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Considering confidentiality provisions – Court of appeal on confidentiality and implied terms

Fountain pen writing Confidential Print publication

22/03/2018

Could confidentiality provisions affect your ability to disclose contracts as part of corporate transactions and/or when switching suppliers?

Recent case law suggests so.

Case summary

In Kason Kek-Gardner Ltd v Process Components Ltd [2017] EWCA Civ 2132 the Court of Appeal considered the interpretation of confidentiality provisions in a licence agreement and whether disclosure of the agreement in a corporate acquisition amounted to a material breach of confidentiality provisions.

The decision is a reminder that the language used in commercial contracts is not to be underestimated.

Kason Kek-Gardner Ltd (K) and Process Components Ltd (P) entered into a licence agreement. K was then acquired by a competitor. As part of the due diligence process for the acquisition, K disclosed a copy of the licence agreement to the purchaser. P then terminated the licence agreement for breach of its confidentiality provisions on the basis that disclosure was a material breach. K argued the confidentiality clause in the licence agreement was subject to an implied term that K could disclose the agreement to a prospective purchaser.

The Court of Appeal confirmed that a sale of K’s shares to a competitor was not a necessary business purpose of the licence and the implied term was not necessary to give business efficiency to the agreement. K had therefore breached the confidentiality provisions in the agreement.

Food for thought

The decision shows the Court of Appeal’s approach to implied terms in commercial contracts and the importance of considering confidentiality obligations in both corporate transactions and wider contexts.

Businesses should consider:

  • Negotiating confidentiality provisions – negotiate carve outs in contracts to ensure disclosure for certain circumstances (such as when transitioning to new suppliers).
  • NDAs – implement standard form non-disclosure agreements and ensure that your business knows to put them in place before negotiations start.
  • Knowledge of confidentiality obligations across the businesses – ensure all relevant areas of the business understand their confidentiality duties.
  • Due Diligence – remember that existing contracts are likely to contain confidentiality provisions. Do not assume there is an exemption from the confidentiality obligations as this could lead to such contracts being terminated for breach.

For further information or if you would like to discuss any aspects of the above in more detail, please do not hesitate to contact James Crayton or any member of Walker Morris’ Commercial Contracts team.

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