If the Canadians pulled him over, they don't need probable cause.
Do you mean they are assholes, or that they really have the right to do that over there? If it's the latter, then that sucks...
Customs legislation on both sides of the border provide for examination of personal and all goods/baggage upon entry into Canada or the United States WITHOUT the necessity of probable cause - the fact that you're crossing the border provides enough in the way of indicators for an examination of baggage and people (though obviously for more intensive searches and officer needs to be able to articulate why they proceeded to a more intensive level).
Customs Act (Canada):
http://laws.justice.gc.ca/en/C-52.6/index.htmlSee sections 11, 98, 99, 101, and 102 in particular.
In Canada, if the password were refused the laptop would be seized pending examination. Now that prohibited material has been found, it would be sent to the RCMP for forensic analysis anyway - the guy's password is no longer necessary (they have recovery software that will blast through the encryption). USCBP has much the same kind of backup infrastructure - all the guy is doing is shooting himself in the foot. Not to mention, if he's a Canadian I imagine the Mounties are busy getting a search warrant for his home, if he still has property in Canada.
No matter what, he's just prolonging the inevitable and making it a great deal harder on himself in the process.