Receipt of Confidential Information


Related to “Access to Information and Protection of Privacy” (another topic in this issue of Campus Counsel) is the question: what obligations arise where confidential information is received? Following is a reprint of a previously published article that suggests you think twice before accepting confidential information, or inviting proposals or expressions of interest to be submitted to you marked “Confidential”.

Pharand Ski Corporation v. Province of Alberta

Province of Alberta paid the price, $1,000,000 plus costs, for failing to observe confidentiality obligations in connection with information submitted in response to a “proposal call”. This case offers guidance to organizations in dealing with parties submitting proposals or information on a confidential basis.

In 1981 the defendant Province of Alberta placed ads in various newspapers inviting groups to express interest in developing recreational alpine ski areas, particularly in Kananaskis Country, by applying for information from Alberta Department of Recreation and Parks. An information booklet was made available to respond to applicants’ inquiries. The booklet held out the promise of financial gain to the successful candidate, as “co-developer under a long term lease”. The plaintiff, Pharand Ski Corporation, submitted a proposal on a confidential basis. They identified that Mount Allen (which had previously been overlooked or dismissed as a site) would be ideal if an innovative layout, as suggested by them, was employed in combination with new snow-making machinery. After a time, Province of Alberta proceeded with the development on its own, using some of the information submitted by the plaintiff. In May, 1991, about 10 years after the events had begun, the Court held that Province of Alberta was liable to account to the plaintiff for damages.

After reviewing cases as far back as 1851, and the celebrated 1989 Supreme Court of Canada decision in Lac Minerals, the Court applied the following tests:

1. Did the plaintiff supply information to the defendant which had about it the necessary quality of confidentiality?

The information can’t be something which is public property or public knowledge. There has to be something confidential about it. Relevant factors include: the extent to which the information is known outside of the business; the extent to which measures are taken to guard the secrecy of the information; the value of the information to the recipient and his or her competitors; the amount of money expended in procuring or developing the information; and the ease or difficulty with which the information could be obtained or duplicated by others. Generally, common sense applies.

Information in the public domain can acquire the requisite “quality of confidentiality” if presented in a particular way. A key element of the Pharand proposal was that it had correlated published weather records with confidential federal watershed information to demonstrate that Mount Allen could sustain the proposed development. As quoted in the decision:

“Something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the application of the skill and ingenuity of the human brain. Novelty depends on the thing itself, and not upon the quality of its constituent parts. Indeed, often the more striking the novelty, the more commonplace its components.”

2. Was the information communicated in confidence and in circumstances which imparted an obligation of confidence?

This was easy to establish in the Pharand case – the plaintiff had requested and received an express assurance of confidentiality from government officials as a precondition to the submission of their response to the first proposal call. But there does not have to be an express assurance of confidentiality:

“…if the circumstances are such that any reasonable man standing in the shoes of the recipient would have realized that upon reasonable grounds the information was being given to him in confidence, this should suffice to impose upon him the equitable obligation of confidence”.

Other cases, cited in the Pharand case, help to illustrate the principle: drawings delivered by A to B to enable B to manufacture a quantity of product were held to have been delivered in circumstances that implied the obligation of confidentiality; likewise where defendants had obtained information from an inventor about the design of a new, unpatented carpet gripping tool, in the course of negotiations for the manufacture of the tool.

3. Was there an unauthorized misuse of the information, to the detriment of the party communicating it?

The cases are not consistent as to whether it is essential to prove “detriment”; but, as pointed out in the Pharand decision, in most cases detriment is present, otherwise litigation would not have resulted. Any use other than a permitted use is prohibited and amounts to a breach of the duty to maintain confidentiality. In the Pharand decision, the detriment consisted of the fact that by disclosing the information, the defendant took away Pharand’s advantage as the only “co-developer” candidate that had identified Mount Allen as a viable site.

Some points of practical advice:

  • If you expressly acknowledge that the information is received confidentially, appreciate that this results in legal duties owed to the party submitting the information.
  • Even if there is no express communication of confidentiality, obligations may be implied based on the circumstances surrounding disclosure of the information.
  • In some cases, you may want to have the party disclosing the information expressly acknowledge that no obligation of confidentiality exists – otherwise you might find that information of little value is disclosed to you in circumstances that may burden rather than help you.
  • Think twice before accepting confidential information, or inviting proposals or expressions of interest to be submitted to you marked “Confidential”.

It is worth noting that the initial proposal call was “soft”, in that it promised only an opportunity to negotiate a long term lease, and the terms of a long term lease had not been settled. So the defendant might have thought that no obligations would arise. But despite the foregoing, and despite a privilege clause (“Government of Alberta reserves the right to reject any or all proposals”), the Court held the Province liable.