This is an appeal against the order dated 22 June 2012 of Charles Hollander QC, sitting as a deputy judge of the High Court of Justice, Chancery Division following the trial of ten preliminary issues as to the interpretation of a written agreement, called a Non-disclosure and Non-circumvention Deed (“the deed”), which the appellant (“Dorchester”) entered into with the respondent (“BNPPRE”) on about 22 October 2009.

A party (a "disclosing party") enters into a deed of this kind where it has confidential information about some commercial opportunity with a third party which it wishes to disclose to some other party ("the receiving party") with suitable protections from further disclosure or circumvention, that is, an approach by the receiving party to the third party without the consent of the disclosing party.

In this case, Dorchester was the disclosing party and the receiving party was IKEA. Dorchester wished to disclose to BNPPRE commercially sensitive confidential information about an opportunity to acquire development land so that BNPPRE could disclose that information to IKEA, a potential funder.

There are essentially only two questions of construction to be decided:

The non-circumvention issue: is the effect of the deed that, if BNPPRE proposed to disclose Confidential Information (as defined in the deed) to a receiving party, it was bound to procure that the receiving party would enter into a “back-to-back agreement” with it which imposed on it obligations of non-circumvention as well as obligations of non-disclosure of the Confidential Information? In my judgment, for the reasons given below, the answer to that question is yes.

The direct disclosure issue: would the back-to-back agreement apply to Confidential Information supplied to the receiving party by Dorchester, as well as to that supplied by BNPPRE? In my judgment, for the reasons given below, the answer to that question is also yes.

As the judge reached the contrary conclusions, I would allow this appeal. Before I set out my reasons, I must explain the background and the judge’s reasoning and set out my own analysis.

The parties have agreed the following facts:

In these proceedings, Dorchester alleges that:

It disclosed some confidential information to BNPPRE.

BNPPRE passed that information to IKEA without taking any back-to-back agreement from IKEA.

At the time Dorchester disclosed confidential information to IKEA, it mistakenly thought that BNPPRE had entered into a back-to-back agreement with IKEA.

Without the consent of Dorchester, IKEA made a successful bid to the sellers to acquire the site.

Until that date, Dorchester had been the preferred bidder for the site.

I now turn to the deed. After setting out the names of the parties, the deed states:

Clauses 2 and 3 of the deed are effectively recitals:

The operative provisions of the deed were as follows:

Summarising, clause 4.2.1 contains options and obligations (so far as material) as follows:

Options : BNPPRE may with Dorchester’s prior written consent disclose confidential information as necessary to any third party providing funding in relation to the development of the Opportunity.

Obligations :

BNPPRE must procure that those third parties are bound by “similar obligations of non-disclosure and non-circumvention”;

BNPPRE is responsible for any unauthorised disclosure, whether by it or any receiving party (“the responsibility provision”).

The judge was asked to answer a large number of overlapping questions. Some of them are outside the scope of this appeal. In the interests of clarity I will set out a summary of his material holdings.

The judge noted that the deed was badly drafted and that in that case he should give it a business-like and not an over-literal interpretation. He cited the following passage from the speech of Lord Bridge in Mitsui Construction Co Ltd v AG of Hong Kong (1986) 33 BLR 14:

As to non-circumvention, the judge held that:

Clause 4.1 applied only if the circumvention involved BNPPRE or BNPPRE and the receiving party, but not where, as in this case, the receiving party was solely responsible for the circumvention.

The words “introduced to each other” in clause 4.1 were words of limitation. They meant introduced by BNPPRE or Dorchester to the other respectively.

Clause 4.1 meant that BNPPRE would be liable for circumvention by any receiving party only where BNPPRE was acting as principal or agent.

The words “and non-circumvention” in clause 4.2.1 were “a fish out of water” and should be treated only as requiring the back-to-back agreement to prohibit circumvention under clause 4.1 as interpreted by the judge.

The obligation was to obtain a back-to-back agreement in favour of BNPPRE, not Dorchester.

As to clause 4.2.1, the judge held that:

The commercial purpose of this clause was to protect Dorchester.

This clause was concerned throughout with disclosure, not circumvention.

It was for BNPPRE to ensure that the receiving party signed a back-to-back agreement.

The responsibility provision meant that BNPPRE was responsible for the wrongful disclosure by a receiving party of confidential information only if it was passed to the receiving party by BNPPRE.

Accordingly, BNPPRE had no responsibility for either (a) the wrongful disclosure by a receiving party of confidential information obtained directly from Dorchester, or (b) the consequences of circumvention by the receiving party acting alone.

