Nigeria: Relevance Of A Non-Disclosure Agreement In A Commercial Transaction/Relationship

Last Updated: 30 August 2018
Article by T & A Legal

Nobody likes to hear a discussion they had with a close friend or a family member in confidence from a third party. We all cherish our privacy and prefers our private affairs kept private.

Charity is the longest serving maid of Madam Mabel, a politician and a business owner, she has been very loyal to her in all capacity as Madam Mabel has always treated her like her own biological child. Charity suddenly began to misbehave, and she was reprimanded in the presence of Madam's Children.

Charity felt very spited and decided to retaliate by granting an interview to a radio reporter on the drug addiction of Madam Mabel's first son. This singular act affected Madam Mabel's political ambition. She was heartbroken and decided to seek advice from her very good friend Shade.

Shade is a business tycoon with a lot of friends and international influence. She ventured into a new business with one of her long- time friend Kemi who she recently reunited with. The business boomed as expected but the unexpected happened as Shade flipped through the pages of the Newspapers only to read through the trade secrets of the new company she had recently incorporated with a lot of prospective investors and partners.

Shade also narrated her ordeal to Madam Mabel and they were both infuriated, totally confused and wondered if there is anything they would have done which could have prevented these unpleasant occurrences and to stop the further broadcast of their trade and domestic secrets and if there are options to mitigate and remedy the damages done.

In the illustrations above, Madam Mabel and Shade could have protected their trade secrets and private family information from being divulged to the public without their prior consent by ensuring they signed a Non-Disclosure Agreement in their business relationships with Shade and Kemi respectively.

This article therefore seeks to explain the need for a Non-Disclosure Agreement, the key components of same, a comparative study of the subject by illustrating judicial decisions from other jurisdiction on the subject and what remedies are available to aggrieved litigants whose confidential secrets have been unfairly disclosed to the public or their competitor without their initial consent.

Mutual understanding between parties is the bedrock of commercial transactions/relationship. In a commercial transaction parties disclose vital information to one another. Most times such information are confidential, and the disclosing party intends or desires that such confidential information remain between the parties for as long as the relationship lasts and even much more after the relationship has ended. Though the receiving party usually promises the other party to keep the information that comes within its reach secret, the disclosing party want to ensure that the confidential information is kept confidential and there are no potential unauthorised disclosures. The only way to confidently protect the disclosing party's interest is to have a written agreement, duly executed between the parties.

What is a Non-Disclosure Agreement

A Non-Disclosure Agreement (''NDA'') is a legal contract between two or more parties that signifies a confidential relationship exists between the parties involved. The confidential relationship often refers to information that is to be shared between the parties but should not be disclosed to the public. NDAs are also commonly and alternatively referred to as a confidentiality agreements, Confidential Statements or Confidential Clauses within a larger document or Agreement1

NDAs are used in different commercial relationships ranging from Merger and Acquisition transactions, Companies/Business owners and their Customers, Creditors and Debtors, Employer-Employee relationship, Principal-Agency relationship, Independent contractor relationship, Supplier and Distributor relationship, to mention a few, this will however be discussed in detail in this article.

It is important to note that a duly executed NDA is as binding as any contractual agreement and where there is a breach by one party, the other party may seek redress for damages for the disclosed information and or injunction from further disclosures.

Types of Non-Disclosure Agreement

There are basically two types of NDAs which are:

  1. Unilateral Non-Disclosure Agreement: This is an agreement that stipulates the duties and obligations of one of the parties to the agreement. It is usually the type of agreement between an employer and employee and most NDAs take this form.

    Though many agreements of this sort are intended to protect business or trade secrets, they may also be created to protect the copyright for information created through an employee's research. Contract and corporate researchers in the private sector as well as professors at research universities are sometimes required to sign NDAs that give the rights to any research they conduct to the business organisation or university that supports them. 2
  2. Mutual Non-Disclosure Agreement: This is a type of agreement usually executed between two parties. It is used when parties involved will be disclosing vital top- secrets or crucial information to each other as well as during negotiations in merger, acquisition and corporate Take overs. A typical example of when this type of NDA is used is when a business owner decides to franchise its services. Since the franchised company will know about the top-secret of the eatery, they may be required to keep the trade secret. In the same agreement, the company is required to keep the identity of the franchise company and treat same as itself. 3

Clauses and Headings in a Non-Disclosure Agreement

Having discussed the types of NDAs. It is pertinent to mention the key clauses of an NDA and its importance in a commercial deal. There are usually a lot of head clauses in every commercial agreement and NDAs are no exception. Generally, most standard NDAs contain the following clauses:4

