In this article we consider whether new English court rules applicable to production of electronically stored information (ESI) can provide a useful reference point for arbitrators where the parties have failed to adopt any of the arbitration-specific proposals on ESI recently published by institutions such as the International Institute for Conflict Prevention and Resolution (CPR), the International Bar Association (IBA) and the Chartered Institute of Arbitrators (CIArb).
We also consider whether the proliferation of rules with respect to the production of ESI could lead to wider disclosure in arbitration processes, to the detriment of their efficacy and efficiency. Finally, we discuss whether the overall trend toward regulating the production of ESI would be unnecessary if the parties could be persuaded to resolve the issue through consultation and agreement.
DISCLOSURE OBLIGATION ON PARTIES TO LITIGATION IN THE ENGLISH COURTS
Generally, parties to litigation in England and Wales are only obliged to disclose documents on which they rely, documents that adversely affect their own case, documents that adversely affect or support the case of another party and documents required to be disclosed by a Practice Direction (CPR 31.6). This obligation applies equally to ESI as it does to physical documents.
Aligned to the duty of disclosure is a duty to search. CPR 31.7 states that a party is “required to make a reasonable search for documents falling within rule 31.6(b) or (c).” CPR 31.9(2) continues: “The factors relevant in deciding the reasonableness of a search include the following: (a) the number of documents involved; (b) the nature and complexity of the proceedings; (c) the ease and expense of retrieval of any particular document;1 and (d) the significance of any document which is likely to be located during the search.” Finally, CPR 31.7(3) states that where a party “has not searched for a category or class of document on the grounds that to do so would be unreasonable, he must state this in his disclosure statement and identify the category or class of document.”
TREATMENT OF ESI DISCLOSURE: PRACTICE DIRECTIONS AND CASE LAW BEFORE OCTOBER 2010
Until October 1, 2010, the disclosure of ESI in proceedings in the courts of England and Wales was governed by the Practice Direction (PD) to Part 31 of the Civil Procedure Rules. Paragraph 2A of that PD set forth some principles as to liaison between the parties with respect to issues relating to the production of ESI. The paragraph was, however, expressed in permissive, rather than prescriptive, language: the parties “should” discuss and “should” cooperate, on the basis that it “may” be reasonable to search some or all of the parties’ electronic storage systems to satisfy the parties’ obligations under CPR 31.6 and 31.7.
The effect of the use of permissive language seems to have been that, in a number of cases, parties simply ignored the provisions of the Practice Direction. Instead of discussing and agreeing on an approach to the production of ESI, parties unilaterally conducted their searches and document productions. As a result, issues relating to the scope of such searches and productions often reached the courts not at an early stage (the PD expressing the view that disputes about the modalities of disclosure of ESI should be raised with the judge at the first case management conference), but much later in the proceedings.
In the 2009 case of Earles v. Barclays Bank PLC,2 the court was asked to draw adverse inferences at trial against the defendant bank for failing to produce its phone and email records in respect of its contacts with the claimant; the dispute centred around whether the claimant had authorised transfers of funds between his personal account with the bank and his business account. Although the court’s ruling in the underlying case ultimately went against the claimant, the court took the view that the production of the bank’s documents would have been likely to dispose of the matter earlier. As a result, the bank was penalised when it came to the award of costs. As the successful party, the bank should have recovered its costs from the unsuccessful claimant, but the defects in the bank’s approach to production of ESI led the judge to cut the recoverable costs by 50 percent.
In an earlier decision in the Digicel3 case, the parties failed to consult with each other with respect to the production of documents at an early stage, as the PD suggested they should have done. Instead, they each adopted their own approach to the searching of ESI repositories. The claimants then sought additional specific disclosure of documents that had not been produced by the defendants following their searches and review of ESI. Essentially, the claimants wanted the defendants to redo their searches on the basis of a wider selection of keywords and by reference to additional potential sources of ESI that might draw out additional relevant information and material for the purposes of the claim. The defendants had conducted their initial searches on the basis of 10 keywords and a limited number of custodians, and the claimants sought an order requiring the searches to be rerun using a further 19 keywords and looking at the email records of additional custodians.
The test applied by the Digicel court was whether the defendants’ original search parameters were reasonable within the scope of CDR 31.7, and, if not, then to consider whether it was proportionate to add additional custodians and/or further keywords to the search parameters. The court found that it was appropriate to require the defendants to revisit their searches of ESI and to apply a further eight keywords to the search parameters in respect of the email accounts of 16 identified individuals. In a case in which the defendants had already spent £2 million in fees and 6,700 hours of lawyers’ time examining the documents extracted as a result of the application of 10 keywords, the effect of the order was significant and undoubtedly resulted in duplication of effort and costs. These additional efforts and costs could have been avoided had the issues relating to the scope of ESI disclosure been discussed at an earlier stage in the proceedings, before the searches were undertaken.
