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Cadbury Schweppes Inc. v. FBI
Foods Ltd. citation(s): [1999] 1 SCR 142, (S.C.C. per Binnie J.) |
copyright 2015 Donald M. Cameron, Bereskin & Parr LLP
Contents
Summary
[1] 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.
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.
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.
Remedies
43 Whether the cause of action is described as sui generis or equitable does not change its preoccupation with the violation of a confidence. It is nevertheless true that the nature of the information may influence the appropriate remedy. The respondents rely on the much-quoted (and often criticized) analogy drawn by Lord Denning M.R. in Seager v. Copydex Ltd. (No. 2), supra, in which he analogized compensation for breach of confidence to damages for conversion of property, at p. 719:
Now a question has arisen as to the principles on which the damages are to be assessed. They are to be assessed, as we said, at the value of the information which the defendant company took. If I may use an analogy, it is like damages for conversion. Damages for conversion are the value of the goods. Once the damages are paid, the goods become the property of the defendant. A satisfied judgment in trover transfers the property in the goods. So, here, once the damages are assessed and paid, the confidential information belongs to the defendant company.
48 I agree, of course, with the author’s emphasis on confidentiality. Breach of confidentiality is the gravamen of the complaint. When it comes to a remedy, however, I do not think a proprietary remedy should automatically follow. There are cases (as in Lac Minerals) where it is appropriate. But equity, with its emphasis on flexibility, keeps its options open. It would be contrary to the authorities in this Court already mentioned to allow the choice of remedy to be driven by a label (“property”) rather than a case-by-case balancing of the equities. In some cases, as Lord Denning showed in Seager v. Copydex Ltd. (No. 2), supra, the relevance of the specific quality of the information to a remedy will not be its property status but its commercial value. In other cases, as in Lac Minerals, the key to the remedy will not be the “property” status of the confidence but the course of events that would likely have occurred “but for” the breach. Application of the label “property” in this context would add nothing except confusion to the task of weighing the policy objectives furthered by a particular remedy and the particular facts of each case. In the present 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 market place within 12 months. On these facts, a “proprietary” remedy is inappropriate.
51 In the present case, the policy objectives in both equity and tort would support restoration of the plaintiff to the position it would have occupied “but for” the breach (Elsley v. J. G. Collins Insurance Agencies Ltd., [1978] 2 S.C.R. 916, per Dickson J., at p. 935). …
66 The trial judge clearly consigned the trade secrets which the respondents had confided to the appellants to the “nothing very special” category, as she awarded Lord Denning’s measure of compensation applicable to the lowest level of importance, a mere consulting fee to represent the avoided cost of in-house development. The respondents complain that no consultant could exactly replicate the magic of Clamato, and certainly could not do so in 12 months. The trial judge’s view, however, was that it would not be necessary for the appellants to discover and replicate exactly the respondents’ production techniques. They would be competitive using substitute techniques that produced any sufficiently close copycat tomato-based product to satisfy the ordinary customer. If the market value of the confidential information is the proper measure of compensation in this case, I would accept the assessment of the trial judge. My quarrel is not with her calculation but with the underlying premise that market value is the appropriate approach on the facts of this case.
K. The Springboard Doctrine
67 The trial judge acknowledged that the breached confidences had acted as a “springboard” to enable the appellants to bring Caesar Cocktail to market 12 months earlier than would otherwise have been the case. The “springboard” or “head start” concept descends from the judgment of Roxburgh J. in Terrapin Ltd. v. Builders’ Supply Co. (Hayes) Ltd., [1967] R.P.C. 375 (Ch. D1959), aff’d [1960] R.P.C. 128 (C.A.), at p. 391:
As I understand it, the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a spring-board for activities detrimental to the person who made the confidential communication, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public.
The “springboard” concept has been referred to in Canada, including in Lac Minerals, per Sopinka J., at p. 610; Santé Naturelle Ltée v. Produits de Nutrition Vitaform Inc. (1985), 5 C.P.R. (3d) 548 (Que. Sup. Ct.), at p. 553; Montour Ltée v. Jolicœur (1988), 19 C.I.P.R. 25 (Que. Sup. Ct.), at p. 45; Matrox Electronic Systems Ltd. v. Gaudreau, [1993] R.J.Q. 2449 (Que. Sup. Ct.), at pp. 2463-64; and Ben-Israel v. Vitacare Medical Products Inc., supra, per Beaulieu J., at p. 106.
