Your business is about to share its pricing, customer list or product plans with another company, and the other side has sent over a non-disclosure agreement (NDA) to sign before the conversation starts. NDAs come in two shapes: a one-way agreement that protects only the party disclosing information, and a two-way agreement that protects both sides. The version sitting in front of you may not match the deal you actually have in mind, and that mismatch is where the trouble starts.
The two shapes of an NDA
An NDA is a contract in which one or both parties promise not to disclose or misuse confidential information. Under a unilateral NDA, only one party discloses and the other party promises to keep that information secret. Under a mutual NDA, both parties disclose information and both promise to protect what the other shares.
The first decision is not which type is stronger. It is which direction information will actually flow once the deal is running. Businesses routinely pick a shape that matches the opening of a negotiation rather than the substance of the relationship, then find the document protects the wrong side. If you are the receiving party under a unilateral NDA, your own commercial terms, pricing and customer details are unprotected unless a second agreement covers them. If both sides will be sharing information, a mutual NDA is usually the cleaner answer, although a mutual document can still be drafted in a way that favours one side.
It is also worth noting what an NDA is not. It is not a guarantee that information will never leak, and it is not a general promise not to compete. It is a contract that gives you legal standing: if the other side discloses your information, you can sue for the loss and, more importantly, apply to stop the disclosure from continuing. The value of the document sits in the remedies it unlocks, not in the promise itself.
Factors to weigh before you sign or send an NDA
Work through these factors with the specific deal in front of you, not with NDAs in general. Each one changes the answer to the mutual-or-unilateral question, and several of them change what the document itself must say.
Who is actually disclosing information
When only one side holds the sensitive material, a unilateral NDA is usually the right fit. When both sides will open their books, a mutual NDA is the natural choice. Map the information flows first, because the direction of the deal decides the shape of the document.
- Unilateral NDA suits: pitching to investors; engaging a contractor, developer or consultant; supplier and due-diligence discussions where only your side shares information.
- Mutual NDA suits: joint ventures and partnerships; merger or acquisition talks; strategic alliances where each side will need the other's numbers and plans.
Most one-way deals start genuinely one-way and then drift. The contractor you briefed on your pricing starts sharing their own margin structure, the investor starts describing their fund's strategy, and suddenly information is flowing both ways with protection only one way. You can fix that with a second unilateral NDA in the other direction, or by upgrading to a mutual NDA, but the cleaner move is to map the information flows before the document is signed. If you cannot predict who will be sharing what in six months, a mutual NDA is the safer default.
What the definition of confidential information captures
An NDA protects only what its definition clause captures. A definition that says "all information disclosed" looks generous but gives a court little to work with, while a tightly drawn definition names the categories that matter: trade secrets, source code, customer lists, pricing, financial results, business plans and know-how.
The precision of the definition matters because courts only protect information that qualifies as confidential. In Filby v TEG Live Pty Ltd (2023) NSWCA 320, the NSW Court of Appeal dismissed a claim over a concert promotion idea because the idea was too general and inchoate to be protected. Australian courts apply the test from Coco v A N Clark (Engineers) Ltd: information must have the necessary quality of confidence, be imparted in circumstances importing an obligation of confidence, and be used without authorisation. Information that is already public, or that amounts to a person's general skill and knowledge, fails the first limb.
Standard exclusions should be written into the definition so the scope is clear from the start:
- Public domain: information that is or becomes generally available is not confidential, and the definition should say so.
- Independent development: the other side should not be liable for information they develop independently or already knew.
- Lawful receipt: information received from a third party free of any confidentiality obligation is outside the NDA.
- Required disclosure: disclosures compelled by law, a court order or a regulator should be expressly permitted, usually with notice to the disclosing party first.
Whether the promise is enforceable: consideration and deeds
A simple contract needs consideration: each side must give something of value. In a mutual NDA the two promises do the work, because each party's undertaking to protect the other's information is the price of the other's undertaking. In a unilateral NDA only one side promises, so the receiving party's promise needs consideration from somewhere else.
In practice the disclosure itself usually supplies that consideration, because the receiving party gets access to the information in exchange for the promise. But if the document is genuinely one-sided and the information has not yet been handed over, there is a live question whether the receiving party promised anything at all. Executing the document as a deed removes the argument entirely, because a deed is enforceable without consideration. This is a drafting detail that decides whether the agreement survives a challenge, and it is exactly the kind of question a lawyer can settle in a few minutes.
