Confidentiality agreements or NDAs are commonly used where parties are exploring a potential commercial transaction such as a share sale. When completing due diligence, it is standard for a disclosing party, such as a vendor, to require a confidentiality agreement or NDA.
Below we discuss some of the key considerations with confidentiality agreements and NDAs.
Deed vs Agreement: where there is no consideration passing between the parties in return for the obligations of confidence, a deed should be used as opposed to an agreement. A deed will be enforceable despite the lack of consideration. This is not the case for an agreement. Further, a party seeking to rely on a deed has a longer period of time to do so in that, i.e. in New South Wales, litigation can commence for a breach of the deed within a period of 12 years, whereas litigation for a breach of an agreement must commence within six years.
The definition of confidential information: the parties should carefully consider the scope of confidential information covered by the confidentiality agreement or NDA. For the party disclosing information, a broad definition is favourable as it reduces the risk of information being disclosed that is not subject to the confidentiality agreement or NDA.
Exceptions to the agreement: confidentiality agreements and NDAs typically include exceptions i.e. information that is not confidential as it is public knowledge or actions that do not breach the agreement i.e. forced disclosure to a law enforcement agency. The parties should carefully consider whether proposed exceptions are appropriate.
Term of the agreement: it is common to see an arbitrary term in a confidentiality agreement or NDA i.e. two or three years following commencement. There are benefits in having certainty as to the term of an agreement, but the parties also need to ensure that the term is appropriate having consideration to the nature of confidential information to be disclosed.
Unilateral or mutual: confidentiality agreements and NDAs may either be one way (imposing obligations on one party) or mutual (imposing obligations on all parties). Where the parties are both disclosing confidential information, a mutual document would be preferential.
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