X Ltd and another v Morgan-Grampian (Publishers) Ltd and others  2 All ER 1
LORD BRIDGE OF HARWICH: My Lords, the plaintiffs are two associated private companies whose anonymity it is essential to preserve if the proceedings they have brought are to serve their intended purpose. In 1989 the plaintiffs wished to raise additional capital and a number of their senior officers with the assistance of their accountants were engaged in preparing a corporate plan for submission to prospective lenders. Much of the information in the plan was in the highest degree confidential....
On 1 November 1989 there were eight numbered copies of the latest, but not yet final, draft of the plan....Between 3 pm and 4 pm on 1 November one copy was left in an unattended, unlocked room at the plaintiffs' premises. During that time it disappeared.
On the next day somebody, whom it is convenient to refer to as 'the source', telephoned to the third defendant, Mr Goodwin, who is a young trainee journalist employed by one or other of the defendant companies, the publishers of a weekly journal called 'The Engineer'.... The source gave Mr Goodwin certain information about the plaintiffs. The nature of the information and the timing of the communication justify the inference that the source had obtained the information from the plan and was either the person who had stolen the missing copy or was closely associated with that person.
Mr Goodwin was minded to write an article for 'The Engineer' about the plaintiffs based in part on the information given to him by the source... But before any decision was taken to publish, the plaintiffs, alerted by Mr Goodwin's inquiries, obtained an ex parte injunction to restrain publication.
When the matter came before Hoffmann J, inter partes, the plaintiffs sought not only injunctions against all the defendants to restrain publication but also orders for disclosure of the identity of the source and of the notes which Mr Goodwin had made of his conversation with the source as a means of discovering that identity (see Re Goodwin  1 All ER 608). No issue arises regarding the injunctions. The outcome of several hearings between 14 and 22 November was that the publishers, who did not know the identity of the source, were ordered to disclose the notes but could not comply with the order because they had no means of coercing Mr Goodwin. By order dated 22 November, Mr Goodwin was ordered to disclose his notes to the plaintiffs by 3 pm on the following day, but later on 22 November the Court of Appeal (Lord Donaldson of Lymington MR, Ralph Gibson and McCowan LJJ) varied this order by giving Mr Goodwin the option of delivering his notes to the court in a sealed envelope which would remain sealed until final determination of Mr Goodwin's appeal against the order. If the appeal was allowed, the envelope was to be returned to him unopened. Mr Goodwin failed to comply with the order. On 24 November the plaintiffs moved to commit him for contempt. The motion was adjourned by Hoffmann J pending the outcome of the appeals against his orders. It was for the purposes of this motion that Mr Goodwin swore an affidavit dated 24 November purporting to explain and, indeed, to justify his non-compliance with the order as amended by the Court of Appeal.... Mr Goodwin's failure to comply with the order was a plain declaration of his determination to set himself above the law.
In judgments delivered on 12 December 1989 the Court of Appeal (Lord Donaldson of Lymington MR, Ralph Gibson and McCowan LJJ) ( 1 All ER 616,  2 WLR 421) dismissed the appeals of the publishers and Mr Goodwin....
Privilege from disclosure
The courts have always recognised an important public interest in the free flow of information. How far and in what circumstances the maintenance of this public interest operated to confer on journalists any privilege from disclosure of their sources which the common law would recognise admitted of no short and simple answer on the authorities. But the matter is no longer governed by the common law and I do not think any assistance is to be gained from the authorities preceding the coming into force of s 10 of the Contempt of Court Act 1981 which is in these terms:
No court may require a person to disclose, nor is any person guilty of contempt of court for refusing to disclose, the source of information contained in a publication for which he is responsible, unless it be established to the satisfaction of the court that disclosure is necessary in the interests of justice or national security or for the prevention of disorder or crime.
....It is...now clearly established that the section is to be given a wide, rather than a narrow, construction in the sense that the restriction on disclosure applies not only to direct orders to disclose the identity of a source but also to any order for disclosure of material which will indirectly identify the source and applies, notwithstanding that the enforcement of the restriction may operate to defeat rights of property vested in the party who seeks to obtain that material: see Secretary of State for Defence v Guardian Newspapers Ltd  1 All ER 453 at 459, per Griffiths LJ;  3 All ER 601 at 607 per Lord Diplock....
It follows then that, whenever disclosure is sought, as here, of a document which will disclose the identity of a source within the ambit of s 10, the statutory restriction operates unless the party seeking disclosure can satisfy the court that 'disclosure is necessary' in the interests of one of the four matters of public concern that are listed in the section. I think it is indisputable that where a judge asks himself the question 'Can I be satisfied that disclosure of the source of this information is necessary to serve this interest?', he has to engage in a balancing exercise. He starts with the assumptions, first, that the protection of sources is itself a matter of high public importance, second, that nothing less than necessity will suffice to override it, third, that the necessity can only arise out of concern for another matter of high public importance, being one of the four interests listed in the section.
