Thales Australia Limited v Madritsch KG & Anor [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 IPR 306; [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

1. MORRISON JA: I agree with the reasons prepared by Freeburn J.

2. MULLINS JA: I agree with Freeburn J.

3. 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.

4. 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

5. 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).

6. 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.

7. 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.

8. 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.

9. 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

“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

11. 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.

12. 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.

13. 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.

14. 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

15. 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.

16. 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), approach Thales and make a proposal to supply the Madritsch Solution to Thales for retrofitting on ADF’s Austeyr rifles.

“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.”

19. 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.

20. 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.

21. 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.

22. 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.

23. 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”.

“Can you develop a solution instead of the Madritsch one for HMA in L125 timescales and budget?

[C]an we speak briefly?

Now?”

29. 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

30. 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

31. 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.

32. 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).

33. 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. Subsequently, they sought a meeting with Thales’ representatives.

PART B: PRINCIPLES OF MISUSE OF CONFIDENTIAL INFORMATION

37. 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.

38. 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

39. 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

40. 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

41. 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 ‘’ between the plaintiff's products and the defendant's products; for example, the plaintiff may be able to prove the misuse indirectly by demonstrating the existence of some ‘’ 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; (b)Misuse may be inferred because of the confidant's conduct after receiving the information; an example is where the defendant applied for mineral licences soon after receiving confidential geological information;(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;(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; (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; and(f)Logically, the inference may be drawn where there is a combination of the above factors.

PART C: PRIMARY JUDGE’S REASONS

Introduction

50. 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.

51. 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 Morrison⁶⁰); 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.

Identity of Characteristics/Before & After Conduct

52. 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

53. 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.

54. 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.

55. 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. As explained, up to that point, Thales had used single torsion springs.

Avoiding the Inference: Were the Two Features the product of Thales’ own efforts?

60. 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.

61. 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.

62. 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

63. 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.

The Ultimate Findings and Orders

69. 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

70. 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

71. 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

72. 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?

73. 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.

Blatch v Archer

74. 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

75. 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

76. 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

An Error in Approach?

77. 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]

78. There are several problems with those contentions.

79. 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

80. 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.

81. Thus, as a matter of approach, the primary judge appropriately and conventionally assessed whether, in the circumstances, the inference of misuse could be drawn.

82. 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]

83. 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.

84. 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]

85. 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.

86. 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

87. 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

88. 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.

89. 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.

“[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.”

98. 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.

99. 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.

100. 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.

101. 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]

102. 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.

103. 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.

104. 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.

105. 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.

106. 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.

107. 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.

Evidential Gaps?

110. 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".”

111. 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.

112. 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(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(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(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(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(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(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(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;(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;(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;(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;(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;(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;(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;¹¹⁶Thales 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;¹¹⁷Thales did not perform any formal design review for HMA1 V6;¹¹⁸Mr 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 andApart 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

113. 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

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

115. 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 explanation¹²⁴ for the changes made in HMA1 V6.

116. In its oral submissions, Thales relied on the following passage from the judgment of Gleeson CJ and McHugh J in Schellenberg v Tunnel Holdings Pty Ltd:

“A Jones v Dunkel inference would not have availed the plaintiff in any event. A Jones v Dunkel inference can only make certain evidence more probable. It "cannot be used to make up any deficiency of evidence". It follows that the trial judge's finding with respect to the assembly, inspection and maintenance of the compression equipment could not stand, as there was insufficient evidence to support the findings, either directly or by inference.”¹²⁵

117. However, as explained, there was no deficiency or insufficiency of evidence in this case.

118. Two further points can be made about the absence of a plausible explanation. The first is that the absence of a plausible explanation is just that – an absence of evidence. An absence of evidence will not assist a plaintiff where the evidence is otherwise insufficient to enable the court to draw the inference of misuse. The second is that the absence of a plausible explanation for the ‘identity of characteristics’ is a factor that the court is entitled to consider in its assessment of all of the circumstances. That was the approach of the primary judge here.¹²⁶

119. In my opinion, the primary judge did not err in his approach to the case.

PART E: ALLEGED FACTUAL ERRORS – LOWER TORQUE

General Principles

120. Thales identifies a number of specific factual errors said to have been made by the primary judge.

121. In considering each of the alleged factual errors, it is necessary to conduct a real review of the evidence and of the primary judge’s reasons to determine whether the primary judge has erred in fact or law. If this court concludes that the primary judge has erred in fact, then it is required to make its own findings of fact and to formulate its own reasoning based on those findings. But a court of appeal is reluctant to interfere with a judge’s findings of fact unless they are demonstrated to be wrong by incontrovertible facts or uncontested testimony, or they are glaringly improbable or contrary to compelling inferences.¹²⁷

Finding that Lower Torque was Observed

122. The first alleged factual error, addressed in a number of ways in Thales’ written and oral submissions, concerns the first of the Two Features – the torque exerted by the AFL spring was significantly lower than that exerted by the AFL spring in the HMA1 versions up to V5. Thales submits that there was no evidence to support the primary judge’s finding that, during the course of their inspection of the Madritsch Solution, Mr Eyles and Mr Basladynski identified that the Madritsch solution contained an “AFL ... operated by a separate AFL spring applying a significantly lower force” and that “it is more likely than not that Mr Eyles and Mr Basladynski identified that the torque exerted by the AFL spring was significantly lower than that exerted by the AFL spring in JGCM, V3 and V5”.¹²⁸

123. The primary judge made this finding at paragraph 148 of his reasons:

“[148] When the kits arrived, Mr Basladynski and Mr Eyles spent some time examining them. The individual parts were in an unassembled form. They compared the parts in the kits with those in the standard hammer mechanism in the Austeyr to identify the changes Madritsch had made. They identified that Madritsch had altered the mechanism so that the hammer springs no longer exerted any force on the AFL and instead the AFL was operated by a separate AFL spring applying significantly lower force. In examining and handling the Madritsch Solution parts, it is more likely than not that Mr Eyles and Mr Basladynski identified that the torque exerted by the AFL spring was significantly lower than that exerted by the AFL spring in JGCM, V3 and V5. It is similarly likely that both Thales employees noticed the Madritsch AFL spring was a double torsion spring.”

124. Footnote 26, which appears at the end of the second-last sentence in that quote, explains the significant differences in the torque exerted by the AFL in the HMA1 V5 and the Madritsch Solution:

“26 From his measurements, Mr Williams had calculated the average vertical force exerted by the AFL in V3 as about 28.4N. Mr Steele’s later record of the disengagement force in the V3 models gives an average of 43.2N. Mr Steele’s measures of the force in V5 produce an average disengagement force of 42.5N. Each of these is significantly higher than the 8 to 10N in the Madritsch Solution. As engineers, it is more likely than not that Mr Eyles and Mr Basladynski noticed that a significantly lower torque was exerted by the AFL springs in the Madritsch Solution kits compared with the AFL springs in V3 and V5. Mr Basladynski noted a significant reduction in his later draft report on testing the Madritsch Solution kits.”

