“No-one ever litigates the wording of an NDA”: wrong!

consensuSome people regard the signing of confidentiality agreements (sometimes known as non-disclosure agreements, or NDAs) as symbolic – merely a gesture of good faith.  According to this view:

  • What matters is that a document called an NDA is signed.
  • The detailed wording of the NDA is not important.  For instance, it doesn’t matter that the NDA includes strict conditions on the confidentiality obligations, eg a requirement to confirm orally-disclosed information in writing within 30 days of the oral disclosure.  It certainly isn’t worth negotiating the wording, even though no-one is planning to keep detailed notes of the confidential discussions and send those notes to the other party as evidence of what has been disclosed.
  • The court will ignore the wording of the agreement and give effect to the general business intention that the information should be treated confidentially.
  • Anyway, who goes to court over the obligations in NDAs, and how often do those cases turn on the detailed wording of the NDA?

IP Draughts has long wondered where this world-view comes from, for it is one with which he profoundly disagrees.

rough justiceExperience tells him that some courts, particularly the lower-level courts such as the English County Court, are not always as concerned with the applying the letter of contractual obligations as they should be, when deciding business disputes.  IP Draughts reconciles this in his mind with the thought that many judges in the lower courts have no real experience of drafting or advising on commercial contracts.

In the higher courts, where the sums at stake at large, one can expect a greater attention to the details of what the parties have actually agreed in their contracts.  Thus, in the Chancery Division of the High Court, where many business disputes are litigated, one might expect the judge to cast a forensic eye over the language of an NDA that the disputants have signed, before deciding on their confidentiality obligations.  But what of the view, summarised above, that in a business context NDAs are rarely litigated, and no-one ever litigates over the detailed wording of an NDA?

Can you keep a secret?

Can you keep a secret?

It is true that much of the case law involving confidentiality obligations arises in a non-business context.  Famous cases in this area in the English courts started in the 19th century with Prince Albert (the husband of Queen Victoria) seeking to protect his etchings; memorable cases in recent years include one in which the UK Government sought to prevent disclosure of Government secrets in an ex-spy’s memoirs – the Spycatcher case; and one in which Michael Douglas and Katherine Zeta-Jones protected photos of their wedding from publication in a celebrity gossip magazine.

There have been cases in the English courts concerned with the disclosure of business information, but many of the leading cases seem to have been concerned with obvious wrongdoing, eg the chicken salesman in the Faccenda case, who took his employer’s customer lists with him when he left his employment and set up on his own.  In such cases, the detailed wording of the NDA has not always been a matter of primary importance in the dispute.

smugIt is with some relief, therefore, that IP Draughts can point to a recent case in the Court of Appeal in which the detailed wording of an NDA has been the central matter under discussion.  This enables IP Draughts to put on his best “I told you so” expression, and to pepper the conversation with German words that he pretends to understand like angst, schadenfreude and zugzwang.

The case is called Dorchester Project Management Limited v BNP Paribas Real Estate Advisory and Property Management UK Limited [2013] EWCA Civ 176.  It was decided on 7th March 2013 and it is reported here.

In reported decisions in which contracts are interpreted, the judge sometimes make disparaging comments about the drafting.  This can cause IP Draughts’ hackles to rise, particularly when the comment does not seem to be justified, or where IP Draughts doubts whether the judge’s drafting would have been any better.  See, for example, Arnold J’s comments, in the Codemasters case, that an indemnity clause was “not felicitously drafted”, discussed here.

In the present case, in the words of Arden LJ: “The judge noted that the [NDA] was badly drafted”.  IP Draughts is happy to see such a comment, as the NDA was mediocre, to say the least. It included the following wording (colouring added by IP Draughts):

4.1 BNPPRE will not circumvent DORCHESTER, by seeking to make contact in any way with any third parties introduced to each other in relation to the Opportunity, or their agents, except as where previously agreed for the purposes of collating information, due diligence material and matters essential for the purposes of progressing the Opportunity.

4.2 DORCHESTER and BNPPRE agree to keep – and to procure to be kept – secret, all Confidential Information which may come to each of their knowledge as a result of their relationship hereunder.