The judge placed particular weight on the words “whether by it or any third Party to whom disclosure is made” at the end of the responsibility provision in clause 4.2.1. He held that these words reinforced his view that clause 4.2.1 was concerned only with wrongful disclosure and not with circumvention. In addition, those words contained a limitation on the disclosure for which BNPPRE could be liable. Its liability was limited to the wrongful disclosure of information passed to the receiving party by BNPPRE. Any other conclusion would, in the judge’s view, be surprising.

The judge recognised that Dorchester may have passed information directly to IKEA at BNPPRE’s express or implied request. This would bring clause 4.2.1 into play. That possibility was a matter for trial.

As to clause 4.4, the judge rejected the argument that this provision had the effect that the reference to BNPPRE in clause 4.1 would include a person introduced by it for the following reasons:

Such an interpretation would be onerous and unusual, and required explicit wording.

It would extend the liability of BNPPRE for non-circumvention to acts of the receiving party carried out without authority from BNPPRE.

This interpretation was inconsistent with the definition of “party” at the start of the deed.

The responsibility provision was an explicit statement for responsibility which was absent from the non-circumvention obligations.

The effect of the judge’s ruling, therefore, is that BNPPRE had on the face of it no liability for the loss which Dorchester contends that it suffered as a result of IKEA circumventing Dorchester, and approaching the seller of the site direct.

The argument of Mr Martin Hutchings QC, for Dorchester, is a very simple one. Clause 4.2.1 is engaged if BNPPRE proposes to pass confidential information to a receiving party (“the trigger event”). Once clause 4.2.1 is engaged, BNPPRE is bound to procure that the receiving party enters into a back-to-back agreement containing “similar obligations of non-disclosure and non-circumvention” to those imposed on BNPPRE by the deed. “Similar obligations” are those which transmute the obligations which the deed imposes on BNPPRE into obligations of the receiving party under the back-to-back agreement. The judge’s interpretation was defective because it failed to give full effect to this obligation.

Mr Hutchings does not shrink from saying that, once the trigger event occurs, the responsibility provision imposes liability on BNPPRE for IKEA’s unauthorised disclosure of confidential information even if Dorchester delivered that information to it and not BNPPRE, and even if it did not know that Dorchester had done this. Mr Hutchings also accepts that under his interpretation liability is imposed on BNPPRE if the receiving party makes a direct approach to the seller of the site. That too may occur without BNPPRE’s knowledge in advance.

On Mr Hutchings’ submission, the judge was wrong to say that this interpretation should be rejected because such an obligation was unusual or because it would be onerous on BNPRRE. The judge’s interpretation seriously diluted the protection for Dorchester. In any event, there was no evidence about whether the obligations were unusual in a confidentiality agreement or whether they were in fact onerous for a party in BNPPRE’s position.

Mr Jamie Smith, for BNPPRE, incisively submits that the judge was right to hold that clause 4.2 is concerned with disclosure of confidential information only. Clause 4.2 imposes the obligation of confidence and then clause 4.2.1 provides the safe harbour from that prohibition. On that basis, it was no great step to read the rest of clause 4.2.1 as limited to protecting Dorchester from the risk of the non-disclosure of confidential information provided by BNPPRE to the receiving party, or at least restricting liability to Dorchester to loss caused by non-disclosure of that information. He stresses that clause 4.2.1 imposes stringent liability on BNPPRE because it may not be responsible for the receiving party approaching the seller and it may not know about the provision of information by Dorchester to the receiving party.

It follows on Mr Smith’s submission, that the only provision curbing circumvention was clause 4.1. The court could not apply the extended definition of BNPPRE in clause 4.4: that was a meaningless provision because it could not be applied to all references to BNPPRE in the deed: see for example, clause 2.

It also follows, on Mr Smith’s submission, that the responsibility provision is limited to liability for unauthorised disclosure of information supplied by BNPPRE to IKEA. Therefore there is no sanction for failure to obtain a non-circumvention agreement from the receiving party.

I now turn to my conclusions.

The primary aim of the court in contractual interpretation is to ascertain the meaning of an agreement which the document would convey to a reasonable person having 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. The background includes evidence as to what objectively was the aim of the transaction. The background enables the court to choose between meanings and to conclude that the parties were using a term in a particular sense or had chosen the wrong words to convey their meaning.

In this case, the aim of the deed is found by considering the circumstances of its execution and the terms of its recitals. The background clearly shows that Dorchester and BNPPRE intended that Dorchester should be protected against the risks of both unauthorised disclosure and circumvention. They were also alive to the risk that circumvention might occur because of the acts of the receiving party: see the reference to “any related third party or nominated vehicle” in clause 3.3. Moreover, the parties contemplated that BNPPRE would perform the role of introducing a funder, not that of a bidder, 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.

Once the obligation of non-circumvention in clause 4.1 is imposed on the receiving party in favour of BNPPRE, contrary to the judge’s conclusion, the words “introduced to each other” can be read without any difficulty as applying to the introduction of the seller by BNPPRE to IKEA. There is no requirement in clause 4.1 for the name of the seller to be itself confidential information.

