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A question of proportionality

Cover Story
|Written By Robert Todd
A question of proportionality

Few business leaders would question the notion that the digitization of society has provided a net benefit to their organizations. The shift to a paperless world has created a never-ending list of efficiencies, with everything from transaction processing to communication with associates in far off places now easier than ever.

Of course, few things in life come without a downside. For many businesses, the preponderance of data they now hold in electronic data storage systems creates headaches when they face significant litigation. It can cost millions of dollars to meet disclosure requirements in civil courts, where traditionally most Canadian jurisdictions have expected any materials with a “semblance of relevance” to be disclosed. Accordingly, over the past decade companies often opted to resolve matters rather than bear the cost of disclosure.

Luckily, the courts acknowledged that this situation was untenable, as the e-discovery burden had effectively created an access to justice barrier. In the past several years, many of Canada’s busiest civil courts have altered their rules of procedure to introduce the principle of “proportionality.” The concept entered the country’s legal lexicon through Sedona Canada, which spearheaded efforts to reform court procedures in light of the new e-discovery reality. One of Sedona Canada’s main principles deals with proportionality. It says in any proceeding, the parties should ensure that steps taken in the discovery process are proportionate, taking into account the nature and scope of the litigation, including the importance and complexity of the issues as well as the interest and amounts at stake. The principle also notes the process should consider the relevance of the available electronically stored information, its importance to the court’s adjudication in a given case, and the costs, burden, and delay that may be imposed on the parties to deal with electronically stored information.

These considerations have guided recent rule changes in Ontario, Nova Scotia, and British Columbia, where litigants can now rely on proportionality considerations when navigating the discovery process. (See sidebar for details on the specific rules in these jurisdictions, as well as Alberta’s approach.)

The promise of proportionality cannot be understated. Litigants longed for the rule changes that have been recently enacted, viewing them as the best way to ensure cases were decided on the merits, rather than the cost of putting a defence together. Yet there have been mixed reviews from those on the ground in terms of just how useful they have been.

Kelly Friedman is a partner with Davis LLP in Toronto and chairwoman of the steering committee of Sedona Canada. She points out Canadian jurisdictions had the benefit of looking at the experience of litigators in the United States when drafting proportionality rules. Most jurisdictions there have been trying to tackle the rising cost of discovery for some time now, but the results have been mixed at best. Friedman believes the proportionality principle was a typically Canadian response: “The way good Canadians do, we balance everything, and so proportionality should work,” she says.

Yet many U.S. counsel have told Friedman their approach is largely in line with Canada’s vision of proportionality, and it simply hasn’t worked. But she retorts that a lot of it has to do with individual courts’ approaches, rather than any overarching rules. Some judges and masters in Canada began conducting proportionality tests before new rules had even come into play. Unfortunately, most of them struggled with the idea that only materials relevant to the litigation should be produced, and were uncomfortable balancing that right against other considerations.

Now that proportionality is enshrined in rules, judges and masters have recognized that the test for production is no longer simply relevance, which has become only part of the current test in Ontario. “You’re absolutely not entitled to it if it’s not relevant, but if it’s relevant you still may not be entitled to it,” Friedman explains. “Because it has to be proportionate in terms of what it will ultimately mean for the resolution of the case, compared to all of the various burdens of obtaining it.” No longer, for example, should litigants see situations that used to arise where masters would permit any discovery request barring obvious evidence of abuse of process. “Now they have the tools, so we’re seeing decisions reflecting that,” she says.

Gordon Jermane, assistant vice president and counsel at Manulife Financial in Toronto, is one lawyer who has embraced this new approach to litigation. “We know, as litigators, it can help to bring matters down to the most important aspects of a case,” says Jermane. “Whether we’re talking about the discovery stage, trial, interlocutory motions, and ultimately costs that are awarded, we know that there’s no area in litigation that can’t be looked at through the lens of proportionality. It’s really just limited by counsel’s creativity.” And because the rules are so new, litigators have only touched the surface of their many potential uses. “It’s possible to take this thing much further, and to really come up with novel and interesting ways in how to deploy it,” he says.