1. Parties.

2. Definition of confidential information.

3. The obligation by the receiving party.

4. The term of the agreement.

5. The exclusion clause.

  1. Parties - The identity as well as the address of the parties must be properly stated. The descriptive name of the parties must also be included for clarity purpose. Where the receipt party is obliged to disclose some of the information to a third party, the name of the third party should be included in the Agreement.
  2. The definition of the "confidential information" – Parties must endeavour to define what confidential information entails. It is advisable that the definition covers as much information as the disclosing party intends to disclose and to avoid leaving any stone unturned. In the same vein, the receipt party also needs to be vigilant when reviewing the NDA and must pay attention to the extent of information the party is permitted to disclose both orally and or written. However, the definition of what an NDA is must not be vague or verbose.
  3. The obligation of the receiving party - The main obligation of the receiving party in an NDA is to keep all information secret with all reasonable measure just as the other party to the agreement would keep its own secrets.
  4. The term of the agreement – This should be expressly stated, and no implied terms should be included in the NDA. The parties should know for how long the agreement is intended to last. Also, the years after which the receiving party may disclose the information after the relationship has been terminated should be expressly included.
  5. Exclusion Clause – This entails information the receipt party is not expected to keep secret because such information is already within the public domain or was disclosed to the receipt party by a third party who is not a party to the agreement. The receipt party is also allowed to disclose information required by the Court of law and when the party is obliged to do so.

Other key clauses in an NDA includes non-solicitation, consideration and governing law whilst the standard provisions include Arbitration, Force Majure, Entire Agreement, severability, Notice etc.

Commercial Implication/Importance of a Non-Disclosure Agreement

The Importance of an NDA cannot be overemphasised as it protects the interests of the disclosing party, particularly, its trade secrets and domestic secrets. It also helps in the preservation of trust relationships as it prevents the leaking of unwanted information.

It helps boost the confidence of the parties to an NDA as they are aware of individual obligation and the scope of same. NDAs gives the assuredness that when there is a breach by the defaulting party, there is a room to seek redress as their rights are duly protected. The commercial implication of an NDA is to imposes a mutual duty of confidentiality on the parties.

Furthermore, parties use NDAs during the preparatory stage/ initial stage or during the due diligence stage of a transaction. The purpose of an NDA is to enable party to a commercial transaction reveals its confidential information to the other party for a limited period of time and only for a specific purpose such as six months while the parties decide whether or not to enter into a particular commercial arrangement. In the event that the receiving party do not consent to continue with the commercial arrangement then the disclosing party stop disclosing and the parties go their separate ways. 5

However, the receiving party is obliged to return to the disclosing party any confidential information it received or destroy it. Some NDAs allow the receiving party to keep one copy for its records, so that it can use it as evidence in any dispute that may arise. In addition, the parties continue their undertakings to keep the information disclosed to them as confidential after termination of the NDA, sometimes for a limited period of time.

Having a written agreement helps define the standard of care required by the receiving party which is ''reasonableness'' or '' not less than the same level of control of care the receipt party uses to protect its own confidential information but such must not be less than the reasonable care expected. The standard of care imposes precautionary care on the receiving party is equally imposed on its employees if any or whoever may have access to the confidential information of the disclosing party.

Reliefs Granted Under a Non – Disclosure Agreement to an Aggrieved Party

Ubi jus ubi remedium, where there is a wrong there is a right, such is the case of an aggrieved party to an NDA. There are a number relief available to an aggrieved party in an NDA such as Injunctive relief, monetary damages and in some cases the defaulting party may be prohibited from making profit from the confidential information, trade secrets or license. The reliefs are discussed as follows;

  1. Damages – The aggrieved party may seek monetary compensation for any damage or loss arising from the breach of the NDA or necessary for enforcing the compliance of same. In such an instance, the court orders the defaulting party to reimburse or refund the aggrieved party for the losses incurred.
  2. Injunctive Relief – It is not enough that the aggrieved party is reimbursed for the financial losses, the aggrieved party may also in addition prefer to retract the information from the reach of the public and continuous report or use of same. This can be achieved by an order of injunction either restraining the defendant or compelling the defendant from using or further disclosure of the information.
  3. Account of profit: This is an order from the court compelling the defaulting party to give account of the profits made as a result of infringement. This strip the defendant of the profit made from the breach of the NDA.

As there are remedies available for the aggrieved party there are also defences available for the defaulting party which are as follows;

  1. Legal Compulsion: The defendant will be exonerated where it is bound to disclose the information under some legal compulsion or obligation.
  2. Just Causa: The defendant will be excused of any breach where such is as a result of fraudulent act, inequity and criminal behaviour on the part of the aggrieved party.
  3. Exclusion clause: The defendant will be excused of all liability(s) if the information disclosed is already known to the public or was disclosed to the defendant party by a third party who is not a party to the agreement.

Comparative Study of Non-Disclosure Agreement in other Jurisdiction with Illustrated Judicial Decisions

Generally, a document duly executed becomes enforceable and admissible in a court of law and same is the position in Nigeria.

