BY DAVID MCGRATH

During 2009 there have been some decisions of note in the Australian courts in the electronic discovery area. There has been a string of cases dealing with the issue of when parties should be required to recover information from backup tapes in discovery.

One of the key cases in that area has now been used by a judge in the Federal Court to decide a general discovery dispute in another matter. It may be that litigation of this ediscovery issue has in fact helped to further articulate discovery laws generally. The case that was cited with approval is Slick v Westpac Banking Corporation (No 2).

Slick was applied in Austal Ships Pty Ltd v Incat Australia Pty Ltd by Justice McKerracher of the Federal Court on 20 April 2009.
In this case, Austal claimed that its competitor, Incat, and others, including a former employee, have misused Austal’s confidential information, namely, an internal confidential report regarding the comparative sea keeping characteristics of Austal’s catamaran and trimaran ferries. The report in question had been emailed by Incat to a Norwegian company, Master Ferries, and was used as a basis for making disparaging remarks about the Austal trimaran.

Austal was successful in obtaining preliminary discovery (i.e. discovery prior to bringing an action) in order to assist it to determine whether it had a case and against whom. The preliminary discovery resulted in the confidential report/s being disclosed by Incat along with some associated emails and other documents. This allowed Austal to commence proceedings against Incat and a number of others. Incat then gave discovery in the matter.

It was crucial to Austal’s case that they demonstrate usage of the confidential information in the document to Austal’s detriment. The problem for Austal was that although they could prove that Incat had their confidential document and had used it in certain circumstances i.e. emailing it to Master Ferries, no further use of the document was disclosed by the Incat discovery. In fact, only seven documents were ever discovered by Incat in either preliminary or general discovery.

Austal was suspicious that Incat’s discovery was not complete and brought an application for particular (i.e. further) discovery. Adding to their suspicions was the fact that discovery was not signed in accordance with the formalities required by the court. In making the application for further discovery, Austal sought numerous, broad categories of documents from Incat.

McKerracher J refused the application despite the fact that the discovery has not been signed correctly and that the matters in question i.e. usage of the confidential document were matter solely within the knowledge of Incat and the other respondents.

A key factor in his reasoning was that the burden of the further discovery requested by Austal outweighed the “mere possibility that in transactions in respect of which there is express denial of usage, such denial may be proven to be incorrect . He went on to say that “The enormity of providing the discovery sought weighs heavily against making the orders sought by Austal.” In making his decision, McKerracher J referred to Slick where the further discovery, namely rebuilding Westpac’s legacy email environment or a forensic examination of the relevant backup tapes, was refused on the basis that ‘the theoretical possibility that something might turn up [was] well and truly outweighed by the cost and burden to Westpac’ In doing so, McKerracher J reaffirmed the view that in order to obtain an order for burdensome discovery for whatever reason (e.g. legacy backup tapes or generally difficult to retrieve data) the applicant needs to provide some evidence to support its case that the further discovery will bring relevant material to light. Mere speculation that it may result in further relevant materials being produced is not sufficient.

Judicial technology trailblazer

We now turn Justice Clifford Einstein. Justice Einstein has long been regarded as a trailblazer in the use of technology in litigation.
Two decisions this year confirm that he is still prepared to push the envelope when it comes to using technology in litigation and generally efficient and fair practices by legal practitioners.

The first decision was handed down on 6 March in Richard Crookes Constructions Pty Ltd v F Hannan (Properties) Pty Ltd [2009] NSWSC 142.

In that case, the judge made contested electronic discovery orders i.e. he made orders that all parties make discovery in electronic form even though one of the major discovering parties was adamant they wanted to provide hardcopy discovery and would be put to further unnecessary cost by providing electronic discovery.

The significance of the decision lies in the reasons published by the judge in reaching that decision.

In simple terms, the proceedings concerned allegedly defective building work in relation to commercial buildings owned by Hannan Properties. They retained a third party to repair the defects and withheld payment from the builder. The builder, Crooke Construction, denied that its work was defective and sought payment.

