MISUSE of e-mail cases have been well-documented. Who can forget the case of the lawyer, the secretary and the ketchup stain? In business terms, committing confidential agreements or sentiments to e-mail can often lead to much more costly consequences if they are used as evidence in litigation.
Although e-mails have been used as evidence in both criminal and civil cases, changes to rules governing the disclosure of electronic documents during litigation have become much more stringent, and worryingly, six months after their implementation, most businesses in England and Wales still aren’t aware of the impact the changes will have.
The introduction of the 40th amendment to the Civil Procedure Rules last October imposed stricter obligations on businesses to consider the availability and relevance of electronic documents at the earliest stages of litigation. The rules now refer expressly to documents stored on servers and back-up systems and encompass documents that have apparently been “deleted” but that can be recovered by a forensic IT expert. That said, businesses have arguably had a lucky escape so far — there has been no flurry of activity in the courts over this issue, despite well-publicised cases in the US. Why?
The relative quiet could indicate several things — that the changes reflected standard litigation practice; that they have instigated a slow shift in attitudes rather than an immediate transformation; or that electronic disclosure is not a subject central to the conduct of English litigation.
A comparison with trends in the US suggests that this last possibility is the least likely. In recent years there have been a number of US cases in which questions of electronic disclosure have been crucial, if not to the final outcome then to the progress, and therefore costs, of the litigation. Some of these cases — most notably the Zubulake series — were considered expressly by the working party on electronic disclosure established by the Commercial Court to consider the implications of electronic disclosure on the Civil Procedure Rules. It was the working party’s report that fed into the amendments implemented last year.
Obvious differences between US and English litigation make comparison somewhat invidious. US litigation generally requires the party seeking disclosure to formulate an appropriate request for relevant documents, whereas our rules make disclosure voluntary. In some circumstances, a US court will order a party making a request to bear the costs of compliance, known as “cost-shifting”. Specific US regulations can also require companies to apply a “litigation hold”, preventing the routine destruction of documents in circumstances where litigation is under way.
Cost-shifting and litigation hold arose in the Zubulake case, when Ms Zubulake asked that back-up tapes of her former employer, UBS Warburg, be searched for relevant e-mails. The estimated search cost was $300,000 (£160,000). It became apparent that UBS had deleted some back-up tapes and e-mails in breach of its document retention policy. Because Ms Zubulake could not demonstrate that the missing documents would have supported her claims, the court drew no adverse inferences, but UBS was ordered to pay the costs of determining the issue. UBS later produced some e-mails from the back-up tapes, but not the most crucial documents. The court found that UBS had deliberately deleted these, despite court orders, and criticised UBS’s legal advisers for failing to locate the documents and ensure that they were preserved.
In a similar case, Coleman Holdings v Morgan Stanley, the defendant was rebuked for failing to carry out a comprehensive search for electronic documents before the disclosure deadline, and for not revealing that a substantial volume of documentation had not been disclosed. The jury was instructed to draw adverse inferences.
In England and Wales, disclosure obligations arise as soon as a dispute arises. If documents are no longer in a party’s possession, it must be able to state what has become of them. While there is no provision in the rules for adverse inferences to be drawn in circumstances where documents have been destroyed, the effect on English cases may be substantially the same since a party’s credibility (and hence its case) can be seriously undermined.
So will the UK head the same way as the US? The volume and variety of electronic materials produced by businesses increases significantly year-on-year, especially with mobile phones, laptops, BlackBerries and PDAs (personal digital assistants) becoming standard issue for most businesses. It has been estimated that 93 per cent of corporate documents are created, viewed and stored electronically, yet 70 per cent of these never migrate to paper. The rule changes on electronic disclosure do not alter fundamentally the basic principles of disclosure. What they and the US cases highlight is that the scale of the disclosure process for a business involved in litigation has dramatically increased and the sanctions for non-compliance could be higher than ever.
The author is a partner in the litigation and dispute management department of Eversheds
MORGAN STANLEY FINED BY SEC
THE US bank Morgan Stanley last week agreed to pay $15 million (£11.7million) to settle a civil lawsuit brought by the Securities and Exchange Commission after it failed to provide “tens of thousands” of e-mails demanded by the US regulator during its investigation into the independence of Wall Street stock analysts.
Morgan Stanley has neither admitted nor denied the claims but the SEC said that it had “not diligently searched” for the e-mails and had made “numerous misstatements” during the process including telling the regulator that its search was “complete” when it was not.
