Party in breach of unless order for disclosure due to failures in OCR process

The High Court has held that claimant liquidators were in breach of an "unless order" for disclosure where the low quality of OCR copies of scanned hard copy documents, to which key word searches had been applied to narrow down the pool of documents for review, meant the court could not be satisfied that a reasonable search had been conducted. This was a serious and significant failure, for which there was no satisfactory explanation, and in all the circumstances of the case it was not appropriate to grant relief from sanction: Smailes v McNally [2015] EWHC 1755 (Ch).

The decision highlights the potential pitfalls that can arise where hard copy documents are scanned into an electronic database and OCR (optical character recognition) software is applied to them, so that key word searches can be used to identify potentially relevant documents for manual review. Where the OCR copies are of low quality, there may be doubt as to whether the searches have identified all (or even most) key word responsive documents. Depending on the extent of the problem, the court may find that a reasonable search has not been carried out and therefore there has been a breach of the party's disclosure obligations.

The practical message is that where hard copy documents are to be scanned and searched by reference to OCR copies, it is important to ensure appropriate quality control procedures are in place so that the process is not vulnerable to criticism. James Farrell and Maura McIntosh comment further on the decision below.

Background

The background is explained in more detail in our posts on the previous first instance and appeal decisions in this case. Briefly, the claimant liquidators were subject to an “unless order” requiring them to conduct a reasonable search for documents falling within their obligation to give standard disclosure and provide a list identifying the documents located as a result of the search.

The defendants applied for judgment on the basis that the claimant was in breach of the unless order, and so the action had been struck out automatically. The High Court (Birss J) dismissed the application and, having found that there was no breach, did not address the claimant's application for relief from sanctions.

The Court of Appeal allowed the appeal, finding that the failure to search for certain highly relevant categories of documents (known as "scripts") which the liquidators had promised to disclose meant that there was a breach of the order. The result was that the proceedings stood struck out. The Court of Appeal did not address the question of relief from sanctions. The matter therefore went back to the High Court to determine the claimant's application for relief.

Where a party applies for relief from a sanction that applies for breach of a rule or court order under CPR 3.9, the court must apply a three-stage test: (i) assess the seriousness and significance of the breach; (ii) consider why the breach occurred; and (iii) have regard to all the circumstances of the case in order to deal justly with the application (see Denton v TH White Ltd [2014] EWCA Civ 906 considered here).

The defendants had applied to the Court of Appeal to adduce additional evidence in relation to a further alleged failure to conduct a reasonable search, which had come to light since the initial application. The claimant had scanned some 180,000 hard copy documents onto an electronic database and applied OCR software to them so that the document pool for manual review could be narrowed down using key word searches. The problem was that the OCR versions were seriously inaccurate, so that it was possible that the key word searches had failed to identify documents that in fact contained the relevant key words. The Court of Appeal did not address this issue, having found that the action stood struck out as a result of the breach in respect of the scripts.

Decision

The High Court (His Honour Judge Pelling QC sitting as a High Court judge) found that there had been a breach of the unless order in respect of the OCR issue, as well as in relation to the scripts, and refused the application for relief from sanctions.

The first question was whether, in considering the application for relief from sanctions, the court was limited to considering the breach identified by the Court of Appeal - namely the failure in respect of the scripts - or whether the court could consider the other breaches relied on before Birss J and the OCR issue. The liquidators argued that, since Birss J had found that there were no breaches of the unless order, the only breach relevant to the application for relief was the breach found by the Court of Appeal. The judge rejected that argument. The order of a first instance judge ceases to have any effect once it is set aside by the Court of Appeal, and therefore there was no question of an issue estoppel having arisen. Accordingly, the court could consider all the alleged breaches.

If the only breach complained of had been the omission in relation to the scripts, the judge said, he would have granted relief from sanctions. Although the breach was serious, and there was no explanation for it other than error on the part of the liquidators' solicitors, the impact of the error was limited and easily rectified by service of a supplemental list.

However, the judge also found that the unless order had been breached in two other respects:

1. A failure to identify the documents disclosed in accordance with CPR 31.10, because certain documents were described as "spreadsheet", "transcript", "accounts", "report" or "table" with no further identification or description.
2. The failures in respect of the OCR issue, which meant that a reasonable search had not been carried out.

The first of these was a serious and significant failure, because it would have added significantly to the time / cost of inspection, though its impact was mitigated by the fact that inspection was provided by access to a database of scanned documents so that initial examination of the generically described documents could be accomplished in less time than if inspection had been conducted physically or by calling for copy documents. The judge said that, with some hesitation, he would have granted relief in respect of this failure as well, on condition that the liquidators used their best endeavours to supply the missing information by service of an amended list.

The failure in respect of the OCR issue was the most serious and significant of the breaches, and there was no satisfactory explanation for it. In considering all the circumstances of the case, the court took into account the "lamentable history" of the liquidators' disclosure exercise down to the date of the unless order, and the other failures referred to above which showed that insufficient care was taken to ensure compliance even when the liquidators were operating in the shadow of an unless order. As a result of the failures of the liquidators, the proceedings had not been conducted efficiently or at proportionate cost, which meant the defendant had been exposed to unnecessary or substantially increased costs and court time had been wasted. In those circumstances it was inappropriate to grant relief from sanction.