Madritsch Kg v Thales Australia Ltd - [2021] QSC 170

SUPREME COURT OF QUEENSLAND

CITATION:

Madritsch KG & Anor v Thales Australia Ltd [2021] QSC 170

PARTIES:

MADRITSCH KG

(first plaintiff)

NIOA NOMINEES PTY LTD (AS TRUSTEE FOR THE BILL NIOA FAMILY TRUST)
(second plaintiff)
v
THALES AUSTRALIA LIMITED
ACN 008 642 751

(defendant)

FILE NO/S:

BS 9497 of 2017

DIVISION:

Trial Division

PROCEEDING:

Civil

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

26 July 2021

DELIVERED AT:

Brisbane

HEARING DATES:

1 – 8 March 2021

JUDGE:

Bradley J

ORDER:

The parties are to confer and submit an agreed draft order, or separate draft orders, consistent with the findings in the reasons.

CATCHWORDS:

INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – INFORMATION PROTECTED – where the first plaintiff designed and developed a technical solution (the Madritsch Solution) to the ‘bolt unlocking problem’ in the firing mechanism of the Austeyr assault rifle – where the defendant had been engaged by the Australian Department of Defence to investigate the manufacturability of a solution to the bolt unlocking problem – where the defendant became aware of the Madritsch Solution and expressed its interest in entering discussions to manufacture the solution under licence – where the parties executed a non-disclosure agreement (NDA) to protect information disclosed during those discussions – where upon execution of the NDA, the defendant was provided with the Madritsch Solution for testing and appraisal – whether the information contained in the Madritsch Solution was confidential information under the terms of the NDA

INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – USE OF INFORMATION – where the components of the Madritsch Solution were examined by representatives of the defendant – where in examining the Madritsch Solution the defendant discovered the AFL spring was in the form of a double torsion spring with significantly lower torque – where one of the persons that examined the Madritsch Solution later supervised the defendant’s own project (HMA1 V6) to solve the bolt unlocking problem – where HMA1 V6 involved a double torsion AFL spring with significantly lower torque – whether the defendant used the information contained in the Madritsch Solution to develop HMA1 V6

INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – OBLIGATION OF CONFIDENTIALITY – where the plaintiffs submit the information contained in the Madritsch Solution attracted an obligation of confidentiality under the terms of the NDA – where to maintain an obligation of confidentiality the information must be necessarily confidential – where the Madritsch Solution was provided to personnel of the Austrian Armed Forces to test for the purpose of deciding whether to adopt the solution – where the defendant contends that any confidentiality of the Madritsch Solution was lost as a consequence – where the court heard expert evidence on a piece of Austrian federal legislation that binds public servants to a duty of confidentiality in respect of information received in an official capacity – whether the Madritsch Solution was brought into the public domain and thereby lost its necessary quality of confidence

TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – RESTRAINTS OF TRADE – VALIDITY AND REASONABLENESS – PARTICULAR CASES – COMMERCIAL TRANSACTIONS – GENERALLY– where the defendant contends that the clauses of the NDA prohibiting the use of the relevant information are unenforceable as unreasonable restraints of trade – where pursuant to section 4 of the Restraints of Trade Act 1976 (NSW) a restraint of trade is valid to the extent to which it is not contrary to public policy – where whether it is contrary to public policy is determined with regard to the legitimate interests of the parties and the interests of the public – whether, in light of the defendant’s breach, the relevant clauses of the NDA were reasonably necessary to protect the interests of the plaintiffs in the relevant information

TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – MISLEADING OR DECEPTIVE CONDUCT GENERALLY – MISLEADING OR DECEPTIVE: WHAT CONSTITUTES –– where the defendant expressed its interest in producing the Madritsch Solution under licence from the second plaintiff – where the defendant received a draft sub-licence agreement and quickly formed the view it intended to reject it – where the defendant took steps that led the plaintiffs to believe it was considering the offer with a view to accept it or make a genuine counter offer – whether the defendant engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – FORMATION OF CONTRACTUAL RELATIONS – AGREEMENTS CONTEMPLATING EXECUTION OF FORMAL DOCUMENT – WHETHER CONCLUDED CONTRACT – where to alleviate the first plaintiff’s intellectual property protection concerns, the defendant provided assurances by way of an ‘Intentions Letter’ – where the plaintiffs contend a distinct ‘side agreement’ was entered into by way of exchange of the Intentions Letter for disclosure of the Madritsch Solution – whether the parties intended to be legally bound by a separate side agreement

Competition and Consumer Act2010 (Cth) sch 2 (Australian Consumer Law, s 18 ).
Restraints of Trade Act 1976 (NSW) s 4

Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pt Ltd [1967] VR 37, considered
Coco v AN Clark (Engineers) Ltd [1969] RPC 41, cited
Hampton Court Ltd v Crooks (1957) 97 CLR 367, cited
Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111, followed
Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104, cited
Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343, applied
Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281, applied
Racing Partnership Ltd v Done Bros Ltd (CA) [2021] 2 WLR 469, considered
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203, considered
Seager v Copydex Ltd [1967] 1 WLR 923, cited
Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418, followed
Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227, considered
Tullett Prebon (Aust) Pty Ltd v Purcell (2008) 175 IR 414, considered

COUNSEL:

S Cooper QC, with D Tay, for the plaintiffs
C Johnstone, with A Psaltis, for the defendant

SOLICITORS:

Carswell and Company for the plaintiffs
Minter Ellison for the defendant

This decision concerns a dispute about the firing mechanism in the standard service rifle (Austeyr)[1]used by the Australian Defence Force (ADF) since about 1985. The Austeyr is based on the Steyr Armee-Universal-Gewehr rifle (Steyr AUG), developed by a company from the Austrian town of Steyr. The Bundesheer (the Austrian army) has used the Steyr AUG as its standard service rifle since about 1978.
[1]There are several models, including the F88(SA1), F88(SA2) and F90, but it is convenient to refer to them by the collective generic name Austeyr.
All three parties are in the firearms trade. The first plaintiff (Madritsch) is based in Villach, Austria. Among other things, it manufactures rifle components and accessories for the Steyr AUG.
The second plaintiff (Nioa) is the largest privately owned supplier of arms and ammunition in Australia. It is an importer and supplier of various components, including some produced by Madritsch. Since 2007, Nioa has represented Madritsch in all its dealings with Australian customers, including all those with the defendant (Thales).
Since about 2006, Thales has been a wholly owned subsidiary of a large Europe-based aerospace, transport, defence and security corporation. It owns and operates the long-standing small arms factory at Lithgow, New South Wales. There it manufactures Austeyr rifles and supplies them to the Commonwealth of Australia for the use of the ADF.[2]
[2]The Lithgow factory was once under the control of the Commonwealth Department of Defence. It passed to Australian Defence Industries or ADI. In 2006, Thales’ parent acquired 100% ownership of ADI and, in time, it was renamed Thales Australia Limited.
The plaintiffs allege that Thales used confidential information about a solution to a problem affecting the Steyr AUG family of weapons, including the Austeyr, in breach of a written non-disclosure agreement, a “side agreement”, and an equitable duty of confidence. They also allege Thales engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL). This decision is about whether Thales is liable to Madritsch or Nioa in any of these ways. If Thales is liable, then another hearing may determine the amount of any damages or compensation payable or other relief to which the plaintiffs may be entitled.[3]
[3]Pursuant to the Order of Martin J dated 13 May 2020.
Background – the Steyr AUG and Austeyr rifles
Both the Steyr AUG and the Austeyr are gas-piston operated automatic bullpup-type assault rifles that fire from a closed bolt (or firing chamber). In each model, the rifle’s firing action is facilitated by a component called the gun lock group and sometimes called the slide group. The following is a simplified description of how this component operates in automatic mode.
When the trigger is depressed and held down, the gun lock group slides back and forth over a part called the automatic firing lever (the AFL). When the gun lock group is as far forward as possible, the bolt is closed, and the hammer may be released. When the hammer is released, two springs (the hammer springs) drive the hammer to strike the firing pin, firing the cartridge. The expanding gases generated from the fired cartridge propel the ammunition down the rifle barrel towards its target. The gases also drive the gun lock group rearward and back over the AFL. When the gun lock group is behind the AFL, the next cartridge can enter the opened bolt from the magazine. As the gun lock group moves rearward, the hammer is pushed back into position, and return springs in the rifle butt at the rear of the gun lock group are compressed. When the return springs are fully compressed, they release and push the gun lock group forward again and over the AFL, closing the bolt, and allowing the hammer to be released again, striking the firing pin and firing the next cartridge. In automatic firing mode, the rifle is intended to repeat this cycle until the operator stops it by releasing the trigger or the rifle has fired all the ammunition in the magazine.
When the gun lock group is not fully forward, and the bolt is partially open, the hammer cannot be released and a cartridge in the bolt cannot be fired.
It is convenient at this point to note that the AFL, the hammer, and the hammer springs are assembled as a unit within the rifle called the hammer mechanism and sometimes referred to as the trigger mechanism.
The bolt unlocking problem
When first manufactured, the Steyr AUG and the Austeyr were not designed to incorporate a grenade launcher attachment. Over time, whether or not associated with the use of an M203 grenade launcher in Rambo III (1988), both rifles have been manufactured with an accessory rail below the barrel on which a grenade launcher may be mounted. Thales produces a grenade launcher attachment for use with the Austeyr it manufactures at the Lithgow factory for the ADF. Madritsch also produces such an item.
Perhaps as early as 2006, staff at the Commonwealth’s Defence Material Organisation (DMO) identified “an operational interface issue” with the Austeyr when fitted with a grenade launcher.
In February 2007, a fault was formally reported. The Austeyr would fail to fire a round of ammunition immediately after the grenade launcher attached to the rifle had been fired. The operator had to stop and “re-cock” the rifle before it could be fired. This created problems for soldiers in the field and, to some extent, defeated the purpose of equipping them with an automatic assault rifle and attached grenade launcher.
In May 2007, a report verified the existence of the fault, based on an investigative trial by DMO’s Armament Systems Project Office (ARMTSPO). The report concluded the fault was caused by the recoil force generated when the attached grenade launcher was fired. Some of the recoil force was absorbed by the gun lock group in the rifle. This could cause the gun lock group to move rearward, but not as far as when the rifle is fired. This slight rearward movement opened the bolt, slightly. While the bolt remained open, the rifle would not fire. It is convenient to refer to this fault as the bolt unlocking problem. In some instances, it has been referred to as the Austeyr being in an “out of battery” condition or a failure to “return to battery”.
The report identified three possible solutions: a device preventing the gun lock group from moving backwards when a grenade is fired; a redesign of the return springs to provide increased spring load; and a design that would dampen the recoil forces from the grenade launcher.
After further investigations and reports, a desktop assessment of these possible solutions concluded they would be complex, affect other components, and would not address the root cause of the bolt unlocking problem.
JGCM solution
Between March and October 2008, ARMTSPO proposed, developed and oversaw the manufacture of a prototype for a possible engineering solution to the bolt unlocking problem. It was called the “Joule Gain Cycle Modified Trigger Mechanism” (the JGCM).
The assumption underlying the JGCM was that the pressure from the hammer springs acting on the AFL exerted a vertical force on the gun lock group causing a resistance that stopped the gun lock group moving over the AFL to return to a fully forward position, after it was dislodged by the recoil from grenade fire. In the standard hammer mechanism, two single torsion springs apply torque (rotational force) to the hammer and to the AFL. The JGCM introduced a new separate single torsion spring for the AFL (the AFL spring), so that the hammer springs applied torque to the hammer only. The AFL spring applied torque to the AFL. The AFL spring could be designed so it caused the AFL to apply a lower vertical force to the gun lock group passing over it,[4] and so reduced the resistance. The JGCM also reworked the hammer springs, and redesigned the AFL to reduce resistance.
[4]Lower than the force exerted by the AFL in the standard hammer mechanism, where the hammer springs exerted torque on the AFL.
ARMTSPO carried out a proof of concept trial, a two-stage performance and endurance trial and an environmental trial of the JGCM. It was satisfied the JGCM, with either a lighter 1.25mm diameter or a heavier 1.4mm diameter AFL spring, was effective to resolve the bolt unlocking problem. ARMTSPO elected to design the JGCM with the heavier spring. The selection appears to have reflected a preference for a component that would be more robust in service.
An October 2008 report by ARMTSPO concluded that the JGCM had “solved” the bolt unlocking problem, allowing the Austeyr “to be fired reliably” in conjunction with an attached grenade launcher. The report recommended the manufacture of production-ready prototypes of the JGCM, with some minor changes to the materials for some elements. It also recommended that, once the manufactured prototypes were validated for compliance with the relevant ADF specification, it be adopted and introduced into service with all variants of the Austeyr. The author of the report was Joseph Grima, Senior Technical Adviser – Special Forces. It was reviewed by a Senior Technical Adviser – Small Arms and approved by a Design Acceptance Authority Representative.
Thales work October 2008 to December 2009
In October 2008, the same month as the report, ARMTSPO engaged Thales to investigate the manufacturability of the JGCM to be “retro-fitted” to the ADF’s existing Austeyr rifles.
The work of Mr Williams
Much of the work by Thales on this engagement was performed by Martin Williams, a technical officer.
In 1981, Mr Williams had completed a four-year apprenticeship as a fitter machinist toolmaker at the Lithgow factory. From 1981 to 1997, Mr Williams was a tradesman. From 1997 to 2003, he was a technical officer or technical adviser for the factory’s indoor firing range. In 2000 or 2001, he completed an advanced diploma of mechanical engineering from TAFE New South Wales. In 2003, he became supervisor or manager of the indoor firing range. In about 2007, Mr Williams moved from the firing range to be a technical officer working for Thales on the upgrade of the Austeyr.
From October 2008 to late 2009, Mr Williams did some work on what he called “developments to the hammer mechanism” of the Austeyr. This was amongst much other work Mr Williams did and many other responsibilities he had over that period.
In a prepared statement, Mr Williams described his relevant work in this way:
“My recollection is that I also learned about this time that Joe Grima[5] had developed a solution to the [bolt unlocking] problem and some money had been allocated by the Commonwealth to try to implement that solution in a way that could be retrofitted to the F88(SA1) and F88(SA2) [models of the Austeyr].
…
It was not part of my role to investigate whether or not the theory of the JGCM Solution was correct. It was also not part of my role to identify whether there was another solution available. My role was to deal directly with Joe Grima on behalf of Thales and to identify and design the necessary changes so that the JGCM Solution would be able to be mass produced. By mass produced, I mean, to make it so that it could be manufactured and assembled in a cost effective manner having regard to manufacturing, manufacturing tolerances and human factors.”
[5]Mr Grima was the author of the October 2008 ARMTSPO report.
At the hearing, Mr Williams had a limited recollection of the detail of his work on the HMA1 Project. This is not surprising. The project was a small part of his work over the period. Many years passed before he was asked to give evidence. It was apparent from his oral evidence that his written statement had been prepared from documents and not directly from Mr William’s own recollection. Some of those documents were not created by Mr Williams and so, again unsurprisingly, he was unable to confirm or corroborate the written record. He was a credible witness, but with little independent recollection and limited recollection when refreshed by documents.
Mr Williams produced drawings and digital models of the components of the JGCM prototype supplied by ARMTSPO. He recorded his measurements of the forces applied by each of the two hammer springs and by the AFL spring in the JGCM. He then created additional copies of the JGCM prototype for testing. He did this by altering standard Austeyr hammer mechanism parts and obtaining alternative springs with forces approximating those he had measured in the JGCM prototype. Mr Williams called the new copies of the prototype the “Hammer Mechanism Assembly No 1” (or HMA1). Within Thales, the work on this mechanism was referred to as the HMA1 Project.
Mr Williams quickly formed an opinion that the JGCM prototype could not be mass produced unless certain manufacturing issues were addressed. He described the three main manufacturing issues in his witness statement:
“(a)the mounting points for the hammer springs on the inside walls of the hammer body were fiddly and it would be difficult to manufacture and assemble these intricate parts;
(b)the shape of the AFL spring (with asymmetrically offset legs) would be difficult to reliably manufacture and also difficult to install;
(c)the intricate nature of the JGCM Solution would make it difficult for an armourer in the field to work on the amended design.”