PRACTICE DIRECTION 31B: DISCLOSURE OF ELECTRONIC DOCUMENTS
In response to the perception that parties were not taking seriously enough the guidance provided in paragraph 2A of the PD, the Civil Procedure Rules Committee has produced a new Practice Direction 31B (PD 31B) that came into force on October 1, 2010, which applies to proceedings commenced on or after that date. The new PD 31B is solely concerned with disclosure of ESI.
The key provisions of PD 31B are an obligation on the parties and their legal representatives to discuss with their opponents both the disclosure of ESI and the technology to be used in gathering and preparing disclosure and presenting material to the court. PD 31B emphasizes that this discussion should be conducted as early as possible and, in any event, before the first case management conference (equivalent to the parties’ first meeting with the arbitral tribunal). With respect to the disclosure of ESI, the parties are required to consider several factors, including:
- The categories of ESI within the parties’ control
- The computer systems, electronic devices and media on which any relevant documents may be held
- Storage systems and document retention policies
- The scope of the reasonable search for ESI required by rule 31.7
- The tools and techniques that should be considered to reduce the burden and cost of disclosure of ESI, such as the use of restricted date ranges, lists of custodians, types of document and keyword searches
- The preservation of ESI
- The format to be used on inspection of disclosed ESI
- The use of a neutral electronic repository for storage of ESI
PD 31B also incorporates an Electronic Documents Questionnaire (the Questionnaire) that the parties may voluntarily exchange as part of the process of discussion described above. In the event that the parties do not reach agreement on these matters, the court will either give written directions on disclosure or will arrange a separate hearing on disclosure, prior to which the parties may be directed to complete all or some parts of the Questionnaire.
In addition, PD 31B provides guidance as to the suitability of automated search techniques. These include, for example, keyword searches, disclosure of metadata and the formatting of lists of disclosed ESI.
The Questionnaire provides a structured means for each party to identify the core aspects of its proposed search by giving details, at an early stage, of the date range, custodians, types of material, databases, search methods and accessibility, preservation and inspection issues related to the documents they intend to produce. The Questionnaire also provides each party an early opportunity to make proposals as to the disclosure of ESI by the other party or parties.
After it is finalized, the Questionnaire must be signed and affirmed as true by a representative of the party, who must then be present at any hearing with respect to ESI disclosure issues. Therefore, each party is directly involved in the process from a very early stage.
According to the Senior Master who headed the Civil Procedure Rules Committee, the group responsible for reviewing and enhancing the ESI rules, the emphasis of PD 31B is to facilitate agreement between the parties concerning appropriate and proportionate approaches to ESI production, and thus to minimize the need for court intervention. The potential cost consequences of inadequate ESI production are so serious that the priority is to bring ESI production to the attention of both the parties and the judge at an early stage.
PD 31B permits the court to step in and make appropriate directions where agreement is not reached. According to the Senior Master, the Questionnaire is a useful checklist of the questions that a lawyer would be likely to ask of the client in scoping the disclosure process. Its completion should not add to the burden on the parties; rather, it should ensure that ESI production is carried out within appropriate parameters. This will enable the case to proceed in line with the overriding objectives of the Civil Procedure Rules: that cases should be dealt with justly and expeditiously while adopting procedures that put the parties on an equal footing and seek to reduce costs.
DISCLOSURE IN ARBITRATION: PRINCIPLES
Arbitration rules and procedures normally take a permissive approach to disclosure, in the sense that the parties are not usually subject to express duties with respect to the scope of disclosure required or the extent of search deemed to be reasonable. For the most part, national arbitration laws and institutional rules generally give the arbitral tribunal wide discretion to make such orders as are necessary to effect production of documents. In many ways, and particularly in common law jurisdictions, this approach has been one of the main attractions of arbitration, precisely because it reduces the time and cost spent by parties in meeting the parameters often specified by national court rules with respect to document production.
Arbitrators generally owe a duty to the parties to act fairly and impartially, giving each party a reasonable opportunity to present its case and to deal with the case presented by its opponent. Thus, arbitrators must adopt procedures that are suitable to the circumstances of the particular case and must avoid unnecessary delay or expense in order to provide a fair means for its resolution.4
DOES INTERNATIONAL ARBITRATION PRACTICE NEED TO CHANGE BECAUSE OF ESI?
