Optiver Australia Pty Ltd v Tibra Trading Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 681 of 2009

AND: TIBRA TRADING PTY LTD AND OTHERS (ACCORDING TO THE SCHEDULE)

JUDGE: RARES J DATE: 24 JULY 2013 PLACE: SYDNEY

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 Each of the Optiver parties and the Tibra parties has brought an interlocutory application, the resolution of which may affect the preparation of these proceedings for the trial set to begin on 10 March 2014. These reasons deal with each application in turn.

The Optiver parties' application 2 The Optiver parties have applied to amend the document, which they had been ordered earlier in the litigation to provide, called "a statement of the nature of [their] case". The Optiver parties make serious allegations in these proceedings against the Tibra parties. They allege breaches by a number of the Tibra parties of their obligations of confidence as former employees of the Optiver parties, and of breaches of copyright. These arise from the Optiver parties' allegations that in producing the Tibra parties' own computer programs to run their business, the latter copied Optiver's programs to achieve similar results. 3 The current version of the Optiver parties' further amended statement of the nature of their case identified, in over four pages, a series of computer programs that it alleged constituted copyright works, and identified, for each of those programs, source files of which each was comprised. Apart from one of those programs, each of the 14 others included one or more source files that had a directory using the acronym "gmi", which is short for "generic market interface". The purpose of the generic market interface was to enable the Optiver parties' proprietary share trading programs that obtained information from various stock or other financial markets around the world to present certain information to the viewer on a computer screen in a common format. The amendment that the Optiver parties seek, is to add gmi as a program in its own right, together with one source file.

