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Saturday, 14 May 2011

WikiLeaks £12m Legal Gag: a legal analysis

Last Wednesday, the New Statesman published the legal gag which WikiLeaks sought to impose on its employees and associates.

This was then followed by an article in the Guardian by James Ball providing further background to this curious document.

The former WikiLeaks spokesman Daniel Domscheit-Berg was also reported as saying:

“WikiLeaks has become what it despises: a repressive organisation, using restrictive contracts to gag its staffers, cultivating intransparency and unaccountability”


For many commentators the document simply spoke for itself.

It was illiberal in its purpose and misconceived in its approach.

It was patently a commercial legal instrument, and the £12 million figure was preposterous and worrying.

Given the express aims of the WikiLeaks organisation, it appeared to be hypocritical and discrediting.


However, this view was not shared by all.

WikiLeaks itself tweeted:

"WikiLeaks works on information that can change the destiny of states and other powerful groups. We are proud of using every possible instrument to be to defend our sources, staff, volunteers, collaborators from these groups, whose actions against us include legal coersion, bribery and violence. Although we have not sold raw information to other entities, for legal documents to be enforceable, they must be put into monetary form."

(By the way, that final assertion is simply - factually - incorrect as a matter of basic law.)


Others have sought to explain the document away: to normalise it and to contend that it is somehow unexceptional.

It may be well that for WikiLeaks partisans (like "the Birthers" in the United States), nothing - not even a disclosed document- will shift their adherence to their cause.

If so, that would present rather a paradox, as one claim for the WikiLeaks enterprise is that publishing original documents can undermine artificial and self-serving narratives.


So for WikiLeaks and its partisans, and for anyone else who is interested, what follows is a technical legal analysis of this extraordinary document. I also, at the end, provide a suggested draft for the NDA they should be using instead.


The starting point, as with any contract or transactional document, is the choice of law.

Here, there can be no doubt: clause 9 provides that it is under English law.

This has two important consequences.

First, it means that it will be presumed that the English laws of confidentiality and copyright will apply as between the parties.

Second, it means that the English law in respect of penalty clauses will also apply.


Confidentiality agreements under English law

Under English law, one does not need a contract to have enforceable obligations of confidentiality.

All one needs is for there to be information which is confidential in its nature imparted under the terms of confidentiality. If the recipient of the confidential information misuses or wrongfully discloses the information, then the provider of the information can apply to the court for an injunction or to recover the wrongful profits made by the recipient.

No written or oral agreement is required. This is partly because the English law of confidence is based on “equity” rather than common law, and equity and common law were administered historically by separate courts.


Confidentiality agreements (or “non-disclosure agreements” or “NDAs”) then supplement the law of confidentiality in three ways.

They can identify and define the information which is to be regarded as “confidential”; they affirm that the information has been imparted under the term of confidentiality; and they provide for what the parties agree would be the appropriate remedy for any breach.

A well-crafted confidentiality agreement ensures each of these three points is clear and legally enforceable.


Such agreements can also serve important non-legal and ceremonial purposes.

Once a transaction or joint venture is envisaged, parties often sign a NDA or memorandum of understanding to show a mutual commitment short of a formal business arrangement.

And being presented with a NDA can ensure that the recipients are made to realise the seriousness of their obligations in respect of information with which they about to be provided.

There is nothing wrong with an organisation like WikiLeaks having a NDA; the problem is in the content.


Definition of "information"

Turning now to the WikiLeaks document itself, you will see that the information to be covered is defined in the recital paragraph B.

This seems to be an extremely wide definition, which goes far beyond the leaked documents which the organisation possesses.

The definition is not that easy to follow. It is unclear to what the "it" at the start of the second sentence is referring (and this matters because the second sentence defines "information").

There are also three non-exhaustive lists of what the information "includes". It also looks as if there is a general test of "newsworthiness" as to whether information is caught by the definition, though this test is left undefined, and there is no indication as to whether this test of newsworthiness is objective (in the opinion of a court) or just in the opinion of WikiLeaks.


However, regardless of this woeful drafting, it could be arguable that the definition would cover all information leaked to and held by WikiLeaks that was worth leaking to a third party.

For an organisation which promotes transparency and accountability, one concerning element to the definition of "information" is that it purports to include the workings of WikiLeaks and details of its management and internal affairs.

That said, it would actually be difficult to enforce certain other provisions of this document in certain foreseeable cases, just because this definition of "information" is insufficiently precise.

If WikiLeaks was serious about enforcing this document, it needed a more precise definition of the information it should cover.


Ownership

I have noted elsewhere the extraordinary notion that WikiLeaks contends that it "owns" the information which has been leaked to it.

You will see clause 1 purports to claim all the "information" as defined "is...and remains the property of WikiLeaks".

