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Is a confidential agreement worth the paper it’s written on?

7 January 2015

With a heated property market, there’s more and more focus on closing deals without being gazumped, and many off-market transactions.

Confidentiality agreements are often a feature of such a deal. They frequently form part of wider arrangements involving exclusivity periods and non-refundable deposits. But how useful are they?

Some commentators are dismissive of such agreements, but it is the case that the best way of imposing a binding confidentiality obligation on another party is a written contract. There is little case law on the subject but there was a Court of Appeal case in 2013 (Dorchester Project Management -v- BNP Paribas Advisory) where such an agreement was interpreted.

The Court held that such an agreement will be construed in accordance with the principles of any other contract.

In its judgment, the Court was clear that a well drafted contract could make the recipient of the confidential information liable if it failed to impose similar obligations on someone to whom it passes the relevant information.

It has to be recognised that however all-encompassing and enforceable a contract, the practical difficulty of ring-fencing and policing the distribution of confidential data is challenging. Proving that a signatory to a confidentiality agreement has breached its terms will never be easy.

In this context, practical steps are as important as legal ones. These should include:

  • marking documents as confidential
  • staggering disclosure, retaining key data until the matter has progressed beyond initial stages, and
  • using security techniques such as encryption and secure emails.

Confidentiality agreements, if properly contracted, will have legal force and can make the recipient of sensitive information liable if it fails to properly control that information. A “confidential” one-line in Heads of Terms is unlikely to have that effect.

Legal advice should be taken; but an agreement is only part of what should be a comprehensive strategy to protect your confidential information during discussions with third parties.

This article was written by Mark Smith.

For more information please contact Mark on +44 (0)20 7427 6722 or mark.smith@crsblaw.com.