Most of his work on the HMA1 Project involved producing design drawings and two and three-dimensional digital models. As his worked progressed, he referred to the first completed model as HMA1 version 1 (V1). It was as close to an exact reproduction of the JGCM prototype that Mr Williams could manage.
By December 2008, Mr Williams had prepared designs for a second version of the HMA1 (V2), and, by February 2009, a third version (V3). The main changes were modifications to the mounting points and the shape and length of the legs for the hammer springs, but he made some changes to the design of the AFL spring.
In a progress report dated 5 March 2009, he explained he was working to two requirements: that the hammer springs would exert a force plus or minus 2.5% of the force exerted on the hammer in the standard mechanism; and that the force exerted by the AFL spring would be plus or minus 2.5% of the force exerted on the AFL in the JGCM prototype. These requirements were based on Mr Grima’s ARMTSPO report of October 2008.
On 12 May 2009, he completed drawing U-20343 of the AFL spring for V3. It showed the spring at rest (with its legs at an angle of 135⁰ to each other).[6] The drawing included these “spring specifications”:
“@ 76⁰ ± 0.5⁰ = 283 Nmm ± 30 Nmm
@ 68⁰ ± 0.5⁰ = 315 Nmm ± 30 Nmm”
[6]It was to be made of 1.4mm diameter 17-7 precipitation hardening stainless steel with specification AMS 5678B.
In these specifications, Nmm (Newton-millimetres) is a measure of the torque. A torsion spring can be twisted along its axis. When twisted, the spring exerts a torque (or rotational force) in the opposite direction to the twist. The torque is proportional to the angle to which the spring is twisted. The greater the angle (the more it is twisted) the greater the torque (in the opposite direction). As a rotational force, torque may be measured in Newton-millimetres (Nmm), as Mr Williams did. This is because torque depends not only on the force applied (measured in Newtons), but also on the perpendicular distance from the axis of rotation to the point where the force is applied (here measured in millimetres).
The actual torque exerted by the AFL spring in V3 (or in the JGCM or any other version of the device produced by Thales) was not proved at the hearing. Nor was the vertical force exerted by the AFL on the gun lock group in each such device. The various measurements made by Mr Williams (and later by others) may be relevant to findings to be made about the state of Thales’ knowledge and the reasons or explanations for design changes. It is not necessary to determine the actual torque or force for that purpose.
In May 2009, Thales arranged a “checklist” meeting with Commonwealth representatives to consider V3 in anticipation of a Critical Design Review (CDR). CDR was a required step before Commonwealth acceptance of a new or modified component. The minutes of the meeting record three concerns of the Commonwealth representatives.
“In reviewing the details of the design the Commonwealth presented the following concerns: a. the reliability of the steel to plastic interfaces, b. Auto Fire Lever, one spring leg is encased and the other has an angle bend at the plastic interface and the lever is not sitting square, c. Interoperability outcomes have resulted in very toleranced design specifications; and the Joule Gain design changes likely to effect the operation of the weapon and put interoperability development work at risk?”
The minutes record three relevant action items for Thales:
Thales to review the design with respect to the steel to plastic interfacing and to develop a life cycle testing trial to evaluate these concerns.
Thales to review the design with respect to the Auto Fire Lever spring arrangement, and that this lever does not appear to sit squarely. …
Thales to confirm the effect of the Joule Gain design on the Interoperability Trial outcomes.”
The second and third concerns and action items have some continuing relevance. I will return to the second later in these reasons. The third indicate a concern that any changes to the JGCM prototype could alter the effectiveness of the mechanism as a solution to the bolt unlocking problem, as found by Mr Grima’s ARMTSPO report. It helps explain later evidence about Thales’ frequent checks, measures and comparisons between HMA1 versions and the JGCM prototype.
On 1 June 2009, according to Mr Williams’ progress report, the “simplest manufactureable [sic] version of the mechanism [was] ready for critical design review.” It was V3. He noted that the “Specification drawings” for the AFL spring had yet to be done and that “forward progress has stopped due to no critical design review acceptance.”
On 3 June 2009, Thales measured the vertical force exerted by the AFL on the gun lock group in the JGCM prototype and the same force in the V3. Thales also measured the force exerted by the hammer springs. Mr Williams explained that:
“one goal of the HMA-1 project was to ensure that any development to allow for mass production ensured that the forces being exerted by the hammer springs and the AFL spring were the same as those in the JGCM Solution. In order to achieve this I had to arrange for those forces to be measured on some assembled HMA1 mechanisms.”
Across ten test measures of each of five JGCMs, the average vertical force exerted by the AFL was 26.45N. Ten test measures of another five JGCMs produced an average of 26.47N. Across ten test measures of each of ten V3s, the average force was 28.38787N.
On 19 June 2009, Mr Williams produced a changed issue of drawing U20-343-0 of the V3 AFL spring, showing it at rest (135⁰) and in two rotated angles (68⁰ and 76⁰). The spring specifications for the two angles remained the same.
At this time, a draft Thales’ Development Report noted Thales considered the “spring force” in V3 was very close to that in the JGCM.
On 14 July 2009, Thales conducted live-fire testing of four Austeyr rifles fitted with standard hammer mechanism, four fitted with V1 and four fitted with V3. Mr Williams had arranged for springs for the V3 to be manufactured by Gibbens Industries Pty Ltd (Gibbens), who made the standard hammer mechanism springs for the Austeyr manufactured by Thales. Three operators were selected to fire each rifle. Each operator fired two 5.56mm rounds from each rifle, followed by a 40mm practice grenade from the grenade launcher attachment (GLA), and then attempted to fire another two 5.56mm rounds from the rifle. The results were reported in a later position paper.

Hammer mechanism

Pass/Fail[7]

% Pass

Standard mechanism

1/12

8%

V1

9/12

75%

V3

12/12

100%

[7]It is clear from the context of the report that the fractions in this column are the number of successful test firings over the total number of test firings or attempts. They are not the number of passes over the number of fails.

On 16 July 2009, Thales gave a CDR presentation to the Commonwealth about V3. It was presented as “a mass producible version” of the JGCM. The V3 did not pass the review presentation. Amongst other issues, the Commonwealth’s concern about the AFL not sitting squarely, raised at the May 2009 checklist meeting, had not been addressed.
On 7 October 2009, a Thales R&D monthly progress meeting was told ARMTSPO wanted to have a contract for HMA1, amongst other things, in place with Thales by the end of 2009. Concern was expressed that Mr Williams was fully occupied on a range of projects and more resources were required.

Figure 1: Single-torsion AFL spring drawn by Mr Williams for HMA1 Version 3

The role of Mr Eyles

From 14 October 2009, Michael Eyles became engineering manager for the Thales production and design group at the Lithgow factory. In this role, he had responsibility for managing the HMA1 Project. Mr Williams reported to him.
Mr Eyles held a Bachelor of Engineering from the University of Technology, Sydney (1992). He had commenced working at the Lithgow factory in 1989-90, before graduating, and continued there as an employee until 2004 or 2005. By then he was an engineering manager. In October 2009, after four or five years working elsewhere in the same field, Mr Eyles had returned to work for Thales as an engineering manager.
Mr Eyles explained that his “specialty within the field of engineering” is in:
“the manufacture of design solutions. By this I mean that my experience enables me to look at particular products which designers have produced to meet a customer’s requirements and be able to manage the process of taking that design from a proven solution, to one which is manufacturable.”
He further explained:
“Manufacturability is the key to the commercial production of any design. If it cannot be manufactured in a cost effective manner and in a way that ensures consistency in quality and therefore functionality, I do not consider a design to be complete.”
By 29 October 2009, Mr Eyles had prepared and reviewed a position paper. It confirms he was aware Mr Williams had used the spring forces measured from the JGCM prototype to create V3. He noted the successful small-scale live fire tests of V1 and V3 in July 2009 and some slide-velocity tests on 16 October.[8]
[8]According to his position paper, Thales had adopted “a system engineering approach” to the HMA1 Project “to ensure a systematic approach was taken to all aspects of the project” and “All work in support of this project is being documented”.
Mr Eyles reported Thales had determined that the individual mass and technique of the operator had been shown to have an effect “on the extent of the recoil/inertial forces transferred to the gun lock and hammer mechanism.”
On 5 November 2009, Mr Eyles reviewed a technical report on the HMA1 Project prepared by Thales mechanical engineer, Michael Johnston. It might be called a “desktop review”. No original testing or research was undertaken. After considering the available information about the bolt unlocking problem, the report concluded:
“The fail scenario is the result of the operator’s response to GLA recoil being transmitted through the [Austeyr] F88. Due to the response movement, the gun lock will dislodge from battery and [fail] to return to battery. As the operator plays a significant role producing the outcome, an undefined failure variable exists within the problem space.
The existence of the [bolt unlocking problem] is an inherent design feature of the F88. Within the F88 design, the gun lock is not mechanically restrained. Mounted through a series of springs, the movement … of the gun lock is defined by the movement of the main body of the F88. A design solution will require the F88 to [perform] above the original F88 performance expectations.”
The report identified five design options with a “realistic validity” to solve the bolt unlocking problem. The preferred design solution was the JGCM. It was “not ideal” and was selected for “its minimal impact to the existing design and its simplicity to implement.” Its disadvantages were put this way:
“Not 100% solution. Operator may still influence an out of battery condition.
System may not be able to be held in a fail safe position.”
The report’s final conclusion was that a reduction in the “resistive force” of the AFL was the “optimal compromise above all other possible solutions.”
“Although it may not eradicate the issue completely it can be design[ed] to provide an improvement for the majority of users in the majority of situations.”
On 26 November 2009, a draft technical report was prepared on earlier live-fire testing using the standard hammer mechanism and the V3.[9] There was preliminary live firing and then secondary live firing. In the preliminary test, Austeyr rifles with the standard mechanism that had been used in service did not show the bolt unlocking problem. When the rifles were fitted with new butts, they did show the bolt unlocking problem.[10] The secondary test used the rifles with new butts. Various measures and records were made using a high-speed camera and other devices. There were three reported outcomes.
(a)First, the Austeyr rifles with the “used” butts successfully fired 100% of the time after the attached GLA was fired. The result was the same whether a standard mechanism or a V3 was fitted. With new butts, the Austeyr rifles with standard mechanisms successfully fired 21% of the time, while those with V3 successfully fired 100% of the time. The report concluded that the “age or condition of the butt contributes to the existence” of the bolt unlocking problem.
(b)Second, contrary to Mr Eyles’ position paper and Mr Johnston’s technical report, this report concluded that the operator has a “minimal” effect on the recoil absorption “with respect to body type and weapon inclination.”
(c)Third, in Austeyr rifles fitted with V3, the gun lock group travelled on average slightly less far rearward when the GLA was fired than in those fitted with the standard mechanism. This “unexpectedly contradicts prior views” that the reduced disengagement force from the AFL would allow the gun lock group to move further rearward before returning.
[9]It does not state the date of the live fire tests. These may have been those conducted on 14 July 2009.
[10]The report does not elaborate, but it would appear the “butt” of the Austeyr may have included some components that interacted with the gun lock group or the hammer mechanism assembly.