In legal terms, this assertion of proprietary rights would mean that WikiLeaks has certain rights and remedies in respect of that leaked information which it otherwise not have but for this ownership.

WikiLeaks may, of course, have its own generated intellectual property. It may be also able to perhaps claim that it owns the databases in which the leaked information is stored.

But there is no legal basis whatsoever for WikiLeaks to have ownership of the information itself, especially when it has been provided in breach of various civil and criminal legal regimes.

For example, WikiLeaks cannot own the copyright in the leaked information (to the extent that the information is in a form capable of copyright protection). The creator has not assigned any ownership to WikiLeaks, and no licence has been given.

WikiLeaks cannot also take over the right of ownership of confidential information possessed by the original holders of the information before it was leaked.

And these points are crucial: without "ownership" then there is nothing at all which WikiLeaks can meaningfully sell. And, if this is the case, then various other provisions of this document become nonsensical.

Put simply, the leaked information cannot be "owned" but WikiLeaks would need to have something to own before it can commercially exploit as envisaged by recital paragraphs C and D of the document.

And so we come to commercial exploitation.


Commercial rights

The recital paragraphs C and D set out the basis of WikiLeaks ambitious claims to be able to commercially exploit the information (which they do not own).

The commercial value in the information is firmly connected to the "exclusivity" of these commercial agreements.

Recital paragraphs C and D (and indeed all the recital paragraphs A to E) contain absolutely nothing which, to quote the WikiLeaks tweet above, would protect "sources, staff, volunteers, collaborators [from...legal coersion, bribery and violence".

The only sensible reason for recital paragraphs C and D is to protect the commercial position of WikiLeaks in respect of its (imagined) exploitation rights in the information it contains.

And it gets worse.

For the most astonishing part of this document to me (more than the liquidated damages or penalty clause, on which more below) is in recital paragraph E.


Normally, a person in breach of a contract is liable for any direct loss caused. However, the law draws a line as to how much indirect loss one can also be liable for.

However, recital paragraph E provides for a person in breach of this document to be personally liable for the widest imaginable array of (entirely commercial) indirect losses so as to ensure that WikiLeaks can simply protect its commercial position.

It is paragraph E that makes the conclusion inescapable that this is wholly or primarily a commercial document. There can be no other explanation for the inclusion of this paragraph.

And now we come to the penalty clause.


Penalty clause

Unlike in some other jurisdictions, penalty clauses are unenforceable in English law. A party cannot include in a contract a provision which is there only to penalise a party in breach; any losses have to be genuine and flow from the breach.

Sometimes a party may seek to avoid the effect of this rule of English law by dressing up a penalty clause as a "liquidated damages" clause where the parties agree a "pre-estimate" of any loss suffered by a breach. However, English contract law tends to deal with substance not form, and so a clause will be struck down as a penalty even if the parties have called it liquidated damages.

In this document, clause 5 provides a figure of £12,000,000 for loss in respect of a "significant" (presumably material) breach of the agreement. There is no basis provided for this figure.

It is not even obvious which heads of loss are covered. Damages for infringement of (non-existent) copyright? Profits in respect of breach of (non-enforceable) confidentiality? The indirect losses under recital paragraph E?

The figure appears to have been plucked out of the air.

It is so high that it can only be a penalty. As such it could not be enforced.


What this means is that, far from this being a document which would "defend our sources, staff, volunteers, collaborators [from]...legal coersion, bribery and violence" it is instead of almost no legal effect as the central protection (other than recital paragraph E) would be without effect.

Any competent commercial lawyer would tell someone producing this document that a court would be unlikely to uphold clause 5 as it was a penalty.

So, in seeking to make this an onerous document, WikiLeaks have instead produced an effectively pointless dud.

That is why, as I said in the New Statesman, this clause is ludicrous and undoubtedly unenforceable.

The penalty in clause 5 actually offers WikiLeaks no real protection at all.


What WikiLeaks should have done

You may have noticed that I have referred above to the lettered paragraphs as "recital paragraphs" and to the numbered paragraphs as "clauses". Unless you have the misfortune to be a commercial lawyer, this distinction may not mean anything.

However, for a contract under English law, the distinction can be very important.

In the event a contract is enforced, a recital basically tells a court what the parties intended by the agreement they had entered. A recital is thereby an aid to the court on how obligations are to be construed.

Whilst in badly drafted contracts, such as this one, recitals contain substantive obligations and liabilities, such provisions belong in the clauses which then follow.

In this document, you will see at the top of page 2 that "the parties hereby agree as follows" - the recitals lead up to this statement of agreement and the substantive clauses - the terms and conditions - then follow.

If this document was really to be used for the protection of "sources, staff, volunteers, collaborators" rather than for commercial exploitation then the recitals should be very different.

Instead of emphasising the commercial exploitation rights of WikiLeaks, it should be emphasising the need to protect sources and staff, the need to ensure information is disclosed properly without creating due risk to life and limb.

