According to their website, they have authority to inspect your “electronics (including laptops and cell phones)” but doesn’t mention the contents of those devices.
http://www.cbsa-asfc.gc.ca/travel-voyage/ifcrc-rpcrc-eng.html
The Canada Border Services Agency has a memo describing their role in fighting obscenity:
http://www.cbsa-asfc.gc.ca/publications/dm-md/d9/d9-1-1-eng.html Putting those two previous sections together, they'll likely claim their demand to see his electronic data is legal as he could be travelling with obscene material. Otherwise, he may not be permitted to cross the border with the device. It won't matter that whatever is on the device could have been downloaded whilst in Canada to begin with, or could be downloaded there today - it's only the physical act of crossing the border with the data that is under consideration.
The second link above takes you to their definition of obscene, but it could include simply wearing a ball gag during sex, or a femdom humiliation where a lady laughs at the guy - and all of this could be images of the guy with the device!
My guess is they'll side with requiring he surrender the password or forfeit the device or leave the country with it. All the more reason to encrypt your files and upload to an encrypted online storage location, erasing the device and using a disposable password prior to travel. If he'd done that, he could have readily surrendered the password and they'd have nothing. While he could also keep encrypted files on the device, they'd just as readily demand the encryption key for those as well. Using a hidden volume that's encrypted is a potential workaround yet is fairly complex compared to networked storage.
When travelling for business we have blanked laptops specifically used for border crossings where encryption technology is illegal, such as China. Instead, upon arrival you have to download the data from a VPN within country. Even then that data can be intercepted by a determined agency, so it significantly hampers what resources you can deploy during business meetings.