A recent decision of the Supreme Court of Queensland provides useful insight into factors which courts will take into account in assessing the effectiveness of non-disclosure agreements (NDAs).

On 26 July 2021, Justice Bradley ruled in Madritsch KG & Anor v Thales Australia Ltd  [2021] QSC 170 that the defendant, a small arms manufacturer and supplier to the Commonwealth, had infringed an NDA with the plaintiffs, both of which are also involved in the firearms industry, regarding details of a technological solution to a functional problem affecting a service rifle used by the Australian Defence Force (ADF).

Key points and implications

  1. Information will be inherently confidential if the information is not in the public domain and a reasonable recipient would have realised the information was given to it in confidence.
  2. Any uncertainty in this regard can be reduced by a precise definition of the relevant information and of the purposes for which it may be used.
  3. The fact that the information could have been independently created by the recipient is of no relevance if the recipient in fact relied upon confidential information provided by the discloser.
  4. Information is not necessarily in the public domain by virtue of the fact that it has previously been disclosed in confidence to a third party.
  5. A time limit on the duration of the confidentiality obligation will, if it is reasonable, reduce the risk of the obligation becoming an unenforceable restraint of trade in circumstances where the Restraints of Trade Act 1976  (NSW) applies.
  6. An equitable obligation of confidence will co-exist with the contractual obligation under an NDA, unless expressly negated.


The first plaintiff, Madritsch KG (Madritsch), is a manufacturer of rifle components and accessories, based in Austria.

The second plaintiff, NIOA Nominees Pty Ltd (NIOA) is an Australian importer of arms and ammunition, and represents Madritsch in its dealings with Australian customers.

Thales Australia Pty Ltd (Thales) is an Australian small arms manufacturer which supplies the standard service rifle, Austeyr, to the ADF.  The Austeyr is based on the Steyr AUG rifle for which Madritsch manufactures components in Austria.

In or about 2011, the Commonwealth selected Thales to develop a new model of the Austeyr, with an express requirement that the new model address a bolt-unlocking problem which had been identified in the existing model from about 2006.  Madritsch had already developed a solution to what was effectively the same problem in the Steyr AUG (the Madritsch Solution).

Negotiations ensued between NIOA and Thales for the supply and installation of the Madritsch modification kits under sub-licence from NIOA.  The alternative, from Thales's perspective, was to manufacture its own solution, but this would require significant additional testing and design work.


The three parties entered into an NDA in August 2011.

Relevantly, Recital A of the NDA stated that:

"The Parties wish to enter into discussions in relation to modification of the Steyr AUG family of weapons in order to overcome the problem of the bolt unlocking upon firing of an underslung grenade launcher (the 'Purpose')."

Clause 2(b) stated:

"Subject to legislative requirements, the receiving Party undertakes that such Proprietary Information shall for a period of FIVE (5) years following the date of receipt of Proprietary Information:
(iii) not be used in whole or in part for any purpose other than the Purpose".

Unlike clause 2(b) which contained a time-limited restraint on disclosure, clause 3(a) contained an indefinite restriction on analysis:

"Each Party agrees that it shall not itself, or cause or enable any other person to reverse-engineer, decompile, or disassemble any software, process or tangible items, including refraining from any activities, examinations, performance or qualitative analyses, or other investigations that seek to discover the contents, algorithms, composition or manufacturing formulae of the Proprietary Information."

Clause 12(b) provided:

"The receiving Party must notify the disclosing Party immediately upon becoming aware of any disclosure or use of the Proprietary Information of the disclosing Party other than for the approved Purpose or otherwise than as permitted by this [NDA]."

The issues

Following the signing of the NDA, Thales was provided with technical details of the Madritsch Solution for testing and appraisal.

Thales subsequently opted, however, to develop its own solution to the problem (known as HMAI V6), and the principal issue was whether Thales had made use of information contained in the Madritsch Solution for this purpose.

The defendant denied having based its solution on information derived from Madritsch.

