E-Discovery in International Arbitration—A Less Burdensome Approach?

Introduction

The broad scope of “discovery” in American court litigation, coupled with the drastic growth of electronic communications and electronically stored information (ESI), often causes electronic discovery (e-discovery) issues to control the litigation of commercial disputes in American courts. Courts have imposed several e-discovery duties on parties and their counsel which have resulted in substantial burdens—increased expense, delay, and sanctions that can be potentially outcome determinative.

International arbitration is the prevailing method for the resolution of international commercial disputes and offers many potential advantages over court litigation. Several international arbitration organizations, concerned with the burdens that e-discovery duties can place on businesses and seeking to lessen them, have promulgated guidelines and protocols which recommend how arbitrators and parties in international arbitrations should approach the e-discovery issue. An understanding of these guidelines may help clients and counsel better address the decision of whether to opt for court litigation or arbitration to resolve disputes arising from their international commercial agreements, including whether to incorporate aspects of such guidelines in their arbitration clauses.

The Burdens of E-Discovery
In American Court Litigation

Numerous articles have been written on the vast amount of ESI that business organizations generate and store in the normal course of running their operations and how this databoom is growing exponentially. ¹See, e.g., Jason R. Barron, “Law in the Age of Exabytes: Some Further Thoughts on ‘Information Inflation’ and Current Issues in E-Discovery Search,” XVII, Rich J.L. & Tech. 9 (2011). Businesses today communicate primarily, if not entirely, by electronic means—according to some recent studies, approximately 89 billion business emails are sent each day. ²The Radicati Group, Email Statistics Report, 2012-2016 – Executive Summary, at 2-3 (Apr. 2012). Many large business organizations measure the amount of ESI that they are storing not in gigabytes or terabytes, but in petabytes (which is 1,000 terabytes or approximately 20 million four drawer file cabinets). ³Steven Rosenbush and Michael Totty, How Big Data is Changing the Whole Equation for Business, Wall St. J., March 11, 2013, at R1. ESI is stored on a variety of devices in a variety of locations; seldom, if ever, is it centrally located.

Most American courts, both federal and state, follow the philosophy that allowing a broad scope of discovery furthers the truth-seeking function. Courts therefore typically allow parties to request and obtain discovery from each other that is not just relevant to any party’s claims or defenses, but which also appears reasonably calculated to lead to the discovery of admissible evidence. ⁴See, e.g., Fed. R. Civ. P. 26(b)(1); Cal. Civ. Proc. Code § 2017.010. The explosion in the amount of ESI, coupled with this broad scope of discovery, means that disputes with narrow issues and moderate amounts in controversy can potentially involve hundreds of thousands of potentially relevant documents, most of which is ESI.

Over the last several years American courts have imposed extensive duties on litigating parties and their outside counsel with respect to the preservation, collection, and production of any ESI that falls within the broad scope of discovery. These duties include: ⁵See generally Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 432-433 (S.D.N.Y. 2004) (“Zubulake V”).

• Imposing a “litigation hold” throughout the organization to prevent the loss or alteration of potentially relevant ESI—a “hold” can involve suspension of all ESI retention practices for the duration of the litigation.

• Identifying witnesses possessing potentially relevant ESI within the organization and interviewing them to understand what potentially relevant ESI was generated and stored, and identifying all devices and locations where it is stored (including back-up or archived media and deleted files).

• Requiring outside counsel to become familiar with the client’s document retention policies and electronic information networks and systems so that counsel has a basis to conclude that all possible locations of potentially relevant ESI have been identified.

• Collecting all potentially relevant ESI, which can involve locating and restoring backup or archived media and deleted files. Best practices often dictate that this collection process should be performed by a qualified third party consultant or vendor who can, if necessary, testify that legally proper steps have been taken.

• Outside counsel must continue to monitor compliance with the “litigation hold” so that all locations of later discovered and potentially relevant ESI have been searched.

Perils of Processing, Producing.

Moreover, once potentially relevant ESI is collected it needs to be processed (through culling, de-duping, and the like) in order to reduce the volume of ESI that must be reviewed for actual relevance and/or privilege. When this type of review does take place, it can involve multiple attorneys and legal assistants working full time for days, weeks, or months.

