Cadbury Schweppes Inc. v. FBI Foods Ltd.

Cadbury Schweppes Inc. v. FBI Foods Ltd.
Collection
Supreme Court Judgments
Date
1999-01-28
Report
[1999] 1 SCR 142
Case number
25778
Judges
L'Heureux-Dubé, Claire; Gonthier, Charles Doherty; McLachlin, Beverley; Iacobucci, Frank; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil
On appeal from
British Columbia
Subjects
Commercial law
Notes
SCC Case Information: 25778
Decision Content
Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142
FBI Foods Ltd. ‑‑ Les aliments FBI Ltée,
FBI Brands Ltd. ‑‑ Les marques FBI Ltée
and Lawrence Kurlender Appellants
v.
Cadbury Schweppes Inc. and Cadbury Beverages
Canada Inc./Breuvages Cadbury Canada Inc. Respondents
Indexed as: Cadbury Schweppes Inc. v. FBI Foods Ltd.
File No.: 25778.
1998: April 30; 1999: January 28.
Present: L’Heureux‑Dubé, Gonthier, McLachlin, Iacobucci, Major, Bastarache and Binnie JJ.
on appeal from the court of appeal for british columbia
Commercial law ‑‑ Confidential information ‑‑ Breach of confidence ‑‑ Remedies ‑‑ Manufacturer using confidential information obtained under licensing agreement to manufacture competing product ‑‑ Whether permanent injunction appropriate remedy for breach of confidence in this case ‑‑ Whether “head start” concept applies -- Whether calculation of equitable compensation differs from common law damages.
Duffy‑Mott licensed its trademark and its formula for making “Clamato”, a confection of tomato juice and clam broth, to Caesar Canning. To enable Caesar Canning to produce Clamato, Duffy‑Mott communicated information about its recipe and manufacturing procedures which was confidential. Caesar Canning subsequently entered into a contract with the appellant FBI Foods to manufacture Clamato and passed on this confidential information. The respondent Cadbury Schweppes acquired the shares of Duffy‑Mott and notified Caesar Canning that the licence agreement (and consequently the sub‑agreement with FBI Foods) would terminate in 12 months, on April 15, 1983. The licence agreement left Caesar Canning (and therefore FBI Foods) free to compete with the respondent in the juice market after termination. It provided only that Caesar Canning would no longer have the right to use the trademark “Clamato” and would not, for a period of five years, manufacture or distribute any product which included among its ingredients clam juice and tomato juice. Working from the list of ingredients and processing specifications for Clamato, but omitting clams or other seafood, Caesar Canning developed Caesar Cocktail, which went on the market immediately after the licensing agreement terminated. FBI Foods agreed to co‑pack the new product. The respondents had surreptitiously discovered the exact formula of Caesar Cocktail at the end of March 1983, but did not take any action to enjoin the manufacture and sale of Caesar Cocktail, or otherwise protest, since they mistakenly believed that the absence of clam broth in the reformulated recipe would be fatal to their claim. When Caesar Canning declared bankruptcy, FBI Foods purchased its assets and carried on the production of Caesar Cocktail through a wholly owned subsidiary, FBI Brands. In 1986, the respondents obtained new legal advice respecting their legal rights, and dispatched a cease and desist letter to FBI Brands. Eventually, this action was commenced in 1988 against the FBI companies. The trial judge concluded that by misappropriating the confidential information the appellants had wrongfully obtained a 12‑month “springboard” into the highly competitive juice market that but for the breach they would not have enjoyed. She refused an injunction but awarded as “head start damages” the amount it would have cost Caesar Canning to hire a consultant to assist with in‑house development of a new tomato‑based brand during the 12‑month notice period. The Court of Appeal granted the respondents a permanent injunction against continued use of the confidential information, or products derived therefrom. It also awarded compensation equivalent to the profits they would have earned had they in fact sold an additional volume of Clamato equivalent to the sales of Caesar Cocktail during the 12‑month period following termination of the licence, the amount of which was to be determined in a reference.
Held: The appeal should be allowed and the cross‑appeal dismissed.
