FEDERAL COURT OF AUSTRALIA

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 4)

[2012] FCA 731

THE COURT ORDERS THAT:

1.    Orders 1, 2 and 3 made by Rares J on 28 May 2012 be vacated.

2.    The proceedings stand over for further directions to 6 July.

3.    If there is a dispute as to whether the respondents should be ordered to pay the costs in respect of the further discovery ordered on 14 June 2012, the respondents serve, and provide a copy to the associate to Rares J, any written submissions, and file and serve any evidence on which they propose to rely on or before 29 June 2012.

4.    In the event that the respondents file any such submissions and affidavits, the applicants serve and provide a copy to the associate to Rares J any submissions in reply, and file and serve any evidence on which they propose to rely on or before 4 July 2012.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1    This is an application by Optiver to vacate the orders for the inquiry before the referee that I ordered in Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 2) [2012] FCA 559. Subsequently, before the referee had commenced hearing the inquiry, I gave reasons on 14 June 2012 for ordering the Tibra parties to give further discovery: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 3) [2012] FCA 641. Those reasons set out the background facts. Each of the individual Tibra parties and Tibra companies has made a supplementary affidavit of documents as a result of the orders of 14 June 2012. As a result about 1,060 new documents have been discovered, including over 30 emails that had previously been encrypted but have now been able to be read. Of those documents, 170 new encrypted documents have been found since 6 June 2012.

The newly discovered material

2    In my earlier reasons, I referred to Mr Bhandari’s evidence of his belief that he had lost the private key to the PGP software when Tibra’s corporate computer system was upgraded in about 2007: [2012] FCA 641 at [15]. Apparently, the Tibra parties found, on the currently used corporate computer system and not on the back-up or archive part of it, one of two private keys that Mr Bhandari used for the PGP software. However, they have not been able to locate, so I have been informed, a passphrase which enables the private key that has been found to operate.

3    Although Mr Bhandari said in his affidavit of 12 June 2012 that he had provided his passphrase to Tibra’s in-house counsel, I have been told that there is no record of whatever it was that he did provide. At the time he swore this affidavit, Mr Bhandari said that he could not recall his passphrase but that if he had access to his private key he believed he might be able to decrypt his emails by successfully guessing the passphrase from amongst a large number of possible combinations of words and numbers that he typically used. However, as he pointed out, without access to his private key, he would know whether any passphrase would be correct because both of those integers were necessary to enable the encryption to be broken.

4    Optiver complained that the descriptions in Part 3 of each of the most recent lists of documents by the Tibra parties are ambiguous because they merely refer to the deponents’ earlier affidavits filed for the hearing on 13 and 14 June 2012. While there is some force in that, at the moment there is no application for further and better discovery in respect of those matters.

The present application

5    Optiver has applied for the vacation of the order for reference and for further directions to enable the matter to be properly prepared for hearing, having regard to the developments in the last three weeks. Optiver relied on a number of concerns arising from the Tibra parties’ various lists of documents and the recently obtained ability to read some of the previously encrypted emails.

6    Optiver suggested that it wishes now to pursue a number of steps in the preparation of its case having regard to the new turn of events. First, it seeks to assimilate, understand and then review the fresh documents discovered, including those in the new categories I ordered on 14 June 2012 that related to the “Things To Do” timeline document. It wishes to correlate those with the documents already discovered or available for use in the proceedings. Secondly, Optiver wishes also to assess the whole of the documentary material against affidavits which the Tibra parties and their witnesses had previously prepared or outlines of evidence which may have been provided in consequence of directions I had subsequently given (when I had thought the hearing) that the hearing proceed by way of the lay witnesses giving viva voce evidence in-chief. Thirdly, Optiver seeks to subpoena Google in the United States of America, pursuant to letters of request to be issued by this Court or by their own separate application there, to investigate email accounts kept by Mr King, Mr Berry and possibly also Mr Begg, Mr Williamson, a Campbell Norwood and a Christian King. Optiver also contemplates issuing subpoenas to Microsoft Inc, again, I assume in the United States, for Hotmail accounts held by the individual Tibra parties and possibly Mr Norwood. Optiver contemplates issuing subpoenas to various internet service providers in Australia with respect to the individual Tibra parties’ email accounts now that there is a possibility of decrypting some of the encrypted emails and relating such documentary and other material in the case to the “Things To Do” timeline document.

