What do you mean they didn’t sign an NDA?

05/01/23 – If you’re having a meeting or discussion with a third party which may involve you disclosing confidential information you should of course make sure that you get the third party to sign a non-disclosure agreement (NDA).  Although the detailed terms of NDAs vary, they generally have two principal functions: to impose an obligation on the party receiving the information to keep it confidential; and to ensure that the receiving party only uses the information for a specific purpose, typically to consider whether to proceed with the transaction or arrangement that is being discussed.

But what if you disclose confidential information to a third party without having an NDA in place?

Although the circumstances were slightly unusual, this is what happened to fintech vendor Clearcourse when they were negotiating for the purchase of E-Novations in August 2020.  The CEO and part-owner of E-Novations, Manoj Jethwa, left the meeting room to collect some papers from his office next door.  During Mr Jethwa’s absence, the representatives of Clearcourse had what was later described as an ‘unguarded and candid’ conversation about the negotiations, their (unflattering) views of Mr Jethwa, and the likelihood of Mr Jethwa being fired if the purchase completed.  Mr Jethwa heard the representatives’ conversation through the wall between his office and the meeting room.  Mr Jethwa also took a screenshot of the live CCTV footage from the meeting room, but claimed that there was no audio recording.

Following completion of the purchase, a dispute arose in relation to the sale and purchase agreement.  In response to an ultimatum from Clearcourse to settle the dispute, Mr Jethwa shared the CCTV screenshot, with the following text message: “You should know this doesn’t do you any favours.  Whilst I walked out and what you both say should be of interest for social”.  In other words, Mr Jethwa threatened to make public via social media the conversation that he had overhead from his office.

Perhaps surprisingly given the nature of the discussions it appears that the parties had not signed an NDA.  Clearcourse therefore made a successful application to the High Court in April 2022 for an ‘interim non-disclosure order’ (or ‘INDO’) injunction, restraining Mr Jethwa from disclosing the overheard conversation or any recording of it.  Shortly afterwards there was a full High Court hearing to decide whether the INDO should be continued, when the Judge confirmed that he was satisfied that Clearcourse would ‘more likely than not’ succeed with its underlying claims for breach of confidence and misuse of private information, and continued the injunction – for the full judgement see Clearcourse Partnership and others v Jethwa [2022].

Looking at these two types of claim in turn:

Breach of confidence

For a claim for breach of confidence, the claimant must establish that:

1. the relevant information has the necessary quality of confidence
2. the person looking to disclose or use the information came to know of it in circumstances importing an obligation of confidence and
3. there has been unauthorised use, or a threat to use, the information to the detriment of the claimant.

Circling back to the conversation overheard by Mr Jethwa during the course of the negotiations, the Judge was satisfied that a reasonable person ‘would appreciate that a conversation held behind closed doors, between individuals on the opposite side to him in a business negotiation on these subjects, was both private and confidential’. The Judge emphasised that the duty of confidence does not only arise when a person seeks out the confidential information, but also when confidential information ‘comes to the knowledge of a person in circumstances where he has notice, or is held to have agreed, that the information is confidential, with the effect that it would be just in all the circumstances that he should be precluded from disclosing the information to others’.

Misuse of private information

For a claim for misuse of private information the following two limbs must be satisfied:

1. the claimant must establish that they have a reasonable expectation of privacy regarding the information in question and
2. the court needs to balance the claimant’s right for privacy against the rights of others, such as the other party’s right to freedom of expression.

In Clearcourse, the Judge (dealing with limb 1) held that Clearcourse’s directors ‘would regard their conversation, behind closed doors, as giving rise to a reasonable expectation of privacy’, and (dealing with limb 2) that there was no justification for the disclosure of it by Mr Jethwa, whether on the grounds of his right to freedom of expression or otherwise.

Key takeaways

• Where an NDA has been forgotten or overlooked, all may not be lost – a claim for breach of confidence and/or misuse of private information may be available.  And as Clearcourse demonstrates it will be difficult for a recipient of confidential information in the context of a business negotiation or discussion to argue that they are not subject to a duty of confidence, even where the information comes to their knowledge inadvertently or by accident.
• But the cost of making a High Court application for an interim non-disclosure order plus a return hearing will quickly run into five figures. It will also require significant management time, and possibly generate unwelcome publicity.  Therefore focus on putting in place robust processes to ensure that all relevant commercial discussions with third parties are subject to signed, mutual NDAs.
• If you are caught out, perhaps by only discovering that there was no NDA in place after the meeting has finished and the confidential information disclosed, then consider writing to the third party to confirm that the disclosed information is confidential and that, given the circumstances in which it was disclosed, the third party is subject to a duty of confidence in respect of the information.