Sharing information with a third party: breach of confidentiality agreement?
When negotiating about the sale of a company, it is reasonable for a buyer to receive information about the financial situation of the company. However, it is important to prevent the buyer from misusing sensitive corporate information if a takeover eventually does not take place. It is therefore common to conclude a confidentiality agreement whereby the buyer is prohibited from sharing confidential information with others. In a recent ruling the court was confronted with the issue of whether the respondent had breached such a confidentiality clause. Dutch contract lawyer Marco Guit, who specializes in corporate takeovers, explains.
Negotiations about takeover in The Netherlands
This case concerned the following. The respondent holds all the shares in A2 BV. C is the director of both private companies. There have been negotiations between the respondent and the claimant about a takeover of the seller’s shares. The respondent requested and received access to the financial documents. The respondent was prohibited in a confidentiality agreement, subject to a fine, to give third parties access to these documents and/or information, without the permission of the claimant. The negotiations broke down.
Information used in other proceedings
Even before the takeover negotiations, A2 BV had worked with the claimant. There was a dispute during this cooperation. There were proceedings in which A2 BV used information obtained by the respondent during the negotiations. The claimant confronted the respondent about this and claimed a penalty. According to the claimant, the respondent breached the confidentiality agreement by giving a third party (A2 BV) access to this information without their permission.
What is covered by the term ‘third party’?
The issue at stake in this ruling is whether A2 BV can be designated a third party under the terms of the agreement. The Court of Appeal states first of all that in a strict reading of the confidentiality agreement, it has to be established that A2 BV is a third party. However, interpreting an agreement does not just concern the literal text of a contract stipulation, but also the intent of the parties.
Preventing leakage of sensitive corporate information
In this context it is important to realize that a confidentiality agreement is intended to prevent the potential buyer from making improper use of sensitive corporate information of the seller. For example by disclosing this information to third parties and thus damaging the seller’s business. With this intention in mind, a reasonable interpretation of the confidentiality agreement means that A2 BV cannot be considered a ‘third party’.
Breach of contract under Dutch law?
The important point is that all shares of A2 BV are owned by the respondent and that C is the (sole) director of both companies. Between director C and the claimant’s director, apart from the takeover by the respondent, the possibility of A2 BV taking over the shares was also discussed. This is therefore not the leakage of sensitive information to a third party, which the seller intended to prevent with this stipulation. Granting A2 BV access to the documents was therefore not a breach of contract.
Dutch lawyer specializing in corporate takeovers
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