Inadvertent mistake in commercial litigation – a journey of discovery

The High Court has given litigants, lawyers and Australia’s commercial courts a newsflash on how modern-day cases must be run, what their focus should be, and a strong reminder about solicitors’ duties in the process.

These days, commercial litigation often requires huge amounts of time, and so big legal costs spent on the document stage - the discovery process. 

The backdrop

It was a discovery dispute that consumed considerable time, cost and court resources in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46, delivered on 6 November 2013 – way too much in the unanimous decision of the High Court bench.  And, in circumstances where everyone agreed a mistake had been made, namely inadvertent disclosure by the defendants’ (ERA parties) lawyers in the ERA parties’ lists of documents and their production.

The case’s backdrop will be a familiar one to participants in major commercial litigation – a discovery involving 60,000 documents, a team of junior lawyers reviewing those documents for privilege, uploading them into an electronic database and “coding” them for “relevance” and “privilege”.  The task of the inexperienced legal review team was to code documents in the database with either a “yes” or “part” in the “privilege” column, alongside columns showing “document type” and “description”.  A more senior lawyer then did a sampling “audit” to check document descriptions against the draft lists prepared by the juniors.  All of this is stock standard operating procedure.

The ERA parties’ lawyers made a mistake in the discovery process.  Thirteen of the defendants’ documents subject to a claim of client legal professional privilege were inadvertently disclosed to the plaintiffs’ (Armstrong parties) lawyers.  The mistake had been made in listing the privileged documents in the non-privileged part of the defendants’ lists of documents.  Nine of them appeared in both the privileged and the non-privileged parts of the list.  All 13 were produced for inspection on disks.

The Armstrong parties’ lawyers wrote to the ERA parties’ lawyers pointing out an apparent inconsistency in the defendants’ discovery with privilege claimed in respect of some communications, but not others.  The ERA parties’ lawyers responded thanking their opponents for pointing out the mistaken production of privileged documents.  They explained that the document review team had inadvertently not marked those documents as privileged when they clearly should have been.  They confirmed that the ERA parties maintained their claim of privilege over the inadvertently produced privileged documents, requested a return of the disks containing the privileged materials and an undertaking that the inadvertently produced privileged documents would not be relied upon in the proceedings, or otherwise.  The Armstrong parties’ lawyers replied saying that they had no obligation to return the disks, and that any privilege in the documents of concern had been waived.

This led to lengthy litigation on what the High Court said was a tangential issue to the main commercial dispute between the litigants in the proceedings.  The ERA parties sought injunctive and other relief in relation to the inadvertently produced privileged documents of their clients.  The Armstrong parties resisted the injunction application.

The litigation journey

While the High Court acknowledged that the rules of the court in question¹ required a party giving discovery to accurately list the documents available for production and inspection, it also observed that in large commercial cases, there was, nowadays, an increased risk of privileged documents being disclosed by mistake.

The Armstrong parties didn’t contend there was anything inappropriate or inadequate about the document review, identification and coding process used by the ERA parties’ lawyers.  Nor did they dispute that a mistake had been made by the ERA parties’ lawyers.  Rather, they argued that privilege had been waived over the disclosed documents in question.

At first instance, the Chief Justice in Equity in the NSW Supreme Court found that nine of the privileged documents were disclosed inadvertently.  Her Honour ordered, in effect, that the plaintiffs’ lawyers return the disks containing the privileged communications to the defendants’ lawyers.  On appeal, the Court of Appeal found that there had been a waiver of privilege, and reversed the first instance decision.

The High Court found that the issue of waiver should never have been raised - there had been no waiver.  The discovery issue had gone off on an interlocutory tangent that should not have been allowed to occur if the modern day approach to commercial litigation had been adopted, namely adherence to case management principles.  That meant, in particular, meeting the objective of “the just, quick and cheap resolution of the real issues in the dispute or proceedings”.

Special attention was paid to how lawyers and the courts should approach the matter of a mistake, the fact of which was not in dispute, and which the lawyers who’d made it had acted promptly to remedy, being made in the discovery process in a large commercial matter. 

There were both general and specific powers at the Supreme Court’s disposal to allow defects or errors in the proceedings being corrected.  The High Court concluded that the Supreme Court should have promptly directed that the ERA parties’ lawyers be permitted to amend the ERA parties’ lists of documents, and that the Armstrong parties’ lawyers return the disks to enable the privileged documents to be deleted.  Their Honours noted that:

[s]uch a direction and orders would have obviated the need to resort to the more complex questions concerning the grant of relief in the equitable jurisdiction.  It would have served to defuse the dispute and dissuaded the Armstrong parties from alleging waiver.  It accords with the overriding purpose and the dictates of justice.

It could hardly be suggested that the pursuit of satellite interlocutory proceedings of the kind here in question in any way fulfils the overriding purpose of the [procedural rules].  To the contrary, it is the very kind of conduct which should be avoided if those purposes are to be achieved.  It involved a relatively minor issue relating to discovery, the resolution of which appears to have offered little advantage to the Armstrong parties.  Its determination went no way towards the resolution of the real issues in dispute between the parties.  Instead, it has distracted them from taking steps to a final hearing, encouraged the outlay of considerable expense and squandered the resources of the Court.

The High Court also took the opportunity to remind lawyers of their duties in respect of receiving privileged documents.  It has been codified.²  It requires a lawyer to return material, which is known or reasonably suspected to be confidential, where the lawyer is aware that its disclosure was inadvertent.  The duty requires notifying the other lawyer of the disclosures and returning the material.

Lavan Legal comment

This decision highlights the need to apply rigour and attention to detail and accuracy in the discovery process, while recognising that in modern day commercial litigation, mammoth document review and listing processes can and do see inadvertent mistakes being made.

If mistakes are identified and the other party is notified early in the inspection phase of the discovery process, the court has the power to allow listing errors to be corrected quickly, and lawyers have professional and ethical duties to assist the court to facilitate the overriding purpose of modern day case management.

The obligation to support the objectives of the proper administration of justice is paramount.  As the High Court noted, unnecessary and costly interlocutory applications should be avoided.

¹ Uniform Civil Procedure Rules 2005 (NSW), r.21.4

² Australian Solicitors’ Conduct Rules, rule 31 – adopted by the Law Council of Australia