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TAB 5

BEST PRACTICES IN MANAGING

& PRESERVING ELECTRONIC

DATA

11th ANNUAL CURRENT ISSUES IN

COMMERCIAL LITIGATION SEMINAR

presented by:

The Hamilton Law Association

February 24, 2016

Presented by: Louis Frapporti, Gowling Lafleur Henderson LLP

& David Thompson, Scarfone Hawkins LLP

Table of Contents

1. Gowlings sample memorandum to clients

Re: Obligations to Preserve Electronically Stored Information

2. Gowlings sample letter to clients

Re: Preservation Obligations & Litigation Hold Implementation

3. Gowlings sample letter to opposing Counsel

Re: Preservation Request

4. Scarfone Hawkins sample letter to client


5. E-Discovery: The Canadian Experience

Article by Todd J. Burke, Glenn Smith and Kathryn Gauthier

Montréal Ottawa Toronto Hamilton Waterloo Region Calgary Vancouver Moscow

EDC_LAW\ 1441225\1

One Main Street West Hamilton, Ontario Canada L8P 4Z5

Telephone (905) 540-8208 Facsimile (905) 528-5833

www.gowlings.com

Louis A. Frapporti Direct (905) 540-3262

Direct Fax (905) 523-2505 [email protected]

Gowling Lafleur Henderson LLP Barristers & Solicitors Patent & Trade Mark Agents

Memorandum

To:

Date:

Re: Obligations to Preserve Electronically Stored Information

Following up on developments in the U.S., the Ontario Rules committee and other interested parties have formulated guidelines with respect to the preservation and production of electronic information in the litigation context. As a consequence of my former role as head of our firm’s commercial litigation national practice group and current head of our advocacy group, I’ve had the benefit of acting as counsel on a variety of significant claims in which the subject of electronic production and discovery became of considerable concern. In my experience, most Canadian counsel, even at larger firms, are oblivious to their and their client’s obligations in this regard as well as to their client’s potential exposure in this area. The information which follows is intended to provide you with a general overview of the applicable rules and process.

INTRODUCTION & PURPOSE

In order to effectively defend or prosecute an action, it is necessary that steps are taken to ensure the Company’s paper documentation and electronically stored information (“ESI”) is properly preserved. While identifying and producing paper documents is often an easy task to complete, the same cannot be said for ESI. What follows is an explanation of the necessity for the preservation of ESI and the steps that need to be undertaken.

DEFINITION OF DOCUMENTS

When trying to ascertain what information may need to eventually be produced during litigation in Ontario, a party needs to look at the Rules of Civil Procedure, particularly at Rule 1.03, which defines a document as including:

“..data and information in electronic form.”


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Furthermore, electronic is defined as including:

“…created, recorded, transmitted or stored in digital form or in other intangible form by electronic, magnetic, or optical means or by any other means that has capabilities for creation, recording, transmission or storage similar to those means.”

In essence, any and all ESI that may be relevant to a litigation will be subject to production.

WHAT IS PRESERVATION?

Preservation is the process by which all paper documents and ESI that are relevant to the litigation are protected from alteration, deletion or destruction in any way. Through this process, we can be assured that such records will be available during the litigation lifecycle. Furthermore, preserving the Company’s ESI will ensure that it is ready and able to meet any discovery requests or orders, and will protect it from allegations of spoliation, which if proven, can be fatal in a claim.

PRESERVATION OBLIGATIONS

All parties in an action have an obligation to ensure that their documentation and ESI is preserved in its original format until such time as their actual relevance to the litigation can be determined. The Company’s obligation commences not only when a claim is issued, but also when a party learns that litigation is pending or reasonably anticipated. It also extends to a broader range of records than does the obligation to disclose and ultimately produce, but it is no less important.

PROPORTIONALITY & PRESERVATION

Coinciding with a party’s obligation to preserve its relevant ESI is the principle of proportionality. In simple terms, proportionality speaks to the determination of the nature and scope of a party’s obligation to preserve relevant documents, and to review certain types of records for relevance. In some cases, particularly those involving a small dollar value or uncomplicated facts, it may not be appropriate to require that costly steps be taken to preserve and review all potentially relevant records, where the likelihood of important documents being found is low or unknown.

One of the critical tasks undertaken by counsel and the client is the consideration of the need to determine whether extensive preservation, review and disclosure of ESI is necessary.


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IDENTIFYING RELEVANT ELECTRONICALLY STORED INFORMATION

Identifying relevant ESI is one of the more important tasks that the Company will have to undertake. Failure to identify a source of potentially relevant information can severely impact the Company’s ability to defend or prosecute the claim. When considering the identification of relevant ESI, the following types of data, as defined by the Guidelines for the Discovery of Electronic Documents (“Guidelines”), ought to be considered:

Active data is data that is currently utilized by the Company in its day-to-day operations. It is normally straightforward to identify and access using the Company’s current systems.

Backup data is data that is an exact copy of system data which serves as a source for recovery in the event of system problem or disaster. This data is normally stored separately from active data.

Archival data is data organized and maintained for long-term storage and record keeping purposes.

Generally, and as a matter of prudent policy, a Company should take the following steps to catalogue its computer systems:

1. Mapping its network to identify how and where specific types of data may be stored;

2. Identifying its backup and archival procedures, including where such data is maintained for future retrieval;

3. Identifying all the individuals who may have relevant ESI stored on their workstation that may not have found its way to the network;

4. Identifying all e-mail systems, including where the e-mail data is stored, including where backups/archives are maintained;

5. Identifying all portable devices, such as Blackberry’s, PDAs or cell phones, that may contain relevant ESI; and

6. Mapping its telephone network, including identifying how voicemail is stored and archived.

Once the Company’s ESI is identified and catalogued completely, it becomes a much easier task to properly preserve, review and disclose information which may be relevant in a law suit.


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SPECIALIZED SOFTWARE OR DATA FILES

Certain types of files, such as spreadsheets and databases, may require access to the software in which they were created in order to properly review this information. In such instances, when identifying relevant ESI to preserve, it is necessary to consider whether such special software is necessary, and if so, should likewise fall within the Company’s preservation efforts.

LITIGATION HOLD & LITIGATION REPONSE TEAM

Where litigation is contemplated or has been commenced, a Litigation Hold may often be appropriate, particularly if requested in a preservation order.

A Litigation Hold is a directive to the employees of the Company requiring them to cease and suspend any document or data destruction policies. The Litigation Hold is meant to override the normal storage management procedures and ensures that critical ESI is maintained intact from that point forward.

It may be necessary to educate your employees about the manner in which a litigation hold is undertaken. While normal business storage procedures may be halted, individual habits for deleting or altering ESI can also pose a hazard to proper preservation.

Corporations should also give consideration to a Litigation Response Team and Plan. A Litigation Response Plan is a document that provides procedures for properly identifying and preserving necessary documents and ESI once litigation is reasonably anticipated. The plan also assists in identifying who should form part of the litigation response team. Each department has a different responsibility within the Company; therefore, it often will not be necessary to have members from each department on the team depending on the issues in the litigation.

We are more than happy to assist you in drafting a proper Litigation Hold document for employees and/or a litigation response plan should the need arise, and can attend at your offices to ensure each employee is properly educated about the necessity to respond promptly and properly to a preservation request.

CONDUCTING PRESERVATION

Once all the relevant ESI has been identified and catalogued, and a litigation hold has been properly implemented, it will be necessary to create a bit-stream or clone image of all ESI. In simple terms, a bit-stream image is an exact copy of the storage media so that no data is altered, deleted or destroyed. In essence, proper preservation takes a snapshot of the ESI as of the date preservation takes place and ensures any historical data remains intact.


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Whenever the preservation is conducted, it is imperative that the following special data, as defined by the Guidelines, be considered and preserved:

Meta data refers to electronic information that is recorded by the system about a particular record. For instance, an MicroSoft Word file will capture additional unseen information such as author, creation date, revision date, revision number and last print date. Such information can become the focal point during the course of a litigation lifecycle and it is imperative that all preservation efforts properly preserve each records meta data without alteration.

Residual data refers to any information that remains stored on a computer system after a record has been deleted. When a file is deleted from the system, it is not completed wipe from the storage media, rather, the system merely flags the area a reusable space, which can be overwritten at a later date. Therefore, it is quite possible to obtain complete or fragmented records that a user may have thought were deleted. In order to retrieve such data, it is often necessary to utilize the services of a computer forensic expert to properly harvest and reconstruct this ESI.

Replicant data is created when a software program, such as a word processor, makes periodic back-ups of an open file to facilitate retrieval of the document where there is a computer malfunction. Each time the program creates a new back-up file, the previous back-up file is deleted, or tagged for reuse.

