Often in business, a party commences discussions with a counterparty including discussions which may involve sensitive business ideas, only to realise that a Non-Disclosure Agreement ("NDA") was not signed. This brings about the question as to whether you can protect confidential information disclosed prior to the signing of an NDA. Many assume an NDA automatically covers all instances when the parties have shared confidential information, however, this is not necessarily the case. In this article, we deal with the issue of whether an NDA can be backdated to cover instances where confidential information has been disclosed prior to the NDA's effective date and what happens where a party has disclosed confidential information in the absence of an NDA or having signed one after disclosure.
What is an NDA?
An NDA is a legally binding contract that acts as a mechanism which prevents one party from sharing confidential information with third parties. NDAs are widely used in:
- business negotiations (mergers, acquisitions, and joint ventures);
- employment relationships (protecting trade secrets);
- technology and intellectual property discussions; and
- investor and startup communications.
In simple terms, NDAs protect valuable and sensitive information from falling into the wrong hands by establishing clear boundaries and providing remedies for breaches of the provisions of the NDA.
Backdating NDAs: What does it mean?
Backdating an NDA means making the confidentiality obligations established by the NDA apply to confidential information that was disclosed before the NDA was signed. This is different from post-dated NDAs (where obligations only apply from the signing date, or a subsequent effective date specified in the NDA). To ensure that NDAs are effectively backdated, consider drafting in an explicit retroactive clause. This clause should expressly state that the confidentiality obligations of the parties under NDA shall apply from the date on which confidential information was first disclosed between the parties irrespective of the effective date or signature date of the NDA.
Are retroactive NDAs enforceable?
If an NDA explicitly states that it applies to past disclosures, courts may uphold it, although it is important to consider the actual wording of the NDA. Most importantly, the information covered by the NDA must qualify as confidential information as defined in the NDA terms. For example, the information must not be public knowledge, and the disclosing party must have known the information was confidential.
Vaguely drafted confidentiality clauses are less likely to provide adequate protection for prior disclosures. Without precise wording, an NDA may fail to impose confidentiality obligations where no obligations previously existed.
In the case of Jubi Properties (Pty) Ltd v Boyce [2016], the South Gauteng High Court (South Africa) considered an agreement that was backdated but did not express any disapproval of the backdating itself. Instead, the focus was on the substance of the agreement and the intentions of the parties involved. The Court addressed the enforceability of a property sale agreement that was backdated to a date prior to its actual signing. The parties signed the agreement on 14 December 2014 but dated it 12 December 2014, intending to reflect an earlier acceptance. The Court found that the backdating did not affect the agreement's validity, as both parties had mutually agreed to the terms and the date. This case underscores that, in South African law, backdating an NDA is permissible if the NDA reflects the parties' true intentions and is not misleading.
The importance of precise drafting was demonstrated in Scientific Telecommunications LLC v. ADTRAN, Inc. (2016), where a US court ruled that an NDA did not apply retroactively because it lacked explicit language stating that confidentiality obligations covered prior disclosures. In contrast, in the case of D'Sa v. Playhut, Inc. (2000), a US court upheld the retroactive application of an NDA because the agreement explicitly stated that its confidentiality obligations covered all disclosures made since the employee's hiring date. This decision highlights that an NDA can apply to past information, but only if the agreement clearly defines its retroactive application.
In other common law jurisdictions, backdating NDAs is generally permissible, provided that the backdating accurately reflects the intentions of the parties and does not mislead or defraud any third parties. For instance, in the US, it is not illegal to backdate an NDA as long as both parties agree to it and the backdating does not seek to deceive others. However, such practices are not common and should be approached with caution.
It's important to note that backdating a document to a date earlier than when it was actually signed can raise legal and ethical concerns, especially if it affects the rights of third parties or violates statutory requirements. Therefore, while backdating NDAs may be legally permissible under certain conditions, it is advisable to consult legal counsel to ensure that such practices comply with applicable laws and ethical standards.
However, in the case that an NDA fails to cover prior disclosures, the disclosing party may have several legal recourses in the case of a breach of confidentiality. These recourses include a delictual claim for breaches of confidentiality, reliance on juristic personal information under the Protection of Personal Information Act No. 4 of 2013 to protect business personal information, and/or invoking legal privilege.
Therefore, an NDA could extend to confidential information disclosed prior to the effective or signature date if this is clearly stated, but it cannot impose confidentiality obligations where this has not been expressly stated in the NDA.
Best practices for drafting a retroactive NDA
To ensure an NDA legally covers past disclosures of confidential information, consider these best practices:
- Use explicit retroactive language: Clearly state that the NDA applies to all confidential information disclosed prior to and after the signing date.
- Define confidential information clearly: Avoid the use of vague terms. Specify what qualifies as confidential and what does not.
- Ensure mutual agreement: Make sure both parties agree to the retroactive effect and acknowledge same in writing.
- Consider an addendum or separate agreement: If significant volumes of confidential information have already been disclosed pursuant to a signed NDA which does not cover prior disclosures, consider drafting either an addendum to the NDA or a separate confidentiality agreement to govern the confidentiality of such information.
The verdict
It is important to consider when confidential information was first shared, and if confidential information was shared prior to the effective or signature dates of the NDA, one should consider including a clause addressing extension of the confidentiality obligations of the parties to such previously disclosed information.
NDAs are often seen as standard basic legal documents, however, as recent experiences with clients have proved, getting an NDA wrong at the outset could result in disastrous consequences. We would caution businesses not to view signing of an NDA as a mere formality but to apply proper diligence and even more so where a relationship has been ongoing and/or where personal information may have been disclosed. We also advise businesses to update their NDA templates accordingly. For more information, please get in touch with our TMT experts:
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.
