Two recent Ontario court rulings mean that lawyers and their clients will likely be paying much closer attention to the wording and implications of confidentiality agreements, particularly in the context of hostile takeover bids.

In Gold Reserve Inc. v. Rusoro Mining Ltd., the Ontario Superior Court of Justice granted a temporary injunction enjoining Rusoro from engaging in a hostile take-over bid for Gold Reserve. The injunction also restrained Rusoro's financial advisor, Endeavour Financial International Corporation,  from having any participation in the contemplated takeover.

The primary issue was the fact that Endeavour had acted as financial advisor to Gold Reserve prior to acting in the same capacity to Rusoro. In fact, the same three Endeavour employees who had originally advised Gold Reserve, and were privy to Gold Reserve's confidential information, were now acting for Rusoro in the contemplated take-over bid. Complicating matters even further was the fact that Endeavour was still subject to an advisory agreement with Gold Reserve which contained a confidentiality provision requiring Endeavour to protect Gold Reserve's confidential information and enjoining Endeavour from knowingly acting against the interests of Gold Reserve in a material way.

Endeavour argued that it did not have access to any confidential information relating to Gold Reserve after the beginning of 2007, and that it had relied solely on publicly available information when it advised Rusoro on the takeover bid. The Court was extremely sceptical of this assertion, finding that it was implausible that Endeavour had not relied on confidential information in advising Rusoro.

On the basis of this finding, the court concluded that: "Absent special measures such as institutionalized ethical walls, the reasonable presumption is that confidential information will be taken into account and used, whether intentionally or inadvertently, to the disadvantage of the provider of the confidential information."

Thus, there will be a general presumption of misuse if a party privy to confidential information does not have institutionalized methods in place. Such methods could include ethical walls, physical and electronic protections, etc.

Similarly, in Certicom Corp. v. Research In Motion Limited, the court concluded that Research In Motion could not use information it gained through its existing relationship with Certicom to help launch a hostile takeover of that company, as the parties had previously signed confidentiality agreements in 2007 and 2008. This was so even despite the fact that a standstill provision in the 2007 agreement, preventing RIM from making such a move, had already expired.

The case largely revolved around the wording of the confidentiality agreements between RIM and Certicom. RIM argued that it was permitted to use information gleaned through its relationship with Certicom - a company which supplied security products for RIM's business - because a clause in the 2007 agreement specifically granted RIM the right to use information disclosed by Certicom for purposes including "some form of business combination between the parties."

The court disagreed, finding that the word "between" could not be interpreted to include a hostile takeover. Rather, the court held that the wording of the agreement had to be interpreted in light of the context in which it was negotiated. When the parties negotiated the 2007 agreement, they considered the possibility of a friendly takeover, and this fact was reflected in the language of the agreement.

RIM argued that by interpreting the agreement in this manner, the court would effectively be extending the application of the expired standstill provision, thus defeating the very purpose of the provision. The court, however, viewed the standstill and non-disclosure provisions as  separate clauses altogether, "providing different protections for different terms," and concluded that "[after] the standstill provision had expired, it was open to RIM to mount a hostile bid, provided that it had not received, and used, any confidential information in assessing the bid."

According to the court, the fact that RIM had received such confidential information - and indeed admitted to using it in its decision to make a hostile bid - meant that the company had an unfair advantage vis-à-vis other bidders for Certicom.

Thus, on the basis of these two decisions, it seems that courts are tending towards more stringent interpretations of confidentiality clauses so as to remove any perception of unfairness or undue advantage in the securities markets. This likely means that confidentiality clauses will become a much more contentious issue in commercial negotiations for the foreseeable future.