confidentiality obligation without a time limit be terminated at any time?
In M&A practice, confidentiality obligations are an essential part of the acquisition process. It seems self-evident that sensitive or confidential information should be protected by means of a confidentiality agreement. Before sharing information, parties want assurances that this information will be shielded against improper use and will not be disclosed to persons not involved in the transaction. A duration is not always stipulated for this obligation. Sometimes this is even done deliberately: the information should remain confidential at all times.
According to Article 5.75 of the Civil Code, an agreement without a time limit is in principle considered an agreement of indefinite duration, which can in principle always be terminated subject to a reasonable notice period. From this logic, a confidentiality obligation without an explicit time provision could therefore be unilaterally terminated, allowing confidential information to be disclosed to third parties after all. To avoid such uncertainty, contracting parties often provide for a fixed term, often five or ten years. The period during which the information requires confidentiality is difficult to assess in advance.
The question arose in a judgment of the Ghent Court of Appeal on October 28, 2019. In this case, the confidentiality obligation was included in a share transfer agreement, which contained neither an end date nor any temporal limitation, and likewise did not provide for a possibility of termination. According to the Court, the latter (a possibility to “step out” at any time) was difficult to reconcile with the purpose of the agreement, with the result that, in practice, the obligation amounted to an invalid clause of lifelong duration.
The Court of Cassation did not follow that reasoning. In its judgment of September 9, 2021, the Court reiterated that an agreement of indefinite duration can always be unilaterally terminated subject to a reasonable notice period. The idea that a confidentiality obligation without a time limit automatically results in an invalid perpetual obligation is, according to the Court, incorrect.
The case was subsequently referred to the Antwerp Court of Appeal, which further ruled on November 21, 2022. The Court applied the classical interpretation rules of Articles 1156-1157 of the former Civil Code (now Articles 5.64-5.65 of the Civil Code), under which the common intention of the parties must be determined, and a clause should be interpreted in such a way that it has utility and effect (potius ut valeat).
According to the Antwerp Court, a confidentiality clause can hardly be qualified as an obligation of indefinite duration, since this would imply that the parties could free themselves at any moment with simple notice, which is contrary to the parties’ intention (in reality, they would not be committing themselves to anything at all). On the contrary, the Court saw in the confidentiality obligation an implicit clause of fixed duration, ending at the moment when the information loses its confidential nature (because it has become public) or when the legitimate interest in confidentiality disappears. Once the confidential nature or legitimate interest disappears, the obligation expires.
From this case law it follows that a confidentiality clause without an explicit time limit is not invalid, but neither can it be unilaterally terminated at any moment. The obligation ends when the objective interest in confidentiality ceases to exist.
Those wishing to avoid uncertainty are advised to reflect this principle in the clause, or to still provide for a fixed end date.