125. It is necessary to examine, in a little detail, the evidence on this aspect of the case. In particular, it is necessary to look at Thales’ examination of the Madritsch Solution kits and manual.

Thales’ Examination of the Madritsch Solution kits

126. Mr Basladynski has some engineering expertise. Mr Basladynski held a Bachelor of Industrial Design from the Engineering Faculty at the University of Western Sydney. He held different roles within Thales at different times. From 2005 to 2010 Mr Basladynski was a Weapons Design Engineer. From 2010 Mr Basladynski held the role of Testing Engineer within Thales’ Testing and Evaluation Department. He held that role until 2012 when he became the Testing and Evaluation Manager.¹²⁹

127. In his roles in the Testing and Evaluation Department, that is from 2010, Mr Basladynski went to some effort not to involve himself in the design of weapons, weapon parts or weapon improvements. He did that so as to remain objective when testing and reporting on those designs.¹³⁰ From about 2006 Mr Basladynski was aware of the Bolt Unlocking Problem. He was also conscious that the problem was the subject of some development and testing at Thales in about 2009 and 2010. He said that: ‘Although I was not involved in the design of those developments, I was generally aware that it was being conducted by Martin (Marty) Williams, a technical officer at Thales.’¹³¹ By 2010, he understood the design intent and engineering principles behind the JGCM project in that the intent was to reduce the force applied to the AFL by removing the hammer springs and ensuring that the AFL would return to its correct position by inserting an AFL spring into the AFL that was of a lower force than the springs that returned the bolt to its closed position.

128. Mr Eyles also possessed engineering expertise. He obtained a Bachelor of Engineering from the University of Technology in Sydney in 1992. Mr Eyles held various engineering roles with the Commonwealth, and with Australian Defence Industries, an entity which he describes as taken over by Thales. He had other employment in the same industry for four or five years and then, in 2009, he was employed at Thales’ Lithgow facility as an Engineering Manager for the Production and Design Group. He reported to the Thales’ General Manager at the Lithgow facility and to the Chief Engineer of Armaments in Victoria. Mr Williams was one of 10 people who reported to him.¹³²

129. Thus, it can be seen that the two employees of Thales who were assigned the task of examining the Madritsch Solution kits and manual were employees with significant engineering qualifications and experience. However, whilst Mr Eyles supervised Mr Williams, the officer then directly responsible for the HMA1 project, Mr Basladynski was not involved in that project but was generally aware of the HMA project and the design intent of that project.

No Measurements

138. Thales points out that, during their inspection of the Madritsch Solution kits and manual Mr Eyles and Mr Basladynski did not take measurements of the Madritsch Solution’s spring strength. That is likely to be true. Mr Eyles said he had no recollection at all of an inspection of the Madritsch Solution kits and manual, and so he presumably had no recollection of any measurements. Mr Basladynski’s statement records the inspection but says that, so far as he is aware, no measurements of any kind were carried out on the Madritsch parts.¹⁴²

139. However, the fact that no measurements were taken does not preclude a finding that Mr Eyles and Mr Basladynski noticed that the Madritsch Solution imposed lesser spring force on the AFL than its HMA1 equivalent. First, both men had some engineering expertise and so the forces at play in the mechanism are likely to be a focus. Second, there is no evidence to the effect that the lesser forces were concealed or latent and not readily observable by lay observers, let alone by those with engineering qualifications.¹⁴³ Third, the evidence was to the contrary. When cross-examined Mr Eyles was asked this question and gave this answer:

“And do you accept that if you’d compared the stiffness of the AFL in a mechanism fitted with the Madritsch solution to the stiffness of the AFL in the HMA1 mechanism in the form it was in before work was suspended, interrupted in 2010, you would have appreciated that the force exerted on the AFL and the Madritsch solution was also significantly less than the force exerted on the AFL in HMA1 as it stood then. Do you accept that?---Yes. Yes. If you pressed it, yes, you could - - -.”¹⁴⁴

The Draft Report

140. Mr Basladynski and others within Thales tested the Madritsch Solution. A draft report on the testing was prepared. Mr Basladynski says that he prepared his sections of that report in September 2011. However, the two different versions of the draft report are both labelled Revision A and dated 18 January 2012. It is always hazardous to rely on draft reports. A report may be in draft for any number of reasons, including a concern about its accuracy. With that caveat, the second version of the draft report does provide a tentative guide at least the issues considered by Mr Eyles and Mr Basladynski. Under the heading “Discussion” the following appears:

“It is important to note that a previous attempt has been made by the Commonwealth to rectify this failure mode by a change to the hammer mechanism. The hypothesis for a solution of the failure mode was to reduce friction in the interface between the bolt carrier and the auto fire lever (AFL) in the hammer mechanism. This was done by changing the profile of the auto fire lever, the hammer springs and the hammer mechanism housing. This would allow the bolt carrier to unlock, through reduced force, and as a result reduced friction in the auto fire lever, let the bolt carrier re-lock the bolt head.

The Madritsch solution, is in principle exactly the same as that proposed by the CoA, however the execution is different. The Madritsch Hammer mechanism as stated has the same design intent, however the additional spring that is needed is captured by the Pin catch hold open instead of the AFL pin in the HMA 1. There are also changes to the AFL which allow the spring to apply load to the AFL, this is also the case in the HMA1.”

141. Curiously, under a heading “AFL force gauging” the following (non-grammatical) sentence appears: “Due to the limited funds available for testing of force on the AFL was not able to be conducted.” Under the heading “Conclusions” the draft report says: “In the small sample firing, the Madritsch hammer mechanism modifications seem to alleviate the bolt unlock failure mode.” The recommendations of the draft report were as follows:

“Extensive trials on the hammer mechanism be carried out to ensure that the reduction of force on the AFL does not adversely affect the function of the rifle through environmental [sic] to prove that this is an enduring solution.

Any future baseline firings be mount fired to alleviate experimental error due to human interaction.”

142. Thales argues that the draft report did not support the finding in paragraph [148] of the reasons because the draft report noted that the HMA1 versions and the Madritsch Solution were “exactly the same” as to their concept.¹⁴⁵ That is not quite a fair characterisation of this section of the draft report. In fact, as can be seen from the extract of the draft report above, the draft report states that: “The Madritsch solution, is in principle exactly the same as that proposed by the CofA [Commonwealth of Australia], however, the execution is different.”¹⁴⁶ The draft report contains an explanation of how the execution is different.It is plain that the draft report acknowledges differences between the HMA1 versions and the Madritsch Solution.

143. Mr Steele’s evidence was that Mr Eyles subsequently discussed with Mr Steele the problem that the forces or the torque was still too high, and that Mr Eyles was involved in the decision to reduce the spring force.¹⁴⁷ That evidence supports the notion that Mr Eyles noticed the lower torque in the Madritsch Solution. No other explanation was offered for that instruction from Mr Eyles to further reduce the torque.

