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Breach the wall to bridge the road - When can confidential information be used?

Breach the wall to bridge the road - When can confidential information be used?

Breach the wall to bridge the road - When can confidential information be used?

Friday, 16 December 2016 20:58

By Anna Chan, Partner and Tony Tam, Associate

Wang Chau, a little known rural area in Yuen Long, enclaved by industrial and residential estates, came under the wrong side of the spotlight in the latter part of 2016 concerning a public housing project to be built there. A can of worms was opened when allegations were made against the government for colluding with business interests, rural leaders and triads about the planned development of public housing in Wang Chau.

The controversy endures as it was later revealed that the consultant to the winning tenderer of Wang Chau project, Ove Arup & Partner (“Arup”), had allegedly breached its confidentiality agreement with the government by quoting insider information obtained from the government in its consultancy report to the tenderer.

Politics aside, the Wang Chau saga leads one to ponder what constitutes “confidential information” and what general exceptions would apply.

Confidentiality between consultancy firms and its clients

The relationship between a consultancy firm and its clients is primarily contractual, which is outlined in the retainer and/or service agreement between the parties. In a plain vanilla scenario, the law is rather straight-forward: a piece of information is confidential when it is defined so, whether loosely or strictly, in the agreement.

Apart from the express terms in the retainer, there are also circumstances which establish an implied contract of confidentiality. For instance, if a company engages a consultancy firm and divulges its trade secret to the firm in the process, there is an implied contract of confidentiality between the company and the consultancy firm due to a reasonable expectation that the information will only be shared with individuals which the company authorizes. A similar obligation also arises in equity under the broad principle that he who has received information in confidence must not take unfair advantage of it.1

There were also instances where the court has held that parties under a fiduciary position, due to a “special relationship of trust and confidence”2, have a duty to uphold confidentiality.

Non-disclosure Agreements

Drafting a proper non-disclosure agreement is not an easy task. All too often confidentiality clauses are overly broad and fail to specify in a meaningful way what exactly constitutes confidential information within the scope of the agreement in question.

The parties ought to negotiate the confidentiality clauses properly, using clear technical terms and practical legal terms. Customization is also crucial to fit the targeted users. For instances, information such as source code, algorithms, and design documents are paramount in software consultancy, while internal financial affairs are paramount in business consultancy. A well-drafted disclaimer could also serve as sufficient warning for anyone using the data.

Treatment of Confidential Information

When we say information is confidential, it may only be shared after authorization is provided and only be restricted to the authorized individuals. Most non-disclosure agreements, whether express or implied, remain in effect indefinitely. In common law, there are generally two recognized exceptions:-

1. If the law requires you to disclose confidential information
2. If the information is accessible in the public domain anyway

Practically speaking, sometimes the loophole might be on employees who fail to appreciate confidentiality. While the law does not require a consultancy firm to implement a Chinese wall, it may be wise for a consultancy firm, while dealing with entities with voluminous confidential data, to set up information barriers to avoid negligent staff from inadvertently disclosing confidential information.

For advice and drafting in respect of your non-disclosure agreements and confidentiality clauses as well as personal data (privacy) guidance, email your OLN partner contact, Ms. Anna Chan.

 

[1] See Seager v Copydex Ltd [1967] 2 All ER 415

[2] See Woods v Martins Bank Ltd [1959] 1 QB 55