However, there are some distinct differences in the enforceability of NDA which will be examined as follows:

In the United Kingdom, NDAs are enforceable when they are written and duly executed. However, the court would also rule in favour of an aggrieved party when the court believes that the receipt of such an information should know or ought to know that it is fair and reasonable for such information to be regarded as confidential even when the information is not communicated orally or in writing by the disclosing party.

In the case of Partners (UK) LLP v Barclays Bank PLC [2014] EWHC 3049 (Ch)6 the claimant was a customer of the defendant. The claimant discloses some information in confidence to the defendant in support of a loan application for the acquisition of a carbon trading company from a third party. When the negotiation and transaction between the claimant and defendant was unsuccessful, the defendant therefore took advantage of the information and purchased the carbon trading company from the third party and made a huge profit from the transaction. The Court held that, though there was no written agreement between the claimant and the defendant nor was there a fiduciary duty between the claimant and the defendant and the third party, however, there was an equitable breach of confidence by the defendant. It further established that an equitable duty of confidence may be imposed in the absence of a binding contract.7

In the United States of America, In an appealed case of Orthofix, Inc. v. Hunter, 630 Fed. Appx. 566 (6th Cir. 2015)8, the 6th Circuit Court of Appeals established that parties have the right to define what is confidential so long as the intention of the discloser is for the information disclosed to be out of the reach of the public's general knowledge including the employees of the receiving party. The court therefore held that an employer may expand the scope of its protected information through the use of well-drafted Non-Compete Agreements to include confidential information in addition to trade secrets, in this case, the defendant had breached the plaintiff's Non-Disclosure Agreement by providing the plaintiff's confidential information to his new employer.

In India, a Non-Disclosure Agreement become enforceable when same is stamped and registered, which is similar to the Nigeria situation where Stamping is a major prerequisite for admissibility of documents generally. NDAs can be registered as per the Registration Act, 1908 by approaching the office of the Sub-Registrar. The rate, charges and detailed rules for stamp duty on a NDA vary from state to state which is mostly within the range of from Rs. 20 to Rs.100. It is important to note that the registration of documents helps in proving the veracity of the contents of a particular document.9

In the South African case of Tulip Diamonds FZE v Minister of justice and Constitutional Development & others [2012] ZASCA 111, establishes when the court in South Africa will decide that an information is confidential and worthy of protection for the knowledge of third parties. It further held that it is not enough for parties to define an information as confidential, the court must be able to examine the nature of the information and determine whether that information regarded by the aggrieved party as confidential has any sense of secrecy.

Conclusion

Whilst considering how long an NDA should last, there is usually every probability that the disclosing party would want to ensure that the confidential information is kept confidential for as long as time lasts while the receiving party wants to limit its obligations in the agreement and wants to know for how long it is bound to keep the information confidential.

The duration of the NDA is determined by the termination clause, once a party gives notice to terminate the relationship, all the obligations in the Agreement will terminate except there is a survival clause.

It is pertinent to note that after the termination date, the receiving party will no longer be under an obligation of confidentiality for information received. However, some parties are bound by the NDA for a number of years after the termination or end date of the Agreement. Parties may include clauses that is specific to individual circumstances such that the receiving party is required to keep the NDA secret for as long as the Agreement shall exist or much longer, as may be expressly contained in the Agreement. The receiving party may nevertheless be reluctant to agree to an unlimited term for the confidentiality clause.

Finally, the importance of NDA in cannot be overstated as it is the only way to protect sensitive information. It also imposes a duty of confidence on the receiver. It is not enough that parties agree orally that certain information exchanged during commercial agreements are confidential, it is very crucial for such agreed terms and obligations to be documented and duly executed, as oral agreements are mostly impossible to enforce.

Footnotes

1. ... Non-Disclosure Agreement (NDA) accessed via https://www.investopedia .com on 1st December, 2017 at 10: 20am

2. ibid

3.....How NDAs Work and Why They're Important accessed via https://www.investopedia.com on 1st December, 2017 at 10: 20am

4. Richard Harroch ''The key element of Non- Disclosure Agreement'' accessed via https://www.forbes.com on 1st December, 2017 at 10:20 am

5. Heather A. Stone '' Confidentiality Undertakings in Commercial Agreement'' accessed via http://www.gkh-law.com on December 10th , 2017

6. ... accessed on 18th December, 2017 via https://uk.practicallaw.thomsonreuters.com

7. Alice Daniels '' Breach of the duty of Confidentiality'' accessed on 18th December, 2017 via https://www.michelmores.com

8. ....... Accessed on 18th December, 2017 via https://www.employmentlawspotlight.com

9. .... Non- Disclosure Agreement Are they enforceable? accessed via http://inba.tv/non-disclosure-agreements-enforceable-india on 18th December, 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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