In the process of acquisition of a company one of the most important parallel agreement undertaking by the parties involved in the principal transaction is the confidentiality agreement.
On the general assumption that the principal agreement is governed by Italian Law and interpreted according to its provision, no doubt arises as to the binding nature of the Confidentiality Agreement which constitutes an agreement parallel to the principal one and must be read in conjunction with the same.
In principle it must be deemed as fully binding for the parties in features by the general principles on contractual obligations set forth in the Civil Code. And more than that, since it comes within the context of the principal agreement, its possible violation may even entail consequences as to the latter. One has to bear in mind that, under general principles of Italian contract law, a contract has to be interpreted in good faith and implemented in fairness. The violation of the obligation of good faith, considered from an objective standpoint, entails contractual liability.
While the binding nature of the agreement appears unquestionable, the question of its enforceability is more delicate, should the obligations arising out of them be disregarded. This is an issue that deserves careful consideration.
In general terms, the binding nature of confidentiality agreements bears as a consequence that, should their provisions be violated by one of the parties, that party would be liable for breach of contract and bound to compensate damages incurred by the other party. Under Italian Law such liability is regulated by the Italian Civil Code, that defines both the question of measure of damages and the question of remoteness of damage.
The first question includes the loss supported by the injured party (damnum emergens), as well as the consequential damage of remoteness of damage, the Italian Civil Code spells out that the damage must be the "immediate and direct consequence" of the breach of the contract. The current interpretation of this provision is that damage has to be regarded as the direct consequence if it would not have occurred in the absence of the breach. In other words, the latter must be the immediate source (causa proxima) of the damage.
The burden to prove both the non remoteness of the damage and the measure of damages lies with the allegedly injured party.
In the case of a confidentiality agreement, the disclosure of confidential information may therefore entail liability only if it is proved that it is the immediate and direct source of damage incurred by the other party. But evidence of the concrete existing link between the breach of the agreement and the damage may not be easy in an individual case. Thus, compensation for damages due to disclosure of confidential information is not very often provided for, unless a direct link can be established with certainty. While this conclusion does not in principle affect the question of the binding nature of the agreement, the practical weakness of the remedy may bear a certain influence on its enforceability.
In conclusion, while the Confidentiality Agreement is certainly binding and enforceable under Italian Law, its enforceability may encounter some difficulties in practice. It has to be pointed out, however, that, even when such agreement may prove not to be fully enforceable in an individual case, its breach could be used, more than to obtain compensation for damages, as a basis for an action to terminate the principal agreement.
This article was intended to provide general guidelines. Specialist advice should be sought about specific facts.
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