144. As Madritsch’s submissions point out, the primary judge’s conclusion that Mr Eyles noticed that the Madritsch Solution imposed lesser spring force on the AFL than its HMA1 equivalent is also consistent with Mr Eyles’ “confident” advice to Mr Evenden that the HMA1 V6 would “work the same as Madritsch”. Mr Eyles’ confidence that HMA1 V6 would perform in the same way as the Madritsch Solution must have had some basis in fact. He must have understood the Madritsch Solution and the details of how it differed from the HMA1 versions.

145. Thales’ submissions make much of the fact that Mr Basladynski’s witness statement speaks of Mr Basladynski and Mr Eyles looking at the differences between the parts supplied by Madritsch and a standard hammer mechanism to compare those parts and identify what had been changed.¹⁴⁸ However, that cannot be taken too far. Mr Basladynski was not cross-examined and so his evidence was not tested. Certainly, his untested written evidence-in-chief does not say that the only comparison made by the two of them was between the standard hammer mechanism and the Madritsch Solution kit.¹⁴⁹ Mr Basladynski’s witness statement and the draft report both record the features of the Madritsch Solution kit in the context of the HMA1 project.

Mr Eyles and Mr Basladynski

147. At this point it is important to distinguish between Mr Eyles and Mr Basladynski. It is natural that Mr Basladynski would not have any particular focus on a comparison between the Madritsch Solution and the HMA1 project. As discussed above, although he was ‘generally aware’ of the project, Mr Basladynski was not involved in the design of the HMA1 project. Because of his role in testing, and his concern to maintain his objectivity, he was careful not to involve himself in the design or direction of design for weapons, weapon parts or proposed improvements.

148. On the other hand, from October 2009, Mr Eyles was directly involved in, and had direct responsibility for the HMA1 project.¹⁵¹ Thus, it would be expected that Mr Eyles would readily notice the differences, especially in the light of Mr Basladynski’s observation in the draft report that the Madritsch Solution was, in principle, exactly the same as that proposed by the JGCM/HMA1 project, but the execution was different.

149. For all those reasons, it was open to the primary judge to infer that Mr Eyles observed that the Madritsch Solution imposed lesser spring force on the AFL than its HMA1 equivalent. Far from being glaringly improbable, for the reasons explained above, the inference was more likely than not.

Mr Basladynski’s Evidence

150. There is another point of distinction between Mr Eyles and Mr Basladynski. Mr Basladynski was not cross-examined. His witness statement was admitted into evidence without challenge.¹⁵² However, nothing in Mr Basladynski’s witness statement contradicted the case mounted by Madritsch/Nioa. As explained, Mr Basladynski was not involved in the HMA1 project.

151. Importantly, at the trial there was no contention that it was Mr Basladynski who passed on any confidential information to Mr Steele. Madritsch/Nioa’s case was that it was Mr Eyles that, either consciously or unconsciously, passed on the confidential information to Mr Steele, or at least that it was Mr Eyles who misused the confidential information by means of his instructions to Mr Steele.¹⁵³

The Primary Judge’s Finding at [148]

152. Thales submits that the primary judge’s finding at paragraph [148] of the reasons is not supported by the evidence. In that paragraph the primary judge concludes that “it is more likely than not that Mr Eyles and Mr Basladynski identified that the torque exerted by the AFL spring was significantly lower than that exerted by the AFL spring in JGCM, [HMA1] V3 and V5.” [emphasis added]

153. Whilst that conclusion may be correct as regards Mr Eyles,¹⁵⁴ it is unlikely to be correct as regards Mr Basladynski. There are three principal impediments to that finding. The first is that Mr Basladyski was not involved in the HMA1 project. He was merely generally aware of the project. So, it is difficult to see how he would have had an opportunity to make a comparison between the respective torques exerted by the AFL spring in the HMA1 project and in the Madritsch Solution. The second is that Thales is correct that there is no evidence from which it could be inferred that Mr Basladynski made such a comparison. Mr Basladynski’s witness statement does not suggest that he had any familiarity with the torque exerted by the AFL spring in the HMA1 project. No other evidence suggests such a familiarity. Third, it was never put to Mr Basladynski that he made such a comparison. Mr Basladynski was not cross-examined at all. That is explicable from the point of view of Madritsch/Nioa. Madritsch/Nioa never contended that Mr Basladynski made such a comparison. As explained above, nothing in Mr Basladynski’s witness statement contradicted the case mounted by Madritsch/Nioa.

154. Thus, Thales is right that there is no support in the evidence for the primary judge’s finding that Mr Basladynski identified that the torque exerted by the AFL spring was significantly lower than that exerted by the AFL spring in the HMA1 project. This is an error made by the primary judge.

155. That said, as explained above, the evidence does support the finding that Mr Eyles noticed the differences. Madritsch/Nioa’s case was that it was Mr Eyles who, either consciously or unconsciously communicated the Two Features to Mr Steele. It follows that the error is not decisive.

Reduction of 65%

156. Before leaving the ‘lower torque’ issue, it is necessary to deal with a related pleading issue raised by Thales.

157. Thales submits that Madritsch/Nioa’s pleaded case was that Thales misused information derived from the Madritsch Solution to reduce the spring force of the AFL spring by approximately 65% compared with the equivalent spring force in HMA1 V1 to V5. Thales argues that that pleaded case is inconsistent with the primary judge’s view that it was not possible, on the evidence, to compare the reductions in the force of the AFL springs.¹⁵⁵

158. In fact, the primary judge’s view (as recorded in footnote 42 of the primary judge’s reasons) was that:

“Owing to Mr Steele’s use of Newtons as a measure, it was common ground at the hearing that the exact reduction in the torque exerted by the AFL spring could not be calculated. Mr Wachsberger’s evidence, which I accept, was that the torque reduction was probably greater than 65%. In a 28 August 2012 instant messenger exchange with Mr Eyles, Mr Steele referred to the change to the AFL spring from V5 as showing ‘70% less force required for the Gun lock [group] to return ‘home’.” [emphasis added]

159. Thus, Thales’ submission rather oversimplifies and inaccurately portrays the primary judge’s view of the evidence. His Honour’s view was that, whilst it was not possible, on the evidence, to precisely compare the reductions in the force of the AFL springs, the torque reduction was probably greater than 65%.

160. In any event, Thales submits that Madritsch/Nioa attempted to run a case beyond its pleaded case. This complaint seems to be that:(a)Madritsch/Nioa’s pleaded case was that Thales had misused information derived from the Madritsch Solution in order to affect a reduction in the AFL spring force by approximately 65% compared with the equivalent spring force in the HMA1 project versions 1 to 5;¹⁵⁶ and yet(b)the case run by Madritsch/Nioa, and reflected in the primary judge’s findings, was that Thales had misused information derived from the Madritsch Solution in order to affect a significant reduction in the AFL spring force in HMA1 V6 when compared with other versions.

