Madritsch Kg v Thales Australia Ltd

Case [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 –…

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Madritsch Kg v Thales Australia Ltd [2021] QSC 170
Case
[2021] QSC 170
Decision Date

CaseChat Overview and Summary

The case of Madritsch Kg v Thales Australia Ltd revolves around the dispute between the plaintiffs, Madritsch Kg and Nioa, and the defendant, Thales Australia Ltd. 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 claim that Thales engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL). The legal issues before the court included whether the information contained in the Madritsch Solution was confidential under the terms of the non-disclosure agreement (NDA), whether Thales used the information to develop its own solution, and whether the NDA clauses prohibiting the use of the relevant information were enforceable as restraints of trade. Additionally, the court had to determine if Thales engaged in misleading or deceptive conduct and if a distinct “side agreement” was entered into by the parties.

The court found that the information contained in the Madritsch Solution was indeed confidential under the NDA terms. It held that Thales used this information to develop its own solution, HMA1 V6, which involved a double torsion AFL spring with significantly lower torque, similar to the Madritsch Solution. The court also concluded that the NDA clauses prohibiting the use of the relevant information were enforceable as they were reasonably necessary to protect the plaintiffs' interests and not contrary to public policy. Furthermore, the court found that Thales engaged in misleading or deceptive conduct by leading the plaintiffs to believe it was considering the offer to accept it or make a genuine counter offer when it had already decided to reject it. Finally, the court determined that there was no distinct “side agreement” that bound Madritsch to disclose the Madritsch Solution to Thales beyond the terms of the NDA.

The court ordered the parties to confer and submit an agreed draft order, or separate draft orders, consistent with the findings in the reasons. This decision paves the way for another hearing to determine the amount of any damages or compensation payable or other relief to which the plaintiffs may be entitled.

Orders

Orders of the court

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

Background

Background to the litigation

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.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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