After the review is concluded, ESI that is responsive to discovery requests of the opposing party must be produced. Many courts will allow a requesting party to obtain the metadata associated with the ESI and/or to receive the ESI in “native file” format. Counsel may then expend substantial efforts in organizing and keeping track of the information contained in metadata and “native file” format ESI.

Exploding Expenses, Specter of Sanctions.

Mounting duties and steps referred to above greatly increase the fees and costs of a litigation—it is not surprising that e-discovery has become one of the largest, if not the largest, cost component in American court litigation.

For example, the RAND Institute of Civil Justice found in a 2012 study of 45 lawsuits involving large corporations that the median e-discovery cost was $1.8 million, and could go as high as $27 million. ⁶RAND Institute for Civil Justice, Where the Money Goes: Understanding Litigant Expenditures for Producing Electronic Discovery, at 19-20, 26 (2012).

In addition, the duties and steps referred to above invariably delay the progress of a lawsuit. If a party fails to preserve and produce relevant ESI, or if ESI is lost, destroyed, or altered (even through routine and good faith document retention policies), the party can be subject to sanctions for spoliation of evidence, some of which can effectively be outcome determinative.

Sanctions include monetary charges, exclusion of evidence, adverse inference instructions, and directed verdicts. ⁷See generally Pension Committee of Univ. of Montreal Pension Plan v. Banc of America Securities LLC, 685 F. Supp. 2d 456, 469 (S.D.N.Y. 2010).

The Approach to E-Discovery
In International Arbitration

Some International Arbitration Basics

International arbitration offers many potential advantages over court litigation, including the availability of a neutral forum, the ability to choose the arbitrator (particularly those with requisite knowledge of the relevant industry or technology), potential cost savings, the ability to specify the applicable law and procedures, more readily enforceable awards, and confidentiality.

In many international arbitrations the parties enlist the aid of one of various international arbitration institutions or organizations to provide some or all of the administrative services required for an arbitration. These institutions are legal or independent bodies that make the required infrastructure permanently available in accordance with their bylaws, and provide rules, for the purpose of administering an arbitration. The American Arbitration Association (“AAA”) and its International Center for Dispute Resolution (“ICDR”), the International Institute for Conflict Prevention and Resolution (“CPR”), the German Institution of Arbitration, and the London Court of International Arbitration (“LCIA”) are examples.

Alternatively, an arbitration institution may be part of a larger business, professional, or trade organization such as a chamber of commerce; the International Chamber of Commerce’s (“ICC”) International Court of Arbitration is an example.

Additionally, there are several arbitration organizations that primarily publish rules and guidelines to assist the arbitration process, such as the International Bar Association (“IBA”) and the Chartered Institute of Arbitrators (“CIArb”).

Parties often use rules published by these institutions and organizations, which rules typically address issues such as arbitration commencement, the makeup of the arbitration panel or tribunal, the place of arbitration, conduct of the hearing, evidence, interim relief, form of the award, costs, and arbitrator compensation. Prior to 2008, no rules specifically addressed the issues of ESI or e-discovery.

Recent International Arbitration
E-Discovery Guidelines

Since 2008, at least five international arbitration organizations—the ICDR, the CIArb, the CPR, the IBA, and the ICC—have published guidelines, protocols, rules, or studies (for convenience referred to as “guidelines”) which address the taking of evidence and exchange of information, and include recommendations to help the tribunal and the parties manage the e-discovery process.

In their respective guidelines these organizations take varying approaches to dealing with the disclosure of ESI; however, to some degree they all are based on the principles that the procedures to be used should be expeditious, cost effective, and fundamentally fair; and, that the procedures used in American courts for dealing with the discovery of ESI and which have led to expense, delay, and other burdens should not find their way into international arbitration. Significant features of each of these guidelines are outlined below.

The ICDR Guidelines

The ICDR is the international arm of the AAA. In May 2008, an AAA task force issued the ICDR Guidelines for Arbitrators Concerning Exchanges of Information (“ICDR Guidelines”), which can be found at http://www.adr.org/aaa/ShowPDF?doc=ADRSTG_002579.

