In certain settings, you may be asked to sign a non-disclosure agreement (NDA). By signing an NDA, you essentially agree to keep information released to you confidential. On the other hand, you may also wish to impose obligations on another party, to maintain the secrecy of certain information you wish to release to them. It may also be possible that both parties have confidential information to release to each other and both wish that the other party would maintain secrecy.

Such obligations are typically captured in a non-disclosure agreement.

Why are non-disclosure agreements required?

Information could be confidential for a great number of reasons. While contracts usually contain clauses on confidentiality, certain transactions may require the release of information first, before a deal is finalised and the contract is executed. This is where NDAs could be helpful.

One reason that information could be confidential is that the information is not yet publicly available. One example would be in a takeover situation, where sensitive business information including trade secrets is to be released to a potential buyer, for the buyer to consider if they wish to purchase the business.

Another example would be where a prospective employee is approached by a company for a job and the prospect wishes to obtain sensitive and confidential information on salary, job scope and benefits before committing the company.

Where listed companies are concerned, certain information may be confidential as the release of this information into the wrong hands could lead to insider trading.

What are the types of non-disclosure agreement?

There are two types of NDAs – mutual and unilateral NDAs:

  1. Mutual NDAS: Both parties have confidential information to release to each other and the obligations to maintain confidentiality in the NDA bind and are imposed on both parties.
  2. Unilateral NDAs: Obligations to maintain confidentiality are imposed only on the recipient of confidential information.

NDAs are basically contracts, enforceable under contract law. A leak of confidential information would typically be enforced as a breach of the NDA. Possible remedies of such a breach include damages due to the loss which the leak of information has caused or an injunction to cease dissemination of the confidential information.

Terms to look out for in an NDA

  1. Scope: NDAs typically set out what the parties define as confidential information and the scope of protection. For example, parties may say that all financial information of Company Z in relation to the takeover of Company Z is confidential information. A broader scope of protection could be for example, that all non-public and proprietary information relating to the investment in Company Y is confidential information.
  2. Representatives: In certain circumstances, exceptions may be made for the recipient to disclose the confidential information to certain individuals. Typically, such disclosure is based on necessity. For example, the recipient may be permitted to disclose confidential information to his lawyers or banker, but on the condition that those individuals to whom he discloses information are similarly bound by the same obligations of confidentiality and that if they leak the confidential information, the original recipient agrees to be liable for them such that the discloser of confidential information only needs to pursue the recipient and not the individuals to whom he disclosed confidential information.
  3. Exceptions to confidentiality: Similarly, exceptions are also typically made to allow the recipient to make disclosures in certain circumstances where disclosure is a necessity. For example, this may be where the ruling or governing body of a stock exchange requires the disclosure, or any authority such as the police requires or has asked for the information.
    1. Overly wide exceptions can nullify the confidentiality obligations on a recipient, hence carve outs to the exceptions can also be made. For example, the discloser may agree that the recipient shall be permitted to disclose confidential information in line with the requirements of their stock exchange, but require reasonable prior notice before disclosure is made. This would provide time for the discloser to take legal action such as to seek an injunction to halt the disclosure should it disagree that disclosure is necessary.
  4. Destroying confidential information: NDAs also typically stipulate that confidential information shall be destroyed if they are in physical form or deleted if they are in soft copy, where the transaction between both parties come to an end, or where parties execute a substantive agreement for the transaction, which would contain its own clauses on confidentiality.
  5. Time periods: NDAs can provide for different time periods for which the recipient is required to maintain confidentiality. A common and the widest form of protection would be to stipulate that the recipient shall for so long as they continue to hold confidential information, continue to maintain confidentiality. In other cases, NDAs can provide for a period of 2 years from the date of which the NDA is executed.

Significance

NDAs are important and powerful tools that assist and protect parties in any given transaction. NDAs can be onerously drafted or watered down, depending on how the clauses are drafted, the exceptions to obligations and carve outs to the exceptions.

If you require advice whether to sign an NDA which has been presented to you or whether to impose an NDA on another party before you release confidential information to them, our lawyers are able to advise you on your rights and options.

This publication is not intended to be, nor should it be taken as, legal advice. It is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking any action(s) based on this publication. We shall not be responsible for, nor do we accept any responsibility for, any loss or damage that may arise from any reliance on this publication.