How to address a seller’s breach of confidentiality commitments in share transactions

In share transfer transactions information is an invaluable asset, particularly mergers and acquisitions (M&A) or large-scale equity transfers. A premature disclosure or leakage of trade secrets may cause an entire transaction to collapse, result in losses amounting to billions of VND, and deprive the purchaser of its competitive advantage. Are you facing the risk of sellers breaching confidentiality commitments in share transactions? Do not allow your valuable information to be exposed. Together with NPLaw, let us examine the scope of confidentiality obligations, the applicable legal framework, and the appropriate legal remedies to safeguard legitimate rights where the seller fails to comply with such commitments. 

I. Current situation of sellers breaching confidentiality commitments in share transactions

In share transfer transactions, especially those involving substantial value or a change of corporate control, the seller’s obligation to maintain confidentiality is of paramount importance. In practice, however, breaches of confidentiality commitments by sellers remain common, leading to significant adverse consequences.

In numerous cases, whether for personal gain, due to insufficient legal awareness, or even deliberate misconduct, sellers disclose sensitive information relating to the company, the transfer agreement, or the parties involved to third parties. Examples include disclosure of enterprise valuation figures, internal financial status, lists of strategic customers, or even merger and acquisition plans still under negotiation. If disclosed prior to official announcement, such information may adversely affect share prices, disrupt internal operations, create opportunities for competitors, or weaken the purchaser’s bargaining position.

Accordingly, it is essential to clearly identify these risks, understand the governing legal provisions, and proactively implement preventive and remedial measures when a seller breaches confidentiality commitments relating to shares, thereby safeguarding the lawful rights and interests of the purchaser.

II. Understanding of sellers breaching confidentiality commitments in share transactions

NPLaw recognizes that effective resolution requires a proper understanding of the underlying legal nature of the issue. This section clarifies main concepts to provide a comprehensive and accurate overview.

1. What constitutes a seller’s breach of confidentiality commitments in a share transaction?

A seller’s breach of confidentiality commitments relating to shares refers to the conduct of an individual or organization (the seller) that fails to comply with the obligation not to disclose, not to use, or not to permit third parties to use confidential information relating to the issuing company or the share transfer transaction, which the seller has obtained during its period of share ownership or throughout the negotiation and performance of the share transfer agreement. Such breaches are typically stipulated in confidentiality clauses within the contract or in separate agreements.

Such conduct demonstrates a failure to honor contractual commitments and may result in serious legal and commercial consequences.

2. What information relating to shares is typically considered confidential?

Confidential information in share transactions is often broadly defined and may encompass multiple aspects of the enterprise and the transaction, including:

• Financial information: Internal financial statements, revenue and profit forecasts, business plans, cash flow data, outstanding liabilities, and undisclosed asset valuations.
• Business and customer information: Customer and supplier lists, marketing strategies, product or service development plans, technological know-how, manufacturing processes, pricing data, and agreements with strategic partners.
• Legal and compliance information: Ongoing or potential litigation, audit findings, intellectual property matters, and compliance-related issues.
• Human resources information: Lists of main employees, salary structures, benefit policies, and restructuring plans.
• Transaction-related information: Transfer price, negotiated terms, identities of the parties, transaction timeline, conditions precedent and post-closing obligations.
• Other internal information: Any information whose disclosure may adversely affect the company or the value of the shares.

Given the diversity and sensitivity of such information, both the purchaser and the company must exercise vigilance to avoid detrimental exposure.

3. In which types of agreements are confidentiality commitments typically stipulated?

Confidentiality commitments are not always standalone documents; they are commonly incorporated into transaction documents, including:

• Non-Disclosure Agreements (NDA): Specialized legal instruments typically executed at the initial stage of information exchange.
• Memorandum of Understanding (MOU) or Letter of Intent (LOI): Preliminary documents outlining principal terms and often including confidentiality provisions.
• Share Purchase Agreement (SPA): The principal transaction document, in which confidentiality clauses generally carry the highest legal enforceability and remain binding even after completion of the transaction.

