Relevance of detriment and importance of evidence in breach of confidence claim

No Limits Sportswear Inc. v. 0912139 B.C. Ltd., 2015 BCSC 1698 contains an excellent review of a breach of confidence claim in the context of two competing lines of specialty mens’ underwear, SAXX and MyPakage. The defendants obtained sales projections and other information about the plaintiffs’ underwear line when the plaintiffs were seeking investors. After a failed bid to purchase the plaintiffs’ underwear line, the defendants developed a competing line.

Much of the decision restates basic principles, such as the elements of a breach of confidence claim set out in Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574:

1. the information must have a necessary quality of confidence about it;

2. the circumstances under which the information was imparted must give rise to an obligation of confidence; and,

3. the defendant must have made unauthorized use of the information.

The decision confirms the low threshold for what kind of information has the necessary quality of confidence, and that the obligation to keep information confidential may arise by express contract, or by implication based on the circumstances and relationship of the parties. Any use of confidential information other than a permitted use is a misuse; and further, where it is shown that the confidential information was used, the burden lies on the user to show that it was a permitted use. The decision also confirms the broad range of remedies available for breach of confidence.

The decision is important because it decides the issue of whether detriment is a necessary element of an action in breach of confidence. Previous decisions had left this question open. The judge relied on the following paragraphs of the judgment in Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142, to decide the issue:

F. Relevance of Detriment

[52] La Forest J. said in Lac Minerals that if the plaintiff is able to establish that the defendant made an unauthorized use of the information to the detriment of the party communicating it, the cause of action is complete (at pp. 635-36 and 657; see also ICAM Technologies Corp. v. EBCO Industries Ltd. (1991), 36 C.P.R. (3d) 504 (B.C.S.C.), affirmed (1993), 1993 CanLII 2289 (BC CA), 52 C.P.R. (3d) 61 (B.C.C.A.), per Toy J.A., at pp. 63-64; Ontex Resources Ltd. v. Metalore Resources Ltd. (1993), 1993 CanLII 8673 (ON CA), 13 O.R. (3d) 229 (C.A.); 655 Developments Ltd. v. Chester Dawe Ltd. (1992), 1992 CanLII 2842 (NL SCTD), 42 C.P.R. (3d) 500 (Nfld. S.C.).

[53] The issue of detriment arises in this case because the trial judge made a specific finding that the respondents had not suffered financial loss, yet she proceeded to find liability and award damages “in the interest of fairness”. While La Forest J. in Lac Minerals considered detriment to be an essential element of the breach of confidence action (Sopinka J. did not express a view on this point in his discussion of the applicable principles), it is clear that La Forest J. regarded detriment as a broad concept, large enough for example to include the emotional or psychological distress that would result from the disclosure of intimate information (see, e.g., Argyll (Duchess) v. Argyll (Duke), [1967] Ch. 302. In the Spycatcher case, supra, Lord Keith of Kinkel observed, at p. 256, that in some circumstances the disclosure itself might be sufficient without more to constitute detriment:

So I would think it a sufficient detriment to the confider that information given in confidence is to be disclosed to persons whom he would prefer not to know of it, even though the disclosure would not be harmful to him in any positive way.

[54] The concept of detriment need not be explored on this occasion because, as the Court of Appeal correctly emphasized, the parties had agreed prior to trial that any evidence regarding losses allegedly suffered by the plaintiff would be deferred to a post-trial reference. This arrangement obviated the need for the respondents to lead evidence of detriment at the liability trial. In the end, however, having elected the remedy of financial compensation, the respondents will obviously have to demonstrate at the reference the nature and extent of any detriment suffered to establish the basis for a monetary award.

The judge concluded that detriment is a necessary element when the only remedy claimed is compensation for the plaintiff’s losses:

[31] Since the goal of the remedy for breach of confidence is to restore the plaintiff to the position it would have been but for the breach, I conclude that in a case where the only remedy claimed is compensation for the plaintiff’s losses, failure to prove any losses would mean failure to prove entitlement to a remedy.

The plaintiffs were the only parties who called evidence, because the defendants took the position that it was unnecessary to call evidence as the plaintiffs failed to meet the burden of proof on all issues.

The judge decided to consider damages first. Since the claim for the defendants’ profits was abandoned at trial, the only remaining claim was for loss of business opportunity, based on the theory that the SAXX product has lost market share to the MyPakage product, which got a head start in the market due to the defendants’ misuse of confidential information.

The judge found that the plaintiffs failed to call any credible evidence that they suffered a loss of business opportunity, loss of market share, or loss of market position as a result of the launch of the MyPakage business and MyPakage product. The plaintiffs relied solely on the evidence of two members of the No Limits corporate team. Neither witness was independent or objective in the way an independent expert witness would be. No independent evidence, such as that by a business valuator, was tendered to justify the plaintiffs’ calculations.

The following two paragraphs make the evidentiary problem clear:

[126] There is therefore no evidence capable of supporting factual conclusions as to what the plaintiffs could have achieved in sales of the SAXX product, but for alleged sales of MyPakage product, compared to what the plaintiffs did actually achieve in sales of the SAXX product after the alleged misconduct and launch of the MyPakage product.

[127] Instead, the plaintiffs ask the Court to simply infer that any sales and gifts by the defendants of the MyPakage product equate to a loss of sales by Saxx Apparel of its product at Saxx Apparel profit margins.

The judge found that evidence of another witness established that it is possible that the MyPakage product increased awareness of a new category of men’s underwear generally, and had a positive impact on sales of SAXX product.

The judge therefore found that the plaintiffs failed to prove their only claim to a remedy, and only briefly addressed the other elements of the claim.

In future breach of confidence cases, it will be important for litigants to keep the following principle in mind: “While the equitable principles upon which a claim for breach of confidence is based are flexible, there still needs to be some evidence to support the remedy claimed.”