Kockums AB v The Commonwealth of Australia

[2001] FCA 398

FEDERAL COURT OF AUSTRALIA

Kockums AB v The Commonwealth of Australia

[2001] FCA 398

INJUNCTION – Application for interlocutory injunction in respect of delivery of submarine propeller for modification in the United States – Whether serious question to be tried in respect of applicant’s claim that delivery would result in breach of its copyright in drawings and specifications of the propeller and/or would constitute an unauthorised breach of confidence - Whether it appears applicant is the owner of copyright in the documents – Whether the effect of relevant contractual provisions is to vest copyright in one or other of the respondents – Whether there is evidence of actual or threatened infringement of copyright – Relevance of fact that proposed use of copyright is for the services of the Commonwealth – Whether delivery of propeller and/or documents constitutes an unauthorised disclosure of confidential information, in circumstances where these steps are being taken for purposes of national security and with security measures in place – Application dismissed.

Copyright Act 1968, ss 10, 31, 35, 36, 183.

KOCKUMS AB v THE COMMONWEALTH OF AUSTRALIA and AUSTRALIAN SUBMARINE CORPORATION PTY LIMITED

N128 of 2001

WILCOX J
11 APRIL 2001
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N128 of 2001

BETWEEN:

KOCKUMS AB
APPLICANT

AND:

THE COMMONWEALTH OF AUSTRALIA
FIRST RESPONDENT

AUSTRALIAN SUBMARINE CORPORATION PTY LIMITED
SECOND RESPONDENT

JUDGE:

WILCOX J

DATE OF ORDER:

11 APRIL 2001

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The applicant’s application for interlocutory relief be dismissed.

2.The first respondent, the Commonwealth of Australia, be discharged from further compliance with so much of its undertaking to the Court of 20 February 2001 as precludes delivery of propeller Z9000, before 30 April 2001, to the United States government, or any agency or department of the United States government, or any contractor or subcontractor acting on behalf of the United States government.

3.The costs of the application for interlocutory relief (including the costs incurred in connection with the hearings on 16 and 20 February 2001) be respondents’ costs in the principal proceeding.

4.The matter be listed for further directions at 9.30am on Friday, 27 April 2001.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N128 of 2001

BETWEEN:

KOCKUMS AB
APPLICANT

AND:

THE COMMONWEALTH OF AUSTRALIA
FIRST RESPONDENT

AUSTRALIAN SUBMARINE CORPORATION PTY LIMITED
SECOND RESPONDENT

JUDGE:	WILCOX J
DATE:	11 APRIL 2001
PLACE:	SYDNEY

REASONS FOR JUDGMENT

WILCOX J:

1. Application has been made to the Court for interlocutory injunctive relief in relation to the delivery by the Commonwealth of Australia (“the Commonwealth”) to the United States Navy of a Collins class submarine propeller.  The applicant for relief is Kockums AB (“Kockums”), formerly Kockums Marine AB, a Swedish corporation.  The respondents are the Commonwealth and Australian Submarine Corporation Pty Limited (“ASC”), the builder of the Collins submarines.  Kockums claims the delivery of the propeller will prejudice its intellectual property rights – in particular, its copyright in drawings of the propeller – and will constitute an unauthorised disclosure of confidential information.

2. During the hearing of the interlocutory application, several issues emerged.  I will discuss each of them.  However, first I will refer to the relevant provisions of the contract for construction of the submarines, made between ASC and the Commonwealth (“the head contract”), and the sub-contract between ASC and Kockums for design services (“the design sub-contract”).  Secondly, I will summarise the evidence concerning relevant events and proposed actions.

   The contractual provisions

   (i)The head contract

3. The head contract is entitled “Contract C218269 between the Commonwealth of Australia and Australian Submarine Corporation Pty Ltd for the construction and supply of submarines and associated support requirements for the Royal Australian Navy”.  It is dated 3 June 1987.  At that time, ASC was owned, as to 70%, by the Commonwealth and, as to 30%, by Kockums.  However, it was apparently envisaged that Kockums’ holding would be increased to about 50% and this happened shortly afterwards.

4. The contract contained the following recitals:

   “(1)The Commonwealth has a requirement for the supply of six (6) submarines, facilities, services and associated support detailed in this Contract for the Department of Defence.

   (2)The Contractor has submitted an offer to provide the said submarines, facilities, services and associated support.

   (3)The Commonwealth accepts, upon the terms and at prices hereinafter appearing, the offer to provide the said submarines, facilities, services and associated support.”

5. It is not necessary to set out the detail of the parties’ obligations under the contract. Counsel appearing in the present application referred only to a small number of provisions.

6. The first provision, mentioned by Mr B W Rayment QC, who appears with Mr D B Studdy on behalf of Kockums, is clause 45, dealing with intellectual property rights.  It relevantly reads as follows:

   “45.1Unless otherwise specifically agreed herein or from time to time agreed in writing, the Commonwealth, the Contractor or its Sub-Contractors or other relevant proprietors shall retain ownership of any and all Intellectual Property rights to any and all information in a material form produced or provided by it or them respectively under the Contract or in relation thereto including data, Software, Firmware, designs, plans, schedules, diagrams, drawings and any other documentation.

   45.2The Contractor shall pay, and shall secure for the benefit of and in a form acceptable to the Commonwealth from its respective Sub-Contractors an obligation to pay, a fair and reasonable remuneration to the Commonwealth for the application use, transfer, licensing and reproduction, other than for this Contract and for all other contracts the Contractor or its respective Sub-Contractors enter into with the Commonwealth, of any information as defined in Clause 45.1 which is first developed and produced under the Contract for the purposes of the Commonwealth by the Contractor or its Sub-Contractors respectively.  The remuneration shall be agreed on a case by case basis and in the event of disagreement shall be determined by arbitration pursuant to Clause 65.”

7. There is an issue between the parties as to the proper construction of these two subclauses.  Kockums argues their effect is that the copyright in propeller drawings produced by Kockums for the purposes of the Collins project remains with Kockums; the Commonwealth argues the two subclauses give copyright to it.  I will return to that issue.

8. Counsel for the Commonwealth, Mr H Nicholas QC and Mr R Lancaster, place reliance on cl 48 of the contract.  Relevantly, the clause reads:

   “48.1The Contractor shall provide to the Commonwealth under the Contract the information identified in Annex S required to operate, repair, maintain and support the Supplies and required to develop the Supplies for the purposes of modifying, enhancing or improving their operation, in an accurate and up to date form.  When requested by the Commonwealth the Contractor shall provide all requested information to the Commonwealth that has been prepared by or is possessed by the Contractor or its Sub-Contractors (listed in Annex J), or is otherwise reasonably available, and which is necessary or relevant to the operation, repair, maintenance, support and said development of the Supplies, including in particular the Combat System, and which exists at the time of Delivery of the relevant Supplies, in an accurate form, and in the event thereof the Commonwealth shall reimburse the Contractor for reasonable reproduction and handling charges.  The Contractor shall, to the extent practicable, fulfill the obligations of the previous sentence of this Clause 48.1 in respect of its other Sub-Contractors and where fulfilled, the same Commonwealth obligation of reimbursement shall apply.

   48.2Subject to Clause 48.3 the Contractor hereby grants to the Commonwealth and shall ensure its Sub-Contractors listed in Annex J and to the extent practicable, its other Sub-Contractors, shall promptly grant to the Commonwealth, without charge, a royalty-free, irrevocable, non-exclusive,, non-transferable right to apply use, reproduce, adapt or otherwise modify for the services of the Commonwealth all information provided under the Contract which is proprietary to the Contractor and its Sub-Contractors respectively in the sense that the Contractor or its Sub-Contractors have the respective lawful right and capacity to grant such licences.  In this Clause 48.2 the words adapt or otherwise modify shall be limited to the purposes of operating, repairing, maintaining and supporting the Supplies and to developing the Supplies for the purposes of modifying, enhancing or improving their operation.

   48.3…

   48.4The Commonwealth agrees that the information provided to the Commonwealth under this Contract shall only be applied, used, reproduced, adapted or otherwise modified for purposes other than the services of the Commonwealth, after prior mutual agreement with the Contractor or other relevant proprietor of such rights.  The Contractor shall not unreasonably withhold such permission and shall use its best endeavours to ensure other proprietors do not unreasonably withhold such permission.  Such agreement may, however, be subject to a licence fee which fee shall be reasonable and not above the proprietors normal commercial price for the grant of such rights.

   48.5The Contractor shall ensure the requirements of this Clause are imposed by the Contractor on all applicable Sub-Contractors.

   48.6…

   48.7For the purposes of the obligations under this Clause 48, the word ‘information’ means information as defined in Clause 45.1 and the words ‘services of the Commonwealth’ exclude competitive commercial activities of the Commonwealth and establishing second sources of supply in competition with the Contractor or its Sub-Contractors.”

9. A question arises as to the meaning of the phrase, in subcl (7), “establishing second sources of supply”.  It is suggested by Mr J G Harrowell, solicitor for ASC, that cl 41 throws light on this.  That clause requires ASC to provide “integrated logistic support” for the submarines until the expiration of a period of ten years from the expiry of the warranty period in respect of the last submarine delivered by ASC to the Commonwealth, “under terms and conditions to be agreed and as the requirements for specific service arises”.  In an endeavour to ensure this support will be available, cl 41.4 and 41.5 provide:

   “41.4The Contractor shall not disperse, terminate, dispose of or sell its own facilities for the production of components, spare parts or support equipment without giving at least eighteen (18) months notice in writing to the Commonwealth of its intention to do so.  In the event that the Contractor intends to disperse, terminate, dispose of or sell its own facilities, at least twelve (12) months notice prior to the final date of acceptance of orders for the final production run of any item of components, spare parts and support equipment, both Proprietary Items and otherwise, shall be given by the Contractor to the Commonwealth to enable the ordering of components, spare parts and support equipment requirements.

