Chams Plc and another v Mastercard Asia/Pacific Pte Ltd and 5 Others – Where a contractual breach involves the misuse of IP-based confidential information

The Nigerian Federal High Court has delivered a ruling in a suit bordering inter alia on the misuse of confidential information relating to IP. On 7th November 2019, the Federal High Court delivered a ruling in Suit No. FHC/L/CS/1440/2019 - Chams Plc & Another v Mastercard Asia/Pacific Pte Ltd and 5 Others, granting an interim injunction restraining named Nigerian banks (22 banks in all) from giving effect to MasterCard transactions in which National Identity Cards bearing the logo of the National Identity Management Commission (NIMC) are used. The interim injunction is to remain until the hearing of a pending motion on notice for similar reliefs. [For context, the national identity cards provide proof of identity and come with a prepaid payment technology provided by Mastercard and can be used to make electronic payments and deposit funds.]

...confidential architecture

As some readers (in Nigeria) will know, the suit in question relates to the concession awarded by the NIMC to a Nigerian technology firm, Chams Plc over the issuance of national identity cards. Chams Plc has claimed that after its Special Purpose Vehicle, Chams Consortium Limited was granted the concession by the NIMC to produce national identity cards on behalf of the NIMC (the national identity card project); it invited MasterCard as one of its technical partners on the project.

Chams Consortium Limited (CCL) also entered into a Customer Business Agreement (CBA) with MasterCard, which contained non-disclosure of confidential information and non-compete clauses. Pursuant to this agreement, CCL disclosed confidential information on the entire architecture of the national identity cards to MasterCard. This information as to the architecture of the national identity cards was a product of Chams Plc’s research, design and development work. CCL claims that MasterCard used the disclosed proprietary confidential information and the fact of its being formally introduced to NIMC to bypass CCL; deal directly with NIMC and commence production of national identity cards. MasterCard’s activities have been alleged to result in CCL incurring significant losses and placed MasterCard in a position to make significant revenue using Chams Plc.’s research, design and development work.

In their statement of claim, the plaintiffs have sought the sum of N84billion (approximately $231.7million) as special damages for anticipated loss of revenue from the national identity card project; N10billion (approximately $27.6million) as general damages for fraud; and N20billion (approximately $55million) for inducement of breach and termination of the concessions awarded by NIMC. The plaintiffs also filed a motion ex parte and a motion on notice and in both applications, they prayed the court to inter alia (i) restrain MasterCard from further printing National Identity Cards with the NIMC logo; (ii) restrain Nigerian banks (named as respondents to the application) from honouring MasterCard transactions with the use of the National Identity Cards; (iii) issue an Anton Piller Order for seizure and costing of machines for printing the cards and the seizure of the cards themselves; and (iv) order the police to arrest anyone who obstructs the execution of the court’s orders.

In its ruling on the motion ex parte, the court directed that the defendants be served with the originating processes and the motion on notice. Apart from the order as to service, the court granted only the second order sought i.e. the order restraining the named Nigerian banks from honouring MasterCard transactions made with the use of the National Identity Cards pending the hearing of the motion on notice. All the other prayers made in the motion ex parte are to be heard when the defendants have been put on notice.

Comment
The suit in question borders particularly on breach of contract occasioned by the misuse of confidential information. However, this Kat is interested in the question of misuse of confidential information as it relates to outputs of research and development work (i.e. knowledge-based information).

Regarding the main claims for special and general damages for anticipated revenue, fraud, and inducement of breach, it is opined that the claims are hinged on MasterCard’s alleged misuse of information as to the architecture of the national identity cards. Essentially, the alleged breach of contract lies in the misuse of confidential information. Where the plaintiffs are unable to show that MasterCard made unauthorised use of such confidential information, it may be difficult to prove the plaintiffs’ entitlement to damages especially the claim for special damages.

In Nigeria, claims of misuse of confidential information are likely to be founded in contract or tort, as there are no statutory provisions explicitly providing for such claims. However, section 15 of the Freedom of Information Act 2011 allows public institutions to deny an application to disclose information that contains “trade secrets and commercial or financial information obtained from a person or business where such trade secrets or information are proprietary, privileged or confidential, or where disclosure of such trade secrets or information may cause harm to the interests of the third party”. The section also restrains the disclosure of “information the disclosure of which could reasonably be expected to interfere with the contractual or other negotiations of a third party” and “proposal and bids for any contract, grants, or agreement, including information which if it were disclosed would frustrate procurement or give an advantage to any person”.

This provision suggests that Nigerian courts would frown at unauthorised disclosure or use of proprietary and/or confidential information. However, to the best of this Kat’s knowledge, there has not been a reported, decided case in Nigeria on parameters for imposing liability for misuse of proprietary and/or confidential information or for remedies in the case of such misuse. But, one can get a sense of how such cases may turn by looking at judicial treatment of non-disclosure clauses in employment contracts and/or confidentiality obligations of banks to their customers.

In Aero Contractors v Akingbehin (NICN/LA/123/2013), the defendant, through his solicitors had written to the plaintiff threatening to disclose the plaintiff’s confidential information if he (the defendant) was not reinstated to his position in the plaintiff’s company. The plaintiff sued for breach of the confidentiality clause contained in the defendant’s contract of employment and sought damages in the sum of N25million (approximately $68,000) for the breach. The court found that the defendant did in fact breach the confidentiality clause when he disclosed the confidential information to his solicitors. However, the court awarded only the sum of N2million (approximately $5,500) as damages. In Fidelity Bank Plc v Onwuka, the Court of Appeal held that a breach of a bank’s legal duty of confidentiality not to disclose information to third parties would give rise to liability in damages.

It remains to be seen whether the plaintiffs can show that there was confidential information provided to the defendant which the latter misused in breach of the non-disclosure obligations. Even where the plaintiffs succeed in proving their claims, it also remains to be seen if the court will award the significant sums claimed as damages.

Regarding the motion on notice, especially the Anton Piller order sought, there is also the question of whether the plaintiffs can obtain a mandatory interlocutory order permitting them to seize the defendants’ card-printing/moulding machines, inspect and cost (i.e. appraise) the volume of trade on the national identity cards.

The principles governing the grant of an Anton Piller order in Nigeria have been adopted from the decision of the English Court of Appeal in Anton Piller KG v. Manufacturing Processes Ltd in several cases including Ferodo Limited v. Unibros Stores and Akuma Ind. Ltd v. Ayman Ent. Ltd. The principles are that: (1) there must be a strong prima facie cause of action; (2) the danger to the plaintiff to be avoided by the grant of an Anton Piller order must be serious; and (3) the risk of destruction or removal of evidence must be significant rather than merely possible. The general principles regarding injunctions - serious question to be tried, adequacy of damages, balance of convenience and whether the status quo should be maintained – also apply.

Anton Pillar orders are usually made ex-parte and understandably so. If the point of the exercise is to take the defendant unawares before the defendant has time to hide evidence of infringing materials and/or activities, making the orders after putting the defendant on notice will defeat the purpose. In this Kat’s experience, Nigerian courts are wont to order accelerated hearing once Anton Pillar orders are sought via a motion on notice. That said, the decision is in the hands of the court whether to grant the Anton Piller order when the defendants in this case have been put on notice.

What happens now?
The case continues. The defendants have 30 days from the date of service of the writ and statement of claim to respond by filing a defence. The defendants will also need to respond to the motion on notice, which seeks far-reaching orders against them. Given the national significance of the case (being on the issue of identity management at the national level), it is quite possible for the parties to decide to settle out of court.

Time shall tell and readers should watch this space...