Canada: Confidentiality And Non-Disclosure Agreements

Last Updated: July 2 2012
Article by Andrew Lord and Ted Maduri

Many inventors and businesses spend considerable time and resources developing new products or building customer bases. It is not surprising, and certainly justified, to see great care taken to ensure such proprietary information does not fall into the wrong hands. However, to take a promising idea, or business, to the next level, a business typically needs to share its valuable secrets with prospective strategic partners or investors. Signing an effective non-disclosure agreement ("NDA") can therefore be a critical step in developing a new business relationship or opportunity by giving the parties enough comfort to take that initial step.

This article discusses: 1) when NDAs are appropriate, 2) what type of information should be covered, 3) what type of information should not be covered, 4) typical protective measures, and 5) how to address breaches and the ultimate termination/survival of an NDA.

1) When is an NDA appropriate?

As part of just about any commercial arrangement or corporate transaction, parties should ensure that they agree to confidentiality provisions that are sufficiently protective, that accommodate the practicalities of getting the deal done, and that will survive to an appropriate degree if the arrangement or deal either closes or falls apart. NDAs should obviously be in place for M&A transactions and licensing arrangements, but they should also be considered in various other relationships like consulting services, advisory board engagements and outsourcing arrangements. When parties are just beginning to discuss a potential arrangement or deal, an NDA may or may not be appropriate. The parties may still be holding their cards closely at this stage and not exchanging significant confidential information. As the parties dive deeper into due diligence and negotiations, the exchange of confidential information will intensify and outside advisors may become more heavily involved in analyzing the deal. Ideally parties should put a formal NDA in place prior to sensitive information being exchanged. The scope of an NDA depends on the type of information that is being disclosed, the purposes for which it is being disclosed, and the need for such information to remain confidential in the long term.

2) What type of information should be covered by an NDA?

While it may seem obvious to say, confidential information can only include information that is already confidential. In determining what type of information can properly be characterized as confidential, consider the following list of factors identified in Pharand Ski Corp. v. Alberta1:

  • the extent to which the information is known outside the party's business;
  • the extent to which it is known by employees and others involved in the party's business;
  • the extent of measures taken by the party to guard the secrecy of the information;
  • the value of the information to the party and its competitors;
  • the amount of money or effort expended by the party in developing the information; and
  • the ease or difficulty with which the information could be properly acquired or duplicated by others through their independent effort.

Considered collectively, these factors can assist in determining whether information is confidential and the degree to which a party should attempt to protect it under an NDA.

Not all valuable information is confidential. For example, an employee's skills and general knowledge may be enhanced by having worked for a particular employer, but such trade knowledge is not necessarily confidential information of that employer. Consultants who are not employees often want to be free to make further use of skills and general knowledge they acquire during an engagement and therefore often seek to include a "residual knowledge" carve-out in NDAs.

Given that there is some uncertainty in the definition of confidential information at large, parties should take care in defining "confidential information" in an NDA. Confidential information may be defined to include information

  • exchanged prior to the execution of the NDA (or other agreement containing confidentiality terms);
  • exchanged orally, in writing or in any other form or medium (e.g., by email);
  • observed by a party (e.g., on a site visit);
  • that is marked confidential or not;
  • that a party ought reasonably expect to be confidential;
  • that is derived from confidential information;
  • that pertains to the existence or terms of the negotiation between the parties; or
  • received from or regarding subsidiaries or third parties.

Disclosing and receiving parties will often have different perspectives on the appropriate scope of confidential information. A disclosing party will likely prefer a broad definition and should resist the need to mark or otherwise identify information as being confidential. A receiving party will likely prefer a narrower definition as to what would constitute confidential information (and would typically prefer clear marking of same). This may be particularly true where there is a potential for the disclosing party to provide more information than is needed, leaving the receiving party more broadly constrained by the NDA than is reasonable or necessary. If personal information will be disclosed, the NDA should include specific privacy provisions to comply with applicable privacy legislation.

3) What type of information should not be confidential?