   41.5In the event that the Contractor decides to disperse, terminate, dispose of or sell its own facilities for the manufacture of Proprietary Items of components, spare parts and support equipment, or is unable to continue to supply such items due to any other reason, including supply being endangered or physically interrupted by war or threat of the same, and regardless of whether such reasons are beyond the Contractors reasonable control, the Contractor shall to the extent practicable grant to the Commonwealth, upon written request to do so, a non-exclusive irrevocable licence to have manufactured by itself, or using contractors or others authorised by the Commonwealth, such components, spare parts and support equipment in Australia for the Commonwealth’s defence purposes only and also to supply all such necessary information, data, drawings, plans and specifications as the Contractor may have in its possession or control and to licence use, reproduction and application thereof for such manufacture.  This requirement to supply information and specifications shall not apply in respect of sensitive manufacturing technology related to the production of micro-chips and shall be subject to the approval of any appropriate Government authority.”

10. Under cl 42.2 the relevant warranty period is 12 months from acceptance of the particular submarine.

11. In support of an argument that the contracting parties would not have envisaged that only ASC should ever carry out maintenance, repair or improvement works on the submarines, counsel for the Commonwealth cite cl 42.5.  It reads:

    “42.5Where the Contractor fails to correct in any of the ways specified in Clause 42.4 any defects or deficiency in the submarines covered by the warranty under Clauses 42.1(a) and (b) within a reasonable time after giving the notice referred to in Clause 42.3, the Commonwealth after giving separate notice of its intent to do so shall have at its discretion the right to have corrected by itself or by a third party, any defective submarines in a manner to allow the submarines to meet all requirements of Clause 12.5 and all reasonable costs and out goings incurred by the Commonwealth or such third party shall be reimbursed by the Contractor as a debt due to the Commonwealth.”

12. The head contact contains a confidentiality clause, cl 51.  The clause reads:

    “51.1The Contractor and the Commonwealth shall treat and shall require their officers, servants, employees, agents, consultants, advisers and Sub-Contractors to treat all clearly legended technical and other information in a material form provided to each by the other in connection with the Contract as COMMERCIAL-IN-CONFIDENCE or as otherwise classified, as appropriate, and shall not disclose it without the prior consent in writing of the other party to anyone other than persons having a need-to-know who will be required to take appropriate measures to safeguard such information.

    51.2The provisions of Clause 51.1 shall not apply to information which:

    (a)is required under Commonwealth regulations to be Gazetted;

    (b)is required to be disclosed to the unsuccessful Project Definition Study (PDS) contractor, ie percentage of Local content, AII and offsets contained in the successful PDS contractor’s formal offer;

    (c)the Commonwealth is required to make public pursuant to law, including the Commonwealth Freedom of Information Act;

    (d)is part or becomes part of the public domain otherwise than by breach of this Contract by the recipient;

    (e)is in the possession of the recipient prior to the date of disclosure;

    (f)is independently developed by the receiving party;

    (g)is lawfully received by the recipient from a third party without restrictions as to use and disclosure;

    (h)arises from the general skill and knowledge acquired by officers, servants, employees or agents of the recipient;

    (i)is required to be disclosed by an order of any court of competent jurisdiction;

    (j)is required to be disclosed in pursuance of any procedure for discovery of documents in any proceedings before a court of competent jurisdiction; or

    (k)is required to be disclosed pursuant to any law or regulation having the force of law.

    51.3Notwithstanding the above the Commonwealth shall not be obliged to observe the requirements of Clause 51.1 in respect of information in a material form the Intellectual Property rights in which vest in the Commonwealth under the Contract or information in a material form necessarily concerning, or relating to, such Intellectual Property rights.”

13. Finally, counsel for the Commonwealth draw attention to cl 75, which is headed “Previous Understandings”.  The clause reads:

    “The parties have signed the Contract on the basis that the conditions of Contract expressly set out herein represent their entire agreement relating to the Contract and accordingly agree that such conditions shall supersede all prior representations, agreements, statements and understandings whether orally or in writing relating to the Contract.  The parties further agree that neither party places any reliance whatsoever on any representations, agreements, statements or understanding made prior to the date of execution of the Contract, whether orally or in writing, other than those which have been expressly incorporated in the Contract.”

    (ii)The design sub-contract

14. The design sub-contract, between ASC and Kockums, is dated 11 April 1988.  It contains three recitals:

    “(1)The Commonwealth has a requirement for the supply of six (6) submarines, facilities, services and associated support detailed in a contract dated 3^rd June, 1987 made between the Commonwealth of the one part and the Contractor of the other part for the Department of Defence.

    (2)The Design Sub-Contractor has submitted an offer to the Contractor to provide certain design services required by the Commonwealth and to become the design authority in relation to the submarines.

    (3)The Contractor accepts, upon the terms and at prices hereinafter appearing, the offer of the Design Sub-Contractor to provide the Services hereinafter specified.”

15. Clause 4 of the design sub-contract deals with its scope.  It is sufficient for present purposes to note that the clause imposes on Kockums an obligation to “provide the Services so as to enable the submarines to be constructed by the Contractor in accordance with the Commonwealth Contract”.  The term “Commonwealth Contract” is defined in such a manner as to refer to the head contract.  The word “Services” is defined to mean:

    “the preparation, development and completion of the design of the submarines but excluding the design of the Combat System in such a manner as to comply with the Submarine Specification including the preparation, development and completion of those services, documents, plans, specifications, drawings, data and activities to be provided by the Design Sub-Contractor listed and scheduled in Annex BB including the integration of the design provided by other sub-contractors of the Contractor with the design of the submarines.”

16. The parties agree that Kockums’ contractual obligations included the design of the Collins class submarine propeller, and that Kockums did in fact design the propeller.

17. The drafters of the design sub-contract adopted the convenient course of reproducing the structure and, as far as possible, the actual terms of the head contract.  Thus cl 45 of the design sub-contract substantially follows the form of cl 45 of the head contract, except that it substitutes references to “the Design Sub-Contractor” for “the Contractor”.  Clause 48.2 is substantially similar to cl 48.2 of the head contract, except that it provides that the “Design Sub-Contractor” (Kockums) grants to the Commonwealth and “the Contractor” (ASC) “a royalty-free, irrevocable, non-exclusive, non-transferable licence to apply, use, reproduce, adapt or otherwise modify for the purposes of the Commonwealth and the Contractor under the Commonwealth Contract” proprietary information provided by Kockums under the design sub-contract.  In sub-cl (7) the words “establishing second sources of supply” are limited by the words “in competition with the Design Sub-Contractor or its Sub-Sub-Contractors”.

1. No doubt because Kockums does not have an Australian establishment, cl 41 of the design sub-contract departs extensively from the equivalent head contract clause.  It contains only three subclauses as follows:

   “41.1The Design Sub-Contractor agrees to provide assistance and information for the Contractor’s Integrated Logistic Support (ILS).  The terms and conditions for this service are to be mutually agreed.

   41.2the Design Sub-Contractor agrees to provide continued assistance and information for the Contractor’s Integrated Logistic Support (ILS) for a period of ten (10) years from expiry of the warranty period referred to in Clause 42.2 in relation to he last submarine provided by the Contractor under the Commonwealth Contract, under the terms and conditions to be agreed and as the requirements for specific services arise.

   …

   41.7The Design Sub-Contractor undertakes that the price and terms and conditions for the purchase of all components, spare parts and support equipment that may be ordered from time to time by the Contractor pursuant to the Design Sub-Contract, shall be fair and reasonable.  The Design Sub-Contractor agrees to furnish to the Contractor such documents and records as necessary to substantiate the reasonableness of the prices offered.”

2. The design sub-contract contains equivalents to cl 51 and 75 of the head contract, with amendments substituting references to the “Design Sub-Contractor” and the “Contractor” for the “Contractor” and the Commonwealth respectively.

   The background facts

3. The first of the Collins class submarines, HMAS Collins, was delivered by ASC to the Commonwealth in July 1996.  By June 1999, when a report on the Collins class submarines was delivered to the Minister for Defence, five of the six submarines were on the water, three of them having been delivered to the Royal Australian Navy (“RAN”).  The report, which was made by Dr Malcolm McIntosh AC, Chief Executive of CSIRO and former Chief of Defence Procurement in the United Kingdom, and Mr John Prescott AC, former Chief Executive of BHP, revealed that expenditure on the Collins project to 31 March 1999 was $4.7 billion.  The report detailed numerous deficiencies in the submarines, some - but not all - of which had been corrected.  Particular reference was made to the propellers.  The authors of the report referred to fatigue failure resulting in cracking, the problem being so serious that they thought the propeller of HMAS Collins should be replaced without further use.  They also referred to cavitation problems, which contributed to the submarines being unacceptably noisy.  It was explained in evidence before me that cavitation is “the rapid formation and collapse of water vapour pockets in flowing water in regions of very low pressure”.

4. Dr McIntosh and Mr Prescott thought the cavitation and flow problems of the Collins submarines stemmed from inadequate tank testing.  It is not clear from their report whether they ascribed primary responsibility for the cavitation problem (to the extent that it was a propeller problem) to the designer of the propellers, Kockums, or to the sub-contractors of ASC responsible for their manufacture, a United Kingdom company, Stone Manganese Marine, and an Australian company, Timcast Pty Limited (“Timcast”).  This question has been a matter of deep controversy, including between Kockums and the Commonwealth.  It is not a matter I have to determine in connection with the present application.  For that reason, the parties have not put before me the evidence that would be necessary for the matter to be determined and I make no comment about it.  All I need say is that it is common ground that there were problems about the propellers, as delivered by ASC to the Commonwealth.

