Hong Kong Franchise NDAs: Protecting Your Right to Advice and Verification Before Due Diligence

If you are considering a franchise in Hong Kong, the franchisor may ask you to sign a non-disclosure agreement (NDA) before giving you access to operational information or draft contracts. Protecting trade secrets helps build trust within a franchise network, but confidentiality should not prevent you from seeking professional advice or verifying information. Before signing, establish which information needs protection, who you can share it with and what happens if you decide not to proceed.

Where do confidentiality obligations in Hong Kong come from?

Hong Kong currently has no franchise-specific legislation, nor any generally applicable statutory franchise disclosure document regime, franchise registration scheme or mandatory franchise code of conduct. Simply entering franchise discussions does not subject a franchisor to a statutory set of franchise disclosure obligations. Prospective franchisees should actively request the information they need and agree how it will be provided.

NDAs are primarily governed by common law contract principles. Even without a signed document, an equitable duty of confidence may arise, depending on the nature of the information and the circumstances of its disclosure. If information involves misrepresentation, common law and the Misrepresentation Ordinance may be relevant. Where personal data is involved, the Personal Data (Privacy) Ordinance must also be considered. Signing an NDA does not displace other applicable laws.

The Hong Kong Franchise Association’s Code of Ethics requires members to keep information provided during negotiations confidential unless the parties agree otherwise in writing beforehand. This is a membership code, not legislation applying to every franchise transaction in Hong Kong, and it should not be confused with QFA rules. In practice, any exceptions you need for disclosure should be clearly written into the agreement in advance, rather than assuming that showing information to a lawyer is automatically permitted.

Define the scope so that not every exchange is restricted

Confidential information may include unpublished processes, supply terms, outlet data and draft contracts. The agreement should explain how such information will be identified, for example through document labels, a designated data room or written confirmation after a verbal discussion. This helps avoid later disputes over whether a particular statement was confidential.

You can ask for the following exceptions, but should retain evidence to support them:

• Information that has become public through no breach on your part.
• Information you lawfully held before receiving it.
• Information lawfully obtained from a third party entitled to disclose it.
• Work developed independently without using the other party’s confidential information.

Also check the permitted purpose of use. Permission limited to reviewing a franchise brochure may not cover financial analysis, funding applications or legal review. A more practical provision would allow information to be used to evaluate and negotiate the specified franchise opportunity.

The confidentiality period should also reflect the nature of the information. Genuine trade secrets may need longer protection, but ordinary communications should not all be subject to indefinite confidentiality without distinction. Ask a lawyer to distinguish routine negotiation materials from information that remains genuinely confidential over time.

Preserve scope for disclosure to advisers and independent verification

The agreement should expressly allow you to share information on a need-to-know basis with lawyers, accountants and potential finance providers, and specify the confidentiality obligations they must meet. Avoid relying on the term “representatives” without defining whether it includes external advisers or banks.

For example, if you want an accountant to analyse a cost schedule supplied by the franchisor, confirm whether you can provide a copy, store it in a controlled system and quote necessary material in an analysis report. Also check whether you must accept responsibility for every recipient’s actions, and whether the extent of that liability is acceptable.

Verifying operational information with existing franchisees calls for a separate procedure. You can ask the franchisor to arrange interviews with willing participants and confirm which questions and information may be discussed. Do not pass other outlets’ unpublished reports to interviewees without permission. If the franchisor prohibits all external verification and offers neither anonymised data nor alternative supporting evidence, treat that restriction as part of your risk assessment. Brand recognition is no substitute for scrutiny.

The agreement should also permit necessary disclosure required by law, court order or a regulator. Any requirement to notify the franchisor in advance should apply only where legally permitted and must not obstruct compliance with statutory duties.

What should be returned, deleted or retained if you do not proceed?

Due diligence does not always lead to a deal. Before signing, specify which information must be returned or deleted when discussions end, who must request this and the deadline for completion. Limited exceptions can be negotiated for system backups, legal retention requirements and professional advisers’ files, with any retained information remaining subject to confidentiality obligations.

Pay particular attention to preserving evidence. You may need a record of what information the franchisor supplied, when it was supplied and its written answers to important questions. You can ask for your lawyer to be allowed to retain a restricted-access file, rather than promising to destroy all correspondence immediately and permanently.

Finally, check whether the document includes provisions unrelated to confidentiality, such as bans on contacting any franchisee or evaluating other brands, or an acknowledgement that all information has been verified. These restrictions may directly affect your choices and your right to seek redress. They deserve separate scrutiny and should not be overlooked simply because the document is headed “Non-disclosure Agreement”.

Practical takeaway: Before signing, confirm four things: the scope of confidentiality is clear, advisers can be involved, information can reasonably be verified, and necessary records can lawfully be retained even if no deal is reached. Confidentiality arrangements should support informed decision-making, not replace due diligence.