What does it do and why do I need it?
A confidentiality clause is pretty much what it says on the tin, it aims to keep any confidential information that you need to disclose in the course of a contract exactly that - confidential.
Such a clause will often contain restrictions on who needs to know the confidential information and state consequences, should such information be revealed to anyone outside of that circle. The clause can be as open or limited as you would like - it can go as far as to state the names of the people to whom the information can be shared, or simply state that the information must be limited to anyone within the business with which you are contracting. Of course, things are easier when you are contracting with just one person.
Including such a clause is important if the transaction involves the disclosure of commercially sensitive information. Without a confidentiality clause, subject to some limited exceptions, parties may be free to tell anyone and everyone any information concerning the other party without consequence, which may cause significant losses.
What should I look out for?
- Enforceability - confidentiality clauses can be hard to enforce in the sense that remedy for a breach of such clauses is likely to either be a court order to stop the breach or compensation. In reality, it can be difficult to prove breach or to quantify specifically the loss suffered as a result. Even if a court order was imposed and the breaching party was to follow that order, regaining trust after it has been lost is difficult.
- Adding duties - sometimes, parties may include a duty to return or destroy any confidential information they hold on another party after the contract has been terminated. If you agree to do this, make sure processes are in place to ensure that you comply. Once a contract has been terminated, it is easy to lose track of the information you hold on your contracting party.
- Specific actions - if you are concerned that your contracting party may not keep your confidential information within your prescribed limits, perhaps consider requiring a specific action to keep your information safe ie ensuring that sensitive documents are accessible only via a secure data room to which only select people have access.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.