Is Hedrich more important than Digicel for e-disclosure?

A cigarette packet carries the warning that smoking can kill you. Solicitors’ standard terms of business should carry a warning that litigation can cost you. For litigation is an inherently risky business: there are no certain winners; and very often even the fruits of success are never recovered. This is just such a case. The moral is caveat litigator.

This is the opening paragraph of Lord Justice Ward’s judgment in Hedrich v Standard Bank London Ltd [2008] EWCA Civ 905. It is not only the litigating parties who get a strong caveat from this case. Solicitors may conclude that the hairs-breadth which preserved the Claimant’s solicitors from a large wasted costs order in that case might justify a closer understanding of their obligations as to electronic disclosure.

I have not seen it, but the current edition of Civil Procedure News, which comes with the White Book Service, apparently has four headings on the front. One is “Standard disclosure of electronic documents”. The Hedrich and Digicel cases are reported in the “In brief” section, and Digicel is covered in the detail section. I wonder if we might come to see, over time, that Hedrich is the more significant of the two cases.

Digicel (St Lucia) Ltd v Cable and Wireless plc [2008] EWHC 2522 (Ch), [2008] All ER (D) 226 (Oct), Chancery Division, Morgan J., 23 October 2008 has generated most of the comment thus far, not least in several articles from me. It involved a big claim, a very large document population, big-name solicitors and two counsel on each side, and it generated a painstakingly clear judgment in which Mr Justice Morgan drew out the key components of the Practice Direction to Part 31 CPR and applied them rigourously to the circumstances.

No-one, judge or solicitor, can now regard the obligations to co-operate as to electronic sources as a voluntary matter. If the downside to non-compliance includes being made to redo disclosure with a wider set of keywords, then people will at last try and agree keywords or implicate the judge in their selection. If the court is going to compel parties to discuss the value versus the costs of extracting documents from particular sources, then they might as well get on with it and use the court (as PD 31 2A.2 requires) as arbiter of last resort – and “discuss” in this context means more than just lobbing opposing views at each other like grenades across No Man’s Land.

Hedrich involved a claim for $382,857 for alleged breach of a consultancy agreement. Have a look at the judgment if you want the details of the story To save you having to “sink in the morass of detail which is a blight on this case” (as Lord Justice Ward put it before he began to “pick [his] way through the quagmire”) I will summarise the key points.

Full disclosure was given only during the trial. Only then did the Claimant’s solicitors realise the extent of the disclosure failures and they came off the record. The Claimant served Notice of Discontinuance and the court made an order for indemnity costs against the Claimant saying:

there have been continuing problems with disclosure which has been dealt with on a most unsatisfactory basis. As it transpired, as more and more documents have been extracted from the claimant and the claimant’s team, it has demonstrated the increasing nature of the unsatisfactory evidence that has been given in this case by Mr Hedrich. There have been a number of inconsistencies …. and it is quite frankly a case which is wholly unsatisfactory.

The defendants were unable to recover any of their costs and turned on Zimmers, the Claimant’s solicitors. What happened next is again best described in Lord Justice Ward’s words:

[The solicitors for the bank], wrote …. threatening this application for wasted costs. They added that the costs incurred by the Bank since the end of the trial amounted to a staggering £203,885.79. The Bank “invited” Zimmers to make payment of no less than £565,901.12, spent, I cannot refrain from wryly commenting, defending a claim for $382,857 or thereabouts.

Their costs were subsequently assessed at £362,015.

Pausing there, and before I turn to the duty of the disclosing party’s solicitors, note the implied suggestion that the innocent receiving party might have approached this differently. I do not merely mean “proportionately” (a word which seems to have disappeared in this case into the quagmire to which Ward LJ referred). I will come back to look at how the rules might be used by opponents, and by the court, when a solicitor appears not to know his arse from his elbow in this context.

I do not mean to stigmatise Zimmers with this ungraceful but useful expression. They did, after all, defeat the claim for a wasted costs order in the end. The various judgments and judicial observations made on the long and winding road to the Court of Appeal, however, included the following:

there is a good prima facie case for Mr Zimmer to answer that he acted negligently and in breach of his duty to the court with respect to disclosure in this case

A competent solicitor would have discovered the scope of the disclosable documents from the visits made to the client’s office in Hamburg in August and October.

The Court of Appeal, however, took a different view. I will spare you the weary steps on the way, but the conclusion was:

Contrary, therefore, to the finding of the judge, I am not satisfied that Zimmers were negligent at all. They produced the Kaul CD Rom when its relevance was reasonably obvious. By then all the costs had been incurred and causation is not established.

Well, that’s all right then. No negligence after all. I am not sure I would count it as great victory for the solicitors, though, or for anyone else involved. Before this point, there had been a Case Management Conference before a Master with an order for standard disclosure, an unsuccessful application to adjourn the trial on the grounds of disclosure defects, a subsequent and successful application for an adjournment, the trial itself (interrupted after several days by Zimmers’ application to come off the record), a first hearing of the wasted costs application which the judge did not have time to hear, the full hearing of that application, an application for permission to appeal and then the appeal. I have already referred to the costs claimed by the Defendants’ solicitors before the wasted costs application had even been launched. That application was backed by three witness statements running to 75 pages, over 1,000 pages of documents and a 62 page skeleton argument. The original claim was worth, at maximum, a little over £200,000.

Having the Court of Appeal say that you were not negligent is second-best to avoiding the suggestion altogether, and not much of a consolation prize after the immense amount of work, anxiety and (one assumes) lost fees and time suffered by Zimmers en route to that denouement. They may have beaten off the negligence claim, but the case raises various points both about the scope of a solicitor’s duty and the circumstances in which a wasted costs order is appropriate.