5. In their report, Dr McIntosh and Mr Prescott said the fixing of the propellers “may be an extended process and it is of sufficient concern to have caused the Navy to seek US assistance outside the contract with ASC”.  Elsewhere they described the work in the United States as being “to improve cavitation and radiated noise performance”.  The two advisers also pointed out that the consequence of work being done by the United States Navy may be “the exclusion of other nationals, which will constrain the future role of Kockums”.

6. The McIntosh-Prescott report was publicly released shortly after its presentation to the Minister.  No doubt it was promptly seen by officers of Kockums.  Much of the information in the report would not have been new to them.  For example, the principal witness for Kockums in this proceeding, Gunnar Öhlund, Executive Vice-President of Kockums’ Submarine Division, deposed that “Kockums has since 1997 been heavily involved in the evaluation of the tests and trials on the propellers that have been manufactured”.  Mr Öhlund acknowledged there were problems with the propellers but ascribed them to “non compliance by the manufacturers with the design specifications”.

7. In July 1998 cracking was detected in five of the seven blades of propeller Z8957, attached to HMAS Collins.  The propeller was condemned as unrepairable and fatigue tested to destruction by the Defence Science and Technology Organisation, a Commonwealth agency.

8. In June 1996 propeller Z8959, which had been fitted to HMAS Farncomb, was accidentally dropped and seriously damaged.  It was sent to Timcast for repair, but was considered unrepairable.  However, in August 1998 the propeller was sent to the United States for repair.  While the propeller was in the United States, design modifications were proposed by officers of the David Taylor Research Center, a United States Navy facility.  The repairs and modifications were effected by Lips Propellers Inc (“Lips Propellers”), a ship repairer based at Chesapeake, Virginia.  The propeller arrived back in Australia in September 1999 and was fitted to HMAS Collins.

9. There is evidence that Kockums became aware, as early as 1998, of a Collins class propeller being sent to the United States.  The evidence takes the form of a minute, dated 30 October 1998, in which an employee of Kockums, Ronny Andersson, recorded the proceedings of a meeting convened by Dr Graham Patience of Stone Manganese Marine, at which propeller problems were discussed.  The minute attributed to Dr Patience the statement that he had heard “that one propeller that had been bent was to be repaired in/by US by cutting the tip off and attaching a new top with rivets”.

10. There is no evidence as to the accuracy of Dr Patience’s information concerning the form of the repair.  This does not matter, for present purposes.  Counsel for the Commonwealth use the minute as the basis of a submission that, for a period of more than two years before commencing this proceeding, Kockums was aware that the Commonwealth had sent a Collins class propeller to the United States, with all this involved in terms of allegedly undesirable consequences.

11. A second propeller (number Z8960) was sent to the United States in October 1999.  This propeller had been fitted to the boat “Dechaineux”, not then accepted by RAN.  After trials of the submarine, the propeller was removed and sent to the United States for modification, once again in accordance with the recommendations of the David Taylor Research Center, the work being, once again, undertaken by Lips Propellers.  The propeller returned to Australia in July 2000. 

12. Evidence was given in this proceeding by Gregory Norman Stuart, an engineer employed by the Department of Defence, that the modifications to the two propellers effected in the United States “have significantly eliminated the incidence of cavitation and result in the propeller being very close to contractual compliance”.

13. It is common ground in this proceeding that the Commonwealth did not directly inform Kockums of its intention to send either of these propellers to the United States.  Nor did it seek permission to send to the United States Navy, as it did, various drawings, depicting aspects of the propeller’s design, that had been produced by Kockums’ employees in connection with the Collins project.  Counsel for Kockums criticise the Commonwealth for these omissions.  They contrast the Commonwealth’s approach in 1998-99 with that taken by it in 1992.  In that year the Commonwealth sent some drawings of the submarine to the United States in order to enable the David Taylor Research Center to provide manoeuvring limitation diagrams, specifying maximum safe speeds, for the submarines, at various depths from the surface of the water and/or separations from the ocean floor.  On that occasion, the Commonwealth sought Kockums’ consent to the drawings being sent.  Kockums gave its consent on the understanding that the information supplied by the David Taylor Research Center would be made available to Kockums’ personnel.

14. Although Kockums was not consulted about the sending to the United States of propeller Z8960, it knew, in advance, of this event.  On 31 August 1999 Commodore E M Asker, then Director-General of the Undersea Warfare Systems Branch of the Department of Defence wrote to Hans Ohff, managing director of ASC, referring to the recent modification in the United States of the propeller of HMAS Collins and advising that the Commonwealth wished to take a similar course in relation to propeller Z8960.  ASC was asked to make that propeller available for delivery to the Commonwealth.  On 2 September Mr Ohff replied, confirming the availability of the propeller.  At that time Mr Öhlund was employed at ASC, on secondment.  He agreed, under cross-examination, that he became aware of the Commonwealth’s proposal shortly after it was notified to Mr Ohff.

15. No action was taken by Kockums to challenge or impede the sending to America of propeller Z8960.  However ASC took action, presumably at the instigation of Kockums.  On 20 October 1999 Mr Ohff wrote again to Commodore Asker.  His letter included the following:

    “You are aware that the CoA sent a Collins Class propeller to the United States Navy, earlier this year for modification, without the express concurrence of the companies which hold the Intellectual Property Rights (IPR) for design and manufacture, i.e. SSPA of Sweden, Kockums, and Stone Manganese of the UK.

    On 31 August 1999 you wrote to me requesting that an additional propeller be sent to the USA for modifications, to which ASC agreed under referenced letter.

    I must now advise you that the propeller cannot be made available to third parties without properly protecting the design/manufacture IPR.

    Therefore, I request that you have a Confidentiality and Fidelity Deed executed between your party, the CoA, and ASC prior to any work being carried out on the propeller.”

16. There was no immediate response to this letter.  After a reminder letter, David Elliston, an officer of the Undersea Warfare Systems Branch, wrote a letter to ASC dated 25 February 2000 in which he said:

    “2.      The proper interpretation of Contract C218269 is that all intellectual property rights produced under the Contract are owned by the Commonwealth.  The Contract also requires the Australian Submarine Corporation to secure all rights necessary for the Commonwealth to be able to use the Supplies for their intended purpose.  See, for example, clauses 45.3 and 48.

    3.        The Commonwealth has the right under the Contract to have a third party work on the Supplies when the ASC has not supplied these in accordance with the Contract.  We fail to see how the ASC’s obligations in relation to the propellers can be suspended.

    4.        If the ASC has complied with its obligations under the Contract in relation to the subject items the issues raised in your letters cannot arise.”

17. ASC did not accept the view propounded by Mr Elliston.  There followed exchanges of correspondence in which the Commonwealth asserted, and ASC denied, that the Commonwealth held all intellectual property rights relating to the submarines.  On 24 March 2000 Mr Öhlund wrote to Mr Ohff requesting ASC:

    “to initiate actions for the purpose of avoiding that Kockums’ Intellectual Property and other technical information pertaining to Kockums’ propeller and other Kockums’ designs will be revealed to any third party for modifications, unless Kockums has given its prior written approval thereto.”

18. If Mr Öhlund had in mind that ASC should initiate legal action, nothing came of his request.  The correspondence exchanges continued, without any resolution being obtained.  On 29 May 2000 Abbott Tout, solicitors for Kockums, wrote to Mr Elliston stating that Kockums was fearful that the Commonwealth might infringe its “rights in its intellectual property and associated confidential information”.  Abbott Tout required the Commonwealth, by 5pm on 5 June 2000, to acknowledge Kockums’ rights and give certain undertakings.  They said that, unless they received the acknowledgment and undertakings by that time, “we have been instructed to proceed to injunctive relief against the CoA”.

19. The deadline passed without the demanded Commonwealth response.  There was talk of an arbitration but this did not proceed.  Abbott Tout made a further threat of legal action on 28 June 2000.  However, no legal proceeding was instituted by Kockums until the institution of this present proceeding, on 13 February 2001.

20. The catalyst for the institution of the proceeding appears to have been Kockums’ discovery that the Commonwealth intended to send a third propeller (Z9000) to the United States for modification.  The Commonwealth’s intention was disclosed in a letter, dated 21 December 2000, from the current Director General, Submarines Branch of the Department of Defence, Commodore P F Greenfield, to ASC.  The letter stated:

    “1.      The purpose of this letter is to propose a way ahead for both medium and long term solutions for the propellers.

    2.        The issue has been unfolding since the earliest failure of HMAS COLLINS to satisfy the contractual noise requirements as early as 1996.  Despite assurances by ASC, the defects and deficiencies in the propellers have not yet been rectified.

    3.        Through the Project/ASC Noise Working Group, the Commonwealth has had the opportunity to observe the efforts of ASC and Kockums to improve the underway signature of the boats, and in particular the acoustic performance of the propellers.  Notwithstanding these efforts, including blade modification, and alternate propeller design and manufacture, neither ASC nor Kockums have been able to demonstrate a significant improvement in the acoustic performance of the propellers in a reasonable timeframe as required under Contract C218269 (‘the Build Contract’).

    4.        Consequently, the Commonwealth exercised its right under clause 42 of the Build Contract to engage a third party to improve the propeller’s acoustic performance under the SEA 1446 Fast Track program.  This has achieved an improvement in propeller acoustic performance that is acceptable to the Commonwealth, with two modified sonoston propellers (2^nd Generation) entering service with the class.

    5.        In the near term, I understand that ASC propose to map and finish a sonoston propeller to a design shape provided by Kockums/SSPA.  Without improvement predictions based on software and model testing and with ASC’s limited experience in propeller, I see significant risk in this approach, and consider it will result in little or no improvement to the acoustic characteristics of the propeller.  I am also concerned that your machining may render the propeller unsuitable for future third party/US modifications, which form the basis of a solution acceptable to the Commonwealth.  I caution therefore that this work is being performed at ASC’s risk, and I do not support your continuation of this approach.

