What's in store?

The foreseeable threat of litigation or the onset of proceedings now requires parties in England and Wales to make accountable decisions about the timing and the scope of preservation of electronically stored information (ESI). This is a source of angst for litigators and in-house counsel because there is limited guidance in the Civil Procedure Rules (CPR) and inchoate directions from the courts on the extent of a party's pre-disclosure duty to preserve ESI.

The challenge of when and how to effectively segregate and ring-fence relevant ESI is especially urgent because routine records retention protocols are generally insufficient to satisfy the legal duty to preserve ESI in a litigation or regulatory context. We live in a world where a younger generation of workers are comfortable with around the clock, synchronous communications on heterogeneous platforms, across diverse time zones.

Routine records management procedures will not accurately capture transient, active, replicant or residual data, and the associated metadata created by these mobile workers. For instance, we now negotiate contracts by email, modify them in a blog, breach them in an SMS text, and violate confidentiality in an instant message (IM), while travelling across jurisdictions. How do you preserve relevant SMS texts, tweets and IM logs for long-term judicial evaluation? What might be the consequences if you fail to do so?

The dynamic nature of ESI means that critical evidence can easily be overwritten, modified, destroyed, or corrupted during normal use. It does not matter whether this happens accidentally or maliciously. The result is the same '“ loss of key evidence giving rise to potential penalties for spoliation.

Preservation failures

The duty to preserve ESI was examined in 2004 by the Cresswell Working Party on the disclosure of electronic documents (e-disclosure). Their conclusions (The Cresswell Report) formed the basis of the 2005 practice direction (PD) to part 31 of the CPR, which now governs the cooperative and proportionate management of e-disclosure.

The report concluded that a party does not have a duty to preserve ESI before litigation is contemplated, but is duty bound to preserve ESI once a court has issued a disclosure order. However, it failed to identify any determinative factors that can help parties to identify when litigation is 'contemplated' and the duty is triggered. Likewise, there is no guidance on what should be preserved and no recommended mechanism for effective preservation. It simply observes that solicitors do a fine job on this subject.

However, recent decisions indicate that solicitors do not comprehend the duty to preserve ESI. They only become aware of their failings when staring down the barrel of a judge's gun or when caught in the cross-hairs of a negligence claim.

In Hedrich v Standard Bank [2008] EWCA Civ 905, the claimant in a breach of contract claim alleged that he could not retrieve relevant electronic documents. However, full disclosure of electronic files was given by the claimant only at trial, at which point devastating adverse evidence emerged forcing him to discontinue the claim. The claimant's solicitor then faced the ignominy of defending negligence allegations in a wasted costs application. Although the Court of Appeal found that the solicitor had not been negligent in failing to challenge his client's assertion that emails had been lost and were no longer available, the solicitor could have avoided the negative impact of negligence allegations had he preserved and reviewed a complete image copy of the recovered hard drive files.

In Abela v Hammonds Suddards Chancery Division Claim No. HC07C01917, Lawtel (2 December 2008), the claimants made allegations of negligence and breach of fiduciary duty against the defendant law firm and a deceased partner. The defendants failed to disclose relevant emails and destroyed a personal computer that belonged to the late partner. The court emphasised the central role of identification and preservation in e-disclosure by stating at paragraph 122(4) that: 'The starting point for assessing whether and if so how a reasonable search might be undertaken, must be an accurate account of what data or data sets are available, on what media they are stored, in what format or formats they are stored, how the information is organised, and what the overall quantities of data are.'

The court directed Hammonds to utilise this broad and clear standard 'to take steps so as to be in a position to supply a more detailed account of the stored data'. The court further ordered the deceased partner's family to explain 'with reasonable clarity and detail' what his computer contained and whether he had stored documents elsewhere.

The legal duty

The primary guidance on ESI preservation in a litigation context is provided by the PD which requires that the parties should, prior to the first case management conference, discuss any issues that may arise regarding the preservation of electronic documents.

This obligation to enter into early dialogue once proceedings are issued is consistent with settled case law. Megarry J set the benchmark in Rockwell Machine v Barrus [1968] 1 W.L.R. 693 at 694, in which he summed up that it is necessary that solicitors take positive steps to ensure that their clients understand the importance of not destroying documents which might have to be disclosed.