These were covered in detail by the Court of Appeal and deserve their own article. I want, however, to take up one point raised in the judgment. Paragraph 67 includes the following:

We have to judge negligence by the standards of a solicitor of ordinary competence, the competence, that is, of a typical, reasonably well-informed high street solicitor, just like Mr Zimmer, not the Rolls Royce standards which the big City firms like Jones Day must and do uphold.

That is clearly right as a broad proposition of the law of professional negligence. I am not in a position to argue with the conclusion that, on the facts of this case, Zimmers were not negligent. The implication, however, that some solicitors can operate to one standard in this context whilst others have a higher one seems wrong to me.

You do not necessarily expect a High Street solicitor to excel at, say, cross-border litigation over complex financial instruments. This was not such a case – it was a straightforward High Court claim in contract for a relatively modest sum. The international element was both irrelevant to the claim and spot on Zimmers’ area of expertise (Mr Zimmer is dual qualified in Germany and in England & Wales and specialises in Anglo-German commercial matters). Furthermore, 40% of Zimmers’ work relates to litigious matters.

The rules relating to disclosure are not esoteric or of specialist application – they are a core requirement of UK litigation. This case involved no difficult aspect of the disclosure rules. What, then, puts this case outside the presumed competence of a “typical, reasonably well-informed high street solicitor”?

If one test applies to one firm and a different test to another, then one assumes that the proper advice to give a client who has a dodgy disclosure proposition is to go and find himself a High Street solicitor who will not understand it all. I doubt that this is what the Court of Appeal intended.

I have referred before to the Federal Practice Note on eDiscovery now pending in Australia. It includes the following statement:

The Court requires legal practitioners to be appraised of the basic capabilities of modern technology in so far as it relates to this Practice Note or, where they are not so appraised, to ensure they have access to advisers who have the necessary skills and experience.

It would be good to have a similar express statement in our rules, but that must surely be an accurate statement anyway of what is expected of a solicitor engaged in High Court litigation? If the law is off his patch or outside his reach, he engages a barrister. If expertise is needed as to the evidence, he engages an expert in the subject. His responsibility extends to choosing the right one. The same is true, surely, of any technological point which arises to do with disclosure or anything else.

Zimmers did in fact have expert help or, at least, the help of an expert. The point at issue, however, is not what Zimmers did or did not do, but the Court of Appeal’s broad proposition as to the standards of a solicitor of ordinary competence. “Ordinary competence”, to my eye, includes the ability to spot when you are out of your depth and to ensure that you have “access to advisers who have the necessary skills and experience” as the Australian Practice Note requires.

The ability to give and receive electronic documents is well within what is expected of a solicitor of ordinary competence, if only because the rules require it to be done. It is not, however, necessarily within the personal skill-set of every practitioner. If Digicel uncovers the obligations of the Practice Direction to Part 31 CPR and the downsides of ignoring it, Hedrich brings to light the existence of the wasted costs order jurisdiction.

Potential liability for negligence vis-à-vis your own clients is enough reason to seek help. A wasted costs order may be a limited risk in terms of the tests which an applicant must meet, but “any improper, unreasonable or negligent act or omission” by any other party is enough to bring him to the starting gate.

I generally prefer to talk of the carrots of electronic disclosure rather than the sticks – the work to be won, the hours to be saved, the strategic advantages of being on top of the material and so on. Both Digicel and Hedrich bring the sticks to the fore, highlighting some serious downside risks of getting it wrong. “Wrong” does not necessarily connote impropriety or negligence; misjudgment will suffice. If I were a solicitor on the wrong end of either situation, it would be Hedrich which would keep me awake at night.

My stick is your carrot, of course, and vice versa. Both these cases are an encouragement to the good guys. Digicel is power to the elbow of parties who may hitherto have overlooked the court’s jurisdiction to decide the scope – bigger or smaller – of disclosure. Don’t mess about with yards of correspondence, just set out your arguments, invite the other side to a meeting and hear their counter-arguments, then make an application as to the disputed parts. The wasted costs order jurisdiction is to be used with care, as Lord Justice Ward’s careful analysis shows, but in a case which is less of a quagmire than Hedrich it might be an effective threat against a party whose conduct (in disclosure or anything else) is the effective cause of costs thrown down the drain.

The tricky part lies in assessing whether the other party is being canny, difficult, perverse or ignorant and doing so at a sufficiently early stage to make a difference. Many years ago, I was in the Court of Appeal when the focus turned on some abstruse point, of estoppel I think, which was tangenital to the main issues. Counsel for my client was not perhaps as familiar with the subject as he might have been, and opposing counsel said audibly in open court “Don’t you know anything about estoppel, Smith?”. The sheer rudeness of it sent a gasp round the court, and I believe an apologetic note was sent later.

One does not need to go that far, but there is room at CMCs, in a Hedrich type case, for parties to try and flush out the extent of their opponents’ skill and knowledge as to electronic disclosure and to make representations as to what they think ought to be done. If you think that is going too far, just look again at the numbers set out above – the separate hearings and the costs incurred. It seems probable that the outcome would have been very different if closer enquiries had been made at an early stage. A very specific and dirigiste order of the kind made by the court in Digicel might, in Hedrich, have brought matters to a head very much earlier.

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About Chris Dale

I have been an English solicitor since 1980. I run the e-Disclosure Information Project which collects and comments on information about electronic disclosure / eDiscovery and related subjects in the UK, the US, AsiaPac and elsewhere
This entry was posted in Case Management, Court Rules, Courts, CPR, Discovery, eDisclosure, eDiscovery, Electronic disclosure, Litigation, Litigation costs. Bookmark the permalink.

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