    6.        With regard to the medium term, you are aware that Defence has recently received funding authorisation for various fast track modifications to be incorporated in submarines 01 and 06.  As part of this, I am implementing a program for the modification of further sonoston propellers to improve their acoustic performance.  The program will include all modifications applied to the two previously modified sonoston propellers.  I regard this work as critical to the achievement of acceptable performance standards for the propellers.

    7.        As I discussed with you briefly on 20 Nov 00, I wish to modify the first propeller (ex-HMAS FARNCOMB – Defence spare serial number Z9000 selection based on metallurgical condition assessment of all available propellers) in the United States under a contract between Defence and the USN.  I am seeking to complete this modification as soon as possible.  I therefore request that this propeller be made available to the Commonwealth for dispatch as soon as possible.

    8.        In parallel with this, I envisage that a substantial manufacturing technology transfer program would be undertaken enabling the remaining propellers to be modified in Australia.  I anticipate this work could be undertaken by ASC-Engineering staff at the Outer Harbor site.

    9.        To facilitate ASC’s involvement, I propose that key manufacturing staff in ASC-E undergo intensive training in the US both prior to and during the modification of the first propeller.  This would likely take place at the Norfolk Naval Shipyard and the John Crane-Lips Inc facilities in Virginia, with hands on training in the following areas:

    ·Propeller inspection techniques

    ·Propeller certification techniques

    ·Modification development and implementation.

    10.      I would like your participation in this program, and in particular the provision of ASC-E technical staff as outlined above.  I envisage that staff training could commence by 2^nd quarter of 2001, with work commencing on the second propeller in Australia in Jan 2002.  On completion of training and the modification of the first propeller in the US, I envisage that the ASC would resource the modification of further propellers in Australia.  Please advise me as soon as possible of your agreement to this proposal.

    11.      You have advised me of your particular concerns regarding propeller modifications.  In your support therefore, I would point out that the proposed first propeller was ordered by and delivered as an RAN spare, and is therefore clearly Commonwealth property.

    12.      This brings me to the long term solution.  The Commonwealth now has a new US design (3^rd Generation), acceptable to the longer term Collins requirement, which would obviate the propeller cracking issue.  I envisage that manufacture of such alternative propellers could result in significant ASC-E production work.

    13.      Further to Reference A, I have reviewed the technical matters associated with propeller performance (acoustic, cracking and fatigue) and consider the latent defect claim to be valid.

    14.      My staff will be in Adelaide on 15/16 Jan 01 and are prepared to discuss your response to these proposals.”

21. The company referred to by Commodore Greenfield, in para 9 of his letter, as John Crane-Lips Inc is the same company as that which had modified propellers Z8959 and Z8960, it being then known as Lips Propellers Inc.  Despite the name change, I will continue to refer to that company as “Lips Propellers”.

22. Notice of the meeting proposed by Commodore Greenfield for 15-16 January was given to Kockums.  Prior to the meeting, on 10 January 2001, Mr Öhlund wrote to Mr Ohff asserting that the “release of propellers or the related design and technology to the US or any other third party(-ies) would constitute a breach of the Designs Sub-Contract and cause damage to Kockums”.  Mr Öhlund went on:

    “Therefore, Kockums is basically not willing to accept any release of the propellers to the US without first having made the necessary contractual arrangements therefore.

    In order to find a suitable solution Kockums would propose the following:

    -any Kockums’ design data to be disclosed to any third party would need to be fully controlled through Kockums;

    -that Kockums would be given full information of any modification being incorporated into the propellers with the right of Kockums to freely use any such modification;

    -the proper way to address this matter would be to treat it as a license issue.  The license would be reviewed with the aim to include new relevant parties to gain access to the propeller design;

    -extending the license under the Design Sub-Contract (with the right for ASC to extend the license under the Commonwealth Contract correspondingly) will be subject to commercial compensation to Kockums;

    -an extended license would require the necessary confidentiality arrangements to safeguard Kockums’ proprietary and confidential information including warranties and indemnities from any new party(-ies) to which such information need to be disclosed;

    Kockums is therefore willing to consider a formal request for an extension of the existing license based on the above outlines subject to any approvals from Swedish authorities which may be required.

    Kockums is willing to continue in good faith discussions with an aim to resolving this matter as well as the overall matters relating to Kockums’ IPR in general and the overall requirements regarding Kockums’ future design authority support arrangements.”

1. The meeting of 15 and 16 January 2001 was held at ASC’s premises in Adelaide. Representatives of ASC, the Commonwealth and Kockums attended.  Kockums and the Commonwealth restated their previous positions in connection with the intellectual property rights and as to whether or not the Commonwealth was entitled to have modifications effected in the United States without Kockums’ consent.  No agreement was reached. 

2. Following the meeting, on 29 January 2001, Commodore Greenfield responded via ASC to Kockums’ letter of 10 January.  Commodore Greenfield reiterated the Commonwealth’s position and said:

   “I have noted KAB’s proposed solution and the Commonwealth will consider its response.  However, I make the following preliminary comments:

   a.        the ASC and KAB have been given the opportunity to rectify defects in the propellers and have failed to do so.  The Commonwealth will not be impeded from seeking the necessary modifications to the propellers that are needed to meet operational requirements;

   b.        the Commonwealth already has paid for the licence to use any IPRs owned by KAB or any other contractor.  The license is provided under clause 48 of Contract C2186269 and under that licence the Commonwealth is entitled to use such IPRs to enable the Commonwealth to use, operate, repair, maintain, and modify its submarines or any part of them for the services of the Commonwealth. That is what it is doing with the propellers.

   c.        clause 48 of the Design Subcontract provides the necessary rights to the Commonwealth to use KAB’s IPRs for the services of the Commonwealth.  Therefore the Commonwealth sees no need for an extended licence for the purposes for which the Commonwealth will use such IPRs; and

   d.        the Commonwealth agrees that if at any stage it intends to engage in any commercial activities or technology transfer arrangements, it will seek KAB’s permission and enter into appropriate commercial licensing arrangements for that purpose.  However, that is not the case with the propellers and that is why the Commonwealth does not consider KAB’s reference to the Memorandum of Understanding between the Swedish and Australian governments as relevant in these circumstances.

   Accordingly, the Commonwealth is willing to accept KAB’s offer to continue discussions on the propellers as well as general IPR issues and future design authority support arrangements.  Such discussions will also need to include discussion of KAB’s and the ASC’s proposals to rectify design and other defects in the submarines.  If discussions are conducted in good faith it should be possible for the parties to reach resolution on all outstanding issues.

   In the meantime, it is my intention to ensure that the Collins Class submarines meet the Commonwealth’s requirements.”

3. Three days later, on 1 February 2001, Commodore Greenfield wrote a further letter to Mr Ohff in which he directed ASC to remove propeller Z9000 from HMAS Farncomb in order to facilitate inspection and painting, and then to package it for transportation to the United States.

4. This direction resulted in a letter to Commodore Greenfield from Abbott Tout, on behalf of Kockums.  The solicitors demanded an undertaking, by 7 February, “that the Commonwealth will not take any steps to transport or hand over the propeller to the United States Navy”.  The undertaking was refused on 8 February 2001. 

   The proceeding

5. On 13 February 2001, Kockums filed an Application in which it seeks three declarations and consequential orders.  The proposed declarations are:

   “1.A declaration that the applicant is the owner of Intellectual Property rights [as defined in clause 1.37 of the Design-Subcontract between the second respondent and the applicant dated 11 April 1988] (the “Contract”) residing in or relating to the propellers designed and manufactured for the Collins Class submarines (“the Propellers”) the subject of the Contract and Contract C 218269 between the first and second respondents dated 3 June 1987 including any drawings in respect of those Propellers and any confidential information comprised in those drawings and the design of those Propellers.

   2.A declaration that the applicant is the owner of the copyright in and the confidential information comprised in the drawings, designs, specifications, instruction and operating manuals and other documentation and the information comprised therein in relation to the Propellers (the “Materials”) produced or provided by it under or in relation to the Contact.

   3.A declaration that the applicant’s disclosure of the Materials to the first and second respondents and their receipt by them was in confidence and constitutes confidential information owned by the applicant.”

6. The Application sought interlocutory relief in these terms:

   “1.      An order that the first and second respondents, whether by themselves, their servants or agents or otherwise howsoever, be restrained (without the prior written consent of the applicant) from providing Propellers forming part of the Collins Class submarine or any design documentation or information in relation thereto to any third party including, without limitation, the United States Navy.”

7. Stone J abridged time for service and the matter came before me on 16 February 2001.  I was informed by Mr T Bathurst QC, who then appeared with Mr Lancaster for the Commonwealth, that his client proposed to ship propeller Z9000 on a vessel scheduled to depart Australia on 27 February 2001 and to arrive in the United States in late April 2001.  Having regard to the time that would elapse, in any event, before delivery of the propeller to the United States Navy, I suggested the preferable course might be to allow more time for preparation of the application for interlocutory relief, and that Kockums’ position could be protected by a suitable undertaking.  Counsel agreed.

8. On 20 February 2001 I noted the following undertaking, given to the Court by counsel for the Commonwealth:

   “The first respondent undertakes not to deliver propeller Z9000, or any other propeller forming part of the Collins Class submarine fleet, or any design drawings or design information in relation thereto, to the United States government, or any agency or department of the United States government including the United States Navy, or any contractor or subcontractor acting on behalf of or for the United States government, before 30 April 2001 and prior thereto to maintain the propeller Z9000 in confidential storage on the vessel MV Taiko or at any point of disembarkment.”

9. I made directions concerning the filing of Points of Claim and Points of Defence and affidavits and fixed commencement of the interlocutory hearing for15 March 2001.

