Optiver Australia Pty Ltd v Tibra Trading Pty Ltd

Federal Court of Australia|2012-06-14|Before: Mr P, Rares J

REASONS FOR JUDGMENT 1 This is an interlocutory application by the applicants (Optiver) for further discovery and, in consequence, the vacation of the current orders for hearing by referee. The referee was due to commence hearings on his inquiry on 7 June 2012: Optiver Pty Limited v Tibra Trading Pty Limited (No 2) [2012] FCA 559.

The circumstances of this application 2 Optiver complains of three deficiencies that result from the Tibra parties having very recently ascertained a mistake made in June 2010 in the provision of a passphrase by the eighth respondent, Andrew King. The appreciation of that mistake resulted in the parties gaining access last week to a number of encrypted emails that had been unreadable without any available key, in the form of the correct passphrase, to unlock them. 3 One encrypted email was sent by Timothy Berry to his fellow individual respondents Dinesh Bhandari, Glenn Williamson, Mr King, Kinsey Cotton, Martin Nickolas and Nicholas Begg on 18 July 2006. This contained a covering email and a three page attached timeline or working plan. The email stated: "Ok Cats, We are 6 weeks out and under the pump. Here is the timeline we are working off. Things in colour at the top are individual responsibilities : blue is Bhandari, yellow is me and green is misc. If you have additions / changes to this file, email them to me and I'll update and resend RASK" (being a nickname for Mr Berry) 4 The timeline attached to the email identified overall tasks under the heading "Things to do" and set dates for their achievement beginning on 17 July 2006, the day before the email was sent, which it described as "-7w" ie. seven weeks before 4 September 2006. That was the nominated date for the Tibra companies to commence trading in Australia, Hong Kong and South Korea. The following entry was particularly relevant: "28 August (-1w) Heads of Agreement to be signed Employment contracts to be signed IP Warranties to be signed Shareholder certificates allocated Erase all emails, sent items, deleted items, Skype chats, files etc from hard drive. Copy all existing files into new files. Fill up or blast hard drive. Destroy all paper correspondence. Discontinue PGP." (emphasis added) 5 A significant issue in the proceedings concerns the circumstances and forensic consequences of the deletion of all of the Tibra source code preparatory work on or about 4 September 2006. No other material that the parties have deployed so far in the proceedings identified a plan or timeline of the precise and relatively detailed nature as appears to be contained in the attachment to Mr Berry's previously unreadable and encrypted email of 18 July 2006. 6 The recently acquired ability to read some of the encrypted emails and in particular the timeline plan to erase electronic records and to "fill up or blast" (that is, wipe clean) hard drives has prompted Optiver to seek further discovery orders and to apply to vacate the order for reference. The three deficiencies in discovery complained of the Tibra parties' failure to: (a) provide the means to read the encrypted emails earlier; (b) list documents destroyed in discovery lists and state when they were destroyed, when or to whom encrypted emails were sent or by whom they were received; (c) properly address the categories of documents ordered to be discovered in 2010 and 2011, beyond looking at and discovering what had been collected for preliminary discovery that had been ordered against most of the Tibra parties on 19 February 2009. 7 Optiver initially raised a fourth issue about whether the Tibra parties had misconceived the scope of discovery within categories 1, 3, 6 and 7 ordered by Emmett J on 15 July 2011. However the evidence of Sue Gilchrist, one of the Tibra parties' solicitors, has shown that this misconception has now been remedied and the further relevant documents have been provided to Optiver.

