To facilitate a commercial arrangement, it is often necessary for parties to share sensitive information. When sharing such information, it is crucial that the party receiving the information keeps it confidential. They should only pass it on to third parties with the consent of the owner. Given the importance of keeping information confidential, individuals and businesses will often owe duties of confidence to one another. This article will explain what a duty of confidence is and what it means if a breach of confidence has occurred. 

Obligations of Confidentiality Under a Contract

If you are disclosing information to another party, and you want such information kept confidential, it is prudent to either: 

  • execute a confidentiality agreement; or 
  • have a contract with the other party which contains confidentiality provisions. 

This agreement or contract should clearly set out the parties’ respective obligations for keeping certain information confidential. Where possible, you should:

  • specify the types of information you intend to be confidential;
  • set out whether the confidentiality provisions apply to both parties or just one party;
  • state how the recipient can use your confidential information;
  • contain any restrictions on who the recipient can share the information with; and
  • specify how long the confidentiality provisions will operate for.

The Consequences of Breach of Confidence

If you have obligations under a contract to keep information confidential, and you fail to do so, you will have breached a contractual obligation. Here, you may be legally responsible for paying compensation to the other party for this breach of confidence. The other party may also be able to seek an injunction from a court, which will prevent you from sharing the confidential information. They could also seek a court order for ‘specific performance’, which requires you to take steps to protect the confidential information.

If someone discloses confidential information to you that not protected under a contract, you may still be under an obligation to keep this information confidential. This means that even if you have not entered into a written agreement with confidentiality obligations, you may still owe obligations to the person who disclosed the confidential information. This is because a duty of confidentiality can arise not only from a contract but also when the formalities of entering into a contract have not been made out.

There are three essential elements to establish whether you have breached confidence:

1. Information Must Be Confidential

The information must actually be confidential. 

For example, trivial information that is labelled “confidential” may not fulfil this requirement. On the other hand, doctors records, even where they are not labelled ‘confidential’, will likely meet this requirement.

However, where an obligation of confidence has arisen due to a contract, the question of whether the information is actually confidential may depend on how the contract defines confidential information. Sometimes confidential information will include the contract document itself.

2. Circumstances Create an Obligation of Confidence

There will not always be an obligation of confidence when parties are sharing information. Instead, it will depend on the circumstances and the relationship between the parties. If the parties have entered into a contract containing obligations to keep information confidential, an obligation of confidence will arise. 

Certain relationships also create an obligation of confidence. 

For example, if a patient shares their sensitive health information to a doctor, this typically places an obligation on the doctor to keep the information private.

3. Unauthorised Use of the Information

Specifying the use of the information is very important. This means that the party who has an obligation to keep information confidential must be shown to have used the confidential information.

For example, a person received confidential information from a manufacturer about how to create a product. If they then shared this confidential information with a competing manufacturer and used it to obtain the product at a lower price, this use would be unauthorised.

If the party disclosing the confidential information consented to sharing the information with a third party, it might not satisfy this element.

Key Takeaways

Confidential information is commonly shared between parties where contracts are in place to regulate the sharing of that information. Sometimes a duty of confidence will exist even where there is no contract between the parties. This is because some relationships automatically have a duty of confidence between the parties. If you have any questions or if you would like us to assist in preparing a non-disclosure agreement or to assist you with a confidentiality related enquiry, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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