   The position concerning drawings

10. When the undertaking was given on 20 February 2001, it was apparently the common belief of counsel that no drawings of the propeller had been delivered, or were intended to be delivered, by the Commonwealth to the United States Navy or to Lips Propellers.  When he affirmed his first affidavit, on 13 February 2001, that was Mr Öhlund’s understanding of the position.  His expressed apprehensions about breach of copyright were that the United States Navy, or Lips Propellers, would prepare drawings by “reverse engineering” from the propeller itself.

11. However, on the morning of the commencement of the hearing (15 March) the Commonwealth served a further affidavit, of Mr Stuart, dated that day.  This affidavit corrected a statement made by Mr Stuart in his first affidavit, of 15 February 2001, that, in neither 1998 nor 1999, “did the Commonwealth give the United States … any drawings, designs or any other document relating to the propeller”.  Mr Stuart deposed on 15 March that he had learned from Andrew Gates, an engineer on the submarine project, that, whilst Mr Gates was in the United States on secondment to Carderock Division Naval Surface Warfare Center (formerly David Taylor Research Center) between October 1996 and August 1999, he created a register of documents that had been received by the United States Navy from the Commonwealth in relation to the Collins class submarines.  The list included some propeller drawings, and apparently also some technical specifications, that were forwarded to the United States in July 1998, in connection with the repair and modification of propeller Z8959.

12. In the light of this further information, the case was conducted on the basis that the United States Navy still retained possession of some propeller drawings and specifications, and it would be possible for those documents to be reproduced, without resort to reverse engineering, if this was necessary in connection with modification of propeller Z9000.

    The United States arrangements

13. On 2 May 1962 there was an exchange of notes between the then Australian Ambassador to the United States and the then United States Secretary of State making a confidentiality arrangement in respect of classified defence information.  The arrangement is that “all classified information communicated directly or indirectly”, between the two governments, be protected in accordance with the following principles:

    “that the recipient:

    a.will not release the information to a third Government without the approval of the releasing Government;

    b.will undertake to afford the information substantially the same degree of protection afforded it by the releasing Government;

    c.will not use the information for other than the purpose given;

    d.will respect private rights, such as patents, copyrights, or trade secrets which are involved in the information.”

14. Procedures were agreed.  The essence of the procedures is that the recipient government will assign to communicated information a classification that will assure to it “a degree of protection equivalent to or greater than that required by the Government furnishing the information”.  The recipient government is required to administer security measures for the protection of the information in accordance with that classification.

15. In 1966 the 1962 agreement was supplemented by an agreement between the then Australian Minister for Defence and the then United States Secretary of Defense.  The supplementary agreement sets out security procedures governing classified information passed under defence contracts.  It is necessary to note only two things.  First, the agreement requires clearances of facilities and individuals “according to the pertinent regulations of the country having responsibility for administering security measures for the classified contract”.  Second, in relation to material sent by Australia to the United States, it is provided:

    “The Government of Australia shall keep current all security classifications.  Each classified element of this contract shall be safeguarded by the contractor as United States classified information of an equivalent security classification category as set forth herein and such information shall be subject to the provisions of United States laws and regulations.”

16. On 19 April 1995 the Australian and United States governments executed a memorandum of understanding regarding defence procurement.  The agreement imposes on each government a number of obligations, one of which is expressed in these terms:

    “Ensure that all controlled information, including proprietary technical data, and defense equipment released to industry pursuant to this Agreement, is used only for submitting offers for and performing defense contracts covered by this Agreement, except as authorized by the releasing Government and by the holders of rights to the information or equipment.”

17. Article 7 of the agreement provides:

    “1.      Any classified information furnished by either Government in connection with procurements shall be protected by the receiving Government in accordance with the United States-Australian General Security of Information Agreement of May 2, 1962, as amended and the Security Procedures for Industrial Operations between the Department of Defence of Australia and the Department of Defense of the United States dated August 15, 1966, or any successor agreements or arrangements.

    2.        With respect to procurement, each Government shall take all necessary steps to ensure the industries in its country comply with its laws, regulations, and policies for the safeguarding of unclassified information and technology which are subject to its export controls.”

18. The evidence includes documents relating to the work performed in the Unites States in connection with propellers Z8959 and Z8960.  In each case the United States government, through its Navy International Programs Office, issued a letter of offer addressed to the Commonwealth of Australia offering to carry out the stipulated work at a particular price.  The Commonwealth accepted the offer.  The stipulated work included that performed by Lips Propellers, which acted, it seems, as a subcontractor to the United States Navy.

19. Lips Propellers was incorporated in 1984.  It has apparently always been owned by Lips United BV, a Netherlands company.  Lips United BV is also the parent of another Netherlands company, Lips BV.  According to Mr Öhlund, Lips BV was approved by Kockums in 1989 as one of the possible manufacturers of propellers for the Collins class submarine, although it was not ultimately retained for that purpose.  Mr Öhlund sees Lips BV as a possible competitor to Kockums.

20. During the course of the hearing, an affidavit was made by Hans Saegar, an employee of a German company, Howaldtswerke-Deutsche Werft AG (“HWD”), that has recently acquired the shares in Kockums.  Mr Saeger deposed to hearsay information he had received from a fellow employee of HWD, that Lips Propellers was “a selected sub-contractor on the propeller for the Moray Class submarine for the Egyptian Navy”.

21. Mr R Cutler, the solicitor for the Commonwealth in this proceeding, made inquiries about this information of James Baur, Vice President/General Manager of Lips Propellers.  After contact with an officer of the Unites States Navy, Mr Cutler elicited the following information:

    “.        John Crane LIPS Inc is a repair workshop.  It does not do design work on submarine propellers;

    .John Crane LIPS Inc is a US entity that has what is described as a ‘firewall’ in place between it and its parent company.  That ‘firewall’ is a security agreement which prohibits confidential/classified information being passed by John Crane LIPS Inc to its parent company or any other entity within the corporate group to which John Crane LIPS Inc belongs.  John Crane LIPS Inc’s compliance with the security agreement is, firstly, monitored by a Security Board … which meets quarterly and, secondly, is reviewed by the US Navy on an annual basis.

    .John Crane LIPS Inc is not involved as a subcontractor (or in any other capacity) on the propeller for the Moray Class submarine for the Egyptian Navy.”

22. The accuracy of this information seems to be supported by a recent Dun & Bradstreet search of the company which shows its “line of business” as “repair services”.  That statement is consistent with information appearing on the Lips Group web-site.

23. There is considerable evidence as to the security restrictions that were imposed on Lips Propellers in respect of the work it has already done in connection with Collins class propellers.  Some years ago (the exact date does not appear) Lips Propellers entered into a contract (number N00024-96-C-4014) with the United States Naval Sea Systems Command which included this provision regarding security:

    “         12.1     The work may require access to classified documents and secured industrial work areas.  If so, the Contractor shall comply with all regulations, including security clearance requirements, and shall execute the performance of the contract in a manner so as not to unreasonably interrupt or interfere with Navy business.  The contractor shall provide proof of CONFIDENTIAL security clearance for its firm and individual representatives.

    12.2     The contractor shall disseminate classified material to cleared personnel within the Contractor’s organization on a ‘need to know’ basis.

    12.3     All classified material must be returned to the Government upon completion or termination of the contract or upon request of the Government, whichever is sooner.

    12.4     No information related to propellers used or generated under this contract or supplied GFI may be used for advertising, public relations or any other commercial purposes.”

    Contract N00024-96-C-4014 also picked up provisions of the United States Federal Acquisition Regulations dealing with security. 

24. The contracts between the United States Navy and Lips Propellers, in respect of propellers Z8959 and Z8060, made the terms of contract N00024-96-C-4014 applicable to the work to be done under those contracts.  The evidence is that a similar course will be taken in respect of the work proposed to be undertaken by Lips Propellers in respect of propeller Z9000.

25. There is no evidence suggesting that the delivery to Lips Propellers of propellers Z8959 or Z8960, or any technical specifications or drawings depicting the Collins class propeller, has resulted in the reproduction of any document or the improper disclosure of information concerning the propeller design.  However, in an apparent attempt to ensure, even further, the security of the information, the Commonwealth has entered into an agreement with the Program Executive Officer for Undersea Warfare in the United States Department of Defense (“PEO”) recording certain representations.  They include the following:

    “2.      Restrictions on Disclosure

    2.1The PEO will not disclose the Information to a Third Party without the prior written consent of the ADOD [Australian Department of Defence], such consent being subject to whatever conditions the ADOD determines to impose in its absolute and unfettered discretion.

    2.2If the ADOD grants consent subject to conditions the PEO will comply with those conditions in order to disclose the Information to a third party.

    2.3The PEO will take all lawful steps available to it to keep the Information free from further disclosure (including requests under any legislative provisions), unless the ADOD consents to such disclosure.  In the event of unauthorised disclosure, or if it becomes probably that the Information may have to be further disclosed under any legislative provision, immediate notification will be given to the ADOD.

    3.Restrictions on Use and Access

    3.1The PEO will use the Information only for the purposes of the Propeller-Hull Improvement Program in accordance with the requirements of the Letter of Offer and Acceptance executed on 16 February 1999.

    3.2The PEO will ensure that access to the Information is limited to those persons who have a specific need for access to it for the purposes of these Representations.

    4.Production of Documents

    4.1The PEO will deliver up to the ADOD all Documents in the possession or control of the PEO containing the Information if requested to do so by the ADOD.

    4.2For the purposes of section 4.1, where the PEO has placed or is aware that Documents containing the Information are beyond its possession or control, then the PEO will provide full particulars of the whereabouts of those Documents and the identity of the person in which custody or control they lie.

