Electronic discovery in litigation – a costly reminder

Courts and commercial litigants continue to struggle to balance the competing interests of ‘quick and cheap’ resolution of civil litigation, with the need to identify and discover electronically stored information (ESI) most relevant to the issues in dispute, to ensure that the determination is also ‘just’.¹

A recent decision of the Mercantile Court in England graphically illustrates the tension. In Earles v Barclays Bank plc,² Barclays successfully defended proceedings brought against it by a customer. Because the judge held that Barclays’ failure to undertake adequate electronic discovery had unnecessarily prolonged and complicated the proceedings, its costs award was reduced by half.

The decision provides a useful reminder both of the responsibilities of parties to make proper discovery of electronic documents, and the potential consequences of failing to do so.

The facts

Mr Earles brought an action against Barclays, alleging it made five unauthorised transactions between accounts controlled by him and seeking damages in excess of £2.4 million. Barclays claimed that Mr Earles gave telephone instructions to Barclays staff to make each of the disputed transfers and that the Bank was obliged to act on those instructions and to transfer the money.

The primary issue at trial was described by the judge as ‘beguilingly simple’, being whether telephone calls were made at the time of each disputed transfer and if so, what was their content. While each party gave evidence supporting their respective versions of events, neither discovered call records or emails which would have put the issue beyond question. In the absence of contemporaneous documentary evidence, the judge was forced to decide between the credibility of the witnesses.

Each party submitted that adverse inferences ought be drawn against the other by reason of their respective omissions from their discovery.

Approach to discovery

The claimant was unrepresented for much of the proceeding. His failure to discover itemised telephone accounts was excused by the judge as arising from a lack of understanding of the duties of disclosure under the civil procedure rules. No adverse inferences were drawn as a result of the claimant’s failure.

The judge was less sympathetic to the failures of Barclays with ‘its first class legal teams, both in and out house, and document storage managers’. While the Barclays in-house legal counsel had verified a search of electronic documents for the proceedings, the judge described as a ‘gross omission’ the failure to discover:

• telephone records of the Bank and its key employee (Mr Leech) who handled the relationship with the claimant, which would have identified the dates of calls to and from the claimant’s nominated contact telephone number. Barclays contended that the documents were of marginal relevance and that it would have been disproportionate to undertake a search for that material which may have taken three months, and
• Mr Leech’s emails. Mr Leech had initially indicated to the in-house lawyer that he had no relevant emails, and he then retired from the bank before the trial. The fact that he was no longer employed by Barclays was used to justify the failure to search his emails for relevant documents. This was described by the judge as ‘a lame excuse – an expert in information technology, either in house or a consultant, could easily have been instructed to retrieve ESI from various back up sources’. Similarly, the judge commented that ‘In house Counsel should not have simply accepted Mr Leech’s word that there were no relevant emails’ – in his Honour’s view, electronic searches should have been undertaken.

Nevertheless, no adverse inferences were drawn against Barclays as a result of its approach to discovery. His Honour concluded that the failure to discover relevant material ‘was a decision made by the Bank’s legal team on the erroneous grounds of relevance and proportionality, not as part of any tactical move to gain an evidential advantage in the litigation.’

The outcome and lessons arising

Though the court ultimately decided the case in favour of Barclays finding that it did not make any unauthorised transactions, the Bank’s approach to electronic discovery was savaged. Barclays was awarded only 50% of its costs against the unsuccessful claimant on the basis that there was a reasonable prospect that early discovery of the relevant material would have resulted in the matter not needing to proceed to trial, and would certainly have removed the need for lengthy submissions on the credit of the various witnesses.

This case highlights a number of risks involved in electronic discovery. Key lessons include:

• the failure to preserve ESI (even in advance of the commencement of proceedings in certain circumstances) may result in adverse inferences,³ with the risk being most significant for sophisticated commercial parties
• preserving ESI relevant to a dispute on the departure of relevant staff from employment should be institutionalised as part of any document control system 
• the burden of discovery is unlikely to be discharged simply by asking staff involved in the disputed issues to provide relevant documents – preserving and searching all potentially relevant ESI will often be expected, particularly of sophisticated litigants
• though the Court Rules and judgments increasingly contain directions for litigants to take an ‘efficient’ and ‘proportionate’ approach to the conduct of civil litigation, this will rarely be accepted as a justification for unilateral decisions to narrow the search and recovery of potentially relevant material – consultation between the parties should always precede any such decision, and protocols should ideally be put in place to reflect any agreement to limit the scope of electronic discovery,⁴ and
• in house and external solicitors must be conscious of their obligations to the court to ‘make sure, as far as possible, that no relevant documents have been omitted from their client’s list’.⁵ Disciplinary action may follow from a failure to observe this duty.

There is a strong likelihood that Australian courts would follow the approach adopted in this case. Australian courts have stated that costs orders should ‘help mould the proper conduct’ of parties in litigation.⁶

Ongoing reform

Balancing the burden of electronic discovery with managing the costs of litigation continues to activate the minds of courts and policy makers. Various courts around the country are examining the application of their rules to electronic discovery.⁷ In May 2010, the Commonwealth Attorney-General requested the Australian Law Reform Commission to explore options to improve the discovery process in civil litigation. Included in the terms of reference is the impact of technology on the discovery of documents. The final report is due by 31 March 2011. Litigation lawyers and in-house counsel will need to remain abreast of the rules and practice directions in the jurisdictions in which they practise.

A final word from the Barclays judgment may cause some concern among the in-house legal teams of large Australian listed companies:

One expects a major high street Bank in this day and age of electronic records and communication with an in house litigation department to have an efficient and effective information management system in place to provide identification, preservation, collection, processing, review analysis and production of its ESI in the disclosure process in litigation and regulation.

This article was written by Yasmin Lim, Solicitor, Melbourne and Malcolm Cooke, Partner, Perth.

Endnotes

1. See Uniform Civil Procedure Rules (NSW) 2005 r 2.1 and Court Procedure Rules (ACT) 2006 r 21; Civil Procedure Act 2005 (NSW) s 56.
2. [2009] EWHC 1 (Mercantile).
3. The position in Victoria is arguably stricter as a result of amendments to the Evidence Act 1958 made by the Evidence (Document Unavailability) Act 2006 (Vic) following the controversy generated by the judgment at trial and on appeal in Bristish American Tobacco Australia Services Limited v Cowell [2002] VSCA 197.
4. See also Digicel (St Lucia) Ltd v Cable & Wireless Plc [2008] EWHC 2522.
5. Woods v Martins Bank Ltd  [1959] 1 QB 55 at 60.
6. Griffiths & Beerens Pty Ltd v Duggan (No 3) [2008] VSC 462, [9].
7. Court Rules in relation to electronic discovery can be found in Victoria, (Supreme Court Practice Note 1 of 2007; Supreme Court Practice Note 2 of 2009 (The Technology, Engineering and Construction List (TEC List) Order 3 Chapter II Supreme Court (Miscellaneous Civil Proceedings) Rules 2008 (Technology, Engineering and Construction Cases)); New South Wales (Practice Note SC Gen 7 – Use of Technology; Practice Note SC Eq 3 Supreme Court Equity Division - Commercial List and Technology and Construction List); South Australia (Supreme Court Practice Directions 2006, Part I - Chapter 2 Electronic Technology); Queensland (Supreme Court Practice Direction 8 of (2004) – Electronic Management of Documents) and the Northern Territory (Supreme Court Practice Direction 2 of 2002 - Guidelines for the use of information technology in any civil matter).
   See also Federal Court of Australia Practice Note CM 6 – Electronic Technology in Litigation.

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