to it under the contract (the claims for additional costs) and to enable GM to check whether T had been complying with its obligations under the contract. T argued that the audit clause should be narrowly construed and that T should be entitled to withhold documents containing personal data and commercially sensitive information.
The High Court was required to consider whether one of the purposes outlined at (b) above had been established. It also had to determine:
| i. | the scope of records which “related” to T’s performance of its obligations – should this only extend to documents relating to what was performed, or should this also extend to documents relating to non-performance?; |
| ii. | whether documents containing personal data and/or commercially sensitive information should be subject to the audit provisions; and |
| iii. | whether GM’s request had been too broad or imprecise. |
The High Court decided largely in favour of GM and granted an order for specific performance for most of the documents requested to be disclosed to GM. It found, on the facts, that GM had successfully established that the requests were made for the purposes of checking information already provided to it (in respect of increased contract costs) and for the purposes of verifying T’s compliance with its contractual obligations. It also decided that the obligation to maintain records “relating to” T’s performance should be given a broad construction and that documents which contained information in respect of T’s non-performance should also be disclosed. Mr Justice Akenhead commented that if the narrower construction had been intended, those drafting the contract would have used the phrase “limited to” or similar.
In respect of documents containing confidential information, the Court rejected T’s argument that these should be withheld. It pointed out that confidentiality protections were already built into the contract and that these were wide enough to extend to information disclosed under the audit provisions. In respect of documents containing personal data, the Court found in this case that its order for specific performance would provide a defence to T in the event a data subject complained that the disclosure was a breach under the Data Protection Act 1998 and, further, that redactions could be made to anonymise the details of individuals identified in any of the documents.
The High Court did not order disclosure of a small number of the documents requested by GM. It found that requests for “documents containing a breakdown of the labour costs incurred by T in respect of personnel engaged on the contract” and “documentation relating to the integration and performance of T’s equipment within the overall system” were too imprecisely described and suggested that further description of the exact type of document GM was looking for in these respects would have been preferable. Furthermore, it was not prepared to order disclosure of externally prepared audit reports, on the basis they may have been subject to legal privilege. Finally, the Court did not order disclosure of “documents explaining the reasons for the departure from the project of four project directors and four directors”, on the basis that this request amounted to a fishing expedition.
Comment
This case highlights the importance of ensuring that audit provisions are properly negotiated and drafted. Matters to bear in mind include:
| | tailor provisions to the services being provided – the party on which disclosure obligations are placed should ensure that the purposes for which disclosure can be made are clearly spelled out and drafted narrowly to avoid an indeterminate range of information later being subject to audit requests; |
| | commercially sensitive information and personal data – if a party wishes to exclude these types of information from audit obligations, an express exclusion should be included in the drafting (note that a right for the disclosing party to redact such information might be more appropriate depending on the circumstances); and |
| | obligations to maintain records – the party entitled to request documents for audit should ensure that its right to audit is accompanied by an obligation on the other party to maintain records of the type it will be seeking – if such an obligation is not included, documents falling under the scope of an audit request may be limited to those which the other party retains in the course of its usual business and may not include the sort of information the requesting party is concerned with. |
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