The purpose of the guidelines is “… to make it clear to arbitrators that they have the authority, the responsibility and, in certain jurisdictions, the mandatory duty to manage arbitration proceedings so as to achieve the goal of providing a simpler, less expensive and more expeditious process.” Unless parties agree otherwise in writing, the ICDR Guidelines are in effect for all international cases administered by the ICDR and commenced after May 31, 2008.

The guidelines address several aspects of information exchanges in arbitration; Sections 3, 4, and 8 bear on ESI and e-discovery. Several considerations indicate that these provisions should make the volume of ESI that needs to be located and searched—and the correlated expense—less than that which would be required in a court litigation. In this regard:

• Under Sections 3 and 4, a party seeking disclosure of documents from another party must make an application to the tribunal; the application must contain a description of specific documents or classes of documents, and an explanation of the relevance and materiality to the outcome of the case. This is a narrower scope of discovery than the “relevant to the subject matter” standard followed by American courts. A request for documents maintained as ESI must be narrowly focused and structured to make searching as economical as possible.

• Also, under Section 4, a party producing ESI may make it available in the form most convenient and economical for the producer, unless the arbitral tribunal determines, on application and for good cause, that there is a compelling need for access to documents in a different format. This should decrease the costs incidental to providing metadata and ESI in native file format.

• Further, under Section 8, the arbitral tribunal shall require a party requesting ESI to justify the time and expense that its request may involve. The tribunal may condition granting such request on the payment of part or all of the costs by all of the parties seeking the information. Also, in the event any party fails to comply with an order for information exchange, the tribunal may draw adverse inferences and may take such failure into account in allocating costs.

Silence on Lit Holds.

One issue on which the ICDR Guidelines are silent, however, is the extent to which parties are to preserve potentially relevant ESI, that is, institute a “litigation hold.”

A “litigation hold” can lead to significant disruption, expense, and inconvenience to a business. Many courts hold that a duty of preservation arises at the time a party “reasonably anticipates litigation,” ⁸See generally Zubulake V, 229 F.R.D. at 432. which can often occur before the commencement of a litigation or arbitration.

To be cautious, practitioners who opt to incorporate the ICDR Rules and/or ICDR Guidelines in their agreements should consider including provisions in their arbitration clauses that outline when any duty to preserve arises, and limiting the scope of ESI that needs to be preserved (for example, only active files), and should recognize that the issue of preservation is to be addressed by the arbitrator.

The CIArb Protocol

CIArb is a non-profit UK registered charity that operates through an international network of branches for the “global promotion, facilitation and development of all forms of dispute resolution.” ⁹See Welcome to the Chartered Institute of Arbitrators, which can be found at http://www.ciarb.org/about/. In October 2008 it issued the Protocol for E-Disclosure in Arbitration (“CIArb Protocol”), which can be found at http://www.ciarb.org/information-and-resources/E-Discolusure%20in%20Arbitration.pdf.

The purpose of this protocol, which is directed solely at disclosure of ESI in arbitration, is to achieve early consideration of e-discovery issues and focus the parties on the scope and conduct of e-discovery.

Certain provisions of the CIArb Protocol should operate to lessen the burdens of e-discovery in international arbitrations. However, there are aspects of the protocol that could give rise to some of the burdens encountered in American litigation. As to the former:

• Paragraph 3 sets out eight topics that should be the subject of early consideration among the parties and the arbitrator, including steps for the preservation of ESI. In this latter regard, the Protocol states that “… it is unreasonable to expect a party to take every conceivable step to preserve every potentially relevant electronic document …”. Following this philosophy should lessen costs considerably.

• Paragraph 4 provides that any request for the disclosure of ESI from another party must be narrow and specific; it must set forth (i) a description of the document or narrow and specific categories of documents; (ii) a description of how the documents requested are relevant and material to the outcome of the case; (iii) that the requesting party does not have the documents in its possession or control; and, (iv) why the documents are assumed to be in the possession or control of the other party.

• Paragraphs 5 to 7 set out factors which also should lessen e-discovery burdens. Among other things, (i) the tribunal is to consider “reasonableness and proportionality,” fairness and equality of treatment of the parties, and ensure that each party has a reasonable opportunity to present its case in addressing requests to disclose; (ii) the primary source of disclosure of ESI should be reasonably accessible data—“active data, near-line data or offline data on disks”—and it will not normally be appropriate to order the restoration of backup tapes; erased, damaged or fragmented data; or archived data or data routinely deleted in the normal course of business operations.

• Under Paragraph 9, a party requesting disclosure of metadata in respect to ESI shall be required to demonstrate the relevance and materiality of the requested metadata outweigh the cost and burdens of producing it, unless the documents will otherwise be produced in a form that includes the requested metadata.

• Paragraphs 10 to 14 provide that the tribunal shall consider the appropriate allocation of costs in making an order or direction for e-disclosure. In the event that a party fails to provide disclosure of ESI ordered to be disclosed, or fails to comply with the protocol after its use has been agreed to by the parties, the tribunal shall be entitled to draw such inferences as it considers appropriate when determining the substance of the dispute or any award of costs or other relief.

However, the protocol does not espouse the “simpler and less expensive” principles or that they should be factors to be considered. The emphasis on early conferences could increase expense—under Paragraph 14, the failure to participate in such a conference can allow the tribunal to draw adverse inferences.

Additionally, under Paragraph 8, ESI is to be disclosed in the format in which it is “ordinarily maintained”; this could well be native file format which can lead to increased expense.

The CPR Protocol

CPR is a non-profit organization that “promotes excellence and innovation in public and private dispute resolution.” In 2009 it published the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration (“CPR Protocol”) which can be found at http://www.cpradr.org/Resources/ALLCPRArticles/tabid/265/ID/614/CPR-Protocol-on-Disclosure-of-Documents-and-Presentation-of-Witnesses-in-Commercial-Arbitration.aspx.

Like the ICDR Guidelines, the CPR Protocol is directed to all aspects of disclosures and exchanges of information in international arbitration.

The protocol sets forth the philosophy that CPR arbitrators are expected to conduct proceedings “… in accordance with the general principle that arbitration be expeditious and cost-effective as well as fundamentally fair… requests for information based on possible relevance are generally incompatible with these goals, 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. …”. ¹⁰CPR Protocol at Sec. 1(a)

Section 1 of the protocol addresses the disclosure of documents and provides some recommendations for dealing with requests for disclosure of ESI.

• Section 1 cautions tribunals to bear in mind the high cost and burdens associated with compliance with requests for the disclosure of electronic information, and recommends steps to reduce them, including limiting the production of back-up tapes or fragmented or deleted files only if the requesting party can demonstrate a reasonable likelihood that files were deliberately destroyed or altered in anticipation of litigation or arbitration and outside of that party’s document-retention policies operated in good faith.

• Section 1 also focuses on “proportionality”—arbitrators should carefully balance the likely value of documents requested against the cost and burdens, both financial and temporal, involved in producing the documents or information requested, and should deny requests when the costs and burdens are likely to be substantial in comparison to the amount in dispute or the need for the information. If extraordinary circumstances justify the production of the information, the tribunal should condition disclosure on the requesting party’s paying to the requested party the reasonable costs of disclosure.

• The protocol provides suggested “modes of disclosure” to deal with the scope of ESI which will be disclosed by each of the parties during the arbitration (as set forth in Schedule 2). These modes range from the most limited “Mode A” (disclosure of no documents other than those each side will present in support of its case) to the broad “Mode D” (disclosure of all documents or ESI that are relevant to any party’s claim or defense, subject to limitations of reasonableness, duplication and undue burden).

While the CPR Protocol has the potential to mitigate the effort and expense of collecting and producing ESI, this potential stems in large part from the “guiding philosophy that arbitration is to be “expeditious and cost effective as well as fundamentally fair … ”, the parties’ ability to agree on the lesser intrusive “modes” of disclosure set forth in Schedules 1 and 2 of the protocol, and, a disfavor for production of backup media and fragmented or deleted files.

