Thales Australia Limited v Madritsch KG - [2022] QCA 205

SUPREME COURT OF QUEENSLAND

CITATION:

Thales Australia Limited v Madritsch KG & Anor [2022] QCA 205

PARTIES:

THALES AUSTRALIA LIMITED
ACN 008 642 751
(appellant)
v
MADRITSCH KG
(first respondent)
NIOA NOMINEES PTY LIMITED
ACN 010 108 086
AS TRUSTEE FOR THE BILL NIOA FAMILY TRUST
(second respondent)

FILE NO/S:

Appeal No 9591 of 2021
SC No 9497 of 2017

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane – [2021] QSC 170 (Bradley J)

DELIVERED ON:

21 October 2022

DELIVERED AT:

Brisbane

HEARING DATES:

24 & 25 March 2022

JUDGES:

Morrison and Mullins JJA and Freeburn J

ORDER:

The appeal be dismissed, with costs.

CATCHWORDS:

INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – USE OF INFORMATION – where the respondent’s case at first instance was entirely circumstantial – where the court was required to draw inferences from the available evidence – whether the primary judge undertook a mechanical comparison of probabilities independent of any evidence supporting a belief in their reality – whether the primary judge reversed the onus of proof

APPEAL – APPEAL GENERAL PRINCIPLES – PROOF AND EVIDENCE – ERROR OF FACT – where the trial judge found that it was more likely than not that Thales identified the lower torque exerted by the automatic firing lever spring when they observed the Madritsch Solution – where the primary judge found that Thales gave no plausible explanation for Mr Steele’s decision to significantly reduce the automatic firing lever spring force in the first automatic firing lever spring design – where the primary judge found that Thales used the information about the auto fire lever spring force in the Madritsch Solution to avoid an independent design sequence – where the primary judge found that Mr Steele had no experience, particularly with torsion springs – whether the primary judge made factual errors

INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – OBLIGATION OF CONFIDENTIALITY – whether Madritsch/Nioa failed to identify with sufficient specificity the information which they alleged was confidential and misused – whether Madritsch/Nioa failed to specify how that information was misused

INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – OBLIGATION OF CONFIDENTIALITY – where the Madritsch Solution was provided to personnel of the Austrian Armed Forces on three separate occasions for testing purposes – where the appellant contends that any confidentiality of the Madritsch Solution was lost as a consequence – whether the Madritsch Solution lost its character of confidentiality – whether information previously disclosed to a limited public is deemed to enter the public domain

TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – MISLEADING OR DECEPTIVE CONDUCT GENERALLY – where Madritsch/Nioa calculated losses as estimates of the licence fees and royalty rates that Madritsch/Nioa had sought in the draft licence agreement – where the trial was run as a split trial – where the first instance trial was concerned with the issue of liability and a later trial would eventuate to address damages – whether the s 18 Australian Consumer Law, Competition and Consumer Act 2010 (Cth) sch 2, case was established – whether Madritsch/Nioa were misled into believing that Thales had a continuing interest or intention to enter into a licence arrangement for the Madritsch Solution

Competition and Consumer Act 2010 (Cth), sch 2 (Australian Consumer Law, s 18)

Blatch v Archer (1774) 1 Cowp 63; [1774] EngR 2, considered
Browne v Dunn (1893) 6 R 67, considered
Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587, considered
GlaxoSmithKline Australia Pty Ltd v Ritchie (2008) 77 IPR306; [2008] VSC 164, distinguished
Hampton Court Ltd v Crooks (1957) 97 CLR 367; [1957] HCA 28, considered
Lynx Engineering Consultants Pty Ltd v ANI Corporation Ltd (t/as ANI Bradken Rail Transportation Group) (No 2) [2009] FCA 363, distinguished
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; (1992) 110 ALR 449; [1992] HCA 66, applied
RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125; [2011] FCA 423, considered
Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121; [2000] HCA 18, distinguished
Surveys & Mining Ltd v Morrison [1969] Qd R 470, considered
Talbot v General Television Corp Pty Ltd [1980] VR 224; [1980] VicRp 26, considered

COUNSEL:

G A Thompson KC, with C A Johnstone, and A G Psaltis, for the appellant
S Cooper KC, with H Clift, and D Tay, for the first and second respondents

SOLICITORS:

Minter Ellison for the appellant
Carswell & Company for the first and second respondents

MORRISON JA: I agree with the reasons prepared by Freeburn J.
MULLINS JA: I agree with Freeburn J.
FREEBURN J: All three parties to this litigation are in the firearms trade.[1] The appellant, Thales Australia Limited (Thales), manufactures and supplies the Austeyr standard service rifle used by the Australian Defence Force (ADF) since 1985. The Austeyr is based on a similar weapon, the Steyr AUG, used by the Austrian Army (the Bundesheer) since 1978.
[1]Much of the summary below is from the primary judge’s reasons.
Both weapons are gas piston operated automatic assault rifles. Both weapons suffered from a defect. Even though the weapons were not designed to do so, they were both frequently used with a grenade launcher attachment. When used with that attachment both weapons would fail to fire a round of ammunition immediately after the grenade launcher had been fired. The operator had to stop and ‘re-cock’ the rifle before it could be fired. The defect was described as the ‘Bolt Unlocking Problem’. The present dispute concerns the attempts to solve that problem.
PART A: THE FACTS
In 2007, Australia’s Defence Materiel Organisation (the DMO) identified and reported on the Bolt Unlocking Problem. Between March and October 2008, the DMO developed a prototype for a possible engineering solution to the Bolt Unlocking Problem in the Austeyr called the Joule Gain Modified Trigger Mechanism (JGCM).
In Austria, at about the same time, the first respondent, Madritsch KG (Madritsch), an Austrian company that supplied a grenade launcher attachment for the Bundesheer, was also developing its own solution to the Bolt Unlocking Problem. The solution was in the form of a kit that could be retrofitted to the Steyr AUG. In the litigation this was called the ‘Madritsch Solution’. The development of the Madritsch Solution was explained by the primary judge in some detail.[2] Essentially, between September 2008 and August 2009, Mr Madritsch and Mr Frohnwieser, engineers employed or retained by Madritsch, developed the Madritsch Solution through a series of tests and modifications to design. It did so by means of an extensive series of live fire tests involving high speed cameras and measurement of trigger forces.
[2]Reasons at [73] to [88].
By August 2009, the Madritsch Solution had been tested and approved by the Bundesheer. A certificate was issued by the relevant department confirming that the Madritsch Solution kits had been tested and approved in accordance with the procedures in a NATO standard described as ‘NATO AC/225’.[3] The kits were ready to be manufactured by Madritsch for retrofitting to the Steyr AUG.
[3]See First Witness Statement of Stefan Madritsch at [48], [63].
In the meantime, in Australia, the JGCM solution took a different trajectory. In October 2008, the DMO engaged Thales to investigate the ‘manufacturability’ of the JGCM solution. Mr Williams, a technical officer with Thales, worked on that project, amongst other work, between October 2008 and late 2009. Mr Williams formed the opinion that the JGCM prototype could not be mass produced unless certain manufacturing issues were resolved. Mr Williams produced a new prototype and drawings, the Hammer Mechanism Assembly No. 1 (HMA1 V1), which largely reproduced the JGCM prototype.
Mr Williams produced further revisions, HMA1 V2 and HMA1 V3,[4] in December 2008 and February 2009 respectively. Those versions made modifications to the mounting points, the shape and length of the legs for the hammer springs, and the design of the automatic firing lever (AFL) spring.[5]
[4]For convenience the various versions are referred to as V1 for version 1, etc.
[5]Reasons at [29].
In May 2009, Thales and the DMO representatives met for a ‘checklist’ meeting in advance of a Critical Design Review (CDR) which was a required step before the DMO would accept a new or modified component.[6] The DMO representatives had three concerns about HMA1 V3, namely:
“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 [sic] design specifications; and the Joule Gain design changes likely to effect the operation of the weapon and put interoperability development work at risk?”[7]
[6]The likelihood is that the CDR was a necessary approval in the same way that a standard labelled NATO AC/225 was required by the Madritsch solution.
[7]Reasons at [34] which rely on the minutes of that meeting.
The result was that Thales was to review those aspects of the design. There was some further testing and then, on 16 July 2009, Thales gave a CDR presentation to the DMO. The HMA1 V3 did not pass the CDR. Among other issues the DMO was concerned that the issue of the AFL not sitting squarely had not been addressed.[8] Thus, the HMA1 project stalled. At about this time, in Europe, the Madritsch Solution received a green light to be manufactured.
[8]Reasons at [43].
On 14 October 2009, Mr Eyles was appointed the engineering manager for the Thales production and design group at Thales’ Lithgow factory and took on the responsibility for the HMA1 project. On 29 October 2009, Mr Eyles prepared and reviewed a position paper on the project. A week later, he reviewed a technical ‘desktop’ review of the project. Both of those reviews suggested that the technique of the operator of the weapon played a role in the Bolt Unlocking Problem. Subsequently, in November 2009, live fire testing demonstrated that Mr Eyles’ theory that the Bolt Unlocking Problem was related to operator issues was incorrect.
At this point, Thales was considering various design options, with a preference for the JGCM, but it was not viewed as a complete solution. In November 2009, Mr Williams, whilst supervised by Mr Eyles, created HMA1 V4 and HMA1 V5. However, the primary judge found that by the end of 2009:
(a)Thales had stopped all testing of the HMA1 versions;
(b)concerns remained about the reliability and performance of the HMA1 design; and
(c)no HMA1 version had yet passed CDR or was suitable for mass production.
And so, at the end of 2009, the HMA1 project had stalled. As Mr Evenden of Thales said: “[The project] had stopped [in 2009] when we had diverted resources to other design aspects of the weapon, but at that time Thales did not have anyone to do that work.”[9] The test outcomes of the HMA1 versions were inconsistent and unreliable. As a result, testing was ceased and, with some limited exceptions, Thales applied no further staff or resources to the project.[10]
[9]See Witness Statement of Graham Evenden at [18].
[10]The exceptions are the three tests explained by the primary judge in his Honour’s reasons at [63]-[71].
The HMA1 project remained stalled throughout 2010 and 2011, although some limited testing was carried out between December 2010 and March 2011. Thales’ work on the HMA1 project did not resume until February 2012.[11] In the meantime, Madritsch had proceeded to the manufacturing of the Madritsch Solution.
[11]Reasons at [71].
In January 2011, during the period that the HMA1 project was stalled, DMO’s Major Johns recommended that Madritsch’s Australian agents, the second respondent Nioa Nominees Pty Ltd (Nioa),[12] approach Thales and make a proposal to supply the Madritsch Solution to Thales for retrofitting on ADF’s Austeyr rifles.
[12]For convenience, where it is necessary to refer to Nioa separately, the abbreviation ‘Nioa’ will be used. Where reference is being made to both respondents the abbreviation ‘Madritsch/Nioa’ will be used.
Naturally enough, Thales was concerned to satisfy itself that the Madritsch Solution solved the Bolt Unlocking Problem. For its part, Madritsch was reluctant to supply details of the Madritsch Solution to Thales without a confidentiality agreement. The first of two non-disclosure agreements (NDAs) were signed on 8 June 2011, prior to Thales’ representative visiting Austria between 13 and 15 June 2011.
As a result of that visit the Thales representative confirmed to Nioa that the Madritsch Solution “appeared to be validated”.[13] He said:
“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.”
[13]Reasons at [107].
The short brief was relatively rudimentary. It spoke of two concepts that Thales had ‘developed to a degree’. The first was the concept of re-shaping the AFL to resist the rearward movement caused by the GLA recoil. This work was not part of the HMA1 project and was described as a ‘late throw-in’ by one of the engineers. There was no testing that demonstrated that a practical implementation of that concept would be effective to solve the Bolt Unlocking Problem. The second was the HMA1 project which aimed to reduce the resistance of the forward movement of the gun lock group by confining the hammer springs to operating on the hammer and to add a separate AFL spring that was ‘lower in force rating’, thereby 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 HMA1 V3 and calculated the average force as 28.39N. He had measured the same force in V5 and calculated the average to be between 26.30N and 29.49N. By contrast, in late 2009, the development of the Madritsch design had reduced the vertical force exerted by the AFL to a range of about 8 to 10N – significantly below the equivalent measurements in the HMA1 models.
And so, by the time the parties entered into the second non-disclosure/confidentiality agreement in August 2011, Madritsch had fully developed and was manufacturing the Madritsch Solution. On the other hand, whilst Mr Eyles’ evidence was that the only hurdle to be overcome was the industrialisation of the HMA1 concept,[14] the evidence accepted by the primary judge was that Thales’ development of the HMA1 concept had stalled. For that reason, Thales pursued an arrangement with Madritsch/Nioa for access to and commercialisation of the Madritsch Solution. Thus, rather than developing its own solution to the Bolt Unlocking Problem, Thales sought to obtain the Madritsch Solution via a licensing arrangement.
[14]Reasons at [118].
The general purpose of the second non-disclosure/confidentiality agreement was “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”.[15] In early September 2011, pursuant to the second non-disclosure/confidentiality agreement, Madritsch/Nioa disclosed the manual for the Madritsch Solution and delivered six Madritsch Solution kits to Thales.
[15]Reasons at [127].
Thales inspected the Madritsch Solution manual and kits. In that way, the primary judge concluded that Thales’s representatives, Mr Eyles and Mr Basladynski, came to know of two specific features of the Madritsch Solution, being the significantly lower torque exerted by the AFL spring and the double torsion spring. For convenience, those two features will be referred to as the “Two Features”.
On 29 September 2011, Thales commenced testing the Madritsch Solution kits. The kits were fitted to several delinquent Austeyr rifles which had been specifically identified as consistently suffering from the Bolt Unlocking Problem. When the same rifles were tested with the Madritsch Solution kits fitted, none of the weapons experienced the Bolt Unlocking Problem. In all cases, the Madritsch Solution proved to alleviate the problem.[16] Mr Basladynski concluded that the Madritsch Solution “overcame” the Bolt Unlocking Problem.[17] Thus, the Madritsch Solution passed Thales’ testing with flying colours.
[16]Reasons at [170].
[17]Reasons at [152].
Thales then pursued the licensing of the Madritsch Solution. On 17 November 2011, Mr Fulford-Talbot of Thales told Mr Whitty of Nioa that Thales had a “target date” of 18 January 2012 to “have an agreement established” for the Madritsch Solution.[18]
[18]Reasons at [158].
On 19 December 2011, Mr Whitty (from Nioa) sent to Mr Evenden (from Thales) a draft of a technology sub-licence agreement between Nioa and Thales on the assumption that Madritsch would grant Nioa a head licence with a right to sub-licence.[19] The technology the subject of the proposed sub-licence comprised the five constituent parts of the Madritsch Solution kit and three special kit tools. In an email to Madritsch and Nioa, Mr Whitty predicted that Thales would probably “choke” on the price being asked by Nioa as Madritsch’s licensed agent. That proved to be an accurate prediction.
[19]Nioa and Madritsch did execute a head licence two days later, on 21 December 2011: Reasons at [166].
Internally, a representative of Thales labelled Nioa’s draft agreement as ‘farcical’ and expressed concern that, if Thales rejected the draft agreement, then Nioa would approach ADF with the solution, and Thales would be excluded.[20] Thales apparently decided not to respond to Nioa until the new year. Even in the new year the terms of the draft agreement were described within Thales as ‘not acceptable’.[21]
[20]Reasons at [161]-[163].
[21]This was the finding the primary judge made at [168] of the reasons, based on Mr Eyles’ account of the conversation with Mr Evenden.
On 9 January 2012, within Thales, there was renewed interest in Thales developing its own solution. On that day, Mr Evenden sent Mr Eyles a message which asked three questions:
“Can you develop a solution instead of the Madritsch one for HMA in L125 timescales and budget?
[C]an we speak briefly?
Now?”
Mr Evenden does not have a recollection of the conversation that occurred subsequent to that message, but he does recall that he was about to make a decision to recommence Thales’ development of a solution to the Bolt Unlocking Problem. His evidence was that he needed Mr Eyles’ advice on whether the solution could be developed within the time available and the budget.[22] Mr Eyles also did not have a specific recollection of the conversation that occurred after the message quoted above. However, Mr Eyles subsequently developed a plan for the steps that needed to be taken by Thales to finalise the HMA1 design and industrialise it.[23]
[22]See Witness Statement of Graham Evenden at [56].
[23]See First Witness Statement of Michael Eyles at [10.2].

