Understanding Confidentiality Agreements and Confidentiality Undertakings

Oftentimes, concluding confidentiality agreements and confidentiality undertakings are mistakenly considered “mere formalities” – something to get out of the way before moving on to “the deal.” It is for this reason that non-legal people may sometimes draft and conclude these agreements, without realising that he/she has left a contracting party unprotected.

The point is not that non-legal personnel should not be concluding and drafting confidentiality (non-disclosure) documents. On the contrary, we believe that anyone that fully understands the ins and outs of a confidentiality document may be able to draft and conclude such.

Confidentiality agreements are necessary to protect contracting parties’ confidential information, which can include a plethora of information relating to, for example, trade secrets, competition law, financial information, etc.

It is important to know what type of confidentiality documents need to be signed in certain circumstances. Where one party is disclosing only its confidential information to another, say for example, a borrower requires funding for an innovative scientific invention from a private investor, that borrower may require that the funder provides the borrower with a confidentiality undertaking. The confidentiality undertaking is a unilateral undertaking that is given by the lender to the borrower. Let’s assume that the lender is a private company and is represented by employees and senior managers. It is always prudent to procure that not only the lender signs a confidentiality undertaking, but that the employees, representatives, agents etc. who evaluate the proposal are also made to sign a personal confidentiality undertaking. This is to make it very clear that these people are always bound by these confidentiality undertakings, even when they leave the employ of the lender.

Under supply agreements, purchasers may be entitled to conduct quality audits on goods being manufactured on the premises of the supplier. These purchasers may outsource the quality audit function to independent bodies that perform quality assurance functions. Again, it is very prudent to ensure that the individuals representing the quality assurance company (and the company itself), sign confidentiality undertakings in favour of the supplier.

Bilaterally-applicable confidentiality agreements are those where contracting parties each require the other to keep certain information confidential. Again, where a contracting party is a juristic entity (or even a trust), it is always prudent to have all individuals involved in the matter sign a personal confidentiality undertaking. This is to ensure that when people move on to other companies, they are still obliged to keep such information confidential, and to be aware of the consequences of breach.

While it is arguable that individuals working for contracting parties are subject to oral requirements of non-disclosure, it is far better to have this in writing than to have to rely on the terms and conditions of an oral contract, which may be expensive, lengthy, difficult and tiresome to prove. Written
non-disclosure arrangements explicitly set out a person’s non-disclosure obligations and the consequences of breach. Personal indemnity clauses should ideally prevent confidential information being bandied about without any regard as to consequences.

This website has non-disclosure (confidentiality) documents for sale with detailed drafting and explanatory notes. Err on the side of caution and ensure that NOT only your counterparty signs, but also all individuals who are privy to your confidential information and who work for your counterparty

To repeat, it is best to err on the side of caution.

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