Confidentiality and Non-Disclosure Agreements
12 April 2017
Citywealth: Why do clients want confidentiality/non-disclosure agreements?
Ben Hobbs: If you’re successful, you’re susceptible. Now, more than ever, successful individuals and companies know that their personal and confidential information can leak into the public domain and never be restored. A timely prevention is better than an expensive cure and clients want confidentiality agreements as part of their wider preventative measures.
Citywealth: What’s their common use?
Ben Hobbs: Confidentiality agreements can be used to protect confidentiality and privacy in a number of situations: discussions about potential business opportunities, hiring staff or contractors or in respect of an event, such as a wedding or a party.
In order to make a claim for breach of confidence, or seek an injunction to prevent the disclosure of confidential information, you will need to show that there is an obligation on that person to keep the confidential information confidential. This doesn’t need to be in a contract, it can be implied because of the circumstances of disclosure or because of the relationship of the parties. Where it is implied or based upon the relationship, the Courts will look at whether it is reasonable to impose a duty of confidence.
A confidentiality agreement reduces the scope for argument in future as to whether someone was bound by a duty of confidentiality or not. People can be subject to a duty of confidentiality without a written agreement, but having the agreement in place makes everyone’s position clear from the outset.
Depending on what they cover, confidentiality agreements can also contain clauses preventing people from texting, tweeting, using Facebook or Instagram at an event or from saying anything derogatory or demeaning about someone during and after the contractual relationship ends.
Citywealth: What are the pitfalls?
Ben Hobbs: The main pitfall is the suspicion that if someone has a confidentiality agreement, it’s because they have something to hide. Everyone has confidential and private information about themselves which they wouldn’t want the world to know. As with most things, being told you can’t know or do something makes you want to know or do it more.
Having a confidentiality agreement is no guarantee that nothing will become public either. If someone breaches it, you face having to sue them as well as dealing with the consequences. The information could also become known to someone who hasn’t signed the confidentiality agreement, in which case trying to prevent its publication or disclosure could be more difficult.
If they are too tight, does it make the person look suspicious? I.e. can too strict confidentiality agreements harm reputation?
Legally, if they are too tight – for example they try to make non-confidential information confidential, or try to prevent someone from being able to disclose confidential information where they are legally required to – they risk being held invalid and unenforceable.
From a reputation perspective, someone will always say that a client only wants a confidentiality agreement because they have something to hide or will say having a confidentiality agreement itself is completely unreasonable. Where overly strict confidentiality clauses are inserted into settlement agreements when people’s employment is terminated, that argument may be slightly stronger, but it shouldn’t be suspicious to want to keep your wedding confidential or stop your nanny from telling the world about your home life.
There are of course examples where confidentiality agreements have caused some reputational harm, but generally they provide very effective protection and ensure that all parties know the position about confidentiality at the outset. If someone has a tight confidentiality agreement, you will also know their attitude towards protecting their confidentiality and that they will likely take action in the event it is breached.
Citywealth: Tell us the three key things that every confidentiality agreement must contain.
Ben Hobbs: The three most important things that a confidentiality agreement must include are:
- A clear definition of what confidential information is covered by the agreement. You can’t make non-confidential information confidential just by including it in a confidentiality agreement;
- Sufficiently comprehensive undertakings by the party who will receive the confidential information, setting out what they must, should and cannot do in certain circumstances;
- An acknowledgment that damages for breach of confidence would be insufficient and that you can seek an injunction against them if they threaten to breach it. This gives you the best opportunity to prevent the disclosure of confidential information rather than seek to remedy the situation after the confidential information has been made public.
Citywealth: What trends do you see in the private client industry (reputation)?
Ben Hobbs: Reputation and privacy are interlinked: reputation is what people think of you, privacy is what they know about you. When it comes to their reputation, UHNW and prominent individuals are going to have to place greater emphasis on protecting their privacy. With data sitting at the heart of most day-to-day interactions and cyber-attacks on the rise, clients and advisors who are able to show that they’re putting in place additional safeguards to protect privacy and confidential information will gain significant advantage in terms of protecting their and their clients’ reputations. Advisors have a crucial role to play in protecting their clients’ reputation and privacy as it only takes one weak link in the chain to expose a client.
Ultimately, while confidentiality and non-disclosure agreements are a useful tool, they’re not the be-all and end-all. A strong confidentiality agreement is worth nothing if the people it covers are not aware of all the potential privacy and reputation risks and are not taking all the practical steps they can to protect themselves. I expect client concerns around their privacy and data security, particularly data held by their advisors, to become a growing trend over the next 18 months.
Excerpts of Ben's Q&A were first published by Citywealth on 7th April 2017. Click here to access the article.