161. The second limb of that comparison is not entirely accurate. The primary judge expressly accepted the evidence of Mr Wachsberger, an expert in applied physics with specialist skills in weapons technology, who expressed the opinion that the AFL spring force in HMA1 V6 was significantly lower than its predecessors, more than likely by more than 65%.¹⁵⁷ However, it was common ground that precision was not possible. As the primary judge pointed out, two different measures were used which were not easily measured against each other.¹⁵⁸

162. The inability to be precise does not necessarily impair the veracity of the evidence. It was open to the primary judge to accept the evidence of Mr Wachsberger. His evidence was not demonstrated to be wrong by incontrovertible facts or uncontested testimony, and his evidence was not glaringly improbable or contrary to compelling inferences.

163. Nor was there a material difference between the case pleaded (“approximately 65%”) and the case run by Madritsch/Nioa and accepted by the primary judge (“likely to be lower by more than 65%”). The comparison Thales makes (set out above) is not an accurate one. In any event, a disconformity between the evidence and the particulars will not disentitle a party to a judgment based upon the evidence.¹⁵⁹

164. In oral submissions it was contended that Mr Wachsberger resiled from his initial 65% calculation. That is overstating the position. Mr Wachsberger’s opinion can be summarised in this way:(a)His report records calculations of the AFL spring force in HMA1 V3 and V5 as compared with HMA1 V6 and he did that based on Mr Williams’ calculations for HMA1 V3 and V5;(b)However, Mr Wachsberger became aware of a secondary force that skews the comparison, because that secondary force applies differently across the two different types of springs that Thales used;(c)That secondary force is less significant on a strong spring as designed for HMA1 V3 and V5, but more significant for a weak spring as in HMA1 V6, and so the proportionality is different; and(d)The result is that there is a more significant reduction than 65% from HMA1 V3 and V5 to HMA1 V6 but it cannot be quantified.

PART F: ALLEGED FACTUAL ERRORS – DOUBLE TORSION SPRING

Inspiration for use of Double Torsion Spring

168. Thales submits that the primary judge’s conclusion that Mr Eyles “inspired” Mr Steele to design the AFL spring as a double torsion spring is “unsupported on the evidence”.¹⁶³

169. However, the primary judge’s conclusion is supported by the following evidence:(a)Mr Steele’s inexperience as well as his admitted limited knowledge of spring designs;¹⁶⁴(b)the change to a double torsion spring, whilst obvious and reasonable for an experienced design team, was not shown to be obvious and reasonable to a person of Mr Steele’s expertise and experience;(c)this change to a double torsion spring did not occur during the previous 34 months of the HMA1 project.

170. That last point is important. The lack of symmetry in the AFL occasioned by the use of a single torsion spring was one of three issues that had been raised by the ADF as long before as May 2009, prior to a CDR meeting to consider HMA1 V3.¹⁶⁵ The issue must have been front of mind. And yet, Mr Williams, who was Mr Steele’s predecessor and held a similar role and qualifications to Mr Steele,¹⁶⁶ did not adopt the solution of a double torsion spring during any of his time working on the project between October 2008 and December 2009.

171. Those temporal considerations underlie the primary judge’s comment at the end of paragraph [305] of the reasons:

“In the five working days between 22 and 28 February 2012, Mr Steele redesigned the AFL spring with a significantly lower torque with the purpose of reducing by half the applied force exerted by the AFL on the gun lock group. In the same period, he resolved the issue of the AFL not “sitting squarely” by changing the single torsion spring to a double torsion spring: a concern not resolved in the previous 34 months. [emphasis added]”

172. It is true that for at least some of that period of 34 months the HMA1 project had stalled and so Thales was not pursuing the project in an active way.¹⁶⁷

173. However, it is necessary to acknowledge the central point being made by the primary judge. As explained in Part B above, the sequence and temporal proximity of events may provide a reasonable basis to conclude that there was a disclosure of the confidential information. The inference may be further supported by the lack of an explanation accompanying the appearance of the confidential information in the plaintiff’s product or work.¹⁶⁸ Here, as the primary judge explained, a seemingly intractable problem was only resolved after Mr Eyles had seen the Madritsch Solution kit. From that point, Thales resolved to reject any contractual arrangement with Madritsch/Nioa and to reinstate the HMA1 project. There was the same temporal proximity with respect to the significantly lower torque.

174. Further, the primary judge did not accept Thales’ explanation for the change to a double torsion spring.

175. Mr Steele’s initial evidence was that, when he was hanging out washing at a rented house, he was inspired by a common clothes peg to alter the design of HMA1 V5, so that it used a double torsion spring. Through the evidence of Mr Barnard, it was shown that he could not have been living at that house at the relevant time.

176. Mr Steele’s revised version of how he was inspired to use a double torsion spring was burdened by two problems. One was that common clothes pegs generally use single torsion springs. The second was that Mr Steele had little recollection of the work he did on the HMA1 project. The primary judge was entitled to find that Mr Steele was unlikely to have been inspired by a common clothes peg.¹⁶⁹ His Honour, in assessing the veracity of Mr Steele’s evidence, had the advantage of seeing Mr Steele give evidence. That is an advantage this court did not have.

An Obvious and Reasonable Design Solution?

177. Thales contends that it was not controversial at trial that the use of a double torsion spring was an obvious and reasonable design solution to the lack of symmetry in the AFL occasioned by the use of a single torsion spring.

178. However, that contention is too sweeping.

179. First, it was only the “more qualified engineering witnesses” (Mr Eyles, Mr Wachsberger, and Dr Pratt) who had identified a double torsion spring as an obvious solution to the lack of symmetry concern that the ADF had raised about the HMA1 project almost three years earlier in May 2009.¹⁷⁰ And so, what was obvious to the more qualified engineering witnesses, was not necessarily obvious to those who were less qualified, such as Mr Williams and Mr Steele. Mr Steele admitted that he came to the project with limited knowledge of spring design.¹⁷¹ Indeed, Mr Steele did not testify that he made the change to a double torsion spring because it was the obvious solution to the lack of symmetry. Mr Steele’s evidence was that he was inspired to make the change to a double torsion spring while hanging out washing at a house he rented with Mr Ian Barnard in Lithgow when he saw a spring inside a clothes peg. Mr Steele admitted that his first statement was incorrect as to the time and place where he was prompted to make the change. In cross-examination said he did not know where or when this happened.¹⁷²

180. Second, the primary judge had the advantage of seeing Mr Steele give evidence. Mr Steele was cross-examined on this aspect.¹⁷³ Having observed what His Honour described as Mr Steele’s “generally poor recollection”,¹⁷⁴ the primary judge was entitled to reject Mr Steele’s evidence on this aspect.