Equity, as a court of conscience, directs itself to the behaviour of the person who has come into possession of information that is in fact confidential, and was accepted on that basis, either expressly or by implication. Equity will pursue the information into the hands of a third party who receives it with the knowledge that it was communicated in breach of confidence (or afterwards acquires notice of that fact even if innocent at the time of acquisition) and impose its remedies. The equitable doctrine, which is the basis on which the courts below granted relief, potentially runs alongside a number of other causes of action for unauthorized use or disclosure of confidential information, including actions sounding in contract, tort and property law. It was suggested in Lac Minerals that the action for breach of confidence should be characterized as a sui generis hybrid that springs from multiple roots in equity and the common law. The sui generis concept was adopted to recognize the flexibility that has been shown by courts in the past to uphold confidentiality and in crafting remedies for its protection. The result of Lac Minerals is to confirm jurisdiction in the courts in a breach of confidence action to grant a remedy dictated by the facts of the case rather than strict jurisdictional or doctrinal considerations. Whether a breach of confidence in a particular case has a contractual, tortious, proprietary or trust flavour goes to the appropriateness of a particular equitable remedy but does not limit the court’s jurisdiction to grant it.
There was no fiduciary relationship in this case. The policy objectives underlying fiduciary relationships do not generally apply to business entities dealing at arm’s length. While the existence of a fiduciary duty will not be denied simply because of the commercial context where the ingredients giving rise to that duty are otherwise present, the overriding deterrence objective applicable to situations of particular vulnerability to the exercise of a discretionary power does not operate here.
A contractual term that deals expressly or by necessary implication with confidentiality can negate the general obligation otherwise imposed by equity. However, the licence agreement in this case cannot reasonably be read as negating the duty of confidence imposed by law. The contractual context, while it may place important parameters on what compensation would be appropriate, does not assist the appellants in their effort to eliminate the compensation altogether.
The respondents’ characterization of confidential information as property is controversial. The reliance on intellectual property law ignores the “bargain” that lies at the heart of patent protection. A patent is a statutory monopoly which is given in exchange for a full and complete disclosure by the patentee of his or her invention. If a court were to award compensation to the respondents on principles analogous to those applicable in a case of patent infringement, the respondents would be obtaining the benefit of patent remedies without establishing that their invention meets the statutory criteria for the issuance of a patent, or paying the price of public disclosure of their secret. A proprietary remedy should not automatically follow from a breach of confidentiality. It would be contrary to the authorities to allow the choice of remedy to be driven by a label (“property”) rather than a case‑by‑case balancing of the equities. In this case, the trial judge considered the confidential information to be nothing very special, and that “but for” the breach the respondents would in any event have faced a merchantable version of Caesar Cocktail in the marketplace within 12 months.
While equitable rules may produce a more generous level of compensation than their counterparts in tort, in the present case the policy objectives in both equity and tort would equally support restoration of the plaintiff to the financial position it would have occupied “but for” the breach.
In Canada, the authority to award financial compensation for breach of confidence is inherent in the exercise of general equitable jurisdiction and does not depend on the niceties of Lord Cairns’ Act or its statutory successors.
The trial judge was correct to refuse a permanent injunction in the circumstances of this case, and the permanent injunction issued by the Court of Appeal should be vacated. The fact the respondents may have delayed action under a misapprehension of their legal rights was certainly a consideration relevant to the defence of acquiescence raised against them as an absolute bar to their action, but the delay thus explained away may nevertheless be taken into consideration when weighing the equities of a permanent injunction. While the law would lose its deterrent effect if defendants could misappropriate confidential information and retain profits thereby generated subject only to the payment of compensation if, as and when they are caught and successfully sued, one’s indignation in this case has to be tempered by an appreciation of the equities between the parties at the date of the trial. At the date of the trial, 11 years had passed since Caesar Cocktail went into production, using “nothing very special” information that could promptly have been replaced (had the respondents made a timely fuss) by substitute technology accessible to anyone skilled in the art of juice formulation. An injunction in the circumstances of this case would inflict competitive damage on the appellants in 1999 far beyond what is necessary to restore the respondents to the competitive position they would have enjoyed “but for” the breach 16 years ago. With respect to financial compensation, the Court of Appeal was correct to reject the trial judge’s “consulting fee” approach in this case, since the confidential information was not for sale. Its “market value” was thus not a proper measure. It erred, however, in being prepared to assume that if Caesar Cocktail had been kept off the market the void would have been filled with sales of Clamato juice. The reference directed by the Court of Appeal should therefore continue, but on somewhat modified terms. The mandate is to assess the financial loss if any attributable to the breach of confidence during the compensable period. The compensable period is the 12 months following termination of the licence, as directed by the Court of Appeal. The assessment of the respondents’ loss of profit may include consideration of relevant market factors, as well as the royalties otherwise payable under the licence agreement, for the 12‑month compensable period. The Referee will have to keep in mind that the objective is a broadly equitable result; mathematical exactitude is neither required nor obtainable.
