



COURT OF APPEAL FOR ONTARIO

CITATION: CTT Pharmaceutical Holdings, Inc. v. Rapid Dose
    Therapeutics Inc., 2019 ONCA 1018

DATE: 20191224

DOCKET: C66767

Lauwers, Paciocco and Fairburn JJ.A.

BETWEEN

CTT Pharmaceutical Holdings, Inc.

Plaintiff (Appellant)

and

Rapid Dose Therapeutics Inc.

Defendant (Respondent)

Robert Trifts, for the appellant

Brendan Morrison and Derek Knoke, for the respondent

Heard: November 25, 2019

On appeal from the order of Justice Edward M. Morgan of
    the Superior Court of Justice dated March 4, 2019, with reasons reported at 2019
    ONSC 1444, 163 C.P.R. (4th) 463.

REASONS FOR
    DECISION

A.

overview

[1]

This is an appeal from a motion for summary judgment dismissing CTT Pharmaceutical
    Holdings Inc.s (CTT) claim against Rapid Dose Therapeutics Inc. (RDT) for
    breach of confidence.

[2]

In 2017, CTT and RDT entered into an agreement with the objective of jointly
    producing and marketing cannabis-infused rapid release oral dissolvable strips
    to take advantage of the impending legalization of cannabis in Canada.

[3]

After CTT terminated that agreement, RDT contacted a professor at
    McMaster University and requested that he develop a formulation for a
    sublingual thin film drug delivery system on behalf of RDT. Around the same
    time, RDT entered into an agreement with New Jersey-based HED International
    Inc. (HED) and acquired the exclusive rights to distribute HEDs machines,
    which could be modified to produce sublingual thin film strips, to cannabis
    growers and licensed producers in Canada.

[4]

CTT sued RDT, alleging that it misused confidential information that CTT
    supplied to it in confidence to CTTs detriment. The motion judge dismissed
    CTTs claim, finding that CTT had failed to demonstrate that it had suffered
    any detriment as a result of RDTs actions.

[5]

CTT appeals from the motion judges determination. For the reasons that
    follow, the appeal is dismissed.

B.

background

(1)

The Asset Purchase
    and Sale Agreement

[6]

On May 29, 2017, CTT and RDT (then CTC Pharma International Ltd.)
    entered into an Asset Purchase and Sale Agreement (APS) under which CTT agreed
    to sell two patents for oral dissolvable strips in exchange for shares in RDT. The
    APS included a due diligence period. During its investigations, RDT became
    concerned with the effectiveness of CTTs patented technology, particularly as
    it related to its ability to achieve the objective of rapidly providing the sublingual
    delivery of cannabis extracts. It turned out that the only clinical study involving
    CTTs technology had just 13 participants, took place at an unidentified
    university in Spain, and showed a very slow rate of absorption.

[7]

CTTs CEO, Dr. Pankaj Modi, took offence to RDT inquiring into the
    effectiveness of his patented technology, as expressed in an email he sent to
    RDT on October 8, 2017:

I am just totally unwilling to move forward with RDT. I am sure
    you will find much better IPs and doctor scientist better than me who is much
    more capable of proving Sublingual vs Stomach absorption etc. I am just NOT in
    a position to do any clinicals and prove it to world and YOU in this life time
    that it is flash dose etc. It is a[n] impossible task.



I am unwilling to work with you guys looking at the current
    conditions and situation as I dont like to work with management who doesnt
    have faith and trust and respect in the technology they are planning to acquire.

[8]

Dr. Modi officially terminated CTTs relationship with RDT on October
    31, 2017.

(2)

The events following
    the termination of the APS

[9]

In November 2017, RDT met with Dr. Alex Adronov, a chemistry professor
    from McMaster University. This ultimately led to a contract between RDT, Dr.
    Adronov, and McMaster University to develop a proprietary formulation for
    sublingual thin film drug delivery technology. The result was called
    QuickStrip.

[10]

In addition, on November 15, 2017, RDT entered into a distribution
    agreement with HED, which manufactures tape casting machines. RDT and HED
    agreed that RDT would be HEDs exclusive distributor of HEDs tape casting
    machines for cannabis-related accounts in Canada.

(3)

CTTs claims against
    RDT

[11]

In September 2018, CTT brought a claim against RDT alleging breach of
    confidence and tortious interference with economic relations. RDT was
    successful in obtaining security for costs because, among other things, CTTs
    operations had never generated cash flow, there was no value assigned to CTTs patents,
    and the patents had never been commercialized.

[12]

RDT brought a motion for summary judgment and succeeded. This is an
    appeal from that judgment.