On 20 February 2012, Thales made the decision to revert back to pursuing the HMA1 project.[24] That work was now pursued by Mr Colin Steele under the supervision of Mr Eyles. Mr Steele had access to the prior work of Mr Williams, including the drawings and assembled test models of HMA1 V5.[25] And so, having ‘choked’ on the price requested by Madritsch/Nioa, Thales then proceeded to resume development of its shelved HMA1 project.[26]
[24]Reasons at [178].
[25]Reasons at [188].
[26]NIOA/Madritsch predicted that Thales may “choke” on the price being sought by NIOA/Madritsch: Reasons at [161].
By 19 and 20 April 2012, Mr Basladynski and Mr Steele were able to conduct small scale testing of a HMA1 V6 mechanism. On 9 May 2012, Mr Eyles told Mr Higgins, another Thales representative, that HMA1 V6 would become the ‘new baseline’ for the L125-3C model of the Austeyr.
By May 2012, Thales had developed HMA1 V6.[27] That version includes the Two Features referred to above.[28] The Two Features were not present in the previous HMA1 versions (or in the previous JGCM prototype).
[27]Reasons at [239]. Note that this version did not pass any design review or certificate process.
[28]See paragraph [23] above.
Then, between 11 and 13 June 2012, Thales displayed an Austeyr, fitted with the HMA1 V6 hammer group assembly, at its trade stand in Paris at the Eurosatory International Defence and Security Trade Show. Mr Madritsch and Mr Frohnwieser of Madritsch attended the show, where they saw the Austeyr fitted with HMA1 V6 at the Thales display. A Thales representative at the show disassembled the rifle in their presence. As a result, Mr Madritsch and Mr Frohnwieser became concerned that Thales had incorporated the Madritsch Solution into the Austeyr’s hammer mechanism contrary to the confidentiality agreements.[29] Subsequently, they sought a meeting with Thales’ representatives.
[29]Reasons at [245].
This meeting occurred on 13 June 2011, during the course of the Paris show. Mr Evenden told Mr Nioa and Mr Madritsch that, for some time, Thales had been developing its own ‘modified hammer pack’ as a solution to the Bolt Unlocking Problem. Mr Evenden said the solution to the problem would always be the same.[30]
[30]Reasons at [255].
Incidentally, at the time of the Paris trade show, Thales had not returned the six Madritsch kits it had received ten months earlier in September 2011. Thales did not return them for another four months – that is until October 2012.[31]
[31]Reasons at [247].
Madritsch’s concerns about HMA1 V6 ultimately led to it, and Nioa, commencing these proceedings in 2017. The primary judge found that Thales misused the confidential information regarding the Madritsch Solution contrary to Thales’ obligations in the non-disclosure/confidentiality agreements and contrary to Thales’ equitable duty of confidence. His Honour also found that Thales engaged in misleading or deceptive conduct within the meaning of s 18 of the Australian Consumer Law (ACL).

