Handling confidential documents in discovery

By its nature, discovery often involves disclosing confidential documents, or documents containing confidential information.

Confidentiality is usually not grounds for withholding (i.e. not disclosing) a discoverable document. Documents can be withheld on the grounds of privilege (either as codified in the Evidence Act 2006, or the residual common law privileges) or irrelevance, but there is no privilege for “commercial sensitivity” or other such aspects of confidentiality (see ss 68-70 of the Evidence Act for other grounds).

But this does not mean that confidential documents need to be handed over without restriction.

The starting point is relevance, under the “adverse documents” test. If a document is not required to be discovered, then issues of handling confidential information in that document should not arise.

If a document is discoverable, then High Court Rule 8.15(2)(f) permits the producing party to propose “restrictions … to protect the claimed confidentiality of any document”. Rule 8.28(3) then permits the producing party to produce those documents subject to the proposed restrictions. If the receiving parties wish to challenge the proposed restrictions, they may do so pursuant to Rule 8.25.

There are several important points to note:

  1. The confidential documents must be listed as confidential documents in the affidavit of documents (usually ‘part 3’).
  2. The proposed restrictions on the confidential documents must be stated in the affidavit of documents itself.
  3. The producing party is free, within reason, to propose whatever restrictions they consider appropriate, though this should be read subject to the duty to co-operate.
  4. It is up to the receiving party to challenge the restrictions, if they wish. This will usually require an interlocutory application or a memorandum seeking directions (a party that inappropriately claimed confidentiality, or proposed inappropriate conditions, would likely have to pay costs).

What restrictions can be applied?

While rule 8.30(4) limits the use of discovered documents to the purposes of the proceeding only, and prevents extra-judicial disclosure, the producing party still may wish protect the confidentiality of certain information.

The producing party is at liberty to propose appropriate restrictions. Common restrictions include:

  • Redacting documents. While relevant information cannot be withheld on the grounds of confidentiality, non-relevant confidential information could be redacted, making the resulting document discoverable with redactions (“DWR”; the same can apply to privileged documents). For example, a document may be commercially sensitive because it contains sales figures or name of other customers. If sales figures or customer names are not relevant to the dispute, a redacted version of the document omitting that information could be provided (as a Part 1 document).
  • Limiting inspection. Confidential documents are sometimes provided on an “attorney’s eyes only” basis that limits inspection to the receiving party’s lawyers and experts only. This is usually supported by an undertaking from the receiving party’s solicitor.
  • A combination of the above, where redacted versions are made available to the receiving party themselves (without restrictions), and the full versions are available for the receiving party’s lawyers (with undertakings) to inspect in order to confirm the legitimacy of the redactions.

Common sense should prevail

Care should be taken not to claim confidentiality over-zealously. Rule 8.30(4) provides a reasonably robust level of protection to all discovery documents, and it is not necessary (nor appropriate) to claim confidentiality across tracts of documents without an “elevated” need to do so. A robust case should be made.

In practice, most discovery issues of this nature can and should be resolved between the parties on a common sense basis – which is supported to some extent by the duty to co-operate that the new rules impose.

When will New Zealand get e-filing?

Non-lawyers may be surprised, even shocked, to know that New Zealand courts still require manual, paper-based filing of court documents (I am happily unfamiliar with criminal proceedings, so I limit my comments to civil proceedings).

With only limited exceptions, documents must be printed and then physically delivered by post, courier or hand, to the relevant court. Even the form of paper is specified in detail: “medium weight and good quality … of international size A4 … clearly typewritten, printed, or produced in permanent form by photocopying … a margin of at least one-quarter of the width of the paper must be left on the left-hand side of each pageall sheets of a document must be securely fastened together“.

(Limited exceptions include certain types of memoranda that can be filed by email, and a friendly case officer will also occasionally make exceptions. Likewise with fax.)

So if you want to file a two page application in the High Court, you must print it out and deliver it to the High Court building. If you need to urgently file documents in a court in another town or city, a “claytons e-filing” is sometimes performed, where you email the document to another lawyer in the relevant city or town and ask them to print it out and run it along to the court for you (yes, seriously).