With multiple parties, a total of 865 allegations of building defects, and total claims of $24 million, the proceedings were noted as complex with discovery voluminous. Initial cost estimates for discovery ranged between $259,000 - $308,000 for electronic discovery and $294,000 - $438,000 for hardcopy discovery.

The two major discovering parties in the litigation were Hannan and Crooke. Hannan wanted all parties to give electronic discovery but Crooke wanted to give hardcopy discovery.

Hannan asked the court for electronic discovery orders arguing that it was cheaper or at least comparable to the costs of hard copy discovery and more cost effective than hard copy discovery in that it lowered the overall costs of all parties during discovery and inspection. It further submitted that this approach was consistent with the overriding objective of the just, quick and cheap resolution of disputes. Crooke opposed the order, arguing that it added significant costs to his discovery which it viewed as unnecessary. In addition, it was argued that only Hannan obtained significant benefit from the electronic discovery and that in effect, Crook was being asked to finance Hannan’s litigation.

Despite agreeing with Crooke that he would be put to some further costs in giving electronic discovery, Einstein. J considered this a small sum when considered in the context of the overall litigation.

Moreover, this cost was well and truly outweighed by the benefits accruing to all parties and the court, including reducing the overall costs to the parties of the discovery and inspection process, and the greater flexibility, efficiency and utility in the proceedings of the resulting electronic database including trial preparation and presentation.

In doing so, Einstein, J confirmed that term “cost effective” in paragraph 28 of the Commercial, Technology and Construction List practice note SC EQ3 was to be interpreted in this manner. He also agreed with Hannan that this approach was consistent with the overriding objective of the just, quick and cheap resolution of disputes.

Einstein J also referred to the court’s inherent jurisdiction to regulate its own proceedings. This he said includes the power to direct or order the parties to use “certain procedures if the benefits derived from the use of such procedures justifies the costs and will ensure that the trial proceeds quickly and efficiently.”

This means that even if the practice notes concerning the use of technology did not exist, or for some reason did not apply, the court would still have an “undoubted discretion to order electronic discovery in cases and in circumstances where the giving of electronic discovery will clearly be efficient”.

"Trolley load litigation" panned

On 14 July, 2009, Justice Clifford Einstein remarks and novel cost shifting orders in the matter of Michael Wilson and Partners Limited v Robert Colin Nicholls & Ors [2009] NSWSC 669 were sufficiently newsworthy to catch the eye of the mainstream press.
In that matter, a party who “dumped” 18 folders of documents on its opponent mid-trial was ordered to pay their costs of reviewing the materials.

Einstein was scathing of the behaviour of the legal team on this occasion referring to it as “trolley load litigation” which he described as “the practice of a party in litigation with little or no notice, to flood its opponent with materials and then to insist that whilst its opponent is entitled to a period in which to endeavour to absorb the new materials, that period should be minuscule.”

He went on to say that the practice should be discouraged and where it disadvantages a particular party, the court can avail itself of its many powers to right the imbalance.

He also commented on the responsibilities of the parties, through their legal representatives to assist the court to facilitate the just, quick and cheap resolution of the real issues in dispute.

The clear lesson to be learned from the two Einstein cases is that in this modern era of potentially expensive litigation, parties and representatives can expect greater scrutiny from the courts of its behaviour in litigation.

There is also a greater emphasis on parties co-operating with the court to ensure the “just resolution of disputes as quickly, inexpensively and efficiently as possible”. Such a duty is in fact now enshrined in the new Federal Court Practice Note No. 17.

In the United States, the highly influential Sedona Conference has released a Cooperation Proclamation. The aim of the proclamation is to “reverse the legal culture of adversarial discovery that is driving up costs and delaying justice”.

This is an obvious response to the rapid rise in litigation costs which in some case can make them disproportionate to what is in stake in the litigation. In the writer’s view, the courts will more actively manage this area in the future.

This more active case management will be strongly felt in the complex and potentially expensive area of electronic discovery. In order to ensure that they do not incur the wrath of the court and unnecessary costs, all participants will need to be well prepared and clear about how they are expected to proceed.

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.