What can go wrong when you don’t have a proper Confidentiality Agreement in place…

Recently, a young businesswoman developed a business plan and wanted to use it in order to secure investors.

She knew she needed to protect her business plan, so she went online and found a “cookie-cutter” Confidentiality Agreement template. She then ensured every potential investor signed the Agreement prior to disclosing her business plan.

However, a few weeks later the businesswoman discovered that one of her potential investors had disclosed part of her business plan to several third parties. She was devastated, and her pain was exacerbated when she found out she had no claim against the investor because the Confidentiality Agreement she used failed to properly protect her business plan. 

How can you ensure your confidential information is protected so that you avoid landing in this situation?

What is a Confidentiality Agreement?

A Confidentiality Agreement (also referred to as a Non-Disclosure Agreement) is imperative when one party wishes to disclose confidential information to another party, and wants to ensure that the confidential information remains theirs and is not made public.

This Agreement guides both the party receiving the information (“the Recipient”) and the person disclosing the information (“the Discloser”) to ensure they know their rights and obligations. 

A Confidentiality Agreement should be signed prior to disclosing the confidential information. However, sometimes in the heat of positive preliminary discussions, confidential information may be disclosed between the parties. In this instance, we still recommend entering into a Confidentiality Agreement with the other party to cover both the information disclosed prior to the Agreement being signed and further information disclosed following entering into the Agreement.

What should a Confidentiality Agreement include?

There are many clauses included in a Confidentiality Agreement, however two are crucial.

Firstly, it is critical to define “confidential information” to include all possible types of information that may be disclosed.  This is usually kept broad, but it should only include information that is genuinely confidential. The types of information to detail includes business plans, drawings, financial data, software, trade secrets and copyright. Information that is already in the public domain is excluded from the definition. 

Secondly, all Confidentiality Agreements should carefully describe the “purpose” for which the confidential information is to be used by the Recipient. It is recommended that the purpose be specific so that the Recipient understands exactly what it can and cannot do with the information. This was the issue in the example above.  The businesswoman had not been clear enough due to following the generic template that she found online.

Further, it is likely that the Recipient may need to disclose and discuss the confidential information with third parties, such as advisors or employees. Provision should therefore be made to ensure that the Recipient is responsible for ensuring the described third parties are also bound by the restraints of the Confidentiality Agreement.

The Confidentiality Agreement should also ensure that it continues for as long as the information remains confidential, i.e. beyond expiry of the Agreement.

To avoid problems with protecting your confidential information it is important to take advice from a professional experienced in drafting these agreements.



Claire Tyler
Commercial Lawyer
Wellington