Background 4 These proceedings have had a very long history. A number of the individual Tibra parties had previously been employed by one or other of the Optiver parties before leaving between November 2005 and June 2006. In some cases those individuals co-operated in the formation of, or worked in, the Tibra parties' businesses. 5 On 19 June 2007, Optiver commenced some preliminary discovery proceedings in this Court against some of the present Tibra parties. Those proceedings led to the commencement of the present proceedings on 8 July 2009. The present proceedings were case managed by Emmett J for a considerable time until early 2012. During the course of that case management, his Honour ordered the Optiver parties to file a statement of the nature of their case by 30 September 2009 in order to give further clarity to the allegations made in the statement of claim. That document was amended twice, and on 16 November 2010 the present further amended statement of the nature of the case was filed by the Optiver parties. 6 On 16 February 2012, the Optiver parties wrote to the Tibra parties seeking consent to make the same amendment as is now sought. In essence, the amendment seeks to identify the generic market interface program as a separate copyright work. Following an exchange of correspondence between solicitors for the parties, the Optiver parties, having failed to gain consent to the proposed amendment, filed an interlocutory application on 5 March 2012 to amend their statement of claim. On 14 March 2012, the Optiver parties amended that application to seek leave to add the gmi program to the list of programs in the statement of the nature of their case. However, on 19 March 2012, the Optiver parties' solicitors notified the Court and the Tibra parties' solicitors that the Optiver parties no longer wished to press that interlocutory application. On the next day, I ordered that it be dismissed with costs. The matter then took a number of procedural developments to which I have referred in earlier judgments: see Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 4) [2012] FCA 731; Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 6) [2012] FCA 1503. 7 On 19 June 2013, the Optiver parties filed the present interlocutory application seeking leave to add to the statement of the nature of their case, the generic market interface, as a program in its own right together with one source code in respect of it. Maurice Gonsalves, the solicitor for the Optiver parties, swore an affidavit on 19 June 2013 in support of that amendment. He said that he had reviewed with counsel a number of aspects of the Optiver parties' case with a view to ensuring that all necessary pre-trial steps were taken in good time before the start of the final hearing. 8 I had set the hearing down, at the joint request of the parties, to commence on 10 March 2014, so that it would run until it concluded. The parties had refused my suggestion that the proceedings could be set down for trial in about August 2013 on the basis that they wish to retain counsel and those involved to date, in a final hearing and that could not conveniently be accommodated before 10 March 2014. Mr Gonsalves said that the decision taken on 19 March 2012 not to press for the amendment to include the generic market interface as a separate program in the statement of the nature of their case at that time was made "primarily because of the short time before the final hearing was due to commence". He said that following the more recent pre-trial review he came to the opinion that in light of the vacation of the reference that I had ordered, and the fact that the hearing was not now due to commence until March next year, the amendment should be formally pleaded. He said that in his view it would not cause any prejudice to the Tibra parties, particularly because gmi had always been pleaded as a component of the Optiver programs alleged to have been infringed, as well as having been the subject of extensive expert evidence on both sides. 9 The Optiver parties pointed out that a great deal of lay and expert evidence has dealt with the directories forming part of the source codes for the 14 programs in which the generic market interface was a component. The Optiver parties do not seek to lead any further evidence-in-chief on this topic. They assert that their case depends on drawing together inferences from the way in which the lay and expert witnesses had dealt with the operation of the generic market interface, and the alleged copying of it in respect of the various components of its previously identified 14 programs. Indeed, Professor Zobel, one of the Optiver parties' experts, opined that in respect of a program known as F1, the gmi component appeared to have been extensively copied in the Tibra parties' version of a program performing similar functions. He noted that the gmi and the Tibra equivalent, called "XI", components were of central importance in the suites of programs of each of the parties' computer software. 10 The Tibra parties' solicitor, Sue Gilchrist, swore an affidavit in opposition to the amendment. She observed that it would be necessary for the Tibra parties' solicitors to work with their clients, counsel and experts on the issues, first, of whether gmi constituted a set of statements or instructions to be used directly or indirectly on a computer in order to bring about a certain result, and, secondly, the substantiality of the allegedly copied portions of the code in connection with the consideration of whether or not gmi was a separate program, as opposed to forming part of or being a component in the 14 identified programs. Ms Gilchrist anticipated that it would be necessary for her clients to prepare and file further evidence on those issues, including the need for further expert joint reports and conferences. She observed that the addition of the gmi program as a matter in issue would need exploration at trial and expand the issues in dispute. Ms Gilchrist said that one of the Tibra parties' experts, Dr Wilson, had deposed that gmi contained 35 files, and amounted to approximately 2.7% of the code in the Optiver code base. She observed that, based on Dr Wilson's evidence as to the extensiveness of the gmi files and other material, if gmi were treated as a separate program, it would be about a quarter of the size of the next smallest copyright work relied on by the Optiver parties. She observed that Dr Wilson had only limited availability. He had now engaged in full-time employment and was no longer available outside his private time to act as an expert witness. She suggested that it would not be possible to finalise evidence from Dr Wilson until at least early December 2013, were he asked to deal with this new aspect of the case.

The Optiver parties' submissions 11 The Optiver parties accepted that the explanation given by Mr Gonsalves is effectively that the Optiver parties have changed their mind. But, they contended that, in all the circumstances, having regard to the time still ahead before the trial, an amendment to allow the generic market interface program to be treated as a separate copyright work can be met by the Tibra parties. They relied on the facts that Ms Gilchrist did not assert that the Tibra parties would be unable to meet the allegations, that much work had already been done by both lay witnesses and experts to deal with how the generic market interface aspects of the existing programs in respect of which copyright is in issue operated, and in respect of which, so the Optiver parties say, it is clear involved copying by the Tibra parties in the preparation of their own software. The Optiver parties asserted that the amendment was one of substance, and that, in the absence of any evidence that it could not be met, it ought be allowed. They argued that allowing the amendment would not inordinately extend the time of the trial, and it would allow the real issues to be determined between the parties.

