Breach of Confidentiality: Contractual Consequences for UK Businesses 

Keeping your business’s confidential information (including your know-how and trade secrets) safe and secure is vital to protect your competitive edge in the market. Contracts such as non-disclosure agreements (NDAs) or service agreements are valuable tools to help you safeguard your information and give you legal options and remedies if someone misuses it. Although contracts can offer valuable legal protection, they are not a foolproof solution – so combining them with practical safeguards is essential. This article explores some key contractual remedies your business may be able to rely on if a party breaches their confidentiality obligations.  

How Can Confidentiality Clauses Protect Your Business?

Confidential information is a key part of your business’s success. Misusing or sharing it without permission can cause severe damage, such as reputational harm, financial losses, and loss of competitive advantage. Of course, sharing sensitive information with suppliers, collaborators, or investors is sometimes necessary, but it comes with many risks.

Confidentiality clauses in NDAs and contracts can help you by creating a clear framework to protect your sensitive data. They will typically spell out what information is confidential, explain how it should be used by third parties to whom you disclose it within strict parameters and set out the consequences if they break your confidentiality rules. This structure is a strong deterrent to stop others from misusing your information and gives you legal options if they do.

However (while NDAs and confidentiality clauses can be deterrents), unfortunately, they cannot guarantee your information will be fully protected from risk. For instance, if a third party leaks or misuses your confidential information, it can be tricky (sometimes even impossible) to undo the damage once the ‘horse has bolted’, no matter how strong your contractual protections are. That is why, alongside contracts, your business should also have practical measures to keep information secure.

Common Contractual Consequences of Breaching Confidentiality

If a third party breaches a confidentiality clause in a contract, your business may have various remedies it can pursue. However, knowing that these options have limits and might not entirely fix the harm caused by a breach is essential.

Here are some common contractual remedies that a business may be able to pursue as a result of a third party breaching their confidentiality obligations:

Injunctions

If you find out that a third party plans to misuse or disclose your confidential information, you may be able to seek to apply for an injunction to stop them before any damage happens. Injunctions are a common remedy – especially before a breach occurs because they can prevent harm. 

However, an injunction may not always be very helpful if the breach has already occurred and caused significant damage, especially if the information is already public. Once your confidential information is out there, the damage may already have been done. 

Damages for Confidentiality Breach

You may be able to claim damages to recover financial losses from a breach. However, damages may again give you limited recourse for non-financial harm caused, especially if your confidential information is high. 

Proving a breach can also be challenging – you will need robust evidence, such as detailed analysis and witness testimony, to support your case. Bringing a claim can also be complex and time-consuming for your business. 

Indemnity Protection

If your contract includes an indemnity clause, it can offer strong protection. An indemnity means the breaching party agrees to compensate your business for specific losses if a confidentiality breach happens. Indemnities work more like debt obligations, making it easier for your business to recover losses. They can be invaluable when you share confidential information, as they shift the financial risk onto the other party. 

However, they must be expressly stated in your contract, and not every business will agree to an indemnity, which is often a heavily negotiated point in contractual discussions. If you can agree on an indemnity, however, they can act as a strong deterrent to prevent breaches and give your business a means to recover financial losses if there is a breach. 

Supplier Contracts Checklist

Use this checklist to ensure your supplier contracts contain all necessary terms.

Download Now

It is worth noting that many commercial parties will negotiate a set limitation of liability clause to cap how much compensation you can claim if a breach occurs. These clauses can limit your ability to recover complete losses, especially if the cap is much lower than the damage caused. This can also apply to indemnification provisions. It is, therefore, essential to review any limitation of liability clauses carefully before signing a contract to ensure they do not weaken your business’s protections.

Although these contractual remedies can help in the event of a confidentiality breach, they might not fully address the damage. Legal action and claims can also be expensive and time-consuming and might not always result in complete recovery. That is why your business should always take practical steps to keep confidential information safe.

What Other Steps Can Help Safeguard Your Business’s Confidential Information?

As contractual remedies can have their limits, it is essential to be proactive in reducing the risks of a breach. Contracts are a key risk prevention tool, but practical safeguards are just as crucial, and prevention is always better than cure.

If you combine firm contracts with adequate security measures, your business will be better able to protect its confidential information from risk. 

Key Takeaways

Confidentiality clauses in NDAs and contracts are potent tools for protecting your confidential information and helping deter misuse. However, once confidential information is disclosed, remedies such as injunctions and damages might not reverse the damage done. Because of this, your business should be cautious when sharing information and take proactive, practical steps to reduce the risk of breaches of confidentiality before sharing any information.

If you need legal advice on protecting your confidential information, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions