When businesses negotiate to sign a contract, often one party may disclose confidential information to the other party for an assessment of appropriateness, advantages and disadvantages. This puts the disclosing party at significant risk because the other party may use confidential information for other purposes, which causes damages to the disclosing party.
In this article, BLawyers Vietnam would like to present several regulations about pre-contractual obligations related to confidentiality of information.
1. Provisions of the Civil Code
The Civil Code provides that during the process of entering into a contract, the recipient of confidential information has an obligation to protect such information and must not use it for illegal purposes. Any party violating and causing damages shall compensate for the damages. Therefore, all confidential information disclosed in a negotiation phase may become a subject of confidentiality.
Because the Civil Code does not clarify the obligation to compensate for non-contractual or contractual damages, there are two possible cases as follows:
- If parties have an agreement on information confidentiality in a negotiation phase, the recipient of confidential information shall compensate for damages as agreed in the agreement when it violates the confidentiality obligation. The amount of compensation is mutually agreed upon and can be lower or higher than the actual damages.
- If there is no agreement on information confidentiality, compensation for non-contractual damages shall be applied when the recipient of confidential information violates the confidentiality obligation and causes damages to the disclosing party. The amount of compensation shall be equivalent to the actual damages.
2. Provisions of the Law on Intellectual Property (IP Law)
IP Law provides that breaching a confidentiality contract is an infringement of the right to trade secrets. Since the law does not clarify the phase of concluding a confidentiality contract, it can be understood that parties may enter a confidentiality contract in the negotiation phase. Once the parties sign the confidentiality contract, they must comply with it. Any party violating shall bear the penalties as agreed to in the contract. In addition to civil penalties as agreed to in the contract, the violating party may be subject to administrative penalties, or even criminal penalties if the violation constitutes such liability.
If the parties do not sign a confidentiality contract, any disclosing or using of information pertaining to a trade secret, obtained from the negotiation phase, without the permission of the owner of the trade secret also constitutes an infringement of the right to trade secrets. Therefore, even if there is no confidentiality contract, the recipient of confidential information is still responsible for protecting the information pertaining to a trade secret. It should be noted that there are exceptions when the recipient has the right to disclose and use confidential information without the consent of the owner.
However, it should be emphasized that not all information provided in the negotiation phase is considered a trade secret subject to IP Law protection. Only information, obtained from financial or intellectual investment activities, which has not been disclosed and can be used in business is considered a trade secret under IP Law protection.
3. Provisions related to banking activities
According to Decree No. 117/2018/ND-CP, credit institutions or foreign bank’s branches have the responsibility to ensure security and confidentiality of client information during the provision, management, use and storage thereof. Client information is defined as information provided by a client and information generated if the client requests or is provided with licensed banking services. The client has the right to file complaints or petitions or request compensation for any damage he/she suffers as prescribed by law in cases in which the client information is not used in accordance with the law.
As such, credit institutions are obliged to protect all client information provided in the negotiation phase, even if there is no agreement on confidentiality.
In summary, Vietnamese law has recognized the obligation to protect confidential information in the pre-contractual phase. However, it is essential for organizations and individuals participating in transactions to sign a confidentiality agreement in the pre-contractual phase to best ensure their legitimate rights and interests.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. BLawyers Vietnam would love to hear from you.
Date: 9 November 2023
Writer: BLawyers Vietnam
