The starting point
In the absence of any contract restricting the disclosure of information, information that a business discloses may be protected by a duty of confidence owed by the person who receives the information (the recipient). If that information is used or disclosed by the recipient without your permission, you may be able to enforce this duty through the courts if you can demonstrate that:
- the information was of a confidential nature (that is, not publicly available)
- the information was communicated to the recipient with the understanding that it was confidential and was to be kept confidential; and
- there was an unauthorised use of that information, to the detriment of your business.
If you succeed in proving that the recipient has breached an obligation of confidence you may be entitled to damages to compensate for any loss caused by disclosure of the information. Alternatively, if the information has not yet been disclosed you may be entitled to an injunction to prevent disclosure.
You should not rely on this duty of confidence to protect your business’s confidential information. The elements of the action can be difficult to prove, the court process is likely to be time consuming and expensive, and – even if you succeed – the damage may have already been done. Try to agree the terms on which the recipient can use the information before it is disclosed.
Advantages of a confidentiality agreement
A written confidentiality agreement (or non-disclosure agreement) is the best approach for ensuring that sensitive or commercial information disclosed to a third party will be legally protected by an obligation of confidence.
The key advantages include:
- it establishes a simple contractual obligation not to use or disclose specified information
- it provides certainty about the behaviour that the disclosing party expects of the recipient
- it is easier to enforce a breach of contract than a breach of the duty of confidence
- it can be tailored to fit the particular circumstances (for example, permitting disclosure to professional advisors)
- it enables discloser and recipient to agree the laws that will govern the disclosure, the consequences of breach, and how disputes will be resolved (for example, mediation or arbitration, rather than direct recourse to the courts)
- it creates a significant psychological obligation on the recipient of confidential information not to use or disclose that information.
What to include in a confidentiality agreement
There are two types of written confidentiality agreements:
- “one-way” confidentiality deed: Information is disclosed subject to a promise given by the person receiving the information to keep it confidential. The contract is signed as a deed because the only value received by the discloser for the information is the recipient’s promise.
- “two-way” (mutual) confidentiality agreement: Both parties exchange confidential information with each other and both agree to keep that information confidential. The contract is signed as an agreement because each party is exchanging something of value (information).
In this guide “confidentiality agreement” is used to describe both deeds and agreements.
You can download an example of a two-way confidentiality agreement below. This example is not a template or a definitive guide to best practice. Before signing any confidentiality agreement you should always seek legal advice to ensure the agreement is tailored to fit your specific business requirements.
A confidentiality agreement should address the following issues (at a minimum):
- an accurate description of the confidential information to be disclosed
- an obligation to keep the information confidential and only to use the information for the purpose(s) expressly described in the agreement
- the limited circumstances in which the recipient is permitted to use the information
- the duration of the confidentiality obligation
- the consequences of a breach of the obligation
- the country’s laws that will govern the agreement.
Limitations of a confidentiality agreement
While confidentiality agreements have advantages, there are some practical limitations to their effectiveness. These limitations include:
- The most effective remedy for breach of a confidentiality agreement is an injunction restricting the disclosure. However, if the information has already been disclosed to other people, an injunction will be of little use and it will be almost impossible to control the spread of the information.
- If the recipient breaches the confidentiality agreement you may be able to claim damages against the recipient. However, damages will not prevent the spread of the information either.
- It may be difficult to prove that it was the recipient who disclosed the information.
Practical ways to protect confidential information
Confidentiality agreements are a great start to protecting your sensitive and commercial information in a legal capacity. You can also take some practical steps to protect it such as:
- Only disclose information to people who need to know that information. Ensure each recipient is under an obligation of confidence owed directly to your business.
- Impose a requirement that all confidential information must be destroyed or returned to your business when no longer required.Keep accurate and up to date records of exactly what information has been disclosed and to whom.
- Mark all sensitive and commercial information as “confidential” prior to release.
This guide is provided subject to our terms of use.
Use of the information contained in this guide is at your own risk and we are not responsible for any adverse consequences arising out of such use. This is a complex area and we recommend that you seek legal advice before taking any related action.
