Managing Third Party Confidentiality During A Sale Process – Critical Lessons From The Dexus Case

Managing third party confidentiality obligations is a critical issue for vendors in conducting a sale process. There can be severe potential consequences for non-compliance. We analyse the key lessons for transactors from Justice Hammerschlag’s judgment in Dexus Capital Investment Services Pty Ltd v Australia Pacific Airports Corporation Limited [2026] NSWSC 600.

In brief

• Dexus was found to have committed a material and irremediable breach of a shareholders’ deed when disclosing confidential information to facilitate the sale of its shares. 
• The consequence of the breach was an event of default that could require the forced sale of all shares managed by Dexus (and not just the shares proposed for sale in the sale process).
• The case contains critical lessons for any seller running a sale or divestment process on managing third party confidentiality obligations when disclosing information to potential purchasers.
• The lessons: strict compliance with confidentiality provisions will be expected. A breach may undermine the trust and confidence of the parties, elevating the materiality of the breach. This is particularly acute where the breach is deliberate or involves concealment. Do not assume that a breach of confidentiality can be remedied with subsequent actions.

The Facts

The facts are important to the lessons from the case. Here is a summary:

• Dexus’ objective: Dexus managed a 27.33% shareholding in Australia Pacific Airports Corporation (APAC) on behalf of various investors. It pursued a process to seek to divest 20.47%. Dexus sought to rely on affiliate transfer provisions of the shareholders deed by transferring the shares to new investors but retaining management over the stake to be divested. The affiliate transfer provisions could potentially allow Dexus to proceed without enlivening the pre-emptive rights afforded to the other shareholders.
• Confidentiality obligations: The APAC shareholders’ deed permitted shareholders to disclose confidential information to a prospective purchaser. This was subject to the prospective purchaser entering a confidentiality deed with the other shareholders in a form to their reasonable satisfaction and enforceable by them. 
• Shortfall in compliance: Dexus believed a form of confidentiality deed poll had been pre-agreed by shareholders, which it used without giving the other shareholders the opportunity to assess their satisfaction with it (as was their right) or the types of confidential information that Dexus proposed to disclose. However, no evidence could be produced by Dexus to support that the alternative form of deed poll had been pre-agreed. Further, the judge found substantive variations to the form had then been made through side letters. These variations allowed Dexus’ prospective purchasers to expand permissible disclosure and effectively reduce the term of the confidentiality obligations.
• The scale of disclosure: Dexus was found to have disclosed extensive confidential information to prospective purchasers. This included the APAC financial model and operating data and reports, materials that were highly confidential to APAC, and at a time when APAC was negotiating airline services agreements with the airline users of Melbourne airport. The APAC financial model was password protected and only available to a very small set of APAC personnel and shareholders. In total, Dexus provided at least 137 individuals across 40 organisations access to the information. Some of the prospective purchasers were sovereign wealth funds, with ties to sovereign airline carriers, raising concerns for APAC about the sharing of highly sensitive information that could interfere with APAC’s position in these commercial negotiations. The fact that the sell-side financial advisers had not signed up to the form of confidentiality deed poll, and that some bidders had been allowed access to confidential information prior to signing a confidentiality deed poll, was also problematic.
• APAC finds out: Dexus sought due diligence sessions for the prospective purchasers to meet with APAC management. The detailed questioning by prospective purchasers raised concerns among APAC about the extent of information they had accessed. What followed was the APAC Board questioning Dexus-nominated directors. The judge found that certain information had been withheld by Dexus in responding, including attempts to conceal the existence of the side letters to the confidentiality deed polls.
• Default notice issued: After deliberation, the APAC Board decided to issue Dexus a default notice for material and irremediable breach of the shareholders deed. This commenced a process for the non-defaulting shareholders to potentially acquire the entire shareholding (not just the 20.47% intended to be sold) managed by Dexus at fair market value. Dexus objected to the validity of the notice, eventually seeking an injunction to prevent the forced divestment, which resulted in these proceedings. 

The Court’s key findings

The Court’s key legal findings on common issues that arise in these disclosure contexts were as follows:

• Strict compliance: The APAC shareholders deed required the form of confidentiality deed to be reasonably satisfactory to the other shareholders. Dexus’ use of unilateral deed polls executed without involving or seeking prior approval from the other shareholders was found to be non-compliant. 
• Material and irremediable breach: The Court found the breach (especially disclosure of the APAC financial model) was material and irremediable. In doing so, the judge emphasised the important relationship of trust and confidence between shareholders in a shareholders’ deed. Deliberate or reckless breaches, and attempts to subsequently conceal such conduct, were held to undermine that trust and confidence. The judge found that Dexus had acted contrary to the interests of APAC and irrevocably undermined the ongoing business relationship, trust and confidence between it and the other shareholders. 