181. During oral argument, Thales contended that from 2009 Thales’ ‘brief’ was merely to industrialise a solution rather than redesign the HMA1 model. The contention was that only in February 2012 did Thales, through Mr Steele, seek to re-design rather than industrialise. However, there is no evidence of such a change in Thales’ brief. The primary judge found that Thales’ task in 2009 was the same as its task under the L125-3C program which commenced in late 2010 or early 2011.¹⁷⁵ That finding was supported by the evidence.

Browne v Dunn

184. In Thales’ oral submissions a complaint was made that, contrary to the principle in Browne v Dunn¹⁷⁸ it was not put to Mr Steele that he was not inspired by a common peg to make the alteration to a double torsion spring.¹⁷⁹ However, the exchange of witness statements prior to the commencement of the trial made clear that Madritsch/Nioa contested Mr Steele’s recollection about his inspiration for the change to a double torsion spring. That was the evident purpose of Mr Barnard’s statement. It was Mr Barnard’s statement which caused Mr Steele to admit that his first statement was incorrect and to revise his evidence about the circumstances in which he was inspired by a clothes peg. It caused Mr Steele to prepare his second statement. That was because Thales and Mr Steele were on notice that Madritsch/Nioa contested that part of Mr Steele’s evidence.

185. One of the difficulties was that Mr Steele’s recollection of what work he did on the HMA1 project was not particularly good.¹⁸⁰ He signed a third statement on the eve of the trial because there was something more that he had not recalled when he prepared his first statement.¹⁸¹

186. In that context, in the cross-examination of Mr Steele, counsel for Madritsch/Nioa suggested to Mr Steele that his recollection of being inspired by the clothes peg was imperfect.¹⁸² Mr Steele’s answer was that he did not know what was meant by ‘imperfect’, but he agreed his first statement was incorrect.¹⁸³

187. The cross-examiner had earlier suggested to Mr Steele that, whilst Mr Steele may not be able to specifically recall it, when Mr Eyles gave him the spring encyclopedia Mr Eyles suggested that Mr Steele should use a double torsion spring depicted in the encyclopedia for the new AFL spring.¹⁸⁴ Mr Steele said he could not accept that proposition, but his answer then descended into an account of what he thought would have happened.

188. Thus, having regard to the way in which the evidence-in-chief was exchanged prior to the trial, it is plain that both Thales and Mr Steele had notice that Madritsch/Nioa was contesting the accuracy of Mr Steele’s recollection of the circumstances in which he arrived at the decision to use a double torsion spring. Indeed, Thales had the opportunity to deal with Madritsch/Nioa’s contrary evidence (via Mr Barnard) by preparing and relying on Mr Steele’s second witness statement. If the evidence-in-chief had been given orally in the traditional way, Mr Steele’s opportunity to respond may have been limited to oral responses in cross-examination.

Mr Steele’s Engineering Experience

191. It is necessary to deal with a separate issue in relation to Mr Steele.

192. Thales submits that, to the extent that the primary judge drew support for his conclusions from his findings of Mr Steele’s lack of experience, those findings cannot be sustained.¹⁸⁸ The primary judge’s finding that Mr Steele had no experience with torsion springs was not as absolute as Thales contends.

193. As to the extent of Mr Steele’s engineering experience and expertise, the primary judge explained that Mr Steele was a technical officer and draftsperson who held a Diploma of Engineering from Regency TAFE in Adelaide (2001) and an Advanced Diploma from RMIT (2009).¹⁸⁹ However, Mr Steele described his own role as that of a “minion” or “grunt” on the shop floor in the sense that he was not an engineer, or at least that he was not employed as an engineer, and he had no professional work responsibility for the implementation of any of his work. Some of Mr Steele’s work was checked by Mr Kennedy who was more senior. For the HMA1 project Mr Steele was supervised by Mr Eyles. It was Mr Eyles who “looked at the drawings from a technical perspective” in the sense of whether it met the design brief or solved the problem.

194. Those facts were not controversial. On the basis of those facts, it was open to the primary judge to conclude that, given Mr Steele’s role, training, and level of responsibility, it is unlikely that Mr Steele on his own initiative set out to halve the disengagement force exerted or fixed the 22N figure for the AFL spring.¹⁹⁰ Similarly, it was open for the primary judge to conclude that the fixed force condition is likely to have originated from Mr Eyles as Mr Steele’s supervisor. That is likely given Mr Wachsberger’s expert evidence that one of the important impediments to Thales finalising its design of HMA1 V6 within the time taken by Mr Steele was that that task needed an experienced design team and Mr Steele, on his own, did not comprise an experienced design team. Mr Steele’s work was directed by others with superior knowledge, qualifications, and experience who were checking and taking professional responsibility for that work.¹⁹¹

195. On a fair reading of the reasons, it is difficult to discern a finding by the primary judge that Mr Steele had no experience at all with torsion springs. The primary judge found that:(a)Mr Steele’s professional experience was with compression springs rather than torsion springs, and he did not understand torsion springs (in the sense of an engineering understanding);(b)For that reason, Mr Eyles supplied Mr Steele with the “” in order to help Mr Steele with his work;(c) Mr Steele was not one of the “”;(d)In his email to a spring supplier Mr Steele said his knowledge of spring design was limited;(e)Mr Steele’s use of applied force of 22 Newtons confirmed a lack of understanding of torsion springs; and(f)Mr Steele had a lack of experience and understanding of torsion springs in February 2012.

“The types of design solutions I have worked on in my career include:

(a)…

(c)at Thales: working on a submarine launch flair, the butt in the EF88 (developing the butt to take weight out of the system), an upgrade program for an [sic] hand operated fragmentation grenade that had springs. We were designing a change to the detonation mechanism triggered by a single torsion spring.”

199. That listing of the types of design solutions that Mr Steele had worked on in his career was labelled as, and intended as, background to his professional career. In the evidence no detail was given as to the nature of Mr Steele’s work on each project, or as to the extent to which his work involved torsion springs. However, Mr Steele’s actual experience with torsion springs cannot have been significant because, in cross-examination, he conceded that when he started working on the HMA1 project in February 2012 he had only limited knowledge of spring design.¹⁹⁸

200. Second, there was a torsion spring in the hammer mechanism assembly itself. However, the presence of a torsion spring merely indicates that Mr Steele must have known of the existence and presumably the basic operation of the torsion spring in that mechanism. It says little about his knowledge or experience of torsion spring design.

201. Third, there were torsion springs in the hammer group assembly. For the same reasons that does not suggest any detailed engineering knowledge of torsion springs.