Regardless of their documentary form, confidentiality clauses are legally binding and must be strictly complied with by the parties.

III. Legal framework governing sellers’ breaches of confidentiality commitments 

Understanding the applicable legal framework is crucial in protecting one’s interests when confronted with a potential confidentiality breach.

1. How does current law regulate confidentiality obligations in share transactions?

Although no single statute specifically governs confidentiality in share transactions, the obligation is recognized and protected under the following legal principles:

• First, during the negotiation and formation stage, confidentiality obligations are governed by the Civil Code 2015. Pursuant to Clause 2 Article 387 concerning information in contract formation, a party receiving confidential information during negotiations is obliged to preserve such confidentiality and must not use the information for its own purposes or for unlawful purposes. It constitutes the primary legal basis requiring confidentiality even prior to execution of a definitive agreement.
• Second, regarding the status of shareholders and corporate managers, the Law on Enterprise 2020 imposes specific obligations:
• For shareholders: Pursuant to Clause 5 Article 119, shareholders are obligated to maintain confidentiality of information provided by the company in accordance with the Charter and the law, and may use such information solely to exercise and protect their lawful rights and interests; dissemination or unauthorized transmission is strictly prohibited.
• For enterprise managers (Board members, Directors, etc.): Pursuant to Point c Clause 1 Article 165, managers must act loyally in the interests of the company and its shareholders, and must not misuse company information, trade secrets, or business opportunities for personal gain or for the benefit of other organizations or individuals.
• Third, where transaction-related information constitutes a trade secret, it is protected under the Law on Intellectual Property 2005. Pursuant to Point b Clause 1 Article 127, unauthorized disclosure or use of trade secrets constitutes an infringement of intellectual property rights and is subject to legal sanctions.

Accordingly, confidentiality obligations in share transactions are robustly protected under Vietnamese law.

2. What acts by the seller constitute a breach of confidentiality commitments?

Breaches are determined based on contractual violations and infringement of trade secret rights, including:

• Unauthorized disclosure or provision of information: Under Points b and c, Clause 1, Article 127 of the Law on Intellectual Property 2005, disclosure, use, or acquisition of trade secrets without authorization constitutes infringement. Disclosure of transfer price, customer lists, or business strategies to competitors or media without the purchaser’s written consent constitutes a breach.
• Improper use of information: Pursuant to Article 351 of the Civil Code 2015 concerning civil liability for breach of obligations, if the seller commits to using information solely for valuation purposes but instead exploits it for personal gain or for another legal entity, such conduct constitutes improper performance of obligations.
• Failure to implement adequate security measures: Even negligent disclosure may constitute breach where contractual provisions so require. Under Clause 3 Article 84 of the Law on Intellectual Property 2005, necessary measures must be taken to maintain confidentiality. Lax internal controls or inadequate cybersecurity measures may render the seller liable.

Any disclosure beyond the scope of authorized recipients may therefore constitute a breach.

3. What elements should a confidentiality commitment include?

Pursuant to Article 398 of the Civil Code 2015 regarding contractual content, a confidentiality commitment should include:

• Scope of confidential information: Clearly specifying protected categories consistent with Clause 23 Article 4 of the Law on Intellectual Property 2005 defining trade secrets.
• Scope of obligations: Explicitly prohibiting copying, disclosure to third parties, or use beyond transaction purposes.
• Exceptions: Disclosure compelled by competent authorities or information becoming public without fault.
• Sanctions for breach: Under Articles 418 and 419 of the Civil Code 2015, specifying penalty amounts and full compensation for damages.

The more detailed the clause, the more enforceable it becomes.

