A confidentiality agreement, otherwise known as a non-disclosure agreement, is one way is which sensitive, private and potentially valuable information and know-how can be kept private during the commercialisation process. A confidentiality agreement imposes upon the contracting parties a contractual duty of confidence and makes them contractually liable for breaches of the same. However, before we turn out minds to the ins and outs of the benefits associated with confidentiality agreements and confidential information, it is important to set out the basic principles upon which the duty of confidence is found.
What is confidential information?
The range of information that can deemed confidential information is very broad and includes, but is not limited to; ideas, designs, processes, functionality, models, plans, ideas, concepts, know-how, trade secrets, technology, techniques, methods, notes, records, inventions and generally any other commercially valuable information, whether or not such information has been reduced to a tangible form or has been marked in writing as “confidential”.
General requirements which must be satisfied for a duty of confidence to arise
In order for a duty of confidence to arise and for a breach of the same to give rise to an actionable cause it must be established that:
- there existed an obligation of confidence in relation to the specific information;
- the information in question had the necessary quality of confidence;
- the use and/or disclosure of the information was unauthorised in the circumstances; and
- the use and/or disclosure of the information (the breach) resulted in the disclosing party suffering damages (Smith Kline & French Laboratories (Aust) Ltd v Secretary Department of Community Services & Health (1990) 22 FCR 73).
Items 1 and 2 above are the most difficult to establish as they are premised on legal constructions and test. In particular, with respect to item 1, the test for determining whether an obligation of confidence exists is whether a reasonable person in the position of the recipient would have recognised that the information was given to them in confidence (Smith Kline & French Laboratories (Aust) Ltd v Secretary Department of Community Services & Health (1990) 22 FCR 73). With respect to item 2, it has been held that for information to have the necessary quality of confidence, it must be private in nature, in the sense that it is not a matter of common knowledge (Burica Pty Ltd v Tops To Bottoms (Aust) Pty Ltd (1997) 39 IPR 447 at 459). One of the major problems of proof with item 2 is that it requires an identification of the information alleged to be confidential. Generally, the Courts will not grant relief where specific information is not identified. The policy reason behind this is that it is unrealistic to assert that all information received or relating to a business transaction or a commercial relationship is by its very nature confidential (E Worsley & Co Ltd v Cooper  1 All ER 290).
With respect to item 3, it is important to note that if confidential information has been disclosed without authority, the disclosure will amount to a brach even if it was done in error or by accident (Islam v Duncan  NTCA 3).
Confidentiality agreement are beneficial for the following reasons:
- they allow a party to protect particular confidential information by inserting an express clause in the contract restraining the use and disclosure of the same;
- they give rise to certainty in that they clearly specify what information is deemed confidential;
- they specify the confidentiality obligations that attach to the confidential information, including the length of time for which the duty of confidence must be maintained;
- they can expressly exclude certain confidentiality obligations;
- they state each party’s obligations upon termination of the agreement, which may include (amongst other things) the return of all documents and works depicting the confidential information and/or the obligation to destroy the documents and works where they cannot be practically returned;
- where a party fails to uphold their contractual obligation with respect to the confidential information they will have engaged in a direct and subsisting breach of contract;
- a breach of contract gives rise to the usual remedies including but not limited to compensation.
Would you like to know more about what constitutes confidential information, the duty of confidence or confidentiality (non-disclosure) agreements? Get in touch with our intellectual property lawyers.
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