202. For those reasons, the primary judge’s actual finding that Mr Steele had limited experience with torsion springs at the time of his commencing his design work in February 2012, was a finding that was reasonably open on the evidence, particularly having regard to Mr Steele’s own evidence that when he started working on the HMA1 project he had only a limited knowledge of spring design.¹⁹⁹

An Error as to Mr Steele’s Qualifications

203. There is, however, an error in the primary judge’s findings. At paragraph [266] of the reasons, when discussing Mr Eyles’ lack of credibility, the primary judge said this:

“Frankly, Mr Eyles’ attempts to minimise his knowledge and role were without credibility. If accepted, it would follow that a major supplier of armaments for the ADF left the design of a solution to a significant operational issue in the standard service rifle to a draftsperson without professional engineering qualifications.” [emphasis added]

204. The last phrase is wrong. Mr Steele did have professional engineering qualifications. In fact, the primary judge acknowledges those qualifications in detail at paragraphs [179] and [180] of the reasons. There, his Honour acknowledged that Mr Steele:(a)held a Diploma of Engineering from Regency TAFE in Adelaide (2001) and an Advanced Diploma from RMIT (2009);(b)but worked as a technical officer/draftsperson, and was not an engineer,²⁰⁰ and had no professional or work responsibility for the implementation of any of the things on which he worked.

205. His Honour went further. He described in some detail Mr Steele’s work and his experience and understanding of the technical issues.²⁰¹ And, at paragraph [191] of the reasons, the primary judge says this:

“At the hearing, the more qualified engineering witnesses identified a double torsion spring as an obvious solution to the concern the Commonwealth had raised about the AFL almost three years earlier in May 2009. Any of the qualified and experienced engineers in Thales would have been able to identify this solution, without looking to laundry duties for inspiration. Mr Steele was not among them. In fact, he did not have an understanding of torsion springs, single or double.” [emphasis added]

206. Footnote 34, which appears after the phrase emphasised above, identifies Mr Eyles, Mr Wachsberger, and Dr Pratt as “the more qualified engineering witnesses”. Those more qualified engineering witnesses are expressly identified in contradistinction with Mr Steele. In that context, it seems plain that (despite the mistake in paragraph [266]) the primary judge well understood that Mr Steele held the professional engineering qualifications that he had identified, but that he was working as a technical officer/draftsperson, rather than as an engineer, and had no professional or work responsibility for the engineering designs he worked on.

207. On that basis the substance of paragraph [266] of the reasons remains valid. It is unlikely that, Thales, a major supplier of armaments for the ADF, left the design of a solution to a significant operational issue in the standard service rifle to a person employed within Thales as a technical officer/draftsperson without professional responsibility for the designs he worked on.

The Email of 29 February 2012

208. In oral submissions Thales relied on an email that Mr Eyles sent to Mr Steele on 29 February 2012, after the design for HMA1 V6 had been produced. Mr Eyles’ email said:

“I need to spend a few minutes with you later this afternoon 5.00PM?? For about 20 min. Is this OK. I just want to get an overall appreciation of what you have done.”

209. The submission was made that the terms of that email were inconsistent with Mr Eyles having directed Mr Steele to use a double torsion spring. It is difficult to see how much can be made of the email. The idea that Mr Eyles wished to gain an ‘overall appreciation’ of where Mr Steele had got to can hardly be said to be incongruous with Mr Eyles having provided Mr Steele with a direct or indirect instruction to use a double torsion spring. It could be perfectly consistent with Mr Eyles checking that the HMA1 V6 was consistent with the Madritsch Solution.

210. In any event, the primary judge acknowledged that evidence,²⁰² but attached less significance to it than Mr Eyles’ subsequent email to Mr Evenden which gave confident advice that HMA1 V6 “will work…the same as Madritsch”.²⁰³

211. The primary judge’s assessment of the email of 29 February 2012 has not been demonstrated to be wrong by incontrovertible facts or uncontested testimony, and his assessment of this part of the evidence is not glaringly improbable or contrary to compelling inferences.

212. In the same category is Thales’ submission that the spring which Mr Steele designed in February and March 2012 does not have the same properties as its equivalent in the Madritsch Solution. Pointing to differences in wire diameter, coil radius and the like does not destroy the point made by Madritsch/Nioa and accepted by the primary judge. Once again, the point was not that Thales copied the detail in the Madritsch Solution but that, having seen the Madritsch Solution, Thales either consciously or unconsciously used the Madritsch Solution as a springboard into a better position than would have been achieved from the use of Thales’ own independent skill and ingenuity.²⁰⁴

Double Torsion Spring as a Plausible Explanation

213. Thales submits that it was open to the primary judge to have found that the change to a double torsion spring also provided a plausible explanation for the reduction in the AFL spring force.²⁰⁵

214. The primary judge considered and rejected that submission for two reasons:(a)the submission is contrary to the evidence of Mr Steele whose evidence was that he was designing in order to achieve an AFL spring force of 22N;²⁰⁶ and(b)it was inherently unlikely that a major weapons manufacturer would approach the design of this mechanism in this way, that is by leaving the AFL spring force as an unknown.

215. It was open to the primary judge to reject the submission on that basis.

Conclusion

216. The primary judge rightly based his inference of misuse on an examination of all of the circumstances. In summary, the circumstances were that the Two Features appeared coincidentally and for the first time in the HMA1 project immediately after Thales had inspected the Madritsch Solution, resolved not to enter into a licensing arrangement with Madritsch/Nioa, and decided to revive its HMA1 project. Further, the primary judge did not accept that Thales had, through its own efforts, arrived at HMA1 V6 which incorporated the Two Features. It was open on the evidence for the primary judge to take that view of the evidence. Certainly, it cannot be said that there was no evidence to support the finding that the actions of Mr Eyles had led Mr Steele to decide to use a double torsion spring.

217. Incidentally, one issue that was raised by Thales both before the primary judge and in this court was the argument that the use of a double torsion spring in assault rifles cannot be said to be confidential. However, Madritsch’s particular application of the double torsion spring in the hammer pack was confidential and the primary judge accepted that.²⁰⁷ Indeed, as Madritsch/Nioa submit:(a)the use of the double torsion spring in this instance was of a confidential nature, as it solved a problem which arose from the use of a single torsion spring – namely, the AFL not sitting squarely;(b)the confidential nature of this particular use of the double torsion spring is also illustrated by the fact that this solution was not explored by Thales before the Madritsch Solution was inspected; and(c)that was in spite of the Commonwealth having identified the problem of the AFL not sitting squarely.

218. PART G: ALLEGED FACTUAL ERRORS – INDEPENDENT DESIGN SEQUENCE

An Independent Design Sequence

219. Thales challenged the primary judge’s conclusion contained 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.”²⁰⁸ [emphasis added]

220. First, the primary judge has used the phrase in bold deliberately. The phrase is explained in the sixth legal principle described in Part B above.²⁰⁹ In short, to avoid an inference (based on evidence) that the person has used confidential information, it is necessary to proceed through an independent design sequence and not use the confidential information as a springboard to jump through the sequence.²¹⁰ The absence of a logical explanation for doing something can support an inference that confidential information was used as a springboard.²¹¹

221. Second, the conclusion that the primary judge arrived at in paragraph [326] of the reasons, having regard to all the evidence before his Honour, was open to the primary judge. His Honour comprehensively examined the period from 20 February 2012, when Thales made the decision to revive the HMA1 project,²¹² to 9 May 2012 when V6 was accepted as the “new baseline” for the L125-3C model of the Austeyr.²¹³

222. The primary judge’s conclusion that Thales did not proceed through an independent design sequence was plainly open on the evidence. Two examples can be given. Mr Steele did not explain how he came to reduce the torque exerted on the AFL – other than by reference to the instruction to him that it was too high. And, there was no design review when a design review was expected as part of the process.²¹⁴

Other Plausible Explanations

223. Among other findings, the primary judge found that Thales had not given a plausible explanation for Mr Steele’s decision to significantly reduce the AFL spring force. Thales submits that, whilst it was not obliged to provide a plausible explanation, several plausible explanations were available on the evidence.