Once preservation is complete, considerations for review and disclosure must be undertaken.

DISCLOSURE PROCESS

The following outlines the process from collection to production of preserved ESI:

Collection is the identification and preservation of relevant ESI, which is then delivered to a either a forensic computer expert or law firm for processing.

Processing is the indexing and organization of the ESI so that it can be reviewed in its native form.

Review is the process where the ESI is catalogued based on relevance and privilege. Such ESI may be filtered through keyword search terms, date ranges or other methods, in order the cull the review set to a more manageable collection.


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Disclosure is the process where the Company’s Affidavit of Documents is prepared and delivered to opposing counsel. It is a requirements under the Rules of Civil Procedure that all relevant and producible records be fully described, while relevant and privileged records are to be described for identification purposes only.

Production is the process of delivering copies of all relevant and producible records to opposing parties, be it in native or some other format, such a PDF or TIFF images.

Depending on the nature of the case, it may be necessary to provide all meta data, residual data or replicant data. As indicated previously, the entire process must take into consideration proportionality. If the amount at issue in the litigation cannot bear the cost of preservation and production, then it will be unlikely a party will be ordered to produce such information unless it is vital to the proper adjudication of the case. Such a determination will be made through mutual consultation or by court order.

CONCLUSION

The purpose of the foregoing memo was to educate you on your company’s obligations before and after litigation has been commenced with regard to the preservation of electronic data. Our litigation services group is available to discuss the contents of this memo with you should you wish.

H22005222\EDC_LAW\ 1441212\1

Louis A. Frapporti Direct 905-540-3262

Direct Fax 905-523-2505 [email protected]

[date]

[addressee]

Dear Sirs/Mesdames:



In order to effectively defend this action, it is necessary that steps are taken to ensure the Company’s paper documentation and electronically stored information (“ESI”) is properly preserved. While identifying and producing paper documents is often an easy task to complete, the same cannot be said for ESI. What follows is an explanation of the necessity for the preservation of ESI and the steps that need to be undertaken.

DISCLOSURE PROCESS

The following outlines the process from collection to production of preserved ESI:

Collection is the identification and preservation of relevant ESI, which is then delivered to a either a forensic computer expert or law firm for processing.

Processing is the indexing and organization of the ESI so that it can be reviewed in its native form.

Review is the process where the ESI is catalogued based on relevance and privilege. Such ESI may be filtered through keyword search terms, date ranges or other methods, in order the cull the review set to a more manageable collection.

Disclosure is the process where the Company’s Affidavit of Documents is prepared and delivered to opposing counsel. It is a requirements under the Rules of Civil Procedure that all relevant and producible records be fully described, while relevant and privileged records are to be described for identification purposes only.

Page 2 H22005222\EDC_LAW\ 1441212\1

Production is the process of delivering copies of all relevant and producible records to opposing parties, be it in native or some other format, such a PDF or TIFF images.

Depending on the nature of the case, it may be necessary to provide all meta data, residual data or replicant data. As indicated previously, the entire process must take into consideration proportionality. If the litigation could not bear the cost of preservation and production, then it will be unlikely a party will be ordered to produce such information unless it is vital to proper adjudication of the case. Such a determination will be made through mutual consultation.


When trying to ascertain what information may need to eventually be produced during litigation in Ontario, a party needs to look at the Rules of Civil Procedure, particularly at Rule 1.03, which defines a document as including:

“..data and information in electronic form.”

Furthermore, electronic is defined as including:


In essence, any and all ESI that may be relevant to a litigation will be subject to production. Due to volatile nature of ESI, it is understandable why there is a necessity to protect the data available on the Company’s storage media.


Preservation is the process taken to ensure all paper documents and ESI that are relevant to the litigation is not altered, deleted, destroyed or changed in any way. Through this process, we can be assured that such records will be available during the litigation lifecycle. Furthermore, preserving the Company’s ESI will ensure that it is ready and able to meet any discovery requests or orders, and protect it from allegations of spoliation.


All parties to a litigation have an obligation to ensure their documentation and ESI is not altered, deleted, destroyed or changed and that these records will be available to all parties throughout the lifecycle of the litigation. In other words, the ESI must be preserved in its original format until such time as their actual relevance to the litigation can be determined.

Page 3 H22005222\EDC_LAW\ 1441212\1

The Company’s obligation commences not only when a claim is issued, but also when a party learns that litigation is pending or reasonably anticipated. It also extends to a broader range of records than does the obligation to disclose and ultimately produce, but it is no less important.


Coinciding with a party’s obligation to preserve its relevant ESI is the principle of proportionality. In simple terms, proportionality is relevant in determining the nature and scope of a party’s obligation to preserve relevant documents, and to review certain types of records for relevance. In some cases, particularly those involving small dollar value or uncomplicated facts, it may not be appropriate to require that costly steps be taken to preserve and review all potentially relevant records, where the likelihood of important documents being found is low or unknown.

Through our communications on this issue, it will be important to remember the need to balance the Company’s legal obligations with the principle of proportionality, and whether the need for extensive preservation, review and disclosure of ESI is necessary.

IDENTIFYING RELEVANT ELECTRONICALLY STORED INFORMATION

Identifying relevant ESI is one of the more important tasks that the Company will have to undertake. Failure to identify a source of potentially relevant information can severely impact the Company’s ability to defend the litigation. When considering the identification of relevant ESI, the following types of data, as defined by the Guidelines for the Discovery of Electronic Documents (“Guidelines”), ought to be considered:

Active data is data that is currently utilized by the Company in its day-to-day operations. It is normally straightforward to identify and access using the Company’s current systems.

Backup data is data that is an exact copy of system data which serves as a source for recovery in the event of system problem or disaster. This data is normally stored separately from active data.

Archival data is data organized and maintained for long-term storage and record keeping purposes.

The Company should take the following steps to catalogue its computer systems:

1. Mapping its network to identify how and where specific types of data may be stored;

Page 4 H22005222\EDC_LAW\ 1441212\1

2. Identifying its backup and archival procedures, including where such data is maintained for future retrieval;

3. Identifying all the individuals who may have relevant ESI stored on their workstation that may not have found its way to the network;

4. Identifying all e-mail systems, including where the e-mail data is stored, including where backups/archives are maintained;

5. Identifying all portable devices, such as Blackberry’s, PDAs or cell phones, that may contain relevant ESI; and

6. Mapping its telephone network, including identifying how voicemail is stored and archived.

Once the Company’s ESI is identified and catalogued completely, it becomes a much easier task to properly preserve, review and disclose this information.

SPECIALIZED SOFTWARE OR DATA FILES

Certain types of files, such as spreadsheets and databases, may require access to the software in which they were created in order to properly review this information. In such instances, when identifying relevant ESI to preserve, it is necessary to consider whether such special software is necessary, and if so, should likewise fall within the Company’s preservation efforts.

CONDUCTING PRESERVATION

Once all the relevant ESI has been identified and catalogued, and a litigation hold has been properly implemented, it may be necessary to hire a forensic computer expert to attend on-site at the Company to create a bit-stream or clone image of all ESI. In simple terms, a bit-stream image is an exact copy of the storage media so that no data is altered, deleted or destroyed. In essence, proper preservation takes a snapshot of the ESI as of the date preservation takes place and ensures any historical data remains intact.

Whenever the preservation is conducted, it is imperative that the following special data, as defined by the Guidelines, be considered and preserved:

Meta data refers to electronic information that is recorded by the system about a particular record. For instance, an MS Word file will capture additional unseen information such as author, creation date, revision date, revision number and last print date. Such information can become the focal point during the course of a litigation lifecycle and it is imperative that all

Page 5 H22005222\EDC_LAW\ 1441212\1

preservation efforts properly preserve each records meta data without alteration.

Residual data refers to any information that remains stored on a computer system after a record has been deleted. When a file is deleted from the system, it is not completed wipe from the storage media, rather, the system merely flags the area a reusable space, which can be overwritten at a later date. Therefore, it is quite possible to obtain complete or fragmented records that a user may have thought were deleted. In order to retrieve such data, it is often necessary to utilize the services of a computer forensic expert to properly harvest and reconstruct this ESI.

Replicant data is created when a software program, such as a word processor, makes periodic back-ups of an open file to facilitate retrieval of the document where there is a computer malfunction. Each time the program creates a new back-up file, the previous back-up file is deleted, or tagged for reuse.

Once preservation is complete, we can discuss considerations relating to review and disclosure.

FUTURE STEPS

Our recommended next step is to organize a meeting amongst the necessary individuals within the Company who can assist in identifying all custodians who may possess relevant ESI, and who can assist in implementing a litigation hold.

Please contact me at your earliest convenience to discuss the within issues in greater detail.

