Law Times

PAGE 12 FOCUS September 7, 2010 • Law timeS Law firms challenged on e-discovery Companies changing attitudes as duty to preserve evidence comes under microscope BY JULIUS MELNITZER For Law Times O ne of the problems with class actions is that their sheer mag- nitude invites litigation by avalanche, a problem the emergence of e-mail as a primary form of communi- cation has done little to ameliorate. But with so much at stake, Cana- dian companies have been changing their attitude towards e-discovery. "Th e approach taken by many coun- sel was to bring in third-party experts to take images of our hard drive, sift through it, and then a year later produce a list of relevant documents," says Mela- nie Schweizer, senior counsel at Bell Canada. "But the costs of doing that have skyrocketed, so we've become more proactive and asked our external counsel to add value by doing the same." McCarthy Tétrault LLP was one fi rm that responded. "We internalized the process for which we previously depended on third parties," says Dera Nevin, the fi rm's Toronto-based senior director of litigation support. To this end, McCarthys hired peo- ple with the expertise to work with clients to identify, preserve, and cap- ture important information. Th e fi rm also made a "seven-fi gure investment" in CaseLogistix, an Internet-based e- discovery case-management system popular in the United States but so far used only by McCarthys in Canada. In one recent case, Nevin's team used CaseLogistix on a half-hour's notice to obtain and sift through 45,000 e-mails. In just three hours, the team was able to isolate the messages involving two people and a particular subject relevant to a client meeting the next day with securities commission investigators. "It's an excellent example of a law fi rm and a company collaborating in litiga- tion to manage requests for information in a cost-eff ective way," Nevin says. What is clear is that companies with- out a protocol for managing electronical- costs, and the importance and com- plexity of the issues into account. But companies will fi nd it hard to argue that a discovery request is unreason- able when they have no clue about what's involved in terms of time and cost to retrieve the information. A similar problem arises in the face of sweeping litigation hold letters that may include demands for companies to freeze their web sites and preserve their servers. Companies without a docu- ment-retention policy are often unfa- All of this is easier said than done. A study by Osterman Research Inc. in 2007 revealed that three of the top fi ve e-mail challenges for chief information offi cers involved storage and legal discovery. ly stored information are in big trouble for a number of reasons. Th ese include heavy costs, diffi culty fi nding what's needed, and the challenge of raising the proportionality argument as a defence to a sweeping request for e-discovery. Indeed, the main purpose of the proportionality principle embodied in Ontario's new Rules of Civil Procedure is to prevent abuse of the litigation process by subjecting parties to unrea- sonable requests for information. Th e Rules authorize the courts to limit discovery where its cost is dis- proportionate to what's at stake in the litigation. Parties must also agree to a discovery plan that set outs the scope of the proceedings by taking relevance, miliar with their IT infrastructure and may consent to a retention or discovery order that has a huge cost attached. While unsophisticated companies are at the greatest risk, it's not just any records management policy that will suffi ce as a foundation for a proportionality argu- ment. Th e judiciary has made it clear, both in Ontario and the United States, that it's looking for consistency, internal logic, and transparency as critical to the success of a proportionality argument. All of this is easier said than done. A study by Osterman Research Inc. in 2007 revealed that three of the top fi ve e-mail challenges for chief information offi cers involved storage and legal discovery. Still, quite apart from increased litigation costs, the consequences of a failed records-management program and inability to produce information could include fi nes, adverse inference instruction, default judgment, civil contempt proceedings, vicarious li- ability for senior management, and criminal liability for organizations and individuals. In one well-publicized case in 2008, a California court imposed a US$8.5-million fi ne on a party that failed to produce tens of thousands of relevant electronic documents associ- ated with one of its witnesses. In Canada, however, the extent of the duty to preserve documents in anticipa- tion of litigation has to some extent been in legal limbo. Part of the reason is that it has been more than 100 years since the Supreme Court of Canada dealt with the doctrine of spoliation, which gov- erns the remedies available when parties are remiss in their duty to preserve. Fortunately, the Alberta Court of Appeal's recent decision in McDougall v. Black & Decker Canada Inc. dealt with just that issue. Th e court ruled that the main remedy for spoliation is the imposition of a rebuttable pre- sumption of fact that the lost or de- stroyed evidence wouldn't assist the spoliator. Other remedies, based on the court's rules of procedure and its inherent ability to prevent abuse of process, may be available even when evidence has been unintentionally de- stroyed. Th ey include the exclusion of expert reports and costs sanctions. 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• Cover
• Art Reflecting Life
• Stingy Remedies
• Focus On Class Actions