White SW Computer Law
|Intellectual Property, Information Technology & Telecommunications Lawyers|
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Discovery involving electronic documents such as email or software source code poses many issues that do not arise as commonly with traditional paper documents.
These issues include:
This article will examine these issues in more detail in the light of recent case decisions.
To understand the importance of discovery in relation to electronic documents it is useful to look firstly at its application in a preliminary discovery scenario.
In matters involving information technology disputes or copying of electronically stored materials, preliminary discovery of electronic documents can play an important role in collecting evidence and identifying potential defendants and causes of action. Often such cases involve incidents in which software or other electronic data is more crucial to the determination of a matter than may be the case in a normal commercial transaction which has merely been documented electronically.
The plaintiff alleged that the first defendant, Adam Hinkley ( “Hinkley” ) had been an employee of the plaintiff from October 1995 until September 1997 and during the course of his employment, had developed source code for certain computer software applications.
The plaintiff further alleged that prior to resigning from the employ of the plaintiff (without notice) and moving to Canada, Hinkley deleted or encrypted all copies of the source code he had been developing on the computer systems of the plaintiff.
In related proceedings Hotline Communications Ltd & Ors v Adam Hinkley & Ors Hotline Communications ( “Hotline” )2) obtained in 1998, by way of an Anton Piller Order, copies of source code for various software applications and related materials from Hinkley and other parties. Hotline claimed, amongst other things, that Hinkley had deleted certain source code from computers at Hotline Communications' premises in Canada and had left in similar circumstances to those of his departure from A2B.
A2B sought preliminary discovery of the materials obtained by Hotline by way of the Anton Piller order to determine whether the source code developed for Hotline by Hinkley was the same or substantially the same as the product developed by Hinkley during the course of his employment by A2B.
It was found by Warren J that notwithstanding A2B's suspicions, it could not know of any similarity between the respective source code until it had the benefit of inspection of the documents it sought to be discovered.
Following inspection, litigation was subsequently successfully undertaken by A2B against Hotline, Hinkley and other parties based upon the similarities found between the source code, the other electronic information which was discovered and the analysis that this made possible.
An application for preliminary discovery need not be for specific documents it may also be used in order to identify a respondent3). London Economics (Aust) Pty Ltd v Frontier Economics Pty Ltd4) is an example of a matter in which the applicant sought discovery by certain parties then employed by the respondent (who had been formally employed by the applicant) of materials including, amongst other things, computer programs, data files, computer tapes and CD-Rom disks containing relevant information. The applicant satisfied the Court that in compliance with Federal Court Rules O 15A r3 and r6 (see appendices 1 and 2) that it had made reasonable inquiries to elicit the relevant information and its inquiries had been unsuccessful.
In following Gobbo J in G Breschi & Son Pty Ltd V AFT Ltd5) , Finkelstein J found that whilst it was not a legitimate use of O 15A, r3 for “identified potential defendants” to be examined about their own involvement, the rule can be used in a case where there are many prospective defendants, none of whom have been sufficiently identified as potential defendants, to ascertain who might be the proper defendant.
Electronic documents may be particularly useful in such discovery because they often contain within the document itself a record of who has accessed, modified or printed the document and the time and date of such use.
Applicants must bear in mind though that the cost of such electronic discovery may be high and as in this matter, the person seeking such discovery, may be required, in the first instance, to pay for the costs associated with discovery.
Discovery and inspection before suit was also sought in the matter of Sony Music Entertainment (Australia) Ltd v University of Tasmania6). The respondents (three Australian universities) had agreed to take a copy of information held by them on electronic backup tapes, CD ROMs and computer hard drives at specific points in time pending the hearing of the preliminary discovery application.
The respondents opposed the application for preliminary discovery, disputing the application of Federal Court Rules O15A r3 on the grounds that the applicants should not be entitled to discovery of material which includes documents that fall outside the scope of documents relating to the description of the person allegedly involved in the distribution of copyright protected sound recordings using the respondents' computer networks.