Consideration 12 In considering whether to exercise the court's discretion to grant an amendment, I must have regard to the overarching purpose of the civil practice and procedure provisions in the Federal Court Rules 2011 (Cth), and in s 37M of the Federal Court of Australia Act 1976 (Cth). That purpose requires the Court to use those provisions, including its discretion to grant an amendment to a case, to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Those objectives include the just determination of all the proceedings before the Court, the efficient use of the judicial and administrative resources available for the purposes of the Court, the efficient disposal of the Court's overall case load, the disposal of all proceedings in a timely manner, and the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. 13 The High Court considered an analogue of s 37M in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175. There Gummow, Hayne, Crennan, Keifel and Bell JJ discussed the matters in detail the principles embedded in the overarching purpose in relation to an amendment application at 239 CLR at 210-218 [89]-[117]. They said (239 CLR at 217-218 [112]-[114]): "A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate. In the past it has been left largely to the parties to prepare for trial and to seek the court's assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy [Jolowicz On Civil Procedure (2000) p 79]. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings. Rule 21 of the Court Procedures Rules recognises the purposes of case management by the courts. It recognises that delay and costs are undesirable and that delay has deleterious effects, not only upon the party to the proceedings in question, but to other litigants. The Rule's objectives, as to the timely disposal of cases and the limitation of cost, were to be applied in considering ANU's application for amendment. It was significant that the effect of its delay in applying would be that a trial was lost and litigation substantially recommenced. It would impact upon other litigants seeking a resolution of their cases. What was a "just resolution" of ANU's claim required serious consideration of these matters, and not merely whether it had an arguable claim to put forward. A just resolution of its claim necessarily had to have regard to the position of Aon in defending it. An assumption that costs will always be a sufficient compensation for the prejudice caused by amendment is not reflected in r 21. Critically, the matters relevant to a just resolution of ANU's claim required ANU to provide some explanation for its delay in seeking the amendment if the discretion under r 502(1) was to be exercised in its favour and to the disadvantage of Aon. None was provided." (emphasis added) 14 Several of the Tibra parties are individuals who have had these proceedings hanging over them for almost seven years in one form or another, having regard to the preliminary discovery contest that proceeded the institution of the present proceedings. In particular, they have had to give some considerable attention to revisiting aspects of evidence that they had filed in 2011 pursuant to orders of the Court, following the decryption of previously encrypted emails and the applications that I dealt with last year that led to, and followed, the vacation of the order appointing the referee: Optiver (No 4) [2012] FCA 731. 15 As senior counsel for the Optiver parties accepted, his clients had, in effect, changed their mind as to the course that had been taken early last year about seeking the present amendment. The Optiver parties made a forensic choice last year that this particular issue, of which they were then aware as a potential issue in the proceedings, ought not be pursued. While I accept that a bona fide reconsideration of that position has occurred, I am not satisfied that it would be in accordance with the overarching purpose to allow the amendment to be made. I do not think that it will lead to the quick, inexpensive or efficient just resolution of this dispute according to law. The current dispute has been framed, and evidence of quite an extensive nature led, on the existing specific allegations of copyright works in the 14 identified programs, of which the gmi directories were alleged to be part. That was based on the various versions of the Optiver parties' statements of the nature of their case. 16 I am satisfied that it would require considerable work if Tibra parties now had to revisit their evidence, to deal with a new assertion that gmi, having previously been alleged to form a portion of various other programs, was now a discrete stand-alone computer program in its own right. It would require that the individuals who are Tibra parties will be diverted from their own lives once again to deal with issues connected to the proceedings. It will also result in the proceedings not running in the orderly way in which they were intended to run when I was asked not to set them down for trial in August 2013, but to fix the hearing for March 2014. 17 I do not think that any orders for costs that I might make would be or provide adequate compensation for requiring the individuals concerned to disrupt their lives yet again to revisit what was thought of as an issue early last year, but abandoned. There is no explanation as to how, if this issue were an essential component of the dispute and necessary for its just resolution, the mere proximity to the hearing on the last occasion warranted that it not be litigated, but that a revisiting of the Optiver parties' case now suggests that it should be. 18 The Optiver parties had choices about how to frame their case. They made a clear choice over a period in which it was obvious how the generic market interface played a significant role in their own, and the Tibra parties', computer programs. The proceedings had been prepared for a considerable time since late 2010 on the basis that the programs that are subject of dispute were identified by the Optiver parties in the statement of the nature of their case.

