A non-disclosure agreement (NDA) – also known as a confidentiality agreement – is usually the first step of entering into negotiations with other businesses and involves the control over the exchange of confidential information during the course of the business relationship. Businesses and other organisations usually use non-disclosure agreements if they intend to collaborate on a project and the disclosure of confidential information is required to fulfil the purpose of the project. 

NDAs are binding contracts and require the parties to agree that they will not disclose information that is confidential that the other party has shared with them. NDAs are primarily used to protect the parties’ own interests when doing business with others.  

Are non-disclosure agreements always required? 

Whether or not an NDA is needed depends on how the parties intend to work together and how sensitive they consider the information to be shared to be.  

Some businesses may decide that there is no need to enter into a non-disclosure agreement, as the party receiving the confidential information is already bound by the business’s terms and conditions and these already include sufficient provisions relating to confidentiality. The business must be comfortable that the existing provisions would be more than enough to cover the type of information that they are disclosing during the relationship with the individual or the organisation with which they are entering into a business relationship.  

However, if confidentiality is not covered in the business’s general terms and conditions or the business believes that the information to be disclosed during the course of the business relationship should not be disclosed publicly, having an NDA in place is essential to maintain confidentiality.   

What does an non-disclosure agreement contain? 

Generally, an NDA is perceived as a simple agreement executed by the parties just to protect their respective confidential information.  

In fact, the execution of an NDA is not as simple as that, as itis a complex document that covers more than the protection of confidential information.  

An NDA covers various key areas, including:  

  • Scope of use of the confidential information:  The NDA should indicate that the parties should be permitted to use the confidential information only for the purposes of the NDA. Each NDA will serve a different purpose in accordance with the nature of the transaction;  
  • Identification of what information is confidential: The parties may wish to agree that all information disclosed by either party is considered confidential. It is common for an NDA to be drafted so that it protects a wide range of areas, such as trade secrets, intellectual information and proprietary information;  
  • Requirements and obligations of the parties: It is important to ensure that the obligations and requirements of each party are clearly defined in the NDA, especially those of the party receiving the confidential information. The receiving party should protect the confidentiality of the information and refrain from using it for personal gain. In most cases, maintaining confidentiality involves taking reasonable steps to prevent access to the information by those who are not parties to the NDA or bound by its obligations. The parties will also be bound by obligations relating to how long they must protect the confidential information for and what must be done with it at the expiry of the NDA term;  
  • Exclusion clauses to the confidentiality obligations: Information that is already known to the public is typically excluded from the obligations set out in the NDA. Despite the protection of confidential information, there may be instances where a party is required to disclose confidential information to a third party for the purpose of undertaking their job or as required by a competent authority. The agreement should be clear to the parties that nothing in the NDA will prevent them from complying with such requests or requirements;  
  • Duration of the agreement: The recipient would usually want the terms to be for a fixed period. Regardless of the agreement between the parties, the term should be clear to prevent any misinterpretation in the event a breach occurs. However, if the term is not fixed, the NDA should state that the parties would require notice to terminate the agreement;  
  • Other key provisions: It is also common for NDAs to specify the applicable laws to the agreement and the courts that have the authority to adjudicate such matters should disputes arise between the parties. Similarly, the NDA should set out the remedies available in the event of a significant breach by a party.  

What are the consequences of breaching an NDA? 

The consequences of breaching an NDA, either accidentally or deliberately, can be severe. At the very least, the other party may bring legal proceedings. For small businesses, the breach may not only have a significant impact on the reputation of the business, but in the event that the damaged party brings a successful claim, the party in breach could be liable to pay court costs and fines.  

NDAs are an effective way to secure information which should legitimately be kept confidential. However, it is important to agree appropriate terms in the NDA and expert legal advice should be obtained prior to entering into the agreement. Our team at Farringford Legal is here to assist you with drafting and advising on NDA terms.  

Thank you to Kaoruko Shirasaki