Background 8 The Tibra parties had not been able to give discovery of the encrypted emails in a meaningful way beyond a listing of them and, to the extent that they revealed these, the sending and receiving parties, dates and any subject line. Without access to the means of reading the content of those emails no one could be certain of who all the addresses of any particular email were and, more importantly, its content. Thus, a discovery list recording documents that were last in the control of each of the Tibra parties could not be prepared as required by r 20.17(2)(a), (b), (3)(c) and Pt 3 in Form 38 of the Federal Court Rules 2011 (Cth) in a way that specifically indicated whether any particular document had been received by any individual respondent who was not named in its heading or address line and when he last had that document. 9 Under the now repealed O 15 r 6(1) and (2) of the Federal Court Rules 1979 (Cth) (see now r 20.17(2)(b)) a list of documents in the old Form 22 (see now Form 38) had to enumerate the documents that were or had been in the possession, custody or power of the party making the list. Schedule 2 of Form 22 (see now Pt 3 of Form 38) had to enumerate those documents that the party had had, but no longer had, in his or her or its possession, custody or power. The deponent of the list had to set out in the affidavit verifying it when each document in Sch 2 of Form 22 (see now Pt 3 of Form 38) had last been in the party's possession, custody or power, what had become of the document and, to the best of the deponent's knowledge, information and belief in whose possession, custody or power the document then was and where it was (see paras 3 and 4 of the affidavit in Form 22; see now para 6 of the affidavit in Form 38). 10 That situation changed on 6 June 2012 when the Tibra parties provided the passphrase of Mr King to Optiver. The Tibra parties explained that Mr King had given his passphrase to Tibra's then in-house counsel, Justin Chau, in mid 2010 but for one reason or another Mr Chau either did not correctly transcribe it or Mr King failed to perceive that this had not happened. As a result, no one was able to access Mr King's encrypted emails on either his own personal computer or any other version of them that remained in existence. His computer was the only personal computer of the individual Tibra parties who are respondents that remained in existence and was available for discovery and forensic examination purposes. The other personal computers and laptops of the various individual Tibra parties were destroyed or wiped clean of their data at various times prior to the preliminary discovery that was ordered by Tamberlin J on 19 February 2009. Optiver seeks to link this absence of contemporary records to the entry for 28 August 2006 in the "Things to do" timeline. 11 As soon as the Tibra parties' solicitors had sent Mr King's passphrase to Optiver's solicitors on 6 June 2012, one of Optiver's computer experts used it to retrieve the encrypted email sent by Mr Berry on 18 July 2006 that I have described above. As originally discovered before decryption, this email appeared to have only been sent by Mr Berry to himself at another email address of his own. Thus, as discovered, the email had no other addressees or subject line and revealed that it included one encrypted attachment named "The Cool Cats: PGP". That attachment was the timeline document to which I have referred. The acronym "PGP" stands for "pretty good privacy". This is a form of encryption used to transmit emails in unsecured environments such as through publicly accessible means such as gmail or Bigpond internet accounts, as this particular email was sent.