Cases Cited
Considered: Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; referred to: Seager v. Copydex Ltd., [1967] 2 All E.R. 415; Coco v. A. N. Clark (Engineers) Ltd., [1969] R.P.C. 41; Aquaculture Corp. v. New Zealand Green Mussel Co., [1990] 3 N.Z.L.R. 299; M. (K.) v. M. (H.), [1992] 3 S.C.R. 6; Pre‑Cam Exploration & Development Ltd. v. McTavish, [1966] S.C.R. 551; Apotex Fermentation Inc. v. Novopharm Ltd. (1998), 80 C.P.R. (3d) 449; Ben‑Israel v. Vitacare Medical Products Inc. (1997), 78 C.P.R. (3d) 94; Attorney‑General v. Guardian Newspapers Ltd. (No. 2), [1990] A.C. 109; Seager v. Copydex Ltd. (No. 2), [1969] 2 All E.R. 718; Frame v. Smith, [1987] 2 S.C.R. 99; Hodgkinson v. Simms, [1994] 3 S.C.R. 377; 337965 B.C. Ltd. v. Tackama Forest Products Ltd. (1992), 91 D.L.R. (4th) 129, leave to appeal refused, [1993] 1 S.C.R. v; BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; R. v. Stewart, [1988] 1 S.C.R. 963; E. I. Du Pont de Nemours Powder Co. v. Masland, 244 U.S. 100 (1917); Moorgate Tobacco Co. v. Philip Morris Ltd. (1984), 156 C.L.R. 414; Federal Commissioner of Taxation v. United Aircraft Corp. (1943), 68 C.L.R. 525; Macri v. Miskiewicz (1991), 39 C.P.R. (3d) 207, varied (1993), 50 C.P.R. (3d) 76; Phipps v. Boardman, [1967] 2 A.C. 46; Re Keene, [1922] 2 Ch. 475; Smith, Kline & French Laboratories Ltd. v. Canada (Attorney General), [1987] 2 F.C. 359; Guerin v. The Queen, [1984] 2 S.C.R. 335; Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534; Mouat v. Clark Boyce, [1992] 2 N.Z.L.R. 559, rev’d on other grounds, [1993] 4 All E.R. 268; Elsley v. J. G. Collins Insurance Agencies Ltd., [1978] 2 S.C.R. 916; ICAM Technologies Corp. v. EBCO Industries Ltd. (1993), 52 C.P.R. (3d) 61, aff’g (1991), 36 C.P.R. (3d) 504; Ontex Resources Ltd. v. Metalore Resources Ltd. (1993), 13 O.R. (3d) 229; 655 Developments Ltd. v. Chester Dawe Ltd. (1992), 42 C.P.R. (3d) 500; Argyll (Duchess) v. Argyll (Duke), [1967] Ch. 302; Nichrotherm Electrical Co. v. Percy, [1957] R.P.C. 207; English v. Dedham Vale Properties Ltd., [1978] 1 W.L.R. 93; Malone v. Commissioner of Police of the Metropolis (No. 2), [1979] 2 All E.R. 620; Pharand Ski Corp. v. Alberta (1991), 80 Alta. L.R. (2d) 216; Nocton v. Lord Ashburton, [1914] A.C. 932; Recovery Production Equipment Ltd. v. McKinney Machine Co., [1998] A.J. No. 801 (QL); Treadwell v. Martin (1976), 67 D.L.R. (3d) 493; Planon Systems Inc. v. Norman Wade Co., [1998] O.J. No. 3547 (QL); Z Mark International Inc. v. Leng Novak Blais Inc. (1996), 12 O.T.C. 33; United Scientific Holdings Ltd. v. Burnley Borough Council, [1978] A.C. 904; Interfirm Comparison (Australia) Pty. Ltd. v. Law Society of New South Wales, [1977] R.P.C. 137; Terrapin Ltd. v. Builders’ Supply Co. (Hayes) Ltd., [1967] R.P.C. 375 (1959), aff’d [1960] R.P.C. 128; Santé Naturelle Ltée v. Produits de Nutrition Vitaform Inc. (1985), 5 C.P.R. (3d) 548; Montour Ltée v. Jolicœur (1988), 19 C.I.P.R. 25; Matrox Electronic Systems Ltd. v. Gaudreau, [1993] R.J.Q. 2449; Dowson & Mason Ltd. v. Potter, [1986] 2 All E.R. 418; Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., [1991] 3 S.C.R. 3; Chaleur Silica Inc. v. Lockhart (1990), 108 N.B.R. (2d) 366; Saltman Engineering Co. v. Campbell Engineering Co. (1948), 65 R.P.C. 203; Institut national des appellations d’origine des vins et eaux‑de‑vie v. Andres Wines Ltd. (1987), 40 D.L.R. (4th) 239, aff’d (1990), 71 D.L.R. (4th) 575n, leave to appeal refused, [1991] 1 S.C.R. x; Stephenson Jordan & Harrison Ltd. v. MacDonald & Evans (1951), 69 R.P.C. 10; Shelfer v. City of London Electric Lighting Co., [1895] 1 Ch. 287; Schauenburg Industries Ltd. v. Borowski (1979), 101 D.L.R. (3d) 701; Robb v. Green, [1895] 2 Q.B. 1; United Horse‑Shoe and Nail Co. v. Stewart (1888), 13 App. Cas. 401; Wood v. Grand Valley Railway Co. (1915), 51 S.C.R. 283; Penvidic Contracting Co. v. International Nickel Co. of Canada, [1976] 1 S.C.R. 267; Canson Enterprises Ltd. v. Boughton & Co. (1992), 72 B.C.L.R. (2d) 207, aff’d (1995), 11 B.C.L.R. (3d) 262.