    …

    6.Improper Disclosure or Use

    6.1If the PEO improperly discloses or uses the Information, the PEO will take such steps as may be possible under its laws to provide prompt, just and effective compensation for such improper disclosure or use, when requested to do so by the Information owner or the ADOD.

    6.2In the event of an improper disclosure or use, the PEO will consult with the ADOD about resolving the matter.”

26. The words “Third Party” are defined in the document as meaning “a person or entity (including a contractor) other than an officer, employee, or agent of the PEO”.  “Information” is defined as meaning:

    “(a)Collins Class Submarines propellers including the propellers Z8959, Z8960 and Z9000;

    (b)any other contractor’s proprietary information disclosed to the PEO for the purposes of these Representations.”

1. The word “documents” is defined as including:

   “(a)     any paper or other material on which there is writing;

   (b)any paper or material on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them;

   (c)any article or material from which sounds, images or writings are capable of being reproduced with or without the aid of any other article or devise.”

2. Counsel for the Commonwealth adduced evidence as to the importance of the modification work proposed to be undertaken in the United States.  It was provided by Rear Admiral Geoffrey Smith, Maritime Commander of RAN.  Rear Admiral Smith is responsible for the preparedness of the RAN Fleet, which includes the Collins class submarines.  He said that propeller Z9000 would not be ready to be returned to Australia until 2002.  He went on:

   “HMAS COLLINS will complete full cycle docking in early 2002 and the modified propeller will be fitted as soon as it is returned from the US.  The arrival of the modified propeller from the US is on the critical path for COLLINS achieving the necessary level of capability to be deployed into harm’s way.  This is because with an unmodified propeller, COLLINS will not meet the acoustic signature requirements of Collins Class Submarines.  In other words, it will be too noisy if fitted with an unmodified propeller.  Accordingly, if COLLINS is deployed and put in harm’s way, there will be an unacceptable risk that it would be detected by the enemy, and possibly destroyed by the enemy, with a consequent loss of equipment and more importantly, loss of Australian submarines’ lives.

   There are currently two submarines fitted with modified propellers, and COLLINS will be the third.  There is a highly classified document entitled ‘Chief of Defence Force Preparedness Directive’.  Although for reasons of National Security I cannot state in any detail what that Directive provides, in very general terms it sets out the readiness requirement for the RAN Fleet.  The RAN needs a minimum of three operational Collins Class Submarines at an acceptable level of capability to meet the Chief of Defence Force’s and Australian Government’s strategic requirements.”

   Kockums’ submissions

3. As I indicated at the outset of these reasons, Kockums’ claim for injunctive relief is based on two causes of action: breach of copyright and unauthorized disclosure of confidential information.

4. Kockums claims copyright in two categories of work.  The first category comprises a document called “Technical Procurement Specification”, which was apparently sent to the United States in 1998.  As its name suggests, this is a document describing technical aspects of the propeller.  I will refer to it as “the TPS”.  The TPS was prepared for use in the Collins Class submarine project and is dated 25 April 1991.  It is a “literary work” within the meaning of the Copyright Act 1968, in relation to which see the definition in s 10. The document was written by employees of Kockums.

5. TPS contains four drawings of the propeller. Counsel say each of them is an “artistic work”, within the definition of that term in s 10 of the Copyright Act.  These drawings were all created by Kockums’ employees.

6. Each of the Kockums employees concerned in the production of the TPS and the drawings was a citizen of Sweden. There is no evidence that any of them was resident in Australia at the time of production. Consequently, counsel do not argue that any of the authors was a “qualified person” within the meaning of s 32(4) of the Copyright Act.  However, they say that regs 4(3) and 4(5) of the Copyright (International Protection) Regulations 1969 apply, Sweden being one of the countries listed in Schedule 1 to those regulations. That being so, counsel argue, ownership of the copyright subsists in Kockums, subject to any contrary contractual arrangement: see s 35(6) of the Copyright Act. 

7. Counsel for Kockums submit there is no contrary contractual arrangement; nothing in either the head contract or the design sub-contract derogates from Kockums’ copyright.  Indeed, counsel submit, cl 45(1) of the head contract confirms Kockums’ rights.

8. It follows from all this, say counsel for Kockums, that their client has the exclusive right to reproduce the TPS and the four drawings: see s 31(1) of the Act. They say their client’s rights are infringed if any other person, without the licence of Kockums, reproduces, or authorizes the reproduction of, any of the works in Australia: see s 36(1) of the Copyright Act.  Counsel contend that each instance of unauthorized photocopying, by the Commonwealth, of any of the documents constitutes an infringement of Kockums’ copyright.

9. At this stage of the argument, I pointed out to counsel that there was no evidence of reproduction of any of the documents; at the most, one might assume the probability of reference to the documents during the progress of the work to be performed in the United States. In response, counsel for Kockums suggested I should infer that what was forwarded to the United States in 1998 was a copy of each of the documents, which had been made by a Commonwealth officer, and that the Commonwealth did not forward the original documents, or copies of them that had been provided by Kockums to the Commonwealth or ASC. Accordingly, they said, it may be inferred there was a reproduction in Australia of the copyright documents; thus bringing the case within s 36(1) of the Copyright Act.

10. Counsel concede that any reproduction of the documents in the United States would not be covered by s 36 of the Australian Copyright Act.  But they submit that, in the absence of any evidence on the subject, I should act on the basis that the relevant United States law is the same as its Australian equivalent, and that it protects a foreign copyright owner from an infringement occurring in the United States.

11. Turning to the matter of unauthorized disclosure of confidential information, counsel assert the relevant confidential information comprises the TPS, the four drawings of the propeller contained in that document and the other plans, drawings and specifications brought into existence by Kockums pursuant to the design sub-contract that have been provided by the Commonwealth to the United States Navy, as revealed by Mr Stuart’s recent affidavit.  Counsel observe that the TPS, and each of the drawings, was marked “Commercial in Confidence”.  They point to Mr Öhlund’s evidence that the documents contained information that Kockums regarded as highly confidential, because it would enable a third party “to gain knowledge of the design philosophy and principles used by Kockums, including technology which has been developed over many years”.  Mr Öhlund said Kockums had never disclosed such information “without the appropriate safeguards being in place to maintain the confidentiality of such information”.  Specifically, Mr Öhlund said disclosure of the propeller “would lead the USN and/or Lips to become familiar with Kockums’ submarine design philosophy and aspects of the overall performance of a Collins Class submarine”.

12. Counsel for Kockums accept the three elements of an action for breach of confidence that were identified by Megarry J in Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at 47, 1A IPR 587 at 590. They are:

    (i)        the information itself must have the necessary “quality of confidence about it”.  See Lord Greene MR in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203;

    (ii)       the information must have been imparted in circumstances importing an obligation of confidence; and

    (iii)      there must be an unauthorized use of that information to the detriment of the party communicating it.

13. Counsel for Kockums say all three elements are present in this case.  The relevant information concerned top secret military technology that was imparted to the Commonwealth on sheets of paper marked “Commercial in Confidence”, this being both an indication of the nature of the material and one of the circumstances of its communication to the Commonwealth.  Counsel argue it does not matter that the unauthorized disclosure will take place overseas.

14. In an apparent recognition of the strength of the public interest arguments foreshadowed by counsel for the Commonwealth, counsel for Kockums proposed a form of orders alternative to the interlocutory order sought in the Application.  The alternative orders are as follows:

    “1.Order that unless within ____ days of this date there is provided to the Applicant a confidentiality agreement in the form of the document attached hereto, or as otherwise may be agreed by the Applicant, executed by or on behalf of the United States navy and John Crane – Lips Inc, the Respondents are:

    (a)not to provide propeller Z9000 to the United States Navy and/or John Crane – Lips Inc; and

    (b)to procure the return forthwith from the United States Navy, or any other third party who may have copies of them, the documents referred to in …  [various affidavits] ...

    2.Order until further order the Respondents and each of them be restrained from providing to the United States Navy, John Crane – Lips Inc. or any other person any designs, plans, schedules, diagrams, drawings and any other documentation provided or prepared for the purposes of Contract C218269 between the First and Second Respondents dated 3 June 1987 by the Applicant or based upon the Applicant’s design without the prior written consent of the Applicant.”

15. Counsel’s draft proposes the Court note that order 1 is “without prejudice to the Applicant’s right to claim a reasonable licence fee and/or damages” arising out of the Commonwealth’s provision of propellers Z8959 and Z8960, and the documents referred to in order 1(b), to the United States Navy and/or Lips Propellers.

16. Counsel proffered a draft of the confidentiality agreement intended to be referred to in their proposed order 1.  The draft names as parties, not only the three parties to this litigation, but also the United States Navy and Lips Propellers.  It recites Kockums’ ownership of the information and copyright in the relevant documents, the disclosure of that information without Kockums’ consent and the agreement of Kockums and “the Recipients” (a term defined to embrace the other four parties to the proposed agreement) “that none of the Recipients shall disclose the information to any third party or each other except as provided under this Deed”.  The operative clauses of the draft include a clause whereby the Recipients undertake they will not reproduce the information “except for the sole purpose of enabling them to perform the work pursuant to annexure “C” to this deed”.  Presumably, it is intended that annexure “C” will refer to the proposed modification of propeller Z9000.  There is also a covenant against use, except for that purpose or with the prior written consent of Kockums.  The draft requires each of the other parties to agree that the execution of the deed by Kockums “is without prejudice to its right to claim a reasonable licence for [sic – fee] and/or damages against them arising out of the disclosure of the Information”.

17. Counsel for the Commonwealth indicated to me that their client will not willingly execute an agreement in this form.  I assume ASC is in the same position.  There is no information before the Court as to the attitude of the United States Navy or Lips Propellers.

