Electronic disclosure – ignore rules at your peril

Earles v Barclays Bank Plc [2009] EWHC 2500 provides a clear reminder to litigants to undertake proper electronic disclosure. The judge made clear in the starkest terms that Practice Direction 31 2A (electronic disclosure) "is in the Civil Procedure Rules and those practising in the civil courts are expected to know the rules and practice them; it is gross incompetence not to". Costs consequences can flow from a failure to comply.

Background

The key issue in the claim was purely factual – whether instructions to transfer money had been given to a bank by a customer who now claimed the transfers were unauthorised. In the judge's view, neither party had given proper disclosure on this key issue. Furthermore, neither party had taken any steps to preserve potentially relevant phone or e-mail records (which would have evidenced instructions) at the pre-action stage when it had become clear that this issue would be central. As a consequence some of these documents were lost.

The defendant bank had also chosen not to search for certain electronic documents which were of importance, in the belief that they were of marginal relevance and that it would be disproportionately expensive to search for them.

The judge was highly critical of the parties and considered whether it would be right to (a) draw adverse inferences and (b) impose costs sanctions as a result of the failure to give proper disclosure.

(a) Inferences for failure to disclose documents

The judge acknowledged that there was no duty to preserve documents prior to litigation, but that in some circumstances it nonetheless might be right to draw adverse inferences on the basis of a party's conduct prior to the commencement of proceedings.

However, the judge held that "there would have to be some clear evidence of deliberate spoliation in anticipation of litigation before one could legitimately draw evidential 'adverse inferences' in those circumstances" (para 28). On the facts of the case, the judge chose not to draw any inference in relation to the failure to give proper disclosure or to preserve documents as he did not believe there had been a deliberate attempt to get a tactical evidential advantage. Rather the bank had simply failed to comply with its disclosure obligations.

(b) Costs sanctions

The judge emphasised that disclosure of key documents is essential for the court to achieve accurate and efficient fact finding. He found that the bank's conduct of disclosure fell far below that which is to be expected of those practising in the civil courts. The judge added that if there had been proper disclosure then there was a reasonable prospect that the matter would not have proceeded to trial. Therefore, although the bank was successful and was awarded its costs, the judge reduced the costs award to 50%. This was purely due to its inadequate disclosure, including its failure to take protective pre-action steps (since conduct before proceedings could be taken into account under CPR 44.3(5) when assessing costs).

Other cases

Earles follows three cases from last year dealing with electronic disclosure. These also provide important lessons and guidelines in relation to electronic disclosure and are considered briefly below.

Digicel (St Lucia) Ltd and Others v Cable & Wireless Plc and Others [2008] EWHC 2522

Digicel was the first major English case to deal with the question of electronic disclosure. This was an application by Digicel for specific disclosure by Cable & Wireless of electronic documents. An order was sought requiring that back-up tapes be restored and searched for relevant documents, as well as for further keyword searches to be run.

The dispute concerned the extent of disclosure provided by the defendants. Over 1 million electronic documents were provided to the lawyers. These were narrowed down to 197,000 for manual review (following key word searches/de-duplications). Only 5,212 documents were disclosed. The exercise cost more than £2 million and took 6,700 hours of lawyer's time.

The judge emphasised that the court took very seriously the importance of electronic searches and emphasised the requirements of Practice Direction CPR 31 which requires parties to discuss searches and preservation of electronic documents before the first CMC and to seek to agree keyword searches.

The court was critical of the parties' failure to agree keyword searches and emphasised that if parties are unable to agree they should come to the court at an early stage to determine the issue prior to the disclosure deadline. Cable & Wireless were ordered to restore certain back-up tapes and to search these for specific individuals and time periods against the documents already searched. They were also ordered to redo certain keyword searches, and to undertake additional disclosure resulting in significant further costs.

Hedrich v Standard Bank [2008] EWCA Civ 905

In Hedrich the Court of Appeal considered a claim for a wasted costs order which had been brought against a firm of solicitors on the basis that they had failed in their duty to the court to ensure that their client properly discharged his duty to give disclosure (in particular because key documents were only disclosed during the trial).

On the facts of the case no wasted costs order was made as the Court of Appeal found that the solicitors did not realise that relevant documents had not been disclosed. However, the case left open the possibility that, on different facts if a solicitor is held to be clearly and obviously in breach of his duty to the court to ensure that the client has properly discharged his duty to give proper disclosure, a wasted costs order may be made.

Abela v Hammonds HC07C00250

The claimant sought supplemental disclosure of e-mail and other electronic documents from Hammonds. No electronic disclosure had been given by Hammonds on the basis that (a) during the relevant period all e-mails were printed and put on paper files; and (b) fee-earners had been asked for any relevant documents which would include electronic documents. Hammonds further resisted the supplemental disclosure request on the grounds of proportionality and costs. They estimated it would cost approximately £150,000 to recover back-up tapes.

The judge indicated that he did not accept this and would be minded to order additional searches, but wished to hear further argument. He made clear that he would not accept that a headline figure of £150,000 as the cost of searches was determinative, but rather that the parties would need to investigate further ways of narrowing the issues and searches so that a reasonable search could be devised.

Comment

The clear approach of the courts in this line of cases is that they will give short shrift to parties who do not take seriously their obligations and there may well be significant costs consequences. Also, collaboration between the parties and active guidance from the courts are expected.

In terms of practical impacts for businesses, Earles suggests that the courts may be moving towards developing a 'litigation hold' approach similar to that in the US. Organisations will need to ensure that they have systems in place to ensure that electronic data can be easily preserved and made available for review. It is likely to be prudent to preserve this data at an early, pre-action, stage as soon as the issues are clear to avoid any criticism from the court.

The senior judiciary is aware that the current electronic disclosure provisions are frequently not adhered to. A working party, led by Senior Master Whitaker, is drafting a new practice direction and a questionnaire for parties to litigation to complete. It is expected that this will come into effect in 2010. The questionnaire is designed to assist the parties in identifying the scope of electronic disclosure required, encourage them to discuss and agree with each other the extent of a “reasonable search”, and how disclosure should be given. This further formalises existing requirements. In reality it may be difficult to agree at an early stage the scope and method of disclosure. However, maintaining an open dialogue with the other side, and seeking the court's assistance where necessary will be key.