7    Part of Optiver’s intended further preparation is to re-evaluate how it had approached the present evidence anticipated to be given by the Tibra parties, either through revisiting their previous affidavits, outlines or other material and comparing the accounts in those to the newly discovered material including, in particular, the consistency of those materials with the chronology anticipated in the “Things To Do” timeline. Optiver argued that there were potential inconsistencies between the affidavit evidence of Mr Berry and Mr King and the newly decrypted email material that it claimed showed they communicated, contrary to Mr Berry’s earlier denials of having done so at some point in time.

The Tibra parties’ submissions

8    The Tibra parties have proposed that the hearing before the referee now commence on 5 July 2012 while, in the interim, Optiver has the opportunity of exploring such matters as it may be able to pursue. They argued that most of the new mechanical discovered for the purposes of order 1 made on 14 June 2012 concerned the machinery steps taken to set up their new business. They contended that this material, as a matter of commonsense, would be of no real significance and would be of the kind that would have been brought into existence in any event regardless of the time line on which Optiver’s submissions are based.

9    They argue that the reference should not be abandoned at this stage but should be allowed to commence because both sides have prepared for it and are substantively ready to proceed. In addition, the Tibra parties point to the fact that by vacating the order for the reference there will necessarily be a significant prejudice to them. As they say, this matter involves, among other things, their clients’ entire business, their reputations and memories of events that occurred now about six years ago. Further delay, they argue, is not in the interests of justice, particularly where the inquiries that Optiver says it wishes to undertake are, essentially, speculative and may lead nowhere.

10    The Tibra parties argued that the assertions by Optiver of what could be drawn from the “Things To Do” timeline and what has now come to light were highly unlikely to lead to any forensic change in the shape of the parties’ cases and, more particularly, the outcome. The Tibra parties argued that the loss of, or inability to recall, Mr Bhandari’s passphrase means that it will be a matter of speculation as to whether anything would be turned up in a code-cracking exercise, even with assistance from him as to likely passphrases or passwords that he had in mind or used at the time. They argued that there is little likelihood that a “smoking gun” will be revealed in any of the forensic exercises that Optiver says it wishes to undertake. The Tibra parties contended that to allow the further discovery and subpoena work foreshadowed by Optiver to occur will interrupt the imminent start of the hearing of the reference and the consequential detriment they would suffer would be out of all proportion to the likely forensic benefit to Optiver of the exercise, were it undertaken.

Consideration

11    Each of the parties is represented by experienced counsel and solicitors. Each is extremely well resourced. The corporate parties apparently run highly successful businesses. When there is delay the whole quality of justice deteriorates: cf Reg v Lawrance [1982] AC 510 at 517B per Lord Hailsham of St Marylebone LC. The circumstances that have given rise to the present application, however, cannot be laid at the door of Optiver, as I explained in Optiver (No 3) [2012] FCA 641. The revelation that Mr Bhandari’s passphrase is missing has thrown up yet another difficulty in the parties’ paths to decrypt the emails. Arrangements have been made between the parties today for passphrases that Mr Bhandari thinks he used around the time to be provided to Optiver. That will enable its expert to run forensic tests using variations of those passphrases to see whether any of the encrypted emails can be unlocked in combination with one of Mr Bhandari’s private keys that has now been discovered.

12    The Court and the parties must seek to facilitate the just resolution of disputes, according to law, as quickly, inexpensively and efficiently as possible pursuant to the overarching purpose set out in s 37M of the Federal Court of Australia Act 1976 (Cth). Nonetheless, at the heart of the exercise of judicial power lies the consideration of the interests of justice. In an application such as the present, a balancing exercise has to be undertaken on imperfect materials and incomplete information. In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, Gummow, Hayne, Crennan, Kiefel and Bell JJ discussed considerations that were applicable to an analogue of s 37M with respect to an amendment application that had occasioned the vacation of a hearing date. Their Honours said (239 CLR at 212 [94]):

“Where a party had had a sufficient opportunity to plead his or her case, it may be necessary for the court to make a decision which may produce a sense of injustice in that party, for the sake of doing justice to the opponent and to other litigants.”

