Disclosure: Three Jurisdictions – Three Approaches

December 20, 2011

Disclosure and document management is nearly always the most expensive part of any dispute resolution, taking up to 80% of the total costs. Three different systems approach the problem of balancing the need for transparency and truth with the costs of this high principle. The US system values access to the truth as paramount. In a country of class actions and high damages awards, with attorney’s fees not generally being recoverable, the economics drive the principles. Civil law systems represent the opposite extreme with a brutal lack of disclosure placing a high burden on the individual to keep documentary records. This process is mitigated in cases of fraud or product liability (for example) where a greater burden can be imposed. The English system is, as one might imagine, a middle way, with court-managed disclosure but significant costs of the process and awards of costs to the successful party. If we are to have a commercially effective system of dispute resolution, the answer is probably going to be much more robust court management limiting disclosure to core probative classes of documents. The UK courts’ positive discouragement of litigation is all very well for the more speculative actions, but in the absence of US-style contingency it also excludes many from justice.


The American System: Discovering Truth

Edward Rippey and Chad Albert of Covington & Burling LLP outline the system in the USA

            Background — The American discovery system arms its litigants well.  At the outset, each party must reveal (with limited exceptions) all ‘individuals’ and ‘documents, electronically stored information, and tangible things’ that it ‘may use to support its claims or defenses.’  Fed. R. Civ. P. 26(a)(1).  The parties then may embark on ‘discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense.’  Fed. R. Civ. P. 26(b)(1).  See generally 23 Am. Jur. 2d Depositions and Discovery §§ 1-12, 21-30 (2011).  There are several powerful discovery tools to gain a thorough view of the litigation including, e.g., depositions to obtain oral testimony, interrogatories to obtain written testimony, requests for production to obtain hard copy and electronic documents, and other requests to obtain party admissions.  See Fed. R. Civ. P. 28-36.  The parties also may choose to stipulate around the rules to ensure that the discovery is well tailored for the contours of any given case.  See, e.g., Fed. R. Civ. P. 29.

                        Advantages — This thorough process of full disclosure undoubtedly increases the likelihood that the true facts are uncovered — and, therefore, that the correct outcome is attained in the litigation.  On the road to trial, the facts drive the litigation and become the best leverage in negotiations and in decisions about whether to abandon claims, settle, or proceed to trial.  And, for those claims that do reach trial, litigants win and lose based on the facts — all the facts — and do not need to worry about surprise attacks or an incomplete factual record.  Truth seeking becomes the ultimate weapon.  Because all relevant information is before the court, litigants can focus the judge or jury on their key facts and issues.  This leaves the decision maker with a complete, accurate, and vigorously vetted factual record on which fairly to decide the case.

This system, of course, comes with a monetary cost.  The path towards truth can be harsh for American litigants — especially when the truth hides among electronic documents.  Electronic discovery, or e-discovery, has become one of the most challenging aspects of any federal (or state) court litigation (with at least 90% of discoverable material now in electronic form).  And, as the amount of electronic information has grown, so too have the costs of discovering it.  E-discovery expenses, which may total several million dollars in complex litigations, are depleting an ever-increasing share of corporate litigation budgets.

But these costs are not lost on the system — which incurs a premium for a fair fight.  Many of the benefits of the disclosure requirements mitigate costs: full disclosure results in the overwhelming majority of litigants settling their cases before embarking upon expensive trials.  And some costs have begun to be dampened by courts invoking principles of proportionality and by litigants entering into stipulations.  In any event, even if e-discovery costs overshadow mitigation, the American system views such costs as warranted for reasons more significant than dollars and cents.  Full disclosure, though expensive, ensures that litigants have the tools to discover the truth and that courts reach the right result — and this is money well spent. 

The German System: Efficiency Guaranteed

Kim Lars Mehrbrey of Hogan Lovells International LLP summarises the German approach

What are the advantages of the absence of pre-trial discovery in German civil litigation? 

In brief, when talking about the German approach to discovery, it can be said that German civil litigation does not know pre-trial discovery. But what does that actually mean? As a matter of fact in German civil litigation no party can be forced to deliver to the other party the tools to construct a case. ‘Fishing expeditions’ are forbidden which prevents Anglo-American style fact-gathering.

Focus on probative facts – In German civil litigation it is the parties’ responsibility to provide the court with all probative facts; only those facts presented by the parties will be considered by the court. The parties and the court focus on those facts only and the court leads through the procedure and decides whether the facts presented by the parties are relevant or not.

Speed – As German civil procedure does not include a pre-trial phase, there is no time consuming exchange of irrelevant documents. Accordingly there is no need to sift through one million documents in order to find two relevant documents or to translate thousands of documents while only few or possibly even none of them turn out to be relevant. Also, fact-gathering occurs only once, with the judge being present. The inquiry can concentrate on those facts that the judge considers to be relevant. The court gives the parties guidance regarding the need for evidence for certain factual contentions, if necessary. Consequently, no time is wasted (in and outside of the courtroom) on a matter likely to be irrelevant to the court’s decision. .

Cost efficiency – While the pre-trial phase is the most costly phase in the Anglo-American system, such costs do not accrue in German civil litigation. There is no pre-trial discovery and hence no costs are incurred by the parties’ search for the needle in the haystack. In German civil procedure, fact and law finding are intertwined in one process with the judge carrying the main responsibility for gathering and sifting evidence. Witnesses and court-appointed expert witnesses are generally examined only once (mainly by the court). Thus the costs for multiple testimonies by witnesses and expert witnesses are avoided. Moreover, court-appointed expert witnesses are guided by the court and testify only regarding questions put by the court.

