Recent Case Highlights The Importance of Non-Disclosure Agreements

The recent case heard at the Chancery Division of the High Court of Dorchester Group –v- BNP Paribas Real Estate Advisory and Property Management UK Ltd (“BNP”) and Inter-IKEA highlights the importance to property developers of obtaining effective non-disclosure agreements (NDAs) with all interested parties in deals and developments.

Andrew Olins, partner at IBB Solicitors, acted for Dorchester Group in the litigation. The case concerned the purchase by Inter-IKEA in July 2010 of a 13-acre development site at Stratford, East London (the Site). The purchase occurred after the site’s previous owners collapsed and receivers were appointed. Dorchester had previously reached an advanced stage in negotiations with the previous owner to enter into a joint-venture to develop the Site, or to purchase it from them. Therefore, Dorchester had acquired good knowledge of the Site and the possibilities and challenges it presented. When the receivers began marketing the Site, Dorchester was naturally interested in buying it, and in December 2009 submitted a bid of £21m. Dorchester was accordingly given preferred bid status.

Please don’t teaseDorchester needed to obtain funding for its bid. BNP (part of the global banking and financial services BNP Paribas Group) introduced Dorchester to Inter-IKEA. Prior to disclosing information about the Site to BNP, Dorchester had shown them a map location and required them to enter into a non-disclosure and circumvention agreement (the NDA). The NDA obliged BNP, before it disclosed Dorchester’s “confidential information” to Inter-IKEA, to obtain from Inter-IKEA similar obligations of the NDA in ‘a back-to-back agreement’. After BNP signed the NDA, Dorchester provided a one-page “teaser” to BNP which they forwarded to Inter-IKEA without obtaining from Inter-IKEA a back-to-back agreement. The teaser was intended to interest Inter-IKEA in funding Dorchester’s bid. Believing that BNP had procured a back-to-back agreement, Dorchester took them on the site and later disclosed directly to Inter-IKEA the level of its bid and its sophisticated financial appraisals showing, amongst other things, the large profits to be made from developing the Site.

In February 2010, when the receivers and Dorchester were negotiating heads of terms, Inter-IKEA launched a rival bid of £23m which was ultimately successful. Proceedings ensued and at trial Dorchester claimed that, in making its rival bid, Inter-IKEA had used Dorchester’s confidential information, and accordingly was in breach of equitable obligations of confidence owed to Dorchester. Inter-IKEA admitted in court that they had not undertaken any independent appraisals of the development potential of the Site before making their bid. In defending a claim against it for breach of the NDA, BNP made three points: First, it was entitled to pass to Inter-IKEA the information disclosed by Dorchester before the NDA was signed (i.e. the location of the Site). Second, the teaser did not trigger the obligation to obtain a back-to-back agreement from Inter-IKEA because it did not contain “confidential information”. (This was despite the fact that the teaser was intended to and did generate Inter-IKEA’s interest in the development opportunity which the Site afforded. The teaser gave amongst other things the Site’s location, its size, a broad description of its planning potential, and the gross development value of Dorchester’s scheme.) Third, armed with this information alone Inter-IKEA would have bid for the Site. It therefore made no difference that Inter-IKEA also knew the level of Dorchester’s bid and had sight of its financial appraisals.

NDAs crucialAt the start of the case, the headline sum claimed by Dorchester against BNP and Inter-IKEA was £750M – being the profits which Dorchester would have made from developing the Site. On the seventh day of the trial the case was settled “on terms acceptable to the parties but which are confidential“. As the case was settled, the court did not have to decide whether BNP breached the NDA by (wrongfully) failing to obtain a back-to-back agreement from Inter-IKEA or whether Inter-IKEA breached obligations of confidence owed to Dorchester.

“There is an important lesson that developers as a whole can learn from this case. Whilst it may well be uncommercial to ask a potential funder (or, indeed, anyone else) to sign an NDA before giving any information about a potential opportunity, developers run a (terrible) risk if they fail to do so. And even after an NDA is signed, unless it is very widely drawn, it may not protect against the (wrongful) use of information which developers would consider to be confidential but which English law does not recognise to be confidential,” concluded Andrew Olins.

For advice on property issues and disputes call the real estate dispute resolution team at IBB. IBB has one of the largest real estate groups in West London and the South East, with expertise in commercial real estate , residential development, real estate finance, real estate and investment management, construction and real estate dispute resolution.

If you have a property dispute, contact us on 01895 207988 or email propertydisputes@ibblaw.co.uk.