Unlike the ICDR Guidelines and the CIArb Protocol, the CPR Protocol does not speak to the narrower “relevant to the outcome of the case” scope of disclosure; or, that requests for ESI must be narrow and focused and should explain why requested documents are relevant to the outcome of the matter.

No Guidance on Preservation.

Like the ICDR Guidelines, the CPR Protocol is silent on the issue of a duty to preserve and “litigation holds.” The same considerations discussed above should therefore be considered in the event the client or practitioner is considering adopting the CPR Protocol as part of an arbitration agreement.

The 2010 IBA Rules

The IBA is a leading organization of international practitioners, bar associations, and law societies. It consists of two major divisions and several sections, committees, and interest groups.

In 2010 it published the “IBA Rules on the Taking of Evidence in International Arbitration” (the “2010 IBA Rules”). The 2010 IBA Rules can be found at http://www.ibanet.org/publications/publications_IBA_guides_and_free_materials.aspx. Their purpose is to “provide an efficient, economical and fair process for the taking of evidence in international arbitrations…”.

The 2010 IBA Rules are limited to issues of evidence disclosure and exchange of evidence, and, unlike the general rules of other international arbitration organizations (such as the ICC, the ICDR, and the CPR), the IBA Rules do not address the various other issues that arise in administering an international arbitration. As a result, the IBA Rules are designed to be used with, and are frequently incorporated with, the rules of other arbitration organizations.

Article 3 deals with the exchange of documents and, to some degree, addresses the issues of e-discovery. Its provisions are similar to the ICDR Guidelines—correspondingly, they have the same potential to reduce the volume of ESI to be located and searched, and the correlated expense. In this regard,

• Like the ICDR Guidelines, Article 3, Paragraph 3 of the IBA Rules provides that requests are to be narrow and specific: (i) a description of each requested document sufficient to identify it; (ii) a description in sufficient detail of a narrow and specific requested category of documents and if these documents are maintained as ESI, the request may identify specific files, search terms, individuals, or other means of searching for them in an efficient or economical manner; (iii) a statement of how the documents requested are relevant to the case and material to its outcome; and, (iv) a statement that the documents requested are not in the possession, custody, or control of the requesting party and the reasons why the requesting party assumes the documents are in the possession, custody, or control of the other party.

• Similar to the ICDR Guidelines, Article 3, Paragraph 12(b) provides that documents that are maintained as ESI are to be submitted or produced in the form most convenient or economical to the party producing it that is reasonably usable by the recipients, unless the tribunal decides otherwise.

Two Omissions.

It should be noted that the 2010 IBA Rules do not address two significant issues. First, like the ICDR Guidelines, the 2010 IBA Rules do not discuss the duty to preserve and “litigation holds.” As discussed above, these issues should be considered in the event the practitioner is contemplating adopting the 2010 IBA Rules as part of her arbitration clause.

Second, the 2010 IBA Rules are silent on the issues of whether the requesting party has to justify the expense in collecting and producing requested ESI and allocating the costs of such efforts to the requesting party.

The ICC Study

The ICC is an international business organization that was founded in 1919 to promote trade and investment, open markets, and the free flow of capital. It has hundreds of thousands of member companies in over 130 countries. The ICC offers administrative services for international arbitration through the ICC International Court of Arbitration.

In 2011 an ICC task force published the Report of the ICC Commission on Arbitration Task Force on the Production of Electronic Documents in International Arbitration (“the ICC Report”) which can be viewed at http://www.iccdrl.com.

The aim of the ICC Report is to provide “… information of [practice] utility to parties and arbitrators who may be confronted with …” issues relating to the production of ESI in international arbitration.

The ICC Report begins with several observations that underpin its conclusions—much of the documentary evidence now produced in business disputes consists of ESI, the extent to which a party to court litigation may obtain documents in the possession or control of its opponent differs considerably between jurisdictions, and, while in the United States there is a general right to the disclosure or discovery of documentary evidence in the hands of an opponent, most civil law jurisdictions do not consider extensive production of documents by the opponent to be a necessary or even appropriate tool to ensure procedural fairness.

