January 09, 2018

Thinking About Arbitral ESI Retention Orders

In the United States, federal and state trial courts recognize a legal duty of a litigant to retain documents, a duty that comes into existence upon coming into possession of facts providing the party with actual or constructive notice of the reasonable possibility of litigation. The scope of the duty, i.e. the documents to which the duty applies, are those documents that would be subject to production under the court’s discovery rules in response to a (properly-framed and timely-presented) document request made by the adverse party. Documents potentially shielded from the obligation to produce them because they are covered by an evidentiary privilege such as the attorney-client privilege are covered by this duty to retain, because the existence of the privilege might be overruled by the court, or the privilege might be waived, or — the privilege being qualified and not absolute — the court might determine that special circumstances require production of a privileged document.

Whereas federal and state civil procedure rules broadly define “documents” to include all manner of electronically-stored information (ESI), the duty to retain such information is not limited by the possibility that a court might eventually but as a matter of discretion limit the types of ESI that must be produced. Prudent litigating parties in US state and federal courts who wish to avoid making a very broad litigation hold at great internal cost, and also wish to avoid the risk that they would be charged with breach of the duty of retention, negotiate the scope of a litigation hold, and if agreement cannot be reached seek judicial resolution of the areas of disagreement so that the scope of retention matches what is prescribed in the court’s order. Less cautious parties who fail to establish agreed or ordered limits on retention run the risk that they will suffer the loss of data that is later deemed subject to production in discovery, and run the risk of court imposed sanctions ranging from monetary penalties to preclusion of certain positions to more sweeping, possibly case-dispositive, adverse inferences.

Let us assume that these rules, essentially common law extensions of discovery rules found in  codes of judicial civil procedure, are not generally applicable to an international arbitration at a US seat unless the parties, against expectations, have agreed that the arbitrators should apply judicial rules of procedure and evidence. With that assumption in mind, consider how these rules might or might not become implicated in an international commercial arbitration. First, suppose there is a dispute between a US and a foreign company, each represented by US lawyers admitted to the New York Bar, under a contract that provides that it is governed by New York law, but the seat of the arbitration is in Canada. As these are evidently rules of judicial procedure, the generic New York choice of law clause does not bring them into play in the arbitration. And whereas these rules are not classified as rules of professional conduct governing the conduct of attorneys generally, the fact that counsel for each party is New York-admitted does not logically lead an Arbitral Tribunal to adopt automatically rules governing retention of documents as rules governing the conduct of counsel in the arbitration. And it cannot be assumed that ethical constraints and ethical disciplinary risks in the attorney’s jurisdiction of admission will lead counsel to cause the client to retain documents to the same extent it would in a litigation. Further, even if one assumes that Canada’s provinces have relatively similar rules governing retention of documents that might be discoverable in judicial litigation, such rules have not been adopted into (for example) the international arbitration statutes as mandatory rules of arbitral procedure in Ontario, Quebec, or British Columbia.

But the rules that parties most often select to govern procedure in their international arbitrations contemplate that there will be some opportunity to obtain some documents possessed by the adverse party that are not merely the documents the adverse party wishes to present to advance its case. (The ICC Rules and those of a few arbitration centres in civil law European countries like Austria and Italy are actually exceptional in omitting express reference in their rules to the Tribunal’s power to order production of documents, and even in arbitrations under such rules the possibility of such document disclosure cannot be excluded because arbitrators have the power to conduct the proceedings as they consider appropriate). And the IBA Rules of Evidence, so widely and willingly adopted by mutual consent of parties and Tribunals, reflect a similar vision. Whereas neither these rules nor the arbitration statutes applicable in major arbitration venues provide very specific guidance about the scope of permitted inquiry into documents stored by the adverse party, the scope of any duty to retain documents cannot be linked, as it is in American courts, to a common expectation about what may need to be produced. This state of uncertainty would seem to serve as an invitation to parties and Tribunals to discuss the scope of document retention at an initial stage of the case. But in my own experience it seems that this is rarely done.

Several factors account for this, I believe. First, there are international arbitrations in which both sides are represented by litigators who are not arbitration specialists and bring along assumptions about the similarity of arbitration to litigation that are only challenged when a dispute arises. At the other extreme, where both counsel are specialist international arbitration practitioners, each may assume that the other will proceed upon a shared view that broad disclosure of ESI is antithetical to efficient arbitral process and will not become a contentious issue. Perhaps the main reason it is not done is that the Tribunal will not regard ESI retention as a primary item of its procedural agenda, being reluctant to initiate discussion on a subject that might imply that the Tribunal takes a liberal view of the scope of pre-hearing disclosure.

But in a few cases one or both parties will ask the Tribunal for the arbitral equivalent of what the American common law duty rule provides, and the question arises as to what the Tribunal ought to do. There is very little published guidance. The IBA Evidence Rules do not touch the question. In 2010, a working group of US practitioners under the auspices of the International Institute for Conflict Prevention (CPR) issued the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration, and this Protocol adopts the premise that “speed and efficiency” is at least one of the considerations affecting disclosure in arbitration and that “requests for information based on possible relevance are generally incompatible with these goals, [and] disclosure should be granted only as to items that are relevant and material and for which a party has a substantial, demonstrable need in order to present its position.” Section (d)(3) of the CPR Protocol entitles “Preservation of Electronic Information” provides:

In view of the high cost and burden of preserving documents, particularly in the form of electronic information, issues regarding the scope of the parties’ obligation to preserve documents for potential disclosure in the arbitration should be dealt with at an early scheduling conference, or as soon as possible thereafter. The parties’ preservation obligations should comport with the Schedule 2 mode of disclosure of information selected.” Schedule 2 of the CPR Protocol envisions that the parties ideally will agree upon one of the four “Modes” for disclosure of electronic information described in Schedule 2 — each involving more ESI than the preceding Mode, such that that retention duty stipulated would, logically, correspond to the disclosure protocol adopted.

