Cracking a solicitor’s safe

David McGrath goes behind the complex ediscovery issues raised in a recent federal court judgement, which centred on the contents of a laptop computer hard drive held in the Sydney office safe of solicitor Fiona Shand.

In handing down judgement in the case of Porter v Australian Prudential Regulation Authority on 25 February 2010, Justice Nye Perram remarked, "How an image of Mr Porter’s laptop computer’s hard drive came to be in Ms Shand’s safe requires a slight digression."

For the second time, APRA was being hauled before the court to justify why it should have access to the contents of the disk drive.

Why did APRA want to get its hands on it so badly that it was prepared to face the pain and potential humiliation of another successful challenge to its powers?

On the last occasion, the court had described APRA’s actions as reprehensible, ordered it to pay all of Mrs. Shand’s costs and direct ed it to provide a copy of its reasons to its chairman.
We pick up this story on the afternoon of 3 July 2009 as four persons descend on the offices of Austfam in Sydney.

Austfam is a company that was in what is known in the insurance industry as “run-off”. This is where the insurer writes no new insurance business leaving it only to meet liabilities to existing policyholders as they arise.

In 2001, Austfam’s insurance portfolio was transferred to Trans Pacific Insurance Corporation (TPIC), meaning it was now their responsibility to pay any outstanding claims.
TPIC’s collapse in April, 2009 precipitated the whole chain of events in regards to the contents of the safe of Fiona Shand, the solicitor acting for Ross Porter, Austfam’s managing director since 1989.

TPIC’s collapse exposed claimants against Austfam policies to the risk they would not be paid.

On 3 July 2009, a court ordered that management of Austfam’s affairs be handed over to a judicial manager i.e. an external administrator. In the judge’s own words, the judicial manager “acted swiftly to give effect to that mandate”.

Access was requested to Ross Porter’s laptop in order to take a forensic image of its contents. Mr Porter objected that it contained information relating to AFA Insurance and completely unrelated to Austfam. Moreover, some of those documents may be privileged. He called on his solicitor, Fiona Shand, to intercede.

(It should be noted that at no time has it been suggested that Mr Porter had done anything wrong. He continues to run a separate accident and health insurance business known as AFA Insurance.)

Not unsurprisingly, given that it was late on a Friday afternoon, negotiations over an appropriate access protocol failed. The hard drive was taken by the judicial officers over the weekend for safekeeping. After further negotiations fail, the hard drive is reinstalled in Mr Porter’s laptop.

A forensic image of the hard drive is copied to a 1.5 TB Seagate hard disk and handed to Fiona Shand. Access issues are put to one side while the judicial manager decides whether he really needs to inspect it.

Fast forward to 9.50am, Wednesday 5 Aug, 2009. APRA serves a notice on Ms Shand requiring her to produce the hard drive to APRA by 4.00pm that day. Failure to comply carries the risk of three months imprisonment.

At 3:55pm, Ms. Shand urgently applies to the court for relief. That relief was denied on technical grounds leaving Ms. Shand technically in breach of the notice.

The notice was subsequently found to suffer from a number of problems. APRA ultimately consented to an order setting it aside after the judge ruled they could not proceed on it.
One of its difficulties was that it sought production of the Seagate drive itself which may have contained materials either unrelated to Austfam or subject to privilege.

APRA criticised

APRA’s behaviour attracted heavy criticism. Simply issuing a notice requiring production of the hard drive in just two days was considered unreasonable. The fact that it then waited until the morning of the last day to serve the notice on Ms. Shand leaving her just six hours to comply was described as reprehensible. APRA offered no explanation to the court as to why it acted in this way.

In the judge’s view, APRA simply failed to understand the “seriousness of the position in which it had placed Ms Shand” and, at times, acted in a manner “indicative of ethical obtuseness”.
The judge took the highly unusual step of ordering APRA to pay Ms. Shand’s costs on an ‘indemnity basis’. This meant that APRA had to pay all of Ms. Shand’s costs not just those considered reasonable when assessed against a court scale.

On Thursday 20 August 2009, APRA tried again.

This time, the notice gave Ms Shand two weeks to comply and APRA attempted to serve it on the day of issue.

This notice did not require production of the hard drive. Rather it gave specific details of “categories of books” relating to the affairs of Austfam on the hard drive which Ms. Shand was required to produce. This successfully dealt with the objections concerning the production of material that was either extraneous to the affairs of Austfam or potentially privileged.

Forensic formats

For Fiona Shand, this raised issues similar to those found in a typical e-discovery. First, she did not know how to access the data on the hard drive which was stored in a protected forensic format. The judicial manager’s office had described the process as expensive and complicated and that even an IT person could not do it without special skills and software.

Secondly, Ms Shand claimed not to know enough about the affairs of Austfam to assess the responsiveness of the material to the notice. Finally, Ms Shand now had the burden of restoring, reviewing and producing responsive materials, a matter APRA should have considered in issuing its notice. All of these issues were raised in new proceedings to set aside the notice.

On the access issue, whilst the judge accepted that it was probably difficult for Ms. Shand to access the data, he found it was still possible with the assistance of an expert. He commented that “such images are frequently before the Court as are the experts involved in their production”.

On the question of whether Ms. Shand could identify Austfam related materials, the judge again found it was possible. He commented that solicitors are frequently called on, in discovery, to assess the relevance of client material without having “any more expertise in the client’s affairs than that arising from the retainer”. As Fiona Shand was retained by Mr Porter she could ask him to clarify any matters that were unclear.

Finally, the judge was not persuaded that Ms. Shand’s burden was a mandatory matter for APRA to consider in issuing its notice. In any event, there was technically no evidence that they had failed to consider this burden.

In all, seven objections were raised. The judge dismissed all of them upholding the notice. Fiona Shand’s safe had been cracked open.

Despite the obvious difficulties retrieving documents from the Seagate hard drive, APRA never explained why it wanted to proceed in this way. The judicial manager’s office had previously advised Ms. Shand that it would be far cheaper to print any documents required from Ross Porter’s laptop.

Fiona Shand alleged that APRA issued the notice to assist the judicial manager who was still in the process of negotiating an appropriate access regime after having been denied access to other Austfam documents by the computer equipment’s owner, AFA Insurance.

APRA’s right to require Ms. Shand to produce Austfam’s documents from the forensic image on the hard drive in Ms. Shand’s safe was not upheld however until 25 February, 2010. With Austfam wound up and its policyholders protected, it remains to be seen whether APRA will continue to press the burden of that exercise onto Ms. Shand.

David McGrath is Director of e-Litigation Solutions. He currently provides independent e-discovery, information management and technology consulting services to corporates, law firms and the courts. David holds degrees in Law and Computer Science and post graduate qualifications in Technology Management.