Is Your Confidentiality Clause Drafted Widely Enough?

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.

Facts

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...