PART B: PRINCIPLES OF MISUSE OF CONFIDENTIAL INFORMATION

Before analysing the primary judge’s reasons and the grounds of appeal, it is useful to state some relevant legal principles on the misuse of confidential information.
First, the three elements of the cause of action for breach of confidence are:
(a)The information must have the necessary quality of confidence about it;
(b)The information must have been imparted (by the plaintiff to the defendant) in circumstances importing an obligation of confidence (or pursuant to a contract to the same effect); and
(c)There must be an unauthorised use of that information to the detriment of the plaintiff.[32]
[32]These are the elements explained by Megarry J in Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587. Note that it is unclear whether detriment is an essential part of the action: see, for example, the discussion in Bently and Sherman, Intellectual Property Law 2nd edition at 1035 [2.2.3].
Second, as to proof of the third element, misuse, confidential information can be misused by the unauthorised disclosure of that information or by some other misuse of the confidential information. A misuse might occur where the defendant uses the plaintiff's design in the manufacture of their tools,[33] or it may even occur where the defendant used the plaintiff’s secret process but did so without including one essential element of that process.[34] The use of a material part of the information can establish a breach of confidence.[35]
[33]Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413.
[34]Amber Size & Chemical Co Ltd v Menzel [1913] 2 Ch 239.
[35]See the discussion of this topic in Laws of Australia (Westlaw Au) at [23.6.260]. The authors of the ‘Confidential Information’ section of this text are Professor Sam Ricketson, Professor Andrew F Christie, and Dr Ben McEniery. Professor Ricketson is the author of the seminal text, The Law of Intellectual Property: Copyright, Designs and Confidential Information which later became the four-volume loose-leaf service of the same name (by Ricketson and Cresswell).
Third, the misuse of confidential information can be inferred.[36] In some cases a plaintiff may be able to show, by direct evidence, that the information used by the defendant is derived from the confidential information. An example may be where an employee of the defendant has observed the copying and use of the plaintiff’s confidential information.[37] As a matter of practicality, though, those cases where there is direct evidence of misuse are likely to be rare. Thus, a plaintiff may establish a misuse of confidential information by means of indirect or circumstantial evidence.[38]
[36]Ibid at [23.6.270]. See also the examples which follow.
[37]Bently and Sherman, Intellectual Property Law 2^nd edition at 1035 [2.2.1].
[38]Ibid.
Fourth, the types of indirect or circumstantial evidence that enable the court to infer a misuse of confidential information are not confined. However, examples of evidence which has enabled courts to infer misuse are as follows:
(a)Misuse may be inferred because of an ‘identity of characteristics’ between the plaintiff's products and the defendant's products;[39] for example, the plaintiff may be able to prove the misuse indirectly by demonstrating the existence of some ‘significant fingerprint’ because the defendant’s product has particular dimensions, a design, a composition or behaviour which is only to be found in the plaintiff’s product and which is consistent with the use of the information and inconsistent with use of non-contaminated sources;[40]
(b)Misuse may be inferred because of the confidant's conduct after receiving the information; an example is Surveys & Mining Ltd v Morrison[41] where the defendant applied for mineral licences soon after receiving confidential geological information;[42]
(c)Misuse may be inferred because the defendant has gone to all the same suppliers and customers as the plaintiff and that it would be highly unlikely that the same group would have been approached had the defendant been working from uncontaminated sources;[43]
(d)A plaintiff may be able to persuade the court that the defendant could not have got to the position they have, with the speed they have, had the defendant simply started from legitimate sources and worked everything out for himself – in other words the defendant’s speedy progress suggests misuse of confidential information;[44]
(e)The sequence and temporal proximity of events may provide more than a reasonable basis to definitively conclude that there was a disclosure of the confidential information, and the inference may be further supported by the lack of explanation accompanying the appearance of the confidential information in the plaintiff’s product or work;[45] and
(f)Logically, the inference may be drawn where there is a combination of the above factors.
[39]This is the description in Laws of Australia at [23.6.270] but the authorities cited there do not directly support the proposition. Instead, the proposition is supported by CMI-Centers for Medical Innovation GmbH v Phytopharm plc [1999] FSR 235 at [60]. See also Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587 at 595.
[40]CMI-Centers for Medical Innovation GmbH v Phytopharm plc [1999] FSR 235 at [60]. See also Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587 at 595 where Megarry J, on an application for an interlocutory injunction, described the plaintiff as founding his case on what during the argument was described as a “complex of confidential similarities” between the two engines. That case can be contrasted with Berkeley Administration v McClelland Inc [1990] FSR 505 where the court was not satisfied that the defendants, former employees of the plaintiff, in preparing their own business plan, had used five specific items of confidential information derived from financial projections in the plaintiff’s business plan. Wright J was not satisfied that the former employee’s figures were so similar that they must have been derived from the plaintiff’s figures.
[41][1969] Qd R 470.
[42]Laws of Australia at [23.6.260].
[43]CMI-Centers for Medical Innovation GmbH v Phytopharm plc [1999] FSR 235 at [60]. See also Bently and Sherman, Intellectual Property Law 2nd edition at 1035 [2.2.1].
[44]CMI-Centers for Medical Innovation GmbH v Phytopharm plc [1999] FSR 235 at [60].
[45]Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Ltd (2008) 78 IPR 262 at [82].
Fifth, the inference may be avoided if the defendant can demonstrate that the information was developed by its own efforts, or acquired independently, or acquired by reverse engineering of products placed on the market by the plaintiff or by a third party.[46] However, those arguments may be difficult to sustain if the offending conduct occurs soon after the information has been received in confidence. In Talbot v General Television Corporation Pty Ltd,[47] for example, the plaintiff claimed that the defendant, a television network, made use of his concept in an episode of its television program, A Current Affair, without, as he intended when he disclosed the concept, including him in the project. The defendant's employees argued that they had independently arrived at their own idea for a television program about millionaires. That argument failed. Harris J found that the similarity between the plaintiff's concept and the defendant's television program supported the inference that, once the concept had been disclosed, the defendant had made subconscious use of the plaintiff's concept.[48]
[46]Ibid.
[47][1980] VR 224.
[48]This summary is based on the work (described above) Laws of Australia at [23.6.260].
Sixth, as Madritsch/Nioa submitted to the primary judge,[49] the so-called ‘springboard doctrine’ prevents a person using another’s confidential information in order to bring out its own product in a manner or time it would not otherwise have been able to achieve.[50] If a person wishes to design a product without it being alleged that the person has used confidential information, he or she must proceed through an independent design sequence and not use the confidential information as a springboard to jump through the sequence.[51] And, therefore, a recipient of confidential information or trade secrets should not be allowed to use it as a springboard into a better position than would have been achieved from the use of publicly available information and the recipient’s own independent skill and ingenuity.[52]
[49]Plaintiff’s Closing Submissions at [130].
[50]RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125 at [70] (Ryan J).
[51]Dart Industries Inc v David Bryar & Associates Pty Ltd (1997) 38 IPR 389 at 408–9 (Goldberg J). In this context, the concept of a ‘jump through’ the sequence really means that rather than using its own independent design sequence, the defendant is gaining an unfair advantage by using the confidential information.
[52](2011) 280 ALR 125 at [73] (Ryan J).
Seventh, as explained by Ryan J in RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd, the absence of a logical explanation for doing something can support an inference that confidential information was used as a springboard.[53]
[53](2011) 280 ALR 125 at [70] (Ryan J).

That last principle should not be taken too far. An inference of misuse of confidential information must still be established by means of indirect or circumstantial evidence. In RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd, for example, there was evidence that the respondents, three former employees of RLA, made improper use of their knowledge of RLA’s confidential information concerning the formulations for two flooring adhesives developed and manufactured by RLA. The former employees were found to have used the confidential information as a ‘springboard’ to develop and bring to the market adhesive products for their newly established company, and to have done so more quickly than they otherwise would have.
Eighth, much depends on the respective fields of the parties. In those cases where there is no closely substitutable field of common activity, the use of another’s confidential information may be more readily identifiable whether in the form of designs or drawings, manuals, or a description of a methodology for a manufacturing process or business method. On the other hand, where the parties are involved in closely substitutable fields of common endeavour, an inference of misuse will not arise unless there is a precise identification of the information, its confidential character, and its misuse.[54]
[54]Retractable Technologies Inc v Occupational and Medical Innovations Limited (2007) 72 IPR 58 at [104] (Greenwood J).
Ninth, the plaintiff need not establish that the defendant or its employees intentionally, or even consciously, used the confidential knowledge they gained as a springboard. The subjective intentions of the defendant and its employees are irrelevant to whether or not the confidential information was used.[55]
[55]See Seager v Copydex Ltd [1967] 2 All ER 415; RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125 at [77]; Talbot v General Television Corporation Pty Ltd [1980] VR 224 at 238-9 (Harris J) and upheld on appeal at 242.
Tenth, none of the principles just discussed alters the legal burden of proof. In a proceeding for breach of confidence the burden of proving, on the balance of probabilities, each of the three elements of the cause of action remains with the plaintiff throughout.[56]
[56]See, for example, Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 at 951 (a civil case where the question was whether it could be inferred that the loss of the vessel had been caused by ‘the perils of seas’).
With those principles in mind, it is necessary to examine and summarise the primary judge’s reasons for finding that Thales did misuse the confidential information disclosed to it by Madritsch/Nioa.
PART C: PRIMARY JUDGE’S REASONS
Introduction
The legal principles were set out in the parties’ submissions and the trial was conducted on a footing that was consistent with those legal principles. On the one hand, Madritsch/Nioa sought to establish, by certain categories of evidence,[57] that the court should infer that Thales misused the Madritsch Solution as a springboard to advance the development of its own solution to the problem.[58] On the other hand, Thales sought to demonstrate that:
(a)The factual basis for the drawing of the inference was insufficient;[59] and
(b)HMA1 V6 was the result of the efforts of its employee, Mr Steele.
[57]In its closing submissions Madritsch/Nioa contended that there was an irresistible inference that Thales had used the confidential information in the Madritsch Solution because of the Two Specific Features, the timing and speed at which the change was made, the rebuffing of Nioa, and the contemporaneous correspondence: Plaintiff’s Closing Submissions at [104]. The categories of evidence which the primary judge found as supporting the inference are discussed below.
[58]See, for example, the Plaintiff’s Opening Submissions at [5].
[59]See, for example, the Defendant’s Outline of Opening Submissions at [83] and the defendant’s Closing Submissions at [1(a)(iii)], [5] & [7].
His Honour’s reasons for his factual finding that Thales misused Madritsch’s confidential information can be classified into these findings which are derived from the legal principles set out above:
(a)There was an ‘identity of characteristics’ between the Madritsch Solution and HMA1 V6;
(b)Thales' conduct before and after receiving the confidential information was a circumstance from which it could be inferred that Thales used the confidential information (in a similar temporal sense as occurred in Surveys & Mining Ltd v Morrison[60]); and

(c)Thales was unable to demonstrate that the HMA1 V6 was developed by means of its own independent skill and ingenuity and to thereby avoid the drawing of the inference.

[60][1969] Qd R 470.

Identity of Characteristics/Before & After Conduct

The primary judge’s findings about the Two Features can be summarised in this way. In the 14 months between October 2008 and December 2009, Mr Williams of Thales had drawn five versions of the HMA1 (versions 1 to 5) and had assembled three versions in physical form (V1, V3 and V5).[61] In each instance the objective was to address the manufacturing issues concerning the making, assembly, and maintenance of the mechanism. All versions aimed to reproduce the 26.45N disengagement force of the AFL in the JGCM prototype. Each used a single torsion spring, as the JGCM had done.[62]
[61]Reasons at [60].
[62]Reasons at [60].
It is necessary to focus, for the moment, on the first of the Two Features, the lower torque feature. His Honour found that, at the point when the HMA1 project was stalled in December 2009,[63] Thales had not tested or assessed the trigger force exerted by the AFL. That contrasts with Madritsch which had conducted a series of tests to measure the trigger force exerted by the AFL in the standard Steyr AUG. Those forces were found to be about 40N. Using what appears to be a process of elimination, Madritsch then tested and measured the results of springs that caused the AFL to exert trigger forces greater than 40N, and less than 40N. Madritsch then tested various trigger forces resulting in a reduction of the trigger force to a range of approximately 8 to 10N.[64] Testing in that range established that the solution was consistently effective to solve the Bolt Unlocking Problem.
[63]Further, as explained in paragraph [12] above, as recently as October 2009 Thales had the mistaken view that the technique of the operator of the weapon played a role in the Bolt Unlocking Problem.
[64]Reasons at [78] to [83].
There is no evidence of any such methodical approach to the trigger forces by Thales. Instead, the primary judge found that, in June 2011, Thales was not aware that any further significant force reduction might be required. Thales pursued a force of 26.45N force, which was about three times higher than the force in the Madritsch Solution.[65] Then, in September 2011, the Madritsch Solution kits and manuals were supplied to Thales. When the kits arrived, Mr Basladynski and Mr Eyles of Thales spent some time examining them. The primary judge found that, in examining and handling the Madritsch Solution kits, it is more likely than not that Mr Eyles and Mr Basladynski identified that the torque exerted by the AFL spring in the Madritsch Solution was significantly lower than that exerted by the AFL spring in the JGCM model and in HMA1 V3 and V5.
[65]Reasons at [119].

