This article was first published in the May 2012 International edition of Accounting and Business magazine
For most companies today, digital technology is an integral part of their business, and more and more data is kept electronically, frequently without a paper version. Electronic discovery (often known as e-discovery, or e-disclosure in the UK) is therefore gaining huge significance as a tool used by auditors and internal auditors in audits and investigations, and by lawyers in litigations.
But in practice, a globally unified approach to e-discovery, a universal concept of discovery that theoretically can be applied in any country with a sufficiently developed legal system and technological infrastructure, is hampered by a complex mix of legal, procedural and other factors.
The countries of Central and Eastern Europe (CEE) are an interesting case study because they illustrate how these factors interact, often with negative results. ‘When it comes to the technology used in e-discovery, there are not real differences between, say, Poland and the US, but different legal systems and data protection issues complicate standardised approaches to e-discovery,’ says Tomasz Dyrda, executive director and forensic team discovery services leader for central and southeast Europe at Ernst & Young.
The Zubulake v UBS Warburg lawsuit, involving gender discrimination and heard between 2003 and 2005 in the US, is generally regarded as a key moment in the history of e-discovery. The lawsuit was the first definitive case on a full range of e-discovery issues such as the scope of a party’s obligation to maintain electronic evidence during litigation, and the lawyer’s duty to monitor that the client complies with data preservation. This case and other opinions formed have provided American lawyers with best practice.
The growth in electronic data emphasises the importance of the case, and since then the volume of electronic data kept by firms has only increased. Companies everywhere are receiving, generating and storing substantial and increasing amounts of information, 93% of which, according to a 2001 study carried out by the University of California, Berkeley, is created electronically. ‘Without the use of e-discovery, 95% of an average company’s documents would be inaccessible,’ says Dyrda.
E-discovery is used as a discovery instrument most frequently in Western countries, especially in the US and the UK, where demand for e-discovery services is the greatest. Both countries are leaders when it comes to developing new technology for e-discovery, and developing best practice for e-discovery. In terms of awareness of e-discovery among businesses, practitioners note clear differences between the ‘West’ and central European countries. In contrast, in central Europe the picture is more mixed.
Regarding e-discovery technology, practitioners argue that there are no major differences between the CEE countries and elsewhere. ‘Poland, the Czech Republic and Hungary have caught up,’ explains Dyrda. But Frederick Gyebi-Ababio, director of E-Discovery Europe, an e-discovery consultancy, states that processes in the Czech Republic lag behind those of the US and UK. ‘I recently met the state prosecutor of the Czech Republic, and he told me that he believes that the Electronic Discovery Reference Model (see box, above) has not been fully followed in some cases in the Czech Republic.’ Gyebi-Ababio notes that all aspects of the six stages in the model are adhered to, or that the stages are not followed in sequence. ‘This means that the procedure is not being carried out properly,’ he adds.
Gyebi-Ababio believes that the lack of a unified approach to e-discovery on a global level underlies some of the current problems in central and eastern European practice. Detailed best practice guidelines are followed in the US, but in other countries much has still to be done and guidelines are lacking. Such ignorance is also reinforced by what Gyebi-Ababio believes is a lack of progress on promoting global best practice, which has a negative impact on companies.
When e-discovery started to be used in the US and the UK, many firms had concerns about the extra costs imposed by e-discovery requests. Costs have been reduced in some ways through new technology ‘but unnecessary costs are generated elsewhere’, Gyebi-Ababio explains, because of uncertainty and confusion. In response, he is organising an international conference to be held later this year in Prague, which he hopes will be a forum to encourage debate on best practice as well as promoting greater understanding among e-discovery practitioners.
The lack of awareness of e-discovery, even among some lawyers, prosecutors and judges, is cited by practitioners as another reason why e-discovery in CEE countries lags behind. In many cases, apart from those professionals working for global legal and accountancy firms, professionals such as auditors do not know enough about e-discovery and how crucial it can be in an audit or lawsuit.
Pavel Jankech, senior manager of Forensic Technology Solutions at the Czech office of PwC, cites an example in the Czech Republic, where ‘many legally educated professionals have an inherent mistrust and suspicion of anything related to technology’. Strengthening legislation to combat ignorance of e-discovery could be one solution to this problem. ‘In the UK there is anti-bribery legislation, in the US, the Foreign Corrupt Practices Act and in Germany there are compliance laws, but in Poland there are no equivalent laws,’ says Dyrda.
The legal problem
But the situation is not helped by a factor not within the control of the parties in a dispute: the legal systems governing e-discovery in particular countries. The US and UK use common law, but on the European continent civil law applies. ‘It appears that countries with a common law legal system are in a better position to adapt than countries with a civil law system because legislation under the latter needs to change appropriately,’ notes Jankech, explaining that civil law systems are more cumbersome and less flexible than those where a gradual development of precedents applies. Consequently, in the US and UK, changes to e-discovery practice can be introduced and developed more easily than in continental European countries.
Another factor beyond the control of auditors or parties involved in lawsuits is the hugely complex issue of European Union (EU) legislation on personal data protection. For example, an international company has a branch in the US and a branch in an EU nation. A request for employee data or customer-related data can be made in both countries, but information from the Czech branch can be completely refused under Czech data protection legislation, enacted in compliance with EU data protection principles.
‘This is a pressing problem that needs to be addressed because lawyers are caught in the middle,’ argues Gyebi-Ababio. ‘What’s more, the situation is even more complicated because although all countries must comply with European data protection principles, data protection laws vary from each EU country. And in France, Germany and Switzerland, blocking statutes apply in legislation, adds Dyrda. Jankech, however, sees some benefits of the EU data protection approach: ‘It will also harmonise the data protection rules within the EU and, as such, may increase transparency and crossborder applicability of practical solutions.’
Practitioners also describe a general confusion about the type of data that can be requested, gathered and processed under data protection rules. This causes frequent problems because parties are unsure of how exactly the EU data protection laws should be applied. ‘We at PwC deal with multijurisdictional cases very often. It is not uncommon that an initial request for the discovery of electronic data, which come most often from the US, needs to be narrowed down or entirely cancelled, mainly due to personal data protection limitations,’ says Jankech. ‘So it is interesting to note that the European Commission proposed a major reform of the EU legal framework on the protection of personal data to integrate approach across the EU and further strengthen individual rights,’ he adds. When it comes to the future of e-discovery in CEE, analysts take a similar view, arguing that greater agreement on best practice is needed, as well as education. ‘We’re not at the stage where companies are involving internal auditors in formulating e-discovery policies or creating e-discovery teams,’ says Dyrda. Jankech also argues that much needs to be done. ‘I do not see a simple, straightforward solution. It is going to be a long-term process of educating all of the involved parties.’
*What is e-discovery?
E-discovery has been used since the beginning of the 21st century but, as a field, has developed rapidly to become a key feature of evidence-gathering in civil litigations. E-discovery starts on submission of an e-discovery request, which in a lawsuit marks the pre-trial phase of a case, where the parties obtain evidence from the counterparties. E-discovery is a subset of the discovery (disclosure) process because it specifically involves data in electronic format, known as electronically stored information (ESI), such as emails, word documents and audio and video files. Special e-discovery software designed to read such data is used in the process.
Over the years, best practice in e-discovery has evolved, which should be followed by those involved in e-discovery procedures, including lawyers, auditors, internal auditors and information technology staff. A key feature of best practice is the Electronic Discovery Reference Model (EDRM), which comprises six stages, including sub-stages, starting at information management and finishing at presentation.
David Creighton, journalist