    The Commonwealth’s submissions

18. Counsel for the Commonwealth maintain the position that was taken by their client in correspondence, concerning Kockums’ claim to copyright in the TPS and the drawings.  Nevertheless, they concede Kockums’ claim “might be regarded as sufficiently arguable for interlocutory purposes”.  Counsel say, however, that even if Kockums hold copyright in the relevant documents, there is nothing before the Court to suggest an actual or threatened infringement of the copyright, within the meaning of the Copyright Act.  Counsel argue it is mere speculation to suggest that copies of the documents were made in Australia, in order to be sent to the United States; no attempt was made to procure evidence to that effect.  Similarly, they say, it is speculative to assume there has been, or will be, any reproduction of the documents in the United States, for the purpose of designing or implementing modifications to any of the propellers; nor would the Court be justified in assuming that United States law is relevantly similar to that of Australia.  Counsel contend it would have been possible, during the five weeks since commencement of the proceeding, for Kockums to procure evidence about the relevant United States law.

19. Counsel for the Commonwealth also refer to s 183 of the Australian Copyright Act. Subsection (1) of that section provides:

    “The copyright in a literary, dramatic, musical or artistic work or a published edition of such a work, or in a sound recording, cinematograph film, television broadcast or sound broadcast, is not infringed by the Commonwealth or a State, or by a person authorized in writing by the Commonwealth or a State, doing any acts comprised in the copyright if the acts are done for the services of the Commonwealth or State.”

    Subsequent subsections require the Commonwealth or State, as the case may be, to notify the copyright owner of the doing of any act comprised in a copyright and to pay a copyright fee, as may be agreed or fixed by the Copyright Tribunal.

20. Counsel for the Commonwealth argue that s 183(1) provides a complete answer to any claim of infringement of copyright by a Commonwealth officer making copies of the documents in Australia; at the most, Kockums would be entitled to a copyright fee. They say that, although s 183 does not in terms apply to any reproduction in the United States, any assumption that the law of the United States is similar to that of Australia must include an assumption about the existence of an equivalent to s 183(1); in any event, the existence of the subsection is material in considering whether this is a case in which it is appropriate to grant injunctive relief against the Commonwealth.

21. In relation to the allegation of unauthorized disclosure of confidential information, counsel for the Commonwealth do not dispute that the evidence establishes the first two elements identified by Megarry J in Coco.  However, they deny that the Commonwealth has made any unauthorized use of the information and that any use of the information by the Commonwealth has resulted, or is likely to result, in detriment to Kockums.

22. Counsel for the Commonwealth place particular reliance on cl 48 of the head contract, set out in para 8 above, and its equivalent in the design sub-contract.  They say cl 48.2 of the design sub-contract contains a grant by Kockums to the Commonwealth and ASC of “a royalty-free, irrevocable, non-exclusive, non-transferable right to apply, use, [or] reproduce” all information provided under the design sub-contract that is proprietary to Kockums.  On Kockums’ case, this includes the TPS and the propeller drawings.  The only limitation on the right, counsel say, is that the application, use or reproduction must be “for the purpose of the Commonwealth and the Contractor under the Commonwealth Contract”.  That takes a reader to the head contract where it is found that cl 48.2 contains a similar grant by ASC to the Commonwealth, provided that the application, use or reproduction is “for the services of the Commonwealth”.  Counsel point out this term is defined in cl 48.7 by reference to two exclusions, neither of which (they say) applies to the proposed application, use or reproduction that has given rise to the present proceeding.

23. Counsel for the Commonwealth say that, even if Kockums has established a serious question to be tried, in relation to either breach of copyright or unauthorized disclosure of confidential information, there are significant reasons why the Court should reject the claim for injunctive relief, whether under the rubric of balance of convenience or in the exercise of the Court’s discretion.  They argue that, if any cause of action does arise, damages would be an adequate remedy; there is no basis for concluding that the supply of information about the propellers to the United States Navy will result in the use of that information by competitors of Kockums; at the most, Kockums would lose only the opportunity of a licence fee.  On the other hand, counsel point out, there is evidence from Rear Admiral Smith as to the strategic importance of propeller Z9000 being modified without delay and returned to Australia, as planned, in early 2002.  Counsel say the situation is covered by the doctrine of executive necessity.  They refer to Rederiaktiebolaget Amphitrite v The King [1921] 3 KB 500, Commissioners for Crown Lands v Page [1960] 2 QB 274 at 291 and Ansett Transport Industries (Operations) Pty Limited v Commonwealth of Australia (1977) 139 CLR 54. In the last-mentioned case, Mason J said at 74-75:

    “… the public interest requires that neither the government nor a public authority can by a contract disable itself or its officer from performing a statutory duty or from exercising a discretionary power conferred by or under a statute by binding itself or its officer not to perform the duty or to exercise the discretion in a particular way in the future.”

    ASC’s submissions

24. ASC did not tender any evidence and Mr Harrowell confined himself to a limited submission, based on cl 41 of the head contract.  He points out the role of that clause in providing a future for his client; it is important to ASC that it retain the opportunity of supplying logistic support for the Collins class submarines.  Mr Harrowell accepts that the Commonwealth is entitled to have submarine modifications undertaken elsewhere, provided it does not establish a second source of supply, within the meaning of cl 48.7 of the head contract.  Mr Harrowell says light is cast upon the meaning of the phrase “establishing second sources of supply” by cl 41 of the head contract.  That clause contains an undertaking by ASC to provide “integrated logistic support services” for the submarines until the expiration of ten years after expiry of the warranty period in relation to the last delivered submarine.  Although the term “integrated logistic support services” is not defined in cl 41, or elsewhere in the head contract, Mr Harrowell suggests cl 41.4 and 41.5 make its meaning apparent.  In particular, cl 41.5 refers to ASC’s “facilities for the manufacture of Proprietary Items of components, spare parts and support equipment” and for the supply of such items.  Mr Harrowell submits it is reasonable to regard this as being, in the contemplation of ASC and the Commonwealth, a first source of supply; any significant duplication of those facilities would be a “second source of supply”.

    Conclusions

25. In my opinion, the application for interlocutory relief encounters several significant difficulties.

26. The evidence concerning the creation of the TPS and the drawings is less complete than might be expected at a final hearing.  However, it is reasonable to accept, for present purposes, that the documents were all created by Kockums’ employees under circumstances that make Kockums the copyright owner.

27. I accept, also, that there is nothing in the head contract that derogates from Kockums’ ownership right.  It seems to me that Kockums’ construction of cl 45 is more than arguable (as counsel for the Commonwealth concede); it is correct.  Clause 45.1 provides that – subject to any relevant agreement, and none is suggested – each of the parties to the project “shall retain ownership of any and all Intellectual Property rights to any and all information in a material form produced or provided by it … under the Contract or in relation thereto including … data … schedules, diagrams, drawings and any other documentation”.  The subject documents undoubtedly fall within the concluding group of words.  They were “produced or provided” by Kockums “in relation to” the “Contract” - that is, the head contract between ASC and the Commonwealth – although pursuant to obligations undertaken by Kockums under the design sub-contract.  The term “Intellectual Property” is defined by cl 1.37 of the head contract so as to include “all copyright”.

1. Contrary to the argument advanced on behalf of the Commonwealth in pre-suit correspondence, there is nothing in cl 45.2 to derogate from Kockums’ copyright in the TPS and the drawings.  This subclause merely obliges ASC to pay, and to ensure its subcontractors pay, fair and reasonable remuneration to the Commonwealth for any application, use, transfer, licensing or reproduction, by ASC or a sub-contractor, of information first developed and produced under the head contract for the purposes of the Commonwealth; the exception being an application, etc that is for the head contract, or any other contract between the Commonwealth and ASC or a sub-contractor.

2. The evident idea behind cl 45.2 is that, although the intellectual property rights in information developed or produced in connection with the Collins project is to remain with the producer, the Commonwealth (as paymaster for the project) should receive a royalty if that intellectual property is used in connection with a project in which it has no interest.

3. However, copyright ownership is one thing; infringement is another. There is no evidence of actual or threatened reproduction of any of the subject documents; and there is much force in the Commonwealth’s submission that reproduction cannot, and should not, be assumed. It is possible that one or more of the documents was copied by a Commonwealth officer, in Australia, for the purposes of the copy being sent to the United States. But there is no evidence that this happened, or even that there would have been a need to create an additional copy for this purpose. The evidence does not indicate how many copies of the documents were supplied by Kockums to the Commonwealth; there may have been multiple copies on file. Similarly, the evidence provides no guidance as to the need for the United States Navy, or Lips Propellers, to reproduce any of the documents received by them from the Commonwealth. Even if there was a basis for inferring reproduction in Australia, the effect of s 183(1) would be that this did not constitute an infringement of Kockums’ copyright.

4. As counsel for the Commonwealth concede, s 183(1) would not apply to any reproduction effected in the United States. However, there is much to be said for the view that, as a matter of discretion, the Court ought not to restrain the Commonwealth from permitting its agent to perform, outside Australia, an action that would not be an infringement of copyright if performed by the Commonwealth itself in Australia.

5. In relation to the claim of breach of confidence, the critical question is whether Kockums has raised a serious question to be tried in respect of the third element identified by Megarry J in Coco:  “an unauthorized use of that information to the detriment of the party communicating it”. 

6. The principle underlying the action for breach of confidence was stated by Lord Denning MR in Seager v Copydex Ltd [1967] 2 All ER 415 at 417 in these words:

   “… he who has received information in confidence shall not take unfair advantage of it.  He must not make use of it to the prejudice of him who gave it without obtaining his consent.”