Conclusion 19 In my opinion, it would be contrary to the inexpensive, efficient or quick resolution of this dispute to permit the Optiver parties to raise as a new, stand alone issue, the question of whether or not the generic market interface amounted to a program, and if it did, whether copyright in it had been infringed. For those reasons, I reject the application to amend.

The Tibra parties' application 20 On 21 March 2012, I made orders by consent that the trial would proceed with all lay evidence to be heard before the concurrent expert evidence, that would be given in three separate sessions each dealing with a different area of expertise. The Tibra parties applied by an interlocutory application on 8 July 2013, for an order that the Optiver parties adduce all of their evidence, including expert evidence, and close their case at the trial before the Tibra parties were required to go into evidence, if they chose to at all. 21 During the course of argument today, the Tibra parties explained that they were concerned that the detailed technical nature of the expert evidence needed to be properly appreciated and understood in order for the Court to assess the giving of their clients' lay evidence. That evidence dealt with the creation of the Tibra parties' programs and source codes that are the subject of allegations of infringement and copying. The Tibra parties argued that in this case they were accused substantively of fraud and that according to the well-developed principles of the common law, it was incumbent upon their accusers to deploy their whole case forensically in Court before the Tibra parties should be called upon to elect whether or not to answer it. 22 The Tibra parties contended that because, based on the current orders, the full scope of the expert evidence in chief would not be led or tested, until after all the lay evidence in the case had been given, there was a real likelihood that they would not be apprised of the case they had to meet before their lay witnesses gave evidence. They pointed to the reality that in a trial situation, the nature of evidence and issues becomes much more fluid than in particulars or even written outlines or verified affidavits, and that it could be anticipated that the experts, when cross-examined either individually or in a concurrent evidence session, would express views at variance with those they had given in chief. This was particularly so, the Tibra parties' argument ran, because of the alleged similarities in the two sides' codes, the opinions expressed by the Optiver parties' experts as to the length of time that would be required for writing codes, why encryption had been used for email exchanges during the period in which the Tibra parties were establishing their programs and their business, and assertions made by the Optiver parties about the lack of contemporary documentation attending the creation of the Tibra parties' codes and programs, including allegations made about matters being deleted. 23 In substance, the Tibra parties were concerned that they would not have a full understanding of the case they had to meet merely from seeing and hearing the expert evidence adduced at least by the Optiver parties or concurrently in relation to the proof of the Optiver parties' allegations of copying and similarity. They were concerned that when the Tibra parties' individual lay witnesses came to give evidence, their evidence would not be fully appreciated or understood by the Court as it was being given. 24 The proceedings had been case managed prior to the order of 21 March 2012, to the point where almost all of the lay and expert evidence on both sides had been filed. The Tibra parties' lay witnesses, and in particular, one of the Tibra individual respondents, Mr King, had given extensive affidavit evidence dealing with both their case in chief and their responses to the reports in chief of the Optiver expert witnesses. That led to the Optiver experts making reports in reply, dealing with such explanations or responses as appeared in the Tibra parties' lay evidence, affecting those experts' opinions. The Tibra parties also wished to revisit whether their lay witnesses should give any of their evidence, other than in affidavit form, as they had previously prepared, as opposed to the view I had expressed, that the evidence ought be given orally because of the significant credit issues. 25 Both sides accept that the expert issues are not easy to understand for a lay person such as myself, who must ultimately form a view about the issues in the case. The Tibra parties, understandably, are anxious that if their lay witnesses give evidence before there has been an exploration of the detail of how the expert evidence led against them is developed, it will not be easy for the Court to assimilate or assess that evidence as it is being given by their lay witnesses, no doubt subject to strenuous challenge, given the nature of the allegations that the Optiver parties are making about the provenance of what are said to be areas of copying or similarity, and the creation of the Tibra parties' codes and programs.