A solicitor's duty to triage ESI preservation was more recently summed up in Hedrich where the appeal court affirmed the ruling in Myers v Elman (1940) A.C. 282. The court opined that a solicitor has overall responsibility of careful investigation and supervision in the e-disclosure process. He must review relevant files or take the relevant documents into his possession, and ensure so far as possible that full and proper disclosure of all relevant documents is made. This duty owed to the court is pivotal to the administration of justice.

Pre-litigation context

The nebulous pre-litigation context is best viewed through the prism of global decisions and best practice guidelines developed by the Sedona Conference. The English case Rockwell Machine established that a party has a common law duty to preserve relevant documents in its possession or control whenever litigation is reasonably foreseeable. Guideline 1 of the Sedona Conference Commentary on Legal Holds (commentary) elaborates further that the duty arises when an entity is on notice of a credible threat that it will become involved in litigation or anticipates taking action to initiate litigation.

A series of persuasive US authorities (some cited by English judges) have shed further light on this duty. The most widely referenced is Zubulake v UBS Warburg LLC, 220 F.R.D. 212, 02 Civ. 1243 at 8-12, where Judge Scheindlin ruled that the duty to preserve ESI 'attached at the time that litigation was reasonably anticipated'. In Miller v Phillip Holzman, 2007 WL 172327 (D.D.C. Jan. 17, 2007), the court clarified that the duty applies to evidence which the party knows or reasonably should know is relevant to existing or future litigation and the destruction of which may prejudice relevant parties to that litigation.

In Danis v USN Comm., Inc., 2000 WL 1694325 at 1, 32-33 (N.D. Ill. Oct. 23, 2000), the court confirmed that the obligation exists independent of any order of the court or request from another party and is imposed directly on the parties.

The timing and scope of preservation

Deciding when the duty is triggered requires reasoned analysis of all the available facts and is not amenable to a systemised checklist. Guideline 4 of the commentary suggests that this judgment should be based on good faith, reasonableness, a reasonable investigation and an evaluation of several factors including but not limited to:

(a) the source of the notice;

(b) whether notice came via established procedures for reporting information relating to a potential threat of litigation;

(c) the nature and specificity of the complaint;

(d) the strength, scope, or value of the potential claim;

(e) the litigation history of the complainant;

(f) the level of knowledge within the organisation about the dispute or claim;

(g) the risk of losing information related to the claim; and

(h) the complexity of the sources where information relevant to the claim may be found.

The scope of the documents to be preserved is determined by their relevance to the subject matter. The PD makes clear that all electronic documents, including metadata and deleted data, may be the subject of disclosure. The report came to the conclusion that relevance covers all documents which would be disclosable under the CPR. These will include all documents on which a party relies, those which support or adversely affect any party's case and those which have been ordered by a court to be disclosed.

Penalties

A party that fails to preserve relevant ESI may expect any of the following consequences:

(i) costs orders against the party or personally against the lawyers;

(ii) an order for specific disclosure;

(iii) striking out a document or attaching what weight seems appropriate;

(iv) debarring a party from trial where allegations that relevant ESI have been destroyed in anticipation of litigation are proven and justice cannot be done with the remaining evidence as it stands;

(v) striking out a claim or defence; and

(vi) holding the lawyers personally liable for misconduct and breach of duty owed to the court.

The rulings in Hedrich and Abela give a clear indication that the courts expect solicitors to oversee the process of preserving relevant ESI. Thus, they will increasingly hold solicitors accountable to explain the evaluations which underpin preservation choices.

The following tips may provide useful guidance:

1) Work with clients to ensure there is a transparent, documented and defensible methodology to preserve relevant ESI. This process is known as a 'legal hold'.

2) Negotiate limits on ESI preservation and review alternative sources of ESI. Specific, well supported and rational bases for requests or responses will enable the parties to engage in meaningful line drawing on e-disclosure obligations.

3) Establish a cross-functional e-disclosure response team. Organisations must plan for the new regulatory and judicial environment which is intolerant of those entities that cannot promptly produce relevant ESI.

4) Leverage technology to help locate and classify data for early case assessment. This will enhance the legal team's ability to develop a litigation or settlement strategy.

5) Assist clients to develop an effective information management policy that ensures that records are kept and destroyed in a legally compliant manner. Note that different functions handle data in different ways. For example, mahogany row executives often deploy private email systems that are known only to a handful of people. Solicitors must guard against the concealment of such potential sources of ESI.

6) If in doubt, apply to the court for directions. Even in the pre-action phase parties concerned about the complexity of ESI preservation requirements may seek guidance.