Figure 2: Automatic Firing Lever with spring for HMA1 Version 3 drawn by Mr Williams

Before the end of 2009, Mr Williams did some further work on the HMA1 Project. He prepared drawings of HMA1 version 4 (V4). On 24 November 2009, he completed drawing SK-107556 of the AFL spring for HMA1 version 5 (V5). The V5 AFL spring was to be of the same material as V3. Amongst other changes, at rest the legs were at an angle of 126⁰ rather than 135⁰. The torque specifications were yet to be determined.
On the final drawings of the AFL spring for V4 and for V5, Mr Williams reduced the torque specified for the AFL spring. He did so to reduce the disengagement force exerted by the AFL on the gun lock group. He intended to make it closer to the force he had measured in the JGCM prototype.
On 10 December 2009, Mr Williams took ten measurements of the disengagement force exerted by the AFL in four V5s he had assembled. According to his recorded measurements, the average force was respectively 26.70N, 29.49N, 26.30N and 27.03N. These figures indicate some success in reducing the disengagement force to the 26.45N he had measured in the JGCM prototype.
Mr Williams explained V4 and V5 were “not progressions from” V3. He gave them successive version numbers to distinguish them from V3, because it had been live fire tested. He assembled some V5s in physical form.
According to Mr Eyles, towards the end of December 2009, it became evident that the test outcomes Thales could obtain from using the HMA1 versions in the Austeyr were neither consistent nor reliable. As a result, according to Mr Eyles, Thales stopped all testing prior to Christmas 2009. This is consistent with the evidence of Mr Williams that, by the end of 2009, he had ceased any active work on the HMA1 Project and that concerns remained about reliability and performance of the HMA1 design. There was not yet an HMA1 version that had passed CDR and was suitable for mass production.
Over the period of his work on the project, Mr Williams had drawn five versions of the HMA1 (V1, V2, V3, V4 and V5) and assembled three in physical form (V1, V3 and V5). In each instance, his aim was to address the manufacturing issues he had identified, which concerned the making, assembly, and maintenance of the mechanism. See [27] above. The versions he developed were otherwise consistent with the JGCM. Each used a single torsion AFL spring, as the JGCM had done. Each aimed to reproduce the 26.45N disengagement force of the AFL he had measured in the JGCM prototype.

Figure 3: Single-torsion AFL spring drawn by Mr Williams for HMA1 Version 5

In about December 2009 or January 2010, the Commonwealth raised with Thales other performance issues about the Austeyr. Mr Eyles took the view that until these other performance issues were resolved, it would not be clear whether the HMA1 Project would be necessary at all. The limited documentary evidence is consistent with Mr Eyles’ oral evidence that during 2010 Thales had “no resource” and “did not work on [the project] until very late in 2010.”
In late 2010 and early 2011, Graham Evenden, then the Testing and Evaluation Manager at Lithgow, considered whether to continue work on the HMA1 Project, which had ceased in 2009, “but at that time Thales did not have anyone to do that work.”
Further Thales tests – December 2010 to March 2011
Mr Eyles gave some evidence about three further tests. [11] Like much of his evidence, it was at times confusing and unsatisfactory. See [257] to [267] below.
[11]In cross-examination, Mr Eyles accepted Thales conducted the tests were between December 2010 and March 2011. I have disregarded the contrary evidence in his first prepared statement.
The first test was a pendulum test.[12] It was probably conducted between December 2010 and January 2011. The test compared the Austeyr[13] with the Steyr AUG. Thales did not finalise the report of the testing. The hammer mechanism assembly used is unclear. It was likely the standard mechanism.
[12]A test of the friction offered by a surface when it comes into contact with an object. It is sometimes described as a measure of the slip potential or slip resistance of a surface. It does not involve firing a round from the rifle.
[13]2010 F88 SA2 model.
The second test was also a pendulum test. It compared the frequency of the bolt unlocking problem of the Austeyr[14] in three different configurations:
(a)fitted with a standard hammer mechanism;
(b)fitted with V5; and
(c)fitted with a standard mechanism, from which the AFL had been removed.
[14]Again, the 2010 F88 SA2 model.
In all cases, when fitted with V5, the bolt unlocking problem did not occur. The comparison of results with V5 and those with the AFL removed reportedly showed the V5 to be “as effective as no AFL/Slide interface friction at all.”
The third test was in about March 2011. It was a live-fire test, using both an individual operator and mounted rifles. The object was to validate the results of two earlier pendulum tests. According to Mr Eyles, the third test showed that neither of the pendulum test results reflected the individual operator fired test results. Nor did the individual operator fired test results reflect the mount-fired test results. This was consistent with Mr Eyles’ view in the October 2009 position paper and Mr Johnston’s view in the November 2009 technical report. See [49] to [51] above. It contradicted the first of the reported outcomes in the November 2009 draft report on earlier test firing. See [54](a) above.
Mr Eyles described the limited purpose of the three tests, consistently with the other contemporaneous evidence, in this way:
“At that point we did further studies into it just to reassure the current in-service rifle – as we refer to it the 2010 version – could operate … We were checking [whether] the changes that we made to the rifle system in 2010 may have invalidated the requirement to have a HMA1 solution. So [the 2010 Austeyr] may work without doing [the HMA1 change to the hammer mechanism assembly] because of other design changes in the rifle [over] that period.”
Mr Eyles later described it as “re-testing to prove the 2010 build rifle ... in comparison to the current [model] in service.” As he put it, “no development was done” on the HMA1 at that time. This confirms Thales’ limited understanding of the cause or causes of the bolt unlocking problem and the possible solutions. In effect, Thales was testing whether the problem had been solved without any conscious intervention or change to the hammer mechanism or gun lock group.