The applicants contended that computers belonging to the respondents permitted hosting of websites on university computers. After discovering a number of MP3 music files on one of the University of Tasmania's servers on 20 December 2002, the International Federation of Phonographic Industry wrote to the University of Tasmania ( “the University” ) requesting it to take steps to prevent the distribution of copied sound files by a website housed on one of its servers.
By 7 January 2003, the website was unavailable or had been removed. The applicants sought to have a backup copy made of data on certain parts of the server in question, which was commenced by the University on 22 January 2003.
On 24 January 2003, a copy was made of all data on the hard disk of the person identified as being responsible for the creation of the website in question. This data was examined by a representative of Music Industry Piracy Investigations ( “MIPI” ) who identified over 400 copies of digital music files.
The applicants sought discovery of the preserved material by way of preliminary discovery , pursuant to Federal Court Rules O15A r3 and r6 on the basis that the records would assist in determining who made, or assisted in the making of copies of the sound recordings and in deciding whether the making of the infringing copies had been authorised, aided or abetted by the University.
The applicants sought orders that the respondents permit inspection of the documents by the applicants, MIPI and their employees, legal representatives and a forensic investigator.
The University proposed orders that required it to only deliver a subset of the preserved material, which was considered by the University to be relevant, on a confidential and privileged basis.
The Court was also asked to decide whether CD ROMs and backup tapes are “documents” as defined by the Federal Court Rules. Tamberlin J considered that as there was a body of authority that had previously found electronic records and computer databases to be documents and the fact that electronic records such as computer files and CD ROMs have been the subject of discovery orders in earlier Federal Court matters, the Court should find that the CD ROMs and backup tapes in question were “documents” . The Court also held that it was the CD ROM or tape itself that came within the definition of a document rather than, as contended by the respondents, the individual files stored on that media.
Having been satisfied that the required nexus between the documents and the matters sought under O15A r3 and r6 existed, the Court ordered that the forensic investigator nominated by the applicants be given access to the complete copies of the preserved materials. The Court accepted the applicants' arguments that the proposed subset of data suggested by the respondents was too narrow, and ordered that the forensic investigator use forensic methods and appropriate software to extract the relevant material, under the supervision of the respondents.
The material so extracted was then to be examined by the respondents and their legal advisors to determine whether they or any third parties had any claims for privilege or confidentiality.
The respondents were then required to make an affidavit of discovery including all information produced on the search which the respondents say is discoverable, claiming privilege or confidentiality, as appropriate.
The applicants would then be able to inspect the documents so discovered.
The final orders made7) limited discovery to parts of the documents which:
By making in the orders in this form, the Court sought to provide, as far as possible, the same protection to the respondents in relation to their electronic documents as is normally provided by segregation or masking out of information in paper documents.
In disputes involving large amounts of information available only in electronic form, it is easy for that information to be destroyed either deliberately by the parties involved once they have knowledge of the pending proceedings or through routine overwriting of data as part of normal operations.
In such cases, if a “snapshot” of the data as it appears on the working computer systems can be taken before the parties have knowledge of the proceedings, crucial evidence can be preserved that might otherwise be quite costly to recover.
In Universal Music Australia Pty Ltd v Sharman License Holdings Ltd8) two notices of motion seeking discharge of Anton Piller orders were considered by the Court.
Wilcox J stated that “ In an ideal world, it would be preferable for parties not to need to resort to Anton Piller action. However, where the case sought to be made by a party depends upon demonstrating the operation of a dynamic system, it is difficult to see any alternative to the taking of snapshots of the system in operation, thereby preserving evidence of what the dynamic system was doing at the moment of inspection.”
His Honour considered that it was “ an essential part of the applicant's case to put evidence before the Court about the dynamic operation of the Kazaa system, as distinct from its structure. As his Honour stated, “the operation of the Kazaa system does not depend only (or even principally) upon the action then being taken by the respondents &, but upon the actions of countless other participants using the system the respondents have allegedly created. I do not understand how it could be ensured that these participants would act in a normal and natural way in an organised demonstration.”