Not all confidential information should be treated as confidential. There are two ways to exclude categories of possible confidential information: 1) by including exceptions to the definition of confidential information or 2) by adding carve-outs to the obligations that apply to confidential information. The second approach is generally more straightforward but the following should be excluded one way or the other:

  • Information developed by the receiving party prior to disclosure under the NDA (without reference to the confidential information);
  • Information received by the receiving party lawfully from third parties (without breach of confidentiality obligations);
  • Information derived independently by the receiving party (without reference to the confidential information) after disclosure under the NDA;
  • Information already in the public domain, including information disclosed in court or regulatory proceedings, through no wrongful act or omission of the receiving party; and
  • Disclosure compelled by law or court order.

Where disclosure is compelled by law or order, an NDA cannot contradict this legal obligation. As a result, NDAs should not have disclosure language such as "under any circumstances" or "for any reason," otherwise the entire agreement may be in jeopardy. That said, an NDA should impose a duty on the receiving party to notify the disclosing party of the request for disclosure, if permitted. The receiving party should only be permitted to disclose such information to the extent specifically required under the applicable law or order. The receiving party should also be required to use commercially reasonable efforts to oppose such requests for disclosure where there are reasonable grounds for doing so, and to seek protection or continued confidential treatment of the information.

In addition, special care should be taken when entering into NDAs with public authorities who may be subject to freedom of information requests. Such NDAs should ensure that the disclosing party is given reasonable opportunity available under the applicable freedom of information legislation to oppose the disclosure of its confidential information. Disclosing parties should understand in advance what types of information is or is not confidential for the purposes of freedom of information requests. For example, commercial terms negotiated with a public body may be viewed by the private party as extremely sensitive competitive information but may nevertheless be subject to disclosure in response to a freedom of information request.

4) What level of protection should apply to confidential information?

It is not unusual to see very detailed definitions of confidential information and then a very basic use/disclosure provision, which almost defeats the purpose of having put an NDA in place. One of the most important features of an NDA is a specific description of the purposes for which confidential may be used, paired with a blanket prohibition on using it for anything other than the prescribed purpose, so as to prevent the receiving party from making inappropriate use of valuable confidential information. Typical uses of confidential information may include: carrying out specified professional services (e.g., engineering, software needs assessment, management consulting engagement); conducting due diligence on an acquisition target company; exploring the terms of a potential joint venture or other business opportunity; etc.

Parties should consider the level of care that must be taken to avoid disclosing confidential information. It is not unusual for a receiving party to propose that it will use the same measures to protect a disclosing party's information as it uses to protect its own confidential information. This type of subjective standard is often insufficient. Disclosing parties should instead insist on a more objective standard, such as the use by the receiving party of commercially reasonably efforts to protect the information of the type being disclosed.

A disclosing party may want to include specific protective measures such as:

  • a requirement that information be kept in a secure location and not removed therefrom without prior written consent of the disclosing party;
  • specific security protocols for data systems where confidential information will be stored;
  • limits on access to information, including limitations on disclosing information to employees or professional advisors;
  • notification of unauthorized disclosure/misappropriation;
  • limits on copying information or transmitting it electronically; and
  • restrictions on destroying confidential information without prior written consent of the disclosing party.

Care should also be taken in defining who can receive confidential information in furtherance of the permitted or specified purpose. Often, there is a reasonable need to disclose information to employees or professional advisors (or even financing sources, affiliates or limited partners, etc.) but this should be considered on a case-by-case basis. Ideally, such recipients are identified by name, but at least should be identified by class, and always on a "need to know" basis. The parties should be clear about what confidentiality obligations must be imposed on such third parties as a prerequisite to them receiving confidential information. Employees may be subject to confidentiality obligations as part of their employment agreements. There are a few ways to handle disclosure to professional advisors: a) they could be asked to become a party to an NDA, b) they may just have to agree to keep information confidential, or c) the parties may simply rely on obligations of confidentiality imposed on them by their professional governing body. Disclosing parties should seek to have the receiving party accept liability for confidentiality breaches by employees, advisors, affiliates and other necessary recipients, although this request may be strongly resisted by the receiving party.

