A class action brought by a shareholder in Downer EDI over the company's troubled Waratah train project will begin next week despite the discovery process in the case being frustrated by a cache of company documents contained on a hard-drive infected by "ransom-ware" going missing.
The class action has been brought in the Supreme Court of Victoria by Downer EDI shareholder Camping Warehouse Australia, which alleges the engineering firm mislead and deceived investors by not revealing the issues at its Waratah train project in a timely fashion.
Downer took a $585 million hit to its market capitalisation on June 1, 2010 when it wrote off $190 million associated with the Waratah contract to build rolling stock for Sydney's rail network due to cost overruns.
According to the class action claim, Downer EDI was aware it would have to write down the value of the Waratah contract on or before January 12, 2010.
The class action is being brought by serial class action litigant Mark Elliott on behalf of investors and is open to all shareholders who purchased shares ahead of Downer EDI's shock June 2010 announcement.
Downer EDI settled a separate class action brought by Slater & Gordon and funded by Bentham IMF in 2014 for an amount understood to be $38 million.
Lawyers for shareholders will present 10 volumes of discovered internal documents and emails between Downer EDI executives to the court to support its case. A host of current and former executives including current Downer EDI chief Grant Fenn, former CEO Geoff Knox as well as former Downer EDI chairman Peter Jolly.
According to documents filed by Downer EDI's lawyer Paul Bannon of Colin Biggers & Paisley, the discovery process was frustrated by a huge number of internal Downer EDI documents being contained on a hard drive that was infected with a virus.
"That hard drive has been subsequently corrupted by a crypto virus which prevents access to the content of the hard drive. Documents have been encrypted by an unknown third party who demands payment for access to be restored," Mr Bannon said in an affidavit filed to the court in September.
"I cannot presently locate that hard drive to provide any further information about the virus," Mr Bannon added. The hard drive contained a cache of emails and other crucial internal documents.
In November, Downer EDI was ordered by the Supreme Court of Victoria to allow lawyers for the investor to conduct full discovery, including copies of the emails contained on the lost and corrupted hard drive.
Further documents will be sought by the investors lawyers once the trial begins, according to court documents.
The company denies misleading or deceiving any of its investors and has been vigorously defending the matter.
In its defence, Downer says "at all relevant times it maintained corporate governance procedures and policies to ensure adherence to all applicable regulatory requirements and best practice."
Downer's June 1 announcement wiped $585 million from the company's market capitalisation, which according to the class action claim reflects "the fact that information about those matters was price sensitive".
The impairment came only weeks after the company hosed down speculation members of the consortium that had won the contract, including Downer, were mulling tipping more equity in to the project.