[13]

The motion judge determined that the only claim that was conceivably
    viable was the breach of confidence claim. Although CTT and RDT were bound by
    a contract for about five months, CTT did not seek damages for breach of
    contract. Nor did it seek damages for patent infringement. Of the claims that
    were advanced, the motion judge determined that the tortious interference with
    economic interests claim could not possibly succeed given that there was no contractual
    relationship with an identifiable third party with which RDT had interfered.
    There is no challenge to that finding in the appellants written or oral
    submissions.

[14]

As it related to the alleged breach of confidence/misappropriation of
    confidential material claim, the statement of claim alleged that there were multiple
    pieces of information that were disclosed to RDT during the due diligence
    period and that were later inappropriately used by RDT to CTTs detriment. CTT
    advanced only three of those claims in response to the summary judgment motion.
    The motion judge rejected all three.

C.

cttS position on appeal

[15]

In this court, CTT confined its submissions to one alleged breach of
    confidence, specifically the one related to HED. That allegation is set out at
    para. 13(b) of the statement of claim:

In particular, the plaintiff, through Dr. Modi disclosed the
    following to the defendant, through Messrs. Upsdell and Sanders:



(b) the
identity of the plaintiffs proposed contract
    manufacturer
of film casting machines in New Jersey, Hed International (and
    travelled with the representatives of RDT to New Jersey to personally introduce
    them). [Emphasis added.]

[16]

CTT says that on June 9, 2017, it provided RDT with a list of names and
    contact information for four potential manufacturers of the equipment necessary
    to make the dissolvable strips. There is no dispute that HED was the third suggested
    manufacturer on that list. CTT told RDT to follow the list in the order
    provided.

[17]

Although RDT acknowledges receipt of the email containing the list, Mr. Jason
    Lewis, who is the Senior Vice President of Business Development at RDT, swore
    an affidavit and confirmed on cross-examination that he already knew about the
    existence of HED through an internet search he had conducted prior to receiving
    the email that contained the list. Representatives of CTT and RDT attended at
    HED and determined that HED did not have a machine capable of making CTTs thin
    film technology without modifications.

[18]

CTT argues that the identity of HED as its proposed equipment manufacturer
    was confidential information that RDT gained during the due diligence process and
    that RDT misused it in two ways.

[19]

First, by entering into the distribution agreement with HED, RDT used
    confidential information obtained from CTT while the APS was still in place. As
    evidence of this fact, CTT points to a September 15, 2017 agency agreement
    between HED and RDT, entered into while the due diligence period was still
    operative. CTT says that this shows that RDT went behind its back while the APS
    was still live. RDT says it did nothing of the sort, claiming that the agency
    agreement was entered into in contemplation of its ongoing agreement with CTT.
    By November 15, 2017, though, when the distribution agreement was entered into,
    it had become an exclusive agreement because the APS with CTT had ended at Dr.
    Modis insistence.

[20]

Second, CTT argues that RDT might have provided the information about HEDs
    machines to Dr. Adronov. In particular, CTT argues that [t]he use of the
    design of HEDs film casting equipment as a parameter to inform the design of
    Dr. Adronovs thin-film cannabis wafers  would constitute a misuse of
    confidential information provided by CTT to RDT to CTTs detriment.

[21]

CTT takes aim at the motion judges finding as it relates to HED. The
    impugned aspects of the judgment follow:

Finally, the Plaintiff claims that the Defendant misused
    confidential information by entering into a distribution agreement with HED
    International Inc. for tape casting machines. These devices supposedly allow
    for oral thin film to be imbued with chemical products such as cannabis
    extract, and the agreement permitted the Defendant to make them available to
    licensed Canadian producers of cannabis products.

The Defendants position is that HED  is well-known for this
    technology and that there is nothing proprietary about the Plaintiffs
    knowledge of this fact and thus nothing confidential about the passing on of
    this knowledge.
Whether or not that is the case, the Defendants affiant
    deposed that the HED  machines turned out not to be effective for
    cannabis-imbued oral strips and so the distributorship agreement never got off
    the ground. The Defendant thus incurred no gain and the Plaintiff suffered no
    loss. There is no evidence in the record to suggest anything to the contrary.

The courts have observed that for a breach of confidence
    claim to succeed there must be actual evidence of financial loss. The goal of
    the remedy in this type of action is to restore the Plaintiff to the position
    it was in prior to the breach. Failure to prove an actual loss is failure to prove
    the grounds for a remedy
.

The state of the record before me is such that the Plaintiff
    cannot possibly succeed on any of its claims. The one cause of action which is
    conceivably viable under the circumstances, breach of confidence, has no
    evidentiary foundation.
[Emphasis added.]