The defendant further contended, amongst other arguments, that because the Madritsch Solution had previously been provided by Madritsch to personnel of the Austrian Armed Forces for testing and evaluation in Austria, it had entered the public domain and was no longer confidential.

The defendant also contended that the 5-year restriction on the use of Madritsch information under clause 2(b) of the NDA, and the indefinite prohibition on analysis under clause 3(a), constituted an invalid restraint of trade under section 4 of the Restraints of Trade Act 1976  (NSW).

The findings

Bradley J concluded on the evidence that the defendant had benefited from its access to information contained in the Madritsch Solution:

"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 [relevant mechanism] in the Madritsch Solution kits as a springboard to advance V6 without having to undertake the necessary further work itself."

This in turn amounted to a breach of clause 2(b)(iii) of the NDA because the information had been used otherwise than for the "Purpose" of the original disclosure, namely discussions between Thales on the one hand, and Madritsch and NOIA on the other.

This being the case, there was also a breach of the notification obligation under clause 12(b), given that Thales was aware that it was not using the information in connection with the "Purpose".

On the threshold question of whether the Madritsch Solution comprised information which was inherently confidential, his honour took account of a number of factors, including:

  • the information was the subject of the application of professional engineering knowledge and skills by Madritsch prior to the signing of the NDA;
  • the information was not otherwise available to Thales;
  • a reasonable person in the position of Thales would have realised the information was given to it in confidence;
  • it was not relevant that the information could have been developed independently by Thales;
  • by using the information, Thales had avoided doing its own more extensive iterative research, development, design and testing, meaning in turn that it was able to produce its alternative solution at a lower cost than it would otherwise have incurred and within a shorter time frame.

His honour rejected Thales's contention that any confidentiality in the Madritsch Solution was lost as a consequence of Madritsch' s disclosure of the information to representatives of the Austrian army for verification and testing purposes.  This disclosure had not involve the release of confidential information into the public domain, given that the recipients were Austrian public servants who were bound by local legislation to maintain the confidentiality of the information.

The court further rejected Thales's argument that the 5-year restriction on the disclosure of the information was an unenforceable restraint of trade.

Section 4 of the Restraints of Trade Act provides that "a restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not".

His honour observed that "the extent to which a restraint is not against public policy is the extent to which it is reasonably necessary for the protection of the legitimate interests of the parties".  In concluding that the restraint was reasonably necessary to protect the plaintiffs' interest in the confidential information, account was taken of the following factors:

  • the subject matter of the restraints was confined to information that was confidential and not already in the public domain;
  • the restraint sought to prohibit the disclosure and use of confidential information for a limited time only, namely 5 years;
  • the restraint for this limited period could be categorised as a ''head start'' handicap, reflecting the advantage a party might gain by access to the confidential information over competitors who had not dealt with the other parties;
  • the terms of the NDA were the subject of negotiation between experienced commercial entities, and there was no indication of any inequality in bargaining power;
  • the confidentiality of the detail of the Madritsch Solution had an economic value to Madritsch.

On this basis, the court concluded:

"There is a public interest in the development of better technologies. It is promoted by reasonable restraints on copying work that is otherwise confidential, valuable, and the result of effort. The covenants in cl 2(b)(iii) and 12(b) serve that public interest."

With respect to the indefinite restriction on analysis of Madritsch Proprietary Information in clause 3(a) of the NDA, the court was of the opinion that at face value the duration was excessive and therefore not in the public interest.  Nevertheless it was relevant that Thales's breach had occurred within the first 6 months, and a restraint of six months (or indeed 5 years) would have been reasonable if such a limitation had been included in that clause.  As section 4(1) of the Restraints of Trade Act permits a court to enforce a covenant "to the extent" that it is not contrary to public policy, in this instance the restraint in clause 3(a) would be enforceable.

Finally, the court observed that in addition to breaching its contractual obligations under the NDA, Thales had breached its equitable duty of confidence by making use of the information.  For the reasons stated in respect of the contractual claim, the information was inherently confidential, received under a duty of non-disclosure and subsequently used in an unauthorised manner, thus satisfying the well-established equitable principles underpinning the breach of confidence action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.