Sincerely, GOWLING LAFLEUR HENDERSON LLP

Louis A. Frapporti

LAF:jjb

H22005222\EDC_LAW\ 1441240\1

Louis A. Frapporti Direct 905-540-3262

Direct Fax 905-523-2505 [email protected]

[date]

[addressee]

Dear Sirs/Mesdames:

RE: [Matter Description] PRESERVATION REQUEST

We are the Canadian counsel for the Plaintiff in connection with the above-noted matter.

In accordance with our client’s discovery rights pursuant to Rule 30.02 of the Rules of Civil Procedure, we will in due course require production of [you client’s] electronic documents, as defined by Rule 1.03. For your reference, we encourage you to read the Guidelines for Discovery of Electronic Documents in Ontario (the “Guidelines”), which are available on the Ontario Bar Association’s website.

PRESERVATION

In order to ensure that your client’s electronic data is sufficiently protected, we require that you take the necessary steps to prevent anyone with access to your data, systems and archives from seeking to modify, destroy or hide electronic evidence on network or local hard drives (such as deleting or overwriting files, using data shredding and overwriting applications, defragmentation, re-imaging or replacing drives, encryption, compression, steganography or the like). You can protect existing data on local hard drives by creating and authenticating a forensically-qualified image of all sectors of the drive. Such a forensically-qualified duplicate may also be called a bitstream image or clone of the drive.

Each such forensically-qualified image should properly preserve:

• All active data, as defined by the Guidelines, that is within the relevant timeframe, which is maintained on all storage devices;

• All archival data, as defined by the Guidelines, that is within the relevant timeframe, which is available and maintained for long-term and record keeping purposes; and

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• All back up data, as defined by the Guidelines, that is within the relevant timeframe, which is available and maintained for recovery in the event of a system problem or disaster.

• The creation of a forensically-qualified image of the above-noted electronic data should have been conducted in such a manner as to preserve all meta data, residual data and replicant data, as said data are defined by the Guidelines.

Once obtained, each such forensically-qualified image should be labelled to identify the date of acquisition, the person or entity creating the image and the system from which it was obtained. Each such image should be preserved without alteration.

Be advised that a conventional back up of a hard drive is not a forensically-qualified image because it only captures live data and fails to preserve forensically-significant data that may exist in such areas as unallocated space, slack spaces and the swap file. Also, when creating a forensically-qualified image, it is important that you do not reuse any media.

RECORD TYPES

Our preservation request applies to all records maintained in either paper or electronic form by [your client], as follows:

•

We require that all available versions of these records, whether in paper or electronic form, be included during the preservation process.

STORAGE DEVICES OF KEY INDIVIDUALS

With respect to the hard drives and storage devices of each person likely to have information pertaining to the instant action on their computer hard drive(s), demand is made that you immediately obtain, authenticate and preserve forensically-qualified images of the hard drives in any computer system (including work, portable and home computers, any storage device and any wireless e-mail device, such as a Blackberry) used by the person during the period from [date] to present, as well as recording and preserving the system time and date of each such computer. We further request that you obtain, authenticate and preserve forensically-qualified images of any telephone systems, including storage media utilized for voice messages, during the same time period and for the same individuals.

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Be advised that booting a drive, examining its contents or running any application will irretrievably alter the evidence it contains and may constitute unlawful spoliation of evidence.

E-MAIL COMMUNICATIONS

With regard to the e-mail accounts of any each person likely to have information pertaining to the instant action on their computer hard drive(s), please note that our preservation request applies to each of these accounts, and any other e-mails accounts, that are being or have been utilized during the relevant time period. Such request applies to any shared e-mail accounts, web-based e-mails accounts, and Blackberry or other wireless e-mail accounts.

CONFIRMATION

Please confirm to us that:

• you have read and understood the directive herein;

• you have forwarded this directive to your counsel;

• a litigation hold has been implemented by you; and

• you have taken the necessary steps to preserve the records described in this directive.

Failure to comply with this notice can result in serious consequences being imposed by the Court for spoliation of evidence or potential evidence.

MEET AND CONFER

Lastly, we consider that a meeting should be held to discuss the process for processing, review and delivery of relevant information within this action. Please have your counsel contact me at their earliest convenience so that such a meeting can be conducted.

Sincerely, GOWLING LAFLEUR HENDERSON LLP

Louis A. Frapporti

LAF:jjb

One James St. S., 14th Flr. Lawyers and Trade-mark Agents P.O. Box 926, Depot 1 +Member Canadian Class Action Network Hamilton, ON L8N 3P9 TEL (905) 523-1333 FAX (905) 523-5878

www.shlaw.ca REPLY TO: DAVID THOMPSON www.classactionlaw.ca DIRECT DIAL: 905-526-4382 E-MAIL: [email protected]

[date]

[name and address of client]

Dear [client name]:

RE: PRESERVATION OBLIGATIONS & LITIGATION HOLD IMPLEMENTATION


To prosecute/defend this action, steps must be taken to ensure that your documents and electronically-stored information (“ESI”) are preserved. Identifying and producing documents is usually straightforward, however, management of ESI can be more difficult.

DISCLOSURE PROCESS

These steps are necessary as part of this process:

Collection is the identification and preservation of relevant ESI, which is then delivered to us or a forensic computer expert, for processing;

Processing is the indexing and organization of the ESI so that it can be reviewed in its native form;

Review is the process where the ESI is organized based on relevance and privilege. It may be filtered through keyword search terms, date ranges or other criteria, in order to create a more manageable collection of information;

http://www.shlaw.ca/

http://www.classactionlaw.ca/

mailto:[email protected]

SCARFONE HAWKINS LLP

PAGE 2

Disclosure is the process where your Affidavit of Documents is prepared and served on the other side. The Rules of Court require that all relevant and producible records be fully described, while relevant and privileged records are described generically for identification purposes only;

Production involves delivering copies of all relevant and producible records to the other side.

The process is governed by a test of proportionality. The costs of preservation and production need to be weighed in the context of what is at stake in the lawsuit. Such a determination is typically made through mutual consultation.


The Rules of Court define a Document as including:

“…data and information in electronic form.”

Electronic is defined as including:


Any and all ESI that is relevant to this issues in this litigation will be subject to production.


Preservation is the process taken to ensure all paper documents and ESI that are relevant to the litigation is not altered, deleted, destroyed or changed in any way. Furthermore, preserving the Company’s ESI will ensure that it is ready and able to meet any discovery requests or orders, and protect it from allegations of spoliation.


All parties to the lawsuit must ensure that their documentation and ESI is not altered, deleted, destroyed or changed and that the records will be available throughout the life of the litigation. The ESI must be preserved in its original form until such time as its relevance to the litigation can be determined.

Obligations of preservation and disclosure of ESI are determined having regard to the complexity of the lawsuit and the amount at stake. Large complex cases will require extensive preservation, review and disclosure of ESI. Smaller, less complicated cases will


PAGE 3

still usually require preservation, review and disclosure of ESI, but on a lower and less-intensive scale.


Proportionality is relevant in determining the nature and scope of your obligation to preserve relevant documents, and to review records for relevance. In some cases, particularly those involving small dollar value or straightforward facts, it may not be appropriate to require the costly steps be taken to preserve and review all potentially relevant records, where the likelihood of important documents being found is low or unknown.

Through our communications on this issue, it will be important to remember the need to balance the Company’s legal obligations with the principle of proportionality, and whether the need for extensive preservation, review and disclosure of ESI is necessary.

IDENTIFYING RELEVANT ESI

When considering the Identification of relevant ESI, the following types of data need to be considered:

Active data, being data utilized by you in your day-to-day operations. This is typically easy to identify and access;

Backup data, being an exact copy of system data which serves as a source for recovery in the event of a system breakdown. This is normally stored separately from active data;

Archival data, being data organized and maintained for long term storage and record keeping purposes.

You should take the following steps to catalogue your computer systems:

1. mapping its network to identify how and where specific types of data may be stored;

2. identifying your backup and archival procedures, including where data is maintained for future retrieval;

3. identifying all individuals who may have relevant ESI stored on their workstations that may not be on a main network;

4. identifying all e-mail systems, including where the e-mail data is stored, as well as where backups/archives are maintained;

5. identifying all portable devices, such as iPhones, Blackberrys, etc., that may contain relevant ESI; and


PAGE 4

6. mapping your telephone network, including identifying how voicemail messages are stored and archived.

PRESERVATION OF ESI

Once all relevant ESI has been identified, it may be necessary to retain a forensic computer expert to create an image of all ESI. This is typically called a “bit-stream image” which is an exact copy of the storage media so that no data is altered, deleted or destroyed. This process takes a snapshot of the ESI as of the date preservation and ensures that any historical data remains intact.

