Confidential obligations are imposed by equitable principles and common law, and are not codified in statute.
An NDA is a legally enforceable contract that adheres both parties to a “confidentiality maintenance” of the identified information, the fundamental purpose being to ensure the its privacy.
Confidentiality agreements are generally entered into before negotiations for a proposed collaboration, merger, acquisition or joint venture. Non-disclosure clauses are commonly found in employment contracts or any other agreements that involve disclosure of trade secrets, data or other intellectual property [1].
Should a discrepancy arise between contractual obligations and legally-imposed obligations like confidence in equity, the latter normally prevails. A contract cannot purport to transform information without a quality of confidence, such as those already entered into the public domain, into confidential information. Such clauses would be void and unenforceable under Singapore Law [2].
Obegi Melissa and Others v Vestwin Trading Pte Ltd and Another [2008] 2 SLR(R) 540 establishes that the information must already have a necessary quality of confidence about it and must have been imparted in circumstances importing an obligation of confidence in order to be covered by a confidentiality agreement.
A non-disclosure agreement can serve to identify information that is not confidential, where it otherwise would have been, indicating the parties intentions to agree when the other will not be bound by confidentiality obligations.
Contractual confidentiality arises where parties have entered an agreement. As established in Adinop Co Ltd v Rovithai Ltd [2019] SGCA 67 (“Adinop”), where there is a confidentiality agreement between the parties, the confidentiality agreements as expressed in the agreement will be the primary determinant of the existence and scope of contractual obligations owed by the parties. The usual principles of contractual interpretation will be used to construct the express terms to determine the extent of confidentiality obligation.
However, equity can step in to impose a duty of confidence where the contract ‘does not necessarily assuage conscience’. Equity then gives forces to the conscience, imposing a duty of confidence whenever a person receives information in circumstances importing an obligation of confidentiality. Three basic elements must be satisfied, as set out in Coco v Clark (Engineers) Ltd [1969] RPC 41:
(a) the information must possess the necessary quality of confidence;
(b) the information must have been imparted or received in circumstances such as to give rise to an obligation of confidentiality; and
(c) there must have been unauthorised use and detriment on the party who disclosed the information to recipient who misused it
In other words, equitable principles of confidence can serve as a back up in case contractual clauses on confidentiality are insufficient. However, equity would only operate on information that already has a quality of ‘confidence’.
When signing an NDA, it is crucial to be well-versed with its details. In short, here are 6 pointers to keep an eye out for:
The parties to the agreement usually comprise of 2 signing parties, the disclosing party and the receiving party. It is important identify the name and contact of both parties in the agreement.
There are three different kinds of confidentiality agreements.
An example would be where the recipient of confidential information is an investor, he/she may need to share such information with their accountants, legal counsels or business associates.
Chapter 53B of Contracts (Rights of Third Parties) Act 2001 allows third parties to be named and referred to in a contract, conferring them a right to sue despite absence of privity. The other parties may not rescind or vary the contract to extinguish or alter the Third Party’s entitlement without first obtaining the third parties’ consent. The NDA will also bind these various third parties where their name and contact is identified.
Before signing an NDA, it is important identify and clarify information categorised as ‘confidential’, and the information falling outside the purview of the confidentiality obligation. This is also known as the agreement’s scope. Many companies utilise NDAs to internalise sensitive data like client lists, employee records, financials, invention details, and trade secrets.
It is important to ensure that the definition of information considered confidential is too broad or loose to be interpretation, as it can become a contentious point of argument in court proceedings. As found in Adinop, the parties had agreed to keeping ‘proprietary information’ confidential. The dispute then arose as to what constituted proprietary information. The counsel for Adinop argued that confidential ‘proprietary information’ would cover customer information relating to its business as a distributor of DSM products, distinguishing between the different types of information disclosed in the course of the relationship of the parties as manufacturer and distributor. Information that Adinop had developed and possess by virtue of its distributor business would then constitute proprietary information. However, the counsel for the respondents argued that proprietary information refers to those necessarily developed independently of the respondents and their relationship. The courts interpret the confidential agreement clause based on the parties’ intentions at the time the confidentiality agreement was executed.
Typically, the disclosing firm prefers a broad scope, this might not be entirely fair to the receiver. In essence, anything that was already common knowledge, independently developed or revealed prior to the NDA can and should be left out. Examples of information that should be exempted from disclosure include information that an employee already had obtained before beginning work at a company or that a potential investor was already aware of prior to reading a business plan.
After the parties’ business has been concluded or an employee leaves a position, the agreement requires the confidential information to either be returned to the disclosing party or destroyed. The receiver is often required to verify that this criterion has been fulfilled.
The duration of the operation agreement’s confidentiality clause should be clearly stated in the contract; it is commonly over a period of several years, sometimes even lasting after the parties’ business has concluded.
However, the courts could strike down the clause on the grounds of amounting to an unenforceable restraint of trade should the duration of the confidentiality clause be too long to the point of being unfair as established in [67] of Adonip. Assessing the enforceability of a clause post-termination involves an entirely different inquiry from determining confidential information.
The recipient of confidential information typically agrees in an NDA to not disclose or use said information for any reason, whether deliberate or accidental. It is also common for the disclosing party to require that confidential information be disclosed on a “need-to-know” basis [3]. The confidentiality agreement can also be drafted to capture information that was disclosed prior to the entering into of the agreement, provided that the information has the necessary quality of confidence.
When determining if there had been a breach of the confidential agreement, [68] of Adonip establishes that the courts will ascertain if there had been use of confidential information and whether the parties had contravened the terms of the confidentiality agreement. Where there is a prima facie breach of the clause, the evidential burden then shifts to the impugned party to discharge it. An example of an accidental disclosure of confidential information would be where you’re considering investment in a video game and thus given early access to the game’s beta version to test it out, playing it on the subway while in view of other passengers, would also constitute a violation of the NDA. Another example of an accidental breach of an NDA would be an employee of a technology firm testing a prototype of a cell phone and accidentally leaving it at a coffee shop.
A contractual obligation to protect confidential information differs from an equitable obligation to protect confidence. The assessment of an equitable breach of confidence differs as illustrated in [91] of Adinop:
Usually, the contract will set out exceptions to the confidentiality agreement, such as precluding obligations to any confidential information when the information is in the public domain at the time of disclosure, where the information becomes part of the public domain other than through breach of the agreement, when the receiving party can establish that the information was possessed at the time of disclosure which was not directly or indirectly received from the disclosing party, amongst others, as established in [71] of Adinop.
An NDA includes other common contractual clauses, such as but not limited to:
Having an NDA is an easy and affordable way to conduct business without having the fear of confidential information falling into the hands of competitors. An in-depth understanding of the contractual terms and obligations is crucial to ensure proper protection of confidential information and prevention of a breach of contract.
Citations
[1] Tham, Kok Leong and Yap, Alexander, ‘Confidentiality Q&A: Singapore, Allen & Gledhill, page 1 (‘Confidentiality Q&A’).
[2] Confidentiality Q&A’, Page 2.
[3] Confidentiality Q&A’, Page 6.
Please note that this article does not constitute express or implied legal advice, whether in whole or in part. For a Consultation or if you simply require more information, email us at info@silvesterlegal.com.