Nolan, Tony --- "Reform of discovery in the 21st century" [2017] PrecedentAULA 56; (2017) 142 Precedent 20

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REFORM OF DISCOVERY IN THE 21^ST CENTURY

By Tony Nolan QC

The aim of discovery is to assist the litigation process by the compulsory disclosure of relevant documents which may help or harm a case. Sometimes, discovery turns up the smoking gun, those documents that are case winners. But all too often litigants have spent millions in search for the illusory smoking gun. Recent federal and state reforms have limited and reformed discovery. Are these reforms effective?

BACKGROUND

The ability to compel disclosure by discovery has a long history.^[1]

In 1882, Brett LJ established the “train of enquiry test” for relevance in Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Company (Peruvian Guano).^[2] The test requires a party to discover documents which may, either directly or indirectly, enable that party to advance its own case or to damage the case of its adversary.^[3] Until recently, the test was applied in Australia and England and Wales. The train of enquiry test is clearly relevant when dealing with a limited class of documents. In Peruvian Guano, the Court of Appeal was concerned with a maximum of 20 documents, including telegrams, then the latest technology.^[4] In 1882, typewriters had only been recently invented and were not common in commerce!

How times have changed!

One wonders whether Brett LJ would have reached the same decision had he been aware of the advances in technology including telexes, facsimiles, emails, SMS texts and tweets. Modern commerce is based on electronic documents which are voluminous and stored on servers.

THE PROBLEMS

Once, trial costs were the most expensive items in litigation. In my time in the law, discovery costs have overtaken trial costs. The cost of discovery is an important element when attempting to find a funder for a class action. Millions of dollars may be involved.

Traditional discovery has threatened the ability of the courts to conduct litigation in a timely fashion.

In recent so-called “mega litigation cases” and class actions, the courts have been faced with the daunting task of dealing with the discovery of millions of documents. Some mega-litigation cases have settled. Others have proceeded to verdict. But all have required the parties to make extensive discovery. Betfair Pty Limited v Racing New South Wales^[5] provides a glimpse into the size of the problem:

‘The financial records in question come from two sources. One is an electronic data warehouse containing the electronic records of over 2.52 million customers and occupying some 21 terabytes of memory growing at 70 gigabytes per day.’^[6]

In the Great Southern class actions,^[7] the liquidator disclosed that there were 3,657 boxes of documents which had not been appropriately indexed and approximately 10 million electronic documents.^[8] This raises a number of questions. What are the real issues in the case? Are the documents relevant? Are they subject to privilege? Are there other classes of documents which have not been produced by the client? Who makes these decisions?

The task of locating, inspecting and categorising documents as relevant, subject to legal professional privilege or without prejudice privilege^[9] is generally delegated to law graduates and junior solicitors. In Great Southern, teams of law graduates and junior solicitors were assigned the task of reviewing the hard copy documents to ascertain relevant and/or privileged documents. To assist them, they were provided with a list of keywords which might be relevant to the issues in the case. In other cases, junior solicitors and junior counsel have been locked away in discovery rooms for months inspecting and classifying documents.

One can only guess the number of law graduates who have left the law as a direct result of these tedious and, in most cases, unproductive processes.

The next task is to inspect and review the discovery made by the opposite party. What then follows are the inevitable challenges about failure to discover classes of documents, the discovery of too few or too many documents, redaction and claims for privilege. The law reports are littered with thousands of cases involving these disputes.^[10]

INQUIRIES AND RECOMMENDATIONS

There have been numerous inquiries and reports which have considered the problems associated with civil litigation and discovery.^[11]

England and Wales

An inquiry of civil procedure in England and Wales called Access to Justice was conducted by Lord Woolf in 1994-96. Lord Woolf’s committee made interim recommendations including:^[12]

• the right to discovery be maintained although limited to directly relevant documents;

• the parties be required to undertake a reasonable search for documents, based upon the number of documents, the nature and complexity of the case and how easily the documents may be searched; and

• greater judicial management of the discovery process was required.

The interim and final reports of this inquiry set the groundwork for the review of civil procedure and discovery processes in Australia.

