Canada: Records Management @ Gowlings: March 25, 2013 - Volume 4, Number 3

Last Updated: April 8 2013

Edited by Louis A. Frapporti and Christopher Purdon

In this issue:

  • Legal Technology
  • News and Articles

LEGAL TECHNOLOGY

Case Law

Hollinger Inc. (Re), 2012 ONSC 5107

This motion decision was released in 2012 by Ontario Superior Court of Justice during a CCAA proceeding under which Hollinger Inc. was granted protection in 2007. Hollinger lodged five groups of claims against its (i) former counsel Torys LLP; (ii) former auditor KPMG LLP; (iii) six former outside directors; (iv) former inside directors and officers including Conrad Black, and related parties; (v) Members of former banking syndicate.

Conrad Black filed damages for breach for contract, asserting to be the largest creditor of Hollinger. But he took no further step to advance such claim since 2008. Hollinger reached settlement agreements with Torys, KPMG and former outside directors (Settling Defendants) pending on court approval. Non-Settling Defendants attacked the settlement on several grounds, which were all rejected by the court.

Black and his related defendants ("Black Defendants") first argued that the court had no jurisdiction because the proposed settlements failed to benefit all of Hollinger's creditors. The proceeds as claimed by the Black Defendants would be used to fund the litigation against Black Defendants instead of being distributed to its creditors. Campbell J. concluded that the court has jurisdiction consistent with the principles of the CCAA to maximize the assets available to creditors as long as the process is not being used to further a collateral objective that is not inconsistent with the ultimate goal of these CCAA proceedings.

The Non-Settling Defendants further argued that the third party release and Bar Orders as part of the settlements would deprive the remaining defendants of substantial rights for discovery. Alternatively, the Non-Settling Defendants requested, if the settlements are approved, an order that would provide the Non-Settling Defendants with the same opportunity for discovery and examination as if Torys and KPMG were to continue as defendants.

Hollinger argued that the third party release is a typical "Pierringer agreement" (name after Pierringer v. Hoger, 124 N.W. 2d 106) which permit some parties to withdraw from litigation, leaving the remaining defendants responsible only for the loss that they may be found to have actually caused, with no joint liability.

Campbell J. held that Pierringer agreements have been increasingly used in Canada in different litigation settings and in this case the terms did not prejudice the remaining defendants in respect to liabilities. Campbell J. acknowledged the potential detriment to the remaining defendants, but opined that any detriment should be balanced against the benefit to the Settling Defendants and to the plaintiffs as well as the administration of justice as a whole, which encourages settlements in general, on a case by case basis.

Torys and KPMG proposed similar protocols for production and discovery. Campbell J. held that the discovery of documents could be achieved under court management based on the protocols, thus it was not necessary to request the parties conduct themselves as if Torys and KPMG remain as defendants.

As above, the Court approved the settlement agreements, requesting Torys and KPMG be bound by their protocols and participate in the litigation as Non-Parties subject to management by the court.

Descartes Systems Group Inc. v. Trademerit Corp. et. al., 2012 ONSC 5283

When plaintiff, Descartes, acquired all outstanding shares of a corporation, ViaSafe Inc., certain former shareholders agreed not to subsequently compete with Descartes and not to misuse confidential information now belonging to Descartes. Litigation was initiated when three individual defendants allegedly breached the non-compete agreements and misappropriated confidential information.

This particular matter before the court addressed the handling of Descartes' confidential electronic information stored in one defendant's personal laptop. Although the laptop was no longer available, the information had been backed up onto a hard drive and made available to Descartes for the purposes of forensic analysis with two caveats: first, that the irrelevant personal information be protected; and second, that relevant documents found be produced for defendants' review.

Following conflict over responsibility regarding the forensic review, the court addressed the following matters: (i) whether the external hard drive should be preserved; (ii) whether a third party should conduct the forensic analysis; (iii) whether the defendant should be obligated to review certain e-mails for determining privilege; and (iv) whether the plaintiff may conduct a forensic analysis of the multiple iterations of backup files in the hard drive.

(i) Preservation of the Hard Drive

Because the hard drive contained information from the personal laptop which was admittedly used for business purposes and routinely used to download e-mails in the course of business, there existed "more than adequate reason to preserve the hard drive and to permit forensic examination." In any case, the defendant had already agreed to forensic examination of the hard drive, necessitating the maintenance of the disk.

(ii) Third Party Forensic Analysis

The court commented that when the hard drive was turned over, counsel were not sufficiently specific in determining what was meant by "forensic analysis." The defendant took the view that forensic analysis retained its ordinary meaning of reviewing the drive to determine when information was written onto the drive, who authored documents, what documents were deleted, and whether documents were altered. The plaintiff's firm, however, took the view that forensic analysis meant accessing and reviewing the documents themselves, more appropriately characterized as document review.

Consequently, rather than employing a third-party forensic analyst, plaintiff's counsel conducted an in-house review with the support of paralegals and staff consisting of document review. This was done in two stages: first, potentially relevant documents were identified using paralegal staff and Clearwell software; second, the potentially relevant documents were imported into Summation where they were manually reviewed for relevance and de-duplication by the law clerks and an associate lawyer.

Although agreeing that communications leading up to the forensic analysis indicated a forensic review rather than document review would be conducted, the court held that plaintiff's counsel had done nothing improper. Rather, plaintiff's counsel disclosed to the defendant potentially privileged documents and did not access them.

Nonetheless, because the data explored would contain irrelevant confidential information and apparently privileged information, and because the personnel conducting the analysis may have to be called as witnesses at trial, the court ordered that an outside expert be employed to conduct the forensic analysis. Further, in the interests of transparency, the court ordered that the plaintiff's counsel disclose fully what tests, searches, and reviews took place, what was found, and to whom access was provided.

(iii) Defendant's Obligation to Review Privileged Files

Upon identification of potentially privileged information between the defendant and the defendant's prior counsel, Descartes requested defendant's review of the information to identify the documents over which privilege had been waived in accordance with a prior finding of the court. The defendant refused but also refused permission for plaintiff's counsel to do the same.

The court found defendant's refusal to review unreasonable and found defendant's refusal of plaintiff's review "doubly unreasonable." Thus, the court directed the defendants to review the documents and produce any documents over which privilege had been waived. In the alternative, the court directed that privilege could be waived entirely permitting the plaintiff to conduct the review.

(iv) Forensic Analysis of backup files

During backup, 448 Zip files had been created in addition to archived files. When asked by the plaintiff to review these multiple iterations, the defendant refused explaining that recourse to backup files is not normal within the scope of documentary production.

The court agreed with the Sedona Canada Principles that electronically stored information should be produced only if reasonably accessible, and absent a court order or agreement, a party should not be required to search and produce deleted or residual electronic information. However, although not ordinarily required to search backup files for deleted documents, a party may be required to do so depending on the needs of the case and the ease of doing so.

In this case, the needs of the case required answering two critical questions: (1) what steps the defendant took to establish a new business, particularly the timing of the recruitment of staff and clients; and (2) whether the defendant possessed and accessed proprietary information and whether that access was after leaving Descartes. Accordingly, reviewing the backup files could elucidate information regarding timing that addressed the fundamental questions of the case regarding access to proprietary information and competing with Descartes.

The court, then, ordered forensic analysis of the backup files. However, it tempered that order by directing that forensic tools be employed to narrow the number of files from 448 to those in the relevant time period and of the relevant type to reduce the risk of accessing privileged information.

Finally, the court suggested that because other technical, factual, or legal issues may arise, the parties were permitted to agree to a plan different from the plan set out in the order.

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