Australia: Discovery: your worst nightmare

Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Limited [2012] NSWCA 430

A recent decision of the Court of Appeal, which is subject to a special leave application, highlights the risks inherent in the discovery process, particularly in large scale discovery or in circumstances where discovery is given in tranches.

The evidence filed on the application in the Court below included Ringtail review records (showing who reviewed a document and how long was spent on that review) and timesheets for those involved in the review process as well as affidavits from some of the lawyers and paralegals involved in the review. While this was clearly an extreme case with (reading between the lines of the judgment) much riding on the outcome, it's hard to avoid projecting the events onto your own discovery experiences and pausing for thought.

The main litigation concerned the circumstances in which a commercial relationship between the plaintiff Armstrong parties (Armstrong) and the defendant Expense Reduction Analysts (ERA) parties came to an end. The ERA parties comprised two groups of defendants, separately represented. One group comprised 5 corporate defendants and the other 5 individual defendants.

An order for general discovery was made. ERA's discovery effort on the part of the individual defendants involved the review of 60,000 documents by a team of 6 lawyers and a paralegal, using litigation support software.

In error, a number of documents were discovered on behalf one of the individual defendants which were privileged. Some of these documents had been subject to a claim for privilege in the lists served by the other individual defendants.

A notice of motion was filed by the ERA individual defendants' lawyer seeking delivery up of 30 documents and orders restraining their use by Armstrong. The dispute was later narrowed to 13 documents (the disputed documents).

The motion came for hearing before the Chief Justice in Equity, who accepted the lawyers' evidence that they must have failed to manipulate the litigation support software properly. Her Honour found that for the 9 documents where a duplicate had been listed in the privileged section of the lists of the other individual defendants, she could infer that a decision was made to claim privilege, that the documents were inadvertently provided and that there had been no waiver of privilege. Her Honour found that privilege had been waived for the other 4 documents.

Armstrong appealed and ERA cross appealed.

His Honour Justice Campbell gave the leading judgment in the Court of Appeal. His Honour found that neither the common law or the Evidence Act provided a basis for the relief sought: a mandatory injunction and a prohibitory injunction, noting that all the common law does is provide a basis for resisting disclosure, that the Evidence Act provides that evidence is not to be adduced at trial, and that the extension to pre-trial processes is relevant only to the Court determining an objection to the production of a document pursuant to a disclosure requirement.

His Honour concluded that the only basis on which the injunctions could be sought was the law of confidential information. His Honour followed a decision of the Full Court of the Supreme Court of South Australia in Trevorrow v State of South Australia in which the State had given discovery and claimed privilege over 10 documents. Trevorrow had previously obtained these documents from the State Archives after a written request for access. An injunction was sought to restrain the use of those documents by Trevorrow based on the equitable duty of confidence. The application was refused by the trial Judge. On appeal it was held that a reasonable solicitor in the position of Trevorrow's solicitor would have been entitled to conclude that the documents were not regarded as confidential, thus no equity of confidence could be asserted.

His Honour considered that the question which the Court below should have decided was whether the circumstances in which the disputed documents were obtained by Armstrong were such as to impose an obligation of conscience. His Honour suggested that might arise if the documents were obtained by fraud, if the receiving lawyers had realised that the documents were confidential and had been discovered by mistake or if a reasonable solicitor receiving the documents should have realised that the documents had been disclosed by mistake. His Honour noted that the latter test had been addressed in submissions on both sides, but not applied in the Court below. His Honour found that the test was not satisfied.

His Honour also considered whether privilege had been waived, should he be wrong about the only recourse being to the law of confidential information. His Honour found that it had, having regard to the provision of images of the documents being an intentional act, with knowledge that it was possible to withhold privileged documents from inspection upon discovery, the provision was done in the context of a discovery process ordered by the Court and accompanied by an affidavit and a solicitor's certificate as required by the Rules, the corporate defendants adopted the correctness of the approach taken by the individual defendants and that several months had elapsed between the provision of the documents and the assertion that privileged documents had been provided by mistake.

His Honour also considered whether the ERA defendants could object to adducing the disputed documents at trial relying on the Evidence Act. His Honour concluded that the sections were unlikely to be of assistance as the disputed documents had already been disclosed.

Risk of inadvertent disclosure of privileged material needs to be managed in any discovery. Once a core set of privileged documents has been identified, procedures should be adopted to search for duplicates and to identify potentially privileged documents having regard to the date, title, author, sender or recipient. In circumstances where discovery is being given in tranches, consideration could be given to entering into an arrangement whereby the parties agree that there is no waiver of privilege over inadvertently discovered documents until such time as the entire population of documents has been reviewed and a verified list served.

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.