Steps taken by the Tibra parties to give discovery 12 In consequence of the application by Optiver on 7 June 2012, the day before the referee was to commence the inquiry, I directed that evidence and submissions be prepared so that I could hear this application urgently. In those urgent circumstances the Tibra parties prepared and filed affidavits by each of the individual Tibra parties as well as by Ms Gilchrist and Paul James, who was the director and head of IT Operations Asia of Tibra. Mr James had been responsible within Tibra's organisation for overseeing the collection of documents by the four corporate Tibra respondents to give preliminary discovery in accordance with the orders in February 2009. 13 Mr James said, in paragraphs 2, 3, 7 and 8 of his affidavit of 12 June 2012: "2. I was the Tibra employee responsible for overseeing the collection of documents in order for the four corporate respondents to give preliminary discovery in accordance with the orders made by Justice Tamberlin in 2009. As part of that process, I, and others under my supervision, collected the following documents: (a) the hard-copy documents held at Tibra's offices by Mr Berry, Mr Bhandari, Mr Williamson, Mr King, Mr Cotton, Mr Nickolas and Mr Begg; (b) the electronic documents stored on Tibra's shared drives; (c) the emails stored on Tibra's server for each of Mr Berry, Mr Bhandari, Mr King, Mr Cotton, Mr Nickolas and Mr Begg; (d) emails provided to me by Mr Williamson including emails stored on Tibra's server; (e) emails provided to me by any of Mr Berry, Mr Bhandari, Mr Williamson, Mr King and Mr Cotton from their personal email accounts; (f) chat logs stored on Tibra's system; (g) Tibra's "wiki" (that is, an internal website that could be viewed, added to or modified by Tibra staff); (h) Tibra's trac-ticketing systems (that is, the systems used at Tibra for creating and tracking internal software development and other technical issues). 3. Apart from source code, as far as I am aware, the sources of documents referred to in paragraph 2 above are the only sources of documents held by the corporate respondents that could contain discoverable documents (either discoverable on preliminary discovery or discoverable in these proceedings). I reviewed the documents referred to in paragraph 2 above, other than Mr Williamson's emails which I understood had already been reviewed by him, for the purposes of providing them to McCabe Terrill, who were Tibra's lawyers at that stage, for the purposes of discovery. 7. In order for the corporate respondents to give discovery in these proceedings, I provided Freehills with a complete copy of everything that I had collected for the purpose of preliminary discovery and had previously given to McCabe Terrill. I believed (and still believe) that any document held by the corporate respondents and discoverable under the orders made in 2010 or 2011 was collected in the searches that I and others undertook for the purpose of providing McCabe Terrill with documents for preliminary discovery. However, for the purposes of the discovery in 2010, I did arrange for some additional searches to be made. 8. At the time that I swore the 2010 affidavits of discovery for the corporate respondents, I was aware that the list of documents prepared by Freehills included (as a document no longer held) the source code repository that Mr King had deleted in September or October 2006. That was the only particular document that I was aware of that fell within the discovery categories and which the respondents no longer held." (emphasis added) 14 Mr James was briefly cross-examined, principally, about the statement in the last sentence of paragraph 7 that he had arranged for some additional searches to be made for the purposes of preparing discovery in 2010. He identified that those additional searches related to Mr King and Mr Cotton. He was not cross-examined as to what had been done or not done in the course of the discovery exercises described in his affidavit. 15 Mr Bhandari said that at the time Tibra moved into its Bondi Junction office premises around 4 September 2006 he deliberately transferred to a Tibra server all the emails and other electronic documents on his personal laptop that were related to the Tibra business. It appears that this data was the principal source of the encrypted emails that came to be discovered. This included his private key for the PGP software which was one of two essential integers, the other being a passphrase, to unlock an encrypted email. Mr Bhandari believed that he could have opened the encrypted emails using his passphrase until some time in 2007, when he believed that the private key was lost as a result of an upgrade to his work computer. 16 There is no evidence that any search has yet been made for that private key on Tibra's computer system beyond what Mr Bhandari said he believed had happened to it. However another respondent, Mr Nickolas, gave evidence that Tibra's mail servers and shared drives, on which electronic documents were stored, are backed up and archived for some considerable period of time. He said that copies of deleted emails and documents could be restored from those backup and archive sources if required. 17 Mr Williamson denied deleting anything on the basis of the "Things to do" timeline document. Although he did not recollect the document, he said that he was "paranoid about Optiver trying to get information about what we were doing". He said he deleted all the data on his desktop computer that he had at home after copying all of the unspecified files he needed onto a USB stick and transferring those to his laptop. When his laptop began breaking down in early 2008, he copied any files he still needed onto USB sticks and transferred this data to his new laptop. He said that after the move into Tibra's Bondi Junction offices, he usually shredded hard copy documents that he no longer needed. Mr Williamson provided Mr James or the Tibra parties' solicitors, Freehills, with "all documents that I hold that could in my view possibly fall [within the orders for discovery made in 2010 and 2011]." He was not aware of any other place where documents that he no longer held on his own could have been kept. He had disposed of his old desktop and laptops. He said that he had kept his PGP private key on his home desktop computer, but no longer had this and accordingly could not access that material. 18 Mr Berry, who was the author of the "Things to do" timeline, said that he transferred everything he needed for Tibra's business from his personal computer to the Tibra network when it was established and deleted or shredded, if in hard copy, the balance. He said that he complied with the preliminary discovery orders, in essence, by leaving it to Mr James to collect documents from his and the Tibra corporate respondents' work computers. Again it is not clear from the affidavit material whether any check was made of backups or archive material that Mr Berry had deleted from his Tibra system emails or files. 19 Mr King said that he left it for to Mr James to search on Tibra's system for anything that he had to discover from it. 20 Mr Cotton said that he did not transfer any data or files to the Tibra system from his own personal computers, but had deleted all his encrypted emails from his G-mail account. 21 Mr Nickolas, who was not a party to the preliminary discovery proceedings, said that he relied on Mr James to provide all his emails and electronic documents in Tibra's system for discovery. 22 Mr Begg was responsible for setting up Tibra's internal email system and implementing it when the move to the Bondi Junction office occurred. From about late August 2006, he stopped using the encrypted communications and started using a Tibra email account for work-related emails. He said that he ultimately deleted the encrypted emails from his personal laptop in late 2006 or early 2007 and never copied them on to Tibra's system. He gave his laptop away. He, also, was not a respondent to the preliminary discovery proceedings. When asked to do so, Mr Begg had checked his current laptop and G-mail account for old Tibra work materials and was unable to locate any.