Statutes and Regulations Cited
Chancery Amendment Act, 1858 (U.K.), 21 & 22 Vict., c. 27 (Lord Cairns’ Act).
Court of Queen’s Bench Act, S.M. 1988‑89, c. 4, s. 36.
Court Order Interest Act, R.S.B.C. 1996, c. 79.
Courts of Justice Act, R.S.O. 1990, c. C.43, s. 99.
Food and Drugs Act, R.S.C., 1985, c. F‑27 .
Judicature Act, R.S.A. 1980, c. J‑1, s. 20.
Judicature Act, R.S.N.W.T. 1988, c. J‑1, s. 42.
Judicature Act, R.S.Y. 1986, c. 96, s. 27.
Queen’s Bench Act, R.S.S. 1978, c. Q‑1, s. 45(9).
Supreme Court Act, R.S.P.E.I. 1988, c. S‑10, s. 32.
Authors Cited
Birks, Peter. “The Remedies for Abuse of Confidential Information”, [1990] Lloyd’s Mar. & Com. L.Q. 460.
Capper, David. “Damages for Breach of the Equitable Duty of Confidence” (1994), 14 Legal Stud. 313.
Davies, J. D. “Duties of Confidence and Loyalty”, [1990] Lloyd’s Mar. & Com. L.Q. 4.
Great Britain. Law Commission. Breach of Confidence: Report on a Reference under Section 3(1)(e) of the Law Commission Act 1965. Law Com. No. 110, Cmnd. 8388. London: H.M.S.O., 1981.
Great Britain. Law Commission. Working Paper No. 58. Breach of Confidence. London: H.M.S.O., 1974.
Gurry, Francis. Breach of Confidence. Oxford: Clarendon Press, 1984.
McCamus, John D. “Equitable Compensation and Restitutionary Remedies: Recent Developments”. In Special Lectures of the Law Society of Upper Canada 1995: Law of Remedies: Principles and Proofs. Scarborough, Ont.: Carswell, 1995, 295.
North, P. M. “Breach of Confidence: Is There a New Tort?” (1972), 12 J.S.P.T.L. 149.
Restatement (Third) of Unfair Competition: As Adopted and Promulgated by the American Law Institute at Washington, D.C., May 11, 1993, c. 4. St. Paul, Minn.: American Law Institute, 1995.
Sharpe, Robert J. Injunctions and Specific Performance, 2nd ed. Aurora, Ont.: Canada Law Book, 1992 (loose‑leaf updated November 1998, release 6).
Tsaknis, Leo. “The Jurisdictional Basis, Elements, and Remedies in the Action for Breach of Confidence ‑‑ Uncertainty Abounds” (1993), 5 Bond L. Rev. 18.
Weinrib, Arnold S. “Information and Property” (1988), 38 U.T.L.J. 117.
World Intellectual Property Guidebook: Canada. By Milan Chromecek and Stuart C. McCormack; general editor, Donald S. Chisum: New York: M. Bender, 1991.
APPEAL and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal (1996), 23 B.C.L.R. (3d) 325, 138 D.L.R. (4th) 682, [1996] 9 W.W.R. 609, 79 B.C.A.C. 56, 129 W.A.C. 56, 29 B.L.R. (2d) 14, 69 C.P.R. (3d) 22, [1996] B.C.J. No. 1813 (QL), allowing the respondents’ appeal from a decision of the British Columbia Supreme Court (1994), 93 B.C.L.R. (2d) 318, [1994] 8 W.W.R. 727, [1994] B.C.J. No. 1191 (QL). Appeal allowed and cross‑appeal dismissed.
