Breach of Confidence

Understanding Breach of Confidence

A breach of confidence occurs when a person uses or discloses information that was provided to them in circumstances giving rise to an obligation of confidentiality. It is an equitable claim designed to protect valuable business and personal information that is not publicly available and that has been wrongfully used.

This cause of action is particularly important in commercial and employment settings, where the unauthorised disclosure of trade secrets, client lists, or proprietary data can cause immediate and lasting harm.

What is Breach of Confidence?

A breach of confidence is established when confidential information is shared, received, or used without permission. The Supreme Court of Canada has confirmed that this claim arises not from property ownership but from the duty of trust between parties. See Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142.

Information commonly protected under this doctrine includes business plans, customer databases, pricing models, manufacturing processes, and technical know-how. Even without a written confidentiality agreement, courts can find an implied obligation of confidence when the circumstances show that secrecy was expected.

Origins and Legal Foundations

The modern Canadian test for breach of confidence originates from Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574. The Supreme Court held that three elements must be proven:

1. The information had the necessary quality of confidence.
2. It was communicated in circumstances importing an obligation of confidence.
3. There was an unauthorised use of that information resulting in detriment to the party who communicated it.

This test has been consistently applied by courts across Canada and remains the foundation of the action today.

Key Elements of the Claim

Each element must be established with evidence and clarity.

Information with the Necessary Quality of Confidence
The information must be secret, valuable, and not generally available to the public. Courts examine the steps taken to maintain its confidentiality, the effort invested in its creation, and whether it provides a competitive advantage.

Circumstances Importing an Obligation of Confidence
The duty may arise from an express agreement, such as a non-disclosure clause, or it may be implied from the nature of the relationship. Employers, joint venture partners, and professional advisers often owe such duties even without formal documentation.

Unauthorised Use to the Detriment of the Plaintiff
The defendant must have used or disclosed the information in a way that was not authorised and that caused harm. Detriment can include economic loss, reputational damage, or an unfair competitive benefit.

Relationship to Other Claims

A breach of confidence often overlaps with other causes of action, such as breach of contract, breach of fiduciary duty, and unjust enrichment. Understanding how these claims interact helps determine the most appropriate strategy for litigation or settlement.

Breach of Confidence vs. Breach of Contract

A breach of contract claim enforces the specific terms of an agreement, while breach of confidence relies on equitable principles that apply even where no contract exists. This distinction is important because an obligation of confidence may arise simply from the relationship between the parties or the nature of the information itself.

In Ontario, written confidentiality clauses are enforceable under contract law principles recognised by the common law and can be supplemented by equitable duties of confidence. Where an agreement exists, its terms will generally define the limits of confidentiality, but courts can still apply equitable relief where fairness requires it.

Breach of Confidence vs. Breach of Fiduciary Duty

A fiduciary duty arises where one party has undertaken to act in the best interests of another. Breach of confidence, by contrast, focuses on misuse of information obtained in confidence.

In Lac Minerals, the Supreme Court found that no fiduciary duty existed between the parties but that the defendant had nevertheless breached its duty of confidence. The court imposed a constructive trust over the mining property that was wrongfully acquired, demonstrating the flexibility and strength of this remedy.

Breach of Confidence and Intellectual Property

Breach of confidence protects information that has commercial value because it is secret. It often complements intellectual property law by filling the gaps where copyright, patent, or trademark protection does not apply.

For instance, a company's proprietary method or formula that is deliberately kept secret, rather than patented, can still be protected through a breach of confidence claim. The action therefore plays a key role in safeguarding business innovation that depends on secrecy.

Distinction From Privacy and Unjust Enrichment

Although breach of confidence may intersect with privacy concerns, its focus is commercial rather than personal. Privacy law protects individual autonomy, while breach of confidence protects control over valuable information.

The doctrine also overlaps with unjust enrichment, particularly where a defendant profits from the misuse of another's information. In those cases, the court may order disgorgement of profits or impose equitable remedies to prevent unjust benefit.

Common Scenarios in Breach of Confidence

Breach of confidence cases arise in many commercial contexts. Businesses often face these claims when confidential information is misused by employees, contractors, competitors, or potential business partners.

Prompt action is essential to preserve confidentiality and prevent further damage.

Misuse of Confidential Business Information

Confidential business information forms the backbone of commercial competitiveness. This includes financial models, pricing structures, marketing strategies, and supplier data. Unauthorised use or disclosure can undermine a company's position in the market.

Courts frequently grant injunctions to stop further misuse and may award damages or equitable remedies to restore fairness. For an overview of injunctive remedies in Ontario, see Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101 and Rule 40 of the Rules of Civil Procedure.