The forensic computer expert will consider and preserve the following:

Meta data being electronic information recorded by the system about a particular record. In an MS Word file this can include unseen information such as author, creation date, revision date, etc.;

Residual data being information that remains stored on a computer system after a record has been deleted;

Replicant data is created when a software program makes periodic back-ups of a file to facilitate retrieval in the event of a system crash. Each time the program creates a new back-up file, the earlier back-up file is typically deleted.

FUTURE STEPS

We recommend a meeting to further discuss and review your ESI preservation and disclosure obligations. That meeting should include any individuals who can assist in identifying sources of ESI and who can assist in ensuring that all ESI is preserved for the time being.

We hope this assists and look forward to meeting with you and to answering any questions you may have.

Yours very truly, SCARFONE HAWKINS LLP “DAVID THOMPSON”

DAVID THOMPSON (P.C.) DT/aw

E-DISCOVERY: THE CANADIAN EXPERIENCE

Todd J. Burke* Glenn Smith**

Kathryn Gauthier***

*Todd Burke is a Partner and the Commercial Litigation National Practice Group Leader at Gowling Lafleur Henderson. **Glenn Smith is a Senior Partner with Lenczner Slaght Royce Smith Griffin LLP ***Kathryn Gauthier is an associate with Gowling Lafleur Henderson

2

Electronic Discovery in Canada

1. Introduction

The advent of electronic documentation has caused the legal profession to re-

examine issues related to the discovery process. The identification, location,

preservation and production of electronic documentation should be a standard part of

any case. Unfortunately, Canadian jurisprudence in this area is not as developed as it

is in the United States. However, recent case law and guidelines developed by the

profession do provide some guidance for lawyers and demonstrate that the failure by

a lawyer to identify, locate, preserve and/or produce relevant electronic documents is

likely a breach of the standard expected of a lawyer practising in Canada in 2006.

This paper addresses some of the emerging issues in the context of Canadian

decisions in this area.

2. Defining and Locating Electronic Documents

Courts have consistently emphasized that documentary discovery is a liberal

endeavour. The Rules of Civil Procedure allow a wide latitude as to what documents

are discoverable. Rule 30.02(1) of the Ontario Rules of Civil Procedure1 provides

that, “every document related to a matter in issue in an action that is, or has been, in

the possession, power or control of a party shall be disclosed.”

1 Rules of Civil Procedure R.S.O 1990, Reg. 194

3

a) Definition of Document

It is no longer a matter of debate as to whether or not electronic data are

discoverable for evidentiary purposes. In January, 2005 Rule 30.01(1) of Ontario’s

Rules of Civil Procedure was amended to expand the definition of document. Rule

30.01(1) now provides:

(a) “document” includes a sound recording, videotape, film photograph, chart graph, map, plan, survey, book of account and data and information in electronic form; and (b) a document shall be deemed to be in a party’s power if that party is entitled to obtain the original document or a copy of it and the party seeking it is not so entitled.2

This broad definition is consistent with the definitions in the Ontario Evidence Act3

and the Canada Evidence Act.4 Both Acts define an electronic document or record as

“data that is recorded or stored on any medium in or by a computer system or other

similar device, that can be read or perceived by a person or a computer system or other

similar device.” Under these definitions, a broad range of electronic data and

information is producible posing new challenges for lawyers unaccustomed to such

production in the discovery process.

b) Potential Sources of Documents

It is generally accepted that the definition of document includes electronic

documents most of us are familiar with; such as e-mail, web pages and word

processing files.5 However, with advances in technology, potential sources of

2 Ibid. Rule 30.01(1) 3 Evidence Act, R.S.O. 1990, c. E.23 section .34.1(1) 4 Canada Evidence Act R.S. 1985, c. C-5 section 31.8 5 Bradley J. Freedman “Discovery of Electronic Records Under Canadian Law – A Practical Guide” (2004) 18 I. P.J 59 at p. 64

4

electronic documents are ever expanding. For example, personal digital assistants,

Blackberries, electronic calendars, pagers and cell phones have created new

repositories of document storage and expanded the scope of review when identifying

producible information. This requires counsel to address the possible location of

relevant electronic data at the outset of the case. Focusing on these issues at an early

stage will not only define what your client may have to produce, but will also focus

attention on the information you should seek from the other side.

(i) Scope of Production

In Northwest Mettech Corp. v. Metcon Service Ltd.6, the plaintiff commenced

an action alleging that the defendant, a former employee, had appropriated its

confidential information. The plaintiff requested production of the hard drive of the

defendant’s home computer. The defendant took the position that he had disclosed all

relevant documents, including all relevant documents in electronic form which were

on the computer hard drive. In denying this request, the court held the plaintiff was

entitled only to the production of the relevant electronic data residing on the hard

drive but not the hard drive itself. In reaching this conclusion, Master Joyce stated:

As I understand it, a computer hard drive is simply a medium on which data is stored on a semi-permanent basis in the form of electronic impulses. It may be thought of as an electronic filing cabinet which contains electronic files, each of which in turn contains electronic documents. The defendants are obligated to list all relevant documents of whatever form (including electronic documents resident on the computer hard drive). In my view they are not required to list the entire contents of nor are they required to produce their entire electronic filing cabinet any more than a party is required to list or to produce the complete contents of its steel filing cabinet which houses documents which are in paper format. In my view the plaintiff has not shown any proper basis to require production of

6 Northwest Mettech Corp. v. Metcon Services Ltd., [1996] B.C.J. No. 1915 (B.C.S.C.) (QL)

5

the actual hard drive. The plaintiff is entitled to know with certainty, however, that all relevant electronic data which is resident on the hard drive has been disclosed. Accordingly, I order that the defendant provide an affidavit verifying all of the files still resident on the computer hard drive which relate to the matter in issue.7

In Northwest Mettech the court sought to balance the concept of relevance against

a broad construction of how a “document” may be defined. It also upholds the

traditional notion that only relevant information need be produced even in the

electronic context.

Where there is evidence that a party has not been entirely forthright in its

production of information the result may be different. In Nicolardi v. Daley, 8 a

solicitor’s negligence action, the plaintiff sought access to the computer hardware of

his former solicitor to determine whether relevant electronic documents were omitted

from production. When the motion was first heard the defendant advised that all

relevant documents had been deleted and were therefore irretrievable. The plaintiff

did not produce any evidence demonstrating that the deleted documents could be

retrieved by a computer expert. As a result, the court dismissed the motion. At a

second hearing, the plaintiff did present evidence that a technician might be able to

recover the deleted documents. However, before the court could render a decision,

the defendant informed the court that the computer in question had been discarded

and was no longer available. As a result, the court was precluded from deciding

whether the defendant’s hard drive should be inspected in an effort to recover the

deleted documents. Nevertheless, the court stated:

7 Ibid. at para. 10. 8 Nicolardi v. Daley, [2002] O.J. No. 595 (Ont. S.C.J) (QL)

6

Where a party on proper evidence convinces the court that documents that have not been produced are likely stored on a computer’s hard drive or other electronic storage medium, but the party in possession of the computer asserts that it has printed and produced all that it has, then the only solution that would allow inspection of a document, would be inspection of the storage medium itself, in this case the firm’s hard drive, with proper safeguards.9

Nicolardi suggests that a court may be willing to grant access, in some

circumstances, to a hard drive to allow deleted information to be recovered.

However, this will require evidence that demonstrates the real likelihood that

documents not disclosed exist or have existed. It is not sufficient for a party to

simply state it believes more documents exist. The courts will be disinclined to

allow one party to engage in a fishing expedition and will likely require specific

evidence of non-disclosure.

