Decision of the primary judge
20 His Honour held at [20]-[23] that the circumstances, in particular the first to the ninth respondents' terminations or resignations, the subsequent establishment of a new and successful arbitrage business and the discovery of the two "worrying" emails, showed that Optiver had reasonable cause to believe that it may have a right to obtain relief. This belief, in his Honour's view, went "beyond mere conjecture or supposition". His Honour stressed that this view did not mean that Optiver's belief was correctly held, in the sense that it was likely to be vindicated in the proceedings. Its evidence at this stage need only establish a tenable objective basis for its belief.
21 His Honour however proceeded to find that the requirements of par (b) of O 15A r 6 were not satisfied. His Honour said (emphasis added):
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.
22 His Honour then went on to hold that even if Optiver's case, as it currently stood, was not a "bare pleadable case", an order for preliminary discovery would be "unfairly prejudicial to Tibra, in a commercial and litigious sense" this inclining his Honour to an exercise of the Court's discretion to deny preliminary discovery.
23 First, his Honour noted that the source code to an arbitrager's computer software program was "extremely sensitive". An arbitrager's trading business was very competitive and depended heavily on the speed of its computer trading systems. To reveal a successful arbitrager's source code could be to "reveal a roadmap to its success, and undermine its competitive advantage". His Honour acknowledged that a strict confidentiality regime could be instituted, but this would almost certainly "introduce an undesirable degree of complexity, delay and cost which the evidence… before (his Honour) did not warrant".
24 A second consideration was substantial delay. Optiver's suspicions were aroused in July 2006 but it did not commence this proceeding until almost a year later, preferring instead to monitor Tibra's performance and engage private investigators. This substantial delay had "not been satisfactorily explained". The nature of the information sought meant that Tibra would have to disclose its current source code.
25 A third consideration was that Tibra could suffer "undue prejudice". His Honour said at [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.
26 His Honour's conclusion (at [40]) was as follows:
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.