To the extent that any static data was copied, the files were to be extracted and copied and then held by a forensic expert, without further analysis, until further order of the Court. Anything of a static nature would be treated like a discoverable document and was not to be inspected until the appropriate time.
The role of Anton Piller orders is to preserve evidence and the scope of material that may be seized needs to be very carefully defined. Where data is obtained that falls outside the scope of the Anton Piller orders, the access to this material is governed by the rules of discovery. Leave to appeal the decision of Wilox J was denied by the Full Federal Court9) . Black CJ, Emmett and Stone JJ considered that as access to the seized material that fell outside the scope of the Anton Piller orders would be on the same basis as normally available on discovery, there was ”an orderly process for the management of the seized material in which the interests of both parties will receive due consideration“.
Discovery was first introduced in nineteenth century English equity procedures and aims to provide the parties access to all of the relevant documentary evidence in each party's possession so as to prevent “ambush” at trial and to ensure that litigation is decided on its merits10).
The process involves an exchange of lists of documents which are usually verified by an affidavit following which each party may inspect the non-privileged documents set out in the opposing party's list.
Discovery is an invasion of the privacy and confidentiality of litigants but is incorporated into legal procedure because the public interest in ensuring justice is done between parties is considered great enough to outweigh the interest in maintaining confidentiality11).
However, discovery is not directed towards assisting a party on a “fishing expedition”. Only documents, which relate to the matter in issue, are discoverable, with it being sufficient justification that the document would, or would lead to a train of inquiry which would, either advance one party's case or damage that of his adversary12).
The Federal Court rules O15, r 15 (see appendix 3) requires that the Court be satisfied that an order for discovery is, at the time when the order is made, necessary in the interests of a fair trial13). Practice Note 14 (see appendix 4), issued by the Chief Justice in 1999, makes it clear that general discovery will not usually be ordered. As a result, it is common practice for parties to categorise and limit the documents which they will seek and provide access to. The choice of such categories should be related to the pleadings in the matter to assist in minimising the scope of discovery to a reasonable level.
Whether and when discovery will be ordered depends upon the nature of the case and the stage of the proceedings at which the discovery is sought14).
A party is not compelled to discover a document which would tend to subject him to a penalty and discovery will not be ordered in proceedings which are analogous to proceedings to enforce a penalty15). A party may also refuse to produce any document that may tend to bring him into the peril and possibility of being convicted as a criminal , which may be useful in cases where electronic documents may provide evidence of criminal activity such as copyright infringement. However, seeking to avoid discovery on such a basis may be prejudicial to the party's credibility.
Where a party has been required or ordered to give discovery, they are under an ongoing obligation to discover any document not previously discovered and which would be necessary to comply with the requirement or order16). This means that in cases where further backup tapes are located or data is successfully recovered that was previously unreadable a supplementary affidavit of documents must be prepared and supplied to the other party.
After a directions hearing under Order 10, any party may, with the leave of the Court, require any other party to give discovery of documents17). Although there is no express limit on discovery, the Federal Court may limit discovery under Order 15 r3 where appropriate. In cases involving vast quantities of electronic documents, the parties may be able to request that the scope of inquiry in relation to the electronic records be limited to avoid the sometimes great expense of recovering data, where there is little chance of useful information being supplied.
”& the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done.“18)
Federal Court O 15 r6(3) provides that ”A list of documents shall enumerate the documents in a convenient sequence and as shortly as possible, but shall describe each document or, in the case of a group of documents of the same nature, shall describe the group, sufficiently to enable the document or group to be identified“.
In Kyocera Mita Australia Pty Ltd v Mitronics Corporation Pty Ltd19) Kyocera sought a list of each document otherwise identified only by categories for which legal privilege was claimed by Mitronics. Kyocera wanted each document to be specifically identified and a description of each document so that Kyocera could verify whether what was in the privileged lists was in fact properly privileged documents. Stone J declined to make the requested orders as the categories of documents had been identified not by description of the legal privilege that is claimed but by description of the documents themselves and that the costs involved in a matter that has been going for such a long period of time as this far outweigh any benefit from identifying and describing the documents individually in the way [sought by] Kyocera.
