An NDA (or non-disclosure deed) is a useful tool, but it is not a guarantee of secrecy. It creates enforceable obligations, yet enforcing them still requires you to take action and pay legal costs. For an early-stage business, proving loss after a breach can be difficult. How you define “confidential information” and how you handle disclosures often matters more than the document itself.

Why founders reach for an NDA – and where it falls short

Founders commonly want an NDA when they start engaging staff and contractors — social media managers, designers, photographers, videographers and content creators — who will see sensitive material. That instinct is sound. A well-drafted non-disclosure deed can limit, if not obviate, the risk of confidential business information reaching competitors.

But an NDA has real limitations, and understanding them before you disclose anything is what protects the business.

First, a deed only deters. In reality, a breach still requires you to take enforcement action, and to bear legal costs to do so. The legal obligation exists, but the protective value is inherently limited once commercially sensitive information is released to a third party.

Second, once information enters the public domain, it can be difficult or impossible to restore its confidential character. It can also be hard to prove how the information became public, or who was responsible for it.

Third, damages may be an inadequate remedy. Even with a successful claim, monetary compensation depends on the breaching party’s ability to pay.

How this arose in a real matter we acted in

We acted for the founder of an early-stage technology platform who wanted contractors and marketing personnel to sign an NDA before the product launch. We prepared a Non-Disclosure Deed and a detailed letter of advice on its practical use.

Two issues stood out.

The definition of “confidential information” had to be precise. Casting the net too wide is a genuine risk: if the clause tries to capture everything, a court may invalidate the specification of confidential information entirely. We therefore identified as precisely as possible the categories to be protected — business plans, financials, software, algorithms, branding, marketing strategy, analytics and unpublished content — rather than relying on a vague catch-all.

Proving loss was the second issue. Damages claim may require the disclosing party to prove lost profit. A new start-up may lack the historical records to do so — and may have no profit yet. We recommended obtaining feasibility studies or financial projections early, as these can materially affect what is recoverable if the deed is later breached.

Practical guidance for businesses using an NDA

  • Define confidential information precisely. Over-breadth can undermine the whole clause.
  • Disclose only what you need to. A general summary, without core details, is often enough until the recipient genuinely needs more.
  • Manage the disclosure itself. Mark documents “CONFIDENTIAL”, and consider watermarking with timestamps, version details and the identity of who accessed them.
  • Address the “I already knew that” defence. Before disclosing, discuss what the recipient already knows or is working on.
  • Keep records to support future loss. Feasibility work and projections improve your position if you ever need to claim.

It is also worth remembering the commercial reality: some information is best protected by not disclosing it at all, rather than by relying on a contract to unwind a disclosure after the fact.

Quick Answer

An NDA (non-disclosure deed) creates enforceable confidentiality obligations, but it does not guarantee secrecy. Enforcement still requires action and legal costs, and once information is public its confidentiality may be irreversible. For start-ups, proving financial loss is often difficult. Define confidential information precisely, limit disclosure, keep records, and execute the deed correctly.

FAQs

Is an NDA legally enforceable in Australia? Yes. A properly drafted and correctly executed NDA or non-disclosure deed is enforceable. However, enforcement requires you to take action and bear legal costs, and remedies such as damages depend on proving loss and the other party’s capacity to pay.

Should the definition of “confidential information” be as broad as possible? No. If the definition is too broad, a court may invalidate the clause specifying confidential information altogether. It is better to identify the categories you genuinely need to protect.

About the Author

Meng Cheong – Partner

Meng was the partner responsible for this matter and advises on commercial agreements, confidentiality and non-disclosure arrangements, and start-up and technology transactions. He settled the non-disclosure deed and letter of advice and provided the strategic advice on the practical limits of confidentiality protection.

Anna-Nikol Tanti – Lawyer

Anna-Nikol assisted with the conduct of the matter, including preparing the draft non-disclosure deed and correspondence, undertaking company searches and liaising with the client on execution requirements.

 

This article provides general information only and is not legal advice. It is based on a matter we handled, with identifying details generalised for confidentiality. You should obtain advice tailored to your circumstances before acting.