What assistance is to be derived from the authorities as to the proper tests to be applied in carrying out this balancing exercise? In Secretary of State for Defence v Guardian Newspapers Ltd  3 All ER 601 at 603,  AC 339 at 345 Lord Diplock said:
"The section is so drafted as to make it a question of fact, not of discretion, whether in the particular case a requirement for disclosure of sources of information falls within one of the express exceptions introduced by the word 'unless'".
In the same case I said ( 3 All ER 601 at 623,):
"There is no ambiguity in the phrase 'necessary in the interests of national security'. Whether such a necessity is established by the evidence, and, in the case of an interlocutory application, whether the necessity is established at the interlocutory stage, are both questions of fact which must always depend on the evidence adduced in any particular case".
In Re an inquiry under Company Securities (Insider Dealing) Act 1985  1 All ER 203 at 208(209,  AC 660 at 704 Lord Griffiths said:
"What then is meant by the words 'necessary for the prevention of crime' in s 10? I do not think that much light is thrown on this question by an elaborate discussion of the meaning of the word (necessary(. 'Necessary' is a word in common usage in everyday speech with which everyone is familiar. Like all words, it will take colour from its context; for example, most people would regard it as 'necessary' to do everything possible to prevent a catastrophe but would not regard it as 'necessary' to do everything possible to prevent some minor inconvenience. Furthermore, whether a particular measure is necessary, although described as a question of fact for the purpose of s 10, involves the exercise of a judgment on the established facts. In the exercise of that judgment different people may come to different conclusions on the same facts; for an example of this one has to look no further than Secretary of State for Defence v Guardian Newspapers Ltd. But this cannot be avoided and the task of the judge will not be lightened by substituting for the familiar word 'necessary' some other set of words with a similar meaning....The nearest paraphrase I can suggest is 'really needed'"....
I cannot help wondering whether these dicta do not concentrate attention too much on only one side of the picture. They suggest that in determining whether the criterion of necessity is established one need only look at, in the one case, the interests of national security and, in the other case, the prevention of crime. In the context of cases dealing with those two grounds of exception to the protection of sources, it is perfectly understandable that they should do so. For if non-disclosure of a source of information will imperil national security or enable a crime to be committed which might otherwise be prevented, it is difficult to imagine that any judge would hesitate to order disclosure. These two public interests are of such overriding importance that once it is shown that disclosure will serve one of those interests, the necessity of disclosure follows almost automatically; though even here if a judge were asked to order disclosure of a source of information in the interests of the prevention of crime, he 'might properly refuse to do so if, for instance, the crime was of a trivial nature'....
But the question whether disclosure is necessary in the interests of justice gives rise to a more difficult problem of weighing one public interest against another..... To construe 'justice' as the antonym of 'injustice' in s 10 would be far too wide. But to confine it to the technical sense of 'the administration of justice in the course of legal proceedings in a court of law' seems to me, with all respect due to any dictum of Lord Diplock, to be too narrow. It is, in my opinion, 'in the interests of justice', in the sense in which this phrase is used in s 10, that persons should be enabled to exercise important legal rights and to protect themselves from serious legal wrongs whether or not resort to legal proceedings in a court of law will be necessary to attain these objectives. Thus, to take a very obvious example, if an employer of a large staff is suffering grave damage from the activities of an unidentified disloyal servant, it is undoubtedly in the interests of justice that he should be able to identify him in order to terminate his contract of employment, notwithstanding that no legal proceedings may be necessary to achieve that end.
Construing the phrase 'in the interests of justice' in this sense immediately emphasises the importance of the balancing exercise....In this balancing exercise it is only if the judge is satisfied that disclosure in the interests of justice is of such preponderating importance as to override the statutory privilege against disclosure that the threshold of necessity will be reached.
Whether the necessity of disclosure in this sense is established is certainly a question of fact rather than an issue calling for the exercise of the judge's discretion..... In estimating the weight to be attached to the importance of disclosure in the interests of justice on the one hand and that of protection from disclosure in pursuance of the policy which underlies s 10 on the other hand, many factors will be relevant on both sides of the scale.