Parties and their counsel are more likely to establish entitlement to an

opposing party’s electronic data when they identify all relevant data sources and

submit focused discovery requests. This is made clear by the court’s decision in

Dulong v. Consumer Packaging Inc.10 In that case, the plaintiff requested that

the defendant “see if there are e-mails in existence which relate to the matters in

issue in this litigation.”11 The defendant objected to the scope of the plaintiff’s

request. On a motion to compel answers, the court held the question was

properly refused as it was “too much like fishing and would, having regard to

9 Ibid. at para. 29. 10 Dulong v. Consumers Packaging Inc., [2000] O.J. No. 161 (Ont. S.C.J) (QL) 11 Ibid. at para. 18

7

the extent of the defendant’s business, be such a massive undertaking as to be

oppressive.”12

The earlier case of Proctor & Gamble v. Kimberly-Clark of Canada

Ltd.13, also demonstrates the importance of defining with precision the

information that parties and their counsel wish to disclose. In this patent

infringement case, the plaintiff requested disclosure of copies of computer tapes

listed in the defendant’s Affidavit of Documents. The defendant argued that the

plaintiff was entitled to the information contained within the tapes and that a

copy of the hard data, instead of the tapes, would be sufficient to fulfill its

discovery obligations. The court disagreed and held that the plaintiff was

entitled to a copy of the tapes as well as the information that was necessary to

read the tapes because the tapes, as opposed to the printouts, were listed in the

Affidavits.14

(ii) Deleted Information

The Nicolardi decision raised the issue of the discoverability of deleted

computer files. Parties and their counsel must realize that the simple deletion of

data does not erase it from the computer hard drive. The deleted data remains

on the hard drive until it is overwritten at some future date thereby leaving the

possibility of accessing that data for evidentiary purposes.15 Such was the case

12 Ibid. at para 21. 13 Proctor & Gamble Company v. Kimberly-Clark of Canada Ltd., [1989] F.C.J. No. 341 (F.C.T.D.) (QL) 14 Ibid. at p. 3 15 Dan Pinnington “Why Electronic Documents are Different” LawPro Magazine 4:2 (September 2005) 3 at p.4

8

in Prism Hospital Software Inc. v. Hospital Medical Records Institute16 where

the central issue was whether the defendant had copied software written for

them by the plaintiff. During the litigation, the defendant produced floppy disks

and magnetic tape backups. The plaintiff sought to lead evidence from a

computer technician who was able to restore the tape backups and locate a series

of files which the defendant had deleted. The court held that the files and

programs stored on the backup tapes were ordinary documents that had been

deleted. The court dismissed the defendant’s submission that the introduction of

the evidence surrounding the uncovering of the deleted files amounted to expert

evidence. The court explained that the skill and knowledge necessary to restore

deleted documents is no longer rare and once restored, the documents could be

read in the normal manner.17 The Prism Hospital Software decision reflects the

court’s acceptance of restored data as being a reliable and sometimes a required

source of relevant evidence. The requirement to restore deleted files, however,

may very much rely upon the nature of that evidence. The court will not impose

a universal general requirement to restore deleted data unless satisfied of its

relevance.

(iii) Hidden data

Likewise, hidden data associated or related to electronic documents will also

be discoverable in some cases. In Reichmann v. Toronto Life Publishing Company,18

16 Prism Hospital Software Inc. v. Hospital Medical Records Institute, [1991] B.C.J. No. 3732 (B.C.S.C.) (QL) 17 Ibid. at p. 3 18 Reichmann v. Toronto Life Publishing, [1988] O.J. No. 1727 (Ont. H.C.J.) (QL)

9

a defamation action, the defendant author proposed publishing a book about the

plaintiffs. The defendant produced a hard copy of the manuscript, which had been

heavily edited to delete identifying information about confidential sources. The

plaintiffs agreed that confidential sources need not be revealed but sought information

about the research methodology, what had been said during the interviews, and other

relevant evidence in support of their claim that much of the author’s information was

false. On an interlocutory motion, the plaintiffs were successful in convincing the

court that, in addition to providing the hard copy manuscript, the defendant was also

required to disclose the electronic disks on which the author’s manuscript was stored.

The court held that the computer disk fell within the wider definition of a document

and ordered disclosure. The court also commented that “it appeared to be the position

of the plaintiffs that information would be made available to them by the possession

of the disc which is not obtainable from the product of the disc with which they have

been provided.”19 The plaintiffs were able to identify information only accessible

from earlier versions of the manuscript; such as extensive research sources and rough

notes that were subsequently removed from the final version. Reichmann illustrates

that underlying data (often referred to as meta-data) which is not accessible or

apparent from a hard copy may properly be the subject of a motion for further

production.

Clearly, litigating parties and their counsel must develop some understanding

of the different types of electronic documents and their characteristics in order to

locate documents and assess relevance. This is emphasized in Ontario’s Guidelines 19 Ibid at p. 2

10

for the Discovery of Electronic Documents,20 which were recently introduced to

familiarize the profession with e-discovery. The Guidelines state that the process of

locating and assembling electronic documents for litigation purposes is often more

difficult than traditional paper-based discovery. The Guidelines recommend the

involvement of IT staff or consultants to assist counsel and the parties to identify the

sources of electronic documents.21 For example, the method of copying electronic

data may result in meta-data being lost which highlights the importance of receiving

expert advice at an early stage.

3. Spoliation and Preservation of Electronic Evidence

Recently, it has been suggested that electronic discovery has given rise to a

different concern; namely, “whether the opposing party has failed to preserve or

destroyed relevant electronic evidence.”22 Spoliation refers to the destruction,

mutilation, alteration of, or concealment of evidence.23 Electronic evidence is

particularly susceptible to spoliation. E-mails can be deleted, computer files are

easily edited and tapes are often re-used. In each example, a litigant or potential

litigant can suffer uncertainties, cost and prejudice due to the spoliation of evidence.

20The Supplemental Discovery Task Force Report, dated October, 2005 was prepared by the Discovery Task Force. The Supplemental Report includes Guidelines for the Discovery of Electronic Documents in Ontario, prepared by the e-discovery sub-committee. [“Guidelines”] 21 Guidelines p. 4. 22 Susan Wortzman, “Spoliation, Litigation Holds and Preservation Orders- The New E-Discovery Guidelines” in Electronic Discovery and The New ED Guidelines – A Roadmap for Dealing with Electronic Information Proceedings of a Conference Held November 28, 2005 (Ontario Bar Association, 2005) at p.3 23 British Columbia Law Institute, “Report on Spoliation of Evidence” (2004) at p. 1

11

a) The Canadian Approach to Spoliation and Preservation

As a result of conflicting case law in this area, a debate continues as to

whether an independent tort of spoliation exists. 24 In Rintoul Estate v. St. Joseph’s

Health Care Centre,25 the Ontario Divisional Court found that destruction or

spoliation of evidence does not create an independent tort. Similarly, in Endean v.

Canadian Red Cross Society, the British Columbia Court of Appeal held that “…an

action for damages—being punitive or otherwise—is not an appropriate response to

the destruction of evidence.”26 However, in Spasic Estate v. Imperial Tobacco

Limited27 the Ontario Court of Appeal permitted a claim for damages based on the

tort of spoliation to proceed to trial. The Court of Appeal reasoned that the existence

of procedural sanctions or the spoliation inference should not preclude the recognition

of an independent tort. The Court of Appeal held that it was for a trial judge to

determine whether the tort of spoliation is recognized by Canadian jurisprudence.28

Canadian courts have recognized the potential harm spoliation of evidence can

cause. Despite the ruling in Spasic Estate, courts have applied an evidentiary

inference or rule where evidence has been unavailable at trial as an appropriate

remedy.29 This rule creates the rebuttable presumption that if the spoiled evidence

had been available at trial, it would have been harmful to the spoliator’s case. The

origins of the evidentiary rule can be traced back to the maxim omnia praesumuntur

24 Logan v. Harper, [2003] O.J. No. 4098 at para. 42. (Ont. S.C.J.) (QL) 25 Rintoul Estate v. St. Joseph’s Health Care Centre, [1998] O.J. No. 4074 (Ont. S.C.J.) (QL) 26 Endean v. Canadian Red Cross Society, [1998] B.C.J. No. 725 at para. 20 (B.C.C.A.) (QL) 27 Spasic Estate v. Imperial Tobacco Limited, [2000] O.J. No. 2690 (Ont. C.A.) (QL) 28 Ibid at para 22. 29 Logan v. Harper, [2003] O.J. No. 4098 at para. 42. (Ont. S.C.J.) (QL).

12

contra spoliatorem, which means “all things are presumed against the wrongdoer.”30

This evidentiary rule is reflected in Rule 30.08(1) of Ontario’s Rules of Civil

Procedure which provides that if a party fails to produce a document that is

favourable to their own case that party may not be able to use the document at trial

and if the document is unfavourable the court has the discretion to make an order it

deems just.

In addition, the courts have developed procedural sanctions that address the

spoliation of evidence. Common sanctions include default judgment in the favour of

the prejudiced party, the striking of pleadings, evidence preclusion, preservation

orders and Anton Pillar orders.31

The decision of Canadian Derivative Clearing Corp v. EFA Software

Services32 demonstrates how Anton Pillar orders can be effectively used to preserve

electronic evidence. The plaintiff alleged that the defendant had provided its

confidential information used for the development of software to a competitor. The

plaintiff made an ex parte application for an Anton Pillar order, which the court

granted, permitting a bailiff to seize and copy the defendant’s paper documents and

copy all of the defendant’s electronic data from its computer hard drive in a “mirror

image” form to ensure its preservation. The defendant applied to set aside the order.

However, during the court’s review of the order it learned that the defendant had

unintentionally altered the relevant evidence on its computers and did not have

backup tapes in place. The court concluded that it was appropriate to preserve the

30 British Columbia Law Institute, “Report on Spoliation of Evidence” (2004) at p. 10 31 Ibid. at 10-17. 32 Canadian Derivative Clearing Corp. v EFA Software Services Ltd. (2001), 8 C.P.C (5th) 81 (Alta QB)

13

copied data with the bailiff as it was likely the only existing evidence that would

reflect the state of affairs at the beginning of the action. However, the court ordered

the return of the defendant’s paper documents as there was no indication that the

defendant would destroy them.

Similarly, the plaintiff in CIBC World Markets Inc. v. Genuity Capital

Markets,33 brought a motion for the preservation of electronic evidence stored in the

defendants’ computer systems. At issue in the main action, was the defendants’

alleged misappropriation of confidential information and solicitation of the plaintiff’s

employees, which was primarily done by way of email. In this case, the defendants

voluntarily undertook to preserve the electronic evidence and retained a forensic

consultant to execute the preservation. The court allowed the forensic consultant

access to image and store the contents of computers, Blackberries and other similar

electronic devices which the defendants had in their possession, power, ownership,

use and control, directly and indirectly. The court granted the forensic consultant

access to such devices located at any office or home (but not restricted to such

locations) regardless of whether the devices were owned or used by others. The court

also ordered the defendants to certify that they had not utilized the services of some

other person or some other electronic device to send or receive messages and that they

had not deleted records.

The order of the court in CIBC illustrates several aspects of document

preservation. First, it indicates that parties have a broad duty to preserve documents

of every kind and nature and that counsel must conduct an extensive search to identify 33 CIBC v. Genuity Capital Markets, [2005] O.J. No. 614 (Ont. S.C.J) (QL)

14

what information sources exist early in the litigation. Second, the decision

demonstrates the utility of third party forensic copying of electronic information and

the importance of retaining experts to carry out those tasks. Finally, the order

highlights that electronic discovery requires a more collaborative approach to

litigation. The court required counsel to meet and confer in order to resolve

difficulties as they arose and to specifically map out a litigation schedule. Ontario’s

Guidelines for the Discovery of Electronic Documents also recommend that counsel

should meet and confer, as soon as practicable and on an ongoing basis, throughout

the electronic discovery process.34

In Portus Alternative Asset Management Inc. (Re)35, the Ontario Securities

Commission successfully applied for an order appointing a receiver of all assets,

undertakings and properties of Portus Alternative Asset Management Inc. Justice

Campbell of the Superior Court of Justice granted the receiver unfettered access to all

electronic records for the purpose of allowing the receiver to recover and copy all

electronic information. Justice Campbell specifically ordered the debtors not to alter,

erase or destroy any records without the receiver’s consent. He tailored his access

order to overcome any security obstacles by ordering the debtors to assist the receiver

in gaining immediate access to the records, to instruct the receiver on the use of the

computer systems and to provide the receiver with any and all access codes, account

names, and account numbers. In addition, all internet service providers were

required to deliver to the receiver all documents including server files, archived files,

34 Guidelines p. 12. 35 Re Portus Alternative Asset Management Inc. (2005), 28 OSCB 2670 (O.S.C)

15

recorded messages, and e-mail correspondence.36 Justice Campbell’s order was

directed at preserving and granting meaningful access to all electronic evidence in this

action.

b) Spoliation and Preservation of Evidence In The United States

The American courts have provided the most guidance on litigating parties’

duty to preserve electronic documents. In particular, the Southern District Court of

New York has made five influential interim rulings on electronic discovery issues. In

Zubulake v. UBS Warburg LLC,37 the plaintiff Laura Zubulake successfully brought a

gender discrimination claim against her former employer, UBS Warburg. When

UBS’ counsel became aware of the pending suit, they advised UBS not to destroy or

delete any material potentially relevant to the plaintiff’s claim Despite counsel’s

instruction, the court found that UBS intentionally deleted a number of potentially

relevant email messages. A number of the email messages were recovered from back

up tapes and produced to the plaintiff. However, at least one relevant message was

never recovered. As a result of UBS’ actions, the plaintiff requested the court to

impose an adverse inference sanction against UBS for destroying evidence.

In its fifth decision, the District Court found that UBS had a duty to preserve

the e-mail evidence as UBS should have known the email messages might be relevant

to future litigation. The court also found that UBS did not comply with its own

retention policy, which would have preserved the missing evidence. Before the jurors

36 Ibid para 6 and 7. 37 Zubulake v. USB Warburg LLC [2004] U.S. Dist. LEXIS 13584 (Lexis) (N.Y D. Ct)

16

began deliberating, the court instructed them to assume that the discarded emails

would have been harmful to UBS’ case.

In its reasons, the District Court set forth a test to determine whether sanctions

are appropriate for the spoliation of evidence. First, the party seeking the sanction

must first show that the party in control of the evidence has an obligation to preserve

it at the time it was destroyed. According to the court, the obligation to preserve

evidence arises when the party has notice that the evidence is relevant to litigation or

when a party should have known that the evidence may be relevant to future

litigation. Once a party reasonably anticipates litigation, it must suspend its routine

document retention/destruction policy and replace it with a “litigation hold” to ensure

the preservation of documents.38 Second, the party must show that the evidence was

destroyed with a “culpable mind.” The court explained that a culpable state of mind

included actions taken negligently, intentionally or wilfully. Finally, a party must

show that the evidence was relevant to the party’s claim such that a trier of fact could

find that it would support that claim or defence. However, the court stated that if the

party acted intentionally or wilfully with respect to the destruction of evidence, this

requirement would be irrefutably inferred from the act of destruction alone. In

contrast, where the evidence was destroyed negligently, the party seeking the

sanctions must prove the evidence was relevant to the claim or defence.

The court in Zubulake also emphasized that counsel has a duty to oversee

compliance with the litigation hold and must monitor the party’s efforts to retain and

produce the relevant documents. The court explained that counsel must become 38 Ibid at p.11

17

familiar with the client’s data retention policies and retention architecture. Counsel

must also ensure compliance with the preservation obligation by communicating with

the key players in the litigation, issuing reminders regarding the duty to preserve and

actually taking possession of the relevant electronic information. The court did note

that although counsel must take an active role, ultimately, the client must bear the

responsibility for a failure to preserve.39

Nearly every judicial jurisdiction in the United States employs a version of the

Zubulake test to determine if sanctions for spoliation are appropriate.40 A recent

example is the Florida Circuit Court’s decision in Coleman (Parent) Holdings Inc. v.

Morgan Stanley Co. Inc.41 The plaintiff Coleman sought damages from Morgan

Stanley for fraud and conspiracy in connection with a sale of stock. Coleman sought

access to Morgan Stanley’s internal files including emails. Coleman brought a

motion for an adverse jury instruction due to the destruction by Morgan Stanley of

potentially relevant documents. The court found Morgan Stanley in breach of its

preservation obligations as it had continued to overwrite emails after 12 months,

despite a SEC regulation to retain emails in readily accessible form for two years.

The court also found that Morgan Stanley did not conduct proper searches for back up

tapes that potentially contained emails and that it had failed to comply with orders.

The court concluded that many of Morgan Stanley’s failings were done knowingly,

39 Ibid p. 11-13. 40 Brian J. Leddin and Dean Gonsowki “Spoliation of Electronic Data, The wages of sin a virtual world” (2005) 3 New Jersey Law Journal at p. 1 41 Coleman (Parent) Holdings Inc. v. Morgan Stanley 2005 WL 679071 (Fla. Cir. Ct March 1, 2005)

18

deliberately and in bad faith.42 As a result, the court issued an adverse inference order

based on Morgan Stanley’s discovery abuses.

The United States Supreme Court decision in Arthur Andersen LLP v. United

States43 hints at a possible retrenchment from the Zubulake principles. The

accounting firm Arthur Andersen provided audit and consulting services to Enron

which was under investigation for improper accounting practices. Even though an

investigation was pending, Arthur Andersen’s counsel advised Enron employees to

comply with its document retention policy and to continue destroying documents. As

a result, Arthur Andersen was indicted and convicted for “knowingly, intentionally

and corruptly persuade employees, with intent to cause” them to withhold documents

from, and alter documents for use in, “official proceedings namely regulatory and

criminal proceedings and investigations.”44 The Supreme Court overturned the

conviction on the ground that criminal culpability for persuading others to withhold or

alter documents requires defendants to be conscious of their wrongdoing.

Furthermore, the Court stated:

A knowingly…corrupt persuader cannot be someone who persuades others to shred documents under a document retention policy when he does not have in contemplation any particular official proceeding in which those documents might be material.45

Although decided in the criminal context, Arthur Andersen indicates that liability for

improperly implementing a document destruction policy requires some level of

intentional wrongdoing. It will be interesting to see if this case affects future civil

42 Ibid at para 32. 43 Arthur Andersen LLP v. United States 125 S. Ct.2129 (2005) 44 Ibid at p. 5 45 Ibid at p.11

19

cases as Zubulake held that sanctions are appropriate for the negligent, intentional and

wilful destruction of evidence.

Zubulake and other American decisions have influenced Canadian electronic

discovery as demonstrated in Ontario’s Guidelines for the Discovery of Electronic

Documents. The Guidelines speak to many issues already canvassed in American

courts. They highlight the parties’ preservation obligations by recommending parties

take reasonable and good faith steps to preserve relevant documents as soon as

litigation arises. This may include implementing document retention policies, issuing

instructions to staff and/or creating litigation copies of relevant data sources. The

Guidelines recommend that parties should place each other on notice with respect to

preserving electronic documents as early in the process as possible. The Guidelines

also outline the role counsel is to play in the preservation of electronic documents.46

4. Production of Electronic Evidence

a) Form of Production

The production of electronic documents inherently raises the question as to

how parties should produce electronic documents. Canadian courts have typically

held that the discovery of documents requires disclosure of documents in electronic

form when paper form is not sufficient.

In Cholakis v. Cholakis, the Manitoba Court of Queen’s Bench held that the

“interests of broad disclosure in a modern context require…the production of the

46 Guidelines p. 11-13.

20

information in the electronic format when available.”47 In that case the defendants

appealed an order requiring them to provide unedited journal entries, accounting

journals and a computer disk containing accounting data to the plaintiff. The

defendants specifically opposed the production of the accounting data on the

computer disk on the grounds that the accounting data had been provided in paper

form. The plaintiff maintained that he required the computer disk in order to perform

certain accounting functions which could be performed quickly and inexpensively

with the data in electronic format. Without the computer disk, the plaintiff would be

required to input data from 12 boxes of documents. The court concluded that the

computer disk was electronic information falling within the definition of a document

and contained relevant information which should be produced. As a result, it ordered

the defendants to provide the plaintiff with the electronic accounting data, the

accounting software program required to access the data and all necessary and

technical information. As evidenced in this decision, the production of electronic data

in and of itself may not suffice. The court in Cholakis determined that the parties

were entitled to meaningful access and ordered the production of software.

b) Accessing Electronic Litigation Support Data

An interesting issue arises with respect to the production of an opposing

party’s litigation support software. It is now routine, in complex cases, for parties to

input and organize relevant documents and information in litigation support

databases. Once the discovery process commences, an opposing party may seek

access to the litigation support database. The courts have tended towards requiring 47 Cholakis v. Cholakis, [2000] M.J. No. 6 at para. 30 (M.Q.B.) (QL)

21

the production of litigation databases in order to facilitate meaningful access to

documentation but do not require the production of material that is privileged or

otherwise protected.

In the recent decision of Wilson v. Servier,48 the plaintiff brought a class action

on behalf of persons who allegedly contracted a serious illness by ingesting the

defendant’s diet drugs. The defendant pharmaceutical company was also involved in

products liability in the United States. During the discovery process, more than

100,000 documents were identified in the defendant’s affidavit of documents.

Defendant’s counsel prepared an electronic database of these documents and denied

the plaintiff access to the database. The court ordered the defendant to provide its

electronic database to the plaintiff in order to provide meaningful access to its

documentation. It explained:

The database functions as an index to provide meaningful access to the documents. In this Court’s view, the production of documents implies meaningful access to those documents through an electronic database, at least when the database has already been prepared by the defendant for its own use….This approach is particularly appropriate when a party is faced with some 500,000 pages of documents by the opposite party.49

This principle of meaningful access is also articulated in Ontario’s Guidelines for the

Discovery of Electronic Documents. The Guidelines emphasize that the production

of voluminous documentation in a form that does not provide access to both parties is

48 Wilson v. Servier, [2002] O.J. No. 3723 (Ont. S.J) (QL) 49 Ibid at para. 12

22

to be avoided.50 This means that where one party has documents in a searchable

electronic database, the searchable format should be produced.

In Wilson, the court also dismissed the defendant’s submission that it was

unable to isolate and remove certain “subjective fields” which contained counsel’s

privileged information from its database. In response, the court proposed the

appointment of an independent legal technology expert to review the defendant’s

database. However, the parties were ultimately able to differentiate the “subjective

field” from the remaining objective fields of the database and a court appointed

technology expert was not required. As noted in the Guidelines, most litigation

support software is now designed to enable counsel to produce only the relevant, non-

privileged fields of a database.51

In Logan v. Harper52, the court also considered the appropriateness of

compelling disclosure and access to a party’s electronic document management

software. The defendant had scanned its productions into a searchable electronic

format. The plaintiff requested production of both the defendant’s electronic database

and the software necessary to search the database. The court held that an action

involving extensive documentation requires a specific plan for organized access to the

documents. The court explained that “parties should ideally utilize a jointly accepted

plan of organization, authentication, identification and retrieval”53 for the purposes of

production:

50 Guidelines p. 15 51 Ibid. at p. 15 52 Logan v. Harper, [2003] O.J. No. 4098 (Ont. S.C.J.) (QL). 53 Ibid. at para. 27

23

…where, as here, the party producing the documents wishes to produce the documents in electronic format rather than paper format, it might well be appropriate to compel disclosure of, and access to, electronic document management software.54

Ultimately in Logan, the court ordered the defendant to provide the plaintiff with its

electronic database and particulars of how to obtain a licence for the necessary

software. The court’s interests in these cases is to promote access to justice by

ensuring that all parties can access relevant data in an efficient, effective and

collaborative way.

5. Privilege and the Production of Electronic Documents

Electronic discovery presents some practical challenges for protecting

privileged information, including an increased likelihood of inadvertent disclosure

given the sheer volume of some electronic productions.55 The recent case of National

Bank Financial Ltd. v. Potter56 demonstrates the inherent risks associated with

electronic information containing privileged information. The National Bank

commenced proceedings against a publicly-traded company, several principals

including the former CEO, and a law firm, alleging the defendants engaged in a

scheme to manipulate the price of company shares. During the course of the

litigation, the bank’s counsel obtained a computer server that belonged to the

company prior to its bankruptcy. The server contained e-mails exchanged between

the company’s principals and their lawyer. An application was made to strike the

54 Ibid. at para. 31 55Michael Traynor and Lori Ploeger “Hot Topics in Electronic Discovery” (2003) 4 Computer Law Reporter at p. 300 56 National Bank Financial Ltd. v. Potter, [2005] N.S.J. No. 186 (N.S.S.C) (QL)

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National Bank’s claim, stay proceedings and remove its counsel from the record on

the grounds that the bank’s counsel had wrongfully accessed and reviewed solicitor-

client communications.

In his reasons, Justice Scanlon of the Nova Scotia Supreme Court emphasized

the importance of solicitor-client privilege. He explained that as soon as the bank’s

counsel knew or reasonably suspected that they had acquired the opposing party’s

solicitor-client communications, they should have stopped any review, notified the

potential privilege holders and if necessary sought direction from the court as to

whether privilege applied. Justice Scanlon dismissed the bank’s argument that

privilege was lost due a lack of expectation of privacy for e-mails contained on a

server. By way of example, Justice Scanlon compared the computer server to a law

firm’s filing cabinet:

…when it comes to privileged communications, a server is akin to a filing cabinet. Whether that cabinet is at work, home, or in a lawyer’s office it is the nature of the document which affords the special protection, not where the filing cabinet is located.”57

Ultimately, Justice Scanlon removed the bank’s solicitors from the record.

The recent decision in Autosurvey Inc. v. Prevost,58 evidences that the

consequences may be more serious where privileged information is wrongfully

accessed. The plaintiff commenced an action against the defendants alleging that

they misappropriated its intellectual property. During the course of the litigation, the

plaintiff accessed the defendant’s computer server and made a complete copy of its

contents. The plaintiff then informed its solicitor of its actions. The solicitor

57 Ibid para. 96 58 Autosurvey Inc. v. Prevost, [2005] O.J. No. 4291 (Ont. S.C.J.) (QL)

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instructed the plaintiff to secure, preserve and note the contents of the evidence.

When the defendant became aware of the plaintiff’s actions, he asserted that the

plaintiff had improperly obtained access to privileged and confidential

communications between the defendants and their solicitors. As a result, the

defendant sought an order staying the action.

In response, the court ordered the plaintiff to provide the court all information

copied from the server and to delete all remaining copies. The court accepted that the

plaintiff wrongfully accessed confidential and privileged communications that would

not have been producible on discovery. In determining the appropriate remedy, the

court focused on the actions of the plaintiff and its solicitors. It noted that the

plaintiff’s solicitors chose to remain wilfully blind and failed to disclose the actions of

their client to the defendants, despite having several opportunities to do so. As a

result, the court found that the plaintiff’s solicitors were complicit in the inappropriate

conduct of its client. Ultimately, the court concluded that the defendants were

entitled to a stay of the action. It explained:

As serious as it might be to remove Autosurvey’s counsel as solicitors of the record in this action as an expression of the Courts distaste and rejection of their conduct and their client’s conduct, in my opinion it provides the Defendants with no real or meaningful remedy in the unusual circumstances of this case. If such a limited sanction were to be imposed, Autosurvey itself would still remain seized throughout the course of the litigation between these parties with knowledge of the Defendants privileged communications. As, such the only remedy, which can properly recompense the Defendants in any meaningful way for Autosurvey’s conduct, is to bring the proceeding to an end.59

59 Ibid. at para. 115.

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From these decisions, it is obvious that counsel should develop a production

and discovery strategy in order to protect privileged documents. The Guidelines

recommend that parties should discuss how to protect privilege at the outset of

litigation.60 Counsel making requests for extensive electronic production should be as

specific as possible in order to obtain useful and relevant information and should

identify to one another where privileged information may be stored. Prior to

producing documentation, counsel should also carry out a review to identify

privileged or irrelevant information. In situations where counsel suspect that they

might have obtained access to an opposing party’s privileged communications, they

must take steps to notify the privilege holder or, in some circumstances, seek

direction from the court. Finally, clients should be encouraged to establish and

enforce acceptable document retention and destruction policies.61

6. The Cost of Electronic Discovery

a) Cost Allocation in Canadian Cases

The issue of cost allocation in electronic discovery cases has not been clearly

resolved in Canada. The costs associated with the retention, retrieval, reproduction

and review of electronic records can be burdensome. It appears the Rules of Civil

Procedure do not seem to fully contemplate these cost realities. Rule 1.03(1) of the

Ontario Rules of Civil Procedure provides that the Rules shall be liberally construed

to secure the just, most expeditious and least expensive determination of every civil

60 Guidelines p. 16 61 Jane Bailey “Email’s Impact on Lawyers and Litigation: Recent Developments in Ontario” (2002) 3 I.E.C.L.C at p. 11

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proceeding on its merits. In addition, Rule 30.04(7) provides that copies of

documents requested for inspection are to be made at the requesting party’s expense.

The difficult issue of which party should bear the burden and expense of

electronic discovery was addressed by the Saskatchewan Court of Queen’s Bench in

Bank of Montreal v. 3D Properties.62 There, the defendant applied to the court for an

order requiring the plaintiff bank to produce various documents; including computer

records, disks and tapes in or upon which records were kept that related to the action

and from which the documents included in the plaintiff’s statement of claim

originated. The court held that the word “document” included information stored by

electronic means and required production subject to the following conditions:

(1) The plaintiff would be entitled to first edit out all information contained in or on said “document” that is clearly protected against disclosure as being privileged and confidential; (2) The plaintiff will not be required to alter the format of the data contained in said “document”: computer records, discs, and/or tapes. The plaintiff is only obligated to produce copies of same (as edited) to the applicant in its present existing form; and (3) All reasonable costs incurred by the plaintiff, including inter alia, searching for, locating, editing, and producing said “documents”: computer records, discs, and/or tapes for the applicant shall be at the applicant’s cost and expense. An estimate shall first be provided to it by the plaintiff…. If any issue arises over what is considered for this purpose to be “Reasonable Costs” same will be settled by me on application, and unless on a date and time consented to, on notice.63 An entirely different result with respect to the allocation of costs associated

with electronic discovery was reached by the Manitoba Court of Queen’s Bench in

Cholakis v. Cholakis.64 The court held that the defendants were responsible for the

62 Bank of Montreal v. 3D Properties, [1993] S.J. 279 (Q.B.) (QL) 63 Ibid. at p. 7 64 Cholakis v. Cholakis, [2000] M.J. No. 6 at para. 30 (M.Q.B.) (QL)

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costs of reviewing and editing the electronic records to remove any irrelevant

information that the defendants did not want to disclose to the plaintiff. It also noted

that the costs incurred by the defendants might be considered a disbursement in an

order for costs at a later stage in the proceeding.

The aforementioned cases clearly reveal conflicting philosophies on which

party should assume the costs associated with electronic discovery. The following

observation has been made with respect cost allocation:

The mere fact that electronic discovery is at issue should not change the rule that the producing party presumptively pays for the production. Cost shifting should be considered only when electronic discovery imposes an undue burden or expense on the producing party. The question usually turns on whether the electronic information is kept in an accessible or inaccessible format, which in turn depends on the type of media used to store the information.65

This approach to cost allocation is also proposed by Ontario’s Guidelines, which

indicate that the interim costs of electronic discovery should be borne by the party

producing the documents pending the final disposition of an action. Any cost-shifting

should occur at the end of the litigation when the unsuccessful party may be required

to contribute towards the costs of the successful party. However, the Guidelines

recommend that it may be appropriate for parties to allocate costs differently in

special circumstances by was of agreement or court order.66

b) American Cost Allocation

In the United States, the traditional approach has been to require the party

producing electronic documents to assume the costs of production. More recently, in

65 Karen Groulx “The Issue of Costs” LawPro Magazine 4:2 (September 2005) 9 at p.9 66 Guidelines p. 16-17

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Rowe Entertainment, Inc. v. The William Morris Agency,67 the court developed eight

factors to be considered in determining who should bear the costs of electronic

document production. The factors are: (1) the specificity of the discovery request; (2)

the likelihood of a successful search; (3) the availability of the requested information

from other sources; (4) whether the information was retained electronically for

ongoing business purposes; (5) which party was likely to benefit from the requested

production; (6) the magnitude of the costs of production; (7) which party is in the best

position to control discovery costs; and (8) the party’s resources.68

Not all courts agree that the Rowe factors are the correct ones to apply when

determining whether to shift the burden and the cost of production of electronic data

to the requesting party. In Zubulake v. UBS Warburg,69 the court modified the Rowe

factors because it found that they tended to favour the responding party by too readily

shifting the cost of production to the requesting party. Instead, the court articulated

the following seven factor test: (1) is the request specifically tailored to discover

relevant information; (2) availability of the information from other sources; (3) total

cost of the information from other sources; (4) total cost of production versus amount

in dispute; (5) relative ability of each party to control cost and its incentive to do so;

(6) importance of the issue; (7) relative benefit to the party obtaining the

information.70

67 Rowe Entertainment, Inc. v. The William Morris Agency [2002] U.S. Dist. Lexis 488 (Lexis) (S.D.N.Y) 68 Ibid. at p. 8 69 Zubulake v. UBS Warburg LLC, 220 F.R.D 212 (S.D.N.Y. 2003). 70 Ibid. at p. 9

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In Zubulake, the plaintiff claimed that vital evidence in support of her claim

could be found in inter-office emails stored on back up tapes and other archived

media. The plaintiff sought an order compelling the defendant to search for, restore

and produce the requested documents at its expense. The defendant sought to shift

the costs of production to the plaintiff on the grounds that such costs were an undue

burden. The court ordered production first and made the cost assessment later on the

basis on the quality of evidence that surfaced. After reviewing the type of

information retrieved and the costs incurred, the court applied the multi-factor test

and shifted 25% of the costs to the plaintiff requestor.

Given the potential expense associated with the discovery of electronic

documents, Canadian courts are likely to be concerned about the cost-benefit balance

and have an interest in ensuring that discoveries do not become unfairly burdensome

or expensive. As mentioned, the Ontario Guidelines suggest that pending the final

disposition of the proceeding, the interim costs of electronic discovery should be

borne by the party producing the documents. Any cost-shifting should occur at the

end of the litigation when the unsuccessful party may be required to contribute

towards the costs of the successful party. Notably, the litigation process in the United

States does not involve cost-shifting at the end of the litigation. Therefore, the

American case law on the allocation of costs for electronic discovery may be of

limited use.71

71 Guidelines p. 17.

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7. Conclusion

The recent case law in the area of electronic discovery shows that Canadian

lawyers and courts are becoming more attuned to these issues. Our courts have

adopted an approach which incorporates the traditional principles of relevance but

also considers the necessity of access and the reasonableness of providing that access.

Lawyers involved in electronic discovery issues will be required to develop their own

protocols to ensure that electronic documents have been appropriately located,

preserved and produced. This mandates an early assessment of the evidentiary

requirements of your own case and that of your opponents. Failure to do so may

result in the loss of important evidence and breaches of obligations of preservation.

Clearly, e-discovery is here to stay.