4.2.1 BNPPRE may disclose such Confidential Information as is necessary to any directors, employees or professional advisors of BNPPRE, and (subject to DORCHESTER’s prior written consent) any third party providing funding or ancillary services for that Party’s involvement in, or in relation to the development of, the Opportunity. BNPPRE will procure that those third parties are bound by similar obligations of non-disclosure and non-circumvention contained herein, and they shall be responsible for any unauthorised disclosure, whether by it or any third Party to whom disclosure is made.

One of the issues that the court had to decide was whether clause 4.2.1 made BNPPRE liable for “circumvention” by a third party to whom BNPPRE had disclosed information.  The judge at first instance had decided that BNPPRE was not liable.

back to backIn the Court of Appeal, counsel for Dorchester argued that, under clause 4.2.1, BNPPRE was bound to procure that the third party enter into a back-to-back agreement containing “similar obligations of non-disclosure and non-circumvention” to those imposed on BNPPRE by the NDA. “Similar obligations” are those which transmute the obligations which the deed imposes on BNPPRE into obligations of the receiving party under the back-to-back agreement. [On the wording, IP Draughts agrees with this submission.]  Counsel argued that the first-instance judge’s interpretation was defective because it failed to give full effect to this obligation.

Counsel for BNPPRE naturally favoured the first-instance judge’s interpretation. In his submission, clause 4.2 imposed the obligation of confidence and then clause 4.2.1 provided a safe harbour from that prohibition. On that basis, he submitted it was no great step to read the rest of clause 4.2.1 as limited to protecting Dorchester from the risk of the non-disclosure of confidential information provided by BNPPRE to the third party, or at least restricting liability to Dorchester to loss caused by non-disclosure of that information.  He submitted that the only provision curbing circumvention was clause 4.1, and that the responsibility provision was limited to liability for unauthorised disclosure of information supplied by BNPPRE to the third party. Therefore there is no sanction for failure to obtain a non-circumvention agreement from the third party.

ensureIP Draughts can sort-of-see what counsel for BNPPRE is saying, in that the first part of the highlighted sentence uses the phrase “non-disclosure and non-circumvention”, while the second half of the sentence makes BNPPRE responsible for “unauthorised disclosure” without mentioning non-circumvention.  However, it seems to IP Draughts that the first half of the sentence, which uses the word “procure”, is enough to make BNPPRE liable for its failure (as was the case here) to get the third party to sign an NDA that contained non-circumvention terms.

Arden LJ, in the Court of Appeal, favoured Dorchester’s interpretation (as does IP Draughts).  The other two judges in the Court of Appeal agreed with her conclusions.  IP Draughts has attempted to simplify the arguments and focus on a couple of key points; Arden LJ’s judgment covers many more points and requires some careful reading.

At one level, this is a relatively minor case that hinges on the fine detail of how a particular clause in a badly-drafted NDA should be interpreted.  IP Draughts would not be bothering you with it, except to make the point that parties do fight over the detailed wording of NDAs, and it is important to draft them carefully, if you don’t want to end up litigating in the High Court, getting one decision,  and then, as in this case, getting the opposite decision in the Court of Appeal.

4 Comments

Filed under Confidentiality, Contract drafting

4 responses to ““No-one ever litigates the wording of an NDA”: wrong!

  1. Reblogged this on IP Draughts and commented:

    There have been several articles on this blog about confidentiality agreements. This golden oldie, from 2013, reminds us that the wording of these agreements matters and will be applied by the courts.

  2. Speaking from the west coast of the United States and 20+ years experience practicing here: NDAs often include “residuals clauses” or trade secret licenses, and other provisions that if not antithetical to the concept of an NDA, are at odds with the layperson’s understanding of what an NDA should ordinarily do. And these provisions are litigated!

  3. Nice post and a useful precedent.

    In my experience one of the issues with NDAs is that nobody wants to pay a professional to draft, advise and negotiate it. This is no-doubt related to the points you make at the start of the post.

    Another funny response I get is in relation to patent filing. The client says he doesn’t want to spend money filing a patent since he could never afford to enforce it. He then says an NDA will be sufficient to protect his invention.

    There’s then an awkward moment when I ask him how much he thinks it would cost to enforce an NDA!

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