And instead of emphasising monetary amounts, the document should mention the public interest in uncontrolled disclosure of sensitive information.

A court would then be able to ensure that whatever remedy was ordered met the presumed intention of the parties in keeping the information safe for good reason.

Indeed, the WikiLeaks tweet quoted above, and the various justifications of WikiLeaks partisans on Twitter and elsewhere, would have been better recitals to this document than the ones actually used, unless - of course - the intention of WikiLeaks was in fact commercial rather than protective of its sources.

The fact that the document talks of commercial interests and liquidated damages, rather than the public interest, indicates it is a commercial document.


This blog does not provide legal advice.

But as I draft NDAs under English law as part of my day job, including for non-governmental and not-for-profit organisations, I would suggest that if WikiLeaks had been genuinely serious about protecting the integrity of its information and the safety of its sources, rather than commercialising the information, then the following would have been more appropriate.


Non Disclosure Agreement

Between

[WikilLeaks entity]

and

[Name X]

Whereas

A. [WikiLeaks entity] possesses and has access to information (including documents and other materials which has been passed to it in the public interest) which is of a sensitive nature the unauthorised disclosure or misuse of which could adversely affect the interests of third parties ("information").

B. [Name X] will have access to this information.

C. The carefully managed disclosure of the information into the public domain is in the public interest.

The parties hereby agree:

1. [Name X] shall not disclose to any third party or use for his or her own benefit or for the benefit of any third party, any of the information without the prior written consent of [WikiLeaks entity]. [Drafting note: same as clause 1 of the document.]

2. [Name X] shall not commercially exploit or otherwise misuse the information. In the event [Name X] does commercially exploit or otherwise misuse the information then [Name X] shall (a) account to [WikiLeaks entity] for any profit which is thereby made, and (b) indemnify [WikiLeaks entity] for any damages and legal costs thereby caused.

3. The liability of [Name X] under clause 2 shall be limited to £12,000,000.

4. [WikiLeaks entity] is proud of using every possible instrument to be to defend its sources, staff, volunteers and collaborators, and [WikiLeaks entity] thereby indemnifies [Name X] against any loss or damage caused by [Name X] assisting [WikiLeaks entity] in respect of the information.

5. The liability of [WikiLeaks entity] under clause 4 shall be unlimited.

6. Nothing in this agreement shall provide [Name X] with any ownership, licence or other rights in the information.

7. Damages may not be an adequate remedy in respect of a breach by [Name X] of this Agreement and that [WikiLeaks entity] shall be entitled to injunction or other interim order so as to ensure that the information is held and disclosed in accordance with the public interest and the rights of any third parties who may be affected.

8. Unless terminated by the agreement of both parties, this agreement shall last for a period of three years.

9. This agreement is subject to English law and to the non-exclusive jurisdiction of the English courts.

Executed as a deed by

[WikiLeaks entity]
Witness

[Name X]
Witness



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18 comments:

Ben said...

I confess to being a bit puzzled by how badly drafted the document is.

I'm not yet finished with the LPC and even I know that the penalty clause is a nonsense.

Do you imagine that the lawyer who drafted this wasn't that familiar with English law?

Nick Gordon said...

@Ben

I suppose that the Wikileaks contract was *not* drawn up by a lawyer at all; it has the hallmarks of an amateur attempt at "lawyerese".

I've come across similar half-baked efforts (in more mundane contexts). This is what you get when we amateurs think we can do without the professionals.

Muscleguy said...

Such a document may not be intended to be defended in court or in an employment tribunal. It may be that it is intended simply to appear to be legal to the legally uninitiated and thus to inhibit them from leaking any material for fear of the threatened, if unenforceable, penalties.

Stephen said...

I think the scale of the penalty clause is going to split it into two groups - people who read and sign it and people who don't read it but do sign it.

If I was reading an agreement that said "if you break this in anyway you give us £12m" I'd double-take and maybe get a lawyer to read it to tell me what I should do to avoid losing a telephone number sized amount of money. They'd almost certainly tell me about the whole penalty clauses in English law thing.

On the other hand, if I hadn't read it and then broke it and found out I apparently owed Wikileaks £12m I'd simply have to call their bluff. I'd struggle to manage to ever even pay them pennies on the pound. I'd hopefully find out about penalty clauses and English law through that.

hat_eater said...

Thank you. That's a lot to ponder. I hope the folks at WikiLeaks make use of your advice - and that their NDA was indeed just misconceived, and not indicative of their intentions.
And I apologize for my thinly veiled insinuations in comments to the NS piece.

Kimpatsu said...

What would happen if Julian Assange tried to enforce this contract in his native Australia, where they DO have penalty clauses?

Tim Trent said...