This is not surprising. ARMTSPO had done the investigation and testing work on developing a solution. The results of Thales’ small-scale tests were neither consistent nor reliable. Thales did not fully understand the extent that operator influence, age, wear and tear on the rifle, and weapon inclination contributed to the bolt unlocking problem. Thales had only sought to make a manufacturable prototype in which the AFL applied a force to the gun lock group close to that Mr Williams had measured in the JGCM and maintained the torque applied to the hammer in the JGCM and standard mechanism.
By March 2011, it was accepted by the ADF, and by Thales, that the bolt unlocking problem was separate from the other performance issues with the Austeyr. It would have to be solved separately. However, Thales’ work on the HMA1 Project would not resume for nearly another 12 months, at the end of February 2012.
It is convenient to consider the relevant work by Madritsch before turning to the events that led Thales to resume work on the HMA1 Project.
Madritsch work to January 2011
Since 2008, Madritsch has designed and developed a grenade launcher attachment (GLA) for the Steyr AUG and supplied it to the Bundesheer. While developing and testing the GLA, Madritsch became aware of an operation interface issue with the Steyr AUG that, for relevant purposes, is the same as the bolt unlocking problem with the Austeyr identified by the DMO.
Madritsch set out to develop a solution in the form of a kit that could be “retro-fitted” to the Steyr AUG. In this way Madritsch could supply both the GLA and the associated rifle modification kit. The development of what became the Madritsch Solution may be summarised in this way.
On 16 September 2008, at a Bundesheer facility in Felixdorf, Stefan Madritsch and Thomas Frohnwieser conducted live fire testing of the Steyr AUG with hammer mechanism assemblies from different production batches. These were recorded using a high-speed camera.
Mr Madritsch had been the director of Madritsch since 1995 and is the chief executive of the company. He holds a degree in mechanical engineering from Höhere Technische Lehranstalt für Waffentechnik und Maschinenbau[15] in Ferlach, Austria and a licence for the production and repair of military weapons and ammunition in Austria. Mr Frohnwieser, also an engineer, was the chief technical officer of Madritsch.
[15]Higher Technical School for Weapons and Mechanical Engineering.
They analysed the data from the Felixdorf test and observed that, when the recoil from the GLA caused the gun lock group to move rearwards and open the bolt, the force exerted by the AFL against the gun lock group prevented the gun lock group from moving forwards and returning the bolt to a closed position. Mr Madritsch called this the trigger force. He explained that the trigger force included the force applied by the AFL through the hammer springs, friction between the surfaces of the AFL and the gun lock group, and a leverage effect. Mr Madritsch decided to explore two possible solutions. One involved preventing the gun lock group from moving rearward when the GLA was fired. The other involved allowing the gun lock group to return more easily to its forward position after the GLA was fired.
Mr Madritsch and Mr Frohnwieser conducted tests to measure the trigger force exerted by the AFL in the standard Steyr AUG and found it to be about 40 Newtons (N).
Madritsch ordered the production of testing springs able to cause the AFL to exert trigger forces greater than 40N and conducted firing tests using these in place of the standard hammer springs in the Steyr AUG. Despite the increased trigger forces, the gun lock group still moved rearward when the GLA was fired. So, the increased hammer spring torque did not solve the bolt unlocking problem.
In early October 2008, Madritsch produced springs that caused the AFL to exert trigger forces below 40N, used them to replace the standard hammer springs and conducted live firing tests. Despite the decreased trigger forces, the gun lock group did not always return to its fully forward closed position.
In the second week of October 2008, Madritsch conducted further live firing tests using only one hammer spring, rather than the usual two. The gun lock group remained in the unlocked position after the GLA was fired. At this point, Madritsch began redesigning the hammer mechanism so that modified hammer springs would drive the hammer and a new separate spring would apply torque to the AFL. This redesign allowed Madritsch to reduce the trigger force from the AFL against the gun lock group without affecting the torque exerted on the hammer, which was important for the normal operation of the rifle. Mr Madritsch and Mr Frohnwieser worked on the redesign. It took about one and a half months to redesign the hammer mechanism.
In about November 2008, Madritsch conduced live firing tests with the redesigned hammer mechanism. The tests showed the trigger force was still too high and the redesigned hammer springs were interfering with the function of the AFL.
Madritsch further modified the design, including by reducing the trigger force from the AFL to a range of about 8 to 10N.[16] It was tested in January 2009 and was observed to be effective to solve the bolt unlocking problem, in that the gun lock group consistently returned to its locked position after the GLA was fired.
[16]There was some contest about whether the range was 8 to 9N or 8 to 10N, as the plaintiffs’ evidence included both ranges. I have adopted 8-10N to which Mr Madritsch swore, which include the narrower range. This choice makes no difference to my conclusions in these treasons.
In February and March 2009, the Bundesheer conducted live fire testing on the further modified design in accordance with the standardised NATO AC/225 weapons testing procedure. An operational issue was observed during extremely cold weather. This led to a further modification to the AFL spring.
In March 2009, the results of live firing tests at normal temperature were positive. Additional modified components were produced and tested, including in extreme cold temperatures. This also yielded positive results, consistently solving the bolt unlocking problem.
Between late May 2009 and early July 2009, the parts for the further modified design (Madritsch Solution) were manufactured. Between then and 31 August 2009, Madritsch designed three assembly aids for installing the Madritsch Solution into existing Steyr AUG rifles, together with technical instructions and a maintenance manual.
On 31 August 2009, Madritsch provided four Madritsch Solution kits to the Bundesheer for the sole purpose of testing to confirm their safety and functionality. Oberst Wolfgang Weinseiꞵ,[17] an engineer and commander of the Systemreferat Leichte Waffen[18] (SLW), passed them to Fachinspektor[19] Stefan Stamm, a Bundesheer specialised instructor, for testing. The only persons who were able to access the kits were members of the SLW. They were not accessible to and were not provided to any person outside the Bundesheer. They were tested and approved. When the testing was completed, the four kits were returned to Madritsch. The Head of the Department for Technical Testing of Small Arms and Obst Weinseiꞵ later signed a certificate confirming the Madritsch Solution kits had been tested and approved in accordance with the procedures in NATO AC/225.
[17]Oberst (Colonel) is the highest staff officer rank in the Bundesheer.
[18]The Light Weapons Section of the Bundesheer.
[19]Specialist inspector.
Following the successful tests, Madritsch began planning to manufacture Madritsch Solution kits to supply to the Bundesheer for retrofitting to the Steyr AUG.
The worlds of Thales and Madritsch intersect
In late 2010 or early 2011, the Commonwealth selected Thales to develop a new model of the Austeyr for use as the standard service rifle for the ADF. The project was referred to as Land 125 program Phase 3C (L125-3C). According to Thales:
“… The requirements of that new rifle were manifold, however, the requirements most relevant for the purposes of this proceeding were that … it must be capable of having a GLA fitted and the rifle to be able to be fired immediately after firing a grenade (i.e. without re-cocking the weapon).
In other words, the new rifle … must not suffer from the bolt-unlocking problem.”
Patrick Whitty is the General Manager – Government Business of Nioa. He was primarily responsible for managing the day to day relationship between Nioa and Madritsch. Between 2007 and 2010, on behalf of Madritsch he negotiated with Thales about the potential supply of the GLA manufactured by Madritsch for use by the ADF with the Austeyr.
In 2010, Mr Whitty during discussions with Thales, Major Simon Johns, Acquisition Project Manager of ARMTSPO, was present. Major Johns had responsibility for L125-3C. He told Mr Whitty that the ADF was having problems with the bolt mechanism of the Austeyr becoming unlocked when an attached grenade launcher was fired. Within a few months, Mr Whitty met with Mr Madritsch in Austria. From him he learned that Madritsch had a technological solution to the bolt unlocking problem for the Steyr AUG.
Mr Whitty arranged for Mr Madritsch and Mr Frohnwieser to attend the Australian Land Warfare Conference in January 2011. There, during a live firing event near Brisbane, Mr Whitty introduced the two Madritsch executives to Major Johns.
Mr Madritsch told Major Johns that the Madritsch Solution had been successfully tested by the Bundesheer and found to solve the bolt unlocking problem. Major Johns told Mr Madritsch that the ADF would take a very keen interest in any demonstrated solution to the bolt unlocking problem with the Austeyr. Mr Madritsch said he would prefer to supply the modification kits directly to the ADF, as he intended with the Bundesheer. Major Johns said the ADF had no capacity to modify weapons independently of Thales. He said Madritsch or Nioa would have to liaise with Thales about the supply and installation of modification kits.
On 24 January 2011, shortly after this encounter, Mr Whitty spoke by telephone with Major Johns and with Darren Christopher, the chief weapons engineer for the ADF. In this conversation, Major Johns recommended that Mr Whitty approach Thales about supplying the Madritsch Solution. He explained that DMO was concerned that Thales would not honour the warranty on the Austeyr rifles supplied for the ADF if someone other than Thales were to modify the weapons. Major Johns suggested Nioa and Madritsch make a proposal to Thales about the Madritsch Solution. Mr Whitty took up this suggestion with Madritsch.
On 24 February 2011, Mr Whitty exchanged emails with Mr Alex Wootton, Procurement Manager – Operations for Thales, about supplying the Madritsch Solution to the ADF through Thales. Mr Whitty also sent him a draft non-disclosure agreement.
The draft agreement was accompanied by a letter from Mr Frohnwieser, dated 22 January 2011. In it, he explained that the third-party testing information on the Madritsch Solution “must be kept strictly confidential” until an Austrian Government tender was completed. Mr Frohnwieser’s letter continued:
“We wish to offer our solution to the Steyr AUG unlocking bolt issue to Thales, so that Thales can solve the issue in the F88 family of weapons. We therefore propose establishing another three way NDA between Madritsch, Thales Australia and NIOA to allow discussion of the solution, and keep Madritsch’s IP rights secured.
Please find attached a draft NDA for your consideration. The NDA allows for listing of any pre-existing IP developed by Thales in relation to this issue of the unlocking of the bolt.”
About three hours after the email to Mr Wootton, Mr Whitty received a telephone call from Major Johns, who congratulated him on offering the solution to the ADF via Thales. Major Johns told Mr Whitty he was “pushing Thales very hard” to accept and assess the Madritsch technology.
On 28 February 2011, Mr Wootton forwarded Mr Whitty’s email to Nicholas Flynn, Thales’ Purchasing Manager for Soldier Systems. Within minutes, Mr Flynn sent it on to Mr Evenden and James Fulford-Talbot, asking for instructions. Mr Fulford-Talbot was Product Line Manager for Armaments in charge of Thales’ small arms weapons program and the manager of Thales’ relationship with the Commonwealth about the contract for L125-3C. Later that morning, Mr Flynn called Mr Whitty asking to be shown independent evidence that the Madritsch Solution solved the bolt unlocking problem.
On 1 March 2011, after some enquiries, Mr Whitty informed Mr Flynn that the Austrian authorities would not release test data on the Madritsch Solution, but were prepared to release a letter stating the scope and scale of the testing and confirmation that the testing demonstrated the Madritsch Solution solved the bolt unlocking problem.
On 14 March 2011, the Austrian Federal Ministry of Defence and Sport produced a Prüfzertifikat,[20] signed by Hermann Dorninger, Head of Department for Technical Testing of Small Arms, and Obst Weinseiꞵ, confirming the Madritsch Solution had been tested and approved in accordance with the procedures in NATO AC/225. On 17 and 18 March 2011, Mr Whitty sent Mr Flynn two copies, one in English and the other in German.
[20]Certificate of Examination.
The non-disclosure agreements and related matters
In April 2011, Mr Flynn requested a list of the tests the Bundesheer had conducted on the Madritsch Solution. Mr Whitty responded, advising that Madritsch required Thales to enter into the non-disclosure agreement before it would release any additional information about the Madritsch Solution.
On 4 May 2011, Mr Flynn explained that Mr Fulford-Talbot would like to meet “the Madritsch team” in Europe to:
“learn more about the Madritsch solution to the bolt unlocking issue. The ability to resolve this issue is a key factor in our customer taking this [L125-3C] program forward. James’ main interest is the testing done to date and the evidence collected (rather than the details of the specific technical solution).”
On 9 May 2011, Mr Fulford-Talbot and Mr Evenden met Mr Whitty. Mr Fulford-Talbot asked to visit Madritsch in Austria to learn more about the testing and effectiveness of the Madritsch Solution.
Madritsch insisted on a non-disclosure agreement before such a visit.
On 8 June 2011, Thales and each of the plaintiffs executed a non-disclosure agreement. Thales had modified the terms proposed by Madritsch. Rather than listing any pre-existing intellectual property developed by Thales on the bolt unlocking problem, it had deleted the schedule for each party to list their “prior intellectual property”.[21]
[21]The Madritsch Solution was listed as Madritsch’s prior intellectual property in the schedule of the draft agreement Mr Whitty had sent to Mr Wootton on 24 February 2011.
Between 13 and 15 June 2011, Mr Fulford-Talbot visited Mr Madritsch and Mr Frohnwieser in Vienna. They took him to a Bundesheer defence testing facility for a demonstration firing of the Steyr AUG fitted with the Madritsch Solution. In discussions with them, Mr Fulford-Talbot said Thales was interested in being able to build and integrate the Madritsch Solution into the Austeyr rifles it was making for the ADF under a licence from Madritsch. He said he wanted to move forward with pursuing the Madritsch Solution as quickly as possible.
The Thales brief
On 24 June 2011, after Mr Fulford-Taylor had returned from Vienna, he sent Mr Whitty an email, in which he wrote:
“We want to follow up on our discussions regarding their [Madritsch’s] solution to the GLA issue, which appeared to be validated. Our aim is to get to a position [where] we fully understand the solution and have our engineers confirm its validity.
In order to alleviate fears of IP breaches, under the existing NDA, I have included a short brief regarding our concepts which we have developed to a degree. However, if a tested solution exists on the market, we do not see the value in developing these further. We hope that by exposing this to Madritsch we can establish a recognised Thales development position. If the Madritsch design is similar to this, we should perhaps both register drawings somehow as we move forward.
Concurrently, we would like to discuss commercial arrangements. Whilst this will be subject to negotiation we would like to state that we do not forsee [sic] a solution which involved an Austrian third party manufacturing any modified parts, rather some type of licensing arrangement.
We would like to move this forward as rapidly as possible.”
The enclosed “short brief” was two pages (the Thales brief). It explained:
“1. Background:
·Thales determined a number of concepts to eradicate the problem of the rifle ‘unlocking’ when firing the Grenade Launcher such that a rifle stoppage was incurred.
·The 2 main concepts that were taken to prototype stage consisted of modifications [to] the Hammer Springs and Auto Fire Lever.
·These concepts are explained below and although limited testing has been conducted limited time and resource prevents further exploration, refining and qualification.
1. Modified Auto Fire lever:
·Auto Fire lever (AFL) notched as shown in Figure 1.
·Concept was to increase to engage with Slide’s ‘Cocking Piece’ once locked in battery
·Resist Slide’s initial rearward movement because of increased friction due to steep contact incline between AFL & Cocking piece
·Not to increase required Slide energy for complete mechanical lock.
·Still disengage Hammer at appropriate time, during normal single shot / auto fire usage.
2. HMA1-Hammer Group:
·Change in Hammer Springs function so that they no longer have dual purpose of supplying force to Hammer and AFL.
·AFL has own spring that is lower in force rating.
·Concept was to reduce friction between AFL & Slide Cocking Piece and thereby increase likelihood of Slide lock-up after 40mm shot recoil.”
Figures 1 and 2 in the Thales brief were un-dimensioned perspective drawings of an AFL and a hammer mechanism assembly. There was no drawing of any spring. No force or torque rating or specification was stated for any part.
Thales’ first concept was reshaping the AFL to resist the rearward movement caused by the GLA recoil. Mr Eyles says he “documented this concept in early to mid-2011”. He did not recall who came up with it. He said it was “a late throw-in by one of our engineers”. It was not part of the HMA1 Project.[22] The distinction between it and the HMA1 Project is apparent from the way Mr Eyles explained the concept:
“It worked on the theory that an alternative shape to the ‘horns’ of the AFL could resolve the Bolt Unlocking Problem without the need for an AFL Spring or to change the shape and placement of the hammer springs.”
[22]Thales had left development of the HMA1 Project in abeyance since the end of 2009.
Mr Eyles described it as having “little bumps” on the AFL, intended to resist the rearward movement of the gun lock group.
In late 2008, as noted above, Madritsch had investigated the concept of increased resistance to rearward movement of the gun lock group. Madritsch had applied increased hammer spring force, rather than increased surface friction between the AFL and the gun lock group. Based on live-fire testing in October 2008, Madritsch had concluded that increasing resistance did not solve the bolt unlocking problem.
Thales had no data or test results from which to conclude that the first concept would be effective or reliable to solve the bolt unlocking problem.[23] Although Mr Eyles decided to include it in the Thales brief in June 2011, he said Thales had no intention of progressing it to mass production at that time. I infer it was included to give the impression that Thales had been doing more development work on the bolt unlocking problem that was in fact the case.
[23]Although a draft test firing instruction was prepared, Thales had not undertaken any testing of it.

The second concept in the Thales brief was to reduce the resistance to forward movement of the gun lock group by confining the hammer springs to operating on the hammer and adding a separate AFL spring that was “lower in force rating”[24] reducing the vertical or trigger force the AFL exerted on the gun lock group. The Thales brief did not disclose the vertical force exerted by the AFL in the second concept. Mr Williams had measured it in V3 and calculated the average force as 28.38787N. He had measured the same force in V5 and calculated the average to be between 26.30N and 29.49N. Later measurements would record a disengagement force of about 43.2N in V3 and about 42.5N in V5. See: [206] and [211] below
[24]Presumably meaning lower in torque than the hammer springs.
As at 24 June 2011, Thales had not determined either concept to any degree. ARMTSPO had developed and tested the second concept and concluded it was a suitable solution to the bolt unlocking problem. Thales had assembled physical prototypes of the concept as V1, V3 and V5. It had conducted a small scale live-fire test, pendulum tests and another live fire test of V3 and V5.
The small scale live-fire testing Thales had undertaken in July 2009 had produced apparently successful results for V3. The further testing in March 2011 had apparently shown the V5 to be as effective as entirely removing the AFL from the Austeyr. There was no indication in Thales’ reports that better performance might be gained by further reducing the vertical force exerted by the AFL on the gun lock group from that in the V3 and V5. Thales had shown no interest in improving the design, only in making it more suitable for manufacturing.
According to Mr Eyles, by early 2011, he considered the HMA1 Project would be an easy design to take to manufacturability stage:
“We already had the HMA1 prototype as a proven engineering solution already worked out and tested (many times). I did not consider that the amount of effort it should take to ‘clean up’ the design to make it able to be mass produced was going to be much. … I actually considered that the bulk of the work was going to be in the verification testing and the set up to manufacture the parts (eg dies, tooling, engaging third party manufacturers to supply quality materials).”
As Mr Eyles put it, “The only thing that remained was to design the way in which the altered parts could be industrialised.” Of course, that was the task Thales had been engaged to perform since October 2008, without apparent success.
As noted above, through live-fire testing undertaken in November 2008 and January 2009, Madritsch had concluded that the trigger force exerted by the AFL needed to be reduced as low as 8 to 10N to be reliable and effective to resolve the bolt unlocking problem across the range of conditions required by NATO AC/225. In June 2011, Thales was not aware that any further significant force reduction might be required; that the 26.45N force Mr Williams had measured and sought to reproduce might be about three times too high; and that the disengagement force exerted by the AFL in V3 and V5 might be measured at more than four times the disengagement force measured in the successfully tested and approved Madritsch Solution.
For Thales to move from its position in June 2011 to producing a mechanism as effective and reliable as the Madritsch Solution, Thales would have had to undertake sufficient testing to identify the shortcomings in the JGCM, V3 and V5. Then it would have to design, make and test new HMA1 versions until it had sufficient data to determine the level of disengagement force at which a new version was sufficiently effective and reliable to solve the bolt unlocking problem and still allow the weapon to operate in automatic mode. There is no evidence that Thales was aware of any shortcoming in JGCM, V3 or V5 or that it planned any further work that would bring about such an awareness or lead to significant modification.
In these circumstances, on 27 June 2011, Mr Fulford-Talbot asked Mr Whitty to supply six kits of the Madritsch Solution for Thales to fit in the Austeyr and test.
When Mr Fulford-Talbot pressed for the kits, Mr Whitty told him that “Madritsch was seeking stronger IP protection for the solution.” There had been some discontent by Madritsch about Thales’ changes to its earlier draft non-disclosure agreement. Mr Whitty and Mr Fulford-Talbot exchanged emails about the terms of another agreement and the terms of a letter about Thales’ future intentions in respect of the Madritsch Solution and associated topics, to give comfort to Madritsch.
The Intentions letter
On 17 August 2011, Mr Fulford-Talbot sent Madritsch the letter (the Intentions Letter). From the earlier exchanges between Mr Fulford-Talbot and Mr Whitty and those between Mr Whitty and Mr Frohnwieser, I am satisfied that the content of the Intentions Letter and the provision of it by Thales to Madritsch had been the subject of consideration by Thales, Nioa, and Madritsch and negotiations between them, before it was signed and sent. The parties’ efforts to settle the letter confirm its importance to the plaintiffs, and Thales’ knowledge of that importance.
In the Intentions Letter, Thales stated:
“If, upon testing of the modified weapons, the Madritsch Solution is technically and commercially suitable, then it is Thales Australia’s intention to enter into a technology licence arrangement with NIOA/Madritsch for access to and commercialisation of the Madritsch IP. If the Madritsch Solution is not suitable for our purposes, then Thales agrees to return all components to Madritsch, and to not use the Madritsch IP for any purpose whatsoever”.
The Intentions Letter also included the following statements about Mr Fulford-Talbot’s letter of 24 June 2011 and the enclosed Thales brief:
“In order to address your concerns over IP protection, under the terms of the NDA[25] Thales has disclosed the IP internally generated to date to find a solution to this issue. This represents the current extent of development within Thales.”
[25] This is a reference to the agreement executed on 8 June 2011.
The second non-disclosure agreement
By 11 August 2011, the further non-disclosure terms were settled in the form of a revised agreement. By 19 August 2011, this “Non Disclosure Agreement” (NDA) was executed by Thales, Nioa and Madritsch.
The parties described the general purpose of the NDA as:
“to protect confidential information disclosed among the [parties] regarding the issue of the bolt unlocking on the Steyr AUG family of weapons when firing an underslung grenade launcher.”
The parties gave a more specific purpose in these words in recital A of the NDA:
“The Parties wish to enter into discussions in relation to modification of the Steyr AUG family of weapons in order to overcome the problem of the bolt unlocking upon firing of an underslung grenade launcher (the “Purpose”).”
By cl 1, the parties agreed that in the NDA, unless the context required otherwise, the following definitions would relevantly apply:
“‘Proprietary Information’ means any information or data in whatever form, nature or media, including, but not limited to, all technical … and/or commercial information, … test results, discoveries, samples, improvements, models, specifications, drawings, designs, … intellectual property and intellectual property rights of any description which the Parties disclose to one another for the Purpose …
‘Effective Date’ means the date on which this [NDA] is executed by all of the Parties, or if executed on separate days[,] the date on which the last of the Parties executed the [NDA].
‘Purpose’ has the meaning given to that term in Recital A.”
By clauses 2 and 3 of the NDA, the parties relevantly agreed and warranted as follows:
“2.Confidentiality Obligation
(a)Notwithstanding the Effective Date, the Parties agree and warrant that all data characterised as Proprietary Information and which has been disclosed to effect the Purpose of this [NDA], prior to the Effective Date of this [NDA], had been and will be protected under this [NDA]’s terms and conditions.”
(b)Subject to legislative requirements, the receiving Party undertakes that such Proprietary Information shall for a period of FIVE (5) years following the date of receipt of Proprietary Information:
…
(ii)be only disclosed to and used by its Representatives who have a need to know and solely for the Purpose, …;
(iii)not be used in whole or in part for any purpose other than the Purpose;
(iv)neither be disclosed nor caused to be disclosed whether directly or indirectly to any third party or persons other than those mentioned in sub-paragraph (ii) above and the Parties to this [NDA]; and
(v)neither be copied, nor otherwise reproduced nor duplicated in whole or in part where such copying, reproduction or duplication has not been specifically authorised in writing by the disclosing Party.
3.Restrictions
(a)Each Party agrees that it shall not itself, or cause or enable any other person to reverse-engineer, decompile, or disassemble any software, process or tangible items, including refraining from any activities, examinations, performance or qualitative analyses, or other investigations that seek to discover the contents, algorithms, composition or manufacturing formulae of the Proprietary Information.”
In cl 5, the parties listed their respective employees “authorised to receive and/or transmit Proprietary Information” under the NDA on their behalf. The Thales employees were Warwick Spencer, the L125-3C design manager for Thales, Mr Fulford-Talbot, Mr Flynn and Mr Evenden.
By cl 6, they agreed the NDA was not to be construed as compelling any party to disclose any Proprietary Information to any other party, or “to enter into any further contractual relationships.”
By cl 7 the parties agreed:
“7. Ownership
All Proprietary Information and any copies of that information, including without limitation to such other documents, materials or media containing, summarising or derived from any Proprietary Information, to the extent that any of them contains, summarises or is derived from any Proprietary Information, shall remain the property of the disclosing Party and shall be returned or destroyed by the receiving Party to the disclosing Party immediately upon request in writing or termination of this Agreement.”
By cl 8, each party had represented that it had the rights to disclose the Proprietary Information.
By cl 12(b), the parties agreed:
“12. Breach
(b)The receiving Party must notify the disclosing Party immediately upon becoming aware of any disclosure or use of the Proprietary Information of the disclosing Party other than for the approved Purpose or otherwise than as permitted by this [NDA].”
By cl 13, the parties agreed the NDA did not exclude “the operation of any principle of law or equity intended to protect and preserve the confidentiality of the Proprietary Information”, and that rights and remedies under the NDA were cumulative and not exclusive of any other right or remedy.
By cl 15, the parties relevantly agreed:
“15. Termination/Expiry
(a)This Agreement may be terminated by any Party at any time upon thirty (30) days prior written notice to the other Parties, and unless so terminated shall expire THREE (3) years after the Effective Date.
(b)The termination or expiry of this agreement shall not relieve each receiving Party of the obligations imposed by this Agreement in respect of Proprietary Information received prior to the date of the termination or expiry. Such obligations shall continue for the period applicable as set out in Clause 2(b) of this Agreement …”
By cl 16, the parties agreed that the NDA constituted the entire agreement between them and superseded and cancelled, amongst other things, any prior “agreements among the Parties with respect to the subject matter” of the NDA. It is common ground that, by executing the NDA, the parties cancelled the earlier non-disclosure agreement executed on 8 June 2011.
By cl 19, the parties agreed that the NDA would be governed by and interpreted in accordance with the laws of New South Wales (NSW). This was Thales’ home jurisdiction, and not that of Madritsch (Austria) or Nioa (Queensland).
There was some delay in Thales sending a full executed copy of the NDA to Nioa. By 1 September 2011, it was received.
Madritsch discloses its solution to Thales – September 2011
After the Intentions Letter was delivered and the executed NDA exchanged, Madritsch arranged for the kits and associated documents to be sent to Australia.
Very early on 5 September 2011, Mr Frohnwieser emailed Mr Whitty the encrypted Madritsch manual for the installation and maintenance of Madritsch Solution kits in the Steyr AUG (Manual). He sent the link to the decryption program later that day. Also on 5 September 2011, Madritsch sent nine of the kits and two sets of installation tools to Nioa by Fedex.
Madritsch manual disclosed
On 6 September 2011, under the NDA terms, Mr Whitty sent Mr Fulford-Talbot the Manual. He asked Mr Fulford-Talbot for the correct delivery address and recipient for the kits. Mr Fulford-Talbot advised the correct delivery address was the Lithgow factory and the correct recipient was Mr Eyles.
On 6 September 2011, within five minutes of receiving it from Mr Whitty, Mr Fulford-Talbot forwarded the Manual to Mr Eyles. Mr Fulford-Talbot also forwarded it to Mr Evenden, Stuart Higgins, Thales’ L125-3C Project Manager - Lethality, and Mr Spencer. His covering comment was:
“Parts on the way, but the attached should give you a clear idea of the hammer mech modification.”
From reviewing the Manual, Mr Eyles was aware that the Madritsch Solution used a double torsion spring as a separate AFL spring. The spring was illustrated several times in the Manual. This was unlike the JGCM and V1, V2, V3, V4 and V5, each of which had a single torsion AFL spring.
Madritsch Solution kits disclosed
On 13 September 2011, the nine kits and two sets of tools were delivered to Nioa in Brisbane. From there, six kits and one tool set were delivered to Thales at Lithgow, addressed to Mr Eyles as Engineering Manager. These arrived at Thales on about 14 September 2011.
I accept the evidence of Richard Basladynski, then Thales’ Testing and Evaluation Manager, as to what occurred when the kits arrived at the Lithgow factory. It accords with the recollection of Mr Evenden. I reject the contrary account of the same events given by Mr Eyles.
When the kits arrived, Mr Basladynski and Mr Eyles spent some time examining them. The individual parts were in an unassembled form. They compared the parts in the kits with those in the standard hammer mechanism in the Austeyr to identify the changes Madritsch had made. They identified that Madritsch had altered the mechanism so that the hammer springs no longer exerted any force on the AFL and instead the AFL was operated by a separate AFL spring applying significantly lower force. In examining and handling the Madritsch Solution parts, it is more likely than not that Mr Eyles and Mr Basladynski identified that the torque exerted by the AFL spring was significantly lower than that exerted by the AFL spring in JGCM, V3 and V5.[26] It is similarly likely that both Thales employees noticed the Madritsch AFL spring was a double torsion spring.
[26]From his measurements, Mr Williams had calculated the average vertical force exerted by the AFL in V3 as about 28.4N. Mr Steele’s later record of the disengagement force in the V3 models gives an average of 43.2N. Mr Steele’s measures of the force in V5 produce an average disengagement force of 42.5N. Each of these is significantly higher than the 8 to 10N in the Madritsch Solution. As engineers, it is more likely than not that Mr Eyles and Mr Basladynski noticed that a significantly lower torque was exerted by the AFL springs in the Madritsch Solution kits compared with the AFL springs in V3 and V5. Mr Basladynski noted a significant reduction in his later draft report on testing the Madritsch Solution kits.
Immediately the kits were examined and assembled, Mr Eyles instructed Mr Basladynski to organise and run live-fire tests. Mr Basladynski did so. He did so even though this was a particularly busy period for him and the other engineers at Thales.
On 15 September 2011, Mr Fulford-Talbot told Mr Whitty the tests of the Madritsch Solution would happen about 29 September 2011
On about 29 September 2011, Thales conducted the testing at Lithgow. According to a later draft report, there were two stages to the testing.[27] In Stage 1, Thales tested and identified Austeyr rifles with the highest probability of exhibiting the bolt unlocking problem. There were four rifles that consistently showed the problem: two Austeyr SA1s and two SA2s. In Stage 2, Thales took rifle models from the production batches with “the highest probability of the failure mode” and “increased the sample size for greater statistical confidence”. 20 rounds were fired from each of the “high failure” rifles. The number of rifles is not clear, as the detailed test results were not included in the draft report and, it appears, the report was never finalised.
[27]This is the draft Technical Report TR-12007 Revision A, dated 18 January 2012.
In the testing, the Madritsch Solution “proved to prevent the failure” in “all cases” and “the Madritsch hammer modifications seem to alleviate the bolt unlock failure mode.” Based on the results of the tests, Mr Basladynski concluded that the Madritsch Solution “overcame” the bolt unlocking problem.
An observer from Nioa, Greg Toms, attended the trial. He reported to Mr Frohnwieser, Mr Whitty, Mr Madritsch and Mr Nioa that the two rifle models (Austeyr SA1 and SA2) were selected “for their routine failure” to fire the standard 5.56mm calibre cartridges after a 40mm grenade had been fired from an attached grenade launcher. Each was fitted with a Madritsch kit, which had been randomly selected from five assembled kits. Each was then loaded with a full magazine of 5.56mm cartridges. Ten 40mm grenade rounds were loaded to the grenade launcher.
According to Mr Tom’s report, after each 40mm grenade was fired, “the operator would without any change of grip etc then attempt to fire” the 5.56 cartridge round from the rifle. Each rifle was tested in this way from two different positions: one firing at a 50m target; then at 400m elevation angle. Every time the rifle fired its cartridge “without an issue”. He noted:
“The high speed video captured the bolt carrier sometimes moving back approx 1-2mm but every time the carrier closed fully on its own accord.”
When the testing was completed, Mr Basladynski returned the assembled kits to Mr Eyles.
On 3 November 2011, Mr Fulford-Talbot told Mr Whitty that:
“early indications are that the solution proposed by Madritsch to solve the issue of the GLA followed by firing seems to have potential but we need to do more work to verify and qualify.”
Two emails were exchanged that day about the preparation of a draft licence agreement for Thales to manufacture the Madritsch Solution.
On 17 November 2011, Mr Fulford-Talbot told Mr Whitty that Thales had a “target date” of 18 January 2012 to “have an agreement established” for the Madritsch Solution. Mr Fulford-Talbot described this as “a reasonably demanding timetable.”
In his communications with Mr Whitty, Mr Fulford-Talbot made no reference to any similarity between the design of the Madritsch Solution and any of HMA1 versions then in existence or the “concept” of the JGCM and HMA1. Although the kits had been examined and assembled by Mr Eyles and Mr Basladynski and subjected to live-fire testing, Mr Fulford-Talbot did not propose that Madritsch and Thales “both register drawings” as he had mentioned in the Intentions Letter.

There is no evidence that Obst Weinseiꞵ gained any knowledge of confidential information about the Madritsch Solution otherwise than as a result of his official duty. The position is the same with respect to any other Bundesheer members involved in the testing.
It is more likely than not that maintaining the secrecy of the information that could be obtained by dismantling and examining the kit components and from the testing of them was relevant for the purpose of the Austrian federal authorities making a decision on whether to adopt the Madritsch Solution. The Austrian authorities obviously had a vested economic interest in that decision.
I accept Dr Schwank’s opinion that, in the circumstances, s 46(1) applied to the provision of the kits to Obst Weinseiꞵ. He and the other members of the Bundesheer involved in the testing were bound by s 46(1) of the BD 1979.
I reject Thales’ contention that any confidentiality in the Madritsch Solution was lost as a consequence of Madritsch permitting the Bundesheer to complete verification and testing of it and that, in this way, the Madritsch Solution was brought into the public domain.
In the circumstances, the relevant information Mr Eyles and Mr Basladynski derived from examining the kit components and the Manual had the necessary quality of confidence when it was disclosed to Thales in September 2011.
The court is not faced with considering whether cl 2(b)(iii) prevents Thales from using information that is not and was not intended to remain confidential.
Is the NDA enforceable?
Thales contends that, relevantly, clauses 2(b)(iii) and 12(b) of the NDA are unenforceable as restraints of trade.
Only cl 2(b)(iii) is a prohibition on use of the Proprietary Information. The obligation in cl 12(b) to notify Madritsch of a breach does not appear to be a restraint of trade, but it would operate to enhance the effect of the restraint in cl 2(b)(iii).
The NDA is governed by the laws of New South Wales. The parties chose to make it so. The Lithgow factory is in New South Wales. That is where, according to the plaintiffs, Thales engaged in the conduct that breached terms of the NDA. The laws of that State include the Restraints of Trade Act 1976 (NSW) (RTA). The RTA applies relevantly to restraints created by contract.[76] It is a short enactment. The relevant operative provision appears to be s 4(1). It provides as follows:
“4Extent to which restraint of trade valid
(1)A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.”
[76]RTA, s 2(2).
The extent to which a restraint is not against public policy is the extent to which it is reasonably necessary for the protection of the legitimate interests of the parties (or one or more of them) at the time the NDA was made and also reasonable in the interests of the public.[77]
[77]Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343 (Isaac v Dargan) at [59]-[61].
As Young JA expressed it in Sidameneo (No 456) Pty Ltd v Alexander,[78] while the interests a party must possess in order to protect itself by a restrictive covenant traditionally “were considered to be particular types of proprietary interests, such as goodwill”:
“The true rule is that the plaintiff must have some legitimate interest which equity will protect. The word ‘proprietary’ is used in a special sense and will include legitimate commercial interests.”[79]
[78][2011] NSWCA 418.at [31]
[79]at [32], approved in Isaac v Dargan at [65].
Trade secrets and confidential information are “legitimate interests which may be the subject of protection by covenant”.[80] The relevant information the plaintiffs sought to protect was confidential. See [349]-[367] above.
[80]Tullett Prebon (Aust) Pty Ltd v Purcell (2008) 175 IR 414 at [65].
In New South Wales, the validity of a restraint is determined in light of the actual (or apprehended) breach, and not “imaginary or potential breaches.”[81]
[81]RTA, s 4(1); Isaac v Dargan at [62].
Thales’ breach of cl 2(b)(iii) was the use of information, obtained by examination of the kit components and Manual, to design a revised AFL spring in V6. The breach of cl 12(b) was the failure to notify the plaintiffs of the cl 2(b)(iii) breach.
The following matters are relevant to whether these provisions of the NDA were reasonably necessary to protect the plaintiffs’ interest in the confidential information:
(a)The information to be protected is limited to information that is “of a proprietary or confidential nature”. The obligations in clause 2(b) are that the information “remain protected and kept in strict confidence”, and in doing so each party “use at least the same safeguards it uses to protect its own Proprietary Information”. I accept the submission put by Mr Johnston and Mr Psaltis for Thales that, construing the NDA as a whole and consistently with its express purpose, the subject matter of the restraints in cl 2(b) are confined to information that is confidential and not already in the public domain. If the information ceases to be confidential, otherwise than by some unlawful act or omission by a party, the covenants cease to apply to it.
(b)The restraints limited the further disclosure and use of information disclosed by the parties by confining its use to the agreed purpose of entering discussions.
(c)The restraints in cl 2(b) sought to protect the parties by limiting the further disclosure and use of confidential information for a limited time. The restriction applied for five years from the date a party received the confidential information. The notification obligation in cl 12(b) depended upon a breach, so it endured during the five years in which a breach could occur.
(d)The Steyr family of weapons was used by several national armies. The value of confidential information about the bolt unlocking problem extended across national borders and was not confined to a specific geographic area or region.
(e)The restraint for this limited period after disclosure might be considered a ‘‘head start’’ handicap, reflecting the advantage a party might gain by access to the confidential information, while it remained confidential, over competitors who had not dealt with the other parties.
(f)The terms of the NDA were the subject of negotiation between the parties between 27 June and 11 August 2011. Each of the parties is an established commercial enterprise in the same trade. Each proposed and rejected provisions for the NDA. There is no indication of any inequality in bargaining power or of any party bring overborne in the negotiation. The obligations are mutual.[82] They are for the benefit of each of the parties to the NDA.
[82]At the time they were agreed, each covenant could operate to protect Thales in respect of any Proprietary Information it disclosed to Madritsch as well any Madritsch disclosed to Thales.
The following matters, known to all parties at the time they entered into the NDA, may also be relevant to whether the restrains were reasonably necessary to protect the interest of the plaintiffs in the confidential information:
(a)The communications between Thales and Nioa make clear the discussions were to be about a licence for Thales to manufacture the Madritsch Solution in Australia and to manufacture the components as an integrated part of the new model Austeyr for the ADF under the L125-3C program.
(b)Thales had sought access to the kits and related information for the specific purpose of progressing those discussions, including by undertaking live fire testing of the effectiveness and reliability of the Madritsch Solution in the Austeyr. The plaintiffs had insisted on limits on the disclosure and use of Madritsch’s confidential information. Thales negotiated and agreed the limits.
(c)Madritsch had started work on developing its solution to the bolt unlocking problem well before the date of the NDA. It had progressed the solution to approval, after testing, by the Bundesheer. This must have involved the application of resources, time and effort. The restraints would protect relevantly the value to Madritsch of the fruits of its work.
(d)In January 2011, the ADF had expressed to Nioa its interest in the Madritsch Solution. As the agent of Madritsch, Nioa also had an interest, if Thales did not take up the Madritsch Solution, in arranging to supply the kits for the use of the ADF. The restraints would also protect Nioa’s interest.
(e)Madritsch had maintained the confidentiality of the detail of its solution during research, development, design and testing and thereafter. As the NDA attests, Madritsch had no plan to put the information into the public domain in August 2011. It appears Thales had no other legal means of obtaining the confidential information it desired to continue negotiations with the plaintiffs.
In the circumstances, when the NDA was made, the restraint on Thales’ conduct in cl 2(b)(iii) was reasonable for the protection of the plaintiffs’ interests. The covenant in cl 12(b), to the extent that may be characterised as a restraint of trade, was also reasonable as additional protection of the same interests of the plaintiffs, alerting them quickly to a breach so that they could take timely action to protect those interests.
The following matters may also be relevant to the reasonableness of the restraint.
Madritsch had started work on developing its solution to the bolt unlocking problem by 2008, conducting its first live-fire testing in September 2008. It had tested its final version in September 2009. The work was done by two senior officers, each a qualified engineer. It had taken Madritsch almost another two years to be at the point of commercial production of the kits. I accept this three-year period as a reasonable time in which an engineering organisation applying appropriately qualified and experience staff and sufficient financial resources could expect to research, develop, design, test and finalise for production a solution to the bolt unlocking problem. The use of the confidential information could be expected to give a person in the position of Thales a “headstart” on a competitor.
At the time the NDA was executed, Madritsch was embarking on manufacturing and supplying the Madritsch Solution to the Bundesheer. Madritsch was pursuing an approval from the Austrian Government to export the kits. The confidentiality of the detail of the Madritsch Solution had an economic value to Madritsch.
From 19 December 2011, Thales wanted to prevent Nioa making a direct approach to the Commonwealth to supply the Madritsch Solution to the ADF, at least until Thales had its alternative solution in place and had secured the position of preferred provider of it. The ADF’s interest in it, indicated confidentiality of the detail of the Madritsch Solution had an economic value to Nioa.
There is a public interest in the development of better technologies. It is promoted by reasonable restraints on copying work that is otherwise confidential, valuable, and the result of effort. The covenants in cl 2(b)(iii) and 12(b) serve that public interest.
I am satisfied that the covenants in cl 2(b)(iii) and cl 12(b) are not against public policy within the meaning in RTA s 4(1).
As Giles JA explained in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd:
“The operation of s4(1) of the Act is now relatively well settled. It does not permit the Court to remake the contract or a covenant in it, and although sometimes it is said that it allows the covenant to be read down or redrafted that is really an inaccurate description. The provision looks to the postulated breach, and permits the Court to enforce a covenant otherwise invalid as against public policy if the restraint in the covenant so far as it applies to the postulated breach is not contrary to public policy. The Court is given the capacity to enforce a reasonable restraint of trade falling within the expressed restraint although the expressed restraint is too widely stated.[83]
[83][2001] NSWCA 111 at [165]. His Honour referred to Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 at 43,833 and the cases considered by that decision, including Orton v Melman [1981] 1 NSWLR 583.
Thales’ breach of these covenants commenced within six months of the disclosure of the Manual and the components of the Madritsch Solution kits. It appears to have continued. A restraint on Thales conduct within the scope of cl 2(b)(iii) and cl 12(b) applying for six months would not be contrary to public policy. It is enforceable on that basis.
In all the circumstances, I am satisfied the court should enforce the restraint against the breaches by Thales.
Clause 3(a)
On the basis noted at [338] above, it is not necessary to consider the validity of the restraint in cl 3(a) of the NDA. For completeness, I make the following observations.
The restraint in cl 3(a) is different to those in cl 2(b). It is an indefinite prohibition, relevantly on reverse engineering the Madritsch Solution by examining the kit components to seek to discover their contents and manufacturing formula. No evidence was adduced about the period over which the Madritsch Solution was likely to remain in use and the information about it confidential and of value.
As the plaintiffs’ claim illustrates, the same conduct appears to be capable of falling within the range of both cl 2(b)(iii) and cl 3(a). The internal logic of the NDA indicates that the parties agreed the five-year restraint period for each of the covenants in cl 2(b) was sufficient to protect the plaintiffs’ interests.
There is no apparent justification for an indefinite restraint of the kind in cl 3(a). The covenant in cl 3(a) would appear to be against public policy by reason of a manifest failure by the person who created or joined in creating it to attempt to make the restraint a reasonable one.
However, Thales’ breach of cl 3(a) commenced within six months of the disclosure. Applying the law of New South Wales, s 4(1) of the RTA permits the court to enforce the covenant in cl 3(a) so far as its application to Thales’ breach is not contrary to public policy. Although the restraint in cl 3(a) is too widely stated, being unlimited in time, a restraint for six months (or even five years), falling within the expressed restraint, is reasonable and so enforceable as not against public policy.
Conclusion on breach of the NDA
The plaintiffs are entitled to damages for breaches of cl 2(b)(iii) and cl 12(b) of the NDA. The quantification of those damages is a matter for another day.
Breach of “side agreement”
The plaintiffs contend that, on or about 11 August 2011, the parties entered into a “Side Agreement” that, in exchange for Thales providing the assurances in the Intentions letter, Madritsch would disclose the Madritsch Solution to Thales. They rely on emails passing between Mr Whitty and Mr Fulford-Talbot. The terms of the alleged side agreement are those found in the Intentions letter, which Thales signed and sent six days later.
As noted above, the parties negotiated the terms of the Intentions letter and the NDA were between 27 June and 11 August 2011. In an email of 4 August 2011, Mr Whitty advised that Madritsch had:
“agreed to release the samples to Thales for evaluation on the basis of [five things, including] Thales provide the letter of understanding and intent to Madritsch along the lines we discussed.”
Mr Fulford-Talbot replied, rejecting one thing Mr Whitty had stated Madritsch required. He did not object to or reject the Intentions letter. The negotiations continued.
By 11 August 2011, Thales had proposed or indicated its willingness to execute the NDA and sign the Intentions letter in the terms in which they were eventually executed and signed. After that time, Thales and Nioa seemed only to be waiting for Madritsch to accept those proposed terms. It did so on 18 August 2011.
I have considered the communications between the parties, in particular those from Mr Frohnwieser to Mr Whitty on 17 August 2011,[84] and from Mr Whitty to Mr Fulford-Talbot on 18 August 2011.[85] From these, I conclude that in all the exchanges, including the 4 August 2011 email from Mr Whitty to Mr Fulford-Talbot, the parties were negotiating the terms of the Intentions letter and what became the NDA to address concerns raised by Madritsch about disclosing its intellectual property to Thales. The only agreement by which the parties expressed an intention to be legally bound was the NDA.[86] I am not satisfied that there was a distinct “side agreement” that bound Madritsch to disclose the Madritsch Solution to Thales, if Thales executed the NDA and signed the Intentions letter.
[84]Copied to Mr Madritsch, Mr Nioa and Mr Toms.
[85]Copied to Mr McCarthy, Mr Higgins, Mr Flynn, Mr Evenden, Mr Nioa and Mr Toms.
[86]This is not to say that the plaintiffs did not rely upon the Intentions letter in entering into the further agreement and in disclosing the Madritsch Solution to Thales.
The claim by the plaintiffs for damages for breach of the side agreement fails.
Breach of duty of confidence
The plaintiffs also contend that Thales breached an equitable duty of confidence by making use of the information that the Madritsch Solution involved a double torsion AFL spring that imparted a significantly lower torque than the equivalent spring in V3 and V5. The “long-standing equitable principles relating to fair-dealing with the work of another” inform the basis of this duty.[87]
[87]Interfirm Comparison [1975] 2 NSWLR 104, 118.
As Arnold LJ noted recently in Racing Partnership Ltd v Done Bros (Cash Betting) Ltd:
“The clearest statement of the elements necessary to found an action for breach of an equitable obligation of confidence remains that of Megarry J in Coco v AN Clark (Engineers) Ltd [1969] RPC 41, 47:
“First, the information itself … ‘must have the necessary quality of confidence about it’. Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must have been an unauthorised use of the information to the detriment of the party communicating it.”
This statement of the law has repeatedly been cited with approval at the highest level: see Lord Griffiths in Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109, 268, Lord Nicholls of Birkenhead in Campbell v MGN Ltd [2004] 2 AC 457, para 13 and Lord Hoffmann in Douglas v Hello! Ltd (No 3) [2008] AC 1, para 111. (It is not, however, a complete statement of the ingredients of a successful claim: there is a further requirement, namely that the unauthorised use of information was without lawful excuse.)”[88]
[88][2021] 2 WLR 469, 483 [44]-[45], CA (9 Oct 2020). Although Arnold LJ dissented in certain respects, Lewison LJ (and Phillips LJ) did not challenge this summary of the law.
For the reasons set out in [349] to [368] above, the information that the AFL springs in the Madritsch Solution kits were double torsion springs and had a significantly lower torque than the AFL springs in V3 and V5 had the necessary quality of confidence, not being public property or public knowledge.[89]
[89]Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215 (Lord Greene MR).
When Thales received that confidential information, it owed Madritsch a duty not to make any unauthorised use of it to the detriment of Madritsch.
Thales made use of the confidential information to modify its own V3 and V5 designs to create V6 and incorporate it in the new model of the Austeyr supplied to the ADF as part of the L125-3C program. This was to the detriment of Madritsch. Madritsch did not authorise it.

As Lord Denning MR put it in Seager v Copydex Ltd: when a person has received information in confidence:
“He should not get a start over others by using the information which he received in confidence. At any rate, he should not get a start without paying for it. It may not be a case for injunction or even for an account, but only for damages, depending on the worth of the confidential information to him in saving him time and trouble.”[90]
[90][1967] 1 WLR 923, 931-932 CA.
Thales proffered no lawful excuse for its unauthorised use of the confidential information.
In Equity, Thales is accountable for any profits it acquired by this improper use of the confidential information. The plaintiffs may recover any equitable damages or compensation for loss suffered by reason of Thales’ breach. The formal proof and quantification of those matters are to be left for another day.
Misleading and deceptive conduct
The plaintiffs’ final claim is for a statutory remedy for contravention of s 18(1) of the ACL. This well-known provision has been described as a “legislatively imposed standard of normative behaviour”. It provides:
“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
It is common ground that Thales’ communications with Nioa and Madritsch relevantly between 19 January and 13 June 2012 was conduct in trade or commerce within the meaning in the ACL.
Context for the alleged misleading or deceptive conduct
The conduct of Thales, through Mr Evenden, between 19 January and 13 June 2012 occurred in the context created by Thales sending the Intentions letter and executing the NDA in August 2011. During the period, Thales retained the six Madritsch Solution kits, notwithstanding the statement in the Intensions Letter that “if the Madritsch Solution is not suitable for our purposes” Thales would “return all components to Madritsch, and not use the Madritsch IP for any purpose whatsoever”.[91]
[91]Thales did not send the kits back to Nioa until 23 October 2012.
On 19 December 2011, Mr Evenden read and understood the draft sub-licence agreement and decided to reject Nioa’s offer to sub-license the right to use and manufacture the Madritsch Solution on those terms. The same day, he decided to delay providing any response to Nioa or Madritsch rejecting the offer or indicating that the offer would not be accepted.
On 9 January 2012, Mr Evenden circulated within Thales an email about “Response to Nioa/Madritsch Proposed Licence Agreement”. The email and attached flow chart showed Thales intended to reject the sub-licence agreement, which Mr Evenden had described as “ridiculous” and “not acceptable”. The email also proposed Thales would prepare a “brief” for a direct approach to Madritsch proposing Thales acquire the intellectual property for the Madritsch Solution in a “one-off buy”.
According to the email, Mr Evenden proposed that Thales respond to Nioa, rejecting the sub-licence agreement and telling Nioa of Thales’ intention to discuss the matter directly with Madritsch, doing these things before it proceeded to “Brief Madritsch in Austria with Thales Austria in attendance” on about 12 February 2012.
Mr Evenden sent the email and flow chart to Mr Wall and copied it to Mr Wootton, Mr Fulford-Talbot, Mr Higgins, Paul McCarthy who was Thales’ commercial manager, and Brian O’Connell who was Thales’ senior commercial lawyer. He later sent a copy to Mr Eyles.
Perhaps Mr Wall had other instructions for Mr Evenden. Perhaps other views, when canvassed, prevailed. That is not known. For whatever reason, Mr Evenden did not respond to Nioa about the sub-licence agreement or tell Nioa that Thales would directly approach Madritsch, as his email and flow chart had proposed. Instead, he and others within Thales, took steps to lead Nioa and Madritsch to believe that Thales was considering the offer with a view to either accepting it or making a genuine counteroffer.
Conduct alleged to be misleading or deceptive and it’s effect
On 19 January 2012, Mr Evenden sent Mr Madritsch and Mr Whitty an email proposing a meeting with them in Vienna on 16 February 2012, while Mr Evenden was travelling in Europe. He said he would be accompanied by Hannes Boyer from the Vienna office of Thales. The meeting was “to discuss the way forward with the hammer pack modifications.” This was the first direct written communication between a Thales employee and Mr Madritsch. All other communications had been through Madritsch’s agent, Nioa.
This direct approach to Mr Madritsch for a discussion was misleading and deceptive. When it was sent, Thales, in the person of Mr Evenden, had decided not to pursue a sub-licensing agreement for the Madritsch Solution. Thales did so perhaps as early as 9 January 2012, when Mr Evenden told Mr Eyles the terms of the draft sub-licence were not acceptable and instructed Mr Eyles to set about developing a plan to finalise and “industrialise” the HMA1 design. See [168] above.
On 23 January 2012, Mr Whitty began seeking a date for a negotiation with Thales about the draft sub-licence agreement, proposing they meet during the “Pacific 2012 conference (31 Jan – 02 Feb) at Darling Harbour”. Mr Whitty’s request for a meeting date shows he had been misled and deceived by Mr Evenden’s direct approach to Mr Madritsch.
The same day, Mr Evenden replied:
“As you know we received your proposed sub-licence agreement on 19 Dec and due to a number of key personnel being on leave etc, it has not been possible to conduct a full financial and legal assessment of your proposals. Also, I’m afraid I won’t be able to commence negotiations at Pacific 2012 [31 January – 2 February 2012].”
Thales conduct, by Mr Evenden, in sending this reply was likely to mislead or deceive. As Mr Evenden accepted in cross-examination, by this time he had already assessed the Nioa sub-licence agreement as “farcical”. Thales was not intending to conduct a full financial and legal assessment of it. Thales had not been delayed in doing so by any key personnel being on leave.[92] Thales was not intending to commence negotiations with Nioa about the sub-licence agreement.
[92]On 20 December 2011, Mr Annells had asked another Thales employee to “work up a ROM cost ASAP” for Mr Evenden. Nothing more than this rough order of magnitude assessment was made.
On 24 January 2012, Mr Whitty asked Mr Evenden to nominate “a suitable date for us to meet to initiate the discussions” about the licence agreement between Thales and Nioa. Mr Whitty’s request shows that he was misled and deceived by Mr Evenden’s earlier communications on 19 and 23 January 2012.
On 24 January 2012, Mr Evenden responded to Mr Whitty’s request, in this way:
“I will get back to you reference sub-licence discussions once we have finalised our assessment of your proposal.”
This was another instance of conduct by Thales likely to mislead or deceive. Thales was not working on an assessment of the Nioa proposal. That assessment had been made by Mr Evenden on 19 December 2011. As noted above, Thales was not intending to initiate negotiations with Nioa about the sub-licence agreement.
On 16 February 2012, Mr Evenden met with Mr Madritsch and Mr Frohnwieser in Vienna. As Nioa was the representative of Madritsch in Australia and as the draft licencing agreement was framed as one between Nioa and Thales, the parties had earlier agreed in correspondence that the licensing agreement would not be discussed in Nioa’s absence. According to Mr Evenden, due to that agreement, he did not discuss the Madritsch Solution “at all” in the meeting.
On 23 April 2012, Mr Evenden responded to Mr Whitty’s request for “an update on the status of Thales’ intentions” with respect to the Madritsch Solution:
“We have considered NIOA’s proposal presented as the licence holder of the Madritsch bolt unlocking technology. On receipt of your proposal it became clear that the terms offered would add significant costs to our rifle product line and in turn our price to our customers. As a consequence we had to ensure that not only was the proposed solution appropriate from a technical perspective but also provided value for money. As you know we had pursued a number of internal solutions to the problem and due to the significant costs associated with the NIOA proposal we will now only move to negotiate your proposal once we have confirmed that the Madritsch Solution represents a significant benefit over our internally designed options. I can keep you appraised as necessary.”
Thales conduct, by Mr Evenden sending this email, was likely to mislead or deceive Nioa. Thales was not taking and had no intention of taking any steps to confirm that the Madritsch Solution represented a significant benefit over Thales’ “internally designed options”. As noted above, Thales was not intending to initiate negotiations with Nioa about the sub-licence agreement. In fact, as noted above, Thales, in the person of Mr Evenden, had decided not to pursue a licensing agreement for the Madritsch Solution. By this date, Thales had decided to market its alternative solution to the bolt unlocking problem to the Commonwealth. Thales had taken steps to implement this decision on 6 February 2012, when Mr Eyles instructed Mr Banks and Mr Higgins to add the HMA1 task to the work plan for the L125-3C Project, with an intention of completing the task by about 27 March 2012. See [173] above. On 20 February 2012, Thales had changed to the HMA1 mechanism for the L125 rifle design, instead of the Madritsch Solution. By this time, Thales had used Madritsch’s confidential information to advance its own solution to the bolt unlocking problem. It had manufactured and tested the prototype of its new design V6.
On 24 April 2012, Mr Whitty thanked Mr Evenden for his response. He expressed confidence that Madritsch would consider negotiating the price of the technology and recommended Thales consider offering a valuation for Madritsch to consider. Mr Whitty’s request for an update shows that he continued to be misled and deceived by Mr Evenden’s communications on 19, 23 and 24 January 2012. His 24 April 2012 response shows Mr Whitty was also misled or deceived by Mr Evenden’s email of 23 April 2012.
On 3 May 2012, Mr Evenden told Mr Whitty that Thales welcomed “the opportunity to offer a valuation” of the sub-licence for the Madritsch technology from Nioa. He continued:
“Once we have confirmed that it represents a significant benefit over our internal design options we will be happy to progress.”
He said Thales would get back to Nioa about the sub-licence on completion of the “DV&V phase” of the L125-3C program.
Thales conduct, by Mr Evenden sending this email, was likely to mislead or deceive. Thales was not taking and had no intention of taking any steps to confirm that the Madritsch Solution represented a significant benefit over Thales’ “internal design options”. As noted above, Thales was not intending to initiate or progress negotiations with Nioa about the value of sub-licence agreement.
It was not until the 13 June 2012 meeting in Paris that Thales informed Madritsch and Nioa, through Mr Evenden’s presentation that the sub-licence agreement was “cost prohibitive” and that Thales had reverted “to own solutions (V3)”. The effectiveness of this disclosure to remedy the effect of Thales’ earlier conduct might be gauged by the fact that, at the end of the meeting, Mr Nioa invited Thales, through Mr Evenden and Mr Wall, to respond to the offer to sub-licence Thales to manufacture the Madritsch Solution, which Nioa had made in December 2011.
On 22 June 2022, Mr Evenden responded to Mr Nioa stating that Thales would give the matter of a response to the draft sub-licence agreement attention quickly.
On 11 July 2022, in the absence of a response, Mr Nioa followed up the email again. Mr Evenden informed him that a response was in progress.
On 13 July 2022, Mr Wall responded to Mr Nioa by email, advising that Thales did not require the Madritsch solution and would not make any counteroffer for a licensing arrangement through Nioa. This appears to have been the first honest communication from Thales on this topic in nearly six months.
Conclusion on whether Thales breached the standard of normative behaviour
Considered objectively in the relevant context, Thales’ conduct in its communications with Madritsch and Nioa on each of 19, 23 and 24 January, 23 April, and 3 May 2012 was likely to mislead or deceive Nioa and Madritsch by leading them to believe that Thales had a continuing interest and even an intention to enter into a sub-licence agreement with Nioa for the Madritsch Solution. By engaging in that conduct, Thales contravened s 18 of the ACL.
Did the breaches cause loss or damage?
I am satisfied Thales engaged in this conduct with the purpose of misleading or deceiving the plaintiffs so that they (and Nioa in particular) would not make a direct approach to the Commonwealth about supplying the Madritsch Solution kits for the use of the ADF until such time as Thales was ready to market its alternative solution to the bolt unlocking problem to the Commonwealth in the Land125-3C program.
I am also satisfied that Thales’ conduct served its intended purpose. It had the effect of misleading the plaintiffs to believe that Thales had a continuing intention to negotiate and enter into an agreement permitting it to manufacture the Madritsch Solution. Holding that belief, Noia (for itself and as agent for Madritsch) did not make a direct approach to the Commonwealth about supplying the Madritsch Solution kits for the use of the ADF. The effect of the contravening conduct endured until 13 July 2022 when Thales told Nioa it would not pursue a sub-licence agreement.
I reject Thales’ submission that any loss the plaintiffs may have suffered by Thales’ contravention of s 18 of the ACL “must have crystallised upon the provision by the plaintiffs to Thales of the Madritsch kits.” This odd contention seems to imply that once Thales have Madritsch’s confidential information it’s fate was sealed. In any case, it misunderstands the plaintiffs’ s 18 claim.
While the plaintiffs were misled, Thales completed the design and some testing for its V6 mechanism for inclusion in its L125-3C offering to the Commonwealth. The plaintiffs lost the opportunity to renew a direct approach to the Commonwealth to supply the tested, accepted and manufacturable Madritsch Solution before Thales had an alternative ready. They lost this opportunity because of Thales’ conduct that contravened s 18 of the ACL. The opportunity was valuable. It is not necessary to quantify the value for present purposes.
Costs
The plaintiffs have substantially succeeded in their case against Thales on liability. In the absence of any relevant impediment, they should be entitled to recover their costs of the hearing.
Draft order to be prepared
The proceeding is at an unusual stage, as only the liability issues have been determined. I will direct the parties to confer and submit an agreed draft order, or separate draft orders, consistent with the findings in these reasons.

