Non-Disclosure Agreement Checklist & Key Points

15 May 2023
Author: Ashley Burgess-Payne

Secrets, Lies and Non-Disclosure Agreements (NDAs)

To quote Bono (the singer of U2) in the track ‘the Fly’ from the 1991 album ‘Achtung Baby’:

A secret is something you tell another person.

Or, if Bono had been a Commercial Lawyer, he might have said: ‘Confidential Information is information that is confidential in nature and is disclosed in circumstances importing an obligation of confidence.’

Despite the much-trumpeted demise of the so-called ‘super-injunction’ in cases such as CTB v New Group Newspapers ([2012] EWHC 431 (QB)) (aka the Ryan Giggs case) and ever broader readings of the amendments made to the Employment Rights Act 1996 by the Public Interest Disclosure Act 1998, non-disclosure agreements (NDAs) (also known as Confidentiality Agreements) remain a useful tool in English Law.

Why do companies use NDAs?

There are many circumstances in which a commercial organisation might want or need to release confidential information to another commercial organisation and, nonetheless, have a pressing need for that information to remain confidential. For example, the organisations may be contemplating an acquisition or merger or collaboration on a specific project.

If properly drafted they can be of great assistance in obtaining injunctions to prevent breaches of confidence and, at the very least, make it clear to the party receiving the information (the Recipient) that the party providing the information (the Disclosure) takes the maintenance of confidentiality very seriously.

Confidentiality Agreement/Non-Disclosure Agreement (NDA): Key Points

Below is a short ‘checklist’ of key points when drafting a Confidentiality Agreement/NDA.

If you think you need one be sure to look through this. Your answers should provide a starting point when instructing your lawyer.

Type of Agreement	There are two basic types of agreement: One way – where one party (Discloser) is providing information to the other party (Recipient); and Mutual – where both parties are providing information to each other Both types of agreement can then be drafted in a way which is: Pro-discloser (ie drafted to more strongly protect the interests of the party providing the information); or Pro-recipient (drafted in a way to protect the interests of the party receiving the information) This is achieved by changes to the detailed wording of the agreement. The first decision, then, is which type of agreement is required?
Parties	Who is the information being disclosed to and by whom?
Purpose	Why is the information being disclosed? (For what purpose?) In contemplation of an acquisition or as part of collaboration with respect to a particular project?
Definition of Confidential Information	What particular information do you want to protect: trade secrets, financial information?
Obligations	What do you want the Recipient to do (or not to do) to keep the information confidential? How do you want it to be stored? How and when will you allow it to be copied or used?
Permitted Disclosures	The Recipient is likely to have to make the information available to other parties (accountants, lawyers and other advisers) in order to achieve the Purpose. What about other companies in the same Group as the Recipient? Do you want direct agreements with individual employees or consultants engaged by the Recipient?
Mandatory Disclosures	Statute is introducing ever-increasing ‘carve-outs’ whereby a party in receipt of certain information (even when received under a contractual obligation of confidence) is obliged to make the regulatory authorities aware of that information. The Courts also have wide ranging powers in this respect. These obligations cannot be over-ridden by provisions in the agreement. The agreement can however specify what the Recipient has to do prior to making such a disclosure and/or, where prior notification is not permitted, afterwards.
Return/Destruction at the end of the Purpose	Not every potential acquisition turns in to an actual acquisition. Not every collaboration is successful. What is to be done with the Confidential Information in the Recipient’s possession once the Purpose is, for one reason or another, at an end? Should all copies be returned to the Discloser or deleted? Should the Recipient be required to certify that what is required has been done? Be mindful that the Recipient may need to retain at least some of the Confidential Information to fulfil statutory requirements and/or for its own compliance/audit purposes.
Reservation of Rights	It is prudent to explicitly state that disclosure of the Disclosed Information does not create any licence for further use of that information (above and beyond the Purpose) or allow the Recipient to rely on that information – unless, of course, that is what is intended.
Indemnity	It is generally wise to include an indemnity from the Recipient (an express obligation to compensate the Discloser if the agreement is breached and loss or damage arises) rather than having to deal with the complexities (and vagaries of a Breach of Contract claim). This does however have to be agreed.
Inadequacy of Damages	A clause of this type is usually included, seeking to ensure the availability of urgent, injunctive relief in the event the Discloser becomes aware of an intention to misuse the Confidential Information but, again, its inclusion has to be agreed with the Recipient.
No Obligation to Continue Discussions	It is again prudent to include wording making it explicit that provision of the Confidential Information does not, in itself, create any obligation to carry on (commercial) discussions.
Duration of Obligations After End of Purpose	(See Return & Destruction of Confidential Information above.) In any event thought also needs to be given about for how long a Recipient who does retain Confidential Information is obliged to keep that information confidential. Different time periods may be appropriate for different kinds of information (business information, technical information etc).
No Partnership or Agency	It would again be wise to include explicit provision that sharing of the Confidential Information does not create an agency of partnership (or Agency) between the Discloser and the Recipient unless, again, that is what is intended.
General (Boilerplate)	Any properly drafted agreement will also need to contain provision covering various ‘standard’ legal points (commonly referred to as ‘boilerplate’ clauses). These may include:
	Entire Agreement: these seek to prevent statements not included in the agreement from being relied on by the parties. The intention is to avoid complication.
	Variation: it is generally a good idea to set out what is required in order for the parties to validly vary the agreement (frequently agreement in writing signed by both parties is required)
	Waiver: it is important to ensure that a failure by one party to immediately and fully enforce a right under the agreement does not amount to them having ‘waived’ that right (ie agreed it will not be enforced)
	Severance: it is important to ensure that if any provision in the agreement is or becomes illegal or unenforceable it can be removed (‘severed’) without affecting the validity of the rest of the agreement
	Notices: provision specifying exactly where and in what manner notices relating to the agreement can be given to the other party is essential. One frequent issue: is email to constitute valid, ‘written notice and, if so, to which address is it to be sent?
	Third Party Rights: reversing the established principle that a contract could only create rights between the parties to the contract, the Contracts (Rights of Third Parties) Act 1999 created a presumption that, in some circumstances, other persons could enforce rights conferred on them in the contract. It is usual for these ‘implied rights’ to be excluded (save on specific points where they are required).
	All of the above are subject to the proviso that they are not always effective. Still, it is good practice to include them.
Final Note	Whilst it may be tempting to make a Confidentiality Agreement as broad and as far reaching as possible, the effectiveness of an Agreement is always dependent on the willingness of the Court to enforce its provisions. There is complex Case Law on all of the issues but, in general, Courts have been reluctant to enforce Agreements where the definition of Confidential Information is drawn too broadly and/or Confidentiality Obligations are too onerous (or do not allow the Recipient to comply with statutory and other obligations).

At Parfitt Cresswell, we offer a FREE Initial Consultation with a lawyer. If you would like to speak to a member of our team about a Confidentiality Agreement, click here to arrange your consultation today.