Confidentiality and Restraint of Trade Clauses – what do they mean for a sub-contractor?
By Jennifer Barry, Lovegrove & Cotton.
26th of September 2013
When entering into a sub-contract to complete building works, whether residential or commercial, it is essential to consider all clauses of the sub-contract carefully. While all sub-contracts should contain clauses outlining the essential elements of the agreement, such as the scope of work, remuneration and methods to terminate the contract, there are often additional clauses that may be overlooked when entering into the sub-contract but are equally binding.
A clause that may often be overlooked when entering into a sub-contract is a clause relating to confidential information. These clauses may often relate to not only confidential information regarding the building works that are the subject of the contract, but also information regarding each of the parties. It is common for sub-contracts to contain clauses preventing the parties from revealing any confidential information to a third party.
In some cases the confidentiality clause will be expressed narrowly, such as specifying that it only relates to, for example, pay rates or financial information for the company. In other cases, it will be broader and apply to a range of information including details of property and assets, details of and arrangements with customers and suppliers and other similar information.
When entering into a sub-contract with a confidentiality clause, it is important to ensure that it applies equally to both parties in the contract. There is also the possibility that the confidentiality clause will contain exceptions, such as allowing disclosure to professional advisors, such as lawyers or accountants, and it is important to be aware of any potential exceptions.
A second clause that is often included in sub-contracts is a restraint of trade clause. This clause has the effect of restricting the sub-contractor from competing with the other parties’ business or taking their clients.
While these clauses are often incorporated into contracts, the Courts have taken a strict view on restraint of trade clauses. In order to be enforceable, the clause must be considered to be ‘reasonable’; an ‘unreasonable’ clause will be regarded as unenforceable and void. This is because the restriction must be balanced against the interests of free and fair trade/competition.
To determine whether a restraint of trade clause is reasonable, the Court will consider factors such as:
- the duration of the restraint
- the area of restraint;
- the interests of the parties; and
- the interests of the public.
When entering into a sub-contract, it is essential to obtain legal advice regarding the contract, including in regard to the confidentiality and restraint of trade clauses. While these clauses may not seem as ‘important’ as other clauses in the contract, they are equally binding and acting in breach of those clauses can be grounds for termination of the contract by the other party, with potential legal action against you for the breach.