When parties enter into a confidentiality agreement, also known as a non-disclosure agreement (NDA), they agree to keep specific information secret. A confidentiality agreement is legally binding and often used to protect trade secrets and sensitive business information. It is a good idea to use confidentiality agreements to ensure other people do not release your ideas and trade secrets to the public. However, what do you do if you have a confidentiality agreement in place and someone has breached it? This article explains the steps you can take to enforce a confidentiality agreement if it has been breached, or a party has threatened to breach it.
Try to Resolve the Matter Outside of Court
It is always a good idea to try to resolve the matter outside of court. This will save you both time and money, which are valuable commodities, particularly for small and medium businesses. When trying to resolve the matter outside of court, you should start by writing a formal letter to the other party informing them that you are taking the matter seriously. You should draft the letter with the help of a lawyer to ensure that it has covered:
- the parameters of your confidentiality agreement and how you allege it has been breached;
- the damages you have suffered; and
- what your demands are.
Your demands can be monetary compensation. Alternatively, if the party has only threatened to breach confidentiality, you can ask them to refrain from disclosing information.
You should also notify the party of your next steps if you cannot resolve the matter with them. If you are unsuccessful in resolving the matter outside of court, it is open to you to commence court proceedings. However, you should receive legal advice before deciding to do so.
Establishing Contractual Breach
To enforce a confidentiality agreement or NDA, you need to ensure it is valid and then establish that a person has breached the agreement. To establish a contractual breach, you will have to show either:
- actual breach; or
- anticipatory breach.
Actual breach is where the other party has failed to comply with its contractual obligations. In the case of a confidentiality agreement, this means showing that they failed to keep the information confidential. For example, if one of your employees has disclosed trade secrets to your competitor, they may be in breach of the agreement because they failed to comply with the obligations under their employment contract.
Anticipatory breach is where the other party shows an unwillingness to perform their contractual obligations. In this case, they may threaten to leak confidential information.
Anticipatory breach happens, for example, when an employee has threatened to disclose trade secrets to your competitor. Although they have not disclosed the information yet, they have expressed a clear intention to break the terms of their employment contract, leading to an anticipatory breach.
The Equitable Duty of Confidence
If someone has breached your confidentiality, you may also have an action in equity. An equitable obligation arises where you and the other party have not complied with the formalities required to form a contract. Therefore, you do not have a valid agreement which can be enforced by the courts under common law.
However, equity can provide relief in cases of confidentiality through the equitable duty of confidence, even if you do not have a valid confidentiality agreement to enforce. To receive damages under equity, you must prove that:
- the information has a “quality of confidence”;
- the information was communicated in circumstances importing an obligation of confidence;
- there was an unauthorised actual or threatened use of the confidential information; and
- the information was used to your detriment, resulting in you suffering damages.
If you have commenced proceedings and are successful in court, there are two remedies available to you:
- an injunction; and
An injunction is an order for a party to refrain from doing something. A court will usually grant an injunction if it believes monetary damages will not ‘cure’ the wrong. In cases of anticipatory breach, the court might issue an injunction preventing the other party from disclosing the confidential information.
Damages is monetary compensation for the loss you have suffered as a result of someone disclosing your confidential information. A court will often grant damages in cases of actual breach, where you may have sustained harm or loss.
Confidentiality agreements are widely used to prevent people from leaking sensitive information. If someone has breached, or is threatening to breach, your confidentiality agreement, you should first try to resolve the dispute outside of court. This will avoid both the cost and time spent in court.
If that is unsuccessful, you may commence proceedings for contractual breach and breach of an equitable duty. However, you should consider the value of taking the matter to court. If you have any questions about how to enforce a confidentiality agreement, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
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