Protection of confidential information – Companies do not have to disclose confidential information to their opponent. Not having extensive pre-trial discovery prevents the exposure of trade secrets and other confidential information. In addition, the German system has wide-ranging privileges. A witness may refuse to testify with regard to questions which the witness could not answer without disclosing a trade secret. As a positive side-effect, the German system cannot be (ab)used to obtain confidential information from a competitor by commencing proceedings based on a claim without merit.

More liberty to decide whether to settle or not – Pre-trial discovery generally favours the wealthier side as it enables the wealthier side to drain the other’s financial resources. The German approach to discovery, on the other hand, protects the poorer party as it does not provide the wealthier side with the tools to drain its opponent’s resources. Accordingly, the wealthier side cannot extort a settlement from the defendant. The poorer side has the liberty to decide whether to settle or not regardless of its financial means.


The English System: A Middle Way?

Alexander Carter-Silk, Head of Technology and IP at Speechly Bircham, offers an account of the system in England and Wales


1.                    Standard disclosure

The rules of disclosure are dealt with in the UK under the CPR (Civil Procedure Rules) specifically Part 31 ‘Standard disclosure’, which sets out what documents are to be disclosed in the course of ‘Standard Disclosure’. This requires a party to disclose only (a) the documents on which he relies; (b) the documents which (i) adversely affect his own case; (ii) adversely affect another party’s case; or (iii) support another party’s case; and (c) the documents which he is required to disclose by a relevant practice direction. The process is in two parts; first a disclosure of the documents by identifying them in a prescribed form of list and second by permitting the other party to inspect those documents. The disclosing party may object to inspection on a number of grounds, including privilege or confidentiality; in the latter case the court may protect the confidentiality of documents by proscribing who may see the documents, eg viewing may be limited to counsel or experts. There are a host of subsidiary rules, including a requirement that if a document is disclosed in a pleading or witness statement it must be produced. The over-riding objective of ‘proportionality’ is maintained and this includes refusing to provide documents for inspection where it would be disproportionate to do so (CPR, r 31.3.(2)(b)).

2.                   The costs issue

Litigation in the UK is underpinned by the presumption that costs follow the event; this means that the loser pays the winner’s legal costs. The courts are driven to balance the interests of the parties and reduce the impact of the costs penalty by managing the process of disclosure. Excessive demands for documents which have little probative value (or are unlikely to have such value) are prohibited. The CPR, r 1.1 sets out the requirements ‘(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly. (2) Dealing with a case justly includes, so far as is practicable – (a) ensuring that the parties are on an equal footing; (b) saving expense; (c) dealing with the case in ways which are proportionate – (i) to the amount of money involved; (ii) to the importance of the case; (iii) to the complexity of the issues; and (iv) to the financial position of each party; (d) ensuring that it is dealt with expeditiously and fairly; and (e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.

3.                   e-disclosure

The volume of documents in electronic data bases is nearly always much greater than in conventional cases, if for no other reason than electronic communication tends to be more conversational. In a series of cases the courts have set down guidelines and practice directions have been issued which require parties to co-operate. Provided that a reasonable process is adopted and followed, the fact that a smoking gun is missed will not be treated adversely by the court (Digicel (St Lucia) Ltd v Cable & Wireless plc [2008] EWHC 2522 (Ch); Goodale v. Ministry of Justice [2009] EWHC 3834 (QB))

4.                   Balance

The costs of litigation undoubtedly prevent access to justice and the need to balance the search for the truth with the risk of procedures being used tactically in favor of a wealthy litigant is front and center but the costs penalty of losing a claim and the risks of being ‘out litigated’ by a skilled use of the rules remains a concern for the UK system. The quality of the UK decisions is high and any suspicions of parties using the rules to hide from adequate disclosure are frequently punished in significant adverse costs orders. Lawyers have a duty to advise their clients on the duties to disclose and turning a blind eye to relevant and probative material would be unwise. This quality comes at a price and recommendations by Lord Jackson in his 2010 Report on costs in the costs of Civil Litigation in the UK made the need for active case management of these issues a high priority.  


American Response to The German System: Efficiency Guaranteed (from Edward Rippey and Chad Albert of Covington & Burling LLP) 

The German discovery system apparently provides litigants with a relatively quick and inexpensive process.  This is, of course, admirable.  From an American perspective, however, this system does little to ensure a just and proper outcome.  In a system barren of true discovery weapons, parties have the latitude to skew the facts by cherry-picking favorable evidence, burying adverse evidence, and presenting testimony by witnesses who are not kept in line by the threat of cross examination and impeachment.  And judges, it seems, would have greater difficulty ascertaining the truth at the heart of a dispute.  In some cases, it seems likely that a court would reach a different result if the parties could dig for all relevant facts.  In short, the German system appears to sacrifice truth for efficiency — which is a trade-off not made by the American system.

Kim Lars Mehrbrey of Hogan Lovells International LLP does not agree

The German system may seem to sacrifice truth for efficiency and the protection of confidential information, but only at first sight. German courts have realized that due to the burden of proof and the lack of pre-trial discovery the claimant generally can be seen to be at a disadvantage and have found a way to ensure a just and proper outcome without having to sacrifice efficiency and the party’s privacy. The German system recognizes certain exceptions to the general principle that every party has to prove the facts in its favour.

Under certain circumstances the burden of proof shifts from the party on whom the burden of proof normally lies onto the opposing party. Furthermore, German courts recognize an alleviation of the standard of proof under certain circumstances. One example is the so-called prima facie evidence (the concept of which is similar to the Anglo-American concept).

That way the German system achieves a fair balance between efficiency and the need for protection of confidential information, on the one hand, and the need for a just and proper outcome, on the other.