Dorchester Property Management v BNP Paribas Real Estate [2013] EWCA Civ 176

Non-disclosure and non-circumvention agreements receive a careful reading in the Court of Appeal!

The parties

The Claimant and Appellant (Dorchester) was a property development company and the preferred bidder and prospective and intended purchaser for a lucrative site for mixed development close to the Olympic site in London (the Opportunity). The Claimants, had a long history with, and good knowledge of the development site. The Defendant and Respondent (BNP Paribas Real Estate) were funders and arrangers for property development purchasers. BNP Paribas approached Dorchester, with details of an interested third party (IKEA) who might be interested in funding the purchase of the site.

The contract (containing the confidences)

By an agreement (a Non-disclosure agreement) dated 21 October 2009, Dorchester and BNP Paribas agreed that BNP Paribas would preserve Dorchester’s confidences and confidential information and would not circumvent Dorchester by making unauthorised disclosure or disclosures to third parties, and would ensure that no third party could circumvent Dorchester in the transaction, and would arrange for the third party to enter into a same or similar non-disclosure or non-circumvention agreement preserving Dorchester’s confidential and commercially sensitive information in the prospective land purchase.

The ‘breach’ – the third party, (innocent or otherwise) running away with the confidences

IKEA, by way of a connected company,made a bid, and went ahead with the land purchase and development and Dorchester was not chosen as the preferred bidder. IKEA and its connected parties, denied they were contractually bound to non-disclosure, or non-circumvention to either Dorchester or BNP Paribas. Dorchester alleged that BNP Paribas had failed to secure their confidential information of a commercially sensitive nature by procuring an agreement with IKEA in the same terms as the agreement that BNP Paribas had made with Dorchester (i.e. by setting up a ‘back to back’ agreement with IKEA). Dorchester on occasion passed information directly to IKEA (i.e. did not pass the information via BNP Paribas) that they said was confidential and commercially sensitive; and also passed the same types of information to BNP Paribas, that was then passed down the line to the third party IKEA. On 4 February 2010, IKEA secured a land purchase on the site without the involvement of BNP Paribas or Dorchester, which Dorchester alleged was in breach of confidence.

The express terms of the agreement

The Judge at first instance (Mr Charles Hollander QC), identified the ‘circumvention’ as being notification to third parties of the ‘the Opportunity’, which is contained in clause 4.1:

‘4.1 BNPPRE (BNP Paribas) 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’.

The first instance judge identified an approaching of the Seller to be a ‘circumvention’ within clause 4.1, and also approaching third parties ‘introduced to each other’. The Judge did not consider that the terms of clause 4.1 and 4.2.1 made BNP Paribas liable for unauthorised disclosure of any information that was not disclosed by BNP Paribas directly; (in this case, Dorchester passed confidential information directly to IKEA without the involvement of BNP Paribas).

It was an express term of the agreement at clause 4.2.1 (quoted in part as follows) that:

‘BNPPRE (BNP Paribas) will procure that those third parties are bound by similar obligations of non-disclosure and non-circumvention herein, and they shall be responsible for any unauthorised disclosure, whether by it or any third Party to whom disclosure is made.’

Searching and scanning for the ‘businesslike intention?

The first instance judge, found it hard to imagine an agreement ‘where the drafting has gone so badly and so consistently wrong as this one’. He did not think that the usual canons of construction, for interpretation of contracts (or statutes) would assist the Court in this case. Instead, he sought guidance and inspiration from Lord Bridge in Mitsui Construction Co Ltd v Att Gen of Hong Kong (1986) 33 BLR 14:

“…the poorer the quality of the drafting, the less willing any Court should be to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention, if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis.’

Using the headline test of ‘business common-sense in ‘Rainy Sky’?

The first instance judge therefore indicated that he could take a less literal, and more purposive approach to what he considered such a poorly drafted agreement. This new purposive approach (searching for a sensible and business like basis) has strains of the new model Rainy Sky approach (Rainy Sky v Kookmin Bank [2011] UKSC 50 and Lord Clarke at paragraph 21:

“The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

The Court of Appeal – the judgment of Arden LJ

Lady Justice Arden identified two core questions of construction that needed answers in order to deal justly in the case – firstly on the non-circumvention issue, was the effect of the agreement that BNP Paribas should enter into a back to back agreement with third parties, preventing ‘non-circumvention’ as well as preserving the confidential information? Her answer was in the affirmative. Secondly, on the direct disclosure issue (i.e. information passing through BNP Paribas, or straight from Dorchester to IKEA) would the back to back agreement apply to confidential information passing by both routes? Her answer was an affirmative yes to that as well. The Court of Appeal read clauses 3, and 4 generally (as above) as the grant of an option to BNP Paribas to supply confidential information to IKEA only by prior consent of Dorchester; and were obliged in so doing to procure that third parties are bound by ‘similar obligations of non-disclosure and non-circumvention’. Secondly, BNP Paribas were responsible for any unauthorised disclosure whether by its act or by the act of any receiving party (i.e. a third party).

Reversing the first instance decision

This is by necessity a considerable summary of Arden LJ’s approach but the notable points arising in the reversal are:

  1. The Court of Appeal noted that the trial judge considered this was a case of a badly drafted deed, and so a business-like interpretation and not an over-literal interpretation would have to save the day;
  1. The primary aim of the Court in contractual interpretation is to ascertain the meaning of an agreement which the document would convey to the ‘reasonable person’ having all the background knowledge which would reasonably be available to the parties in the situation in which they were at the time of the contact;
  1. The background includes evidence as to what ‘objectively’ was the ‘aim’ of the transaction;
  1. The background clearly showed that Dorchester should be protected against the risks of both unauthorised disclosure and circumvention.
  1. The contemplation of the parties that BNP Paribas would perform the role of ‘introducing a funder’ and not that of a ‘bidder’ – weighed significantly with the Court of Appeal – ‘and so it would be an obvious step for the parties to take to agree to ensure that a receiving party would be bound by the non-circumvention provision in clause 4.1’.
  1. The Court of Appeal emphasised that the aim was to ‘intrepret the deed keeping in mind the objective aim of the transaction, not what [he] might independently consider unusual or onerous’.
  1. The background to the deed clearly showed that the parties to the non-disclosure and non-circumvention deed intended that Dorchester should be protected against the risks of both unauthorised disclosure and circumvention and that they [both Dorchester and BNP Paribas] ‘were alive to the risk that circumvention might occur because of the acts of a third party’.
  1. It made ‘commercial sense’, that once BNP Paribas had passed confidential information to its (third party) contacts it had introduced to Dorchester, it accepted responsibility for that contact (third party) and that it should not be left to Dorchester to protect itself against circumvention by third parties introduced to it by BNP Paribas after it entered into the non-disclosure and non-circumvention deed with BNP Paribas.

Caution against mending bad bargains

It appears that new interpretative contractual approaches are emerging (since Lord Clarke’s deceptively simple test in Rainy Sky), based upon business like intention, or where two stark alternatives are presented, to prefer an interpretation to an agreement which is of commercial common sense, which are probably all to the good. Provided the new tests are not reduced to a simplistic formula, and that in employing them to fix bad contractual wording, they end up inadvertently mending bad bargains as well?

The Court of Appeal decision is attached at: