15 Dec 2012

High frequency traders trial delayed until 2014

Submitted by Troy Rollo

Optiver and Tibra are 2 high frequency trading firms. Tibra was founded by former employees of Optiver. Optiver is suing Tibra for breaches of copyright in its software and breaches of confidence. This is a long running case, and they had a number of skirmishes in 2012. These skirmishes raised some issues about how courts should deal with complex technology cases, and how they should deal with discovery of encrypted documents.

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2012] FCA 558 (24 May 2012)

In this judgment, Rares J considered whether he could refer part of the proceedings to a referee, over the objection of Optiver. Among Optiver's objections were that the proposed referee (Kevin Lindgren QC) did not have any particular expertise in computer programming. Tibra noted that the trier of fact would need to obtain a detailed understanding of the C++ programming language.

Rares J adjourned to give the parties an opportunity to reshape the proceedings so they could be heard before a judge, or else consent to reference to a referee.

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 2) [2012] FCA 559 (28 May 2012)

In this judgment, Rares J referred the proceedings to Kevin Lindgren QC as a referee under the rules, for hearing and reporting on limited questions. This was over the objections of Optiver, which was sought adjournment to 2013 so that the proceedings could be heard in their entirety by a judge.

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 3) [2012] FCA 641 (14 June 2012)

After some delay, Optiver obtained a passphrase, a week prior to this decision, which unlocked a PGP ecrypted email that had been discovered by the Respondents. The email contained the following entry among a list of activities to be undertaken:

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)

After reviewing the Respondents' discovery processes in some detail, Rares J found that it had been inadequate, and ordered discovery of the PGP private key of the Fifth Respondent.

As a technical matter, a PGP email is encrypted with a symmetric key, and the symmetric key is then encrypted with a public key. A reader will decrypt the symmetric key using their private key. This means that it is possible to decrypt the email if you have the symmetric key for that email. Accordingly, in the normal event there should be a regime put in place to provide for the symmetric keys for all encrypted emails to be discovered, rather than the recipient's private key to be discovered, so as to protect the integrity of the private key for unrelated documents, or for cryptographic signatures. It is generally unnecessary and excessive to require disclosing the private key to the other side.

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 4) [2012] FCA 731 (22 June 2012)

Following the previous order, a new private key was located, but the evidence of the owner of that key was that they could not recall the passphrase to decrypt the private key. Rares J vacated the reference to allow Optiver time to attempt to decrypt the private key (having been given likely passphrases, which it would try variations of), in order to access further encrypted emails.

Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (No 6) [2012] FCA 731 (7 December 2012)

Rares J set the matter down for hearing commencing on 10 April 2014.