The Tibra parties compliance with the orders for preliminary discovery and discovery in these proceedings 23 On 19 February 2009, Tamberlin J made orders in the preliminary discovery proceedings requiring all of the then Tibra party respondents (i.e. excluding Mr Nickolas and Mr Begg) to give verified discovery of documents relating to programs, source and object codes that were in their possession, custody or power including "all versions thereof (whether current, archived, deleted or otherwise)". Mr James addressed that discovery obligation with respect to the particular identified categories of documents in the way he described in paragraph 2 of his affidavit that I have set out above. Their lists of documents sworn or affirmed on 19 March 2009. Each of the then individual Tibra party respondents said in Sch 2 of Form 22 that he had had no documents that were no longer in his possession, but were in the possession of others. 24 As a result of a complaint by Optiver's solicitors, each of the then Tibra parties made a supplementary list of documents on about 9 April 2009 setting out, in a new Sch 2, the documents they no longer had in their possession but once had. Those listings dealt with documents that each of the individuals had while, or as a consequence of being, an employee of Optiver, but did not refer to any documents that he had created and no longer had while working in the establishment of the Tibra party's operations. This led to a further query on 23 April 2009 by the solicitors for Optiver as to whether the preliminary discovery had extended to documents worked on or created by a number of other persons including the software developers, Mr Begg and Mr Nickolas, together with Timothy Muirhead and James Tydeman. In addition Optiver's solicitors noted that the lists of documents did not identify any back up tapes or material backed up in the ordinary course of business. They observed that "while it is plausible that this material may have been deleted in a rotating manner as is usual practice", no such step had been identified in the lists of documents and no back up data tapes had been made available, that included documents or information pursuant to the Tibra parties' preliminary discovery obligations in the order dealing with programs, source and object codes. 25 On 22 May 2009 the Tibra parties' then solicitors, McCabe Terrill, replied. They said that each of the four identified developers had produced all developer notes and files in his possession, custody or power as required by the orders and drew attention to parts of the discovery in which that material was contained. McCabe Terrill also said that, in producing the discovery, their clients had reviewed backup data tapes, where available, and that documents contained in those tapes that fell within the preliminary discovery orders had been produced. 26 Optiver commenced these proceedings later in 2009. On 21 May 2010 Emmett J ordered that a number of categories of further documents be discovered. When giving discovery in respect of these orders the Tibra parties set out the following description in Sch 2 of their lists of documents: "9. All other business records (including emails) falling within the categories attached and marked 'Annexure A' which in the ordinary course of business had been deleted, lost or destroyed or the contents of which are no longer accessible." (emphasis added) 27 The emphasised phrase appears to have been a reference to the encrypted emails. Next, on 15 July 2011 Emmett J ordered that the Tibra parties give discovery of further additional categories of documents. In late October 2011, after the Federal Court Rules 2011 (Cth) had come into effect, the Tibra parties provided their next lists of documents in compliance with the orders made on 15 July 2011. These new lists disclosed in Pt 3 of Form 38 (that corresponded substantially to the old Sch 2 of Form 22) that the Tibra parties no longer had possession custody or control of: "4. All other business records (including emails) which in the ordinary course of business had been deleted, lost or destroyed or contents of which are no longer accessible."