The primary judge also found that it was similarly likely that both Thales employees noticed the Madritsch AFL spring was a double torsion spring, being the second of the Two Features.[66] As explained, up to that point, Thales had used single torsion springs.
[66]Reasons at [148].
Thus, the Two Features appeared in HMA1 V6 when they had not appeared in its predecessors. There was no sign of those features in Thales’s work before Thales’ representatives saw the Madritsch Solution. Only when Thales had seen and successfully tested the Madritsch Solution, and then had failed to come to terms with Madritsch/Nioa, did Thales reactivate the HMA1 project – and incorporated the Two Features of the Madritsch Solution.
There is an additional factor that his Honour considered. His Honour noted that Madritsch’s development of the Madritsch Solution over a 12-month period involved live fire testing, the use of a high-speed camera, analysis and measurement of data (including different trigger forces), manufacturing, testing, and certification. That contrasted with Thales’ interrupted development of the HMA1 versions which involved a number of performance issues up to late 2009 and early 2010, and then little or no progress. That was followed by quick progress from February 2012 once the Madritsch Solution had been inspected. That quick progress did not involve any methodical approach to the trigger forces by Thales or any design review or certification.[67]
[67]The HMA1 versions had previously stalled because of their failure to pass design reviews.

The primary judge accepted the expert evidence of Mr Wachsberger that, whilst it was possible that an experienced design team could have arrived at a solution to the Bolt Unlocking Problem within a relatively short period of time, that was unlikely here because:
(a)Mr Steele did not comprise an experienced design team; and
(b)There was no logical explanation for Thales to have more than halved the AFL spring force from HMA1 V3 and V5 to HMA1 V6.[68]
[68]Mr Wachsberger calculated the average disengagement forces measured by Mr Steele for the HMA1 V3, V5 and V6 were 43.2N, 42.5N & 15.0N respectively: see reasons at [211].
Thus, the speed of Thales’ progress, after it had inspected the Madritsch Solution and rejected a licencing arrangement with Madritsch/Nioa, was a circumstance that supported an inference that Thales misused Madritsch/Nioa’s confidential information.
Avoiding the Inference: Were the Two Features the product of Thales’ own efforts?
The next issue was whether Thales could avoid the drawing of the inference by demonstrating that the information was developed by its own efforts. His Honour examined Thales’ work on the HMA1 project after the project was reactivated in February 2012. In essence, the primary judge was not persuaded that the Two Features found their way into HMA1 V6 by reason of the efforts of Mr Steele of Thales.
The Madritsch Solution, when it arrived, was inspected by Mr Eyles and Mr Basladynski of Thales. There is no evidence that it was Mr Basladynski who communicated the Two Features to Mr Steele, the Thales representative who was designing HMA1 V6. Instead, the primary judge’s view was that it was likely that it was Mr Eyles who communicated the Two Features to Mr Steele in the course of Mr Eyles’ supervision of Mr Steele’s work on the HMA1 project.
From his very first drawing of HMA1 V6 in late February 2012, Mr Steele set out to significantly reduce the disengagement force exerted by the AFL on the gun lock group compared with the equivalent disengagement force in HMA1 V3 and V5.[69] Mr Steele’s reasons for significantly reducing the disengagement force were not explicable by reason of any specific testing or experimentation. Importantly though, his testimony was that Mr Eyles told him that the HMA1 model “still needs fixing” and Mr Eyles told him that “the forces were… still too high”.[70] The cross-examination of Mr Steele established that:
(a)Mr Eyles and Mr Steele discussed “the forces being too high”; and
(b)Mr Eyles was involved in the decision to reduce the force of the AFL spring.[71]
[69]This was established by expert evidence. See reasons at [212].
[70]Reasons at [213] and [216].
[71]Reasons at [217].
The primary judge accepted Mr Steele’s evidence on this issue. It was important evidence for two reasons. One of the reasons was noted by the primary judge and one was not. The reason noted by the primary judge was that Thales did not significantly reduce the disengagement force exerted by the AFL by reason of its own experimentation or testing, or by the extended ‘trial and error’ method adopted by Madritsch, or by using Thales’ independent skill and ingenuity. Instead, the evidence was that, during his supervision, Mr Eyles instructed Mr Steele that the disengagement forces needed to be reduced. The reason that was not noted by the primary judge was that, assuming Mr Eyles did instruct Mr Steele to reduce the force, there is no explanation for such an instruction. Mr Eyles was not personally engaged in testing or experimentation. No other employee was engaged in testing or experimentation. The inference is that either consciously or subconsciously Mr Eyles was aware that the forces should be reduced because of his knowledge of the Madritsch Solution.
At trial, there was also a contest about how Thales came to adopt the second of the Two Features, the double torsion spring. Mr Eyles gave Mr Steele access to a text “Encyclopedia of Spring Design” by the Spring Manufacturers Institute. He recommended that Mr Steele use that encyclopedia to help with his work on the HMA1 Project. However, Mr Eyles denied using the encyclopedia to point out a double torsion spring to Mr Steele.
Mr Steele sought to explain that the change to a double torsion spring came about as a result of his own efforts. He said he was inspired by clothes pegs while hanging out washing at a rented house. It was shown that he could not have stayed in that house until some months after he drew the double torsion AFL spring. Even if the inspiration had occurred at an earlier point in time, and at a different residence, the primary judge doubted the explanation because:
(a)His Honour found that Mr Steele was unlikely to have been inspired by a common clothes peg, which has a single torsion spring, not a double torsion spring; and
(b)His Honour took an adverse view of Mr Steele’s credibility, concluding that “his revised recollection is more likely reconstructed to defend or reinforce his initial erroneous recollection, and not an actual memory of something that occurred.”[72]
[72]Reasons at [195].
Thus, Thales sought to demonstrate that the double torsion spring, that had appeared for the first time in its HMA1 V6, was developed by means of its own efforts and to thereby avoid the drawing of the inference. The primary judge rejected that explanation.
It is significant that Mr Evenden expressed some concern as to whether the HMA1 solution would work. Mr Eyles replied saying he was confident that the HMA1 solution would work “the same as Madritsch”.[73] That confidence seemed to win the day, because there is no evidence that HMA1 V6 was subjected to a CDR, as had been the case with HMA1 V3. On 19 and 29 April 2012, Mr Basladynski conducted a small-scale test of the Austeyr fitted with HMA1 V6, but the results of the testing are not included in a draft report that was prepared subsequently.[74] Instead, on 9 May 2012, Mr Eyles decided that the HMA1 V6 would become the “new baseline” for the L125-3C model of the Austeyr. He was queried as to what design reviews had been conducted. He answered that he and Mr Steele had conducted design reviews. In cross-examination, Mr Eyles agreed that a formal design review was expected but that there had been no formal design reviews.[75]
[73]Reasons at [232].
[74]Reasons at [238].
[75]Reasons at [239]-[240].
Thus, the primary judge found that Thales had failed to demonstrate that the HMA1 V6 was developed by means of its own efforts, and to thereby avoid the drawing of the inference.
The Ultimate Findings and Orders
For those reasons, namely the ‘identity of characteristics’, the quick progress of HMA1 V6, and Thales’ inability to demonstrate that HMA1 V6 was the result of its own ingenuity, the primary judge found that Thales had breached its duty of confidence and that Thales was accountable for any profits it acquired by its misuse of the confidential information.[76]
[76]Reasons at [408].
The primary judge also found that Thales’ use of the Madritsch Solution comprised a breach of:
(a)clause 2(b)(iii) of the NDA to the effect that the Madritsch Solution not be used for any purpose other than the discussions between the parties; and
(b)clause 12(b) of the NDA to the effect that Thales was obliged to notify Madritsch/Nioa immediately upon becoming aware that the Madritsch Solution was used for the purposes other than the discussions between the parties.[77]
[77]Five breaches of the NDA were alleged. Three were not proved. The primary judge also rejected three specific defences to the allegations of NDA breaches. An allegation of breach of a ‘side agreement’ failed.
A third cause of action succeeded. Thales was held to have misled Madritsch/Nioa into believing that Thales had a continuing intention to negotiate and enter into an agreement with Madritsch/Nioa. Holding that belief Madritsch/Nioa held off making any approach to the Commonwealth.[78]
[78]Reasons at [438].
The primary judge made declarations that Thales breached the NDA, and breached the equitable duty of confidence, and contravened s 18 of the ACL. As will be discussed below, the hearing before the primary judge was limited to liability issues only. Damages are to be considered at a later hearing.
PART D: THE FIRST GROUNDS OF APPEAL: AN ERROR IN APPROACH?