Consideration 26 It is important, as the Tibra parties argued, that justice not only be done but seen to be done. One of the problems in the management of the evidence at the trial will no doubt be the need to sufficiently explain and identify to the Court the significance of how the C++ language is written and created, and what are the signs or bases upon which one can express or form views as to a similarity of lines of code. That is inherent in the nature of this case. On the other hand, the Tibra parties previously agreed to the evidence being adduced in the structure that was contemplated when the orders of 21 March 2012 were made. They made that decision in the context of having provided fulsome lay affidavit evidence in response to the expert material adduced against them to that point. 27 I am not satisfied that I should vary the order that I made on 21 March 2012 in all of the circumstances. That is not to say that during the course of the trial it could not become apparent that, before cross-examination of the lay witnesses commences, some substantive educative process should be undertaken so that the Court will appreciate the subtlety and nuances, or indeed the broad brush understanding of what will be the subject of the expert evidence. This will be a long trial with detailed openings and a great deal of written expert and other documentary evidence. Part of a judge's function in hearing trials of this nature involves becoming immersed in the evidence, lay and expert, in understanding it and developing that understanding as the trial progresses. So much happens in any trial involving expert materials in the ordinary course, be they in complex areas of scientific expertise such as patent cases, matters of tax or complex questions about naval architecture and the way in which ships operate and the like. It is the consequence of our adversarial trial system that at different points in the case the evidence is developed to a particular extent only to change later. At the end of the proceedings the judge or tribunal of fact must assimilate all of the arguments of the parties as to how the evidence should be viewed and understand what that evidence is. 28 One of the advantages of having concurrent evidence of experts is that it enables the tribunal of fact to understand clearly what the experts are saying about any particular topic. That occurs because the experts are all present in the Court when they address the same issue and they inform the Court of their views on it. Very frequently the experience of having concurrent evidence is that disputes between experts that appeared on paper to be real and significant are in fact agreements between the experts that are masked by differences in the assumptions each side has asked the particular expert to make, rather than differences between the experts as to their opinions on the underlying facts: see Strong Wise Ltd v Esso Australia Resources Pty Ltd (2010) 185 FCR 149 at 175-176 [93]-[97]. 29 However, the joint report of the experts in these proceedings reveal that there are some fundamental disagreements between them about facts. At the moment I am not persuaded that I should vary the order of 21 March 2012 for the reasons that I have given, particularly having regard to the detailed affidavit responses which each of the Tibra individual respondents has given to so much of the expert evidence as affects them.

Written or oral lay evidence 30 Nonetheless, I see the force of the submissions which the Tibra parties put, that some aspects of their lay evidence are substantively in the nature of expert evidence. For example, Mr King appears to be, from what I have been told, an expert computer programmer and in that sense his evidence in response to the allegations by the Optiver experts as to the features or construction of either of the two parties' programs for which Mr King had some responsibility in creating, might conveniently be given in writing. My concern to have the lay evidence given orally is to do with, to some degree, fairness to the witnesses who each should be given an opportunity in evidence-in-chief, in a less stressful circumstance, to identify what he or she recalls of the critical matters about which evidence is given before being subjected to cross-examination. 31 The Tibra parties are concerned that having been required to give their evidence on affidavit by previous orders there is a possibility that the witnesses will be cross-examined about new nuances or differences were they to give their evidence orally about the same subject matter. That possibility is heightened given the length of time since they left the Optiver parties' employment and commenced the activities complained of in the proceedings. It is highly unlikely that any witness will remember anything in an affidavit exactly as set out in the affidavit when giving viva voce evidence and subjected to cross-examination in any event. The Optiver parties do not oppose the giving of the evidence by affidavit.

Consideration 32 I have considerable reservations about the benefit to me, as a tribunal of fact of having affidavit lay evidence in a case where, in effect, fraud is alleged. Other judges have different approaches to oral and written lay evidence-in-chief. Nonetheless, I can see the potential difficulty of requiring the witnesses to give their evidence orally where they depart from what they said in their affidavits in ways that might subject them to criticism. 33 In all of the circumstances I think that, while I would have preferred to have the evidence given orally, if the Tibra parties and for that matter the Optiver parties, wish all or part of their lay witnesses' evidence to be given by affidavit, I should allow that to happen, although I think it will make it more difficult to assess their evidence having regard to their oral cross-examinations. I will allow the parties to elect as to whether they wish to pursue that course having regard to what I have said. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Associate: Dated: 15 August 2013 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