Australia

The Victorian Law Reform Commission’s (VLRC) 2008 Civil Justice Review^[13] (VCJR report) proposed sweeping changes to every aspect of civil litigation, especially to the discovery processes.^[14] The recommendations included that:

• greater case management of the discovery process be introduced;

• the range of documents required to be produced on discovery be narrowed to those that are directly relevant to issues in dispute;

• parties be required to try and reach agreement on discovery issues before seeking orders from the court;

• inspection of certain categories of readily identifiable documents be expedited;

• the appointment of special masters to assist in resolving discovery issues be provided for;

• additional sanctions for discovery abuse be introduced; and

• additional express power to make orders limiting chargeable or recoverable costs in connection with discovery be provided for.^[15]

The Australian Law Reform Commission’s Managing Discovery: Discovery of Documents in Federal Courts^[16] report endorsed the recommendations made by the VCJR report and proposed further reforms including that:

• the right of a party to obtain discovery be limited;

• the parties be required to adopt a discovery plan in specific cases;

• specific judicial training for the management of discovery processes in the Federal Court be implemented; and

• a greater emphasis be placed on the proportionality of the costs in all discovery matters.^[17]

These reports and inquiries have a common theme: that traditional discovery processes were out of control and too expensive. Major reform was required to ensure that discovery processes were proportionate, having regard to the enormous costs involved.

IMPLEMENTATION OF REFORMS

The first step of implementation was legislative change. The Commonwealth and the states and territories enacted legislation which imposed upon all litigators, including solicitors, an obligation to ensure that there is ‘a just, efficient, timely and cost‑effective resolution of the real issues in dispute’.^[18]

These principles were adopted and endorsed by the High Court in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited.^[19] The Court unanimously accepted the overarching and overriding purpose which ‘may require a more robust and proactive approach on the part of the courts’.^[20]

These days, where discovery in an action extends to hundreds of thousands of documents, the parties must expect that the court will do everything within its power to limit the discovery.

The next step was the implementation of new Federal and Supreme Court Rules.^[21] The precise provisions of these rules vary, but the effect is the same. The Courts have adopted changes to ensure that discovery is proportionate and cost effective.

In most jurisdictions, the train of enquiry test has been abandoned and replaced with a direct relevance test:

‘(a) the documents are those on which the party intends to rely;

(b) the documents adversely affect the party’s own case;

(c) the documents support another party’s case;

(d) the documents adversely affect another party’s case.’^[22]

In all jurisdictions, a party is required to make reasonable searches for relevant documents. In Victoria and federally there are specific rules relating to what constitutes a reasonable search:

‘[I]n making a reasonable search a party may take into account—

(a) the nature and complexity of the proceeding;

(b) the number of documents involved;

(c) the ease and cost of retrieving a document;

(d) the significance of any document to be found; and

(e) any other relevant matter.’^[23]

The courts may also take steps to use non-traditional approaches to resolve issues in a cost-effective and timely manner.

SPECIAL MASTERS AND REFEREES

The appointment of special masters was a recommendation of the VLRC. There is no direct equivalent of special masters in Australia. In Great Southern,^[24] Croft J appointed a special referee to facilitate the implementation of a discovery regime. Croft J ordered that the Special Referee not to provide an opinion on specific questions, but to act as a facilitator and assist the parties to reach their own decisions concerning discovery.

Since Great Southern, a special referee has been appointed in three other cases to assist the parties to resolve discovery and interlocutory disputes without adjudication.

TECHNOLOGY-ASSISTED REVIEW

The proliferation of electronic data and especially emails which are copied to multiple recipients has been the cause of most of the current problems with discovery. It is only appropriate that technology provides assistance to the courts to solve the problem it has created.

The early attempts to locate relevant documents used keyword and Boolean searches to reduce the number of documents to be reviewed. Disputes and differences arose as to the choice of the keywords. Most databases were “de-duplicated”, which involved the removal of documents with the same information. For example, an email containing the same information may be sent to ten managers. Rather than disclose the ten emails, one email is discovered. These processes assisted but did not resolve the underlying issue – the sheer number of documents which must be inspected.

Technology-assisted review (TAR) is the use of an algorithm to locate electronic documents in a database that are likely to be relevant.^[25] The documents must be in an electronic format and have metadata to enable a computer search.

