If you are in business, then at some point you are likely to come across or require a confidentiality agreement (also commonly known as a non-disclosure agreement or NDA). Daniel Jenking, Partner at Mayo Wynne Baxter looks into this further

It may be that you are about to enter into discussions with a third party in respect of a new project, commence negotiations to enter into a commercial contract or sell or buy a business. In such circumstances, it is usually readily accepted by the parties that there is a need to keep information confidential, and that they are receptive to having a confidentiality agreement.

The chances are that you or a colleague have used one before, and the temptation can be to re-use it or to get one off the internet. As far as legal documents go, confidentiality agreements tend to be relatively short, so there is often a strong temptation to have a go yourself. But is what you are looking at fit for purpose?

As with any contract, a fundamental consideration is who should be a party to the document. One of the most common errors in confidentiality agreements is that the wrong people or companies are specified as being a party – for example, the wrong group or a company rather than the shareholders.

The effect of this can be to make the agreement ineffective or result in only part of the information originally intended to be covered being protected. Nevertheless, even if the correct principal parties are specified, thought should be given to whether there are other interested parties that should be subject to or benefit from the agreement.

It may be that the confidentiality agreement which you are looking at favours one party over the other, drafted from the disclosure’s perspective or the recipient’s perspective. Whether it is suitable will depend on your situation.

There is often a two-way flow of information, and it may be that a mutual agreement is required, so that both parties are subject to the same obligations. Often parties feel more comfortable with this, as the other party is unlikely to seek an unreasonable term if they too will be subject to it.

Being able to ascertain what inform-ation is confidential and therefore subject to the terms of the agreement is important. If it is drafted too widely, the recipient may object. There is also a risk that the court does not uphold the agreement if the information covered isn’t genuinely confidential. It is not uncommon to include provisions making clear what information is not treated as confidential.

The purpose for which information is being disclosed should be considered. A properly drafted confidentiality agreement doesn’t just impose restrictions on the disclosure of information, but also restricts what can be done with the information.

You don’t want to find that the information is used in a way which allows the recipient to compete with your business. Also, what should happen when the proposal comes to an end or if the parties decide to part ways? Who owns the information? Should it be returned or destroyed?

The best way of keeping information confidential is, in fact, not to disclose it. You should consider whether the information you are proposing to disclose is really needed by the recipient or whether in fact it might be appropriate to disclose information in phases, with more valuable information only being made available over time when you are more confident that the relevant project, contract or sale will take place.

Even if a well drafted confidentiality agreement is in place, one of the difficulties for the party disclosing information is knowing whether the other party commits a breach. The other party could disclose information to other competitors, or use the information for other purposes, and the disclosing party may never know.

If a breach of the agreement occurs, it may be possible to obtain an injunction to stop further breaches or to obtain damages for the loss suffered. However, if a breach occurs it can be difficult to prove. Also, if information has become public, an injunction may not be available or be of no use, because if the information becomes public knowledge, it’s too late as it can’t be made secret again. Additionally, it can be hard to put a value on information and to quantify the loss suffered, as often the information’s real worth is its potential future value and not its current value.

When supplying information, it can be prudent to do so by secure means to specifically authorised people. This may for example be by using a secure online platform, using encryption, or even providing hard copies. It can also be advisable to mark documents as confidential.

To put yourself in the best position, the best approach is therefore not only to ensure that you have a confidentiality agreement that works for your circumstances, but also being alive to the risks and where possible taking practical measures to protect your information.

For further information contact Daniel Jenking, Partner, Mayo Wynne Baxter LLP

E: djenking@mayowynnebaxter.co.uk