Michael P. Carroll, Q.C., Peter G. Voith and Monika B. Gehlen, for the appellants.
Jack Giles, Q.C., and David T. Woodfield, for the respondents.
The judgment of the Court was delivered by
//Binnie J.//
1 Binnie J. -- Clamato juice is a confection of tomato juice and clam broth. By the early 1980s it had developed a market in Canada about 10 times the size of its market in the United States, where it originated. To a significant extent, its success in Canada is attributed to the efforts of the appellants and their predecessors, who manufactured Clamato juice at plants in Vancouver and eastern Ontario under licence from the respondents. The respondents terminated the licence effective April 15, 1983. The courts below concluded that thereafter the appellants misused confidential information related to the Clamato recipe obtained during the licence period to continue to manufacture a rival tomato-based drink, which they called Caesar Cocktail. Liability for breach of confidence is no longer contested. This appeal requires us to consider appropriate remedies for breach of confidence in a commercial context.
2 The respondents obtained from the British Columbia Court of Appeal a permanent injunction against continued use of the confidential information, or products derived therefrom, plus an award of compensation equivalent to the profits the respondents would have earned had they in fact sold an additional volume of Clamato equivalent to the sales of Caesar Cocktail during the 12-month period following termination of the licence. In this Court the appellants complain that the order of the British Columbia Court of Appeal effectively makes them the insurer of the respondents’ profits in the year following the termination, despite the fact it was the respondents who precipitated the termination and thus any market dislocation suffered by Clamato. The appellants want the compensation to be reduced to zero. The respondents, equally indignant, analogize the misused confidential information to a species of property which the appellants have converted to their own use. In their cross-appeal they therefore attack the limitation of their compensation to the profits they would otherwise have earned to a mere 12 months. The respondents say they want the market value of the “pirated” information.
Facts
3 Duffy-Mott registered in Canada the trademark CLAMATO on October 17, 1969. In the late 1970s, it decided to supply the Canadian market by licensing its trademark and its formula to local juice manufacturers, who undertook “the manufacture, distribution, sale and marketing” of Clamato in an exclusive territory. Caesar Canning Ltd. of British Columbia, now bankrupt, obtained the territory consisting of Ontario and Western Canada for a series of 12-month periods, indefinitely renewable provided the licensee achieved a minimum volume of sales in each 12-month period. Caesar Canning easily exceeded the minimum volumes in each 12-month period.
4 By the spring of 1979, Caesar Canning had built up a distribution system and promoted the product with sufficient energy that its territory was extended to include the rest of Canada. Local sources were obtained for the ingredients except the premixed portion of the dry seasonings, which was provided by the licensor, Duffy-Mott. The Food and Drugs Act, R.S.C., 1985, c. F-27 , and regulations thereunder, and their U.S. equivalent, required disclosure on the product label of all the ingredients in descending order of quantity. However, neither Caesar Canning nor the other appellants ever did discover the precise formula of the respondents’ secret “dry mix”. Nevertheless, to enable Caesar Canning to produce Clamato, Duffy-Mott communicated related information about its recipe and manufacturing procedures which the trial judge found to be confidential. This finding is no longer attacked.
5 On May 11, 1981, Caesar Canning entered into a contract with the appellant FBI Foods Ltd. to manufacture Clamato and related products at its Trenton, Ontario plant. The parties called their contract a “Tolling Agreement”, and FBI Foods was paid a fixed fee for each case of juice product. The contract was for a period of five years, unless sooner terminated for various reasons, including earlier termination of the underlying Licence Agreement between Duffy-Mott and Caesar Canning. Duffy-Mott consented to, but was not a party to, the Tolling Agreement. To enable it to manufacture Clamato, FBI Foods was given information about the Clamato recipe and methods of manufacture which Duffy-Mott regarded as, and FBI Foods now acknowledges was, confidential.
Termination of the Licence
6 In 1982, the respondent Cadbury Schweppes acquired the shares of Duffy-Mott and, in a switch of business strategy, decided that Duffy-Mott would take back the production and marketing of Clamato in Canada. To this end, it notified Caesar Canning on April 15, 1982 that the Licence Agreement (and consequently the sub-agreement with FBI Foods) would terminate in 12 months. Caesar Canning was offered an ongoing contract to produce Clamato at a fixed fee per case, which it declined.
7 It is important to note that the Licence Agreement left Caesar Canning (and therefore FBI Foods) free to compete with the respondent in the juice market after termination. The Licence Agreement provided only that Caesar Canning would no longer have the right to use the trademark CLAMATO and it would not, for a period of five years, manufacture or distribute any product “which includes among its ingredients clam juice and tomato juice” (emphasis added).