13    They noted that a just resolution of the proceedings remained the paramount purpose of provisions such as s 37M. However, they had said that the concept of a just resolution had to be understood in light of the purposes and objectives of the applicable legislative purpose. Here, that is stated in s 37M and includes having regard to speed and efficiency, in the sense of a minimum of delay and expense, as being essential components of a just resolution. Their Honours pointed out that it could not be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings on payment of costs (see 239 CLR at 213 [98]). Critically their Honours said (239 CLR at 214-215 [102]):

“It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion.” (emphasis added)

14    It will not be contrary to the decision in Aon 239 CLR 175 or anything in Pt VB of the Federal Court of Australia Act for a judge to give significant weight to the consideration of the achievement of justice in the particular case: Cement Australia Pty Limited v Australian Competition and Consumer Commission (2010) 187 FCR 261 at 274-275 [45] per Keane CJ, Gilmour and Logan JJ. Their Honours pointed out that nothing in the High Court’s reasons suggested that the latter consideration was not relevant to the exercise of discretion to permit or refuse an amendment. Rather, they held that the principle in Aon 239 CLR 175 was that the consideration of the achievement of justice in the particular case must not be allowed to trump other relevant considerations, including those such as are referred to in ss 37M and 37N. They made the point that Aon was not a “one size fits all” case and that, at the end of the day, the Court must weigh all the relevant factors, and that these may vary depending on the facts of the case.

15    When I ordered that these proceedings be referred to a referee I was mindful that they had been fixed for nearly a year to be heard and determined in an eight week agreed timeframe commencing on 4 June 2012. I found that the proceedings were likely to take significantly longer than that timeframe and the parties were not able to guarantee that it would finish within it. I had regard, among other reasons, to the facts that there would be a somewhat indeterminate length to the hearing, the serious allegations of, in substance, fraudulent conduct which Optiver made against the Tibra parties, the highly complex and detailed expert evidence, and the undesirability of splitting the hearing of the trial once that hearing had commenced. Since both parties wanted the proceedings heard sooner rather than later, I took the course of ordering that the proceedings be referred to the Honourable Kevin Lindgren QC as a referee.

16    The situation has now developed that documents that were apparently relevant and had been discovered, but were unreadable, have now become readable. As I found in my reasons of 14 June, the Tibra parties had undertaken their discovery on the basis of a misconception. Indeed, the further discovery I ordered has revealed that Mr Bhandari’s private key for the PGP software was, in fact, located on the Tibra companies’ computer system, but had not been found earlier. There is no affidavit evidence explaining any of the difficulties that have been encountered in relation to Mr Bhandari’s ability to access or otherwise use the PGP software since he made his affidavit of 12 June 2012.

17    Optiver says, through its counsel, that it needs to reassess the discovered material and to compare it against what is available as evidence likely to be deployed in the hearing as well as considering documents that have already been discovered and matters arising from them. It wishes to undertake further exploration of that material. Critical to its case is the fact that, as appears to be common ground, in the period ending on 4 September 2006, a significant amount of primary material held by each of the individual Tibra parties and the Tibra companies was wiped from, or no longer exists on their private computers on which the individual Tibra parties worked. The individual Tibra parties have given differing dates as to when each of them ceased to hold the documentary material on his laptop or personal computer. Mr Bhandari transferred all of his material onto the Tibra computer system. The parties, and in particular Optiver, have now the ability to consider, at least in part, some of the encrypted material that was previously inaccessible. This has potential significance to the overall conduct of the proceedings particularly having regard to the contents of the “Things to Do” timeline document.

18    These matters suggest that the orderly and proper preparation of the case for trial requires that Optiver have the opportunity to further assess and explore other evidentiary paths that have now been opened up by the new material that has come to light. This is a highly complicated case involving a vast amount of analytical material concerning computer software and the like. But, as Optiver argued, one of the significant features, not usually found in litigation, is that the party alleged to be copying or misusing confidential information does not now have a significant amount of material contemporaneous with the period prior to 4 September 2006 when much of that activity is alleged to have occurred.

