The Truth is out There: And so is a major eDiscovery market, ready to play ball.

The Truth is out There: And so is a major eDiscovery market, ready to play ball.

By Angela Priestley

January/February Edition, 2008: A blow out in costs, a couple of mega-litigations, a Federal Court Note and a growth in electronic data that shows no signs of letting up. It looks like eDiscovery is in the stars as is a local market on the verge of the big bang. But are Australian corporates ready to respect the truth that resides in their electronic data?

Once upon a time in a Sydney Federal Court, Justice Ronald Sackville expressed his concern over the amount of resources thrown at the single piece of litigation in front of him. Realising his case was far from over Sackville commented, “It is clear that unless this is resolved, or the issues substantially narrowed, a further vast amount of money will be spent.”

That was in 2005. At that point the case had been running for 29 days, including 20 hearing days, with only two witnesses appearing on the stand.

Now, writing this in early 2008, we know that the C7 hearing lasted 120 days before concluding in October 2006 for Sackville to review the mammoth amount of court transcripts and finalise his decision in July 2007. The case cost an estimated $200 million in a ‘mega-litigation’ of unforseen proportions that sent shockwaves through corporate Australia. The case was no longer an issue of whatever it was regarding, but rather a battle of egos that had ensued.

Confined to the pages of corporate history, what was the final outcome of the case and who besides those in Sackville’s Court room actually cares?

The stakeholders of the eDiscovery market care. So much so, that the bureaus, vendors, consultancies, accountancies and law firms involved could very well do with a few more ‘mega-litigation’ headlines. That way, Australian organisations once and for all might get serious about eDiscovery.

On the edge of the big bang

Even without the headlines, the eDiscovery market in Australia is tipped to boom. Following the footsteps of the United State Federal Rules of Civil Procedure, changing eDiscovery laws locally might provide the final nail in the coffin of poor information management.

Work is well underway on an eDiscovery Practice Note expected to be released in February 2008. It’s reform that follows Victoria’s Document Destruct Act and likely to increasingly impact the state of electronic records in Australian organisations.

According eDiscovery Tools COO Seamus E Byrne, who contributed to the draft during his time at Vincent Chartered Accountants, the Practice Note is particularly concerned with the courts, rather than just the top tiered law firms. “They’re the ones who have to deal with it, while top tier law firms generally have internal litigation support services,” he says. “For mid tier and smaller firms that may not have internal eDiscovery resources it’s important that they’re also involved, as they do deal with litigation. There are multiple opinions on how this should be done.”

Byrne maintains that organisations should not view the Practice Note as a daunting need to jump to arms. “But it’s clear that organisations must take steps to manage electronic information. It’s also clear that organisations need to ensure their technology and CIO are able to interact with the COO, and chief legal offices as to what measures are in place to manage electronic information.”

Still, a blow-out of costs, like that which occurred in the C7 case is still relevant. “In discovery you have two choices,” says Ajoy Ghosh, security solutions executive at LogicaCMG. “You can either do it electronically, or you can do the traditional paper discovery which means having paralegal read through boxes of paper. You’re better off going electronically and not paying for those paralegals.”

While the Court Note could spell financial penalties for organisations who fail to comply, Craig Tamlin, managing director of SpectrumData suggests these threats may not be tough enough. “For a lot of judges the penalties won’t be anywhere near as draconian as in the US,” he says.

“They will take the slap on the wrist angle, a small fine that organisations are simply willing to just wear. After all, it’s easier than spending the money searching through terabytes of data.

Tamlin says Australia has somewhere between five and ten years before we’re on top of eDiscovery. In the meantime, he says, eDiscovery will find a completely different value proposition. “The focus is often in the court room but in talking to a number of different lawyers, what we’re finding is that the real value is in finding the smoking guy early to produce a legal strategy for the case.”

