Balancing Risk v

Reward Across
By Stephanie Rowland
(Partner at Mills Oakley)

Every day, deals get done. Every day, many Australian companies sign confidentiality
agreements with the hope that perhaps it will lead to a lucrative deal down the track. Only a
fraction of these fledging confidentiality agreements ever graduate to due diligence. Fewer
still eventuate in an “agreement to agree” of any variety. An even smaller sub-set of these
deals actually reach full transaction agreements and completion.

Many trusting souls disclose their hard-won confidential information - both technical and
business - on little more than the strength of a handshake (or what we call the “she'll be right”
brigade), or, at best, perhaps a page or two of legalese in a confidentiality agreement
downloaded from “Google lawyer”.

In our anecdotal experience, although many people tend to recognise the need to have a
non-disclosure agreement (NDA) early in the deal process, not many people really
understand their rights (or lack thereof) if confidential information is disclosed to an investor,
competitor or potential business partner and something goes wrong.

This problem compounds when Australian companies, particularly global-facing,

entrepreneurial ones, do business overseas and contract with foreign companies and
competitors.

Consider this scenario: Your company is looking for a cornerstone investor. Or a new licensee
or distributor to expand your innovation in overseas markets. You must disclose information
about your business to build interest and trust, but if the recipient is based wholly overseas,
what happens if they use your information to your detriment? Or they share it with your
competitors without your knowledge? Or they disseminate it without your permission at an
industry conference in South East Asia. It’s sobering to think you may have limited options for
taking action. Not a good situation to be in.

Imagine your Perth-based company tries to bring proceedings against an overseas

company for breach of confidentiality. Proving the breach and seeking restitution is one
thing but enforcing a judgment given by a West Australian court against the foreign entity
requires recognition of the WA judgement in the foreign country. On paper, this may seem
straightforward, but such recognition and enforcement not only depend on the existence of
a relationship of reciprocity between Australia and the foreign country, but also the laws of
that foreign country.

It’s worth being aware that there is a statutory regime, based on relationships of reciprocity,
for the recognition and enforcement of judgments from certain foreign countries in Australia
under our Foreign Judgments Act 1991. However, this act doesn’t apply to all countries. The
United States of America, China and India are notable exceptions.

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Additionally, Australian courts will only enforce foreign judgments for money.1 This seems ok
you might think - until you consider the scenario where you find out that a previous investor or
business partner is about to publish your confidential information.

So what can you do?

To hedge the risk, ideally the foreign entity should have an Australian subsidiary, and you
should contract with them as well as the foreign parent, if it’s commercially feasible.

But what if no Australian subsidiary exists? Then, some things that would be worth considering
before signing that contract with the foreign company include:

 Can your contract be subject to Australian law and the parties bound by Australian
courts? This gives the most enforceable outcome for your benefit. If the other party
will not agree to Australian law, you may need to meet in the middle. A country with
a stable governing law which is similar to Australia’s would be preferable –
Singaporean law may be a good compromise.

 Can you deal with a company based in a "reciprocating" country, captured under
our Foreign Judgments Act 1991?

 Have you included clear provisions on how disputes should be resolved, and exactly
what kinds of disputes will trigger the provisions to take effect? For example, you
might try requiring the parties’ key decision makers to hold a meeting first or have a
mandatory mediation. Maybe consider a binding arbitration conducted under the
rules of an established arbitration body, rather than trying to take action in the courts
of a foreign country.

 If the other party insists the contract be governed by the law of a foreign country, it’s
crucial to understand what that means for you. If you’re not familiar with the foreign
country’s legal system, it’s highly recommended to retain local experts to help you
understand the risks, before signing the contract.

 Be sensible about when you disclose sensitive information, and how much you
disclose. Or how much product or equipment is provided before all or some of the
purchase price is paid. Designing details to have practical mechanism to protect you
are worth thinking through. The ‘prevention is better than a cure’ approach.

 Do your homework on your counterparty. Use other industry contacts or local experts
to help you find out about them, and their business reputation.

Of course, crossing borders and doing business with foreign companies does not mean that
you will inevitably land in one of our previously mentioned scenarios involving enforcing
judgements in foreign lands. However, it’s imperative to keep your eyes open knowing your
legal risks, your options for recourse and designing your deal to promote and protect your
business in the best way possible.

1There are some minor exceptions under the FJA – for example enforcement of New
Zealand and Papua New Guinea tax matters.

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