It never hurts to be explicit in an NDA that information should never be disclosed to a party that competes with the disclosing party. This may be a particularly contentious issue where, for example, a potential buyer of a disclosing party also has (or could have in the future) interests in competitors of the target. Where a party has a number of affiliates, some of whom may compete with the disclosing party, significant time can be spent negotiating whether the NDA should apply to affiliates, which parties generally resist, or whether it should prohibit disclosure to affiliates, which may be difficult in practice if, for example, individuals involved with the receiving party are also involved with the affiliates (e.g., as board members or shareholders).

5) What happens in the event of termination or a breach?

Parties should also consider how long information should remain confidential. Every disclosing party would prefer to have their information held confidential forever. More typically, confidentiality provisions in commercial transactions survive for around two years. Any personal information should be held in confidence indefinitely. Again, the appropriate sunset for confidentiality obligations will depend on the nature of the information. Parties should include a reasonable sunset, failing which a court may impose one on them.

Every NDA should specify the parties' obligations upon termination of the NDA. Usually, there will be an obligation to return confidential information, sometimes only upon receipt of written request, or to certify that all copies of same have been destroyed, sometimes in accordance with specific protocols (e.g., for truly deleting information from hard discs). However, there is typically some real discussion about whether these obligations should be subject to carve-outs that allow the receiving party to retain copies to the extent required by law (e.g., for income tax purposes or in compliance with accounting standards) or as required in accordance with internal record-keeping requirements. They may also address the practical difficulties of deleting data from electronic databases which may be routinely archived for disaster recovery purposes. Such carve-outs should carefully describe the circumstances under which such retained information can be accessed/used after termination. If a receiving party cannot justify a reasonable purpose for retaining the information, the carve-out may not be appropriate.

From the receiving party's perspective, well-drafted NDAs should: a) address the consequences of a breach of confidentiality, which may vary depending on whether the breach was intentional, negligent or without fault of the party in breach; b) expressly preserve the right of the disclosing party to seek equitable remedies by acknowledging that a breach can cause irreparable harm that cannot adequately be compensated with damages; and c) include indemnification for any loss or damage (including third party claims) arising from the breach.

Summary of Tips:

  1. Disclosing parties should broaden the definition of confidential information and should resist requirements to identify information as confidential; receiving parties should do the opposite; in either case, care should be taken in defining confidential information.
  2. Unless the parties intend otherwise, make clear that information disclosed by a party, and all intellectual property rights thereto, should remain the property of the disclosing party.
  3. If confidential information will include personal information, include privacy covenants and ensure that the NDA survives indefinitely with respect to personal information.
  4. Carve-out the typical exceptions for the treatment of otherwise confidential information;
  5. If the NDA includes a carve-out of confidential information compelled by court or other order, include requirements regarding notice to the disclosing party, limitations on the scope of disclosure, efforts to oppose disclosure, and efforts to seek confidentiality protection for information that must be disclosed.
  6. Understand the impact that a freedom of information request may have on information that the parties have agreed is confidential.
  7. Precisely describe how confidential information may be used and prohibit all other uses.
  8. Include an objective standard for the level of care that a receiving party must use in protecting confidential information; add all desired protective measures.
  9. Understand what types of employees, advisors, affiliates and other people will need to receive confidential information and ensure that each such recipient is subject to appropriate confidentiality obligations.
  10. Choose a survival period that makes sense in the circumstances (two years is typical).
  11. Include clear obligations in the event of termination and take care in defining any rights that parties have to retain confidential information after termination to comply with, for example, record-keeping or retention policies.
  12. A potential acquirer of a disclosing party should not be permitted to solicit employees of the disclosing party if the deal does not proceed, subject to some carve-outs (e.g., permit general solicitations for employment).
  13. Where the parties are in different legal jurisdictions, the NDA should address choice of law and of forum. This may be the first time this possibly contentious issue arises between parties from different jurisdictions. 


1. (1991), 37 C.PR. (3d) 288 at 316 (Alta. Q.B.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.