7. However, at least in Australia, in determining what is an unfair advantage, the Court is not limited to the confider’s purpose in supplying the confidential information.  The point was made in Smith Kline and French Laboratories (Australia) Ltd v Secretary of Department of Community Services and Health (1991) 28 FCR 291. The appellant had supplied confidential information to the Department in order to obtain approval of the distribution of a particular pharmaceutical substance. The Department proposed to use that information in considering an application for approval of use by another manufacturer. The appellant contended at first instance that the Department could not use the information for that purpose; lawful use of the information was confined to the purpose for which it was supplied. The primary judge rejected that contention and the Full Court agreed. At 303 the Full Court observed:

   “The test of confider’s purpose will not ordinarily be appropriate where each party’s interest is quite different, and known to be so.”

8. In Smith Kline and French Laboratories the Full Court referred to the observation of Deane J, in Moorgate Tobacco Co Ltd v Phillip Morris Ltd (No 2) (1984) 156 CLR 414 at 438, that the obligation to respect confidences “lies in the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or obtained”. Referring to the principle enunciated by Lord Denning in Seager v Copydex Ltd, the Full Court said (at 304):

   “To avoid taking unfair advantage of information does not necessarily mean that the confidee must not use it except for the confider’s limited purpose.  Whether one adopts the ‘reasonable man’ test suggested by Megarry J or some other, there can be no breach of the equitable obligation unless the court concludes that the confidence reposed has been abused, that unconscientious use has been made of the information.”

9. The information in issue in Kockums’ breach of confidence claim was developed by Kockums, at Commonwealth expense, and supplied by Kockums to ASC for the purpose of enabling ASC to procure the manufacture of propellers suitable for use in Collins class submarines.  As Kockums well knew, the submarines were a major capital investment of the Commonwealth, costing several billions of dollars.  They were intended to be a major element in Australia’s defence strategy.  As Kockums must also have known, it is a matter of national importance that the submarines operate efficiently and effectively, including with minimum noise. 

10. Kockums’ purpose in submitting the subject information to ASC was to comply with its obligations under the design sub-contract; the purpose was a merely contractual one, with only commercial ramifications.  However, as Kockums knew, the Commonwealth had a wider purpose in receiving design information.  Not only was it concerned to have satisfactory submarines manufactured by ASC, it was concerned to ensure the manufactured submarines remained fit for active service, including under wartime conditions, for many years.  The attainment of that objective necessarily would involve maintenance of the submarines beyond the period during which ASC was required to provide integrated logistic support under cl 41 of the head contract.  Moreover, having regard to the speed of technological change, it may be assumed Kockums realised the likelihood that the Commonwealth would need to upgrade or modify some of the submarines’ components.  Under these circumstances, as Kockums must have realised, it was imperative, from the Commonwealth’s point of view, that the Commonwealth have access to design information about the submarines and the ability to use that information in connection with the maintenance, upgrading or modification of the submarines or any of their components.

11. I see no element of unfairness or abuse of confidence in the Commonwealth using the confidential information supplied to it by Kockums for the purpose of modifying a component of the submarines, the propeller.  It would be different if the Commonwealth were proposing to exploit the confidential information for an extraneous purpose; for example, by selling it, or making it available, to some other country or manufacturer in connection with the production of other submarines.  That would plainly be a breach of confidence, in the absence of Kockums’ agreement.  But that has not happened, and is not proposed.

12. For the above reasons, it seems to me that, even in the absence of cl 48.2 of the head contract and cl 48.2 of the design sub-contract, Kockums’ case encounters serious problems, in respect of both breach of copyright and unauthorised disclosure of confidential information.  However, to the extent the case has substance, it seems to be destroyed by those sub-clauses. 

13. It will be recalled that the effect of the two subclauses is to confer on the Commonwealth a royalty-free and irrevocable (although non-exclusive and non-transferable) right to use “for the services of the Commonwealth” all proprietary information supplied under the head contract.  This must include the information in suit in this case.

14. As I see the position, only two questions can arise in relation to the application of cl 48.2 to this case.  First, can it be said that the proposed use of the information by the United States Navy or Lips Propellers is a use “by the Commonwealth”, within the meaning of the sub-clauses?  Counsel for Kockums submit not.  They accept that the Commonwealth, as a body politic, can act only through human agents.  So they accept that the right conferred by the sub-clauses extends to use of the information by a Commonwealth employee acting in the course of his or her employment.  But they submit it does not extend to use by an independent contractor to the Commonwealth, even for a Commonwealth purpose.

15. I cannot accept this argument.  It seems to me an unwarranted step to introduce into the construction of this provision the technical, and often difficult, question whether a particular person is an employee or independent contractor of the Commonwealth.  There is no reason to believe the contracting parties intended to make such a distinction.  On the contrary, the sub-clause gives every indication of an intention to grant wide rights to the Commonwealth.  Given the fact that any major task connected with the maintenance, repair or modification of the submarines, or any component of them, is likely to be one in relation to which it would be natural and usual to use a contractor, rather than Commonwealth employees, it is highly unlikely that the Commonwealth would have intended to exclude use of the information by independent contractors.  The point may be illustrated by reference to cl 42.5 of the head contract.  As counsel for the Commonwealth pointed out in argument, that subclause provides that, if ASC fails to correct a defect covered by the warranty clause, the Commonwealth has the right, after giving notice of its intention, to have the defect corrected “by itself or by a third party”.  There is at least a possibility that correction of a defect will necessitate reference to design information.

16. The second question about cl 48.2 is the meaning of the phrase “for the services of the Commonwealth”.  Clause 48.7 is relevant to that matter.  As previously indicated, that sub-clause excludes from the term “establishing second sources of supply in competition with the Contractor or its sub-Contractors”.  Counsel for Kockums argue that the retention of any supplier, even on an ad hoc basis in connection with a single service, amounts to the establishment of a second source of supply.  However, if that argument was correct, the Commonwealth could never engage the services of an independent contactor.  For the reasons just stated, that seems unlikely to have been intended.  Furthermore, the argument seems to give no weight to the notion of continuity inherent in the word “establishing”. 

17. It seems to me that Mr Harrowell is correct in submitting that the words, “establishing second sources of supply”, take their meaning from the provisions embodied in cl 41.  On that basis, the commissioning of the United States Navy to carry out a particular modification to a particular propeller is not the establishment of a second source of supply.  As the purpose of the commission is to achieve an improvement in the performance of the propeller, and so in the performance of an RAN vessel, the use of the information for the purposes of that commission is clearly a use “for the services of the Commonwealth”; in the ordinary meaning of that term.

18. In my opinion cl 48(2) provides an answer to both the causes of action relied on by Kockums.

19. If I had reached a contrary view, and formed the opinion that there is a serious question to be tried in respect of Kockums’ claims, I would nevertheless have refused to grant an interlocutory injunction.  I am impressed with the evidence adduced by the Commonwealth as to the security measures that will control the dissemination in the United States of information concerning the propeller.  There is no reason to doubt those measures will be effective, in relation to propeller Z9000, as they apparently were in respect of the two Collins class propellers previously sent to the United States.  The United States Navy must have substantial experience in guarding the secrecy of classified information.  No doubt it maintains security over a considerable volume of information concerning its own naval vessels and facilities.  The United States has agreed, at a high level of government, to provide similar security in respect of any classified defence information that might be supplied to it by the Australian government.  There are obvious and powerful reasons why the United States Navy would wish to honour that agreement.  It took appropriate steps in that regard, in relation to propellers Z8959 and Z8960, without urging by Kockums.

20. Although Lips Propellers has a connection with Lips BV, which is said to be a potential competitor of Kockums, there is no reason to believe that confidential information given to Lips Propellers will find its way to Lips BV.  Any leakage of information by Lips Propellers would not only constitute a serious breach of its contract with the United States Navy, which is apparently a major customer; it would seriously (possibly catastrophically) compromise Lips Propellers’ reputation. 

21. Although I am not able to say there is no chance, whatever, of a leakage of information, the possibility seems remote.  In any event, the adverse effects to Kockums of any possible leakage are much less than the adverse effects to the interests of the Commonwealth, and the Australian people, of not allowing the propeller to be modified, and returned to Australia for effective service, as quickly as possible.

22. The suggestion made by counsel that the Court require the respondents to procure a confidentiality deed seems to proceed on the assumption that it is possible for those concerned with modification of the propeller to ensure the security of the information that is currently held by, or would be provided to, the United States Navy and Lips Propellers; alternatively, that the disadvantage of there being a risk of disclosure is outweighed by the disadvantages associated with restraining use of the information.  That assumption coincides with my view.  However, I see no merit in the proposal for a deed.  It seems to me unlikely that the United States Navy or Lips Propellers would accept it in its present form.  Perhaps changes could be negotiated, but it is difficult to see what would be gained by undertaking a process of negotiation.  If either the United States Navy or Lips Propellers used the information otherwise than for the performance of their commitments to the Commonwealth, Kockums would have a right of action against them for breach of confidence, regardless of the absence of a contractual relationship; assuming (as I must) that the United States law in respect of breach of confidence is similar to Australian law.  Depending upon the circumstances, Kockums may also have a right of action in respect of infringement of copyright.

    Disposition

23. I propose to dismiss the application for interlocutory relief.  I will also discharge the Commonwealth from further compliance with its undertaking to the Court of 20 February 2001 insofar as that undertaking precludes delivery of the propeller before 30 April 2001.  The costs of the application for interlocutory relief (including the costs incurred in connection with the hearings on 16 and 20 February 2001) will be respondents’ costs in the principal proceeding.

I certify that the preceding one hundred and fifteen (115) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.

Associate:

Dated:             11 April 2001

Counsel for the Applicant:	B Rayment QC and D B Studdy
Solicitor for the Applicant:	Abbott Tout
Counsel for the First Respondent:	W H Nicholas QC and R Lancaster
Solicitor for the First Respondent:	Clayton Utz
Solicitor for the Second Respondent	J G Harrowell of Hunt and Hunt
Date of Hearing:	15, 16, 20, 21, 22 March 2001
Date of Judgment:	11 April 2001