Ambit of discovery
Duty to preserve documents
From February 1 2012 a new set of High Court discovery rules will apply in New Zealand. The rules have been designed to reduce the often disproportionate cost of discovery that has been a matter of increasing concern in New Zealand and other common law jurisdictions. Key features of the changes include:
- a new standard for discoverability;
- a presumption in favour of electronic exchange;
- the introduction of a requirement for disclosure of the primary documents at the time of pleading;
- the creation of an express obligation to preserve documents; and
- the imposition of a positive duty on parties to cooperate and to ensure that discovery is proportionate to the case.
The new rules draw significantly on reforms recently implemented across the common law world. In particular, they have been heavily influenced by similar changes in the United Kingdom, the United States and Australia. Unlike those jurisdictions, New Zealand has not had interim practice notes or other official directions on discovery in the digital age. As a result, the introduction of electronic discovery as the default position (in place of the historical paper-based process) may create some short-term difficulties arising from lack of familiarity. New Zealand's lawyers will no doubt draw on experiences elsewhere for guidance. As the new rules are designed to be highly flexible, some parties may choose to maintain the familiar, paper-based discovery procedures, at least initially.
The biggest change is the new presumption of inspection by electronic exchange. Parties have always been free to agree informally to exchange discovery documents electronically, but the new rules create a presumption of electronic exchange that applies unless it is modified by agreement between the parties or by direction of the court.
The increasing use of computers for electronic document creation and communication has caused a surge in the quantity of discoverable electronic documents relevant to civil litigation, accompanied by increasing difficulties in dealing with such documents in paper form. It is hoped that electronic exchange will help to reduce the cost and administrative burden associated with dealing with and exchanging large numbers of documents, making it easier for the parties to categorise, manage and search each other's documents. In this respect, the new rules are intended to promote greater efficiency in litigation.
In order to make electronic exchange efficient and feasible, the use of dedicated discovery document management systems - which are already in use at many law firms - is likely to become essential for firms conducting civil litigation. Although the Rules Committee has stressed that nothing in the new rules obliges law firms to purchase expensive software systems, it is difficult to see how gains in efficiency can be achieved without adopting redesigned discovery processes and the relevant software. Firms that have long experience of such systems will no doubt find the transition easier.
When serving a pleading (whether claim or defence), all documents that are referred to, or relied on, in drafting the pleading must be served with the pleading itself. The major caveat is that no adverse documents need to be disclosed at the initial stage. By requiring each party to show its good hand at the time of service, it is hoped that the relative strengths and weaknesses of each party's case will become apparent earlier in the process. This should help to discourage baseless claims and promote the expedient resolution of disputes.
It remains to be seen how successful the practice of initial disclosure will be. Although there is no requirement to disclose adverse documents, and in theory there is no good reason for a party not to disclose all documents in its favour at the earliest opportunity, the new rules set no penalty or adverse consequence for inadequate initial disclosure (although the general costs provisions will apply). A document that is not initially disclosed can, and must, be disclosed as part of later substantive discovery. Therefore, parties may elect to skimp on initial disclosure, knowing that this will not harm the long-term prospects of their case. Another unintended consequence may be that, in the turnaround between service of a statement of claim and the deadline for filing a defence, defendants may attempt to limit the pressure of initial disclosure by reducing the particularity of the defence pleading.
Ambit of discovery
Another major change involves the ambit of substantive discovery and the creation of a choice between standard or tailored discovery. The scope of standard discovery replaces the Peruvian Guano test that established a low threshold for relevance and made even indirectly relevant documents discoverable. Broadly speaking, standard discovery requires disclosure only of documents on which a party relies and documents that are adverse to any party's case. As the name suggests, tailored discovery involves the parties prescribing their own express categories of discoverable documents in order to meet the needs of the case at hand. Tailored discovery can be wider or narrower than standard discovery. It represents an intention to create rules with greater flexibility, which are better able to respond proportionally to the requirements of a given case. As a result of the emphasis on parties cooperating to achieve a proportional discovery process and the prescriptive nature of the default rules, tailored discovery is very likely to become common for both simple and complex cases.
Another interesting development is the creation of a 'discovery checklist'. This is essentially a list of things that the parties must address and endeavour to agree upon before seeking a discovery order from the court. It is intended to provide a framework for inter-party engagement in a manner that promotes cooperation in assessing the nature and extent of discovery that is proportionate to the given case.
One of the main items on which agreement must be reached is whether to seek tailored or standard discovery. If tailored discovery is to be sought, the parties must agree on the categories of document that should be discoverable. Among other things, the parties must also endeavour to agree on the necessary extent of the search for documents and the format and manner in which the documents will be listed and exchanged between the parties. To this end, the new rules include a default listing and exchange protocol, which applies unless contrary agreement is reached.
Duty to preserve documents
A notable feature of the new rules is the introduction of a positive obligation to preserve documents. This obligation will apply as soon as litigation is "reasonably contemplated" and will require all parties (or prospective parties) to take all reasonable steps to preserve documents that are reasonably likely to be discoverable.
The use of the 'reasonably contemplated' test means that the court is likely to apply a test similar to that used in the context of litigation privilege in order to determine when the duty is triggered. The test will probably be whether a reasonable person, in the position of the party in question and in possession of the same information, would have regarded the future commencement of litigation as probable. In order to ensure that the duty is triggered, it is likely to become common for prospective parties to put others on notice of the prospect of litigation - and specifically to remind them of the duty - at an earlier stage.
Once the duty is triggered, it will be important for a prospective party to consider what types of document are likely to be discoverable. In general, it will be safe to assume that standard discovery will apply, unless there is a reason to suppose that more onerous discovery will be ordered. Therefore, a prospective party should, at least, take reasonable steps to ensure that all documents on which it wishes to rely - and all documents that are likely to be adverse to any likely party - are preserved.
The rules impose no specific penalties for breaching the duty of preservation. However, experience with a similar duty in the US federal courts suggests that the duty must be taken seriously. At a minimum, a party's failure to preserve documents may enable another party with a weak case to divert attention away from the merits. In the case of a serious or intentional breach, an otherwise strong claim could be defeated for failure to preserve relevant documents. Both the party and its solicitors may face punishment for contempt of court - or even criminal penalties for conspiring to defeat the course of justice.
The introduction of a duty to preserve means that New Zealand practitioners will need a good grasp of the types of document that are likely to be discoverable. Moreover, they will need to ensure that their clients are aware of the importance of preserving those documents from the outset of a contentious situation.
The changes are welcome in principle. They recognise the pervasiveness of electronic documents and create a context in which to give parties and the court the tools to manage discovery proportionately. Their success will depend on how effectively they are used in practice and how much pressure the court imposes on parties' conduct of discovery to balance justice and efficiency. Initial disclosure will require more work at the pleading stage and the requirements of the discovery checklist will require the parties to be much more informed, at a much earlier stage, about what documents exist and what the issues at trial will be. The degree of interaction between the parties required by the checklist and the strategic importance of the decisions made at that stage could in some circumstances simply bring forward the point in a proceeding where disagreements and delays occur.
The adoption of a presumption of electronic discovery exchange will result in the need for practitioners to re-engineer their internal processes. If they have not already done so, they may need to acquire and master the use of document management software.
For further information on this topic please contact Chris Browne or Guy Tompkins at Wilson Harle by telephone (+64 9 915 5700), fax (+64 9 915 5701) or email ([email protected] or [email protected]).