68 The respondents contend that the trial judge erred in her measure of equitable compensation for two reasons. Firstly and most importantly, they were not in the business of selling their trade secrets to competitors, and therefore the “market value” of the information is irrelevant. There is some support for this in the reasons of Sir Edward Eveleigh in Dowson & Mason Ltd. v. Potter, [1986] 2 All E.R. 418 (C.A.), where at p. 422 he rationalized Seager v. Copydex Ltd. (No. 2), on the basis that in that case the plaintiff “would have sold [the] information; that was his line of business”. There is also some support for this view in Coco v. A. N. Clark (Engineers) Ltd., supra, per Megarry J. at p. 50.
69 Secondly, the respondents say the “springboard” cases are inapplicable because, properly understood, they presuppose that at the end of the “head start” period, the defendants would in fact have discovered the actual secrets they earlier misappropriated. In fact, they say, Clamato has been often emulated but never precisely copied.
70 In my view the respondents’ argument reads the jurisprudence too narrowly. The unique features of the respondents’ manufacturing process, and its alleged lack of replicability, do not necessarily establish a causal relationship to a financial loss. The respondents were not in the business of selling information, and I therefore agree with them that the “market value” of the confidential information is not the appropriate measure of compensation in this case.
71 That having been said, the respondents were in the business of exploiting commercial opportunities, and their ability to make a profit from Clamato was limited by the acknowledged entitlement of the appellants to market a similar product without clam juice. The assessment of compensation has therefore to address the value of the lost market opportunity and, in particular, the lost advantage of being able to market Clamato free of the appellants’ competition for 12 months, and not be diverted to a valuation of the confidential information itself.
72 The trial judge held that the appellants were able to approximate the taste of Clamato without ever having had access to the secret “dry mix”, and that this approximation was sufficient for commercial purposes. While the details of the respondents’ particular combination of manufacturing process might have remained undiscovered forever, she found that there are different substitute ways to produce the desired result. As the trial judge observed, Clamato had a certain identity of taste and texture and “considerable changes can be made to the ingredients and process of a food product without the product identity being changed” (p. 329). For that reason, the precision of a few degrees temperature here or a few pounds pressure there, and the other details imparted in confidence to the appellants, were found to be “nothing very special”. These findings are important because they show that while Clamato is unique, its uniqueness is not a condition of exploiting (nor an assurance of defending) the commercial opportunity.
73 The respondents complain that the trial judge’s analysis was hypothetical, because the appellants have never in fact reproduced Clamato using non-confidential technology. However, the Court is free to draw inferences from the evidence as to what would likely have happened “but for” the breach: Lac Minerals, per Sopinka J., at pp. 619-20, and per La Forest J., at pp. 668-69; Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., [1991] 3 S.C.R. 3, at p. 15; Pharand Ski Corp. v. Alberta, supra, per Mason J., at p. 263, para. 202; and Chaleur Silica Inc. v. Lockhart (1990), 108 N.B.R. (2d) 366 (Q.B.), per Russell J., at p. 405, para. 76. In the case of Coco v. A. N. Clark (Engineers) Ltd., supra, on which they rely so strongly, Megarry J., at p. 49, pointed to the artificiality of actually requiring the confidant to discover “independently” the information of which he or she is already aware.
74 In my view, the key to the assessment of equitable compensation in this case is the expected duration of the respondents’ “lost opportunity”, i.e., the economic advantage they would have enjoyed after the cancellation of the licence “but for” the breach. It would be inequitable to protect the respondents’ interest in a commercial opportunity they never enjoyed by invoking undue solicitude for their “nothing very special” information.
75 There is a further more general objection to the respondents’ formalistic approach. Equity has set a relatively low threshold on what kinds of information are capable of constituting the subject matter of a breach of confidence. In Coco v. A. N. Clark (Engineers) Ltd., supra, Megarry J., at p. 47, considered that “some product of the human brain” applied to existing knowledge might suffice. A similarly expansive concept was adopted in Lac Minerals at p. 610 by Sopinka J., quoting Lord Greene M.R. in Saltman Engineering Co. v. Campbell Engineering Co. (1948), 65 R.P.C. 203 (C.A.), at p. 215. Gurry in Breach of Confidence, supra, gives instances of information which were protected from disclosure because they were otherwise inaccessible, despite the fact that they possessed little or no actual value, including the commercially disastrous invention for rearing pigs at issue in Nichrotherm Electrical Co. v. Percy, supra. He concludes, at p. 82:
It would seem, therefore, that the nonsensical nature of information is not to be regarded as a barrier to confidentiality, but, rather, as a factor which the court will take into account in the exercise of its discretion whether to grant equitable relief, or as a factor affecting the quantum of any damages which may be in question. [Emphasis added.]
89 In these circumstances, the trial judge was correct to refuse a permanent injunction, and the permanent injunction issued by the British Columbia Court of Appeal should be vacated.