In my judgment, the judge was right to have in mind a businesslike meaning for the provisions of the deed, but that did not entitle him to disregard provisions of the deed. The weakness of his interpretation is that it places little or no meaning on the words “similar obligations of…non-circumvention” or (less seriously) on the provisions of clause 4.4. Words can only be disregarded in the rare event that it is not possible to ascribe any sensible meaning to them.

In addition, the judge had to interpret the deed keeping in mind the objective aim of the transaction, not what he might independently consider unusual or onerous.

On that basis, it is in my judgment clear that the back-to-back agreement, which clause 4.2.1 requires BNPPRE to obtain from the receiving party before it passes confidential information to it, must contain obligations of both non-disclosure and non-circumvention. Mr Smith may be right that clause 4.2.1 is the safe harbour given to BNPPRE from its obligation under clause 4.2 to keep confidential information secret, but that does not mean that the conditions of entry into the safe harbour must be limited to conditions about confidential information.

The parties had every reason to seek to protect Dorchester from the identified risk of non-circumvention by a party other than BNPPRE. That party would be in a relationship with BNPPRE and thus in practice BNPPRE was better placed than Dorchester to ensure Dorchester’s protection against circumvention. BNPPRE could protect itself by obtaining a back-to-back agreement from the receiving party. Thus, to read clause 4.2.1 as I have done does not produce an absurd result which might justify ignoring any part of its provisions.

Moreover, it would be surprising if the parties agreed that BNPPRE should obtain a back-to-back agreement but would be under no liability if it failed to do so. Mr Smith suggests that the responsibility provision has that surprising effect. In my judgment, the responsibility provision would have been differently worded if the parties had intended to exclude BNPPRE’s liability for not obtaining a back-to-back agreement when it should have done so.

A disclosure is obviously “unauthorised” if it goes beyond the terms of the back-to-back agreement. Since the back-to-back agreement will impose an obligation on the receiving party in similar terms to clause 4.2, the receiving party will agree “to keep - and to procure to be kept – secret, all Confidential Information which may come to [its] knowledge as a result of [BNPPRE’s and the receiving party’s] relationship hereunder.” Thus BNPPRE’s liability under the responsibility provision extends to confidential information meeting that description but coming from some source other than BNPPRE, such as Dorchester itself.

On this basis, the responsibility provision is not simply an unnecessary repetition of the obligations that BNPPRE has already undertaken under clause 4.2.1. It removes the possibility of a defence based on the fact that BNPPRE has done all that it needed to do by taking the back-to-back agreement, and provides the incentive to BNPPRE to enforce it. As already explained, it was not absurd for Dorchester to pass this responsibility to BNPPRE. It was clearly open to the parties to agree that the risk should lie on BNPPRE, not Dorchester.

Clause 4.2 places limits on confidential information. At trial the court will be able to ascertain whether BNPPRE or Dorchester gave IKEA confidential information for the purposes of the deed. Mr Smith candidly accepted that BNPPRE might be liable, even on his interpretation of the deed, if Dorchester had passed confidential information direct to IKEA at BNPPRE’s express or implied request.

Mr Hutchings had an alternative argument that the judge could have reached the same conclusion under the deed by using the extended definition of BNPPRE in clause 4.4 to clause 4.1. This argument does not now arise and accordingly I do not need to set it out or deal with it. It has no implications for my analysis.

For these reasons, I would allow this appeal.

I agree with my Lady’s conclusions that: (a) if BNPPRE disclosed confidential information to a third party, it was bound to procure that party to enter into a back-to-back arrangement under which that third party accepted obligations of non-circumvention and non-disclosure, and, (b) once such confidential information was disclosed by BNPPRE, the back-to-back agreement was to apply to information supplied to the third party by Dorchester as well as information supplied by BNPPRE. As we are differing from the conclusion of the learned judge, I add the following short explanation of my reasons for reaching this conclusion.

In my assessment, it is difficult to see why Dorchester would want BNPPRE to be liable only where BNPPRE gave the confidential information to the third party or itself circumvented Dorchester. In this case IKEA/Landprop was BNPPRE’s contact/client. As my Lady stated (at [28]), the background clearly shows 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 were alive to the risk that circumvention might occur because of the acts of a third party. In this case the third party contemplated was IKEA/Landprop. It makes commercial sense that, once BNPPRE has passed some confidential information to its contact/client it has introduced to Dorchester, it accepts responsibility for that contact/client and that it is not left to Dorchester to protect itself against circumvention by third parties introduced to it by BNPPRE after it entered into the non-disclosure and non-circumvention deed with BNPPRE.

I agree with both judgments