Lloyd's Maritime and Commercial Law Quarterly
RESTORATION FOR BREACH OF CONFIDENCE
Cadbury Schweppes
v. FBI Foods
In Cadbury Schweppes Inc.
v. FBI Foods,
1
the defendants used the plaintiffs’ secret recipe for a beverage and the processes used in making it, to create a competing product for themselves. The main issue before the Supreme Court of Canada was the appropriate measure of the pecuniary relief for breach of confidence. The Supreme Court held that the plaintiffs were entitled to a pecuniary award in a “restorative” amount representing their “lost opportunity”, being the economic advantage the plaintiffs would have enjoyed but for the breach of confidence.
The facts
In 1977, Duffy-Mott Company Inc. entered into an agreement with Caesar Canning under which Caesar Canning was granted an exclusive licence and undertook to manufacture and market a beverage known as “Clamato”™ in parts of Canada.2
Duffy-Mott agreed to supply Caesar Canning with a “premixed” portion of the dry ingredients required by the Clamato recipe. Duffy-Mott was never required to disclose the components and proportions of its unique spice blend. Throughout the relationship, it never did. Caesar Canning subsequently entered into a co-packing agreement with FBI Foods under which FBI Foods produced the beverage.
In 1982, Cadbury Schweppes acquired the shares of Duffy-Mott. Shortly thereafter, Duffy-Mott notified Caesar Canning that it was terminating the licence agreement on 12 months’ notice, effective 15 April 1983. Caesar Canning immediately began to develop a competing beverage, using a list of ingredients, the processing specifications and the Clamato product as a base. The new product was a success. It tasted enough like the original Clamato beverage that most customers could not distinguish them.3
After FBI Foods purchased the assets of Caesar Canning, including the right to produce its new beverage, Cadbury Schweppes Inc. and its Canadian affiliate, Cadbury Beverages Canada Inc., (together, “Cadbury”) commenced legal proceedings against FBI Foods and
1. [1999] 1 S.C.R. 142; (1999) 167 D.L.R. (4th) 577 (S.C.C.), varying (1996) 138 D.L.R. (4th) 682 (B.C.C.A.), additional reasons at 708 and at [1997] 2 W.W.R. 149 (B.C.C.A), which varied [1994] 8 W.W.R. 727 (B.C.S.C.).
2. For the uninitiated, Clamato™ is tomato juice with clam juice and assorted spices. Some people add vodka. According to the trial judge, its sales in Canada are 10 times greater than in the United States.
3. The Licence Agreement contained a covenant that, for a period of five years after the termination of the licence, the licensee would not manufacture, produce, market, advertise, distribute or sell in the exclusive territories any other product which includes, among its ingredients, clam juice and tomato juice. The new product was chemically different from Clamato and did not contain clam juice. In effect, the restrictive covenant in the licence agreement did not protect Cadbury from competition.
CASE AND COMMENT
143