Review

Who does this affect?

Australian companies with a US parent company and all US companies

What do you need to do?

Establish clear policies and procedures for preserving electronic information including deleted data, backup tapes, metadata and legacy data.

Author
Michelle Mahoney  
Director Applied Legal Technology

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Roger Forbes  
Partner
T +61 2 9296 2150

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Sydney
Robyn Chalmers  
Mark Darian-Smith  
Peter Stockdale  

Melbourne
John Waters  

Canberra
John Topfer  

Hong Kong
Simon Clarke  (文家立)

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Amendments to the US Federal Rules of Civil Procedure took effect on 1 December 2006. The amendments aim to make the rules better able to accommodate the differences between electronic discovery and conventional discovery and will provide a framework to resolve the novel issues which electronic discovery presents.

These changes are largely in response to the complex legal and practical issues arising from a rapid and large increase in electronic discovery activity.

What does this mean to Australian corporations?

The amendments will only affect Australian companies with a US parent company who may find that they are increasingly subject to more stringent internal electronic record retention policies. This will require a greater understanding of and closer involvement in the way electronic information is stored, backed up and catalogued. With limited case law dealing with electronic discovery issues in Australia, Australian courts may also look to and be influenced by developments in US.

What does this mean to US corporations?

Companies engaged in federal court proceedings now have to have full knowledge of the whereabouts of all their electronic data and be able to produce it within a reasonable amount of time. To satisfy this requirement, companies must establish clear policies and procedures for preserving electronic information, including deleted data, backup tapes, metadata, and legacy data.

Striking the balance between preserving too much information (incurring unnecessary costs) and too little information (exposing the organisation to potential sanctions) is the challenge faced by US companies.

Many companies are assessing their level of preparedness for e-discovery and developing e-discovery strategies, employing a range of techniques including: process mapping, using innovative software tools, documenting IT infrastructures, creating litigation readiness plans, and collaborating closely with their legal advisers.

What can your company do to make its collecting of electronically stored information more efficient?

Outlined below are some suggestions which will improve your company’s ability to respond effectively.

• Work with your IT department to map out the company’s information systems. This should be a map of servers, storage devices and portable devices like mobile phones and BlackBerry devices. A new version should be updated or validated six monthly. When mapping this information focus on how data is stored and destroyed.
• Ensure that your organisation’s record retention policies comply with the regulations in the jurisdictions in which your organisation operates.
• Ensure as part of your overall employee training program that you include training on information management and possible production for discovery, when litigation is anticipated or initiated.
• Assemble a records management response team, which includes a diverse group of members including senior IT and business personnel.
• Draft a good set of employee communication precedents including litigation hold memoranda.
• It may be prudent to run a drill for a discrete set of documents. Restrict the number of custodians (people of interest) and the date range and set the timer.
• With the significant amount of electronic material created daily, when dealing with issues of electronic discovery, aim to engage outside counsel and consultants who have experience dealing with these complex issues. Take the time to ask questions prior to instructing.
• Take the time to learn the e-discovery vocabulary. There are many phrases and terms which are specifically used when working with electronic discovery. As terms arise take the time to find out what each of them actually mean. A good point of reference can be found from the useful links page within the applied legal technology pages on our website.

What are the rule changes?

The aim of the amendments is to ensure that e-discovery issues are identified and acted upon as soon as possible. The amendments recognise the importance of electronically stored information and respond to the increasingly prohibitive costs of document reviews whilst affording necessary protection to confidential or privileged documents. Some of the changes are highlighted below.

Early conference meetings and management (Rule 16 & 26f)

Parties must meet and confer early to address issues relating to discovery. Typically the points which will be covered in this meeting include: the form and preservation of electronic material, any problems in the review of the electronically stored information and the assertion of privilege.

Lawyers must be prepared to talk knowledgably about the electronic discovery issues with the trial judge, including any special burdens placed on the party in complying with self executing disclosure obligations, or the inability to comply because data is unavailable or not reasonably accessible. Before conferences, lawyers must discuss with litigants what electronic information exists and the time, costs and burdens of retrieving it. The court has been concerned with the costs and delays involved in doing full privilege reviews of electronic documents. Lawyers who understand a litigant’s existing electronic storage protocols and procedures, will be at an advantage.

Reasonably accessible material - not recovered (Rule 26b2)

This rule distinguishes between reasonably accessible and inaccessible data. It allows the court, where good cause is demonstrated, to shift the costs of producing inaccessible documents to the responding party. This is a two tiered approach to electronic data where parties are expected to bear their own costs of exchanging reasonably accessible data (data that is on an active drive or server that can be accessed without undue burden or expense).

The general philosophy is that parties should attempt to satisfy the discovery obligations with accessible data, before incurring the costs and burdens of seeking data deemed to be not reasonably accessible. An example of not reasonably accessible material could be back up tapes of legacy data, as technology is ever changing and data that is reasonably accessible today may not be reasonably accessible next year. The duty to preserve records, even those not readily accessible, is a standard obligation unaffected by this rule amendment.

Privilege (Rule 26)

In limited circumstances, a claim of privilege may be possible if a party inadvertently produces electronically stored information. The producing party has to notify the party to whom the privileged information has been produced and specify the basis of the claim. The party to whom the material is produced is then obliged to return, sequester or destroy the material and any copies of it. The party that received the information can also present the information to the court under seal for determination of the claim or for original protection. The party that received the information needs only to make reasonable efforts to retrieve the information if 12 months has lapsed.

Interrogatories - searching electronically stored information (Rule 33)

This rule specifies that where business records are stored in an electronic format, and the burden of asserting the answers is substantially the same for the party serving the interrogatory as for the party served, the responding party may simply identify the electronic data and allow the requesting party a reasonable opportunity for inspection and copying.

This expressly recognises electronically stored information as well as documents. By agreement or via a court order, the producing party must produce electronically stored information in a form which is ordinarily maintained and reasonably useful. The producing party may not produce a slab of information in more than one form.

This rule also allows the requesting party to seek electronically stored information in a specific form, (eg text searchable) as long as the burden of delivering the answers is substantially the same for both parties.

Production of documents (Rule 34)

A party can request electronically stored information in any medium or form. This change recognises that there is a plethora of systems for creating and storing information and not all forms of electronically stored information fit within the traditional concept of a document. If a party does not specify a form, the default is either in its originally maintained form or in an electronically searchable form.

Additionally the concept of sampling or testing is available to gauge the likely yield of a data compilation. This technique is often used to define the parameters of electronic discovery.

Safe harbour (Rule 37)

A safe harbour from sanctions is available when despite reasonable steps to preserve discovery information, electronically stored information is lost as a result of routine computer operations. The safe harbour provision does not protect against intentional destruction of electronic evidence. However to avoid encouraging parties to routinely seek preservation orders, the rule does not incorporate language making safe harbour available if a party violates a court order.

Subpoenas (Rule 45)

This rule acknowledges that electronic information can be sought through a subpoena as well as traditional discovery requests. This includes the ability to specify the form and the application of sampling.