Disclosure and proportionality – caught between a rock and a hard place

The recent specific disclosure application in The Dorchester Group Ltd v Kier Construction Ltd offers a salutary reminder to litigants and their solicitors of how easily a disclosure exercise can lead to a disproportionate costs bill and, even if the case is won, substantial unrecovered costs. We look back at past cases and draw out some lessons for those in charge of any disclosure exercise.

The Dorchester case

This litigation concerns undeclared discounts which the defendants, Kier, obtained from their mechanical and electrical sub-contractors for its work on the claimant’s 45 Park Lane hotel in Mayfair but did not disclose or pass on to Dorchester. Almost all of the relevant documents are held by Kier. Kier asked Coulson J to fix the budget for disclosure at £146,000. The judge reduced the figure to £120,000 because he did not think standard disclosure in this type of case should be difficult or time-consuming.

The application for specific disclosure

Dorchester applied for specific disclosure of certain categories of documents, alleging that Kier’s disclosure exercise was defective. They also asked for an order that Kier should:

1. Identify the members of their review team including their employer, role and level of qualification. 
2. Provide details of any briefing given to the review team. 
3. Identify how many of the 313,000 documents reviewed were marked as relevant. 
4. Identify the total number of "non-relevant" documents reviewed by Kier's core legal team.

Kier’s disclosure

Something had indeed gone wrong with Kier’s disclosure exercise, which the judge described as both cumbersome and inadequate. They outsourced review of 313,000 documents to Exigent Group Limited, based in South Africa, who employed 17 paralegals and 3 project managers on this case. The review led to 303,000 of those documents being coded “irrelevant” and 9,000 odd being coded “relevant”. Kier's solicitors then reviewed each of the documents coded “relevant”', and decided that only 45 per cent of them were in fact relevant. Less than 2 per cent of the documents reviewed by Exigent were disclosed.

Kier also carried out a separate review of more than 100,000 documents held on their own platform, Kierdoc. Originally, just 20 of those were disclosed. A new custodian had also emerged: he had not been mentioned previously but was to be a key witness. By the time of the application Kier had already spent £500,000 on disclosure, more than three times their original estimate. Only 6 weeks before trial, Kier were continuing to search for relevant documents.

The decision

The judge ordered specific disclosure of four categories of documents. He rejected the argument that no further order should be made on the grounds of proportionality because Kier had spent so much more on disclosure than they originally intended. The disproportionate costs were due to the way in which the exercise was carried out. He refused, however, to order Kier to provide the information requested (see above). To require their solicitors to answer items 3 and 4 would be “to set them a kind of examination paper, and they were entitled to decline to complete such a paper”.

Lessons to be learned

Unless the claim is for millions, or the scope of disclosure narrowly defined, you may well have problems completing a reasonably complex disclosure exercise at a proportionate cost. Under the new proportionality test in CPR 44.3(2), proportionality trumps both reasonableness and necessity (see Hobbs v Guy’s And St Thomas’ NHS Foundation Trust). The fact that it may be impossible to carry out standard disclosure at a cost proportionate to the size of the claim is frequently not identified at the point where the court is approving the parties’ costs budgets.

Preservation and collection of data

The crucial thing is to identify the whereabouts of potentially relevant hard copy documents and electronically stored information (ESI) at the outset, and to ensure that they are preserved until the end of the dispute. This involves identifying all potential custodians (Kier slipped up here) and taking steps to preserve data wherever it is held (including laptops, smart phones, memory sticks, etc), whether generated by the party or a third party. Failures of this kind also occurred in West African Gas Pipeline Company Ltd v Willbros Global Holdings Inc. The initial scoping of the claimant’s disclosure of ESI was inadequate: documents held on several different storage and document management systems were omitted, as were those held by relevant custodians. This meant that documents were provided piecemeal, increasing costs and disrupting the disclosure process.

Discussion between the parties

The courts have said repeatedly that, in complex cases in particular, the parties must discuss the scope and extent of disclosure of ESI before incurring costs and not just shortly before the CMC. Where a party presses ahead without doing so, it may find itself in difficulties if the exercise is flawed or too wide-ranging (see Digicel (St Lucia) Ltd v Cable & Wireless Plc and Vector Investments v Williams). Remember that CPR 31.5 offers a menu of options ranging from no disclosure to “keys to the warehouse” disclosure where you hand all potential data to the other side, having removed privileged documents. Standard disclosure, defined in CPR 31.6 and usually adopted as the default option, may not be appropriate in your case.

Take it step by step

In Goodale v Ministry of Justice, Senior Master Whittaker explained how to take a staged approach to e-disclosure, starting with the data available from a few key witnesses held on live servers or local computers. Back-up tapes are more expensive to search and it may prove to be disproportionate to interrogate the back-up tapes at all (this was the conclusion reached in Digicel and Fiddes v Channel 4 Television Company). The appropriate use of de-duping, keywords, data sampling etc can be used to ascertain the volume of potentially relevant documents. Beginning with a limited date range may also be a good idea. These methods and the Electronic Disclosure Questionnaire (EDQ), annexed to the judgment in Goodale, can be found in Practice Direction 31B.The use of predictive coding software (a form of technology-assisted review) is not mentioned in PD 31B but may increasingly become an accepted part of an e-disclosure exercise.

Cost the options before the CMC

To persuade the court and the other side that your proposal should be adopted, you need to be able to provide credible estimates of the cost of carrying out disclosure in the various ways that might be appropriate to the case. The judge can only give directions on the basis of the information provided to them about the cost of different options.

In Abela v Hammond Suddards, the defendant solicitors kept hard copy files of all documents created electronically and had therefore limited their e-disclosure to a search for fee earner emails. The judge ordered them to disclose the electronic documents files of all fee earners and their secretaries to ensure important documents had not been missed. Hammonds, relying on their experience in another case, said that the process could cost £150,000. The claimants’ expert suggested that they were overstating the difficulties, time and expense. The judge concluded that some sort of search was required given the size of the claim and the seriousness of the allegations being made but not one that would cost anything approaching £150,000.

Outsourcing the review

This can present problems for a solicitor that does not have a cost-effective in-house review team. Either they carry out the review with the potential complaint that the costs of doing so were higher than they would have been had they outsourced the job; or they outsource the job to a third party, possibly in a cheaper jurisdiction, and run the risk that they will be blamed if the review is unreliable.

In Brookfield Construction (UK) Ltd v Mott Macdonald Ltd Coulson J commented that the farming out of document management was an unfortunate development which was likely to increase costs unnecessarily. The claimant had outsourced its review to an Australian firm which went into liquidation during the course of the action. In the West African Gas Pipeline case, the review was carried out in India. The claimant’s solicitors provided initial briefings, established escalation procedures and carried out quality checks of samples of each batch of reviewed documents. Despite these measures, a re-review of one tranche of disclosure showed that about 10 per cent of the documents identified as non-disclosable proved to be disclosable. The problem was brought to light when the defendant’s lawyers identified a significant email and its attachment which had not been disclosed.

Conclusion

Substantial disclosure exercises are tricky to get right. As the cases referred to above illustrate, litigants can face difficulties at each stage of the process, even without the additional pressure of conducting the exercise in compliance with the new proportionality test. It is important to remember that some problems will be part and parcel of an e-disclosure exercise. As Ramsey J noted in the West African Gas Pipeline case, “there must be some give and take between parties and their solicitors in relation to difficulties which inevitably arise in the course of the disclosure”. Early co-operation between the parties is essential if appropriate disclosure is to be achieved at a proportionate cost.