Non-Disclosure Agreements (NDAs) are an effective way for contracting parties to protect confidential information and commercial interests when sensitive information is shared.
When looking at cross-border NDA’s, obtaining good advice and ensuring all relevant details are reflected in any agreement is critical to providing increased certainty. In particular, making decisions around the governing law, jurisdiction and possible damages when drafting or reviewing NDAs can lessen the time and money spent in pursuing or responding to a claim.
Exclusive or non-exclusive?
An exclusive jurisdiction indicates that the parties do not want any other court of law involved other than that stated in the NDA, however a non-exclusive jurisdiction stipulates that in the event of a dispute, parties could file in a court other than the one stated in the NDA. This is especially relevant where parties foresee that they may need to bring separate proceedings surrounding pertinent NDA terms in differing jurisdictions.
A cross-border NDA is only as strong as its enforceability, with the two major points of contention being:
- choice of law; and
It is common that the choice of law (ie. the country or state law that will apply to the NDA) and jurisdiction (ie. the country or state that will accept a claim) are reflected in order to promote simplicity where a dispute arises, however it is not mandatory.
Choosing a place of jurisdiction when drafting an NDA is of central importance due to the fact that where the NDA stays silent or is unclear on the topic, parties can spend considerable time and expense in arriving at a decision on the jurisdiction and choice of law that will apply to the dispute in question (which often ends up being the court that has been chosen by the quickest party to file an application). Therefore, even where a governing jurisdiction outside the scope of primary business is imposed on a party, this is often a better alternative than failing to specify one.
When considering law and jurisdiction, it’s advisable for a contracting party to undertake research and obtain legal advice to ensure that they lie where the party’s interests are most likely to be favoured. For example, employment law in the United States varies considerably between states, so it may be more favourable for an Australian company entering into an NDA with a US company (where the US company has the bargaining power to insist on a US jurisdiction), to be governed by Californian law rather than Texan law if Californian law is more likely to align with their best interests.
Under US and Australian law, a provision in an NDA that seeks to impose a penalty for a breach is unenforceable. Where the breaching party is required to pay for more than just compensation or damages for loss, this will likely be interpreted by the court as a penalty. While genuine pre-estimates of loss are enforceable as a claim for liquidated damages, clauses that impose a penalty will result in claimants having to rely on proof of actual damages, often leading to a more uncertain and expensive litigation process.
In Australia, enforceability depends on the nature of the relationship between the parties (for example, any imbalance between financial resources of the parties would be taken into account), and the reasonableness between the sum stated in the NDA and the actual loss likely to be suffered by the non-breaching party. Where a specified amount is excessive, the sum is likely to be interpreted as a penalty and unenforceable.
Cross-border NDAs can be complex, detailed documents, especially where they involve protecting the movement and use of sensitive information in a technology-based, international context. Making a decision on governing law, jurisdiction and possible damages when drafting an agreement can provide increased certainty and lessen the time and money spent in pursuing or responding to a claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.