CITATION:	Madritsch KG & Anor v Thales Australia Ltd [2021] QSC 170
PARTIES:	MADRITSCH KG (first plaintiff) NIOA NOMINEES PTY LTD (AS TRUSTEE FOR THE BILL NIOA FAMILY TRUST) (second plaintiff) v THALES AUSTRALIA LIMITED ACN 008 642 751 (defendant)
FILE NO/S:	BS 9497 of 2017
DIVISION:	Trial Division
PROCEEDING:	Civil
ORIGINATING COURT:	Supreme Court of Queensland
DELIVERED ON:	26 July 2021
DELIVERED AT:	Brisbane
HEARING DATES:	1 – 8 March 2021
JUDGE:	Bradley J
ORDER:	The parties are to confer and submit an agreed draft order, or separate draft orders, consistent with the findings in the reasons.
CATCHWORDS:	INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – INFORMATION PROTECTED – where the first plaintiff designed and developed a technical solution (the Madritsch Solution) to the ‘bolt unlocking problem’ in the firing mechanism of the Austeyr assault rifle – where the defendant had been engaged by the Australian Department of Defence to investigate the manufacturability of a solution to the bolt unlocking problem – where the defendant became aware of the Madritsch Solution and expressed its interest in entering discussions to manufacture the solution under licence – where the parties executed a non-disclosure agreement (NDA) to protect information disclosed during those discussions – where upon execution of the NDA, the defendant was provided with the Madritsch Solution for testing and appraisal – whether the information contained in the Madritsch Solution was confidential information under the terms of the NDA INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – USE OF INFORMATION – where the components of the Madritsch Solution were examined by representatives of the defendant – where in examining the Madritsch Solution the defendant discovered the AFL spring was in the form of a double torsion spring with significantly lower torque – where one of the persons that examined the Madritsch Solution later supervised the defendant’s own project (HMA1 V6) to solve the bolt unlocking problem – where HMA1 V6 involved a double torsion AFL spring with significantly lower torque – whether the defendant used the information contained in the Madritsch Solution to develop HMA1 V6 INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – OBLIGATION OF CONFIDENTIALITY – where the plaintiffs submit the information contained in the Madritsch Solution attracted an obligation of confidentiality under the terms of the NDA – where to maintain an obligation of confidentiality the information must be necessarily confidential – where the Madritsch Solution was provided to personnel of the Austrian Armed Forces to test for the purpose of deciding whether to adopt the solution – where the defendant contends that any confidentiality of the Madritsch Solution was lost as a consequence – where the court heard expert evidence on a piece of Austrian federal legislation that binds public servants to a duty of confidentiality in respect of information received in an official capacity – whether the Madritsch Solution was brought into the public domain and thereby lost its necessary quality of confidence TRADE AND COMMERCE – OTHER REGULATION OF TRADE OR COMMERCE – RESTRAINTS OF TRADE – VALIDITY AND REASONABLENESS – PARTICULAR CASES – COMMERCIAL TRANSACTIONS – GENERALLY– where the defendant contends that the clauses of the NDA prohibiting the use of the relevant information are unenforceable as unreasonable restraints of trade – where pursuant to section 4 of the Restraints of Trade Act 1976 (NSW) a restraint of trade is valid to the extent to which it is not contrary to public policy – where whether it is contrary to public policy is determined with regard to the legitimate interests of the parties and the interests of the public – whether, in light of the defendant’s breach, the relevant clauses of the NDA were reasonably necessary to protect the interests of the plaintiffs in the relevant information TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – MISLEADING OR DECEPTIVE CONDUCT GENERALLY – MISLEADING OR DECEPTIVE: WHAT CONSTITUTES –– where the defendant expressed its interest in producing the Madritsch Solution under licence from the second plaintiff – where the defendant received a draft sub-licence agreement and quickly formed the view it intended to reject it – where the defendant took steps that led the plaintiffs to believe it was considering the offer with a view to accept it or make a genuine counter offer – whether the defendant engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – FORMATION OF CONTRACTUAL RELATIONS – AGREEMENTS CONTEMPLATING EXECUTION OF FORMAL DOCUMENT – WHETHER CONCLUDED CONTRACT – where to alleviate the first plaintiff’s intellectual property protection concerns, the defendant provided assurances by way of an ‘Intentions Letter’ – where the plaintiffs contend a distinct ‘side agreement’ was entered into by way of exchange of the Intentions Letter for disclosure of the Madritsch Solution – whether the parties intended to be legally bound by a separate side agreement Competition and Consumer Act2010 (Cth) sch 2 (Australian Consumer Law, s 18 ). Restraints of Trade Act 1976 (NSW) s 4 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pt Ltd [1967] VR 37, considered Coco v AN Clark (Engineers) Ltd [1969] RPC 41, cited Hampton Court Ltd v Crooks (1957) 97 CLR 367, cited Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111, followed Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104, cited Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343, applied Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281, applied Racing Partnership Ltd v Done Bros Ltd (CA) [2021] 2 WLR 469, considered Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203, considered Seager v Copydex Ltd [1967] 1 WLR 923, cited Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418, followed Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227, considered Tullett Prebon (Aust) Pty Ltd v Purcell (2008) 175 IR 414, considered
COUNSEL:	S Cooper QC, with D Tay, for the plaintiffs C Johnstone, with A Psaltis, for the defendant
SOLICITORS:	Carswell and Company for the plaintiffs Minter Ellison for the defendant

Hammer mechanism	Pass/Fail[7]	% Pass
Standard mechanism	1/12	8%
V1	9/12	75%
V3	12/12	100%