Documents are reviewed by a senior lawyer to identify whether they are relevant to the ultimate issues. These documents are then coded and the algorithm is “trained” by the same lawyer to recognise similar documents which are likely to be relevant. In this way, documents which are not relevant will be screened out before the need for a solicitor to review all of the documents.

The advantage of TAR is that it removes the requirement to undertake a manual review over the entire database. TAR has been used in the United States, England and Wales and Ireland and it is generally accepted as a legitimate alternative to the costly and time-consuming manual review of documents in discovery.

There is little research in Australia that validates TAR. International literature highlights concerns about the adoption of appropriate TAR protocols.^[26]

I am aware of four providers who offer TAR to the legal profession in Australia. The process is not cheap, but it is cheaper than a linear review of documents.

In McConnell Dowell Constructors (Aust) Pty Ltd v Santam Ltd & Others,^[27] Vickery J accepted a report from the special referee that the TAR was appropriate as the database contained approximately 1.4 million documents. In Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd,^[28] Murphy J ordered the respondent, who had used TAR, to provide a report to the applicant describing the manner in which the respondent had applied the technology for the purposes of giving discovery to the applicant and the results of the application of TAR.

In February 2017, the Supreme Court of Victoria published Practice Note SC GEN 5 Guidelines for the Use of Technology^[29] that endorses the use of TAR in larger cases as a reasonable search in accordance with the Rules. It is inevitable that there will be more applications to the courts seeking the use of TAR.

TAR will present challenges. I am certain that there will be disputes concerning protocols, the use of keyword and Boolean searches prior to the application of the TAR process, de-duplication, the accuracy of the process and the exclusion of relevant documents.

I am aware of two disputes involving these matters.

At common law, a solicitor who acts for a party has an obligation to advise which documents are relevant and therefore discoverable.^[30] If the court sanctions the use of TAR then that party will have made a reasonable search as required by the relevant Rules. It is likely that a solicitor will only be required to review the documents located by the process. Regrettably, nobody has come up with a solution to the soul-destroying task of reviewing thousands of documents.

If TAR is applied to 10 million documents and 99 per cent of the documents are excluded from the database, then those law graduates or junior solicitors will still have to review 100,000 documents to confirm relevance and determine privilege.

OTHER INITIATIVES

Depending upon the size of the case, the parties and their solicitors are required to discuss discovery and present the court with a discovery plan with the aim of limiting the scope of the discovery so that the parties’ resources are not spent on discovery, but on the trial itself.

In other large cases, the court may order the solicitors to attend a discovery conference with an Associate Justice or a special referee. The parties will be expected to collaborate to produce an electronic court book which will include scanned, discovered documents which may be tendered in evidence.

The courts will also use costs orders against solicitors who fail to minimise the cost of discovery by discovering or seeking discovery of irrelevant documents.

CONCLUSIONS

My experience is that most cases are not decided by reference to thousands or millions of documents. In most cases, there may be a critical number of documents which are truly relevant.

It is obvious that something had to be done about discovery. The reforms which have been implemented were long overdue and there is a need for reforms to continue.

Will they reduce the cost of litigation in the mega-litigation cases and the class actions? How many aspiring legal careers will be destroyed by the 21^stcentury discovery processes?

Only time will tell.

Tony Nolan QC is a Barrister and Nationally Accredited Mediator at the Victorian Bar. He was appointed special referee by Vickery J in McConnell Dowell Constructors (Aust) Pty Ltd v Santam Ltd & Others and in V601 Developments Pty Ltd (ACN 082 670 595) v Probuild Constructions (Aust) Pty Ltd (ACN 095 250 945); and by Croft J in the Great Southern class actions and in Banksia Securities Limited (ACN 004 736 458) (Receivers And Managers Appointed) (In Liquidation) v The Trust Company (Nominees) Limited (ACN 000 154 441). PHONE [phone] EMAIL [e-mail].

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^[1] See eg Blight v Bensen 1819 146 ER 948. For a concise history of discovery processes, see: Australian Law Reform Commission (ALRC), Managing Discovery: Discovery of Documents in Federal Courts, Report No. 115 (2011) para 2.11 et seq; Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited [2013] HCA 46 at [36]-[42]; LexisNexis Butterworths, Civil Procedure: Victoria, [29.01.20]; and Victorian Law Reform Commission, Civil Justice Review, Report No. 14 (2008) at ch 6 paras [5.2]-[5.3].