David Thomson, managing director with AXS-One says the new Federal court rules are likely to be similar to the US Federal Civil Rules of Procedure – eDiscovery laws that have drastically changed the face of the US market. However he’s concerned about the local given our history with compliance. Even in Victoria, he says, organisations are still not fully aware of their obligations under the Document Destruction Act.

Charge of the Accountants

Jumping in this space is a new breed of eDiscovery experts, the accounting and insolvency organisations using their expertise in auditing firms to expand into forensics and eDiscovery advice.

According to Warren Dunn managing director with E-Law, it’s these new entrants that will have a significant impact on the market over the short-term. “Over the next 12 months we’re going to see a lot of new entrants – accounting, insolvency and technology. I think we can expect to see consolidation, or larger accounting firms buying up these expertise and bringing them in-house,” he says.

One significant area of consolidation was the buy out of Forensic Technology by Vincent Chartered Accountants in 2006. According to Byrne the then director of Forensic Technology assisting the forensic accountant is not just about eDiscovery. “Forensic accountants are brought in because there may be a dispute over the evaluation of a matter, so it’s computer forensics that come to check if an account is in tact – no eDiscovery.”

Dunn is not phased by these new entrants and says it’s the experience that will give firms like eLaw the upper hand. “We’re a combination of technology and lawyers so we can see the total process rather than having accounting look at individual components. They also tend to buy technologies off the shelf, it’s putting together cars by using borrowed parts.”

Meanwhile consolidation is occurring locally and overseas. In Australia, one of the largest mergers has been between Forensic Data and Deloitte who are chasing a forensics market which they believe, could be anything from 20 – 30 million over the next year. “This merger is targeting eDiscovery,” says Forensic Data CEO Nicholas Adamo. “Over the last 18 months, we’ve really seen a significant change in the technical complexity and the actual size of these jobs.”

Still space for the law firms?

The potential for eDiscovery reform in Australia has already seen a mass shake-up of the eDiscovery industry, again following in the footsteps of the United States. More so than this, eDiscovery is changing the foundations of the legal tradition with an increasing number of technology firms stepping up to take their piece of the litigation pie.

Could this spell a breakdown of the legal monopoly? “The lawfirms are our biggest compeitiros because they want their paralegals to still be going through those documents,” says Ajoy.

However eDiscovery reforms may also provide opportunities for local lawfirms to gain the necessary discovery experience and prodcedures to better compete internatinally. “Even though we may not have the volume of cases and documents that the US has, if we are educated and following the correct prodedures and processes then everyone will benefit from that,” says Scott Gillard, eDiscovery expert with CCH.

It’s also good timing for law firms to update their people, processes and tools. “Lawyers are becoming more tech savvy and are learning how eDiscovery can empower them and potentially give them the winning edge,” says Gillard.

With this, Gillard still does not believe a booming eDiscovery market will drastically change the way law firms operate in terms of reviewing documents. Instead of decreasing paralegal numbers, Gillard points to the argument that paralegals may end up on the increase as an even larger document numbers are generated.

“At present, I am only seeing less that 50 percent of projects that come through CCH Workflow Solutions that contain eDiscovery so there is still a mentality of either overlooking or ignoring electronic materials,” says Gillard. “This may generally be due to the fact that there is a belief that everything required is already in paper form. However 98 percent or greater of electronic material never actually makes it to paper!”

An increased pool of documents would on the outset also increase staff numbers and potentially costs, but an evolving technology market appears to incresingly be making recview swifter and more accurate.

Away from the review processes, eDiscovery is also an opportunity for law firms to find a greater information advisory role within organisations. Preperation for eDiscovery could well be the key, and as more and more organisations realise preperation needs to start before an ediscovery order, they will seek legal advice earlier.

There’s still always a place for lawyers to act on their traditional consulting base. Dunn says when it comes to the processing tasks of eDiscovery, law firms should ask if it’s really their core service and beneficial to do the work in-house. “They might miss out on the processing dollars, but there is still an enormous scope for them to be billing and the add value to the application of knowledge of the law.”