The parties' submissions 28 Optiver argued that Mr James' affidavit of 12 June 2012 showed that, after collecting the documents for the purposes of preliminary discovery, he gave no separate consideration to addressing the particular new categories ordered to be discovered by Emmet J in 2010 and 2011. It contended that the categories of documents required to be produced for preliminary discovery were much narrower than the sum of both later sets of categories. Optiver argued that preliminary discovery had been directed towards the source code, object code and development documents for the Tibra programs and such documents of Optiver as the respondents to that application held in respect of corresponding Optiver codes and documents. Optiver submitted that once these proceedings commenced, the issues were defined in the pleadings and it was common ground that the issues now concerned allegations against the Tibra parties of breaches of contract, breaches of fiduciary duty, knowing involvement or participation in breaches of fiduciary duty by others, use of confidential information and infringement of copyright. 29 Optiver argued that Mr James' affidavit showed that he failed to check the Tibra system or premises for any electronic or hard copy of documents held by any Tibra employee who was not a personal respondent, including documents of Mr Tydeman and Mr Muirhead and two others, namely Mr Norwood and Mr Maddock, who were employees of one of the Tibra companies and addressees of a number of encrypted emails. Optiver contended that Mr James' affidavit showed that he had failed to collect documents from any personal email accounts belonging to anyone other than Messrs Bhandari, Williamson, Berry, King and Cotton. It argued that Mr James had not collected emails in the personal accounts of Messrs Begg or Nickolas or those of Messrs Tydeman, Muirhead, Norwood or Maddock. Optiver contended that Mr James had also failed to check Mr Williamson's self-review of the emails that Mr Williamson provided him or to collect documents from Tibra's computer system beyond the shared drives and servers. That is, Optiver complained Mr James did not check the local drives, private drives or C drives of the relevant employees. It also argued that he did not investigate, obtain or collect documents from backups or archive files referred to by Mr Nickolas. Moreover, Optiver argued that the Tibra parties' discovery had not thrown up any documents relating to the implementation of what Optiver characterised as the plan revealed in the "Things to do" timeline. 30 The Tibra parties argued that Mr James' affidavit had not been prepared for the purposes of dealing with the adequacy of their discovery generally. Rather, they said it was prepared as a response to Optiver's argument that the recent revelation of the contents of previously encrypted emails called into question whether further orders for discovery were necessary or would produce more material. They said that Mr James' role in 2009 had been to collect all the material he set out in paragraph 2 of his affidavit and that this role was not, at the time of its collection, limited in any way to the categories for preliminary discovery. They also pointed to the disclosure in their lists of documents and the letter from McCabe Terrill dated 22 May 2009 dealing with the extent to which their discovery had been undertaken, including in respect of backup and archived material. 31 The Tibra parties argued that Mr James' collection of, in effect, a library allowed their solicitors to select from that material what was discoverable, first, for the preliminary discovery and, secondly, pursuant to the categories ordered on 21 May 2010 and 15 July 2011. They pointed out that on each occasion further documents had been discovered by them from the materials or library initially collected by Mr James. The Tibra parties submitted that this demonstrated that he had cast his net as wide as possible for any documents that any of the relevant persons had created, whether relevant or not to the possible or later litigation. The Tibra parties also noted that their discovery in these proceedings included files and documents created or received by other Tibra employees outside those identified in paragraph 2 of Mr James' affidavit, again showing that he had diligently collected a comprehensive library.