This case is not surprising as significant and unnecessary costs can be incurred by laboriously producing lists of all electronic and paper documents (not just privileged or confidential documents) which ultimately does little to resolve the issues between the parties and or assist in the preparation for trial.
Common criticisms of discovery include:
If the costs of complying with orders for discovery are excessive they should be brought to the attention of the Court. In cases involving vast quantities of electronic data, accurate estimates of the cost of providing information in a useable form should be determined and where appropriate used to limit the required scope of investigation. If discovery orders are made by consent, there may be no consideration by the Court of the reasonableness of discovery, or analysis of the possible cost and benefits of the process.
Discovery ought not to be used by litigants as a weapon with the purpose to delay, harass or drive the other party, by exhausting their litigation funds or by otherwise forcing an early settlement. Demanding or producing an overwhelming amount of irrelevant documents or withholding documents can impose a high cost as can excessive legal arguments relating to access to documents.
Options for controlling discovery through more intervention by the Court include
Some of the principles relevant to an application for discovery were summarised by Finn J20) as follows:
These points do not outline the circumstances in which a Court will regard an order for discovery as necessary in the interests of a fair trial. However, important considerations must be the nature of the case and the stage of the proceedings at which discovery is sought.
In relation to discovery orders in doubtful cases, Brennan J21) stated that ”discovery [may be] given to a party before he was required to give particulars of his claim & [where] sufficient is shown to ground a suspicion that the party applying for discovery has a good case proof of which is likely to be aided by discovery“.
This was contrasted with the case where ”the proceeding is essentially speculative in nature“.
In matters involving vast quantities of electronic records, the hurdle to get over in relation to showing a party is “likely to be aided by discovery” should perhaps be set a little higher to avoid the situation where one party is forced to sift through huge amounts of documentation for items which they contend will be of little assistance to the other parties to the litigation.
Before extensive data recovery is required, the parties should be given the opportunity to depose as to what the electronic records are likely to consist of and why these materials are likely to be of little assistance to the other parties.
The Federal Court Rules define the word “document” to include any material data or information stored by mechanical or electronic means22). This definition says nothing about whether such electronically stored documents must be in a readable format or not. As a result, any data stored by the organisation must be considered when providing discovery and an appropriate discovery strategy devised and agreed.
Despite conventional backup strategies resulting in periodic overwriting of backup media, the possibility that copies of documents may exist dating back several years due to lapses in applying the backup strategy or retention of copies which would normally have been discarded - for example when a backup tape is suspected of being faulty, it may be stored and not re-used rather than being discarded. This could potentially mean that years of data will need to be reviewed to determine whether it includes any discoverable documents.
Usual backup procedures will need to be reviewed during litigation. The obligation to not destroy relevant evidence during litigation needs to taken into account so that electronic documents that only exist in electronic form on backup tapes are not destroyed by subsequent overwriting.
Important issues to note about email correspondence is that emails are often informal (people say things that they ordinarily would not), they are time stamped, they are written and they are very hard to delete. The explosive cross examination power of emails has been underpinned in numerous recent matters, for example, the Microsoft anti-trust litigation, the Channel 7 trade practices litigation and the Australian Wheat Board inquiry.
In the matter of BT (Australasia) Pty Ltd v State of New South Wales & Anor (No 9)23) a large amount of discoverable material existed as emails, backup tapes and other electronic documents. BT (Australasia) Pty Ltd filed a motion which claimed that Telstra Corporation Ltd ( “Telstra” ) had failed to comply with its discovery obligations in respect of electronic communications such as emails and other electronic documents and had failed to take appropriate steps to prevent the destruction of discoverable documents, including documents in electronic form.
In this matter, Telstra was found to have backup tapes dating back several years despite standard procedures being in place that would normally prevent such long term storage by overwriting data tapes. In his judgment, Sackville J stated that ”I do not think that technical sophistication is a prerequisite to a litigant or its advisors making inquiries to ascertain whether discoverable electronic communications or documents have been recorded and retained in a retrievable form“. It would seem that the excuse that retrieval and reviewing stored data is difficult and time consuming will not be accepted by the Court.