8 Armed with 12 months’ notice of the termination of its licence, Caesar Canning immediately began work to develop a competing product. Lorne Nicklason, its Manager of Quality Control and Quality Assurance, developed a “reformulated” tomato-based juice over a few months in late 1982, working from the list of ingredients and processing specifications for Clamato, but omitting clams or other seafood. He made sure that the new product was distinguishable chemically from Clamato, with different levels of salt, pH, and soluble solids. However, the trial judge found (93 B.C.L.R. (2d) 318, at p. 325), and it is no longer disputed, that:
It is beyond doubt that without the formula and process information about Clamato Mr. Nicklason could not have developed Caesar Cocktail personally. He did not have the necessary skills. The evidence is equally persuasive that Caesar Canning could have developed a product as much like Clamato as Caesar Cocktail without using the Clamato recipe by hiring the appropriate skills. It could have done so within the 12-month notice period at modest cost.
... Anyone who saw the recipe for Caesar Cocktail would have known that it was derived so entirely from the Clamato formulation as to be a virtual copy without clams. The other variations were very minor.
9 It must have come as an unpleasant surprise to Duffy-Mott when Caesar Cocktail was able to substantially replicate the look, smell, texture and taste of Clamato juice, and win a significant share of the market without resort to clam broth or other seafood extract.
10 Caesar Cocktail went on the market immediately after the licensing agreement terminated on April 15, 1983. After being assured that Caesar Canning was not in breach of its contractual covenants with the respondents, FBI Foods agreed to co-pack the new product for eastern Canada. Caesar Cocktail proved to be a success, though its market share trailed a long way behind that of Clamato.
11 Unbeknownst to the appellants, the respondents had surreptitiously discovered the exact formula of Caesar Cocktail at the end of March 1983 by slipping a technical expert onto the team for the final financial audit of Caesar Canning under the Licence Agreement. Despite this knowledge, the respondents did not take any action to enjoin the manufacture and sale of Caesar Cocktail, or otherwise protest. The respondents mistakenly believed (as did Caesar Canning) that the absence of clam broth in the reformulated recipe would be fatal to their claim.
12 Caesar Canning did not live long enough to enjoy its new success. It ran into serious financial problems, ceased production on October 23, 1985, and shortly thereafter made an assignment in bankruptcy. The appellant FBI Foods, which by then relied for a significant portion of its business on the production of Caesar Cocktail, purchased the assets of Caesar Canning, including the Caesar Cocktail brand, for $955,000. It decided to carry on this aspect of the business through a wholly owned subsidiary, its co-appellant FBI Brands. The sale of assets was completed on January 10, 1986. Since that time, FBI Brands has produced and sold Caesar Cocktail under various brand names (other than Clamato) throughout Canada.
13 In 1986, three years after Caesar Cocktail came on the Canadian market, the respondents obtained new and more optimistic legal advice respecting their legal rights, and dispatched a cease and desist letter to FBI Brands. As stated, Caesar Canning, the only entity against which they had a contractual claim, had by that time disappeared into bankruptcy. Eventually, this action was commenced in 1988 against the FBI companies, and the Chief Operating Officer of FBI Foods, Lawrence Kurlender. No claim was ever made for an interlocutory injunction.
Judgments Below
Supreme Court of British Columbia
14 Though the pleadings outlined several causes of action, Huddart J. found it necessary to deal only with the claim for breach of confidence. She held that the information Duffy-Mott had shared with Caesar Canning and FBI Foods was confidential trade know-how, and that it had been disclosed in confidence to Caesar Canning. She found that, quite apart from any contractual arrangements, express or implied, there is a well-understood obligation of confidentiality in the food industry with respect to such disclosures. She found that all parties recognized the custom that the confidential information was to be used only for the purpose provided. Applying the analysis set out in Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, the trial judge held that Caesar Canning had wrongfully misused the confidential information in its “reformulation” from Clamato to Caesar Cocktail. Nevertheless, Huddart J. considered that the value of the “confidential information” was both transitory and of marginal importance. The formulation of tomato juice products is well understood in the industry. The absence of clam broth from the juice mixture apparently did not worry consumers. The real marketing edge of “Clamato” was its trademark, which the defendants did not infringe. Although there was conflicting evidence on the point, she accepted evidence of consumer testing by the National Food Laboratory that consumers in a blind taste test could (albeit with some hesitation) detect a difference between Caesar Cocktail and Clamato.
