Is Your Confidentiality Clause Drafted Widely Enough?

Author:Ms Tanya Shillingford
Profession:Goodman Derrick LLP

You are looking to sell your shares in a company, but is it possible that the confidentiality provisions in your shareholders' agreement will prevent you from doing so?

This question was put to the High Court in Richmond Pharmacology Ltd v Chester Overseas Ltd and others [2014] EWHC 2692, where judge Stephen Jourdan QC found an investor shareholder in breach of the confidentiality provisions of a shareholders' agreement for disclosing information about the company to potential buyers of its shares in the company.

This case has highlighted a number of issues that shareholders should bear in mind when entering into shareholders' agreements that include confidentiality clauses. It also addresses directors' duties and, in particular, the issue of whether there is a conflict of interest between directors appointed as representatives of certain shareholders and the other members, and whether this conflict can be avoided if the directors are acting in the best interests of the company as a whole.


Chester Overseas Limited was an investor with a 44% interest in Richmond Pharmacology Limited. The founders of Richmond owned the remaining 56%. Chester, Richmond and the founders entered into a shareholders' agreement, pursuant to which Chester appointed two directors to Richmond's board (the Levine brothers) as their representatives. The shareholders' agreement contained a confidentiality clause, which required all parties to "treat as strictly confidential" all commercially sensitive information concerning the affairs of the company or any information regarding the shareholders' agreement. An exception to this restriction included the right to disclose confidential information to a "professional adviser", subject to procuring that such adviser keeps the information confidential in accordance with that clause.

A few years after entering into this agreement, Chester looked to sell its stake in Richmond and it appointed a corporate finance adviser, to whom it disclosed Richmond's confidential information as permitted by the confidentiality clause. The professional adviser then approached a number of potential buyers and asked them to sign a non-disclosure agreement agreeing to keep confidential the information they received in relation to Richmond.

Richmond claimed that Chester had breached the shareholders' agreement by failing to ensure that the professional adviser kept the information confidential, despite having asked the potential buyers to...

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