M. The Measure of Financial Compensation
90 The respondents, thus denied an injunction, must look entirely to dollars and cents for their restoration. I think, as stated, the Court of Appeal was correct to reject the trial judge’s “consulting fee” approach in this case. The award would not restore the respondents to the position they would have been in but for the breach. The respondents did not lose a consulting fee. They were not in that business.
91 This case is closer to Dowson & Mason Ltd. v. Potter, supra, where the plaintiff, as here, was a manufacturer, not a seller of information. In that case, the court affirmed the trial judge’s view (at p. 424) that:
. . . the proper basis for the assessment of damages is the loss suffered by the plaintiffs according to their loss of profits resulting from the assumed wrongful disclosure and use of the confidential information. . . . [Emphasis added.]
92 In my view, however, the British Columbia Court of Appeal erred in being prepared to assume, for purposes of achieving an equitable result, that if Caesar Cocktail had been kept off the market because of its unconscionable origins, the respondents would have filled the void with sales of Clamato juice. The respondents’ damages, on this assumption, would be their lost profit on the assumed sales of Clamato juice. While this approach puts the focus where it belongs, on the financial position of the respondents, it makes a number of unjustified assumptions. There is as yet no precise evidence that the sales of Clamato juice were affected by the marketing of Caesar Cocktail, and if so to what extent. The compensation order of the Court of Appeal raises issues of causation that concerned the courts as long ago as 1895 in Robb v. Green, [1895] 2 Q.B. 1, per Hawkins J., at pp. 19-20:
It is impossible with mathematical accuracy to ascertain [the loss]. It would be unjust to saddle the defendant with every loss of custom the plaintiff has sustained, for that cannot all be reasonably attributed to the unlawful action of the defendant. The specific instances as yet traced to the defendant’s action are, it is true, but few; but still their loss does not form the limit of the injury to the plaintiff, for the wholesale canvass of his customers was likely to influence many and to diminish permanently his receipts and profits. On the other hand, fluctuation of business, bad times, and many other circumstances may possibly have contributed to the loss. I cannot, therefore, award the plaintiff an indemnity against the whole diminution of his trade.
93 In Canson Enterprises, supra, McLachlin J. emphasized, at p. 556, that “[t]he plaintiff’s actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight . . . but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach”.
94 The reference directed by the Court of Appeal should therefore continue, but on somewhat modified terms. Firstly, the mandate is to assess the loss attributable to the breach of confidence, if any, sustained by the respondents during the 12-month period following the termination. For this purpose, some guidance may be taken from the discussion of compensation for breach of trade secrets outlined in the American Restatement (Third) of Unfair Competition, ch. 4, at § 45, p. 516:
e. Relief measured by plaintiff’s loss. A frequent element of loss resulting from the appropriation of a trade secret is the lost profit that the plaintiff would have earned in the absence of the use by the defendant. The plaintiff may prove lost profits by identifying specific customers diverted to the defendant. The plaintiff may also prove lost profits through proof of a general decline in sales or a disruption of business growth following the commencement of use by the defendant, although the presence of other market factors that may affect the plaintiff’s sales bears on the sufficiency of the plaintiff’s proof. If the evidence justifies the conclusion that the sales made by the defendant would have instead been made by the plaintiff in the absence of the appropriation, the plaintiff may establish its lost profits by applying its own profit margin to the defendant’s sales.
95 The respondents led some evidence of a general nature that Clamato’s national market share dropped from 83.1 percent to 77.8 percent in the 12 months after termination, and that Caesar Cocktail picked up 7.1 percent of the national market in its first year of sales. The respondents will no doubt lead evidence that their loss of market share can be linked to evidence of sales that were in fact diverted to Caesar Cocktail or its derivatives in that period. The task of the Referee is to get as good an approximation as is possible at this late date of the magnitude of the respondents’ loss. In pursuing this inquiry, the Referee ought not to demand from the respondents a level of proof that is greater than the subject matter permits. See, e.g., Planon Systems Inc. v. Norman Wade Co., supra, per Spence J., at paras. 72-75.
96 Secondly, the compensable period is the 12 months following termination, as directed by the Court of Appeal. The appellants argue that the 12-month period ought to begin with the date of the notice of April 15, 1982 and point out that the trial judge said the appellants could have developed a Caesar Cocktail-like tomato juice without using the Clamato manufacturing information “within the 12-month notice period”. The fact is, however, that on April 15, 1983, the date when the licence expired, the appellants did not have a formulation for Caesar Cocktail that complied with their legal obligations to the respondents. They had in fact taken no steps to produce a product that complied. I see no reason to “backdate” the fiction of their hypothetical research to the notice period. The appellants did not begin to sell a product in breach of the confidence until April 15, 1983. Thus began the period of unfair competition which turned the respondents’ “opportunity” into a “lost opportunity”. I therefore believe that the Court of Appeal was correct to start the compensable period on April 15, 1983. The trial judge found that the competition would have ceased to be unfair once the appellants could reasonably have been expected to come up with a tomato juice product independently of the confidential information. The trial judge fixed that period at 12 months. Accordingly, the respondents’ argument to extend the compensation period beyond April 14, 1984 should also be rejected. As the market advantage created by the “nothing very special” information lapsed at the end of the 12-month period, an award that continued the compensable period beyond that date would benefit the respondents to an extent which the courts below found would be unjust.
