E-discovery in international arbitrations: can it be a barrier to a cost-effective procedure?
June 2016 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION
E-discovery is a relevant topic in modern international arbitrations, since the use of electronic media has become common practice for the creation, storage and transmission of information. Indeed, the costs related to the production of electronically stored information (ESI), as well as the physical space required to retain it, are now so low as to be financially irrelevant.
In addition, the communication process itself has changed over recent decades. Currently, email is used for even the most casual conversation, and, consequently, information that was once disclosed during a call or a meeting is now electronically registered. As a result, companies store in their computers an impressive amount of data, from important contracts to the most ordinary exchange of emails.
In this regard, e-discovery is the phase where parties provide each other with relevant electronic information and records, along with all other evidence related to the case. Depending on how extensive the production and review of ESI will be, e-discovery can become a time consuming process.
How can this be avoided? E-discovery should not turn arbitration into a more expensive procedure, since one of its main principles is the cost-effective advantage over other forms of dispute resolution. On the other hand, it is worth pointing out whether e-discovery can potentially waive legal privilege. Certainly, unless lawyers review each email in a company’s hardware, documents containing privileged communication may potentially be disclosed.
Furthermore, the extent of legal responses to cases of spoliation of evidence and how it can be prevented should also be analysed, because these topics have not been totally demystified yet, as most arbitral bodies have not promulgated explicit discovery rules for the preservation of electronic data.
In this sense, regarding the first topic, in order to avoid a long and expensive arbitration procedure, parties and arbitrators should agree, at the earliest appropriate stage, on an efficient and economical manner of gathering evidence. This includes consent on the scope of the disclosure, the software that will be used and which category of data and document will be produced.
It is also recommended that the requesting-party not only give advance notice to the producing-party, but also specify, “how the documents are relevant to the case and material to its outcome”, according to the IBA Rules, Article 3(b). In addition, it is very important that the requesting-party provides search terms and other criteria in order to make this process as effective as possible.
It must be noted, however, that, if the parties do not reach an agreement, arbitrators shall apply the rules they find most applicable to the case. In this regard, the ICC Commission on Arbitration Task Force on the Production of Electronic Documents in Arbitration recommends the use of IBA Rules to manage the e-discovery process.
Nonetheless, it must be remembered that, according to that same commission, there is no obligation to pursue e-discovery in international arbitration. In fact, it is the arbitral tribunal which is entitled to decide whether production of ESI shall be undertaken by the parties, considering, in this sense, principles of relevance, materiality and proportionality.
In what concerns inadvertent waiver of privilege, it is true that if parties decide to adopt an extensive e-discovery, without following the rules stated above, confidential documents containing attorney-client privilege and attorney work-product may be revealed. Nonetheless, ‘claw back’ agreements, a contractual safeguard agreed by the parties when dealing with voluminous discovery, can help to avoid this outcome.
Claw back agreements permit the parties to take back any document inadvertently disclosed containing protected information without waiving any privilege or protection over those materials. Such agreements need to be approved by the arbitral tribunal and must stipulate that the privilege is not waived with regard to parties to the arbitration as well as to parties not involved in the arbitration.
Following this line, it is advisable that parties present a claw back agreement at an early stage, since the arbitral tribunal will be more willing to respect privilege if an issue arises during the proceeding. Indeed, as noted by Irene C. Warshauer in her article ‘Electronic Discovery in Arbitration: Privilege Issues and Spoliation of Evidence’, “arbitration provides an advantage to parties concerned about waiver of privileges resulting from e-discovery, as arbitrators are particularly attuned to the concerns of the parties”.
However, what happens if the producing-party intentionally destroys evidence or fails to preserve documents or metadata – hidden data about the data that is not visible when the document is printed, which contains information about the document’s provenance – during the proceeding?
