Australia: Will new discovery rules in the Federal Court reduce the excessive costs of discovery in commercial disputes?

Last Updated: 12 November 2011
Article by Timothy Atkin, Michelle Dixon, David Laidlaw and Peter Meades

Will new discovery rules in the Federal Court reduce the excessive costs of discovery in commercial disputes?

The principle of discovery

The right to discovery and inspection of your opponent's documents is a cornerstone of our system of justice, particularly in commercial disputes. When it was first introduced in England in the 19th century, it was intended to reduce time and expense by forcing the disclosure of documents containing relevant evidence, particularly admissions by the opponent. The overriding purpose was to facilitate access to justice.

But there is no doubt that in the 21st century that noble goal has long been lost in the deluge of documents that comprise the modern litigation process.

The problem with modern discovery

Justice Sackville, the judge in the C7 case recently remarked in an article in the Law Society Journal (NSW) last year:

It is [in carrying out discovery] that extraordinary and disproportionate costs are frequently incurred by parties to litigation. Far too often the search for the illusory 'smoking gun' leads to squadrons of solicitors, paralegals and clerks compiling vast libraries of materials, much of which is of no significance to the issues in the proceedings. The problem has been compounded, not alleviated, by the exponential growth of electronic communications which can be tracked and often reconstructed after deletion.

This will no doubt resonate with anyone unfortunate enough to have been party to a commercial dispute before the courts. But some may also know that large and complex disputes are sometimes won and lost upon one or a handful of emails turned up during discovery.

This has created a mindset amongst commercial litigants that an opponent must be put to extensive discovery no matter the cost. Is $1 million and a year of wasted management time excessive if it turns up a handful of emails that resolve a $100 million dispute?

The (lack of) appetite for change

In its recent report running to 380 pages "Managing Discovery – Discovery in Federal Courts", the Australian Law Reform Commission (ALRC) tackled this vexed issue. The ALRC consulted widely and proposed a list of recommendations as to how discovery in Federal Courts can be changed to reduce cost and increase effectiveness and efficiency.

In response to the ALRC report, the Federal Court had a golden opportunity to implement reforms to its discovery processes with its recent complete rewrite of its procedural rules.

It decided not to do so but has nevertheless, simplified and streamlined the process and has introduced a requirement that discovery can only be ordered by a court if it will facilitate the just resolution of the proceedings as quickly, inexpensively and efficiently as possible.

That sounds helpful, but a similar requirement has governed the overall conduct of NSW civil proceedings generally for some years without effecting any substantial change. So it remains to be seen whether it will make a difference to discovery in Federal Courts.

How can parties reduce their litigation costs?

Early this century, document retention/destruction policies were seen as the way out of the discovery quagmire. But drafting and implementing such policies can introduce more risks than they resolve.

Lawyers have often been seen as the cause of the problems with the discovery process. That is partly right. So changes in lawyers' conduct is rightly seen as critical to resolving the problems.

1. Limiting the scope of documents to be discovered and limiting the scope of document sources to be searched.

Lawyers can play a critical role in achieving these ends. The legal tools are often available in court procedural rules if parties are prepared to incur cost and risk up front, by proactively seeking to set reasonable and proportionate limits on discovery, rather than submitting to the inevitable as too often occurs.

The new Federal Court rules will assist for those motivated to act.

Ultimately, whether that approach provides benefits will depend upon the skill of the lawyer advocating for a limitation on discovery, the attitude of the judge and the position taken by the other side.

2. Limiting document identification, inspection and processing costs

In a speech on the opening of the law term on 31 January 2011, the former Chief Justice of New South Wales, Jim Spigelman observed:

I repeat what I said a few years ago when I was informed that for a significant commercial dispute the flagfall for the discovery process was something in the order of $2 million. That level of expenditure is not sustainable. Outsourcing through the use of Indian based support services – such as digital dictation transcription and document management for discovery and due diligence, is an available way of containing such costs.

Outsourcing discovery processing is common place in US and UK legal markets but is in its infancy in Australia. That will inevitably change in light of the increasing push for legal spend reductions by company counsel and boards.

In the limited cases in which outsourcing is appropriate, it will also provide the opportunity for non-top tier firms without armies of junior lawyers to compete for large litigation. That will bring with it increased competition between firms and consequent benefits for clients.

What does this mean for you

The new Federal Court rules serve as a reminder that there are things that your lawyer can do to assist in reducing your discovery costs and burden if they are motivated to do so. If your lawyer is not explaining your options to reduce your discovery costs, then perhaps asking about it now, could save you thousands of dollars in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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