A similar stance was taken by Mansfield J in NT Power Generation Pty Ltd v Power & Water Authority24). The respondents sought an order that the discovery of email communications be limited to discovery of email communications which, since the order for discovery was made, have existed in hard copy form. His Honour was not persuaded that, in the interest of justice, the respondents ought be excused from giving discovery of email communications retained only electronically not withstanding the time, expense and effort involved in doing so.
Accordingly, the rules governing the use of email, particularly to external parties should be carefully considered as it is common for email correspondence to be less carefully worded than other forms of correspondence, particularly when it is not proof read before being sent. Employers should also consider the use of disclaimers or limitations on the use of email as there is a tendency for email messages to reflect the preliminary thoughts or ideas of an employee that may not have been reviewed by the employer. Such emails may be construed by the Court to reflect the employer's view.
Once a policy has been developed in relation to the use and storage of email and other electronic documents, it is important for management to liaise with the information system managers in relation to backup procedures. It is commonly considered that backup information should be saved for long periods with the view that “longer is better”. Particularly if an organisation is in a litigation prone industry, there should be established procedures to periodically delete electronically stored documents from the backup media to reduce any potential burden imposed by the discovery process.
Of course such procedures need to be implemented in conjunction with a review to ensure that the organisation has adequate documentation that would be of assistance to it in the course of any future litigation, otherwise stored. The removal of backed up materials should be done in a systematic way to reduce the likelihood of a heavy burden in relation to discovery being forced upon the organisation rather than from the view of destroying all possibly incriminating evidence. The Court has on occasion ordered that documents be discovered even though a document may have been deleted25).
Should there be a requirement for the term of retention being at least as long as any applicable statute of limitations or regulatory review period? At the moment, there are no such restrictions in Australia specifically directed toward electronic documents, but this may be an area of change in the future as more documents are stored only in electronic form.
However, having a backup and purging policy in place is only effective if the policy is implemented correctly - for example, have you considered what is done with discarded backup tapes? Are they simply thrown in the rubbish or is an effort made to physically destroy the media so that any stored data is irretrievable. Similarly, storage media that has been overwritten may be able to be manipulated in order to recover the earlier recorded material if the time and effort is justified.
Internal housekeeping will reduce the burden of discovery, but it does not mean that copies of electronic documents will not be stored by, for example, the recipient of email messages, on disks and backup tapes of intermediate external IT systems used to transmit the email message, third party internet service providers or merely on employees' laptops. Should a party's obligations in relation to discovery be interpreted so widely as to encompass all these possible data repositories? It would seem unlikely that such an order would be made unless there was a very high probability that further relevant material would be retrieved that is otherwise not available.
It is very dangerous to assume that merely due to thoroughly implemented internal periodic deletion of electronic records that further copies of certain documents, for example emails will not exist externally to the organisation's IT system. While inquiries regarding third parties' backup procedures may have been made, if there is no control over the implementation of those procedures or subsequent changes to the procedures the possibility of copies of documents being in existence must not be discounted. As an example, a programmer may keep an annual backup indefinitely due to previous experiences involving data loss. When information has been recorded even inadvertently or without the knowledge of the parties it may be admissible as evidence unless otherwise considered by the Court, for example, the Court may consider interception of email messages to be analogous to the interception of telephone conversations.
The possibility also exists that a party may claim that legal professional privilege for electronic documents has been waived as a result of intentionally giving a copy to a third-party for reasons other than providing legal advice, for example for purposes of communication or storage at a data centre or outsourcing facility.
Even if emails themselves are not recorded by third parties, automatic recording of information for billing purposes documenting the message transmission time, time and date of transmission, author address, and recipient address may be relevant if one party is aided by the confirmation of communication between parties regardless of the content of such communication. For instance, one party may be claiming that a message had been sent on a particular day, and the other party denies receiving it on that day, a mail log could be introduced as proof of sending the message. The time and “blind carbon copy” addresses can in certain cases be critical. This may be particularly useful if the parties are in dispute in relation to the timing of offer and acceptance in contractual negotiations, or say, prosecutions for insider trading . A mail log could also be used to show that an affidavit of documents does not include all email messages exchanged between the parties.
