Non-disclosure agreements in corporate transactions – an overview

A non-disclosure agreement, or NDA, is an agreement often entered into between parties where commercially sensitive confidential information is proposed to be passed between them.

If such information is to be disclosed, then the disclosing party may wish to ensure that the recipient is only permitted to use the information for a specified purpose and that the recipient agrees to be bound by certain obligations intended to control the use and treatment of such information.

NDAs in corporate transactions

In the context of corporate transactions such as a sale of the shares in a company or a sale by a company of its business and assets for example, the buyer will inevitably engage in a due diligence process. This process will involve the seller disclosing detailed information about the company or business in question, much of which may be of a highly confidential nature.

It is also possible that the buyer may be a competitor of the company or business concerned such that the seller will wish to protect the confidentiality of information disclosed to ensure that it can only be used for the purpose expressly permitted by the NDA.

Typical obligations included within NDAs

In a typical case, an NDA would impose the following obligations on the recipient of the confidential information:

• Keeping the information secret and confidential.
• Only using the confidential information for the purpose specified in the NDA. In the context of a corporate transaction, such a purpose could be the investigation of the business and affairs of a company that a buyer is considering purchasing for example.
• Not disclosing the information to any person, except persons expressly envisaged or permitted by the NDA. Examples of such permitted recipients might include the employees of or advisors to a potential buyer who needs to know the information for the purpose specified in the NDA. The NDA will often also provide that in respect of such permitted disclosure, the principal recipient of the confidential information remains liable for any confidentiality breaches by its permitted recipients.
• Returning or destroying the confidential information at the request of the disclosing party.
• Informing the disclosing party of any actual or suspected breach of the obligations of confidentiality.

Remedies for breach of an NDA

Because an NDA is simply a contract between the disclosing and the receiving party, the principal remedy available to the disclosing party for any breach of confidentiality is to claim damages for breach of contract.

Although this may appear straightforward, the reality may not be as simple as it sounds. The reasons for this include the following:

• Any breach of contract claim would be after the event. In other words, for the claim to arise, the damage caused by the confidentiality breach must have already happened.
• The claimant would not only have to prove that confidentiality had been breached but also that they had suffered a loss in consequence of the breach. Quantifying such loss may not be straightforward in practice because the mere existence of a breach may not necessarily result in a financial loss.

Because damages may be difficult to quantify for the above reasons, a well drafted NDA will also expressly provide for the equitable remedy of an injunction (a type of court order) preventing unauthorised use of the confidential information by the receiving party.

How can we help?

The Corporate and Commercial team at Wilson Browne Solicitors is ideally placed to advise on all aspects of implementing and negotiating NDAs, whether in the context of corporate transactions or otherwise.

For a confidential and no obligation initial discussion about how we may be able to help, please contact the Corporate and Commercial team at 0800 088 6004.