Optiver Australia Pty Ltd v Tibra Trading Pty Ltd

ISSUE FOR DETERMINATION 17 The issue arising in this case is whether the requirements of O 15A r 6 of the Rules are satisfied so that an order for preliminary discovery should properly be made. 18 The Court may exercise its discretion to grant preliminary discovery under O 15A r 6 where an applicant establishes that: (a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief from an identified person; (b) the applicant, having made all reasonable inquiries, does not have sufficient information to enable it to decide whether to commence proceedings to obtain that relief; and (c) there is reasonable cause to believe that the identified person has, is likely to have or is likely to have had possession of any document relating to the question whether the applicant has a right to obtain relief, and that inspection of the document would assist the applicant to decide whether to commence proceedings. (Emphasis added.) 19 In this case, the first and second limbs are relevant. There is no significant dispute about the likelihood of Tibra having possession of documents which concern Optiver's right to obtain relief and which would aid its decision to commence proceedings.

REASONABLE CAUSE TO BELIEVE 20 Optiver submits that the circumstances outlined above give rise to a reasonable cause to believe that they may have a right to obtain relief from Tibra. In particular, Optiver argues that the circumstances surrounding the fifth to ninth respondents' respective terminations or resignations, their subsequent establishment of a new and successful arbitrage business, the discovery of two worrying emails by Mr Keldoulis, and Mr Shale's calculations, all show that Optiver has reasonable cause to believe that it may have a right to obtain relief. 21 In response, Tibra submits that there are significant shortcomings in the evidence on which Optiver grounds its belief. It says that the fifth to ninth respondents' departures were not suspicious; that Tibra's success is explained by circumstances in no way related to or dependant upon a misappropriation of Optiver's confidential or copyright information; that the two emails were either anodyne or accidental; and that Mr Shale's graph is far from conclusive. 22 The principles concerning whether an applicant for preliminary discovery has a "reasonable cause to believe" are well established, and are summarised by Hely J in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 153-154. I do not propose to repeat those principles here. 23 In this case, Optiver has reasonable cause to believe that it may have a right to obtain relief from Tibra. The circumstances outlined above, when taken together, provide sufficient objective basis on which that belief is grounded. I am persuaded that Optiver's belief goes beyond mere conjecture or supposition; rather, Optiver has reasonably formed a conclusion that the circumstances surrounding the departure of its employees and the success of their subsequent business may depend to some degree on a breach of a duty of confidence owed to Optiver or a breach of its copyright. 24 It is important to stress that the above view does not mean that Optiver's belief is correctly held, in the sense that it is likely to be vindicated in the proceedings. The evidence presently before the Court does not, and need not, go so far as to establish a prima facie case or crystallise a successful cause of action. Under O 15A r 6(a), Optiver's evidence need only establish a tenable objective basis for its belief, which it has done. Accordingly, while Tibra's submissions regarding the shortcomings in Optiver's evidence are important, they are not sufficient to weaken the objective grounds on which Optiver asserts its belief to the extent that O 15A r 6(a) is not satisfied. Shortcomings will be relevant if and when the dispute progresses to hearing, at which stage detailed evidence can be fully adduced and weighed.