Does the Public Interest Disclosure Act 1998 not have some bearing here, at least in the UK?

Nick Gordon said...

@Kimpatsu

Interesting question, raising several issues:

1. Since, as JoK notes, the contract is written under English law, Mr Assange would have to find a way to persuade Australian courts that they had jurisdiction
2. Assuming success at 1 above, the individual against whom Wikileaks was taking action would, presumably, have to submit to Australian jurisdiction. Since the action would be civil, not criminal, there doesn't seem to be any way Australia could enforce that submission (e.g. via extradition
3. Mr Assange himself appears to face a risk of arrest and removal to the USA if he goes back to Australia.

And there's the reputational damage to Wikileaks

Anthony Cox said...

The document can be viewed from a non-legal perspective. Firstly, it may serve the purpose of frightening those without the capacity for seeing what it is.

Secondly, it re-enforces to supporters that they are involved in an important and exciting project. Signing it becomes part of joining the project, making one an "insider".

I imagine the document serves both of these purposes extremely well with the more cultish supporters. For more savvy individuals who are less into personality cults I suppose it is less effective. Indeed, Most of wikileaks run-ins appear to have been with professional journalists.

Alex B said...

I'd say this is just an attempt to scare the uninitiated and discourage leaks. Rather like unenforceable non-compete clauses in contracts I've seen (eg ones to the effect of 'you can't work in the IT industry for 2 years if you leave us'), they're there for effect and to curb any blatant misbehavour.

Nicholas said...

My guess is that someone has looked at a selection of confidentiality agreements, and picked out clauses that looked attractive, and mashed them up into this mess - without any appreciation as to the nuances in legal drafting.

Just to pick up one such point - the Wiki document is drafted as a deed. Is that because there is no other enforcable consideration? Bearing in mind that equity will not assist a volunteer - are equitable remedies (such as injunctions) available? The execution clause doesn't appear to comply with the relevant execution formalities either!

David McIntosh said...

I wonder what an American serviceman's contract says about reporting war crimes committed by fellow servicemen: "Accidental death by friendly fire," a la Pat Tillman? And for leaking war crimes by fellow servicemen that the military itself won't prosecute: "52 years in jail," a la Bradley Manning? Will you find out for us, Jack?

WB said...

Excellent work Jack of Kent. Just excellent.

Ben, I'm not puzzled at all by how rubbish the actual Wikileaks doc is. What we've learned about that organisaiton is that it's a chaotic enterprise.

Kimpatsu said...

@Nick Gordon:
Australia was just an example. Could he try enforcing it anywhere else in the world? One reason that I ask (and there are several, but some of them, although on legal philosophy, are a bit too far off topic here)is that Justice Eady, with regard to super-injunctions, has ruled that they apply to all the world. I wonder how the USA, with its far more robust defence of free speech, feels about being told by a British judge what they can and cannot publish?

Stephen said...

There are circumstances where an Australian court would apply Australian law but, generally speaking, if two parties agree to settle their disputes under English law that's what ends up happening most of the time. It's much freedom of contract as freedom of expression.

My general opinion on the whole question is pretty much just that choice of law is a frighteningly complicated field which makes my head hurt. I've not even got onto what the thing says yet.

Nick Gordon said...

@Kimpatsu

The agreement will only have force in another jurisdiction if the courts there choose to allow it. American courts have, on several occasions, refused to accept English court decisions in libel cases, since they conflict with constitutional rights. Eady J may rule that an injunction applies throughout the world, but in practice his ruling has limited effect.

Another country could choose to support the agreement, but there can be no assumption that it would do that.

It's interesting (and, to me, depressing) that English courts (especially in the case of libel claims) seem uniquely ready to accept jurisdiction over matters that have no relevance to the UK.

Neuroskeptic said...

Someone needs to write a book about "How WikiLeaks Entranced The World Media", because the more information that comes out, the more it seems that last years Wikimania was entirely empty. And indeed, rather grotesque.

The media of course are, and ought to be, in favor of leaks, but how they managed to buy so readily into Wikileaks - that's a story to tell.

Dan said...

It is indeed interesting to see the reactions to critics of WikiLeaks. The David McIntosh comment above summarises the standpoint very well: "there are some problems with transparency in the government/military, we want more visibility of what goes on. Any criticism of WikiLeaks is a defense of any indefensible behaviour by the government/military."

Personally, I thought it was great that someone had leaked the truth about the helicopter shooting up the journalists. Good leak.

However, the "WikiLeaks solution" appears to be based on uncritical leaking of vast volumes of information to WL, who will, according to own whim and under no jurisdiction at all, make (some of) this information public as and when they see fit, for commercial gain in some cases.

McIntosh et.al.:

Is that a democratic solution?

Is it a safe solution?

Is it indeed *anything like* a solution you would have thought up yourself given the above problem to solve?