You have come to the perfect place if you want to uncover the essentials of Non-Disclosure Agreements and the duty of confidentality. It will provide you with a holistic understanding of NDA’s and briefly discuss potential remedies if confidentiality is breached.
Along the way, I will provide practical tips and highlight critical aspects to consider before preparing a Non-Disclosure Agreement.
What is an NDA?
A Non-Disclosure Agreement is a legal contract that protects confidential information from unauthorised disclosure and misuse. There can be severe consequences if a Non-Disclosure Agreement is breached – particularly if it causes loss or damage to the disclosing party.
Although you can protect confidential under many other agreements, a Non-Disclosure Agreement is usually executed in deed form, as consideration (money paid) is usually absent.
For example, where an engineer discloses a confidential drawing to a machine shop for the purposes of a receiving a quote to produce parts (according to the drawing’s specifications), no money will change hands. As there is no consideration (money) paid for the disclosure of the drawing to the machine shop, a deed is the correct instrument to protect the engineer’s confidential information.
NDAs can be one way, which means only the recipient of the Confidential Information is obligated not to disclose the information. You might be unsurprised that a mutual NDA is used where the parties exchange Confidential Information which obligates both to maintain confidentiality over the information that is to be disclosed.
What is Confidential Information?
Confidential information is information of a party that is has commercial value and is not in the public domain. Practically speaking, Confidential Information can include trade secrets, business processes, methods of manufacture, technical drawings and data, ingredients, computer code, ingredients, formulas, calculation methods, and a lot more.
Under an NDA, Confidential Information is information that the parties agree to be confidential. However, this may be challenged if a party finds that information was already in the public domain, obvious, or would be reasonably apparent to someone skilled in a particular field.
What Confidential Information is Not
Many people, including some lawyers, believe that Confidential Information is intellectual property. It is not. Unlike the United States, Australia’s laws do not provide any personal property rights in Confidential Information. Intellectual Property such as trade marks, patents, and designs are on the public register and copyright material is mostly public. However, confidential information is a secret.
To argue that Confidential Information is a form of Intellectial Property is misconceived and conflating the two must be avoided.
Can Confidentiality be Protected Without a Non-Disclosure Agreement?
A cause of action for breach of confidence may be commenced if the parties have not entered a Non-Disclosure Agreement. However, the plaintiff may have difficulty to establish such a cause of action due to a lack of evidence or if the confidential information was misused.
Contractual Rights and the Duty of Confidentiality
The duty of confidence is an equitable duty placed on a party not to disclose certain information. The equitable duty can co-exist with contractual rights. Therefore, if there is an unauthorised disclosure of confidential information, a cause of action for breach of contract and breach of confidence may be available to the plaintiff.
Establishing a Cause of Action for Breach of the Duty of Confidence
Megarry J, in Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587, sets out the three elements that must be satisfied to establish a breach of confidentiality:
- The information must have the necessary quality of confidence about it;
- The information must have been conveyed in circumstances imparting an obligation of confidence; and
- There must be unauthorised use of that information to the plaintiff’s detriment.
In respect of element 3 above, Freeburn J, in Thales Australia Limited v Madritsch KG & Anor  QCA 205 noted (in a footnote) that it is unclear whether detriment is an essential part and referred to the discussion in Bently and Sherman, Intellectual Property Law 2nd edition at 1035 [2.2.3].