In its submissions, under the heading “The misuse allegations”, Thales has grouped together 7 of the 11 grounds of appeal.[79] The focus of these grounds of appeal is what Thales contends was an error in the approach taken by the primary judge.
[79]Grounds (a)-(c), (e), and (g)-(i) are discussed together at [18] to [55] of Thales’s submissions.
Blatch v Archer
At the core of these grounds of appeal is the following passage from the judgment of Dixon CJ in Hampton Court Ltd v Crooks:[80]
“But a plaintiff [in a negligence case] is not relieved of the necessity of offering some evidence of negligence by the fact that the material circumstances are peculiarly within the knowledge of the defendant; all that it means is that slight evidence may be enough unless explained away by the defendant and that the evidence should be weighed according to the power of the party to produce it, in accordance with the often repeated observation of Lord Mansfield in Blatch v Archer...”[81]
[80](1957) 97 CLR 367 at 371.
[81](1774) 1 Cowp 63 at 65; 95 ER 969 at 970.
The ‘often repeated observation’ of Lord Mansfield was:
“It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.”[82]
[82](1774) 1 Cowp 63 at 65; 95 ER 969 at 970.
As the words of the maxim make clear, the maxim is concerned with the court’s assessment of the weight to be attached to evidence. Thus, adopting the language of the High Court in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd,[83] the strength of the evidence necessary to establish a fact in issue on the balance of probabilities will vary according to the nature of what is sought to be proved and the circumstances in which it is sought to be proved.[84] And so the assessment of the weight of evidence may require account to be taken of the capacity of a party to produce the relevant evidence.[85]
[83](1992) 110 ALR 449 at 449-50.
[84]See Weinstein, Anderson, Marychurch & Roy, Uniform Evidence in Australia, 3^rd ed at [140-4]. Similarly, as Dixon J explained in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact; see also Weinstein (supra).
[85]Roth v Roads and Traffic Authority [2007] NSWSC 128 at [109]. See also G v H (1994) 181 CLR 387 at 391.
An Error in Approach?
Thales’ outline of argument focuses on the nature of the circumstantial case mounted against it:
“[18] The respondents' case was entirely circumstantial and required the Court to draw inferences from the available evidence. The primary judge found that Thales misused Madritsch's confidential information by significantly reducing the AFL spring force and by using a double torsion spring. The primary judge's findings of misuse (at [323]-[327]) were based upon inferences drawn, purportedly on the application of the principle in Blatch v Archer, as explained in Hampton Court Ltd v Crooks.
[19]The principle in Blatch v Archer was not available on the evidence and its purported application in this case essentially resulted in a reversal of the respondents' onus of proof.
[20]The principle in Blatch v Archer is only engaged against a party which does not bear the onus if the party which does, first leads some evidence to support the occurrence of the event in question to discharge its burden of proof. To succeed on their case it was necessary for the respondents to establish facts and circumstances raising logical, probable inferences that Thales misused Madritsch's confidential information. The respondents did not do that.
[21]It was not sufficient for the primary judge to undertake a mechanical comparison of probabilities independent of any evidence supporting a belief in their reality.”[86] [footnotes omitted]
[86]Thales’ submissions at [18]-[20].
There are several problems with those contentions.
First, it is certainly true that a case of misuse of confidential information will often necessarily be a circumstantial case.[87] It is also true that in such a case the trial judge may be required to draw inferences. However, in this case, the trial judge’s finding of misuse was not, to use the language of Thales’ submissions, “based upon inferences drawn, purportedly on the application of the principle in Blatch v Archer, as explained in Hampton Court Ltd v Crooks.”[88]
[87]As explained above (Part B), those cases where there is direct evidence of misuse are likely to be rare.
[88]The citations for these two cases are: Blatch v Archer(1774) 1 Cowp 63 at 65; 95 ER 969 at 970 and Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371-372 (Dixon CJ).
As explained above, the trial judge’s approach to this factual issue of misuse was to assess, on the one hand, whether, in the circumstances, it could be inferred that the defendant misused the confidential information and whether, on the other hand, the defendant could avoid the drawing of that inference by establishing that the information was developed by its own efforts. That approach was consistent with the legal principles stated in Part B above.
Thus, as a matter of approach, the primary judge appropriately and conventionally assessed whether, in the circumstances, the inference of misuse could be drawn.
Second, it is inaccurate to portray the primary judge’s finding of misuse as a finding based on inferences drawn by the application of the principle in Blatch v Archer as explained in Hampton Court Ltd v Crooks. After making a number of subsidiary findings of fact, the primary judge arrived at this conclusion in paragraph [326] of his reasons:
“Considering all the evidence, I am satisfied that Thales did not proceed through an independent design sequence to produce the V6. Instead, Thales used the information about the properties of the AFL spring in the Madritsch Solution kits as a springboard to advance V6 without having to undertake the necessary further work itself.” [emphasis added]
That paragraph followed a detailed assessment of the evidence, and then some detailed conclusions on the evidence at paragraphs [293] to [325] of the reasons.
And so, the primary judge made clear that, having considered all the evidence, he was satisfied that Thales had not established that the Two Features in HMA1 V6 were developed by Thales’ own efforts. Then, His Honour continued:
“[327] Weighing the evidence according to the power or ability of a party to produce it,[89] the available credible evidence, which leads to the conclusion that Mr Eyles directed Mr Steele to include specifications for the AFL spring in V6 that would have the effect of significantly reducing the force exerted by the AFL on the gun lock group and inspired Mr Steele’s decision to use a double torsion spring, is sufficient to discharge the plaintiffs’ onus of proof in this respect. This is so notwithstanding the seriousness of the allegations made in the plaintiffs’ case.” [emphasis added]
[89]At this point in the reasons a footnote refers the reader to Hampton Court Ltd v Crooks (1957) 97 CLR 367, 371-372 (Dixon CJ).
The primary judge’s use of that initial phrase “Weighing the evidence according to the power or ability of a party to produce it” merely shows that His Honour has assessed the evidence having regard to the capacity of that party to adduce the evidence.
In this case, of course, Thales had an unimpeded capacity to adduce, and did in fact adduce, a considerable body of evidence which, it contended, showed that HMA1 V6 was the result of the efforts of its own employees. One example is that Thales went into evidence concerning the many aspects of its work on the HMA1 project from February to June 2012.[90] As His Honour recorded, Mr Steele of Thales sought to take responsibility for the lower disengagement force in HMA1 V6 compared with its predecessors.[91] However, that evidence was rather undermined by Mr Steele’s admission that Mr Eyles, Mr Steele’s direct supervisor, spoke to him about the spring forces “still being too high” as well as Mr Steele’s concession that Mr Eyles was involved in the decision to lower the spring force.[92]
[90]This evidence is discussed by the primary judge at paragraphs [173] to [242] of the reasons.
[91]Reasons at [214].
[92]Reasons at [217].
Another example of Thales adducing evidence intended to show that the HMA1 V6 was the result of the efforts of its own employees, was Mr Steele’s evidence that he was responsible for the change from a single to a double torsion spring.[93]
[93]Reasons at [190].
As the primary judge explicitly said, he weighed that evidence. That was an evaluation exercise. His assessment of that evidence acknowledged that it was within Thales’ power to produce that evidence. Thales tendered the evidence it wished to adduce designed to demonstrate that HMA1 V6 was the product of Mr Steele’s labours. Ultimately, the primary judge did not accept significant parts of that evidence.
None of that signifies any reversal of the burden of proof. Rather, paragraph [327] of the reasons explicitly:
(a)recognised the reality that evidence as to how Thales designed HMA1 V6 was exclusively within Thales’ domain;
(b)weighed the evidence bearing in mind that reality;
(c)weighed the evidence having regard to the serious nature of the allegations sought to be proved;
(d)concluded that the strength of the evidence was insufficient to establish that the HMA1 V6 was the product of Mr Steele’s own independent skill and ingenuity;
(e)concluded that it was Mr Eyles’ conduct that had led Mr Steele to incorporate the Two Features into HMA1 V6; and
(f)concluded that the strength of that evidence was sufficient to discharge Madritsch/Nioa’s onus of proving the misuse on the balance of probabilities.