19    In order to be able to cross-examine witnesses as to credit, it is often the case that contemporaneous documents enable a picture to be painted. That picture can be very different from a witness’ honest recollection or, in other cases, an asserted recollection that is less transparent or well motivated. Through no fault of Optiver’s, this new ability to access the encrypted material has come at a very late stage. I am not satisfied that it is likely that Optiver will be able to undertake or complete investigations that it, bona fide wishes to undertake and which, on the material before me, appear to be reasonable for it now to undertake.

20    There is no evidence of what Mr Bhandari has now done to check for and seek to use one or both of his private keys and establish, through his own recollection or experimentation, whether any passphrase that he thinks might be applicable would open the encrypted material. It may be that at the end of the day, no one will be able to do so with all the best will and effort in the world. Nonetheless, the various accounts given by the individual Tibra parties as to the apparent lack of significance of the “Things to Do” timeline or any similar plan raises the need, I think, for Optiver to be given the opportunity to test that material forensically by pursuing a reasonable course of investigation in the orderly preparation of its case for hearing. I think the inevitable consequence of the view that I have formed must be that the hearing cannot be forced on in accordance with the previous orders or sensibly commence on 5 July 2012.

21    The individual Tibra parties’ credibility is a central issue relevant to the outcome of the proceedings. They deny that they are guilty of the very serious matters that Optiver alleges against them. The inability of Optiver to have available contemporaneous documents to which the individual Tibra parties were themselves party, until the opening of the encrypted documents would have been a matter of some significance in Optiver’s ability to test its opponents’ evidence before any tribunal of fact. Obviously, I have no view one way or the other as to which side in this debate will ultimately succeed or has a stronger case. My concern is to ensure that, as the events have now unfolded, justice is done to both sides. In doing so, I recognise that vacating the hearing date will inevitably cause prejudice to the Tibra parties, some of which may be irremediable.

22    At the moment, I do not think that it is possible to assess whether one or other side should be responsible for the costs of the vacation of the hearing date because, as the Tibra parties argued, to some degree, there must be a degree of speculation and whether the opportunity afforded Optiver by this course will yield any substantive benefit. Optiver has asked for it and the state of the evidence suggests to me that it is entitled to have such an opportunity to explore and investigate what flows from this material. The very high level forensic arguments deployed by each of the parties before me as to the strengths and weaknesses of the other’s case may or may not hit home at the end of the proceedings. It will be easier, then, to judge whether this adjournment was or was not justified in all of the circumstances. It would not be desirable, in effect, to tie the referee up on an indefinite basis to a reference that may or may not be ready to proceed at a later stage when the opportunity I propose to give to Optiver to pursue its enquiries further is completed. It is not yet feasible to know when a hearing date should be set. Accordingly, I should also vacate the order for reference.

23    Optiver accepts that it may later be appropriate to make a further order for reference, as indeed Tibra urges. One consideration in relation to that is that a referee may be even more readily available to hear an open ended, in terms of length, trial of the issues that must be heard pursuant to the orders for a separate hearing than a judge, depending on when the parties assess the case is ready to be fixed for hearing. I will order that orders 1, 2 and 3 made on 28 May 2012 be vacated.

Associate:

Dated:    10 July 2012

SCHEDULE

NSD 681 of 2009

TIBRA TRADING PTY LTD

First Respondent

TIBRA CAPITAL PTY LTD ACN 120 313 160

Second Respondent

TIBRA INVESTMENT MANAGEMENT LTD ACN 124 402 160

Third Respondent

TIBRA GLOBAL SERVICES PTY LTD ACN 120 338 445

Fourth Respondent

DINESH BHANDARI

Fifth Respondent

GLENN WILLIAMSON

Sixth Respondent

TIMOTHY BERRY

Seventh Respondent

ANDREW KING

Eighth Respondent

KINSEY COTTON

Ninth Respondent

MARTIN NICKOLAS

Tenth Respondent

NICHOLAS BEGG

Eleventh Respondent