The task force concluded that it was not necessary to “… prescribe specific ‘rules’ or ‘guidelines’ applicable specifically to the production of electronic documents … ”. The task force felt it might be undesirable to do so since such rules or guidelines could compromise the flexibility of the arbitrators and parties to address issues in light of the particular circumstances of each case.

Rather, the ICC Report addresses the e-discovery issue in three respects.

First, in Section 3 the report reviews relevant provisions of the ICC Rules of Arbitration (“ICC Rules”) and the 2010 IBA Rules and concludes that under the ICC Rules, arbitral tribunals have the power to decide whether or not to order the production of ESI and to manage any such process in a fair and efficient way; and, the framework for the production of documents set out in the 2010 IBA Rules is a valuable resource to help the parties and arbitrators deal with the issue of production of ESI.

Second, in Section 4 the report provides a “primer” type discussion of the key characteristics and features of ESI which differentiate it from paper documents.

Third, in Section 5 the report discusses “techniques and approaches” that parties and the tribunal may adopt to address the issues that e-discovery presents in a fair and efficient manner. Arbitrators and practitioners will likely find these “techniques and approaches” to be the most relevant part of the report. While claimed not to be “rules” or “guidelines,” such “techniques and approaches” offer comprehensive guidance on the issues relating to ESI and e-discovery. Several considerations demonstrate that such “techniques and approaches,” if followed, should reduce the expense and inconvenience associated with e-discovery in court litigation

The discussion found in Section 5(g), dealing with preservation of ESI, may be the most significant of the “techniques and approaches,” and suggests, among other things:

• “Litigation holds” can cause serious inconvenience to a party and are often put in place to preserve and retrieve electronic documents forensically because the mere act of accessing or copying an electronic document will cause changes to be made in the metadata. International arbitration, however, operates under a very different regime and tribunals should avoid importing from other systems notions with regard to the preservation of evidence that may give rise to unnecessary inconvenience or expense.

• Inadvertent destruction or alteration of an electronic document as a result of routine operation of that party’s computer network does not ordinarily reflect any culpable conduct or warrant any sanctions.

• A party is under no automatic duty to preserve evidence and a tribunal should not consider imposing such a duty absent a specific reason to do so, i.e., credible allegations or fraud, forgery, or deliberate tampering with evidence.

Other of the “techniques and approaches” in Section 5 of the ICC Report deal also to help minimize e-discovery burdens. These include the following:

• There is no automatic right in international arbitration to obtain documents from an opponent. Where document requests are allowed, parties and arbitrators should ensure that such requests are narrowly drawn and that only documents relevant and material to the outcome of the case be requested in order to be produced. The parties and tribunal should consider not only the volume of documents that the responding party is being asked to produce but, more importantly, the process it may be expected to undertake to locate and identify those documents if they are not readily available.

• ESI should generally be produced in the most expeditious, cost effective, and efficient form appropriate in the circumstances. Tribunals should consider applying a presumption against requiring the production of metadata associated with a document that is to be produced unless the requesting party establishes a degree of relevance or materiality that outweighs the burden and costs involved.

• With respect to the issue of cost shifting, the ICC Report recognizes that normally the production of both paper and ESI, if ordered at all, can be contained and should not give rise to large volumes of documents produced and exchanged. In the rare and exceptional cases where the volume of electronic documents to be searched and produced is large and/or review of production from less accessible sources of electronic documents is warranted, the parties and arbitrators may wish to consider requests only on the condition that some or all the costs of searching for, retrieving, and/or producing those electronic documents have shifted from the responding party to the requesting party.

Conclusion

Each of the five guidelines discussed above set forth practices and recommendations that should make the e-discovery process less burdensome in international arbitration than it is in the courts. While they are all based on the philosophy that international arbitration should be expeditious and cost effective, they each take different approaches, and place differing emphasis on the various cost-reduction steps they advance. Such differences should be kept in mind in addressing the decision to employ international arbitration over litigation, and the particular arbitration rules to apply in each situation.