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The law discovers technology

The law discovers technology

As companies' electronic archives swell, so is the cost of combing them for evidence when litigation arises.

The final witness in last year's C7 trial in Australia was, fittingly, neither an economist nor an accountant but an electronic sleuth named Adam Daniel. With the case generating an astonishing 85,000 electronic documents, Daniel was called to assess whether the Seven Network had backdated one of them to bolster its claim that rivals had colluded to destroy its failed C7 pay-TV platform. Considered exotic just a few years ago, forensic examinations of crucial electronic documents are now common in corporate litigation. The same is true of drawn-out "discovery" processes, whereby teams of lawyers and technologists comb emails, reports, presentations and even text messages to uncover any "smoking gun" information.

Thanks to the spread of technology into every nook of business life, the number of electronic documents involved can routinely exceed seven figures. "This is 100 times more than in the old hard-copy world," founding partner Allison Stanfield of Sydney legal and information technology consultancy e.law says.

One consequence is a steep rise in litigation costs. The C7 legal bill came to a quarter of a billion dollars, some of which went to e.law, having supplied the hardware and software used to keep track of the documents. E.law has grown from a $1 million business in 1999-2000 to more than $30 million a year today.

E.law is just one electronic discovery and computer forensic specialist gorging on swelling legal costs. Another is Daniel's employer, Forensic Data. It proved irresistible to consultancy Deloitte, which snapped up the Sydney firm in December. Deloitte's forensic Asia-Pacific regional practice earns annual revenue of $70 million and is growing by 50 per cent a year. The firm reaps a further $100 million in Australia alone from electronic discovery more generally, national leader Tim Phillips says.

Another consequence of the digital deluge is to make litigation more likely in the first place. Allens Arthur Robinson lawyer and partner Ross Drinnan says that company employees now share potentially incriminating thoughts through email rather than conversation, leaving behind a digital record waiting to be discovered in the event of litigation.

"Electronic communication is so informal that people don't spend much time thinking about the accuracy of what they say," he says. "This provides very fertile ground for forensic enquiry in the course of preparing a trial. Ultimately, the 'smoking guns' these days are emails."

For this reason, other businesses may follow Telstra's lead in choosing last November to settle a shareholder lawsuit, in part to avoid an intrusive discovery process.

"If a company doesn't have good data management then electronic discovery alone can become a multimillion-dollar exercise which may be better put towards a settlement," Drinnan says.

Fearing this predicament, companies are calling for legal expertise to ensure their document management systems are ready for future litigation as well as business. One such expert is Paul Kallenbach, a senior associate in the technology and communications area at law firm Minter Ellison. He says it is "safe to say things are progressing pretty slowly" but that most senior managers accept that a comprehensive document management policy is, if nothing else, prudent risk management.

In particular, they fear ending up on the wrong side of state and federal legislation covering document destruction and retention. Beyond the letter of these laws, Kallenbach warns that while courts treat electronic documents on a par with paper records, their admissibility as evidence may depend on the integrity of the system that created them. For example, an electronic document that does not contain proper indexing information, such as creation date, size and author, may not be treated by a court as having the requisite trustworthiness.

Technology may have caused the problem, but it is also part of the solution, Stanfield says. For a start, search software has moved on from pointing, usually unhelpfully, to every mention of a company name or other keyword to grouping information around particular concepts - much as humans do, only faster and more cheaply.

"There is also technology that enables lawyers to identify near-duplicates. If you've got, say, different versions of a contract, it enables you to pick the final version and just see the differences. So lawyers are only reviewing a document once," she says.

Still, no one is predicting lawyer-less litigation in the foreseeable future. Even culling 1 million documents to just 30,000, as Forensic Data claims to have done for one financial institution client, still leaves plenty of billable hours. Moreover, it would be a brave lawyer that leaves it to a computer to comply with a court order to bring all relevant documents to the table, and to determine which are privileged (that is, based on confidential communications between doctors and patients or other legally protected relationships, and thus inadmissible in court).

At the same time, the courts themselves are doing their bit to reduce the burden. First, judges are beginning to recognise the torrent of unnecessary electronic paperwork an overly broad discovery order can unleash - less than 10 per cent of documents discovered may actually be used in a case.

"If judges engage in some discussion about how it might be done, it is possible to conduct electronic discovery in an efficient and not disproportionately expensive way," AAR's Drinnan says. "It is when judges don't turn their mind to the technical detail that you end up with orders that are very broad and require extensive and expensive work."

Second, courts are revising legal privilege rules. The Supreme Court of New South Wales issued a practice note last July that allows parties to claim privilege on a document even after it has been handed over to the other side.

"We have incorporated a rule like that so it is possible to disclose all documents without spending time and money working out precisely what the other side is entitled to and precisely what needs to be protected under privilege," Chief Justice Jim Spigelman said at the time.

Finally, courts themselves are going electronic. Courts books, which hold all documents used in a commercial case, are becoming online databases. From July, for instance, lawyers will be able to file documents with federal courts and view them at any time through a new Commonwealth Courts portal.

As companies, their lawyers and now courts struggle to keep up with changing technology, one thing is for sure: expect plenty more courtroom drama involving the provenance of an individual email or, in the C7 case, Microsoft Word document.

In the event, Seven was cleared of the tampering allegation following Daniel's testimony. But while it won that particular battle, the network lost the war - and received a $150 million-plus legal bill for its troubles.

Five lessons from electronic discovery

01 Commercial litigation now requires lawyers to sift through thousands, even millions, of electronic documents.

02 While a boon for electronic discovery and computer forensics specialists, companies face sharply rising legal bills. In response, some companies are settling rather than fighting lawsuits.

03 More businesses are also calling on legal expertise to improve their document management systems to comply with document destruction and retention laws, and to ensure their electronic documents are admissible in court.

04 Technology is helping to solve the problem it created. Specialists claim advanced software can now cull a field of 1 million documents to just 30,000.

05 Courts are joining the effort to contain the cost of electronic discovery by narrowing discovery orders, reviewing legal privilege rules, and going electronic themselves.

BRW

© Fairfax Business Media

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