4. Compensation for damages arising from breach

Legal liability comprises contractual sanctions and compensation:

• Sanctions for breach: Pursuant to Article 418 of the Civil Code 2015, where stipulated, the seller must pay the agreed fines regardless of actual damage.
• Compensation for damages: Under Articles 13, 360, and 419 of the Civil Code 2015, compensation covers:
• Loss or diminution of assets, such as depreciation of share value or crisis management costs.
• Loss of expected profits, such as forfeited investment opportunities or customers.

The purchaser must prove causation between breach and damage.

IV. Questions on sellers breaching confidentiality commitments in share transactions

1. Is the purchaser entitled to unilaterally terminate the contract where the seller breaches confidentiality commitments relating to shares?

The purchaser may have the right to unilaterally terminate the contract where the seller breaches confidentiality commitments relating to shares; however, such right does not automatically arise in all circumstances and is subject to statutory conditions or contractual agreement. Pursuant to Article 428 of the Civil Code 2015, a party is entitled to unilaterally terminate performance of a contract only in one of the following cases:

• First, where the parties have expressly agreed in the contract that disclosure of confidential information constitutes a ground for termination. It represents the most solid legal basis for exercising the right of unilateral termination.
• Second, in the absence of such agreement, the seller’s conduct must be determined to constitute a serious breach of contractual obligations. Under Clause 2 Article 423 of the Civil Code 2015, a serious breach is one whereby a party fails to properly perform its obligations to such an extent that the other party is unable to achieve the purpose of entering into the contract.

Accordingly, the purchaser’s right to unilaterally terminate the contract upon the seller’s breach of confidentiality commitments relating to shares depends on the contractual arrangements and the degree of seriousness of the breach as assessed under applicable law.

2. Does disclosure of information by the seller to another shareholder constitute a breach of confidentiality commitments?

Disclosure of information by the seller to another shareholder is generally deemed a breach of confidentiality commitments, unless such disclosure is legally required (for example, in connection with statutory pre-emptive rights). The issue should be examined from two legal perspectives:

• From a contractual perspective: If the confidentiality agreement provides that only the purchaser and the seller are entitled to access the information, disclosure to a third shareholder constitutes a contractual breach, even if such shareholder belongs to the same company, unless the purchaser has given prior written consent.
• Where the seller concurrently serves as an enterprise manager (such as a Member of the Board of Directors or Director), they must comply with Article 165 of the Law on Enterprise 2020, which imposes an obligation to maintain confidentiality of information not yet disclosed by the company.

However, attention should be paid to the exception set out in Clause 3 Article 127 of the Law on Enterprise 2020 regarding the transfer of ordinary shares. If the company’s Charter provides existing shareholders with pre-emptive rights, the seller is required to notify other shareholders of the offering conditions (including price). In such a case, disclosure of information strictly within the scope of the pre-emptive offer complies with the law and does not constitute a breach, unless the disclosure exceeds what is reasonably necessary.

Therefore, to ensure enforceability and protection of rights, confidentiality commitments should always be set out in a clear and detailed written instrument.

3. Is a confidentiality commitment relating to shares required to be in writing?

Although Article 119 of the Civil Code 2015 recognizes that civil transactions may be established orally, in the context of confidentiality commitments in share transfers, execution in writing is a fundamental requirement to ensure enforceability for the following legal reasons:

• First, in order for information to be protected as a trade secret under the law, the owner must adopt necessary confidentiality measures. Pursuant to Clause 3 Article 84 of the Law on Intellectual Property 2005, entering into a written confidentiality agreement constitutes the most important legal evidence demonstrating that the parties have identified the information as confidential and have implemented necessary measures to prevent disclosure and unauthorized access. Where only an oral agreement exists, it is extremely difficult for a court to recognize the information as a protected trade secret in the case of a dispute.
• Second, pursuant to Clause 2 Article 127 of the Law on Enterprise 2020, share transfers are typically effected through a contract. Accordingly, ancillary confidentiality provisions should also comply with the written form to ensure consistency with the legal nature of the principal transaction and to provide a clear basis for determining breach and claiming damages.

