Contract Clauses: Confidentiality

Confidentiality clauses aim to restrain the disclosure of confidential information that is considered to be valuable by one or more of the parties to an agreement.

Confidentiality clauses are often found in employment agreements, transactional documents, and as a separate agreement such as a confidentiality or nondisclosure agreement.

Information that is protected by a confidentiality clause should not already be in the public domain. Confidential information is often provided or disclosed during the negotiation of a transaction, and as such, it is common for parties to execute a confidentiality or nondisclosure agreement before beginning negotiations.

What if a confidentiality clause is missing?

A duty of confidence may be implied in certain circumstances. At common law, a court will imply a contractual obligation of confidence where the implication is necessary to give business efficacy to the contract and it reflects the intentions of the parties.

An obligation of confidence may also be imposed in equity. However, where there is any doubt about the application of equity, the parties should include an express contractual obligation of confidence. A fiduciary duty is not necessary to support a contractual obligation of confidence.

Drafting considerations

Parties to a contract should carefully consider the scope of information caught by the definition of confidential information. It should be noted that equity may impose a wider definition than is provided within a contract. The parties should also consider the duration of the obligation of confidence. A confidentiality clause may include both positive and negative definitions i.e. set out information which is and is not confidential. The parties should consider whether they wish to exclude fiduciary obligations. Finally, as noted above, the intended operation of a confidentiality clause may be different from its actual operation if a court imposes additional restrictions or reduces the scope of the confidentiality clause.



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Connor James

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