Other observations the judge made on interpreting default for material and irremediable breach include:

• Material breach does not require a fundamental breach, instead requiring a serious effect on the benefits or protections the contract was intended to secure for the innocent party. The test for materiality also does not focus on the materiality of the obligation, but on the quality of the breach. 
• Irremediability of the breach was held to test the effect (into the future) and not the historical fact of its occurrence. Enforcing destruction of information rights against purchasers and offers to have potential purchasers subsequently sign a confidentiality agreement in a form approved by the other APAC shareholders were held not to be adequate remedies. In large part, this was due to the loss of trust in Dexus by other shareholders caused by the breach. 
• Scope of confidential information: The APAC shareholders deed treated information as confidential if it had been exchanged between shareholders “under” the shareholders deed. Dexus sought to argue that the word “under” meant pursuant to a right given by the shareholders deed, a narrow construction. The Court held that the correct construction was that it was sufficient if the information had been shared because of the relationship created between the parties by the APAC shareholders’ deed. This interpretation results in a wider scope of information being captured by the confidentiality provisions.
• Enforcement of default and conflicts: Dexus challenged the motives of the Board in issuing the default notice, questioning if the directors’ underlying motive was to acquire the Dexus stake for themselves rather than to respond to the breach. The Court held that the Board acted in good faith and for a proper purpose. It found that the Board’s determination would stand unless the equivalent of fraud or bad faith was proven. Dexus did not plead breach of directors' duties so as to vitiate the resolutions. As a factual matter, while the potential acquisition of the shares was a consideration, it was found not the primary driver of the decision to issue the default notice. The primary motivation of the Board was found to be the protection of APAC’s confidential information and addressing the breakdown in trust.

Lessons for transactors

The key lessons from Justice Hammerschlag’s first instance judgment (noting that the judgement may be appealed) for those pursuing a divestment or sale process are:

• Treat confidentiality obligations as transaction-critical: Third party confidentiality obligations can be a difficult issue for sellers to navigate. It is important to understand these and design your process with the need for compliance front of mind and having regard to the materiality of confidential information.
• Deliberateness of non-compliance: The judgement places significant weight on a finding of deliberateness of, and attempts to conceal, the non-compliance. This went to the heart of the Court’s finding of the breakdown in trust and confidence that satisfied the material and irremediable nature of the breach. Vendors should also take care in deciding, and responding to allegations of, non-compliance. 
• Scope matters: What information, its sensitivity, and to how many and the nature of parties it was disclosed, were all considered by the Court to be relevant to assessing the quality of a breach. Consider how to mitigate the magnitude of any potential breach, noting that deliberate breach is also an adverse indicator. 
• Understand the consequences: The consequence of a breach will be of critical importance. The existence of a perceived ulterior motive will not be fatal to a claim of default, provided that the decision to exercise the right was legitimate and in good faith. In this case the notice was to be issued by the Board; consider if it is best for shareholders to have the right to issue these notices to remove directors’ duties considerations. 
• Drafting considerations: When drafting and agreeing to contracts with confidentiality obligations, potential vendors should consider the following:
  • Carve-outs to confidentiality obligations need careful thought. In particular, where a sale of interests is likely, it warrants considering how the provisions will be complied with in practice. Consider broad carve-outs for sale processes or pre-agreed forms of confidentiality deeds to permit disclosure to potential purchasers.
  • Purpose and objectives clauses can inform the interpretation of obligations. While these can feel like ‘soft’ obligations when agreed, consider how they may be construed to draw unhelpful inferences or interpretation in the context of a dispute.
  • Default provisions need close attention, given the gravity of consequences once they are invoked. Consider if more detail is needed to ensure they operate as you intend, e.g. what is material breach and should this be confined to material obligations. Consider also if the Board or shareholders should determine the issuance of a default notice, noting the Board’s decision is subject to directors’ duties. 

Conclusion

The Court’s decision is an important reminder of keeping third party confidentiality obligations front of mind when designing sale and divestment processes. The consequences for vendors can be significant. Ultimately, know that courts will be strict in their interpretation and enforcement of rights, particularly in the face of deliberate breaches.

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.