A related point is getting the parties right. An NDA should be signed by the entity that will actually hold the information, not just by an individual director or employee who happens to be in the room. If the wrong party signs, the information can move sideways through a related company that owes no obligation.
What happens if the agreement is breached
Breach of an NDA gives the innocent party several remedies. Damages compensate provable loss. An injunction can stop the disclosure from continuing or spreading. Delivery-up orders require the return or destruction of copies. Where the breach also involves misuse of confidential information, equitable compensation and an account of profits may be available as well.
In Leica Geosystems Pty Ltd v Koudstaal (No 3) (2014) FCA 1129, a former employee who copied source code before resigning was ordered to hand the material over, was permanently restrained from using it, and had to pay damages for breach of contract and breach of his equitable duty of confidence. The case is a reminder that the remedies matter as much as the promise: once information has leaked, stopping the leak and recovering the copies is usually worth more than a damages figure.
Australian law also protects confidential information even without a contract, through the equitable doctrine of breach of confidence. An NDA makes the obligation express, extends it to people who might not otherwise owe it, and gives you a contract claim with its own remedies. But an NDA does not guarantee recovery. Proving which losses flowed from a leak is hard, and if the recipient is overseas, enforcement is slower and more expensive. A liquidated damages clause fixes an agreed amount in advance, but a court will only enforce it if the figure is a genuine pre-estimate of loss rather than a penalty.
What an NDA cannot do
An NDA cannot override statutory whistleblower protections. Part 9.4AAA of the Corporations Act 2001 (Cth) protects people who disclose information about corporate misconduct to ASIC, to eligible recipients within the company, or to a legal practitioner. Section 1317AB provides that a person who makes a protected disclosure is not subject to civil, criminal or administrative liability for it, and that no contractual or other remedy may be enforced against them on the basis of the disclosure. An NDA clause that tries to silence a protected disclosure achieves nothing. Similar protections cover tax whistleblowers under Part IVD of the Taxation Administration Act 1953 (Cth).
An NDA is also not a restraint of trade. It stops the other side disclosing or using information, but it does not stop a former employee or business partner from competing with you. Non-compete and non-solicit clauses are separate promises with their own rules, and a confidentiality clause drafted so widely that it effectively stops someone earning a living can itself be challenged as an unreasonable restraint of trade. If your real concern is a competitor setting up next door, an NDA is the wrong tool and you need properly drafted restraint clauses instead.
How an Artificer Legal practitioner can help you choose and draft
Choosing between a mutual and a unilateral NDA is cheap to get right at the start and expensive to fix later. An Artificer Legal practitioner would start by mapping the deal: who will disclose what, to whom, and what the downside is if it leaks. That map decides the shape of the document more reliably than any template.
The practitioner would then stress-test the drafting. Does the definition of confidential information capture your actual trade secrets, or is it so broad it will not survive scrutiny? Do the exclusions let the other side escape with your customer list? Is the agreement enforceable, or should it be executed as a deed? And what would enforcement actually look like if the other side is overseas or the information has already moved?
Where the decision is already made, the practitioner drafts the document the chosen path needs: a unilateral NDA that is properly supported by consideration or executed as a deed, a mutual NDA with balanced definitions and exclusions, or a second one-way agreement to cover a deal that has drifted. The same review applies to the other side's NDA, which will bind you. The definition, the exclusions, the permitted disclosures and the governing law all deserve scrutiny before you sign.
The question that decides whether the NDA works
The mutual-versus-unilateral question is the easy half of the decision. Counting the disclosers tells you which shape you need. The hard half is the drafting that follows: what the definition of confidential information actually captures, whether the exclusions let the other side escape, and whether the promise is enforceable at all. A perfectly balanced mutual NDA fails the moment the definition is vague and a court has nothing specific to protect, and a one-way promise that is not a deed leaves the door open to an enforceability argument. Get the shape right and the drafting wrong, and the agreement is decoration.
An NDA is a contract that protects confidential information, and the first choice is whether the protection runs one way or both ways. A unilateral NDA suits deals where one side discloses; a mutual NDA suits deals where both sides share. Enforceability turns on consideration or a deed, remedies for breach include damages, injunctions and delivery up, and the agreement cannot override whistleblower protections or turn into a restraint of trade. If the deal matters to your business, have a lawyer map the information flows and review the document before anyone signs.