[3][4] In 1977, Duffy-Mott decided to license the manufacturing and marketing of Clamato to British Columbian company, Caesar Canning.
With consent from Duffy-Mott, Caesar Canning entered into a sublicensing agreement with FBI Foods Ltd., which produced Clamato for the Eastern Canadian market.
In 1982, Cadbury-Schweppes purchased Duffy-Mott and only a few months later, they informed Caesar Canning they would be terminating the Clamato licensing agreement.
As part of the licensing agreement, Caesar Canning had an industry-standard no-compete-type agreement, which stated that, after the licence's termination, Caesar Canning would not produce, manufacture or distribute any product "which includes amongst its ingredients, clam juice and tomato juice" for a period of five years or any product with a name ending with the letters -MATO.
[5] In response to the loss of the licence, Caesar Canning used the formula for Clamato (which it had received from Duffy-Mott) to create a new type of mixing-juice.
While the product successfully gained market share from Clamato, Caesar Canning did not survive as an independent company and declared bankruptcy in 1985.
[6] Justice Huddart ruled in favour of Cadbury Schweppes after applying the test for whether confidential information had been misused that was laid down by the Supreme Court of Canada in Lac Minerals Ltd. v. International Corona Resources Ltd.
In that case, it was ruled that a plaintiff can recover for misuse of confidential information when the following three conditions are satisfied [7][8] In this case, Justice Huddart ruled that the Clamato recipe was confidential information and therefore worthy of protection because Duffy-Mott used time, money and effort to produce it.
Justice Huddart ruled that FBI Foods Ltd. and Caesar Canning should be liable for their misuse of Duffy-Mott's Clamato recipe.
Justice Newbury agreed with Cadbury-Schweppes and therefore ordered FBI Foods Ltd. to pay a higher level of damages and enjoined them from using the recipe to produce Caesar Cocktail.
To allow FBI Foods Ltd. to essentially "buy" the recipe at such a low price would damage future confidential business relationships.
Justice Binnie felt that the fairest remedy would be to compensate Cadbury-Schweppes for the lost opportunity they suffered as a result of FBI Foods Ltd.'s and Caesar Canning's misuse of their recipe.
He directed a referee to determine an appropriate amount of damages based on Cadbury-Schweppes lost opportunity, but noted that "[m]athematical exactitude is neither required nor obtainable.
[16] Leonard Rotman, then a law professor at the University of Windsor, criticized the Supreme Court's decision in Cadbury Schweppes Inc. v. FBI Foods Ltd.
He felt that the Supreme Court had deviated from the established principle in Brickenden v. London Loan & Savings Co. of Canada.
[19] Rotman thought that the rule in Brickenden should apply to cases where someone misuses information that they received in the context of a fiduciary relationship.