Satisfying your e-discovery obligations: how and when to do enough - but not too much!

By Alan Blinder and Anna Vetrova.

Key Points:
There are a number of ways a party may approach its obligations to make reasonable inquiries for the purposes of discovery. Which approach - or which combination of approaches - will work best and will be reasonable in the circumstances of a particular dispute will depend on the facts and circumstances of each case.

Australian litigants have often dabbled with the duties and obligations of parties to litigation to discover documents stored electronically. This is the process often termed "e-Discovery".[1]

A litigant needs to comply with its discovery obligations by searching for documents within its possession, custody or power. This requires searching through its own documents as well as making inquiries with third parties. The nature of the necessary searches are:

• in the Federal Court, a litigant must make reasonable searches.
• in the Supreme Court of NSW, a litigant must make reasonable inquiries.

The two concepts are akin to each other.

Ultimately the courts have a broad discretion to determine "reasonableness". The trick (and the trap) for the courts is striking a balance between the probative value and importance of the discovery process as against its cost and burden.

The court rules and practice notes are the starting point for finding the right balance. The Federal Court Rules ("FCR") provide that in making a reasonable search for documents a party may take into account:

• the nature and complexity of the proceedings
• the number of documents involved
• the ease and cost of retrieving a document
• the significance of any document likely to be found; and
• any other relevant matter.

Also worth noting is that the Federal Court Practice Note (PN 17 of 2000) is currently being updated to provide new rules for e-Discovery (which too would draw on the US experience) - watch this space.

Unlike the FCR, the NSW Uniform Procedure Rules ("UCPR"), which apply in the Supreme Court of NSW, do not set out the criteria which may be taken into account in determining what is reasonable.

It is useful, however, to consider the recently updated version of the Equity Division Practice Note SC Eq 3 (reissued effective 30 July 2007). SC Eq 3 provides new procedures relating to e-Discovery which show similarities with the US Federal Rules of Civil Procedure. SC Eq 3 seeks to inject broadly similar criteria to those in the FCR. Parties must consider "whether the burden and cost involved in discovering a particular document or class of documents is justified having regard to the cost of assessing the document or class of documents and the importance or likely importance of the document or class of documents to the proceeding".

Before we discuss the way the courts have given meaning to this balancing act, it's important to be conscious of timing. Before embarking upon substantial work to recover archived or deleted electronic documents, the discovering party must consider whether by doing so it opens a door to a discovery order against it.

The problem with doing too much

The moral of Leighton Contractors Pty Ltd v Public Transport Authority of Western Australia [2007] WASC 65 is that doing too much too soon can have major repercussions.

In that case, the defendant had already gone a significant way towards discovering five months' worth of deleted emails from backup tapes. The court observed that:

• there was still work required to search the recovered information to identify the relevant emails; and
• it was unlikely that the deleted emails would include documents that were directly relevant to any matter in question at trial.

Despite this, the court:

• ordered the defendant to give discovery of electronic documents from the backup tapes it had already recovered; and
• left the door open to the possibility that discovery might still be necessary of further deleted emails from at least some of the remainder of the backup tapes.

The court noted that had the defendant not embarked upon the course of recovering the deleted emails from backup tapes, it might have been appropriate to relieve the defendant of the obligation of giving discovery of those documents. That was because "the burden of giving discovery of those documents" would have been "disproportionate to the probative value of the electronic information sought".

The problem with doing nothing

As a counterbalance, a party that hasn’t conducted at least some investigations of its electronic documents will not be able to demonstrate that e-Discovery would be burdensome and disproportionately costly to it.

A court needs evidence of burden and cost before it will relieve a party from its e-Discovery obligations. To provide such evidence in any meaningful way, a party needs to do some work.

Mere statements to the effect that the retrieval of data would be a major task, and/or that backup tapes would contain only "raw data" and are unreadable without certain software and computer systems, would not normally be sufficient to persuade a court not to order e-Discovery (see Auspine Ltd v HS Lawrence & Sons Pty Ltd [2000] FCA 1405; Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581 per Tamberlin J).

The balancing test: "probative value" vs "cost and burden"

The cases give some guidance on how much is reasonable in the circumstances, helping to give some context to the balancing act, drawn out from the court rules and practice notes, between the probative value and importance of the discovery process as against its cost and burden.

Probative value: More than mere possibility or more than mere relevance?

There are two lines of authority which shed light on the probative value of electronic documents.

