RESOURCES - Archiving Articles - Email Evidence

Anything you e-mail may be used in evidence. Litigation is increasingly decided on whether a company can, properly track its electronic data, and most corporations,can't, writes Claire Smith. In May, Morgan Stanley found itself on the receiving end of a legal judgment that has spread alarm among executives across the US. The firm was ordered to pay $1.45bn (£787m) in damages to Ronald Perelman, a corporate raider, after a jury ruled that the bank behaved improperly when he sold one of his companies to its client Sunbeam. But as if that were not bad enough, $850m of the damages were awarded because of Morgan Stanley's inability to produce the electronic documents the judge demanded.

The bank kept uncovering new back-up tapes of its e-mails, it found it could not perform searches of its computers because of technological problems and it gave material to the other side that was either late or incomplete. In the end, the Florida state judge took the unprecedented step of telling the jury to assume the bank was at fault because of its poor document management. Morgan Stanley found itself in trouble because of the way it handled its electronic data, an issue that is increasingly critical in litigation on both sides of the Atlantic. Lawsuits can now swing on a single e-mail, and companies must be able to hand over swaths of information if they are properly to defend themselves.

Most businesses are not geared up for this, according to Martin Carey, electronic disclosure specialist at Kroll Ontrack, a litigation support consultancy. "I haven't yet met anyone in the UK that is prepared for large-scale electronic disclosure," he says. Lawyers say organisations need to wise up to this soon if they are to avoid similar problems to Morgan Stanley's. Some 90 per cent of business information is now created and stored electronically, and as much as 70 per cent of that is never converted into hard copy.

Cy Benson, a litigation partner in the London office of New York law firm White Case, says: "We tell our clients there are three important aspects of this that they need to pay attention to straight away." Businesses need not only to formalise document retention systems, he says, but they must also have a litigation response plan in place before matters arise. That means knowing where all the information is, how to access it and, crucially, how to make sure no data is tampered with once a case gets under way. "There is no question that, at a minimum, when litigation becomes anticipated there has to be an ability to immediately preserve the electronic documentation, including information that might routinely be destroyed," says Mr Benson. "If you can't do that, then you are going to be at risk of sanctions and other serious consequences." The third important point for companies is to stop employees writing careless e-mails, he says. Some multinational organisations have now gone as far as to introduce pop-ups on all their personal computers that remind staff daily about the risks of committing data to a hard drive that they would not want others to read.

Neil Mirchandani, a partner at Lovells, the City law firm, says: "What companies do depends on how much litigation risk they face. But all companies must deal with the culture issue. Anything that is put on to a computer is for all intents and purposes there for good." He says a document-retention strategy is the key, and if your strategy is well formulated, such that you make clear what information you will store and what you will destroy, you are unlikely to run into problems. Even if you have got rid of a document that later becomes crucial, at least you would be able to prove it was done as part of normal procedures, rather than for underhand reasons.

The biggest issue for clients and lawyers alike is the lack of clarity on just what the courts are going to expect companies to be able to do. In the US, electronic disclosure has become such a feature of the courtroom that everyone knows they will have to hand over swaths of computer data if they are hit with a lawsuit. In Britain, the rules are still very much in development. The English courts have so far adopted an approach based on proportionality, according to Guy Pendell at the law firm CMS Cameron McKenna. In other words, in small cases with little at stake there may be no point in a company spending thousands of pounds tracking down e-mails on the subject going back five years. For big fraud cases, the cost might be justified. "You often have documents spread over a wide area, with various means of storage and media, and it can be extremely costly to pull that together and work out what needs to be searched and what needs to be handed over," says Mr Pendell. In all litigation, companies have an obligation to produce all the relevant documents for the court. Although UK judges may be less demanding than those in the US, any company with exposure to litigation in America needs to be prepared to comply with their rules.

Simon James, of the law firm Clifford Chance, says: "You need to know where you keep your records, how they are kept and what back-up systems you have. If litigation does come over the horizon, you do not have a lot of time to find that stuff. Once you know what you have, you have to have the ability to freeze it, because if anything is destroyed the courts will draw an inference against you." It can all sound frightening, but it need not be. Putting the correct systems in place means companies should ultimately be able to defend themselves better than ever before. Guy Henderson, a partner at the law firm Allen Overy, says: "It used to be the case that disclosure made little difference to the outcome of a case, and where it did it was a process that favoured the dishonest over the honest. Unless you caught someone red-handed at the shredder, it was very hard to prove anything had been done wrong." Now anything generated by computer is there for ever, and if you are sued, the courts will want to see it. The good news is that if you have behaved properly, it is now simply a case of finding the data to prove it.

Source: Financial Times, 8 September 2005