Confidentiality Agreements

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The recent appearance of James and Rupert Murdoch before the Parliamentary Select Committee brought to the fore the issue of whether the contents of a confidentiality agreement can ever be disclosed.

A confidentiality clause is common in employment contracts. They are invariably found in properly drafted compromise agreements. They are also common where parties reach an out of court settlement in a dispute where the parties sign up to a Consent Order effectively ending the litigation.

The effect of a confidentiality clause in a compromise agreement is to stop the departing employee from discussing the terms agreed concerning  his/her departure. The confidentiality agreement often extends to the employer as well. As a result both parties are prevented from discussing the terms of the agreement that has been reached. There are obvious reasons for this in that it gives the parties more manoeuvrability if it is known that the agreement is secret.

Likewise a party when facing multiple actions such as News International in the phone hacking claims against it may wish to settle with each party hoping to pick off cash strapped claimants with as small a sum as possible. Confidentiality agreements help this process.

If word were to get out as it did in the case of one claim against News International in 2009 (£700,000 to Footballers’ Association chief executive Gordon Taylor) then greater expectations for a higher settlement would be generated.

Can a Court Order the Disclosure of the Terms of a Confidentiality Agreement?

It is very important to note that courts will normally uphold confidentiality agreements.

However in Farm Assist (in liquidation) v Secretary of State for the Environment [2009] the court made it clear that if it were in the interests of justice a court would override a confidentially agreement. Thus in that case where there were allegations of duress,  it was in the public interest and the court overrode the confidentiality agreement.

It is important to note that the Court won’t set aside a confidentiality agreement as a matter of course. In Porton Capital Technology Funds and another v 3M UK Holdings Limited [2010] the Court refused to order the removal of confidentiality as it would not put the parties on an equal footing, in other words there was no reason to do so. The Court held that: “The objective of ensuring that the parties are ‘on an equal footing‘ ought not, in ordinary circumstances, to require that the obligations of confidence are overridden. If the Court were to do so it could be said that the party whose confidence is overridden was not on an equal footing with his opponent, nor treated fairly, because his legal rights were not respected whereas those of his opponent were.”

The Court’s attitude can therefore be summarised as follows.

The Courts will recognise confidentiality agreements and will not overturn them without a good reason but will do so where it is in the interests of justice. Examples of the interests of justice would include putting the parties on an equal footing,  the public interest, and where there may be allegations of fraud or duress. In other words whilst the Courts will normally uphold a confidentiality agreement it will not allow it to stand in the way of a level playing field if it considers that it is in the the interests of justice to do so.

 

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