SUFFICIENT INFORMATION 25 Although the parties disagreed whether Optiver had made all reasonable inquiries before bringing this application, in my view, O 15A r 6(b) is determinative in this case because it prohibits the Court exercising its discretion to grant preliminary discovery where the applicant has sufficient information to enable it to decide whether to commence proceedings to obtain the relief referred to in O 15A r 6(a). 26 I am persuaded that Optiver is equipped with sufficient information to decide whether to commence proceedings to obtain at least some of the relief which it submits may be available to it. 27 It is settled law that the purpose of preliminary discovery is not to procure documents that will strengthen an applicant's decision to commence proceedings, but rather to furnish it with information which is reasonably necessary to enable that decision to be made: see Matrix Film Investment One Pty Ltd v Alameda Films LLC [2006] FCA 591 at [19]. In other words, once a prospective applicant has enough information to meet the threshold of "a bare pleadable case" (C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 at [44]), an order under O 15A r 6 is no longer appropriate. Simply because it may be difficult to ascertain the finer detail of those pleadings and assess with accuracy the likelihood of success does not mean the prospects of success in the litigation should be amplified for the prospective applicant through the effects of an invasive order for preliminary discovery. An applicant which is unsuccessful in its preliminary discovery application can always plead its case as best it can, acquire further information and documentation through the ordinary processes of discovery and issue of subpoenas, and then, if necessary, amend its pleadings to assert further or different breaches of its rights or abandon any grounds or causes of action no longer considered tenable. 28 It follows that an applicant, upon obtaining enough information to plead its case, is no longer entitled to preliminary discovery. Delay may also be important: see Western Bulk Carriers (Aust) Pty Ltd v Cosco Bulk Carrier Co Ltd [2002] FCA 1520 at [25]. Once an applicant has obtained information sufficient to plead its case, or has unnecessarily delayed that acquisition, preliminary discovery will not be ordered, and the proceedings must commence. The threshold, once crossed, arrests the preliminary discovery process: see Ricegrowers Co-Operative Ltd & Seatide Pty Ltd v ABC Containerline NV & MED Containerline Antwerp NV(1996) 138 ALR 480 at 484. 29 Orders of preliminary discovery are not intended to convey a forensic or tactical advantage, but rather to clarify whether litigation is warranted. While preliminary discovery will be beneficial to an applicant to the extent it crystallises their cause of action, or in some cases the availability of a defence to an anticipated claim, it should not be oppressive to a prospective defendant. Preliminary discovery is a one-way transaction, in the sense that there is no reciprocal obligation to produce documents. Only the applicant receives documents, which is markedly different to ordinary discovery in the course of a legal proceeding. In practical terms, the handing over of information which may be highly sensitive can be commercially damaging to a business. It is appropriate to exercise caution not to unnecessarily burden a prospective defendant to the point where its unilateral disclosure of information in preliminary discovery injures its commercial position vis-à-vis a competitor, or confers an unfair advantage on that competitor. 30 Two conclusions can be drawn from application of the above principles to the present facts. The first is that Optiver has crossed the threshold of "a bare pleadable case", and therefore does not satisfy O 15A r 6(b). 31 The information which Optiver has at present - in particular, the termination or resignation of the fifth to ninth respondents, their subsequent establishment of Tibra, the discovery of two emails by Mr Keldoulis, and Mr Shale's calculations - sufficiently equips it to decide whether to commence proceedings. This information is a basis for substantially more than what is required to institute "a bare pleadable case". Although Optiver's initial pleadings may not be as comprehensive as they would be after preliminary discovery, this is not a reason to grant the application. It often occurs that pleadings, as initially drafted, are amended in light of extra information gleaned from discovery. 32 Optiver stressed that the question for it to decide pursuant to O 15A r 6(b) is whether it should commence proceedings against Tibra to obtain the relief to which it asserts an entitlement, that is, relief for breach of confidence and copyright. Optiver also referred to the observation by Sackville J in Quanta Software International Pty Ltd v Computer Management Services Pty Ltd (2000) 175 ALR 536 at 543 to the effect that an order under O 15A r 6 may be available to assess the extent of any alleged infringement of an applicant's rights. While these are correct statements of principle, I do not believe they are decisive in this case. 33 The observation by Sackville J in Quanta Software 175 ALR at 543 was made in the context of dismissing the clearly untenable proposition that "documents relating only to quantum are necessarily irrelevant in determining whether an applicant has satisfied O 15A r 6(b)." This does not mean that the extent of the alleged infringement must always be relevant to every preliminary discovery application in which the applicant hopes for a greater or more wide-ranging form of relief. The notion of "reasonable sufficiency" articulated by Lindgren J in Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd (unreported, 24 May 1996) at 24 requires only that uncertainty about the available type and extent of relief be taken into account as one of the considerations relevant to the test in O 15A r 6(b), and that it not be treated as decisive. 