[22]

CTT argues that the motion judge erred in fact when he concluded that
    the distributorship agreement never got off the ground and erred in fact and
    law when he determined that it did not suffer a detriment as a result of RDTs
    breach of confidence.

D.

analysis

(1)

The
    motion judge did not misapprehend the evidence on the distribution agreement
    between RDT and HED

[23]

We do not agree that the motion judge erred in fact when he said that,
    regardless of whether RDT had misused confidential information, the machines
    turned out not to be effective for cannabis-imbued oral strips and so the
    distributorship agreement never got off the ground. In this portion of the
    judgment, the motion judge was merely summarizing RDTs position, as captured
    by his reference to what the Defendants affiant deposed about HED. Clearly,
    the motion judge knew that the distributorship agreement got off the ground,
    in the sense that he acknowledged that it had been entered into.

[24]

RDTs position about the distributorship agreement not getting off the
    ground related to the fact that, while the agreement was in place, nothing had
    happened under it. Not a single machine had been ordered and, indeed, another manufacturer
    from outside of North America was manufacturing RDTs products. We understand
    RDTs position  and the motion judges summary of that position  as being
    rooted in the fact that, as of the date of the motion, nothing had happened
    under that agreement.

(2)

RDT did not misuse
    confidential information to CTTs detriment

[25]

There are two elements to this claim. The first relates to CTTs claim
    that RDT shared CTTs confidential information with Dr Adronov. CTT provided no
    direct evidence to support this claim.

[26]

CTT argues that the motion judge erred in failing to consider whether an
    adverse inference should be drawn from RDT not leading the evidence of Dr.
    Adronov. CTT argues that what was used in the development of QuickStrip,
    created through the partnership of RDT and Dr. Adronov, is a contested fact.
    According to CTT, RDT should have elicited evidence from Dr. Adronov to respond
    to the allegation that RDT had misused confidential information in developing
    QuickStrip. The motion judge is said to have erred by failing to consider drawing
    an adverse inference from RDTs failure to elicit that evidence.

[27]

There was no error in the circumstances. CTT has not identified any
    confidential information that could have been misused by Dr. Adronov, apart
    from the fact that HED could manufacture machines capable of producing oral
    strips with modifications. RDTs evidence was that Dr. Adronovs design was
    used to inform HEDs modifications and not the other way around. Importantly,
    HEDs machines were not instrumental to RDTs manufacturing process, since it
    does not use the HED machines in its own production.

[28]

In addition, the claim was not directed at Dr. Adronov or the university
    where he worked. There was no suggestion that Dr. Adronov or McMaster
    University used any confidential information when they created QuickStrip. Nor
    was the statement of claim for patent infringement.

[29]

This leaves the question of whether the motion judge erred in fact and
    law when he determined that CTT had not suffered a detriment as a result of the
    potential misuse of the confidential information. We say potential misuse
    because the motion judge did not come to a factual determination on whether the
    information was confidential at all. The motion judge found it unnecessary to
    resolve that matter. Instead, he went directly to the question of detriment.

[30]

Staying within the parameters of what the motion judge decided, while we
    find error in the motion judges approach  specifically, his statement that
    detriment can only arise from financial loss  we nonetheless conclude that CTT
    suffered no detriment in this case.

[31]

As Rosenberg J.A. held in
Lysko v. Braley
(2006), 79 O.R. (3d)
    721 (C.A.), at para. 17, there are three elements to a claim for breach of confidence:

1.

that the information conveyed was confidential,

2.

that the information was conveyed in confidence, and

3.

that the confidential information was misused by the party to whom it
    was communicated to the detriment of the confider.

See also:
Lac Minerals Ltd. v. International Corona
    Resources Ltd.
, [1989] 2 S.C.R. 574, at pp. 608, 635-36 and
Cadbury
    Schweppes Inc. v. FBI Foods Ltd.
, [1999] 1 S.C.R. 142, at paras. 52-54.

[32]

Accordingly, as the final consideration in a breach of confidence claim,
    the plaintiff must prove detriment in order to establish liability:
The
    Catalyst Capital Group Inc. v. VimpelCom Ltd.
,
2019 ONCA 354, 145
    O.R. (3d) 759, at para. 41, leave to appeal refd, [2019] S.C.C.A. No. 284. The
    concept of detriment is not tied to only financial loss, but is afforded a
    broad definition, including emotional or psychological distress, loss of
    bargaining advantage, and loss of potential profits:
Catalyst
, at
    para. 41;
Lysko
,
at paras. 18, 20;
Rodaro v. Royal Bank of
    Canada

(2002), 59 O.R. (3d) 74 (C.A.), at paras. 56-57; and
Cadbury
,
at paras. 52-53, 64.