In NT Power Generation Pty Ltd v Power & Water Authority [1999] FCA 1669, the court declined to limit discovery of emails because it was not satisfied that the material which might be recoverable was "sufficiently insubstantial" to warrant limiting discovery to hard-copy documents.

The NT Power decision was recently followed in Slick v Westpac Banking Corp (No 2) [2006] FCA 1712, although on the facts of that case the balancing exercise favoured the discovering party.

In Slick, the court refused to make an order for discovery of backup tapes by Westpac because it was not satisfied that there was anything more than a mere possibility that Westpac had failed to give discovery within the categories relied upon, even though it had only discovered a few relevant emails. The cost and burden for Westpac of rebuilding the former electronic environment was held to truly outweigh "the theoretical possibility that something might turn up".

Side by side with NT Power and Slick's "mere possibility" is authority where the courts appear to take a more lenient approach in determining whether reasonable inquiries were made.

As recently demonstrated in New Cap Reinsurance Corporation Ltd (in liq) v Renaissance Reinsurance Ltd [2007] NSWSC 258 (which did not consider NT Power or Slick), the fact that the electronic documents are relevant does not, of itself, mean that their discovery will be ordered. Rather, having regard to the circumstances of the case, the court will examine what extent of e-Discovery is necessary.

In New Cap, the court held that it would be oppressive for the liquidator to have to give discovery of all draft electronic reports to creditors, and the related working papers. In the court’s view, the investigation of how reports to creditors were compiled was unlikely to be a useful exercise. Such utility as there may be in it was found to be heavily outweighed by the burden which an order for the provision of such discovery would impose on the plaintiffs.

Cost and burden: Value of the dispute and financial position of the discovering party

The cost and inconvenience to the discovering party should not be considered in a vacuum, but rather in the context of:

• the value of the subject matter of the dispute; and
• the financial position of the discovering party.

This balance was also explored in Leighton Contractors. Although the WA Supreme Court Rules do not limit the obligation to give discovery to what is reasonable, the Practice Direction 4 of 2006 (Commercial and Managed Cases List), by which the court in Leighton Contractors was guided, is in similar terms to the relevant provisions of the FCR and SC Eq 3. The court in Leighton Contractors referred to the NT Power decision as an authority.

In Leighton, the defendant was a large corporate body. It had not suggested to the court that it did not have the financial or other resources to do give discovery of deleted emails, or that to do so would inhibit the delivery of its services to the public. The court therefore refused to make an order limiting discovery of deleted emails despite the defendant's argument that such discovery would be burdensome.

Finding the right approach

Some litigants hope that they've done enough to discharge their e-Discovery obligations - or if not, then they hope that nobody notices or complains.

Others plunge head-first into trawling though their electronically-stored documents, and wind up committed to expensive and time-consuming steps that might have been avoidable.

Neither approach is likely to yield the best results.

Given the large volume of electronic documents and difficulties associated with their retrieval, the discovering party needs to be efficient about what inquiries it makes.

There are a number of ways a party may approach its obligations to make reasonable inquiries for the purposes of discovery. For example, it may:

• determine for itself whether it has made all reasonable inquiries
• apply to the court for an order limiting discovery; or
• seek the other party's agreement to whether the steps taken by it are sufficient.

Which approach - or which combination of approaches - will work best and will be reasonable in the circumstances of a particular dispute will depend on the facts and circumstances of each case. The answers to the following questions can go a long way to deciding what's reasonable and, hence, which approach is the right one:

• have the electronic documents been archived (and, if so, how)?
• what is the likelihood of these documents being successfully restored?
• how long it will take to recover those documents?
• how much will the discovery cost in comparison to the amount in issue?
• has the recovery process already started?
• what steps are required to recover the electronic documents – for example:
  • does the system need to be rebuilt in order to recover these documents?
  • is specialist software/hardware and/or expert assistance required?
• are the recovered documents likely to be relevant to the issues in dispute?
• notwithstanding that they are relevant, is the discovery of these documents necessary, including:
  • are the same documents already discovered in hard copy form or by another party to the proceeding?
  • are there other documents from which the same information can be obtained?
  • are the documents only of peripheral significance, such that the expense of locating and producing them would be grossly disproportionate to their level of significance to the matters in dispute?

Don't leave it too late to ask yourself these questions. The answers - properly formulated into evidence if the case calls for it – can result in money and time being saved.

[1] This article focuses on the discovery of electronically stored information rather than the exchange of discovered documents electronically.  Therefore, all references to e-Discovery in this article should be read as the discovery of electronically stored information.

For further information, please contact Gina Elliott and Alan Blinder .