Non-disclosure or confidential disclosure agreements (“NDAs”) play an important role in the life science sector and are frequently used to allow parties to disclose information to each other as a prelude to a larger corporate or commercial transaction.  The English courts have recently given us a timely reminder of the care that needs to be taken when drafting an NDA.

In Dorchester Project Management Ltd v BNP Paribas Real Estate Advisory & Property Management UK Ltd ([2013] EWCA Civ 176) Dorchester brought the possibility of acquiring a property development site to BNP Paribas’s attention, but made BNP Paribas enter into an NDA before disclosing commercially sensitive information to it. Both parties understood when they entered into their NDA that BNP Paribas would refer the opportunity to acquire the site to one of its clients. BNP Paribas was required to enter into a back-to-back NDA with its client before passing on any confidential information about the site.

In the end, Dorchester disclosed confidential information about the site direct to BNP Paribas’ client, IKEA, rather than through BNP Paribas and the clauses in the NDA did not clearly protect confidential information disclosed in this way. In the end Dorchester had to apply to the courts for clarification on a number of issues in these contractual arrangements. In this instance Dorchester was fortunate. The Court of Appeal held that:

• Any back-to-back agreement entered into between BNP Paribas and a third party had to be construed on the same terms as the NDA between Dorchester and BNP Paribas.
• The back-to-back agreement applied to confidential information which Dorchester supplied directly to IKEA as well as to information that BNP Paribas supplied to IKEA.

The court arrived at its decision by considering the objective aim of the Dorchester/ BNP Paribas NDA – protecting Dorchester from unauthorised disclosure of the confidential information and preventing the circumvention of this NDA by a third party.

This case acts as a good reminder of the following principles behind NDAs:

Limit what is disclosed.  The best way to keep something secret is not to disclose it in the first place.  If information must be disclosed consider (i) if it should be disclosed in the first wave of disclosure or at a later date, when there is more certainty that a deal may be on the table, (ii) whether it should be disclosed in hard copy only, via an on-line data room or at a fixed location where it cannot be copied or removed.  For some particularly sensitive information (such as unpatented chemical structures) it may be more sensible to disclose it only to an independent third party (under NDA), with clear restrictions on what the third party can say pass on to the deal counterpart regarding this information (such as a report on the novelty/patentability of the disclosed chemical structure, but without disclosing any details of the chemical structure itself).

Be clear. If you want a third party to be bound by the same obligations as the recipient, state this in the NDA.

Know your recipient. Specify in the NDA who is (and is not) authorised to receive confidential information from the other party.

Keep a record of what has been disclosed. The discloser should record what confidential information it has passed on to the recipient.