Keeping costs under control

The question of who pays for the costs associated with e-discovery may result in some answers based on guidelines drafted by the Sedona Canada committee.

The last of 12 principles outlined in the document circulated for comment to law associations and lawyers across Canada, it calls for “reasonable costs of preserving, collecting and reviewing electronically stored documents will be borne by the party producing it.”

“In limited circumstances, it may be appropriate for the parties to arrive at a different allocation of costs on an interim basis, by either agreement or court order.”

This guideline could be extremely useful in cases involving huge amounts of electronic data, says Glenn Smith, a senior and founding partner at Lenczner Slaght Royce Smith Griffin LLP in Toronto, who serves on the editorial and steering Sedona Canada committee.

“If John Smith is suing the Bank of Montreal and seven brokers - two in New York, two in Chicago, and three in Toronto - and wants the magnetic backup tape from the brokerage firm for the last six months he had an account there, the costs could be astounding, overwhelming, and prohibitive,” says Smith, a commercial litigation lawyer.

“Now, if someone wants an extraordinary amount of electronic data, the principle encourages cost allocation, or the cost shifted to the party that wants the data.”

If adopted, this principle could change the practice of cost-shifting at the end of a case where the unsuccessful party may be required to pay all or some of the costs of the successful party, and bring it more in line with the practice of litigation in the United States, where the emphasis is more on interlocutory cost-shifting.

The Sedona Canada group acknowledges that e-discovery may involve significant internal client costs, as well as counsel fees and disbursements for out-sourced services to both locate and review electronic documents as well as produce them.

“As such, there may be a need for the costs rules to be clarified so that internal discovery costs may be regarded as a recoverable disbursement in appropriate cases.”

The producing parties might also consider creating strategies to control the costs of e-discovery.
“A producing party may wish to limit, either through negotiation, appropriate admissions or motions, the extent and scope of their e-discovery obligations,” suggests the draft Sedona Canada principle.

“They may also wish to consider whether the costs should be partially or completely shifted to the requesting party.”

In addition, the recommendation states that a producing party may wish to serve on the requesting party an offer to settle, under Ontario’s Rules of Civil Procedure, or to seek security for costs, “to enhance its chances of recovery if it is ultimately successful in the proceeding.”

“Given the potential for interim costs awards in an e-discovery context, the parties seeking production of electronic documents should also carefully consider the cost-implications of these claims as early as possible,” says the Sedona Canada draft guideline.

Smith believes that it will require “some judicial interpretation” to determine how this guideline is followed.
Some case law has already offered some clues.

In last year’s Air Canada v. WestJet Airlines Ltd. decision, in which Air Canada sued WestJet for alleged corporate espionage but sought a court order waiving its responsibility to manually review “tens of thousands of documents” it intended to produce electronically, Ontario Superior Court Justice Ian Nordheimer ruled the request was inconsistent with both Ontario’s existing guidelines for e-discovery and the rules of civil procedure.

“Solicitor-client privilege is too important a principle for the court to approve of a process that, on its face, has a very large potential for the disclosure of privileged material,” he wrote in his May 6, 2006 decision. “It is not a principle that should readily be sacrificed to the interests of expediency or economics.”

In his commentary, Nord-heimer said: “It does not seem to me to lie with Air Canada to institute what it says is the largest corporate espionage case ever seen in Canada, couple it with a claim in the order of $200 million and then complain that the production process is going to take more than the usual amount of time and cost more than the usual amount of money.”

Susan Wortzman, a partner with Lerners LLP in Toronto and a member of the Sedona Canada committee who also represented Air Canada, says the Air Canada-WestJet dispute illustrates the dilemma posed in situations with vast amounts of data where it may be impractical to manually review every piece of information.

“Sedona proposes the use of electronic tools to reduce the costs of the discovery process that in large-document cases can get exorbitant,” she says.

“While everyone agrees that privilege is sacrosanct, the real question is whether privilege is best protected by a manual page-by-page review by tired, glassy-eyed junior lawyers or whether electronic tools can be equally effective and cheaper.”

Frank Walwyn, a partner with WeirFoulds LLP in Toronto who represented WestJet, says that, while cost-savings may be achieved through e-discovery, “The courts are not quickly going to subordinate established principles of law just for efficiencies and cost-savings” when the process becomes expensive.

In Barker v. Barker, heard in the Ontario Superior Court in April, the plaintiffs - patients at a maximum-security division of a mental-health centre - filed a claim against two physicians at the provincially run facility regarding the treatment the patient-residents received between 1965 and 1983.

The defendants - doctors Elliot Barker and Gary Meier - proposed to image and code between 50,000 and 100,000 double-sided documents containing the patients’ medical records and make that electronic information available to the plaintiffs.

The defendants sought a motion requiring the plaintiffs pay one-third of the cost of scanning and coding the documents, with the cost for the rest shared equally by the Crown and the defendant physicians. The patients opposed the motion. However, in his endorsement, Justice Maurice Cullity said the benefits to the plaintiffs justified an order for the cost-sharing arrangement.

Susan Nickle, a commercial litigator with Lerners LLP in London, Ont., says the concern over costs is when someone acting as a plaintiff seeks a settlement from a company in a civil suit via “a huge e-discovery request.”

“At that point, the settlement offer may have nothing to do with the merits of the case and is more about the cost-benefit analysis as to whether the defendant company wants to go through the exercise of killing its employees by pulling all the information out and putting it into a usable form for the other side in an action. But that’s not what justice is supposed to be about.”

She says that, given the potentially exorbitant costs associated with e-discovery, lawyers should advise their corporate clients to maintain a document-management program or policy.

“It should address how long you keep documents, because if you got it, you may have to produce it,” she says. “But it’s prohibited to systematically get rid of information solely on the basis that it’s hurtful. You have to maintain records pursuant to whatever regulations and disclosure obligations you’re working under.”

In light of existing e-discovery guidelines, which have provided lawyers with some direction since their release by the Ontario Task Force on the Discovery Process in the fall of 2005, the courts will be looking to parties in an action “to come up with sensible solutions for how to deal with electronic records in their particular case,” says Christine Tabbert, a litigation partner at Fasken Martineau DuMoulin LLP in Toronto.

“But the court will also look at each situation individually and if one party seeks to impose a burden on the opposing party that seems unreasonable, the requesting party may have to pay for the costs of e-discovery.”

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