Australia: Cross-border non-disclosure agreements (NDAs): How enforceable?

In March 2018, the Washington Post reported senior White House staff signed confidentiality agreements stipulating that officials could face monetary penalties if they disclosed confidential White House information to the press or others and that these were intended to remain in effect after the current President is no longer in office. A draft copy of the agreement would have subjected violators to penalties of $10 million, payable to the federal government for each and any unauthorized revelation of "confidential" information.

This is perhaps the latest high-profile example of the widespread use of a non-disclosure agreement (NDA), including for business, personal and other purposes. This article highlights some of the issues in the enforceability across borders of breaches of NDAs. The first part will consider the ability to impose "penalties" for breaches of NDAs and how (as an example) that is treated under Australian law. The second part will outline some of the available remedies for breaches of NDAs, weighing up whether parties in their NDAs should provide for resort to Court or arbitral enforcement. The third part of this article will examine the ability to enforce foreign judgments relating to breaches of NDAs and outline practical considerations for interested parties. With the size of transnational trade and a push for transparency in international commercial transactions, it is more important than ever to get your NDA right.

Penalty or Liquidated Damages?

Under both U.S. and Australian law, this distinction is important, as in both jurisdictions a provision in a contract which seeks to impose a penalty upon a contracting party is unenforceable. Generally, a contractual requirement for the wrongdoer to pay more than compensation (or a genuine estimate of compensation) in the event of their breach, will be a penalty.

The relevant law in Australia can be summarized as follows:1

  • genuine pre-agreed pre-estimates of loss for breach are prima facie enforceable as claims for liquidated damages whereas penalty clauses are void or unenforceable leaving claimants to rely on proof of actual damages;
  • whether a clause is a penalty or not is a question of legal construction as at the contract date (not the date of breach) and the parties' private intentions are not relevant; and
  • agreed damages provisions are prima facie effective, and the onus is on the promisor to establish that the clause is a

In Australia whether a clause is to be categorized as a penalty or as a genuine pre-estimate of damages is a test "of degree and would depend on a number of circumstances" including:

  • any degree of disproportion between the agreed sum and the loss likely to be suffered by the claimant, that is, how "oppressive" is the clause on the party in breach; and
  • the nature of the relationship between the parties becomes relevant with regard to the unconscionability of the claimant in seeking to enforce the clause.

If determined by the courts to be "extravagant," "unconscionable" or "exorbitant" in amount in comparison with the greatest loss that could be conceivably proved, the agreed sum would likely in Australia be a penalty.

While the treatment of liquidated damages varies among different state jurisdictions within the U.S., the U.S. courts generally consider at least two elements:

  • whether the harm caused by any breach is difficult to calculate; and
  • whether the amount of liquidated damages is reasonable in proportion to actual or anticipated

If not, it is a penalty which is against public policy and therefore the clause is unenforceable.

Remedies and Enforcement

Remedies for a breach of an NDA include either:

  • injunctive relief, desirable in cases of anticipatory breaches or to prevent future breaches; or

The damages, or recovery of a genuine pre- estimate of damages, where there has been an actual breach. The decision of where to seek enforcement of these remedies is an important business and strategic consideration. First, the party seeking to enforce the NDA must decide in what country they will seek enforcement. While this is intrinsically related to the express law governing the contract, and any choice of venue clause, it may be subject to a forum non conveniens challenge, which allows courts to dismiss a case where another court, or forum, is much better suited to hear the case. Second, any enforcement through the courts immediately brings the breach into the public realm. Third, where a remedy is granted in one jurisdiction, there is no guarantee that it will be recognized or enforced in another, that is, if damages are awarded by a court in the U.S., there is no guarantee that an Australian Court would enforce that judgment (and vice versa).

Enforcement of Foreign

Judgments

While obtaining a judgment in your favour for breach of an NDA is a step in the right direction, it is not necessarily the full solution for all relevant jurisdictions. This hinges on the enforceability of foreign judgments in domestic jurisdictions. For example, in Australia the statutory regime for the recognition and enforcement of certain foreign court judgments is under the Foreign Judgments Act 1991 (Cth) (FJA). Notably however, there is no general statutory mutual enforcement between the U.S. and Australia. When seeking to enforce a U.S. Court judgment in Australia claimants must resort to the common law principles for enforcement.

In short, four conditions must be satisfied for a foreign judgment to be recognised and enforced in Australia as common law:

  • the foreign court must have exercised an 'international' jurisdiction that Australian courts recognize;
  • the judgment must be final and conclusive;
  • the parties must be the same; and
  • the judgment must be for a fixed sum (although certain non-money judgments may be enforceable in equity).

Arbitration

Interestingly, while there is a gap between the U.S. and some countries including Australia in statutory enforcement of court judgments, due to the operation of the New York Convention, to which the U.S. is a signatory, there is far wider recognition of arbitral awards including between the

U.S. and Australia. Between signatory countries, a foreign court is obliged to recognize the award, except in certain circumstances. Accordingly, for a cross- border situation, it may be advantageous to consider arbitration as a dispute resolution mechanism.

Conclusion

It is clear that it is of increasing importance to consider the practical enforceability of cross-border NDAs. We must not forget that ultimately remedies and enforcement vary from jurisdiction to jurisdiction. An analysis of each relevant jurisdiction is appropriate.

Footnote

1 Dunlop Pneumatic Tyre v. New Garage & Motor Co Ltd [1915] UKHL 1 (Lord Dunedin).

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions