Confidentiality Agreement or a Confidentiality Clause?

Confidentiality can be agreed upon either by concluding a separate confidentiality agreement, or by including a clause regarding confidentiality in a main agreement. Such a clause is referred to as a confidentiality clause. The purpose and contents of a confidentiality clause are usually comparable to a separate confidentiality agreement. If a confidentiality clause is included in a main agreement, damages for breach of contract, for instance, are determined in accordance with such agreement.

Contractual liability for damages is usually limited to exclude indirect damages, such as loss of profits. The purpose of confidentiality obligations may, however, require more extensive liability than would generally be applicable in accordance with the main contract. Therefore, as regards breach of the confidentiality obligations, it is possible to agree on, for instance, separate penalties, as may be required.

Generally separate confidentiality agreements are concluded when no other contract exists yet. On the other hand, the information requiring protection may also be so extensive and significant, that the conclusion of a separate confidentiality agreement is regarded to be sensible. If the parties agree to insert a confidentiality clause into a main agreement, it is advisable to ensure that the agreement does not exclude liability for indirect damages. Typically, damages resulting from breaches of confidentiality are indirect, and, therefore, liability for indirect damages should, in such cases, be possible. Accordingly, to enable recoverability of indirect damages, an exception should be made in the general limitations of liability in the agreement as regards confidentiality obligations.