Common mistakes with Confidentiality Agreements and NDAs

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Be careful not to fall into the common trap of signing a standard form confidentiality agreement (CA) or Non-Disclosure Agreement (NDA) before carefully examining its key clauses.  

CA’s or NDA’s are often entered into by parties following an initial meeting, often when there are time pressures to get the relationship solidified and commence formal and detailed discussions. As a result, too often a counterparty’s template CA or NDA will be signed without careful consideration of the terms of the document.

Below are some key matters to turn your mind to when reviewing a CA or NDA. This list is not exhaustive but is based on our experience of the issues that can often arise.

“Mutual” versus “One Way” Agreement

Often CA’s or NDA’s will be drafted to cater for the flow of information from one party to the other. While this may reflect the overall purpose of the discussions that are to be covered by the CA, for example the potential investment in one party’s business, in most cases, there will still be some form of reciprocal disclosure of sensitive information. For this reason, in most cases it will be prudent to ensure that the CA or NDA is drafted to cover mutual disclosure.

Permitted Purpose

The permitted purpose is arguably the most crucial element to the CA/NDA. The purpose will determine the scope of coverage of the agreement. It is therefore important to draft it broadly enough to cover any potential future arrangements of the parties. If the scope is too limited other flows of information may not be covered unless a further CA / NDA is entered into.

Retention of Documents

A CA/ NDA will often require parties to return or destroy confidential information at the end of the term. However, retention of board management papers is often required for good corporate governance. Other documents, such as financial information, may be required to be retained for audit and taxation compliance purposes. In addition, each party including their professional advisers may also be required to retain documents in order to comply with certain statutory requirements. It is therefore important to ensure that any clause that requires the return or destruction of documents and other materials that contain confidential information includes a carve out permitting the retention of these documents or other materials for these purposes.

Other Clauses to Consider

It is important to always consider the nature and relationship of the parties and whether additional clauses are required to give the parties additional protection. For example, in the Mergers and Acquisition context a non-circumvention clause or insider trading clause might be appropriate. If the two parties to the agreement are competing, a non-solicitation clause may also be requested.

This article highlights the importance of carefully reviewing your CA or NDA before you sign.

Contact GRONDAL BRUINING on +61 8 6500 4300 to discuss your confidentiality agreement or non-disclosure agreement. 


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