Thus, the primary judge did not reverse the onus of proof. Rather, his Honour explicitly affirmed that it was Madritsch/Nioa that bore the onus of proof.[94] Further, his Honour affirmed that the weighing of the evidence required to discharge that onus, took into account two considerations that pulled in different directions: the seriousness of the allegations, and that it was within Thales’ capacity to adduce evidence to the contrary.
[94]As counsel for Madritsch/Nioa pointed out in oral submissions, no submission was made to the primary judge that Thales bore the onus, and the primary judge did not state that Thales bore the onus.
Third, by the initial phrase in paragraph [327] of the reasons, the primary judge explained that he undertook the weighing process. That was not a weighing process that converted the onus from a burden resting on Madritsch/Nioa as the plaintiffs to an onus to be discharged by Thales as defendant.
The primary judge’s weighing process occurred in circumstances where Thales embarked on a detailed explanation as to how Thales arrived at HMA1 V6, and Madritsch/Nioa contested that evidence. Certainly, this case was not within the category of case referred to in Hampton Court Ltd v Crooks where the plaintiff claimed to be relieved of the necessity of offering any evidence because the material facts were peculiarly within the knowledge of the defendant.[95] Nor was this a case where Thales offered only slight evidence as to its design of HMA1 V6. Thales pursued the task of providing a full explanation as to how HMA1 V6 came into existence. And so, it seems plain that the primary judge acknowledged that particular context when evaluating that evidence.
[95]Hampton Court Ltd v Crooks (1957) 97 CLR 367, 371 (Dixon CJ).
Fourth, it is necessary to examine the primary judge’s reference to the onus of proof in paragraph [327] of his reasons (quoted above). There, His Honour said that the available credible evidence led to two conclusions, namely that:
(a)Mr Eyles directed Mr Steele to, in effect, reduce the force exerted by the AFL; and
(b)Mr Eyles ‘inspired’ Mr Steele’s decision to use a double torsion spring.
The evidence leading to those conclusions was, in the primary judge’s view, “sufficient to discharge the plaintiffs’ onus of proof in this respect.” That is an express acknowledgement by the primary judge that Madritsch/Nioa bore the burden of proving, on the balance of probabilities, that Thales used Madritsch’s confidential information in arriving at HMA1 V6. It is a burden that rested on Madritsch/Nioa at the outset of the trial and remained there throughout the trial.
The next sentence in the primary judge’s reasons, namely: “This is so notwithstanding the seriousness of the allegations made in the plaintiffs’ case”, is a signal that the primary judge arrived at a reasonable satisfaction of the discharge of the onus of proof having regard to the serious nature of what was sought to be proved having regard to the principles in Briginshaw v Briginshaw.[96]
[96](1938) 60 CLR 336.
Thus, paragraph [327] of the reasons is inconsistent with Thales’ submission that the primary judge’s application of the principle in Blatch v Archer resulted in a reversal of the onus of proof. In fact, the passage comprises an acknowledgment by the primary judge that the burden of proving the misuse element of the cause of action, on the balance of probabilities, remained with the plaintiff throughout.
Fifth, it is necessary to directly address paragraph 20 of Thales’ written submissions. That paragraph is as follows:
“[20] The principle in Blatch v Archer is only engaged against a party which does not bear the onus if the party which does, first leads some evidence to support the occurrence of the event in question to discharge its burden of proof. To succeed on their case it was necessary for the respondents to establish facts and circumstances raising logical, probable inferences that Thales misused Madritsch's confidential information. The respondents did not do that.”
The first sentence of that paragraph rather ignores the purpose and the substance of the principle in Blatch v Archer. To speak of the principle as being ‘engaged against a defendant’ portrays the principle as something akin to a presumption that is imposed on a party. The objective of the principle is merely to ensure that all evidence is assessed having regard to the capacity of a party to produce the evidence. If a party has little capacity to adduce evidence, then slight evidence may be sufficient. If a party has an unhindered capacity to adduce evidence on an issue, then it can be expected that what it does adduce will be comprehensive.
The first sentence also appears to assume that there was an absence of evidence. That is not true. Here, as explained above, Madritsch/Nioa did in fact lead evidence as to an ‘identity of characteristics’ between the Madritsch Solution and HMA1 V6, and as to the temporal connection between Thales' conduct before and after receiving the confidential information.[97] The facts and circumstances did raise logical and probable inferences that Thales misused Madritsch's confidential information.[98] That is what the primary judge found.
[97]Thales’ use of the confidential information was likely because of the temporal connection as was discussed in Surveys & Mining Ltd v Morrison [1969] Qd R 470.
[98]The evidence of Mr Steele to the effect that Mr Eyles instructed him to lower the forces was strong evidence in support of the inference.
In any event, the primary judge did not ‘engage’ the principle in Blatch v Archer other than for the legitimate purpose of ‘weighing’ Thales’ evidence. In other words, Thales’ evidence was weighed and assessed through the prism that it was Thales which could be expected to be able to clearly explain how it arrived at HMA1 V6 because of its own efforts and without the use of the confidential information.
Sixth, paragraph 21 of Thales’s written submissions also deserves separate attention. That paragraph is as follows:
“[21] It was not sufficient for the primary judge to undertake a mechanical comparison of probabilities independent of any evidence supporting a belief in their reality.” [emphasis added]
The unstated assumption here, which is also present in the previous paragraph of Thales’ outline of submissions, is that:
(a)Madritsch/Nioa was required to adduce at least some evidence that Thales had used its confidential information; and
(b)Madritsch/Nioa had not done so.
Importantly, as explained above, Madritsch/Nioa did adduce evidence supporting the inference that Thales had misused Madritsch/Nioa’s confidential information, and the primary judge assessed that evidence as well as Thales’ evidence to the effect that the HMA1 V6 was the result of the efforts of Thales employees.
Possibly an underlying, but unstated, assumption in both paragraphs 20 and 21 of Thales’ submissions is a contention that Madritsch/Nioa was required to adduce at least some direct evidence that Thales had used the confidential information. That is inconsistent with the legal principles stated above. A misuse of confidential information can be inferred from circumstantial evidence.
Nor can it be said that the primary judge undertook what Thales’ submissions describe as “a mechanical comparison of probabilities independent of any evidence”. The primary judge determined the one issue of fact, namely whether Thales misused the confidential information, by assessing and balancing the competing evidence and contentions in accordance with the legal principles set out above, that is:
(a)on the one hand, an assessment was made of Madritsch’s contention that the misuse of confidential information can be inferred because of the evidence of an identity of characteristics between the plaintiff's and the defendant's ‘products’, and because of Thales' conduct after receiving the information; and
(b)on the other hand, Thales’ contention that the inference ought not be drawn because the HMA1 V6 was developed by means of its own efforts.
That was an appropriate assessment of the evidence on that issue of fact. His Honour plainly carried out that assessment on the balance of probabilities in accordance with the principles set out above.
Seventh, in oral submissions, Thales went even further than complaining that the primary judge undertook a mechanical comparison of probabilities independent of any evidence. Relying on a passage in Jones v Dunkel,[99] Thales contended that the primary judge needed to go further than merely identifying conflicting inferences of equal probability so that the choice between them was a mere matter of conjecture.[100] For the same reasons, that is an inaccurate characterisation of the primary judge’s reasoning. There is no sign that the primary judge identified conflicting inferences of equal probability, let alone that he made a choice involving conjecture.
[99](1959) 101 CLR 298 at 304-5.
[100]Counsel for Thales also relied on similar statements in Henderson v Queensland (2014) 255 CLR 1 at [88]-[91]; NOM v DPP (2012) 38 VR 618 at [106]-[110]; and Forkserve v Pacchiarotta (2000) 50 IPR 74 at [10].
Eighth, it seems plain that the primary judge’s utilisation of the principle in Blatch v Archer was rather incidental to His Honour’s reasoning. His Honour did not expressly mention Blatch v Archer.[101] Amongst a forest of findings of fact, it was appropriate and somewhat prosaic to acknowledge that the evidence was being ‘weighed’ or assessed according to the power of the party to produce it. It was entirely to be expected that it was within Thales’ capacity to adduce evidence showing how it arrived at HMA1 V6. That said, as the primary judge expressly acknowledged, the legal onus remained on the plaintiff.
[101]His Honour’s only reference to the principle was to: “(W)eighing the evidence according to the power or ability of a party to produce it” a principle which footnoted Hampton Court Ltd v Crooks (1957) 97 CLR 367, 371-372 (Dixon CJ).
It follows that there was no error in the approach of the primary judge. It remains to consider the specific challenges that Thales makes to the findings of the primary judge.
Evidential Gaps?
Paragraphs 22 and 23 of the appellant’s outline are as follows:
“[22] In respect of spring force, the respondents pointed to a perceived lack of a "plausible explanation" by Thales which, they submitted, justified weighing the available evidence in their favour. In respect of the use of a double torsion spring (which was not confidential information), notwithstanding an apparently logical explanation proffered by Thales, the respondents submitted that the coincidence in a change to spring force and the use of a double torsion spring was sufficient to permit an inference of misuse. The primary judge erred in accepting those submissions, impermissibly reversing the onus of proof without the respondents pointing to any evidence adduced by them to demonstrate misuse.
[23]It was not open to the primary judge to fill evidential gaps based upon Thales's failure to provide a plausible explanation as to a reduction in spring force and the coincidental use of a double torsion spring. In a circumstantial breach of confidence case a defendant need not go into evidence, for even "if the defendants' evidence is rejected as unreliable and there is no other evidence, one does not necessarily form the view that the plaintiff was right".”
These paragraphs assume that Madritsch/Nioa did not adduce any evidence to demonstrate misuse.[102] That is not correct. As explained above, Madritsch/Nioa did adduce evidence as circumstances which justified an inference of use of the confidential information. That circumstantial evidence was accepted by the primary judge. And that occurred in a context where both aspects of the case were ‘live’ – Madritsch/Nioa’s contention that misuse could be inferred, and Thales’ contention that the inference could be avoided because of Thales’ evidence that the HMA1 V6 was the product of the efforts of its own employee.
[102]See, for example, the phrase “without the respondents pointing to any evidence adduced by them to demonstrate misuse” at the end of [22]. See also the reference to “evidential gaps” in [23].
Those two paragraphs also assume that the primary judge inferred misuse by reason of the lack of a plausible explanation for the significant reduction in the spring force. That is not a fair reading of the primary judge’s reasons. His Honour found that:
(a)Mr Eyles had access to and spent time examining the Madritsch Solution manual and kit in September 2011;[103]
[103]Reasons at [293].
(b)That inspection meant that both Mr Eyles and Mr Basladynski observed a significant reduction in the force of the AFL spring (as compared with Thales’ HMA1 project);[104]
[104]Reasons at [293].
(c)Having inspected the Madritsch Solution and having ‘choked’ on the price being asked by Madritsch/Nioa, Thales decided to re-activate the HMA1 project. Mr Eyles engaged the services of Mr Steele for that task;
(d)Mr Eyles was Mr Steele’s supervisor with professional responsibility for Mr Steele’s work on the HMA1 project;[105]
[105]Reasons at [295].
(e)Mr Eyles told Mr Steele that something ‘still needs fixing’ in the existing HMA1 V3 and V5 in that the applied force was still too high;[106]
[106]Reasons at [297], [311].
(f)As a result, Mr Steele reduced the force from 44N in HMA1 V3 and V5 to 22N, despite Mr Steele having no detailed understanding of torsion springs;[107]
[107]Reasons at [297], [298].
(g)Mr Eyles accepted that there was nothing in the prior work on the HMA1 project which compelled the changes to the spring force;[108]
[108]Reasons at [301].
(h)There was no indication in Thales’ reports, or in its design work, that better performance might be gained by reducing the spring force;[109]
[109]Reasons at [116].
(i)There was no evidence of any shortcoming or problem with the HMA1 V5, or its predecessors, which was to be resolved by a reduction in the spring force;[110]
[110]Reasons at [120].
(j)The reduction in the force was not the result of the work of Gibbens, the spring manufacturer, and it was not the result of the alteration from a single to a double torsion spring;[111]
[111]Reasons at [303], [304].
(k)In the five working days between 22 and 28 February 2012, Mr Steele redesigned the AFL spring with significantly lower torque, and resolved the issue of the AFL not sitting squarely by amending the design to use a double torsion spring – a problem that had not been solved by Thales in the previous 34 months;[112]
[112]Reasons at [305].
(l)There was a further significant reduction, probably greater than 65%, in the spring force as a result of changes Mr Steele made to the specifications for the AFL spring between 28 February and 13 March 2012;[113]
[113]Reasons at [306].
(m)The significant changes, occurring in such a short period of time, are surprising given Mr Steele’s lack of relevant engineering experience and expertise, his only modest time spent on the project during the relevant period, and Thales’ apparent lack of time or budget for the project;[114]
[114]Reasons at [307], [308].
(n)Mr Steele’s role, training and level of responsibility made it unlikely that Mr Steele, on his own initiative set out to significantly reduce the spring force – all of which made it more likely than not that the significant reduction in the spring force originated with Mr Eyles;[115]
[115]Reasons at [309]. Note also that Mr Steele acknowledged that his role was not specifically to design. His role was to take the designs of the engineers and ‘productionise them’: Reasons at [217].
(o)The cross-examination of Mr Steele demonstrated that:
(i)Mr Steele was told that “they (presumably Mr Eyles) thought the forces were…still too high”;
(ii)Mr Steele recalled talking to Mr Eyles about the forces being still too high; and
(iii)Mr Eyles was involved in the decision to reduce the spring force in HMA1 V6;[116]
(p)Thales did not develop HMA1 V6 through an iterative process of design and testing as Madritsch had, and Thales did not test and prove their device in any comparable manner – either prior to or after the disclosure of the Madritsch Solution in September 2011;[117]
(q)Thales did not perform any formal design review for HMA1 V6;[118]
(r)Mr Eyles gave “Confident” advice to Mr Evenden on 21 March 2012 that HMA1 V6 “will work...the same as Madritsch” when the only basis upon which he could be so confident was because the changes made to the AFL spring in V6 were derived from his knowledge of the Madritsch Solution, which had already been tested and approved;[119] and
(s)Apart from the disclosure of the Madritsch Solution information, there was no other reason for Thales to seek to make any significant change to the spring force.[120]
[116]Reasons at [216], [217], [310].
[117]Reasons at [319], [320].
[118]Reasons at [320]. Previous versions had been subject to design review.
[119]Reasons at [322].
[120]Reasons at [314].
Only the last of those circumstances comprises a reliance by the primary judge on the lack of a plausible explanation for the significant reduction in the spring force. Accepting that the lack of a plausible explanation for the design changes to HMA1 V6 was only one part of the primary judge’s reasoning, the primary judge was entitled to use the absence of a logical explanation as supporting an inference that confidential information was used as a springboard.[121]
[121]RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125 at [114].
Certainly, it can be accepted that, in a circumstantial breach of confidence case, a defendant need not go into evidence. It can also be accepted that, even if the defendant does go into evidence, and the defendant’s explanation is rejected, it is open to the court to conclude that the plaintiff has not established misuse of the confidential information. In this case, however, Thales adduced evidence designed to establish that the appearance of the Two Features in HMA1 V6 was the result of the efforts of its employees. The primary judge rejected that evidence and found that, in all the circumstances, Madritsch/Nioa had proved, to the civil standard, that Thales arrived at HMA1 V6 by using the confidential information disclosed in September 2011.[122] His Honour expressly relied on all of the evidence.[123]
[122]In both criminal and civil trials, in considering a circumstantial case, all of the circumstances established by the evidence are to be considered and weighed in deciding whether the inference contended for has been proved: see R v Hillier (2007) 228 CLR 618 at 637 [46].
[123]Reasons at [326].
And so, it is inaccurate to say that the primary judge filled ‘evidential gaps’ with Thales' failure to provide a plausible explanation as to a reduction in spring force and the coincidental use of a double torsion spring. Rather, the primary judge assessed all of the circumstances and found that those circumstances justified an inference of misuse. Indeed, the circumstantial case was a strong one. As explained in paragraph [112] above, there were a constellation of factors that made the inference compelling. Certainly, this was not a case where the only evidence relied on by Madritsch/Nioa was the absence of a logical explanation[124] for the changes made in HMA1 V6.
[124]See RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125 at [114].