^[2] 1882 11QBD 55. The case is commonly referred to as the Peruvian Guano case. It is sometimes referred to as the Peruvian bird shit case.

^[3] Ibid, 63.

^[4] Ibid, 56-7.

^[5] [2010] FCA 603 Perram J (16 June 2010).

^[6] At [331].

^[7] Clarke (as trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liquidation) & Ors [2014] VSC 516 (11 December 2014).

^[8] This information is contained in a written report to the Court dated 1 September 2011 filed by the special referee appointed by Croft J.

^[9] Other issues such as public immunity privilege are not discussed in this paper.

^[10] By way of example, an Austlii search of ‘Peruvian Guano’ resulted in over 450 hits, demonstrating how commonly the case is referred to.

^[11] A summary of the reports is set out in ALRC, Managing Discovery: Discovery of Documents in Federal Courts, Report No. 115 (2011) ch 1 (pp 27-36).

^[12] There are two reports: Access to Justice: Interim Report to the Lord Chancellor on the Civil Justice System in England and Wales is available at <http://trove.nla.gov.au/work/21416780> Access to Justice: Final Report (1996) is available at <www.legco.gov.hk/yr06-07/english/bc/bc57/papers/bc570611cb2-1960-e.pdf>.

^[13] Victorian Law Reform Commission, Civil Justice Review, Report No. 14 (March 2008).

^[14] The report is 758 pages. An Executive Summary is at pp 12-16.

^[15] See pp13 and 474-80.

^[16] ALRC, Managing Discovery: Discovery of Documents in Federal Courts, ALR C Report No. 115 (March 2011).

^[17] The report is 394 pages. An Executive Summary is at pp 13-26.

^[18] See eg ‘overarching purpose’ in s7 Civil Procedure Act 2010 (Vic) and in s37M Federal Court of Australia Act 1976 (Cth) and ‘overriding purpose’ in ss55-56 Civil Procedure Act 2005 (NSW).

^[19] [2013] HCA 46.

^[20] Ibid, 57.

^[21] This paper is not directed to discovery in District, County or Magistrates courts. Each of these courts has introduced rules which have been adapted to the specific need of that court and which comply with the overarching or overriding purpose.

^[22] Federal Court Rules 2011 (Cth) O20.14(2); Supreme Court (General Civil Procedure) Rules 2015 (Vic) O 29.01.1(1).

^[23] Supreme Court (General Civil Procedure) Rules 2015 (Vic) O.29.01.1(5).

^[24] [2014] VSC 516 at 251.

^[25] For a detailed description of the TAR process and its adoption by courts see Pyrrho Investments Limited v MWB Property Limited [2016] EWHC 256 (Ch); David Brown v BCA Trading [2016] EWHC 1464 (Ch); Rio Tinto v Vale 14 Civ. 3042 (RMP) (AJP) 2 March 2015 and The Sedona Conference, ‘The Sedona Conference TAR Case Law Primer’ (Vol. 18 Summer 2017) <http://www.discoverypilot.com/sites/default/files/The%20Sedona%20Conference%20TAR%20Case%20Law%20Primer.pdf> .

^[26] See The Sedona Conference, ‘The Sedona Conference TAR Case Law Primer’ (Vol. 18 Summer 2017) <http://www.discoverypilot.com/sites/default/files/The%20Sedona%20Conference%20TAR%20Case%20Law%20Primer.pdf> .

^[27] [2016] VSC 734 (2 December 2016).

^[28] [2016] FCAFC 148.

^[29] Supreme Court of Victoria, Practice Note SC GEN 5 Guidelines for the Use of Technology, para 8.7.

^[30] See Myers v Elman [1940] AC 282 at 322; Rockwell Machine Tool v FB Barrus [1968] 2 All ER 98; EL Du Pont v Commissioner Patents (1987) 16 FCR 423; LexisNexis Butterworths, Civil Procedure: Victoria, [29.01.20] [29.01.205].