Electronic data can be easily lost, damaged, hidden or password protected preventing easy access. This may occur by accidental or malicious file corruption or loss, hardware failure or virus activity. In such circumstances, a computer forensics expert may be required to extract and interpret data held on electronic storage media.
The ability to retrieve data in this way raises the questions of which party should be responsible for the costs of such data recovery and whether the rules of discovery compel a party to retrieve such data if its existence is known to a party.
An example where computer forensics were used was in Sony Computer Entertainment Australia Pty Ltd v Jakopcevic26) in which the respondents were involved in manufacturing and distributing CD Roms infringing Sony's trade marks. The respondents deleted records from their computer systems, but these deleted records were able to be recovered.
Federal Court Practice Note 14 states that ”In determining whether to order discovery, the Court will have regard to … the resources and circumstances of the parties, the likely cost of discovery and its likely benefit.“
As found by Burchett, J in Murex Diagnostics Australia Pty Ltd v Chiron Corporation27), discovery may not be ordered in circumstances where it would be burdensome for one party without commensurate benefit being derived by another party.
It is important for the Courts to bear in mind that while computer forensics makes a wider range of data recovery and analysis technically possible, the associated costs need to be limited to a scale in keeping with the issues and quantum in dispute.
When responding to a notice for discovery, the party from whom discovery is sought should consider requesting the Court to make an order apportioning the costs of data recovery and analysis equally between the parties (or in some other proportion deemed suitable). Where the existence of useful information is disputed they should request an order that in the event that no useful data is obtained, that the party seeking discovery bear the whole expense of the data recovery and analysis.
Many businesses store vast amounts of information in databases as such data can be manipulated to generate reports of subsets of the total data. For example, a database may contain the names and addresses of an entire customer list for a business. By designing a suitable “query”, a report can be generated listing only the customers located in a particular suburb rather than the entire list of customers.
If discovered documents were generated from data stored in a database, should the entire database have to be discovered? This could be potentially useful for the other party as they may be able to generate reports that otherwise did not exist and which may assist in their preparation for trial.
In Kyocera Mita Australia Pty Ltd v Mitronics Corporation Pty Ltd28) Kyocera sought discovery of Mitronics electronic database which was a summary of the service history for its customer's copier machines arguing that it could be used to produce useful information not yet supplied by Mitronics. Mitronics had already given discovery by providing hard copies of the relevant documents (such as invoice details) and had argued that the database contained a large pool of information that included every facet of Mitronics business. Kyocera argued that the information should also be discovered in electronic format. Although there are ways around this problem, for example limiting access to the parties' legal representatives and independent experts, the court declined to make the orders sought. Kyocera was unsuccessful in its application for leave to appeal this point on the basis that a hard copy version of the relevant information had already been supplied.
The rules governing discovery need to be constantly reviewed as our use of electronic documents and communication methods increase. Consideration needs to be given to:
STEVE WHITE & SARAH PIKE
WHITE SW COMPUTER LAW
© White SW Computer Law 2006
This paper is a guide only and should not be used as a substitute for legal advice, readers should make their own enquiries and seek appropriate legal advice.
FEDERAL COURT RULES - ORDER 15A RULE 3
Discovery to identify a respondent
Where the Court makes an order under paragraph (2) (II), it may:
FEDERAL COURT RULES - ORDER 15A RULE 6
Discovery from prospective respondent
The Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (3).
FEDERAL COURT RULES - ORDER 15 RULE 15
Order only if necessary
The Court shall not make an order under this Order for the filing or service of any list of documents or affidavit or other document or for the production of any document unless satisfied that the order is necessary at the time when the order is made.
Practice Notes issued by the Chief Justice
Practice Note No. 14 issued on 12 February 1999 is revoked and the following Practice Note No. 14 is substituted.
M E J BLACK
3 December 1999