The primary judge accepted Dr Schwank’s opinion that Article 46(1) of the BD 1979 applies to all Austrian public servants, including army personnel, employed by federal authorities in Austria. The provisions of BD 1979 were to the effect that all public servants, including army personnel, were subject to a duty of confidentiality concerning all knowledge gained exclusively because of their official duty.
A question as to how Austrian law applied is a question of fact.[245] Thus, there is no basis to disturb the primary judge’s findings on that issue of fact. Taking into account Dr Schwank’s opinion, as well as Madritsch’s relationship of trust and confidence with the Bundesheer, it is clear that the disclosures of the Madritsch Solution to the Bundesheer did not mean that the Madritsch Solution entered the public domain and did not impact its confidentiality.
[245]For that proposition, counsel for Madritsch/Nioa relied on Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331, 361.
For those reasons this ground should fail.
GROUND 4: WHETHER THE SECTION 18 ACL CASE WAS ESTABLISHED
The Allegation of Misleading or Deceptive Conduct
The primary judge found that on 19 December 2011 Thales decided to reject Madritsch/Nioa’s offer to licence the Madritsch Solution. Despite being obliged to return the Madritsch Solution kits and not to use Madritsch’s intellectual property for any purpose, Thales then embarked on a process which involved delaying any response to Madritsch/Nioa, and misleading Madritsch/Nioa into believing that Thales was considering the offer with a view to accepting it or making a genuine counteroffer. In the meantime, between February 2012 and May 2012, Thales embarked on the process of reinstating the HMA1 project and designing HMA1 V6.
Thus, the primary judge concluded that Thales’ conduct in that period was likely to mislead or deceive Madritsch/Nioa by leading them to believe that Thales had a continuing interest or intention to enter into a licence arrangement for the Madritsch Solution. The purpose of the conduct was so that Madritsch/Nioa would not make a direct approach to the Commonwealth on behalf of the ADF until Thales was ready to market its alternative solution, namely HMA1 V6. His Honour found that Thales’ conduct achieved that purpose in that, during the relevant period, Madritsch/Nioa did not make a direct approach to the Commonwealth about supplying the Madritsch Solution for the ADF.[246]
[246]Reasons at [437]-[438].
Thus, the loss found by the primary judge was a loss by Madritsch/Nioa of the opportunity to make a direct approach to the Commonwealth to supply the Madritsch Solution to the ADF.[247] The value of that opportunity falls to be assessed at a later stage in the litigation, as this is a ‘split trial’.
[247]In fact, the Commonwealth/ADF had originally put Thales in contact with Madritsch/Nioa.
The Pleaded Case on Loss & Damage

In its pleading Madritsch/Nioa claimed precisely the same loss in respect of each of its three causes of action: namely breach of the confidentiality agreements, breach of the duty of confidence and misleading or deceptive conduct.[248] The loss claimed is a loss of €1,160,000 by Madritsch and €640,000 by Nioa. Those losses were calculated as estimates of the licence fees and royalty rates that Madritsch/Nioa had sought in the draft licence agreement (a €700,000 licence fee and €20 per item produced under the licence). That was the licence fee that Thales had ‘choked on’.
[248]Madritsch/Nioa claimed a variety of relief (including an injunction and an account of profits) but it is the damages claim that is relevant here.
Madritsch/Nioa’s pleading alleges that the licence fee and royalty rates were estimated by Madritsch/Nioa as fair and reasonable in the firearms industry.[249] Possibly that measure of loss is claimed as equitable compensation because in Seager ν Copydex Lord Denning MR thought that the plaintiffs right which had been infringed was not to have his confidential information used by the defendants "without paying for it".[250] However, the area is the subject of some controversy,[251] particularly in cases like Talbot ν General Television Corporation Pty Ltd[252] (and this case) where a plaintiff tried to sell an idea to a defendant who would not buy, but later (though innocent of intent to do wrong), turned the idea to its own profit.[253]
[249]See [56]–[57] of the Third Further Amended Statement of Claim.
[250][1967] 2 All ER 415 at 417.
[251]Stuckey-Clarke, Damages for Breach of Purely Equitable Rights in Finn (ed), Essays on Damages, The Law Book Company, Sydney, 1992 at 69; Gronow, Damages for Breach of Confidence (1994) 5 AIPJ 94.
[252][1980] VR 224.
[253]See the discussion in Gronow, Damages for Breach of Confidence (1994) 5 AIPJ 94 at 105 and in McGregor on Damages (20^th ed) at 48-026.
Certainly, for present purposes it is sufficient to note that, whilst an injunction is the usual remedy for a breach of confidence, there is authority in England, Canada, Australia and New Zealand for the award of damages for breaches of purely equitable rights, including breach of confidence.[254] The measure of damages sought by Madritsch/Nioa is an estimated value. The difficulties confronting that measure are not limited to the legal basis for damages but include some practical difficulties. For example, what Madritsch/Nioa would have been able to negotiate with Thales may have been very different from what Madritsch/Nioa would have been able to directly negotiate with the Commonwealth.[255] The evidence from the Commonwealth may well be that it would never have agreed to pay the ‘estimate’ claimed by Madritsch/Nioa.[256]
[254]Gronow, Damages for Breach of Confidence (1994) 5 AIPJ 94 at 101-102.
[255]One live question was whether the Commonwealth would have permitted Madritsch/Nioa to directly negotiate with it or whether Madritsch/Nioa would have been required to negotiate through Thales.
[256]In McGregor on Damages (ibid) there is a discussion as to the three types of relevant damages situations: where the plaintiff would have manufactured for profit, or would have allowed others to use the invention in return for a royalty or licence fee, or would not have exploited the invention. All three types of damages were considered in MVP 3 Aps v Bestnet Europe Ltd [2016] EWCA Civ 541.
Whilst there is an argument that that ‘estimate’ measure of loss can be claimed as equitable compensation, it is more difficult to make that claim as damages for breach of the confidentiality agreements. In that case the damages are to put Madritsch/Nioa in the position that they would have occupied had the confidentiality agreements been performed.
The Pleaded Case on Section 18 ACL Loss
The misleading or deceptive conduct case is different. For that cause of action, Madritsch/Nioa claims that, in the period from December 2011 to June 2012, they were misled into believing that Thales had a continuing interest or intention to enter into a licence arrangement for the Madritsch Solution. On that basis, Madritsch/Nioa claimed that what it lost was the estimates of the licence fees and royalty rates that Madritsch/Nioa would have earned if had been able to exploit the Madritsch Solution in that period from December 2011 to June 2012. In that sense, the pleadings included an element comprising something of a loss of an opportunity to earn revenue from the Madritsch Solution. The difficulty in assessing damages was always going to be trying to assess the counterfactual – what would have happened if there had been no misleading or deceptive conduct and Madritsch/Nioa was free to negotiate directly with the Commonwealth in December 2011.
The Written Submissions on Section 18 ACL Loss
By the time of the opening submissions, the trial was confined to liability issues. Damages issues were to be tried later. In its opening, Madritsch/Nioa alleged that the misleading or deceptive conduct “caused the plaintiffs to suffer loss, in that the plaintiffs lost the opportunity to receive a licence fee and royalties from the licensing of the Madritsch Solution.”[257] No further detail was given. Thales’ opening submissions did not engage on this issue.
[257]Opening Submissions on behalf of the Plaintiffs, at [68]. Note that there are examples of the operation of the loss of a chance in the field of breach of confidential information: SBJ Stephenson Ltd v Mandy [2000] FSR 286 and Take Ltd v BSM Marketing Pty Ltd [2007] EWHC 3513 (QB).
In a context where the parties were to embark on a trial of what was described as ‘liability issues’, it is likely that issues of loss were not ‘front of mind’ for either party.
In the respective parties’ closing submissions the issue of what comprised the loss alleged by Madritsch/Nioa received little attention. In Madritsch/Nioa’s submissions the focus was on the conduct said to constitute a contravention of section 18 of the ACL. The consequence of the breaches alleged was that Madritsch/Nioa was entitled to “damages pursuant to s 236 of the ACL, representing the value of the lost opportunity to receive a licence fee and royalties from the licensing of the Madritsch Solution, whether from the defendant [Thales] or through a direct approach to the DoD [Department of Defence] at a time before Thales had sufficiently progressed its design of HMA1 v6.” [emphasis added].
In its closing submissions Thales, understandably, concentrated on the issue of whether or not Thales’ conduct had been misleading or deceptive. Thales’ further submissions were that:
(a)There was an absence of a counterfactual alleged by Madritsch/Nioa;
(b)The theme of Madritsch/Nioa’s cross-examination of Mr Evenden suggested that Madritsch/Nioa might contend that they would have gone directly to the Commonwealth with the Madritsch Solution, but that counterfactual is not pleaded and was contrary to the evidence;
(c)No loss flows from the alleged misleading or deceptive conduct.[258]
[258]Defendant’s Closing submissions, at [162], [163].
In its final substantive closing submission Thales said this:
“In any event, even if Mr Evenden’s conduct could be said to be misleading or deceptive, the plaintiffs cannot establish that any loss flows from that conduct. The plaintiffs do not plead that they did anything in reliance upon Mr Evenden’s conduct. Whilst noting that this is the trial on liability, as explained above, in order to found a cause of action for breach of the statutory norm of misleading or deceptive conduct, some loss or damage must be shown to have resulted from that conduct. Here, the plaintiffs’ loss and damage is the loss of the licence and royalty fees which they say they have been deprived of because Thales used the Madritsch solution to advance its own solution to the bolt unlocking problem and thus had no need to licence the Madritsch solution (TFASOC at [55] and [56]). However, the cause of that loss can only have arisen prior to Mr Evenden’s impugned conduct, being the time the Madritsch solution was delivered to Thales. Thus, any loss of damage cannot be said to have been caused by that conduct. Thus, the plaintiffs fail to establish a cause of action in misleading or deceptive conduct in respect of Mr Evenden’s conduct after December 2011.”[259] [emphasis added]
[259]Defendant’s Closing Submissions, at [163].
That quote illustrates the problem. Thales itself was concerned that its submission on this aspect intruded into the loss and damage part of the trial. As yet, there has been no mature analysis by either party as to how the conduct alleged has led Madritsch/Nioa to act in a certain way and has caused loss and damage. Certainly, there are no clean lines of demarcation between the so-called liability issues and the questions of loss and damage. At the least, the quote above recognises the difficulty in drawing a line between liability issues and loss and damage.
It is a challenge to try to compartmentalise liability issues or loss and damage issues in case based on a breach of section 18 of the ACL. If it is established that a defendant’s conduct was in breach of section 18 then it is necessary to identify how that breach has led the plaintiff to act (or refrain from acting) in reliance on the breach. Then it is necessary for the plaintiff to establish a sufficient link between the reliance and the loss and damage said to flow from that reliance.[260] Thus, because the elements are interconnected, trying to separate liability and loss issues is rarely easy.
[260]For a discussion of causation in misleading conduct cases see Lockhart, The Law of Misleading or Deceptive Conduct (4^th ed) at [10.9].
A Split Trial
Here, the order that the trial be ‘split’ was in these terms:
“1. …
2. Pursuant to rule 483 of the UCPR, the question of the quantification of the loss and damage claimed by the plaintiffs, as alleged in paragraphs 56 and 57 of the…statement of claim…,or any enquiry into an account of profits be heard and determined separately from and after all questions of liability have been determined in the proceeding.
3. The determination of any question of quantum of damages will be limited to the defendant’s liability for the type(s) of loss or damage pleaded in the [statement of claim] and no other type(s) of loss or damage.
4. Nothing in order 2 above is intended to limit a party’s right to lead evidence of facts relating to the costs associated with the alleged confidential information in dispute in these proceedings where those facts relate to liability.”[261] [emphasis added]
[261]Order of Martin J made on 13 May 2020.
It can be seen that paragraph 2 of the order speaks of “issues of liability” on the one hand, and “quantification of loss and damage” on the other hand. That dichotomy rather ignores issues of reliance and causation – which may fall somewhere in between the concepts of liability and loss/damage. To prove causation a plaintiff must show some reliance on the impugned conduct as well as a sufficient link to loss and damage. The inter-connected nature of the issues means that it is not entirely clear whether the intention of the order splitting the trial was that the causation aspects of the case would be dealt with in the first part of the trial on liability or in the second section of the trial on loss and damage.[262]
[262]Order 2 of Martin J’s Order suggests that the first trial was to involve liability only. Order 3 may or may not be referring to the first part of the trial. If it is, it suggests that the first trial is to include at least some aspects of loss and damage.
In any event, the parties and the primary judge appear to have proceeded on the basis that the first part of the trial would only concern ‘liability’. The declarations made by the primary judge are limited to declarations as to breaches of the non-disclosure agreements, the duty of confidence and s 18 of the ACL.
Thales’ First s 18 Appeal Point
Having explained that context, it is necessary to analyse Thales’s 18 appeal points. The first appeal point made by Thales is that the loss which the primary judge found to be the loss, namely the loss of an opportunity to renew a direct approach to the Commonwealth to supply the Madritsch Solution to the ADF, was not the loss pleaded by Madritsch/Nioa.
Firstly, the primary judge has made declarations as to breaches. Those declarations comprise the ‘judgment or order of the court in the Trial Division’ that is the subject of this appeal.[263] The reasons explain why the primary judge made the declarations as to breach. Any factual findings by the primary judge which deal with issues other than liability are necessarily interlocutory in nature.[264]
[263]Supreme Court of Queensland Act 1991 (Qld) s 62.
[264]UCPR 483, 484.
Secondly, in so far as the primary judge has determined any factual questions he is to be taken not to have yet embarked on the determination of any issues beyond questions of liability. That was the effect of the order made on 13 May 2020 and it is a consequence of the limited declaratory relief given so far.
Thirdly, the nature of the loss claimed by Madritsch/Nioa in paragraphs 56 and 57 of its pleading was expressly reserved to later determination.[265] In those paragraphs of its pleading Madritsch/Nioa claims that it lost a licence fee and royalty rate that it presumably would have earned if it had not been misled. That appears to be a loss of opportunity case. However, those paragraphs of the pleading were not the subject of this first part of the trial under the express terms of the order.[266] They were to be tried at a later stage.
[265]The Third Further Amended Statement of Claim’s [56]-[57] are in contest: see [71]-[72] of the Amended Defence to the Third Further Amended Statement of Claim. Some positive defences are raised by those paragraphs, none of which were litigated in the first part of the trial.
[266]See [2] of Martin J’s Order made on 13 May 2020.
Fourth, in any event, the conclusion the primary judge reached, namely that, by reason of Thales’ misleading or deceptive conduct, Madritsch/Nioa lost the opportunity to pursue licence fees and/or royalties with the Commonwealth seems to be within the scope of what the parties argued in their submissions.[267] Possibly also the claim made in the pleading was really a claim for a licence fee and royalty that Madritsch/Nioa claims it would have earned if it had not been misled (i.e. the counterfactual). However, precisely how the next stage of the split case is to be managed is for the primary judge to determine.
[267]See the opening and closing submissions discussed above.
Thales Second s 18 Appeal Point
The second appeal point made by Thales is that a loss of opportunity case was raised for the first time in oral closing submissions, and it was not the loss of opportunity case that the primary judge accepted. Instead, as Thales points out, Madritsch/Nioa argued that it lost the opportunity to have “Defence [i.e. the Commonwealth/ADF]…put pressure on [Thales] to negotiate with [Madritsch/Nioa] about licensing the Madritsch Solution”.[268]
[268]Transcript Day 6 page 71 line 27 to page72 line 9.
It is not true that a loss of opportunity case was raised for the first time in Madritsch/Nioa’s oral submissions. The above summary of the parties’ written submissions makes that clear.
However, it is true that the pleadings and the written submissions make no point that what Madritsch/Nioa lost was an opportunity to pressure Thales. That seems to be beyond the pleading and the written submissions. However, that issue is also beyond the scope of liability issues which were before the primary judge at this stage of the litigation. These matters within paragraphs 56 and 57 of Madritsch/Nioa’s pleading are therefore to be resolved in the second part of the trial.
Ultimately, issues that concern whether or not the case run at trial differs from the pleaded case are issues that require an examination of whether the interests of natural justice have been served. Has Thales been given proper notice of the case that it was required to meet? Resolving that issue is difficult here because the trial is really only part heard. Those loss and damage issues pleaded in paragraphs 56 and 57 of the statement of claim remain to be tried. No real issue of procedural fairness arises given that the first trial was confined to issues of liability.
The question as to whether Madritsch/Nioa is to run a case beyond its pleaded case and whether it is entitled to amend are issues for the second trial.
For those reasons this ground should fail also.
CONCLUSION
In my opinion, the appeal should be dismissed, with costs.