And I’m not just talking about small documents. If, for example, you have a case in the Court of Appeal, you are required to physically deliver 4 printed multi-volume sets of evidence and pleadings (often thousands of pages) to Wellington. This can involve freighting large archive boxes full of paper to Wellington. And of course, having thousands of pages of text in printed form is very user-unfriendly (not to mention carbon-footprint unfriendly), when almost any other business or organisation would request it electronically so it can be searched, stored efficiently, etc, although that is a separate topic in itself.

The benefits of e-filing are apparent. Minister for Courts, Chester Borrows, recently commented:

The ability to lay charges in a court without typing out paperwork, driving to a courthouse, signing, swearing and filing the paperwork every time a person is arrested will save police and court staff huge amounts of time. It is estimated that an electronic operating model implemented in this country will save 93,000 man hours per year for police officers’ and courts’ staff time.

But for now, e-filing is not yet a reality in New Zealand. There have actually been basic provisions for e-filing in the High Court Rules for some years, however these have not been activated as they are dependent on the necessary IT infrastructure being implemented.

The good news is that progress is underway. Various announcements of initiatives have been made in recent years, and some progress is apparently happening. The Rules Committee of the High Court reported last year that steps were being taken:

… which would significantly move forward the timeline for when e-filing could be realistically implemented. At this stage, phase two is expected to be deployed 2014/15.

In the meantime New Zealand’s court system, remains heavily paper-based. I would wager that the court system is, at present, the most technologically backward area of Government in this regard. I hasten to add that none of this is a criticism of court personnel, who generally do a fantastic job with the rules they have been given and will always be essential to the smooth running of the courts.

We are not alone. A Canadian judge, after experiencing problems with his court system’s paper-based document management system, engaged in some wistful thinking in a judgment delivered earlier this year:

[13] The real solution? Consign our paper-based document management system to the scrap heap of history and equip this Court with a modern, electronic document system.

[14] A warm, sunny day like today perhaps allows one to dream a bit. What if our Court had an electronic case management system which recorded, as a matter of course and without the need for extraordinary judicial direction, that certain documents had been filed and sealed in a proceeding, so that when the matter returned for further hearing an electronic flag would pop up alerting court staff that sealed documents might be required for a hearing?

[15] And what if our Court had a system under which documents were filed electronically and accessible to judges and others through a web-based system, with sealed documents specially encrypted to limit access to judges only?

[16] Yes, Virginia, somewhere, someone must have created such a system, and perhaps sometime, in an another decade or so, rumours of such a possibility may waft into the paper-strewn corridors of the Court Services Division of the Ministry of the Attorney General and a slow awakening may occur.

Wouldn’t it be nice if a local judge expressed similar views?

But, like any transition, moving to e-filing isn’t guaranteed to go smoothly. The UK has just ditched its latest attempt at an e-filing system:

The Electronic Working System, designed to speed up cases in the Royal Courts of Justice, was ditched in March after what HM Courts & Tribunals Service called ‘serious issues with the quality of the core system’ …

The eWorking system was implemented in 2009 to improve the flow of information from court users across the Royal Courts of Justice by allowing them to submit files electronically. HMCTS said the system was designed in-house with the help of a ­number of specialist freelance contractors. Initial good progress was made, but over the final 18 months of the project take-up fell dramatically, with less than 1% of cases filed electronically in the first half of 2011.

Here’s hoping we learn from such mistakes, and get a good e-filing system sooner rather than later.

Application of new discovery rules

The new High Court Rules (requiring electronic discovery and changing the relevance test, inter alia) came into force in February this year. Somewhat unusually, though presumably by design, they contained no transitional provisions. This has led to contention in some proceedings instigated prior to February 2012 over which rules apply.

The position appears to be as follows:

  • The previous rules apply to discovery being undertaken pursuant to orders in place prior to 1 February 2012: Premier Events Group Limited v Beattie [2012] NZHC 1025.
  • Unless the Court orders otherwise, the new rules applies to discovery ordered after the commencement of the new rules on 1 February 2012, regardless of when the proceeding was commenced: Karam v Fairfax New Zealand Ltd [2012] NZHC 887, paragraphs 135-136.
  • Where discovery has been completed but no inspection has occurred, the new e-discovery rules relating to inspection, including the requirement of electronic exchange, will apply: McGechan on Procedure, HRPt8Subpt1.03.