34 In this case, there is real doubt about the extent of the relief to which Optiver may be entitled, particularly in relation to the amount of compensatory and additional damages it might receive under s 115 of the Copyright Act 1968 (Cth). However, there seems to be little doubt in the submissions and evidence of Optiver that it will seek compensatory damages under s 115(2), additional damages under s 115(4), equitable compensation for breach of confidence and injunctive relief restraining further breaches of copyright and confidence. Given that the type of relief which might be obtained is clear, and given that there is sufficient information to formulate the necessary pleadings, I do not accept that some uncertainty regarding the extent of relief renders Optiver unable to decide whether to commence proceedings to obtain that relief. 35 The second conclusion I have reached is that requiring Tibra to reveal the information Optiver seeks may be unfairly prejudicial to Tibra, in a commercial and litigious sense, and therefore warrants an exercise of the Court's discretion to deny preliminary discovery. Accordingly, even if Optiver's case, as it currently stands, is not "a bare pleadable case", I am inclined to exercise the Court's general discretion in O 15A r 6 and not grant the orders sought. 36 The source code to an arbitrageur's computer software program is an extremely sensitive piece of information. The arbitrage trading business is very competitive, and the success of an arbitrageur depends heavily on the speed of its computer trading systems and its ability to constantly develop new and faster software. To reveal a successful arbitrageur's source code could be to reveal a roadmap to its success, and undermine its competitive advantage. While it is true that a strict confidentiality regime could be instituted, this would almost certainly introduce an undesirable degree of complexity, delay and cost which the evidence presently before me does not warrant. 37 I am not satisfied that information of such sensitivity to Tibra should be disclosed at this early stage. The authorities, taken together, stress that the confidentiality of the information sought in a preliminary discovery application is a relevant consideration in the discretion of the Court to grant the relief, but not an overriding consideration: Griffin Energy Pty Ltd v Western Power Corporation [2006] FCA 1241 at [110]; Telstra Corporation Limited v Minister for Communications, Information, Technology and the Arts [2007] FCA 1331 at [31]-[32]. The Court has tended to permit applicants to erect suitable regimes to ensure the confidentiality of any material acquired by way of preliminary discovery. In this case, however, despite Optiver's proposal of a confidentiality regime, the exercise of the general discretion to refuse preliminary discovery is supported by two other considerations. 38 The first is the substantial delay in Optiver's agitation of its application. As noted above, Optiver's suspicions were aroused in July 2006, but it did not commence these proceedings until almost a year later, preferring instead to monitor Tibra's performance and engage private investigators. One consequence of this substantial delay, which has not been satisfactorily explained, is that Tibra's source code is said to have now developed beyond the version it was using at the time which Optiver's evidence addresses. The nature of the information sought means that Tibra would have to disclose its current source code, from which its source code as it stood in late 2006 could be derived. This would necessitate revealing any developments in Tibra's software since late 2006. This entails a disclosure which, in my view, is not necessary or appropriate for Optiver's preliminary discovery application, and which could lead to the acquisition by Optiver of an unnecessary and unfair commercial advantage. 39 A second consideration in relation to the Court's discretion is that Tibra could suffer undue prejudice in respect of the conduct of the anticipated proceedings. Preliminary discovery is an invasive process, and can be granted only where the three limbs of O 15A r 6 are made out. One reason for this is that the grant of preliminary discovery, particularly if the application is as broadly drawn as it is in this case, can place the prospective defendant in a position of disadvantage in respect of the conduct of future negotiations and proceedings: see C7 Pty Ltd v Foxtel Management Pty Ltd [2002] FCA 1266 at [7]. Unlike full discovery, where both parties can ascertain and test the strength of the case put against them, preliminary discovery is unilateral, and the Court should be wary of creating an imbalance between the parties, since the purpose of preliminary discovery is not to furnish an applicant with information of such breadth or significance as to prejudice or unnecessarily curtail the respondent's prospects in the proceedings, but rather to ensure an applicant is able to identify and consider the documents and information necessary to commence proceedings. 40 I am of the view that the disclosure at this early stage of Tibra's source code, particularly in circumstances where Optiver already has sufficient information to decide whether to start litigation, would not be consistent with the purposes of O 15A r 6 and would create an inappropriate imbalance between Optiver and Tibra in respect of any litigation.

CONCLUSION 41 For the above reasons, I dismiss the application with costs.

I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate: Dated: 21 December 2007 Counsel for the Applicant: Mr R Cobden SC and Mr P Flynn

Solicitor for the Applicant: Mallesons Stephen Jaques

Counsel for the Respondent: Mr A Bannon SC and Mr A Fox

Solicitor for the Respondent: McCabe Terrill Lawyers