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The Seven Point System: Managing the Risks and Costs of Preserving and Producing Electronically Stored Information in International Arbitration

January 2011
Mayer Brown Article

International arbitration generally continues to be a safe haven from the ever-expanding document production obligations under US law. The increasing importance of electronically stored information (ESI) however, including emails, texts, instant messages and social networking communications, threatens that sheltered status.

Key documents are no longer found only in filing cabinets. Instead, they may be among thousands of electronic documents housed on hard drives, remotely located servers, backup tapes and the like. It is imperative to actively manage the risks associated with this information.

Several ESI-related issues should be addressed or, at a minimum, considered, in every international agreement at the contracting stage and in every international arbitration as soon as a dispute arises.

While the negotiation of an arbitration clause in a commercial contract is often a last-minute affair, including seven parameters can greatly reduce later disputes about whether, and to what extent, a party must preserve and produce ESI. These parameters include:

  • Confining disclosure requirements to a specified number of custodians (perhaps with leave to request disclosure of additional custodians from the arbitrator upon a showing of good cause);
  • Limiting or prohibiting disclosure from third parties (including affiliates, wholly owned subsidiaries, etc.);
  • Narrowing the relevant time period;
  • Disclosing from specified accessible active data sources only;
  • Limiting the form of production to native format;
  • Specifying whether it is necessary to produce privilege and confidentiality
  • logs; and
  • Limiting the pool of eligible arbitrators to those who are knowledgeable about disclosure of ESI.

Particularly in the early stages of an arbitration, there are a number of opportunities to manage the size and scope of electronic disclosure in the event that the arbitration agreement and/or rules are insufficient to do so on their own. These points of time include: (i) notification of arbitration, (ii) negotiations with opposing counsel, (iii) constitution of the arbitral tribunal and (iv) the pre-hearing conference.

Once a party receives or serves a notice of arbitration—or reasonably anticipates that it will receive or serve a notice of arbitration—that party should take reasonable action to preserve documents that it believes may be relevant.1 The party must keep in mind that discarding valuable documents may lead to an adverse inference.2

Continued good faith adherence to a party’s documentretention policies is considered reasonable action.3 It is “unreasonable to expect a party to take every conceivable step to preserve every potentially relevant electronic document.”4 Therefore, a party must “carefully balance the likely value of documents requested against the cost and burdens, both financial and temporal, involved in producing the documents[.]”5

Costly and burdensome steps might include preservation of ESI from a wide range of users or custodians (absent a showing of “extraordinary need”)6 and “inaccessible” sources, such as backup tapes, legacy data, databases not programmed to produce the sought-after information, cell phones, PDAs, voicemails and fragmented, erased or damaged data.7

Strategies for ensuring that a party is taking reasonable action to preserve documents include:

  • Immediately obtaining record management policies and procedures;
  • Promptly interviewing key personnel to the dispute to determine relevant custodians;
  • Promptly interviewing IT and record management personnel to identify potential data sources, preservation cycles and dynamic ESI;
  • Consulting with an ESI collection specialist to determine the most efficient methods to collect, preserve and produce ESI;8
  • Employing early case assessment tools to index and search ESI by specified parameters;
  • Identifying data privacy concerns and ensuring protection of privileged and proprietary information; and
  • Periodically communicating ESI preservation and collection obligations to key personnel and documenting those communications.

To avoid protracted disputes on preservation and production of documents, it is often advisable, immediately upon receipt or service of a notice of arbitration, to contact opposing counsel. The intent is to reach agreement on a preservation and production protocol to the extent that the arbitration agreement and/or rules do not adequately address such matters or are ill-suited to the dispute.9

Seven items to consider in this negotiation are:

  • Establishing a binding timeline for disclosure;
  • Agreeing to limit preservation of ESI to certain sources, durations and formats; e.g., allowing production of ESI only from active data sources and determining whether data from dynamic database systems should be preserved;
  • Agreeing on protocols for collecting and reviewing ESI, including use of search terms, date limitations, data sampling and other means of efficiently searching for ESI. Discuss testing the search terms, methods for duplicating ESI (such as within the data of each custodian or across the entire data population) and any other means of searching to ensure desirable results and the relevance of the ESI;
  • Agreeing on the format in which to produce ESI, including in a static or native format (if native, discuss how to identify the documents), inclusion of metadata and whether the ESI should be searchable;
  • Establishing rules regarding privilege (and waiver)—options include creating clawback agreements, limiting the types of communications (such as communications with outside counsel) that must be logged and adopting rules that are consistent with the “lowest common denominator of the parties’ respective national law”;10
  • Allocating costs for ESI preservation, review and disclosure; and
  • Identifying the areas of disagreement that need to be resolved with the tribunal.