[33]

CTT argues that the motion judge failed to appreciate that, with
    modifications, the HED machines would be functional for the purpose of
    producing cannabis-infused strips. This is not a controversial proposal.
    Indeed, Mr. Lewis (on behalf of RDT) accepted that the modifications [required
    to produce Dr. Adronovs formula] were accepted and incorporated by HED for
    very specific use. He also acknowledged that the exclusive distributorship
    agreement between HED and RDT remains in place.

[34]

CTT argues that the motion judge erred by failing to take into account
    the fact that RDTs actions left them unable to purchase the necessary
    equipment directly from HED. CTT claims that it was delayed as a result  or set
    back from the pole position  in bringing its product to market while RDT was
    able to get a head start.

[35]

While we agree that the motion judge should have considered this
    argument, essentially that CTT lost a competitive advantage, as part of whether
    there had been a detriment, granting summary judgment against CTT was still
    appropriate on the facts of this case.

[36]

As RDT points out, CTT was in no position to begin manufacturing its
    products in November 2017. One of the directors of CTT, Dr. Allen Greenspoon,
    swore an affidavit saying that, to that date, CTT had not found another
    potential supplier of machines, something that was effectively delaying its
    commercialization efforts. In cross-examination, though, Dr. Greenspoon
    admitted that CTT was not ready to move forward with manufacturing at the time
    that the exclusive distributorship agreement was entered into. Moreover, Dr.
    Modi himself had identified a number of other equipment suppliers in his June
    9, 2017 email. Yet, as Dr. Greenspoon confirmed, CTT didnt need a machine to
    manufacture its products at the time.

[37]

CTT was facing enormous hurdles in getting its product to market.
    According to its Quarterly Report, while CTT had obtained patents, it was
    making no products, ha[d] no suppliers, ha[d] no distribution chains, ha[d] no
    operation, ha[d] no customers and ha[d] no cash flow, even as late as June of
    2018.  Indeed, it had no employees and no commercial activity whatsoever. These
    were some of the findings that persuaded a master to award security for costs
    against CTT:
CTT Pharmaceutical Holdings v. Rapid Dose Therapeutics
,
2019 ONSC 731,

at paras. 4, 7
.

[38]

Even at the time that Dr. Greenspoon was giving evidence on the motion under
    appeal, he acknowledged that CTT was still not ready to manufacture its
    products, although it was getting close. Accordingly, even if CTT had been free
    to order machines directly from HED, (though it was and is free to buy a HED
    machine from RDT), nothing would have been different. There is therefore no
    detriment to CTT that is attributable to RDTs actions.

[39]

For its part, RDT has received no independent benefit from the
    distribution agreement. RDT has not sold a single machine under the agreement.
    Nor does RDT use HED machines in its own production of its sublingual strips.

[40]

For these reasons, the motion judge was correct to dismiss CTTs claim
    for breach of confidence. As a result, the motion judge was not required to
    consider CTTs request for other remedies, such as declaratory or injunctive
    relief. Contrary to CTTs position on appeal, a remedy must be preceded by a
    finding of liability. Having failed to establish that RDT misused confidential
    information that was supplied to it in confidence to CTTs detriment, no relief
    was in order:
Catalyst,
at paras. 40-41.

(3)

Other arguments

[41]

Although it was not pressed in oral submissions, CTT also claims that
    the motion judge erred by relying on hearsay evidence to conclude that CTTs technology
    was not commercially viable. This is said to have coloured his approach to
    the issues.

[42]

CTT maintains that Dr. Modi provided the only admissible evidence
    relating to CTTs technology and the products efficacy. There is no basis to
    dispute the results of the clinical study of 13 individuals from the
    unidentified university in Spain.

[43]

Although the motion judge noted that the patents were not commercially
    viable, that was a finding that was well-rooted in the record. Indeed, it
    partly came from Dr. Modis admission in his October 8, 2017 email, where he
    stated that he was not in a position to prove the efficacy of his product. He
    simply wanted RDT to trust him. We noted that the one clinical study that was
    provided showed that peak absorption only took place after 3 hours, far from
    the rapid absorption claimed.

[44]

As well, the motion judge had available to him both the determinations
    made on the security for costs motion, as well as CTTs own financial
    disclosure under securities laws. Those disclosures showed CTT had no customers
    and no distribution channels.

[45]

The other arguments have no merit.

E.

disposition

[46]

The appeal is dismissed. Costs are awarded to the respondent in the
    agreed upon amount of $20,000, H.S.T. and disbursements included.

P. Lauwers J.A.

David M. Paciocco J.A.

Fairburn J.A.