224. The existence of possible plausible explanations is not sufficient. The primary judge did not accept Thales’ explanations of the design changes inherent in HMA1 V6. He did not accept that there were plausible explanations. The primary judge’s decision on this issue was plainly based on the view his Honour took of Mr Eyles’ credibility and Mr Steele’s memory and credibility.

225. Mr Steele provided an explanation for reducing the forces. As explained above, Mr Steele said he recalled:(a)that he was told that “they thought the forces were … still too high”;(b)“talking to Mr Eyles about the forces being too high”; and(c)that Mr Eyles was involved in the decision to reduce the spring force.²¹⁵

226. Thales submitted that this evidence was equivocal and was subsequently clarified. That was not the view adopted by the primary judge. His Honour was entitled to take this view of that evidence.

227. An example of the primary judge’s reasoning can be found at paragraphs [251] to [254] of the reasons where his Honour pointed out the inconsistencies involved in the following:(a)Mr Eyles’ statement in his email of 12 June 2012 that during 2010 pendulum tests had shown that the only method to assure greater probability of return to battery was to further reduce friction in the system;(b)The actual tests did not show that; and(c)Paragraph 7.9 of Mr Eyles’ statement to the effect that the testing of the HMA1 project confirmed to him that the design was ready for mass production and only needed to be industrialised.

228. His Honour had the benefit of seeing Mr Eyles give evidence on those aspects. He was entitled to conclude that there was an inconsistency and that Mr Eyles’ statement in his email had no factual basis. The primary judge described the explanation as “false” but given that no contention was made that explanation was deliberately false, the likelihood is that the primary judge intended to convey that explanation was not true rather than deliberately false.²¹⁶

PART H: A FLAWED CASE THEORY?

229. Thales submits that Madritsch/Nioa’s flawed case theory, and the flawed case theory accepted by the primary judge, was that:(a)Thales did not have a reliable and effective solution to the Bolt Unlocking Problem;(b)Thales needed to rely on the Madritsch Solution to enable Thales to devise a solution quickly;(c)and so, Thales gave the task to Mr Eyles – who had seen the Madritsch Solution; and(d)Mr Eyles, in turn, instructed Mr Steele.²¹⁷

230. Thus, Thales contends that the case theory it had to meet was a case theory to the effect that Thales had deliberately embarked on a process designed to copy the Madritsch Solution.²¹⁸

231. However, that was not Madritsch/Nioa’s case theory. Madritsch/Nioa’s pleading merely alleges Thales’ use of the confidential information.²¹⁹ Madritsch/Nioa’s particulars do not allege any such deliberate process. Madritsch/Nioa did not attempt to run such a case during the course of its evidence or during the course of its cross-examination of Thales’ witnesses. And, in its closing submissions Madritsch/Nioa explicitly contended that:(a)Madritsch need not establish that the relevant Thales employees intentionally or even consciously used the knowledge gained from the Madritsch Solution; the subjective intention of the Thales employees was irrelevant to whether or not the plaintiff’s confidential information was in fact used;(b)in Talbot v General Television Corporation Pty Ltd²²⁰ Murphy J, who delivered the decision of the Court of Appeal, rejected the submission by the television network that the trial judge was required to make a finding that someone had communicated Mr Talbot’s concept to Mr Meakin, an employee of the television network. It was implicit in the trial judge’s finding that Mr Talbot’s confidential information was communicated in some way to Mr Meakin. It was not necessary for the trial judge to make a finding as to how it was communicated;²²¹ and(c)all the facts lead to the conclusion that Thales had misused the confidential information.²²²

232. For the above reasons, it is wrong to attribute to Madritsch/Nioa a case theory to the effect that Thales had deliberately embarked on a process designed to copy the Madritsch Solution, or even that Mr Eyles deliberately communicated the distinctive features of the Madritsch Solution to Mr Steele. Madritsch/Nioa expressly submitted that it did not need to prove a deliberate use of the confidential information and it did not embark on proof of such a case.

GROUND 2: WHETHER THE CONFIDENTIAL INFORMATION WAS SUFFICIENTLY SPECIFIED

234. There are two limbs to the second ground of appeal. First, Thales contends that Madritsch/Nioa failed to identify with sufficient specificity the information which they alleged was confidential and misused. Second, Thales alleges that Madritsch/Nioa failed to specify how that information was misused. Thales relies on GlaxoSmithKline Australia Pty Ltd v Ritchie²²³ and Lynx Engineering Consultants Pty Ltd v ANI Corporation Ltd (t/as ANI Bradken Rail Transportation Group) (No 2).²²⁴

235. In GlaxoSmithKline Australia Pty Ltd v Ritchie, a former employee used confidential information to establish a competing opiate alkaloids manufacturing business. Both businesses produced opiate alkaloids extracted from the opium poppy. The court held the plaintiff failed to prove its case, as the confidential information alleged to have been misused was vast and the “essential link” between what was confidential and what was misused was not carefully drawn, even after the plaintiff was afforded the opportunity to amend its pleading.

236. Lynx Engineering Consultants Pty Ltd v ANI Corporation Ltd concerned the design of the Bradken 9100 Wagen and Rio Tinto Pilbara Iron Ore railway cars. After “very substantial discovery” and “considerable latitude” afforded to the plaintiff, it was unable to sufficiently specify what feature of the relevant confidential information was misused. Thus, McKerracher J struck out the statement of claim with leave to replead within six weeks.

237. The purpose of the requirement of specificity is the requirement of procedural fairness.²²⁵ The defendant is entitled to know the case against it.

238. Here, in its particulars, Madritsch/Nioa specified the confidential information that was misused as follows:(a)reducing the spring force of the AFL Spring by approximately 65% compared to the spring force of the AFL Spring contemplated in versions 1 to 5 of the HMA1 design; and(b)changing the design of the AFL spring to a double torsion spring compared to the single torsion spring contemplated in versions 1 to 5 of the HMA1 design.²²⁶

239. Those are the Two Features described above.²²⁷ That was the confidential information relied on by Madritsch/Nioa in both their written opening submissions and written closing submissions. There is nothing vague about that. No difficulties with specificity were encountered during the trial.

“[Madritsch/Nioa] point to two specific features as confidential information embodied in those components.