Writing about e-discovery in arbitration nearly a decade ago, thoughtful commentators observed: “The ‘preservation’ of ‘relevant’ documents once litigation is anticipated or commenced also requires rethinking in light of the fact that electronic information is dispersed and dynamic throughout a company’s computers, rather than statically awaiting collection in a drawer.” (R. Smit & T. Robinson, E-Disclosure in International Arbitration, 24(1) Arbitration International 105 at 109 (2008)). Those commentators proposed the following as a general guideline to be applied by international arbitration Tribunals with regard to retention: “The obligation to preserve electronically stored information requires reasonable and good faith efforts to retain information that may be necessary for pending or threatened arbitration. It is unreasonable to expect parties to take every conceivable step to preserve all electronically stored information that may potentially be relevant and necessary in the arbitration.”  (Id. at 133, Proposed Guideline 19). And yet as we turn the calendar to 2018, such rethinking either has not taken place, or has occurred ad hoc in case-specific settings and has not crystallized into a set of published best practices concerning e-document retention for potential arbitration disclosure.

One of the major challenges is that even where counsel accept that an international standard of relevance and materiality applies and that document requests should be very specific, counsel cannot know at the outset whether the key communicators of the adverse party, in their communications internally and with third parties, mainly used desktop servers in their offices to send e-mails, or also used mobile devices without generating copies of the messages on the desktop server. The cannot know whether the key communicators used personal e-mail accounts, or text messaging, as the standard or more than occasional means of business communication. So there is a cost-benefit calculation to be made by the parties, with very imperfect information, if they are to commit to limitations on e-discovery at an early stage of the case. If the parties do not agree upon the scope of potential ESI disclosure, however, they are unlikely to agree to the scope of document retention measures. The Tribunal, if asked to enter a document retention order, risks inefficient imposition of the costs to the parties for broad document retention (e.g., directions that various persons must save or centrally deposit mobile device messages) if this later proves to have been unnecessary because the scope of what later must be produced is far more limited that what is initially ordered to be retained.  At the opposite extreme, the Tribunal that concludes perhaps prematurely that (for example) metadata, text messages, i phone e-mails, and voice mails need not be the targets of specific retention measures, or draws a narrow circle of persons required to take retention measures, risks sanctioning the disappearance of evidence to an extent it may later regret.

The excellent and comprehensive report of the ICC Commission on Arbitration and ADR entitled “Management of E-Document Production” sensibly states that if production of electronic documents is confined in accordance with the IBA Rules of Evidence to the same extent of production of paper documents, as the IBA Rules expressly envision, then most of the efficiency challenges associated with E-Discovery should be avoidable. But these guideposts often will be unhelpful to the Tribunal in a case with US counsel on both sides, particular where those counsel are litigators bringing their litigation instincts to bear in the arbitral forum. Even when one or both parties are represented by specialist arbitration practitioners, they may prefer to follow their litigator instincts for tactical reasons.  As soon as the Tribunal accommodates the parties’ professed mutual desire to work out disclosure matters by agreement without Tribunal involvement — a common posture at the preliminary conference stage — there is a recipe for trouble if disputes arise. Suppose, for example, that at a time just after the deadline for the parties to produce requested documents to one another — the Tribunal per the parties’ agreement on procedure having taken no active disclosure-management role up to this point — now receives an objection by one party that the other has produced the electronic equivalent of several hundred thousands of pages of documents in a format that is not keyword-searchable or otherwise searchable by use of search software, ostensibly forcing the objector into a costly page-by-page review of the producing party’s production. Possibly search software usable with the production exists, but neither the objector nor its counsel has acquired it nor has heretofore employed IT specialists capable of applying it. Possibly the document in searchable format still exist in some electronic data storage facility of the producing party but the retrieval costs are substantial. The objector might assert that the producing party should be made to bear this cost, as a penalty for having violated a duty (articulated in judicial but not arbitral e-disclosure rules) to preserve and produce in a readily searchable format.

What sort of initiative might become an operating standard for Tribunals? Perhaps some sort of e-disclosure questionnaire would suffice: (1) Do you envision e-disclosure by the adverse party of e-data from sources other than e-mail (and attachments) stored on corporate servers? If yes, what sources/devices, and why will this be sought? (2) Can the needed documents be obtained by searching the e-mails (and perhaps text messages) of a limited number of persons? (Each party is asked to reasonably investigate to determine the person most directly involved in the transactions at issue). (3) What is the relevant time period for production? Do auto-delete protocols based on message age make some portion of the data universe less readily accessible? Can the parties agree to do without data if that vintage, and if not, how should retrieval costs be borne? Has the auto-delete protocol been overridden, at least for relevant individuals, to prevent impediments to the gathering of relevant data? (4) What is the format in which production of electronic documents is expected to be made? Is this satisfactory the adverse party?

A questionnaire of this type does not appear to favor either party nor does it encourage e-discovery of a scope comparable to what might be permitted in a US court. It may indeed prompt parties to recognize and concede early on that disclosure in arbitration often is different and more limited unless both parties clearly want an arbitration that resembles a US litigation at least in its discovery phase. And the questionnaire seems reasonably calculated identify whether there is a need for some sort of retention order, and to lead to an order whose scope is tailored to the expected scope of e-disclosure.

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