Ever-increasing globalisation has made it much easier for businesses to transact across borders. Whilst this has many benefits, it also raises some important considerations in relation to how businesses complete these transactions. In particular, you may be concerned about revealing commercially sensitive information to a party overseas. This is particularly relevant as you will have less control and visibility over handling such information. Additionally, you will have less knowledge of the local laws and regulations in relation to protecting commercially sensitive information. Therefore, the best way to alleviate these concerns is to draft a well-drafted confidentiality agreement with the overseas counterparty. This article will discuss whether a confidentiality agreement is enforceable overseas. It will also give you some practical pointers on things to consider when entering a confidentiality agreement where the other party is overseas.
What is a Confidentiality Agreement?
A confidentiality agreement is also known as a non-disclosure agreement (‘NDA’).
The party receiving confidential information must protect the information. They must do this with the same degree or level of protection it would afford to its own confidential information. Additionally, they must only use the information for a predetermined agreed purpose.
You can draft a confidentiality agreement so that it protects any type of information you are particularly concerned about. This could include:
- new business ideas, plans or methods;
- intellectual property;
- trade secrets;
- marketing plans;
- financial information; and
- supplier lists.
Additionally, when preparing a confidentiality agreement with a party in another jurisdiction, you must take note of certain considerations for it to be enforceable.
Which Laws Apply?
Laws and regulations can vary quite significantly from country to country. This raises the issue of which country’s laws will apply to your transaction.
The contracting parties must agree to this before signing the document. Specifically, your confidentiality agreement should set out which country’s laws will apply. In other words, the agreement must specify the applicable ‘governing law’. Additionally, the agreement must identify where disputes will be heard and resolved. This is known as specifying the applicable ‘jurisdiction’.
As a business incorporated in and operating from Australia, ideally, you would want the laws of Australia to apply. Furthermore, you will also want any disputes to be heard in Australia. Consequently, engaging and instructing an Australian lawyer will be more convenient when a dispute arises. It will also be easier for you to appear in court and participate in any proceedings.
However, depending on the other party and your relative bargaining power, selecting Australia as the applicable jurisdiction may not always be possible.
Ideally, the governing law and the jurisdiction will be the same. However, if the parties cannot agree on one country, they may choose to compromise. This may entail having one country’s laws as the governing law and a neutral country’s jurisdiction. Whatever you agree on, you should detail this in your confidentiality agreement to avoid any confusion or dispute later down the line.
Continue reading this article below the formWhat Happens if We Go to Court?
If the other party breaches your confidentiality agreement, you may consider bringing a claim against them. However, this can be difficult from a time and money perspective. Furthermore, obtaining a judgement in your favour for the breach is only one-half of the hurdle. You must then be able to enforce that judgement against the other party. This can also be tricky if the other party is in another country and if the other party’s assets are also located in another country. Indeed, your ability to enforce the judgement will depend on any arrangements Australia has in place with other countries to recognise and enforce foreign court judgements.
What is the Alternative?
Whilst going to court may not work in your favour, this does not mean your confidentiality agreement has no enforceability across borders. Indeed, there is wider recognition of awards through arbitration between jurisdictions due to international law. Arbitration is a private dispute resolution process. As part of the arbitration process, a third party, appointed per your confidentiality agreement, will make an enforceable decision about a dispute.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Key Takeaways
Confidentiality agreements are important tools to have when disclosing commercially sensitive information to another party in the course of a business transaction. However, where the other party is located in a different country, it can raise important questions as to how enforceable the confidentiality agreement is. While enforcing court judgements across jurisdictions can be challenging, you can still enforce your confidentiality agreement. Your agreement should establish what laws govern the relationship and where disputes will be heard. You should also include an international commercial arbitration clause to allow either party to seek an enforceable judgement through an arbitrator.
If you need help drafting a confidentiality agreement, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A confidentiality agreement is a legal document that creates a contractual obligation between two parties to protect confidential or commercially sensitive information from becoming public or being used in a disadvantageous manner.
You may require a confidentiality agreement where you wish to reveal sensitive information to another person, which you do not wish them to disclose or publicise. There are many different scenarios when this may arise. One example includes when your business is seeking to enter a contract with another company where you must discuss confidential information, before finalising the agreement.
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