(a)The first is that the torque exerted by the AFL spring in the Madritsch Solution was significantly lower than the torque exerted by the AFL springs in V3 and V5 and, in turn, the lower torque caused the AFL to exert a significantly lower disengagement force against the gun lock group when the two came into contact.

(b)The second was that the AFL spring in the Madritsch Solution was in the form of a double torsion spring, unlike the single torsion in each of V3 and V5. This second feature was also information contained in the Manual where the AFL spring was illustrated.”²³¹ [emphasis added]

242. Lastly, as highlighted by Madritsch/Nioa, Thales in its opening submissions at first instance conceded that Madritsch had sufficiently specified the relevant confidential information.²³²

243. Thus, this ground of appeal should fail.

GROUND 3: WHETHER THE MADRITSCH SOLUTION LOST ITS CHARACTER OF CONFIDENTIALITY

244. The primary judge found that the Madritsch Solution maintained its confidential character, despite it having been provided to the Bundesheer on three separate occasions for testing purposes. Thales contends that this finding is wrong on two grounds.

First Argument: Confidentiality Not Maintained

245. Thales contends that the lack of evidence adduced by Madritsch/Nioa of the circumstances surrounding the first two instances of disclosure means the primary judge had no evidentiary basis upon which his Honour could find that confidentiality had been maintained.²³³

246. Whether information previously disclosed to a limited public has entered the public domain is a question of degree which was considered in Douglas v Hello! Ltd (No 3), where the English Court of Appeal said:

“[I]nformation will be confidential if it is available to one person (or a group of people) and not generally available to others, provided that the person (or group) who possess the information does not intend that it should become available to others.”²³⁴

247. Further, information does not enter the public domain where the information is given or received in circumstances importing an obligation of confidence.²³⁵ Whether the relevant disclosures import an obligation of confidence may be assessed in light of the ‘reasonable man test’ advanced by Megarry J in Coco v AN Clark (Engineers) Ltd.²³⁶ That test is framed in the following terms:

“It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence.”²³⁷

248. Madritsch/Nioa contended that the disclosures to the Bundesheer were limited and impermanent.²³⁸ Mr Madritsch’s evidence was that:

“In February and March 2009, the Austrian Army conducted further testing on the modifications in accordance with the standardised NATO AC/225 criteria for weapons testing.” ²³⁹

“In late May 2009, the Austrian Army conducted further testing on the modifications in accordance with the standardised NATO AC/225 criteria for weapons testing, once again using hammer groups from a wide range of production batches. Mr Frohnwieser and I attended that testing.”²⁴⁰

“On 31 August 2009, I provided the parts and assembly aids in four ‘modification kits’ to Colonel Wolfgang Weinsess of the Austrian Army for the purpose of the Austrian Army conducted [sic, conducting] a type test. A type test is testing conducted by an authorised testing body in accordance with defined criteria, such as NATO AC/225 criteria.”²⁴¹

249. Here, the disclosures to the Bundesheer were clearly made to a singular entity. The information was disclosed only for the purposes of testing of the Madritsch Solution. The information did not become generally available to others or to the wider public. The confidential nature of the relationship is also highlighted by Mr Madritsch’s decision to not to attempt to patent the Madritsch Solution, because of his fear that “[i]f a patent was not granted, then [he] would have publicly disclosed details of the Madritsch solution without the benefit of a patent”.²⁴²

250. Applying the principles in Coco v AN Clark (Engineers) Ltd, a reasonable person in the Bundesheer’s position would have realised that Mr Madritsch provided the Madritsch solution in confidence for the following reasons: (a)Mr Madritsch provided the kits to Obst Weinsei²⁴³ of the Bundesheer to test for the purposes of the Bundesheer deciding whether to adopt the Madritsch Solution for their weapon, the Steyr AUG;(b)the Bundesheer must have appreciated that the Madritsch Solution was of commercial value, which Madritsch was concerned to protect; (c)the testing was relevant to the possible use of the Madritsch Solution by the Bundesheer and so its confidential nature was relevant to the defence of Austria; and(d)the Bundesheer had a direct economic interest in having access to the kits and testing them for the purpose of determining whether to adopt and purchase the Madritsch Solution.

251. Importantly, the Madritsch Solution cannot be said to have entered the public domain in the sense that it was “so generally accessible that, in all the circumstances, it cannot be regarded as confidential”.²⁴⁴

252. The Madritsch Solution was shared by Madritsch/Nioa to the Bundesheer in a recognised relationship of trust and confidence for reasonable trial purposes, rather than made available to the public at large. Thus, the relevant disclosures cannot be said to lack confidentiality.

Second Argument: Disclosure Comprehended by BD 1979

253. Thales submits that there was no basis for the primary judge to conclude that the Bundesheer personnel who tested the Madritsch Solution were acting in one of the capacities covered by Article 46 of the Beamten-Dienstrechtsgestz 1979 (BD 1979), allowing it to maintain its character of confidentiality as it is a “public purpose of the Republic of Austria”.

254. The plaintiff relied on the evidence of Dr Schwank, who holds a doctorate in law from the University of Innsbruck. Dr Schwank was admitted as an Austrian lawyer and advocate in 1976 and has continuously practiced ever since. He also is a Fellow of the Chartered Institute of Arbitrators, London, and a board member of the German-Australian-Pacific Lawyers Association.

255. Dr Schwank prepared a report on whether Article 46(1) of the BD 1979 applied to the provision by Mr Madritsch of four kits to Obst Weinsteβ, of the Bundesheer, for testing of the Madritsch Solution. Madritsch tendered that report.

256. 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.

257. 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.

258. For those reasons this ground should fail.

GROUND 4: WHETHER THE SECTION 18 ACL CASE WAS ESTABLISHED

The Allegation of Misleading or Deceptive Conduct

259. 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.

260. 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

261. 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’.

The Pleaded Case on Loss & Damage

262. 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’.

263. 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 Ltd²⁵² (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

264. 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.

The Pleaded Case on Section 18 ACL Loss

266. 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

267. 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.

268. 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.

269. 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].

270. 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

271. 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]

272. 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.

273. 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.

A Split Trial

274. Here, the order that the trial be ‘split’ was in these terms:

“1. …

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.

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.

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]

275. 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

276. 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

277. 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.

278. 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

279. 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.

280. 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.

281. 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.

Thales Second s 18 Appeal Point

282. 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

283. 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.

284. 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.

285. 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.

286. 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.

287. For those reasons this ground should fail also.

CONCLUSION

288. In my opinion, the appeal should be dismissed, with costs.

Footnotes

1. Much of the summary below is from the primary judge’s reasons. ↩

2. Reasons at [73] to [88]. ↩

3. See First Witness Statement of Stefan Madritsch at [48], [63]. ↩

4. For convenience the various versions are referred to as V1 for version 1, etc. ↩

5. Reasons at [29]. ↩

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. ↩

8. Reasons at [43]. ↩

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]. ↩

11. Reasons at [71]. ↩

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. ↩