Employee and Executive Misconduct

Employees and executives have a duty not to misuse confidential information obtained through their employment. When departing staff take client lists or strategic data to a competitor, the employer may have grounds for immediate injunctive relief.

In some cases, senior executives are fiduciaries who owe an even higher duty of loyalty. This principle was recognised in Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592, where the court held that fiduciaries cannot exploit confidential opportunities gained through their position.

Misuse of Client Lists or Trade Secrets

Client lists and trade secrets are among the most litigated forms of confidential information. Courts consider whether the information required skill, effort, or expense to compile and whether it was protected by internal policies or limited access.

Even where some data is public, a compiled database or list that provides a competitive advantage can be protected if it is unique and not easily reconstructed. The key question is whether the information gives an unfair head start to someone who should not possess it.

Breach During Commercial Negotiations or Joint Ventures

Parties entering into commercial negotiations often share proprietary information with the expectation of confidentiality. When one party later uses that information for its own benefit, courts can find that a duty of confidence was breached.

The Lac Minerals case illustrates this scenario, where information disclosed during joint venture discussions was used by one party to purchase valuable mineral property for itself. The court ordered the property to be held in constructive trust for the disclosing party.

Defending a Breach of Confidence Claim

Defending against a breach of confidence claim requires showing that one or more elements of the cause of action are not met. This may include challenging the existence of confidentiality, the alleged obligation of confidence, or the claim of misuse and harm.

When Information is Not Truly Confidential

Information that is already in the public domain, widely known within an industry, or easily discoverable through independent means will not attract protection. Courts refuse to extend confidentiality to material that any competitor could reasonably obtain through research or observation.

Demonstrating that the information was public, outdated, or of trivial value can defeat a claim at an early stage.

Lack of Confidential Circumstances

Even where information is valuable, a duty of confidence will not arise if it was shared without an expectation of secrecy. For instance, where parties communicated in the course of open negotiations and no agreement or understanding of confidentiality existed, no equitable obligation may be found.

Evidence that the information was shared voluntarily or without limitation is often central to this defence.

Absence of Misuse or Detriment

It is not enough that information was disclosed; the claimant must prove that the defendant used it improperly and caused harm. If the information was never used or if the alleged harm cannot be connected to its use, the claim will fail.

In some cases, defendants can show that they independently developed the same information or that any loss claimed by the plaintiff is speculative.

Other Available Defences

Other defences include consent, independent creation, reverse engineering, and disclosure in the public interest. A claim may also be barred if brought outside the limitation period set out in Ontario's Limitations Act, 2002, S.O. 2002, c. 24, Sch. B.

Where these defences apply, the defendant may also seek a declaration of non-liability or damages for any improper injunction obtained by the plaintiff.

Remedies and Court Relief

Courts in Ontario have broad discretion to fashion remedies that restore fairness and prevent ongoing misuse of confidential information. The appropriate remedy depends on the nature of the breach, the conduct of the defendant, and the type of loss suffered.

Damages and Equitable Compensation

Damages are awarded to place the plaintiff in the position they would have been in had the breach not occurred. This may include lost profits, loss of goodwill, or reputational damage.

Where the loss cannot be precisely calculated, the court may award equitable compensation. This ensures fairness even where the harm is difficult to quantify.

Accounting For Profits and Constructive Trust

If the defendant has gained a financial benefit from the misuse of confidential information, the court may order an accounting for profits. In exceptional cases, it may impose a constructive trust over property or assets acquired through the breach.

This type of remedy was imposed in Lac Minerals, where the court transferred ownership of a mining property obtained through misuse of confidential data. Constructive trusts prevent unjust enrichment and reinforce the equitable foundation of the law.

Injunctive Relief

Injunctions are one of the most effective remedies in breach of confidence cases. They can prevent further disclosure, require the return or destruction of materials, and preserve the status quo until the dispute is resolved.

To obtain an injunction, a party must meet the three-part test from RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311:

1. There is a serious issue to be tried.
2. The applicant will suffer irreparable harm if the injunction is not granted.
3. The balance of convenience favours granting the order.

For procedural guidance, see Rule 40 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

Anton Piller Orders and Preservation Remedies

In rare circumstances, the court may issue an Anton Piller order allowing the plaintiff to enter the defendant's premises to secure evidence that might otherwise be destroyed. This extraordinary order is used sparingly and only where there is a real risk of evidence destruction.

Courts may also issue preservation orders under Rule 45 of the Rules of Civil Procedure to protect documents, electronic files, or other materials containing confidential information until the case is resolved.