Okeeto DaSilva | Non-Disclosure Agreements: An essential tool in business negotiations

Disclose and face a lawsuit! This is the risk associated with disclosing confidential information under a properly drafted Non-Disclosure Agreement (NDA).

An NDA is a legally binding contract where two or more parties agree to not disclose any confidential information they receive throughout the course of pre-contractual negotiations or at any other stage of a business relationship. Once the parties to the NDA sign and agree to all the terms and conditions, it is legally binding and can be enforced in court if breached.

Customarily, NDAs are drafted prior to two entities entering into a commercial agreement as pre-contractual negotiations often involve the exchange of confidential information. For example, if a company wants to partner with another entity or company to develop a new product or service that has never previously existed in Jamaica, it would be important for the entity that has the idea for the new product or service to ensure that this information is not released to the public. Releasing the confidential information to the public could cause irreparable harm and enable another company with greater resources and wealth to exploit the idea or concept of the new product or service. The importance of an NDA, therefore, cannot be overstated.

CONTENTS OF AN NDA

All NDAs must state the type of information that is being protected from disclosure and the duration of such protection. There are, however, several other specific contractual clauses that may be placed in an NDA based on the type of business and the type of negotiations involved. The relevant clauses in the NDA must be clear and unambiguous to avoid misinterpretation, which may result in the court having to determine the actual meaning of the clause.

CONSEQUENCES OF NOT USING AN NDA

The consequences of not using an NDA can be observed in two reported cases. The first case is Paymaster v Grace Kennedy Remittance Service (GKRS) Limited. Paymaster v GKRS is a case that went all the way to Jamaica’s highest court, the Judicial Committee of the Privy Council (The Privy Council) in the United Kingdom (UK). The Privy Council held that the software developer who developed the bill-payment software for Paymaster was entitled to use the software source code freely for any other entity, including GKRS, as he was the owner of the copyright that existed in the software and not Paymaster. The Privy Council further held that Paymaster only had a non-exclusive licence to use the software.

The net effect of this was that the multibill payment software system that Paymaster used could be replicated by another entity. The writer is of the view that this could have been prevented with an adequate NDA and a comprehensive contract, which should cover the protection of intellectual property rights, among other things. It is also important to note that placing a confidentiality clause in a contract may not be sufficient to provide protection from the disclosure of confidential information. In Duchy Farm Kennels Limited v Steels [2020] EWHC 1208 (QB), the High Court in the UK held that a confidentiality clause in a settlement agreement will only be adequate and provide protection from disclosure if the wording of the clause makes it an essential term of the agreement. From these two cases it can be observed that not only drafting an NDA is important, but also ensuring that its contents meet the necessary criteria to protect the confidential information should the matter be brought before the court.

IMPORTANT BUSINESS DECISION

Drafting an NDA can be one of the most important business decisions a company can make and may also be the difference between the growth of a unique product or service or its demise. It is an essential tool for all businesses, including small and medium-sized enterprises (MSME’s). It is, therefore, important that when drafting an NDA, precision, care, and skill are employed so as to ensure that the confidential information is adequately protected from disclosure. Once properly drafted, the NDA will allow businesses to freely share confidential information without the fear of the information being disclosed to the public or being used other than for the purpose of negotiations. This ensures that valuable confidential information is not used to advance the interests of the recipient of the confidential information to the detriment of the disclosing party.

Okeeto DaSilva is an attorney-at-law. Send feedback to okeetodasilva@gmail.com.This article is for information purposes only and does not constitute legal advice.