15 Turning to the issue of remedy, Huddart J. was faced with the fact that the plaintiffs at trial had waived any claim to disgorgement (or an accounting) of profits. On receipt of the trial judgment the plaintiffs, through new counsel, sought to reopen their waiver of an accounting of profits, but the application was denied.
16 The trial judge found that the plaintiffs had not established any financial loss. The original Clamato continued to dominate its market niche. However, the trial judge did not send the plaintiffs away empty-handed. She concluded that by misappropriating the confidential information the defendants had wrongfully obtained a 12-month “springboard” into the highly competitive juice market that but for the breach they would not have enjoyed. Accordingly, she ruled (1 B.C.L.R. (3d) 258, at pp. 260-61) that:
When [the plaintiffs] did not prove any loss caused by the misuse of the Clamato recipe, I awarded what have come to be known as “headstart damages” for reasons of fairness.
She assessed “headstart damages” as the amount it would have cost Caesar Canning to hire a consultant to assist with in-house development of a new tomato-based brand during the 12-month notice period. The registrar later assessed this amount to be $29,761.20.
17 As to the respondents’ claim for a permanent injunction, Huddart J. found that their inactivity since 1983, when they became aware of all pertinent facts, was fatal. Further, relying on Lord Denning’s judgment in Seager v. Copydex Ltd., [1967] 2 All E.R. 415 (C.A.) (“Seager v. Copydex Ltd. (No. 1)”), and Megarry J. in Coco v. A. N. Clark (Engineers) Ltd., [1969] R.P.C. 41 (Ch. D.), she questioned the appropriateness of an injunction in a case where much of the “confidential” information was either public or of marginal significance, and any injury could be satisfactorily remedied by financial compensation.
British Columbia Court of Appeal (1996), 23 B.C.L.R. (3d) 325
18 Cadbury Schweppes fared better in the British Columbia Court of Appeal. Newbury J.A., for the court, accepted the trial judge’s findings that there had been a breach of confidence, and that a similar product could have been (but was not) developed independently of the confidential information within 12 months. She found (at p. 345) that:
. . . the plaintiff cannot ask the Court to restore him to a market monopoly position if in fact that position was vulnerable to attack in the form of legitimate competition from the defendant.
However, Newbury J.A. rejected the “consulting fee” valuation adopted by the trial judge. Pointing out the agreement of the parties that evidence at trial would be limited to liability issues, with an assessment of damages postponed to a later proceeding (if necessary), Newbury J.A. ordered a reference to determine the amount the plaintiffs would have earned if they (instead of the defendants) had in fact sold the volume of Caesar Cocktail marketed by the defendants in the 12-month period following termination. Further, Newbury J.A. concluded (at pp. 351-52) that a permanent injunction was appropriate, because:
. . . the interests of justice require[d] [the] Court to enjoin the continued breach of confidence by the defendants -- that is, that it enjoin the defendants from making use in the manufacture of a tomato cocktail, the specifications, technical information, advice, and derivatives thereof, that were disclosed to Caesar Canning Ltd. and/or the defendants or any of them in confidence pursuant to the Licensing and Tolling Agreements, and that are not otherwise generally known.
Analysis
19 Equity, as a court of conscience, directs itself to the behaviour of the person who has come into possession of information that is in fact confidential, and was accepted on that basis, either expressly or by implication. Equity will pursue the information into the hands of a third party who receives it with the knowledge that it was communicated in breach of confidence (or afterwards acquires notice of that fact even if innocent at the time of acquisition) and impose its remedies. It is worth emphasizing that this is a case of third party liability. The appellants did not receive the confidence from the respondents, but from the now defunct Caesar Canning. The receipt, however, was burdened with the knowledge that its use was to be confined to the purpose for which the information was provided, namely the manufacture of Clamato under licence.
20 The equitable doctrine, which is the basis on which the courts below granted relief, potentially runs alongside a number of other causes of action for unauthorized use or disclosure of confidential information, including actions sounding in contract, tort and property law. In Lac Minerals, supra, it was suggested that the action for breach of confidence should be characterized as a sui generis hybrid that springs from multiple roots in equity and the common law, per Sopinka J., dissenting, at p. 615:
The foundation of action for breach of confidence does not rest solely on one of the traditional jurisdictional bases for action of contract, equity or property. The action is sui generis relying on all three to enforce the policy of the law that confidences be respected.
21 While the only controversies still alive in this Court turn on the principles on which financial compensation is to be calculated, and whether or not this is a proper case for a permanent injunction, the disagreement among the parties on the remedies reflect their differing views as to the true nature and scope of the cause of action for breach of confidence. This appeal therefore requires us to examine more closely the character of the interest protected in this case, and on that basis to assess the appropriateness of the remedy that was in fact granted by the British Columbia Court of Appeal.