It would be foolish to attempt to give comprehensive guidance as to how the balancing exercise should be carried out. But it may not be out of place to indicate the kind of factors which will require consideration. In estimating the importance to be given to the case in favour of disclosure there will be a wide spectrum within which the particular case must be located. If the party seeking disclosure shows, for example, that his very livelihood depends on it, this will put the case near one end of the spectrum. If he shows no more than that what he seeks to protect is a minor interest in property, this will put the case at or near the other end. On the other side the importance of protecting a source from disclosure in pursuance of the policy underlying the statute will also vary within a wide spectrum. One important factor will be the nature of the information obtained from the source. The greater the legitimate public interest in the information which the source has given to the publisher or intended publisher, the greater will be the importance of protecting the source. But another and perhaps more significant factor which will very much affect the importance of protecting the source will be the manner in which the information was itself obtained by the source. If it appears to the court that the information was obtained legitimately this will enhance the importance of protecting the source. Conversely, if it appears that the information was obtained illegally, this will diminish the importance of protecting the source unless, of course, this factor is counterbalanced by a clear public interest in publication of the information, as in the classic case where the source has acted for the purpose of exposing iniquity. I draw attention to these considerations by way of illustration only and I emphasise once again that they are in no way intended to be read as a code.
In the circumstances of the instant case, I have no doubt that Hoffmann J and the Court of Appeal were right in finding that the necessity for disclosure of Mr Goodwin's notes in the interests of justice was established. The importance to the plaintiffs of obtaining disclosure lies in the threat of severe damage to their business, and consequentially to the livelihood of their employees, which would arise from disclosure of the information contained in their corporate plan while their refinancing negotiations are still continuing....The importance of protecting the source on the other hand is much diminished by the source's complicity, at the very least, in a gross breach of confidentiality which is not counterbalanced by any legitimate interest which publication of the information was calculated to serve. Disclosure in the interests of justice is, on this view of the balance, clearly of preponderating importance so as to override the policy underlying the statutory protection of sources and the test of necessity for disclosure is satisfied....
The position of Mr Goodwin
It is very much to be hoped, for his own sake, that Mr Goodwin, even at this late stage, will re-examine his attitude to the court's order and decide to comply with it. I refer to certain passages in his affidavit sworn on 24 November 1989. In para 4 he deposes:
"These proceedings have placed me in a conflict which I have been unable to reconcile between my duty to obey the law and my duty to protect my source. The information about the plaintiff company was provided to me pursuant to an undertaking that I should not divulge the name of the contact. I do not believe that the information involved in this case was supplied to me pursuant to some criminal enterprise or from any personal or competitor inspired malevolence towards the plaintiff company. I cannot therefore see a moral justification for breaking my undertaking".
The clear implication of this passage is the recognition that there may be a 'moral justification' for a journalist to break his undertaking to protect his source. But Mr Goodwin takes up the position that it is for the journalist, not for the court, to determine when the circumstances are such as to provide that justification. This wholly undermines the protestations of a high-minded determination to seek a martyr's crown in conscientious defence of an indissoluble obligation, which I cite from paras 7 and 8:
"I have made a promise of confidentiality and I cannot in conscience go back on it, even though it exposes me to punishment. I am prepared to take that punishment, on the basis that, regretfully though deliberately, I have broken the law as it stands, I am under a recognised obligation of confidence to my source, from which I have not been released and from which I cannot in conscience release myself. I feel deeply unhappy at breaking the law, but I believe I have no honourable alternative"......
The maintenance of the rule of law is in every way as important in a free society as the democratic franchise. In our society the rule of law rests on twin foundations: the sovereignty of the Queen in Parliament in making the law and the sovereignty of the Queen's courts in interpreting and applying the law. While no one doubts the importance of protecting journalists' sources, no one, I think, seriously advocates an absolute privilege against disclosure admitting of no exceptions. Since the enactment of s 10 of the 1981 Act both the protection of journalists' sources and the limited grounds on which it may exceptionally be necessary to override that protection have been laid down by Parliament. I have not heard of any campaign in the media suggesting that the law itself is unjust or that the exceptions to the protection are too widely drawn. But if there were such a campaign, it should be fought in a democratic society by persuasion, not by disobedience to the law. Given the law as laid down by s.10, who, if not the courts, is to interpret it and to decide in the circumstances of any given case whether the protection is to prevail or whether the case is brought within one of the exceptions? The journalist cannot be left to be judge in his own cause and decide whether or not to make disclosure. This would be an abdication of the role of Parliament and the courts in the matter.....[T]o contend that the individual litigant, be he a journalist or anyone else, has a right of 'conscientious objection' which entitles him to set himself above the law if he does not agree with the court's decision, is a doctrine which directly undermines the rule of law and is wholly unacceptable in a democratic society.... Freedom of speech is itself a right which is dependent on the rule of law for its protection and it is paradoxical that a serious challenge to the rule of law should be mounted by responsible journalists.