This precedent has been authored by Kathryn Edghill, Partner, Mills Oakley and updated by Dr. Gordon Hughes, Principal, Davies Collison Cave Law.
A confidentiality clause may be useful where a contract (or its performance) discloses valuable or sensitive information — particularly where there may be commercially significant intelligence or knowledge such as specialised know-how, research and development material, commercial and financial data or restricted customer information.
Purpose of confidentiality clauses and agreements The purpose of a confidentiality provision is to at least limit, if not obviate, the likelihood of information falling into the hands of competitors who may be inclined to exploit the information. The clause is designed to ensure that information that is disclosed under the contract, or that becomes available in the course of contractual performance, is available only to certain persons and only for certain defined purposes.
Note that parties may in many cases recover for loss arising from breach of confidentiality, even in the absence of a binding contractual obligation.
Certain equitable rights may exist even without a contract. Under the equitable doctrine of breach of confidence, a remedy may be available to a person who, in circumstances of confidence, communicates or gives access to confidential information, if the receiver of the information then uses or discloses it to a third party. (See Johns v Australian Securities Commission (1993) 178 CLR 408; 31 ALD 417; 116 ALR 567; BC9303583; Parry-Jones v Law Society  1 Ch 1;  1 All ER 17; Smith Kline & French Laboratories (Australia) Ltd v Dept of Community Services (1990) 22 FCR 73; 95 ALR 87.)
These equitable rights may be enforced only if the following essential elements can be established: (see Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587;  RPC 41)
• the communicated information is confidential in nature;
• the information must have been imparted in circumstances that gave rise to an obligation of confidence; and
• use of the information must have been unauthorised and detrimental for the communicator.
There may also be obligations of confidentiality that arise by virtue of statute such as:
• Freedom of Information Act 1982 (Cth);
• The Privacy Act 1988 (Cth);
• Telecommunications Act 1997 (Cth); and
• Telecommunications (Interception and Access) Act 1979 (Cth).
However, with a contractually enforceable confidentiality clause, either party may more confidently seek compensation for losses arising from breach of an express term aimed at maintaining confidentiality.