Judge considers awards of 'negotiating damages' for breach of NDA
Judgment was handed down in June 2023 in a case considering the breach of an NDA. This case concerned the acquisition of a site known as Ensign House in Canary Wharf, London, comprising 18 different office suites let on long leases.
The Claimant, Ensign House Limited (''EHL'') was seeking to acquire and then redevelop Ensign House and build a new multi-storey tower block. However, the process of site assembly was complex, involving the acquisition of the freehold, headlease, 18 suiteholder leases and a number of sublease and occupational interests. Negotiations with the suiteholders took place between 2014 and 2019, and EHL engaged an agent, Mr Terence Alford to assist with those negotiations.
In 2019, a development group, FEC Development Management Limited (''FEC''), approached EHL with a view to acquiring EHL's interest in Ensign House. EHL and FEC therefore entered into a non-disclosure agreement (''the NDA'') while negotiations continued to explore this 'valuable opportunity'. As part of the NDA, FEC agreed, in particular, not to use any confidential information provided by EHL for any purpose other than carrying out the necessary due diligence on the proposed transaction and not to approach the leaseholders without EHL's consent. It was common ground that not all information provided under the NDA was confidential. Despite the terms of the NDA, and without EHLs knowledge, FEC (with the assistance of Mr Alford) began to negotiate with the long leaseholders, seeking to agree its own deals with them.
In February 2020, FEC went on to acquire Ensign House, through a special purpose vehicle known as Ensign House (FEC) Limited (''Ensign House (FEC)''). EHL subsequently brought claims against FEC, Ensign House (FEC), FEC's director and Mr Alford for alleged misuse of confidential information and alleged misconduct by Mr Alford.
Following a 21-day trial in late 2022, Mr Justice Leech awarded damages totalling £2m to EHL. In addition, Mr Alford was ordered to pay over to EHL £800,000 in commission made in breach of his fiduciary duties.
A key question for the court was whether it was limited in awarding compensation for actual loss suffered or whether the court could award 'negotiating damages' for breaches of the NDA in relation to the information used that was not, strictly, confidential. Negotiating damages are calculated by reference to a 'hypothetical negotiation' between the parties and reflect the sum the defendant would have paid the claimant to secure a release of the obligations before they were breached. It was accepted that negotiating damages could be awarded for the breaches relating to confidential information and the Judge considered that the release fee for the confidential information alone would have been £600,000.
The Judge found that this hypothetical negotiation would have included a release fee not only for use of the confidential information but also for the release of Mr Alford from his retainer and fiduciary duties (to allow him to act for FEC) and release from the other terms of the NDA. This meant that negotiating damages could be assessed taking into account the lost opportunity to bargain for a release fee before the breaches occurred.
This case highlights the importance of strict compliance with NDAs and a reminder to agents to be mindful of the terms of their retainer and their fiduciary duties.