Absent the development of a disclosure protocol among the parties, the scope of permitted disclosure is governed by the arbitration clause, the arbitral institution’s rules and, particularly, the individual arbitrator’s personal views of the acceptable limits of disclosure. Therefore, an arbitrator’s practice in a civil or common law country, for example, may greatly affect whether, and to what extent, ESI disclosure is allowed. Generally, common law countries, particularly the United States, permit wide-ranging disclosure. In contrast, civil law countries place significant restrictions on disclosure. As a result, in addition to those factors normally taken into consideration when constituting an arbitral tribunal, a party should consider whether it is in its interest to nominate an arbitrator trained in a civil or common law country.

If some or all of these strategies fail, or if unanticipated obstacles arise, a party should endeavor to manage the costs and risks associated with preservation and production of ESI by appealing directly to the arbitrator at, and after, the pre-hearing conference. In extreme cases, a party may also consider seeking relief from a court with relevant jurisdiction. Courts in the United States, for example, may have the jurisdiction to compel or prevent disclosure of documents notwithstanding an arbitration’s governing rules.11

The best way to avoid costly disputes about ESI is to include our recommended seven parameters in arbitration clauses. Once a dispute arises, applying our seven proposed strategies for ensuring reasonable preservation of documents and raising our seven items for prompt negotiation with opposing counsel can prevent disputes about ESI from undermining the efficiency of international arbitration.

  1. Generally, “relevant” documents are those that are material to the outcome of a case. See International Bar Association, IBA Rules on the Taking of Evidence in International Arbitration, Article 3.3.
  2. E.g., Chartered Institute of Arbitrators, Protocol for E-disclosure in Arbitration, Article 14.
  3. See CPR Institute, Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration, Section 1(d)(1).
  4. Chartered Institute of Arbitrators, Protocol for E-disclosure in Arbitration, Article 3. Robert Smith and Tyler Robinson in E-Disclosure in International Arbitration explain that this “rifle-shot” approach by arbitral institutions permits “narrowly targeted information requests to penetrate otherwise hugely voluminous amounts of electronically stored information” by “organi[zing] and filter[ing] electronic information, by date, custodian, location, and through the application of specific search terms.” 24 Arbitration International 105, 125 (2008).
  5. CPR Institute, , Section 1(e)(2). Similarly, the International Centre for Dispute Resolution requires, in any dispute concerning disclosure, the “requesting party to justify the time and expense that its request may involve[.]” ICDR Guidelines for Arbitrators concerning Exchanges of Information, Paragraph 8.
  6. CPR Institute, Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration, Section 1(d)(1).
  7. International Bar Association, IBA Rules on the Taking of Evidence in International Arbitration, Article 9.2.
  8. See, e.g., International Centre for Dispute Resolution, ICDR Guidelines for Arbitrators concerning Exchanges of Information, Paragraph 4 (“When documents to be exchanged are maintained in electronic form, the party in possession of such documents may make them available in the form (which may be paper copies) most convenient and economical for it[.]”).
  9. Be aware that some arbitral institutions require express written agreements to supersede the institution’s rules. See, e.g., International Centre for Dispute Resolution, ICDR Guidelines for Arbitrators Concerning Exchanges of Information, Paragraph 1(b) (“To the extent that the Parties wish to depart from this standard, they may do so only on the basis of an express agreement among all of them in writing and in consultation with the tribunal.”).
  10. J. Martin, H. Hunter and Gregory Travaini, Electronically Stored Information and Privilege in International Arbitration.
  11. Liber Amicorum Bernardo Cremades (La Ley 2010) 615, 622 (M. Á. Fernández-Ballesteros and David Arias, eds., 2010). 11 28 U.S.C. § 1782 (1996).

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