LawFlow blog: http://www.lawflow.co.nz/about/blog/application-of-new-discovery-rules

Tailored discovery under the new High Court Rules

A recent High Court judgment of Justice Asher includes some useful comments on tailored discovery and proportionality under the 2012 High Court Rules. While the decisions in Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 is relatively straightforward, the comments carry weight because Justice Asher was on the Rules Committee that forumulated the new requirements.

The starting point in such a consideration of appropriate tailored discovery orders must be an analysis of the issues. Discovery categories will reflect the issues and will only be ordered for the discovery of documents that are relevant to those issues. Except in exceptional circumstances, these issues will be discernible from a review of the pleadings. Discovery orders that are essentially of a “fishing” nature are not part of tailored discovery. Orders will not be granted where the categories do not relate to a pleaded relevant issue, but rather a non-pleaded issue which might be pleaded should discovery reveal documents that support such a pleading.

Which highlights the importance of getting the pleadings right. It is surprising how much issues can “shift” from those pleaded, especially if insufficient analysis of available documents (usually only your client’s documents, pre-discovery) is carried out before pleading.

(I add that it is also surprising how, occassionally, some practitioners don’t seem overly perturbed by the growing divergence, even to the point of conflict, between their pleadings and their asserted “key issues”!)

Of course, pleadings can be amended, and such amendment is commonplace (in Cathay the Commission was on the 5th version of its statement of claim).

On proportionality, His Honour says:

To determine the proportionality arguments in relation to tailored discovery of particular categories it is necessary to consider the chances of finding relevant documents in the discovery exercise and their degree of relevance. This should then be balanced against the cost of carrying out that discovery process. Broader considerations such as the amount at issue, the resources of the parties, and delay to the proceedings may also be relevant…

It is notable that it is not so much the amount at issue or the resources of the parties that are of primary relevance (though they are still factors), but balancing of the chances of finding relevant documents verus the cost of doing so. As His Honour clearly summarises:

In a decision whether to order discovery under the particular category it is necessary to measure the likely return of relevant documents against the cost of the exercise. If highly relevant documents may be revealed, then a greater cost can be justified.

New High Court rules and the impact on electronic discovery

The Rules Committee of the High Court has released its final draft of new rules on civil discovery. This is the final stage of a long-running process to update the often troublesome rules relating to discovery, in particular electronic discovery. The latest rules are available here (pdf).

Background

For those who are lucky enough not to have been involved in civil litigation, discovery is a legal process that requires each side in the case to “discover” all relevant documents to the other side – the legal equivalent of laying your cards on the table. That doesn’t just mean documents that support your case – parties are also obliged to produce damaging documents. There are only limited grounds for refusing to disclose documents, such as legal privilege, and even then certain steps must be followed.

Unfortunately, discovery has become often a very difficult and time-consuming (and therefore expensive) part of modern commercial litigation. The general rules of discovery were laid down in the nineteenth century, when most documents could only be produced by hand or at significant cost. It was also a lot more obvious what a “document” was back then – usually ink on paper.

In recent years there has been an explosion in the amount, and type, of documents in business. The most obvious are computer documents (Word docs, spreadsheets, etc) and email. Most significant businesses are now heavily reliant on electronic communications. Documents still include paper files, faxes, and accounts, but also include modern documents such as databases, text messages, and even tweets, and huge amounts of documents can be created during the course of an ordinary day. As a result, parties to litigation are often required to handle huge volumes of documents. In large litigations I am involved in, it is common to have tens of thousands of emails and other electronic documents in play.