Parties are bound to their obligation to preserve relevant information and documents if the tribunal accepts an e-discovery request. In that sense, the arbitral tribunal usually issues a negative inference against a negligent party that fails to preserve or destroys evidence. In other words, an arbitral tribunal may assume that the missing documents were favourable to the other side, as suggested in the IBA Rules on the Taking of Evidence in International Arbitration, article 9(5), and in the ICDR Guidelines Concerning Exchange of Information, article 8(b).
Another possibility brought by the doctrine is when the tribunal inquires into the alleged spoliating party’s policy for routine destruction of ESI, in an attempt to restrict the further destruction of materials. For instance, in Apple Inc. vs. Samsung Electronics Co. Ltd., a magistrate judge ordered an adverse inference instruction against Samsung for automatically deleting emails.
Although these methods can be efficient, issuing a litigation hold on all pieces of relevant ESI can avoid potential spoliation of evidence during case management. Litigation hold – also known as a ‘preservation order’ or ‘hold order’ – is a stipulation requiring one of the parties, or both, to preserve all data that may relate to the dispute. For example, in Apple Inc. vs. Samsung Electronics Co. Ltd., Samsung sent an email to its employees informing them that as “a reasonable likelihood of future patent litigation between Samsung and Apple” would arrive, they should “preserve any and all such documents that may be relevant to the issues”.
It is advisable that a litigation hold is issued before the evidence production phase. Counsel, in this sense, must become familiar with their client’s documents, by identifying what information is relevant to the case, since they are, from this point, bound to preserve it. Parties, as a result, must establish a sound retention policy and apply that policy to their storage systems until the action has been resolved. Considering the Brazilian perspective, the outcome of e-discovery can be slightly different, since courts can enforce disclosure of evidence requested in an arbitration proceeding. If a party refuses to deliver a document, according to the Brazilian Arbitration Law, the arbitrator may submit an order to the ordinary courts with jurisdiction over the matter, requesting, for instance, an order for search and seizure. This is called carta arbitral or arbitral letter, under article 22-C of the Brazilian Arbitration Law.
However, if the parties decided to adopt the Brazilian procedure law to govern e-discovery, the arbitral tribunal, before transmitting its arbitral letter, will need to decide whether the party’s request is lawful. According to article 397 of the Brazilian Civil Procedure Code, the request must be properly justified, demonstrating its aim to preserve documents and to avoid spoliation. It should also specify what kind of evidence the party is seeking to obtain and explain why this evidence is in the producing-party’s possession. The producing-party will have five days to reply or obey (article 398). If the producing-party declares that it is not in its possession, the requesting-party will be able to prove the contrary (article 399).
It should be noted that courts could refuse to enforce a request that violates legal privilege and immunities, as this would be against Brazilian public policy and immoral. Finally, regarding the Brazilian perspective, even though the law expressly allows parties to choose which law will govern not only the arbitration procedure, but also e-discovery, selecting rules that are too dissimilar from the standard civil procedure rules could add uncertainty to the arbitration.
In conclusion, e-discovery can only be an effective strategy to gather relevant information to a party’s claim if an active approach is taken not only by the parties, but also by the arbitrators and counsel. Indeed, arbitrators should be familiar with the technological background surrounding e-discovery and are advised to encourage parties to agree, at an early stage, on the systematic approach that will be adopted during the proceeding. Counsel, on the other hand, should educate and advise their clients and IT colleagues on the risks of e-discovery violations and on the importance of claw back agreements regarding the preservation of attorney-client and work-product privilege. Finally, parties should be cooperative with each other, respecting litigation hold orders and adopting an effective and less expensive e-discovery procedure.
If these steps are taken, arbitration will remain an attractive alternative to litigation.
Aécio Filipe Coelho Fraga de Oliveira works in the arbitration department and Pedro Augusto de Castro Freitas is head of arbitration at GVM Advogados. Mr Oliveria can be contacted on +55 31 999576677 or by email: firstname.lastname@example.org. Mr Freitas can be contacted on +55 31 32642400 or by email: email@example.com.
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Aécio Filipe Coelho Fraga de Oliveira and Pedro Augusto de Castro Freitas