Breach of Confidentiality After a Failed Business Sale in Ontario

Selling a business means opening the books to a stranger. Financial statements, customer lists, supplier pricing, employee details, and sometimes trade secrets all get handed to a prospective buyer during due diligence — usually under the protection of a confidentiality agreement. Most of the time, that trust is honoured even when the deal doesn't close.

Sometimes it isn't. A deal falls apart, and months later the seller notices a former "buyer" has opened a competing business nearby, is calling the same customers, or has quietly hired away key staff using information that only came from the data room. That's a serious problem, and Ontario law gives sellers real tools to respond — but the response has to be built on evidence, not suspicion.

This article explains what a confidentiality agreement typically protects, what counts as crossing the line, and what a seller can realistically do about it.

Why Confidentiality Matters Long Before a Deal Closes

Due diligence only works if a seller is willing to disclose sensitive material — real numbers, real contracts, real weaknesses. Buyers understand this, which is why a confidentiality agreement (sometimes bundled into a letter of intent, sometimes standalone) is usually one of the first documents signed, often before a term sheet or even a serious conversation about price.

A well-drafted confidentiality agreement typically addresses:

• What counts as "confidential information" (often defined broadly to cover anything disclosed in connection with the potential deal)
• Permitted uses — generally: evaluating the transaction, and nothing else
• Who within the buyer's organization or advisory team may see it
• What happens to documents and copies if the deal doesn't proceed
• How long the obligations last after disclosure

Because these agreements are heavily negotiated (or, more often, simply signed as presented), exactly what's protected and for how long depends entirely on the wording the parties agreed to.

When a Prospective Buyer Crosses the Line

Not every awkward coincidence is a breach. A buyer who was already circling the same market, or who independently develops a similar idea, hasn't necessarily done anything wrong. The real question is whether the buyer used or disclosed information it only had access to because of the due diligence process, for a purpose the confidentiality agreement didn't allow.

Patterns that raise a genuine concern include:

• Approaching the seller's customers or suppliers using pricing, contract terms, or account details seen only in the data room
• Launching a competing offering that closely tracks proprietary processes or technical information disclosed during diligence
• Recruiting key employees using compensation or performance information that wasn't public
• Retaining or continuing to use financial models, projections, or client lists after the deal collapsed, instead of returning or destroying them as the agreement required

What You Can Do If Information Is Misused

A confidentiality agreement is a contract, and its breach can overlap with the separate, long-standing legal concept of breach of confidence — a claim that protects information disclosed in circumstances where the recipient knew, or ought to have known, it was meant to stay private. Depending on the facts, a seller in this position may be able to pursue:

• An injunction — a court order requiring the other side to stop using or disclosing the information, and sometimes to return or destroy copies
• Damages — compensation for losses the misuse actually caused, such as lost customers or lost business opportunities
• An accounting of profits — in some cases, requiring the wrongdoer to hand over profits earned through the misuse, rather than (or alongside) ordinary damages

Which remedies are realistically available, and how a court would weigh them, depends heavily on the specific confidentiality agreement's wording and the evidence of what was actually done with the information. This is not a one-size-fits-all analysis.

Steps to Take If You Suspect a Breach

1. Preserve your own records first. Gather the confidentiality agreement, the data room log (what was shared and when), and anything showing what the other side is now doing.
2. Document the connection. Screenshots, marketing materials, customer complaints, or former-employee accounts that link the buyer's current conduct to specific disclosed information are far more persuasive than a general sense that "it's too much of a coincidence."
3. Don't tip your hand informally. Confronting the other side before you've organized your evidence can give them time to alter records or their story.
4. Get a lawyer involved early. A properly worded demand letter — and, if it comes to that, formal litigation including an urgent motion for an injunction — often needs to move quickly, since delay can weaken the case for urgent relief.
5. Decide what you actually want. Stopping ongoing harm, recovering losses, and deterring future misuse are different goals that can call for different strategies.

Protecting Yourself Before You Share Anything Next Time

• [ ] Use a confidentiality agreement tailored to your business, not a generic template
• [ ] Stage disclosure — save the most sensitive material for later in the process, once a buyer has shown real commitment
• [ ] Keep a log of exactly what was shared, with whom, and when
• [ ] Mark sensitive documents clearly as confidential
• [ ] Require written confirmation of return or destruction of materials if a deal doesn't close
• [ ] Consider narrower carve-outs for your most competitively sensitive information, even within an otherwise cooperative process

Frequently asked questions