Reform

The discovery reform aims to modernise the rules to improve the discovery process for the benefit of litigants, and better reflect the modern realities of business and society. I have submitted on the first draft rules, and note a few highlights and changes in the proposed final draft:

  • Parties must co-operate on discovery (oh, were it always that way!) and ensure “technology is used efficiently and effectively”. (8.2)
  • Parties “must take all reasonable steps to preserve [relevant documents]”, including ensuring that “documents in electronic form which are potentially discoverable [be] preserved in readily retreivable form even if they would otherwise be deleted in the ordinary course of business” (8.3). This is a significant and powerful rule that imposes an express duty to preserve electronic records (see below for more details). When a dispute arises, it may be a prudent strategy to put the other party on express notice of this duty.
  • The rules introduce two types of discovery – standard and tailored (8.6). Thankfully, the proposed threshhold of 200 documents for tailored discovery (previously called non-standard discovery) has been dropped. Even small commercial litigations tend to have far more than 200 documents these days!
  • Parties must undertake a “reasonable search” for electronic documents, which includes some room for negotiation over whether it is or isn’t unduly costly to do so in certain cases (8.14).
  • Original native files (that are discoverable) are to be provided on request (8.27(4)). While I had proposed clearer language here, the rule is still to that effect.
  • Documents are to be exchanged by way of PDF where possible (sched 9, clause 1).
  • The proposed requirement of chronological ordering is not mandatory – a different order may be applied if more convenient (sched 9, clause 2).
  • Exchanged documents should be DRM free (well, it’s not quite as explicit as I had proposed but it’s a start) (sched 9, clause 6.8).

Duty to preserve documents

The most notable change for non-lawyers is the duty to preserve evidence, in particular electronic records. Unlike in the US, there is no tort of “spoilation of evidence” in New Zealand. There can still be serious consequences for destroying evidence, but the threshhold is unclear and there has not generally been a positive duty to preserve documents for the purposes of potential litigation.

The proposed rule 8.3 will change that. It requires a person who knows that a document is “reasonably likely” to be relevant to a legal dispute (whether or not any dispute has arisen) to take “all reasonable steps to preserve that document”. The term “knows” here is likely to be taken as meaning “ought reasonably to know”.

In particular, the rule will require that potentially relevant electronic documents “must be preserved in readily retrievable form even if they would otherwise be deleted in the ordinary course of business”.

The most obvious type of document here is email. Many businesses let their users fully manage their own emails. If a user deletes an email from their inbox, it may be impossible to recover. This new rule will require prudent businesses to ensure there are proper processes in place for retaining important emails. Under the new Limitation Act, it may be necessary to ensure retention of some records for up to 15 years, which is the duration of the new law’s “longstop” limitation period.

The proposed rules do not set out a penalty for failing to preserve documents, but a Court may make adverse findings, or even impose more serious sanctions such as contempt of court, against a party who fails to preserve documents.

While it is far from Sarbanes-Oxley, this change is welcome and good for the interests of justice.

The rules are expected to be implemented by early 2012.

Discovering bandwidth constraints

My firm is currently representing a New Zealand software vendor in a litigation in the US against a large, US-based multinational vendor. Like much commercial litigation these days, this has involved processing huge amounts of data to complete the legal “discovery” process. In this case, it has involved sending gigabytes of discovery data back and forwards across the Pacific, as well as within New Zealand and other locations around the world.

Where possible, we have been using secure online services to perform these large transfers (security obviously being a key requirement). However transmitting batches of files of 6+ GB (not unusual for major litigations these days) to California has highlighted New Zealand’s lag in high speed internet connectivity. In particular, the “A” in ADSL comes to the fore, as it means upload speeds from our office are considerably slower than download speeds. Last week it took about 24 hours to transmit 4.2 GB of data to the US, a rate of 210 MB per hour, or about 48 K per second. Plus, it ate up our monthly usage cap.

For some data, it was simpler to have it FedEx’d across on DVD and portable hard-drive.

We have also experienced the sad state of affairs where it has literally been quicker and easier for our client (in Auckland) to jump in his car and hand-deliver DVDs of data to us (also in Auckland), than to transmit it via the internet. Admittedly we are talking about gigabytes worth of data, but that is not unusual these days.

So I will add international litigation to the growing list of “reasons why New Zealand businesses need high-speed, reliable, uncapped internet connectivity”.