Those familiar with the process of document production in international arbitration will generally expect that the parties will be required to produce, as a first step, the documents on which they wish to rely. Further document production normally arises in response to requests from other parties for specific documents or for particular classes or categories of documents. Typically, those requests are only submitted after the initial production of each party’s documents has taken place. Disputed requests are referred to the arbitral tribunal for determination.
In circumstances where the overwhelming majority of business documents are now ESI rather than physical documents, however, does this system still offer the best and most cost-effective means of managing the process? The complexity of information retrieval does not, in itself, rule out the possibility that an arbitral tribunal will order production of classes of ESI. As was seen in the Digicel case, where further searches are ordered, they may be very costly and the party conducting them is likely to have to bear those costs.
Looking at the various procedural rules and guidelines produced by institutions such as the International Centre for Dispute Resolution (ICDR), CIArb, CPR and IBA, the objectives and obligations of the arbitral tribunal with respect to the consideration of ESI issues broadly mirror the aims and objectives of PD 31B. All of these authorities require that expense, proportionality and fairness be considered by arbitral tribunals in managing the ESI disclosure process, and some of them suggest procedures to give structure to the process. None of these proposals, however, is as detailed as that set forth in PD 31B, and there is risk that parties will not be proactive in following the guidance, leading to potential Digicel-type situations.
Therefore, we ask: Does the Questionnaire present a template for information gathering and sharing between the parties that may assist an arbitral tribunal in managing the disclosure process fairly and cost-effectively (particularly where the parties have not agreed to apply any of the arbitral institutions’ guidance/rules on the topic)? Or does it create a momentum that is unnecessary in arbitration proceedings, forcing parties to take extensive, costly document retrieval and production measures that could otherwise be avoided?
Detailed rules and procedures such as those set forth in PD 31B are not normally used in international arbitration, and the parties habitually rely on the arbitral tribunal to manage cases fairly with wide discretion. It seems to us, however, that the particular challenges of ESI may require a more structured approach that ultimately may be of greater benefit to the parties than the broader statements of principle set forth in the institutional guidance.
Every arbitration claim will continue to be managed by arbitral tribunals in accordance with their duty to the parties. In appropriate cases, arbitral tribunals may legitimately determine that no purpose will be served by extensive discussion between the parties with respect to ESI. In other cases, however, where there are potentially millions of ESI items connected with the dispute, a structured process involving the exchange of information between the parties as to the identity and sources of their ESI may provide the best means of controlling the cost and time required for that process.
As yet, there is no case law from which we can draw any conclusions as to the efficacy of PD 31B and the Questionnaire. However, in our view, the purposes of the Questionnaire, as described by the Senior Master, are to enable the parties to structure a discussion about document production at an early stage and to avoid costly wrangling over techniques, keywords and production formats that may otherwise cause significant delay and additional expense in the proceedings.
These purposes seem to us to reflect the arbitral tribunal’s duty to the parties with respect to management of arbitration proceedings and, therefore, to offer the arbitral tribunal and the parties a structure to guide the course of document production. By encouraging the parties to meet and discuss these issues at an early stage, the arbitral tribunal and the parties may create an early agreed “universe” of potentially relevant documents. The first stage of production will then proceed with each party working to the same template in terms of concepts or keywords, and the identity of document custodians will be known in advance. Production of documents other than those on which a party wishes to rely will still be determined by the arbitral tribunal based on the application of relevant tests in the applicable procedural rules.
The arbitral practice of staged disclosure is echoed in PD 31B, which refers to and recognises it as another means of managing the process effectively by using initial disclosure of limited categories of documents. Those categories may subsequently be extended or limited, depending on the results initially obtained. It seems inevitable that more documents will be produced in arbitrations where a structured approach—such as that set forth in the Questionnaire—is adopted. Clients may feel that such an approach will increase the time and cost involved in performing searches in accordance with the parties’ agreement. The corollary benefit, however, is that there are likely to be fewer interim applications to the arbitral tribunal with respect to additional disclosure when the scope and depth of each party’s searches is known to the other. Further, if the parties have agreed on the parameters of their respective searches for ESI, it will be much more difficult for one party to force the other to conduct additional ESI searches later in the arbitration. Use of a structured process, then, may ultimately save parties time and money, and provide to all parties, and the arbitral tribunal, a useful road map for the conduct of electronic disclosure in international arbitration.