97 Thirdly, the Referee may think it proper to have regard to the “other market factors” mentioned in the American Restatement. It must be remembered that, at the time of the termination, Caesar Canning and FBI Foods had built up a business infrastructure to which the respondents denied themselves access by their notice of termination, and which the appellants were perfectly entitled to utilize to advance their own economic interests thereafter. As counsel for the respondents acknowledged in oral argument, the appellants “had the distribution system, they had the experience, they’d built up the market and they had the contacts. Why did they have to take this [trade secret] as well?”. His point was to emphasize the vulnerability of his clients to a breach of confidence. However, if in fact the sales of Clamato dropped in the 12 months following termination, as appears to be the case, it may be that at least some of the drop was caused by the self-inflicted deprivation of this business infrastructure, and was not causally related to the existence of Caesar Cocktail.
98 Fourthly, the assessment of the respondents’ loss of profit may include consideration of the royalties otherwise payable under the Licence Agreement for the 12-month compensable period. While it is true the respondents intended to exit the licensing business and to confine themselves thereafter to manufacturing and distribution, it is also true that the appellants frustrated that intention by continuing to use at least part of what was licensed. The Referee may, therefore, as part of the assessment of the respondents’ loss of profit, consider whether all or a portion of the licence fees otherwise payable (which represented the parties’ own evaluation of the income stream attributable to the subject matter), should fairly be included in the calculation.
99 Fifthly, the Referee will have to keep in mind that the objective is a broadly equitable result. Mathematical exactitude is neither required nor obtainable. In United Horse-Shoe and Nail Co. v. Stewart (1888), 13 App. Cas. 401 (H.L.), Lord Watson, admittedly in a patent case, said, at p. 413, that estimating the loss to the plaintiff’s trade “must always be more or less matter of estimate, because it is impossible to ascertain, with arithmetical precision, what in the ordinary course of business would have been the amount of the [plaintiffs’] sales and profits”. The Referee will have to operate by analogy with the principle expressed in Wood v. Grand Valley Railway Co. (1915), 51 S.C.R. 283, per Davies J., at p. 289:
It was clearly impossible under the facts of that case [Chaplin v. Hicks] to estimate with anything approaching to mathematical accuracy the damages sustained by the plaintiffs, but it seems to me to be clearly laid down there by the learned judges that such an impossibility cannot “relieve the wrongdoer of the necessity of paying damages for his breach of contract” and that on the other hand the tribunal to estimate them whether jury or judge must under such circumstances do “the best it can” and its conclusion will not be set aside even if the amount of the verdict is a matter of guess work.
This principle was quoted and applied in Penvidic Contracting Co. v. International Nickel Co. of Canada, [1976] 1 S.C.R. 267, per Spence J., at pp. 279-80. See also Apotex Fermentation Inc. v. Novopharm Ltd., supra, where the Manitoba Court of Appeal states, at p. 512:
Where injury has been suffered in a complex commercial setting, a “flexible and imaginative approach” to the assessment of the damages may be required.
100 These considerations are not, of course, exhaustive. I mention them because they arose out of the argument before us, and it is devoutly to be hoped that they may save the parties some time and money at the next stage of their 16-year long wrangle.
Disposition of the Appeal
101 The appeal is therefore allowed, with costs, and the Referee is directed to calculate the amount of compensation required to restore to the respondents what the respondents have lost as a result of the appellants’ breach of confidence. The period of calculation, for the reasons given, is to be restricted to the 12-month period commencing April 15, 1983. The award will carry pre-judgment interest from the dates of the losses, and post-judgment interest at table rates under the Court Order Interest Act, R.S.B.C. 1996, c. 79, will be used where applicable, or otherwise at two percent under banker’s prime. Absent special circumstances, simple interest is the usual award ancillary to equitable remedies in British Columbia: Canson Enterprises Ltd. v. Boughton & Co. (1992), 72 B.C.L.R. (2d) 207 (S.C.), at p. 229, aff’d (1995), 11 B.C.L.R. (3d) 262 (C.A.). The appellants will have their costs in this Court. In light of the history of divided success in the litigation, however, the respondents are still to have their costs in the Court of Appeal at Level 2, as ordered by that court, and the costs of the trial are to be referred to the trial court for disposition.
The Decision
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