CITATION:	Thales Australia Limited v Madritsch KG & Anor [2022] QCA 205
PARTIES:	THALES AUSTRALIA LIMITED ACN 008 642 751 (appellant) v MADRITSCH KG (first respondent) NIOA NOMINEES PTY LIMITED ACN 010 108 086 AS TRUSTEE FOR THE BILL NIOA FAMILY TRUST (second respondent)
FILE NO/S:	Appeal No 9591 of 2021 SC No 9497 of 2017
DIVISION:	Court of Appeal
PROCEEDING:	General Civil Appeal
ORIGINATING COURT:	Supreme Court at Brisbane – [2021] QSC 170 (Bradley J)
DELIVERED ON:	21 October 2022
DELIVERED AT:	Brisbane
HEARING DATES:	24 & 25 March 2022
JUDGES:	Morrison and Mullins JJA and Freeburn J
ORDER:	The appeal be dismissed, with costs.
CATCHWORDS:	INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – USE OF INFORMATION – where the respondent’s case at first instance was entirely circumstantial – where the court was required to draw inferences from the available evidence – whether the primary judge undertook a mechanical comparison of probabilities independent of any evidence supporting a belief in their reality – whether the primary judge reversed the onus of proof APPEAL – APPEAL GENERAL PRINCIPLES – PROOF AND EVIDENCE – ERROR OF FACT – where the trial judge found that it was more likely than not that Thales identified the lower torque exerted by the automatic firing lever spring when they observed the Madritsch Solution – where the primary judge found that Thales gave no plausible explanation for Mr Steele’s decision to significantly reduce the automatic firing lever spring force in the first automatic firing lever spring design – where the primary judge found that Thales used the information about the auto fire lever spring force in the Madritsch Solution to avoid an independent design sequence – where the primary judge found that Mr Steele had no experience, particularly with torsion springs – whether the primary judge made factual errors INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – OBLIGATION OF CONFIDENTIALITY – whether Madritsch/Nioa failed to identify with sufficient specificity the information which they alleged was confidential and misused – whether Madritsch/Nioa failed to specify how that information was misused INTELLECTUAL PROPERTY – CONFIDENTIAL INFORMATION – OBLIGATION OF CONFIDENTIALITY – where the Madritsch Solution was provided to personnel of the Austrian Armed Forces on three separate occasions for testing purposes – where the appellant contends that any confidentiality of the Madritsch Solution was lost as a consequence – whether the Madritsch Solution lost its character of confidentiality – whether information previously disclosed to a limited public is deemed to enter the public domain TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – MISLEADING OR DECEPTIVE CONDUCT GENERALLY – where Madritsch/Nioa calculated losses as estimates of the licence fees and royalty rates that Madritsch/Nioa had sought in the draft licence agreement – where the trial was run as a split trial – where the first instance trial was concerned with the issue of liability and a later trial would eventuate to address damages – whether the s 18 Australian Consumer Law, Competition and Consumer Act 2010 (Cth) sch 2, case was established – whether Madritsch/Nioa were misled into believing that Thales had a continuing interest or intention to enter into a licence arrangement for the Madritsch Solution Competition and Consumer Act 2010 (Cth), sch 2 (Australian Consumer Law, s 18) Blatch v Archer (1774) 1 Cowp 63; [1774] EngR 2, considered Browne v Dunn (1893) 6 R 67, considered Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587, considered GlaxoSmithKline Australia Pty Ltd v Ritchie (2008) 77 IPR306; [2008] VSC 164, distinguished Hampton Court Ltd v Crooks (1957) 97 CLR 367; [1957] HCA 28, considered Lynx Engineering Consultants Pty Ltd v ANI Corporation Ltd (t/as ANI Bradken Rail Transportation Group) (No 2) [2009] FCA 363, distinguished Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; (1992) 110 ALR 449; [1992] HCA 66, applied RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125; [2011] FCA 423, considered Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121; [2000] HCA 18, distinguished Surveys & Mining Ltd v Morrison [1969] Qd R 470, considered Talbot v General Television Corp Pty Ltd [1980] VR 224; [1980] VicRp 26, considered
COUNSEL:	G A Thompson KC, with C A Johnstone, and A G Psaltis, for the appellant S Cooper KC, with H Clift, and D Tay, for the first and second respondents
SOLICITORS:	Minter Ellison for the appellant Carswell & Company for the first and second respondents