Therefore, in order to safeguard rights and ensure enforceability, confidentiality commitments relating to shares should always be established in a clear and detailed written document.

4. Upon discovering a seller’s breach of confidentiality commitments, what actions should the purchaser take to protect its rights?

Upon detecting unauthorized disclosure by the seller, the purchaser should promptly commit the following legal measures:

• First, the top priority is to collect and secure lawful evidence. Pursuant to Articles 94 and 95 of the Civil Procedure Code 2015, sources of evidence include not only written documents but also electronic data (such as emails, messages, and system logs). The purchaser should immediately request a bailiff to prepare a written record documenting the infringing conduct (for example, capturing leaked online posts or disseminated emails), thereby establishing a solid evidentiary basis for subsequent legal proceedings.
• Second, exercise the right to demand cessation of the violation and application of contractual remedies. The purchaser should issue a formal notice of breach requiring the seller to perform its contractual obligations. At such a stage, the purchaser may demand payment of a contractual sanction (if stipulated) pursuant to Article 418 of the Civil Code 2015, and claim full compensation for actual damages incurred (including material and, where applicable, moral damages) pursuant to Articles 13 and 360 of the Civil Code 2015. It should be noted that liability for damages arises where there is unlawful conduct, actual damage, and a causal relationship between the breach and the damage.
• Third, if the seller fails to cooperate, the purchaser should initiate legal proceedings and, in particular, request the court to apply interim urgent measures. It constitutes the most effective mechanism to prevent further harm. Pursuant to Article 111 and Clause 12 Article 114 of the Civil Procedure Code 2015, the purchaser may petition the court to order the seller to perform a specific act or to refrain from certain acts. Such decision takes immediate effect and compels the seller to cease disclosure without waiting for final adjudication of the case.

In summary, timely action, comprehensive evidence collection, and strategic use of appropriate legal remedies are main to protecting the purchaser’s rights where the seller breaches confidentiality commitments relating to shares.

5. In serious cases, can a seller who breaches confidentiality commitments relating to shares be subject to criminal liability?

If the seller’s breach of confidentiality commitments results in serious consequences and satisfies the statutory elements of a criminal offense, criminal liability may indeed arise. Depending on the nature of the disclosed information and the method of commission, the following offenses may be applicable:

• First, where the seller uses the internet or internal networks to disseminate confidential information, they may be prosecuted for the offense of illegal provision or use of information on computer networks or telecommunications networks under Clause 1 Article 288 of the Penal Code 2015. Such offense includes unlawfully uploading data or trading company secrets online for illicit gains of 50 million VND or more, causing damage of 100 million VND or more, or generating adverse public opinion that affects the reputation of an agency or organization.
• Second, in special circumstances where the enterprise has state capital or operates in security and national defense, and the share- or project-related information falls within the list of state secrets, disclosure may constitute the offense of deliberate disclosure of state secrets; appropriation, trading, or destruction of state secret documents or materials under Article 337 of the Penal Code 2015 as amended by Clause 125 Article 1 of the amended Penal Code 2017. It is a particularly serious offense, applicable where the offender knowingly discloses state secrets, with penalties ranging from two to seven years’ imprisonment or higher depending on the consequences.

In conclusion, while breaches of confidentiality commitments are typically resolved through civil remedies (contractual penalties and damages), where the conduct involves unfair competition, substantial illicit gains, online dissemination, or threats to national security, criminal law may intervene with stringent sanctions in accordance with statutory provisions.

V. Why seek legal advice from NPLaw?

Strict compliance with confidentiality commitments is vital to protecting enterprise value and transaction integrity. Where facing risks of breach or requiring assistance in drafting, reviewing, evidentiary preparation, or dispute representation, professional legal support is indispensable.

Should you require tailored advice, please contact NPLaw for immediate consultation.