When it comes to forensics however, many forensics experts believe lawfirms are not game enough to play ball just yet. “It’s an enormous liability issues, these law firms are not experts in forensics,” says Adamo. “From my experience with my clients, they have no desire to move into areas where they face significant liabilities if they get it wrong.

To take a highly fitting justice for all approach – any lawyer concerned with justice should view any measure to update the court system creating more measurable outcomes and processes for better trials as necessary evil. “Technology is here and now and will increasingly become available to assist in efficiencies,” says Byrne. “They will lose a direct revenue stream that was previously there, but there are alternative streams, particularly in advising organisations on proper information management.”

Litigious differences: US comparisons

But while eDiscovery is about to get very real locally, it seems the business culture of Australia may level out the exponential growth of such services.

Firstly, as Gillard points out, our market is considerably smaller and not as litigious as the US market. “There simply is not the throughput of litigation matters in our court systems to epose the legal fraternity to the challenges of eDiscovery,” he says. Meanwhile mediation is also considerable high in the Australian market, meaning litigation never makes it to the point of discovery.

However Gillard also notes when compared to their US counterparts, Australian law firms are lacking in experience and procedures with eDiscovery. It’s a problem that may affect local firms competing internationally, especially in Asia where US firms are plenty.

Looking internationally, Gerry Sillars from CommVault says eDiscovery is a reality in every party of the world. “Although it is true to say we aren’t ahead of the curve in Australia, we are certainly getting caught up in the wave,” he says.

So how prepared are we?

Even with a looming Court Note and the large amount of press and opinions generated around the ‘mega-litigations’ and their cost blowouts, there is a general consenus in the industry that many Australian organisations have not yet considered the full ramifications of eDiscovey.

Many, says Ghosh, are taking the head in the sand approach. “They don’t believe they will have to respond, or they don’t believe responding is such an onerous exercise.”

It’s the sheer size and exponential growth of data that may spell problems for organisations tackling eDiscovery. “It will be a struggle for some very large companies,” says Tamlin. “IT managers will need to develop an eDiscovery methodology, so when an action happens against them they can sing quickly into action.”

Thompson says as much as corporate lawyers might understand that eDiscovery needs to be considered it’s IT that managers the budgets. “In order for IT to get their budgets approved they usually need to suggest something is operation driven as opposed to being compliance driven,” he says. “Compliance in Australia is almost a dirty word. We like to talk about business protection instead.”

It’s a line of thinking that may well extend from a history of software companies attempting to create a demand that’s not necessarily warranted. From Y2K to GST compliance and privacy, there are feelings that organisations have been bitten before and are therefore cautious this time round.

“Even when you look at a case like C7 where one email discovered six years after being sent potentially costs millions and millions of dollars. When people look at that, they’re still thinking they just got unlucky,” says Thompson.

For AXS-One, there own customers present a good indication of where Australian organisations are at in terms of compliance. With 30 customers, Thompson says just two have taken their solution to protect the business, the rest use it for operational reasons.

Dunn puts the timeframe for eDiscovery down to the nature of the organisations. “Those avidly involved in litigation, like your tobacco and pharmaceutical companies, will be up to speed within a year,” he says. “Those no regularly involved might find they’ve two to five years before it starts to hurt them.”

For an organisation, litigation can be corporate version of the Big Bang theory. Spark a fight and instantaneously costs blow out and continue to expand while documents become the millions if not billions of potentially exploding starts across a never-ending universe.

In the universe that became C7 the case tipped past the $200 million mark in expenditure. In the eyes of Justice Sackville commenting in 2007, it’s “not only extraordinarily wasteful, but borders on the scandalous.”

So realistically, may look like a daunting request to venture into the unknown, could soon be the key to preventing costly litigation procedures in the future. If all goes to plan on bursting eDiscovery market locally, it’s the competition of multiple players that will make bigger and better solutions more affordable. Many organisations will soon need to plan and execute a strategy. By looks of it, it won’t be difficult to find an expert willing to help.

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