22 After making the comment reproduced above, Sopinka J. added, at p. 615:
This multi-faceted jurisdictional basis for the action provides the Court with considerable flexibility in fashioning a remedy. The jurisdictional basis supporting the particular claim is relevant in determining the appropriate remedy. [Emphasis added.]
23 This observation has to be read in light of the actual result in that case. It will be recalled that the defendant Lac Minerals was held to have acquired in confidence information about potential gold deposits in Northern Ontario from the plaintiff Corona Resources in the course of negotiations for a joint venture. Lac Minerals had been brought into the picture because its financial clout as a “senior” mining company was considered by Corona to be essential to obtain funding to develop the gold mine. Lac Minerals quietly used the information received from Corona to bid behind Corona’s back for a rich gold-bearing property adjacent to the Corona site from a third party, then let the negotiations with Corona lapse. It was thereby held to have misused confidential information to scoop for itself a commercial opportunity that it would otherwise have known nothing about. All members of this Court agreed that there had been an actionable breach of confidence, but divided on the issue of whether or not a fiduciary duty existed, and, if so, the appropriate remedy. Of the five members of this Court who heard the appeal, only two (La Forest and Wilson JJ.) held that Lac Minerals had breached a fiduciary duty to Corona. Applying fiduciary principles, and aiming at disgorgement, they held that a constructive trust should be impressed on the gold mine in favour of Corona. La Forest J. considered that a constructive trust could be imposed “regardless of the basis of liability” (p. 643). The other three members of the Court (McIntyre, Lamer and Sopinka JJ.) held that imposition of a fiduciary duty was inappropriate in light of the commercial nature of the relationship, but split on the appropriate remedy. Lamer J. (as he then was) agreed with Wilson and La Forest JJ. that a constructive trust ought to be imposed. The other judges considered that it was inappropriate to impose a proprietary remedy, i.e., a constructive trust, on the asset itself (the gold mine) and would have awarded financial compensation only. The majority view on remedy (per Lamer, Wilson and La Forest JJ.) therefore imposed a constructive trust even though it was the majority view on liability (per McIntyre, Lamer and Sopinka JJ.) that the parties were not in a fiduciary relationship.
24 The result of Lac Minerals is to confirm jurisdiction in the courts in a breach of confidence action to grant a remedy dictated by the facts of the case rather than strict jurisdictional or doctrinal considerations. See J. D. Davies, “Duties of Confidence and Loyalty”, [1990] Lloyd’s Mar. & Com. L.Q. 4, at p. 5:
There is much to be said for the majority view [in Lac Minerals] that, if a ground of liability is established, then the remedy that follows should be the one that is most appropriate on the facts of the case rather than one derived from history or over-categorization.
25 The decision in Lac Minerals was thus approvingly interpreted by the New Zealand Court of Appeal in Aquaculture Corp. v. New Zealand Green Mussel Co., [1990] 3 N.Z.L.R. 299, and, thus interpreted, was criticized by P. Birks, in “The Remedies for Abuse of Confidential Information”, [1990] Lloyd’s Mar. & Com. L.Q. 460, at pp. 464-65. In the Aquaculture case Cooke P., for the New Zealand Court of Appeal, had this to say at p. 301:
Whether the obligation of confidence in a case of the present kind should be classified as purely an equitable one is debatable, but we do not think that the question matters for any purpose material to this appeal. For all purposes now material, equity and common law are mingled or merged. The practicality of the matter is that in the circumstances of the dealings between the parties the law imposes a duty of confidence. For its breach a full range of remedies should be available as appropriate, no matter whether they originated in common law, equity or statute. [Emphasis added.]
26 While none of the judges who decided Lac Minerals advocated common law or statutory remedies for an action for breach of confidence, they did look to the underlying policy objectives of the various potential causes of action. They fastened on the particular circumstances that gave rise to liability in the case before them as governing the choice of remedy. That having been said, La Forest J., at p. 677, was at pains to avoid a “Chancellor’s foot” approach to the choice of remedy:
I do not countenance the view that a proprietary remedy can be imposed whenever it is “just” to do so, unless further guidance can be given as to what those situations may be. To allow such a result would be to leave the determination of proprietary rights to “some mix of judicial discretion . . . subjective views about which party ‘ought to win’ . . ., and ‘the formless void of individual moral opinion’”. . . .
The emphasis on matching the remedy to underlyin