Consideration 32 The principles on which further discovery can be ordered have long been settled. In British Association of Glass Bottle Manufacturers Ltd v Nettleford [1912] AC 709 at 714 Viscount Haldane LC said that it was possible to go behind the conclusive nature of an affidavit of documents where the basis on which that affidavit had been made turns out to be wrong. As Menzies J observed in Mulley v Manifold (1959) 103 CLR 341 at 343 the insufficiency of an affidavit of documents can be shown to appear: "not only from the documents but also from any other source that constituted an admission of the existence of a discoverable document. Furthermore, it is not necessary to infer the existence of a particular document; it is sufficient if it appears that a party has excluded documents under a misconception of the case. Beyond this, the affidavit of discovery is conclusive." 33 The present application was generated by the recent discovery of an error in Mr King's identification of or the transcription by him of his passphrase. The affidavits that the Tibra parties prepared for this application were directed particularly to the issue of the encrypted emails and the adequacy of discovery in relation to them. It is easy, with the benefit of hindsight, to see that the particular step of checking in the backup or archive material for Mr Bhandari's private key should have been addressed specifically in that material. The Tibra parties conceded that, whether they had looked for that private key previously or not, they would undertake a fresh search for this in light of what has happened. That is a perfectly proper course. However, the absence of evidence that this step had been taken earlier allows the drawing of the inference that it had been overlooked. 34 I have some sympathy with the argument put by the Tibra parties that Mr James' affidavit was not directed to the general adequacy of their discovery. However, I think that a fair reading of his affidavit suggests that he was attempting to be as comprehensive as he could, in the limited time available, about what steps he had undertaken in obtaining documents. In that context, it does appear that he did not check the Tibra computer system for electronic documents held by employees who are not personal respondents, except so far as documents may have been provided in respect of developer notes and files that Messrs Muirhead, Tydeman, Begg and Nickolas were required to produce for the purposes of the preliminary discovery orders. 35 It does not appear that Mr James checked, in the Tibra system, the local private or C drives of any of the personal respondents save to the extent that they may have revealed emails from their personal email accounts. I am not satisfied that Mr James was required to go beyond those individuals' personal email accounts for the purposes of their own compliance with the orders. 36 The failure of the Tibra parties to list the individual encrypted emails that any of them subsequently ceased to have in his or their possession, custody or power, and to specify the circumstances precisely in which that happened, was understandable at the time that discovery was given and before last week. Because some of those documents could be read for the first time only last week in the context of the litigation, there should now be proper discovery in relation to what has now become available to be read. This is important given the centrality to the issues in the proceedings of the role of each of the individuals who are respondents. If Mr Bhandari's private key can be located and if it gives access to more relevant material, that can also be included in the supplementary lists. 37 It is fairly clear from the pleadings and the issues that have been agitated while I have been managing the proceedings, that Optiver alleges that from about mid-2006 the personal respondents went about a plan to set up the corporate Tibra parties' businesses. The encrypted emails may or may not contain other material relating to any particular documentation of any such plan. However, the "Things to do" document attached to Mr Berry's email of 18 July 2006, appears to reveal that some detailed consideration had been given as to how various persons would participate in establishing the new business. It specifically provided for the deletion of, relevantly, emails, sent items, deleted items, Skype chats, files and the like from individuals' computer hard drives, required them to copy all existing files into new files, and then to wipe clean all the personal hard drives of individual employees including those who are Tibra party respondents. 38 While the Tibra parties argued that the "Things to do" document's requirement to copy existing files into new files negated any adverse inferences that might be drawn from any plan to erase the other material, it is not clear that this would necessarily be so. The various individual respondents, other than Mr Bhandari, seem to have arrived at a position by one route or another that they no longer have those items or data in their possession, custody or power. Mr Bhandari, on the other hand, copied all of his material onto the Tibra system, even though the encrypted emails have been completely unreadable until recently, and even now only some have been deciphered. 39 I am satisfied that Optiver is entitled to explore, in discovery and the preparation of its case, these materials that have only recently become available to be looked at by them, through no fault of their own. They are also entitled to consider the issues that these materials raise. 40 The Tibra parties have said that by 19 June 2012 they will be in a position to have undertaken the search for Mr Bhandari's private key and will provide proper listings of documents in Pt 3 of their supplementary lists of documents, and presumably, proper discovery of all encrypted emails that can now be disclosed in such lists of documents. It should be possible for them to explore the other deficiencies that I have identified in their discovery by then, but I will hear them on that question. 41 Once that supplementary discovery exercise has been completed, it will be possible to assess whether further documents have come to light, and what the impact of these will be on the conduct of the litigation. I will hear the parties about that matter on 20 June 2012. I certify that the preceding forth-one (41) numbered paragraph are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Associate: Dated: 28 June 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

Federal Court Rules 1979(Cth)

Federal Court Rules 2011(Cth)r 20.17(2)(a), (b), (3)(c)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (8 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (2)

Cited By (1)