Jermane has already experienced first-hand the benefits of proportionality. In one of his recent cases, counsel was able to compress what previously would have been a three-day trial into two days. The matter against Manulife was ultimately dismissed, at which point proportionality again came into play. Rather than receiving an amount for costs equivalent to 49 per cent of the amount claimed, Manulife received 42 per cent, with the judge pointing to proportionality as a key consideration for the lower amount. While that award may sound like a step backwards, Jermane was pleased with the end result. “We succeeded at trial, got a very large measure of our costs awarded to us, and ultimately everybody is happy because we all understand proportionality is a good thing for litigators. . . . We really have to ask ourselves if we can make things easier for ourselves and one another, and ultimately for the courts, by looking at things through that principle of proportionality.”

Yet he says one potential downside of the new principle could come down the line, when arguments may begin to arise suggesting proportionality threatens the right to a fair trial. If that does happen and due process is impaired, courts and litigators will need to revisit their approach.

Jermane also believes the new rules will need to be tested with regard to the utility of discovery plans, shortened examination for discovery, and other areas that are currently injecting front-end costs into the system. It’s still too early to tell whether those efforts early on in the process will make way for more efficient litigation on the back end. There have already been cases where discovery agreements themselves became contentious documents that required a lengthy period of time to be agreed upon.

It’s likely that these issues will be ironed out as counsel become more familiar with the new rules, although some lawyers appear to be circumventing the principle in the meantime. “All of these new rules really count on the co-operation and, in some ways, the civility of counsel,” says Jermane. “So where you have counsel who wish to use the new rules as a tool to create inefficiency and create new costs into the process, I think the rules are sort of allowing for that right now.”

Rocco DiPucchio of Toronto’s Lax O’Sullivan Scott Lisus LLP knows the added burden proportionality rules can place on litigants in complex cases. He helped draw up a discovery agreement — now required under Ontario’s rules — as counsel to Enbridge Pipelines Inc. in a matter against BP Canada Energy Co. The agreement was applauded in a June 2010 decision by Ontario Superior Court Justice Colin Campbell, who served as chairman of Ontario’s Discovery Task Force and is a member of the Sedona Conference advisory board.

While the agreement was drafted before the new rules came into play, DiPucchio notes both parties and Campbell knew the proportionality principles were on the horizon, and kept them in mind when creating the plan. He notes it took the two sides about a year to negotiate terms of the discovery agreement, and suggests it’s unclear whether the investment will pay off. “In these types of complicated commercial cases, involving hundreds of millions of dollars, we’re not talking about discovery agreements that will take weeks to finalize, even when you’re dealing with co-operative counsel,” he says. “You may be talking months, or more, to reach agreement.” In the end, that reality is in direct opposition to the intent of the new rules, which seek to streamline the process and avoid stalled litigation.

Nevertheless, DiPucchio remains optimistic the rules still have the potential to serve as a positive development for corporations involved in litigation. He sees corporate counsel playing a big role in making that happen. “If in-house counsel are prepared to take the time to get to learn about the way documents are retained in their organizations, and the types of documents that are retained, then the payoff in large commercial cases might be quite visible, if they’re able to successfully resist document requests that are otherwise excessive or unreasonable.”

Melanie Schweizer, senior litigation counsel at Bell Canada, is the type of corporate counsel who has embraced the rules and placed her organization ahead of the game. She believes proportionality has made it easier to confront opposing counsel to reach reasonable agreements on discovery plans. It’s also made it more likely that counsel will successfully lobby for a staged approach to discovery, which can help move litigation forward in a more expeditious and cost-effective manner. Rather than starting production by disclosing everything relevant and available on a company’s global document storage system, for example, it’s now easier to start off by handing over a single, most relevant database.

The primary drawback to proportionality, as Schweizer sees it, is the fact that it means different things to different people. The definition is sure to tighten as case law develops, and in the meantime it gives counsel some wiggle room to make creative arguments. On the other hand, uncertainty is rarely a good thing. “I hope it isn’t the case the courts say, ‘If you have a defendant with sufficient resources, anything is proportionate, because to spend a couple million dollars is no big deal to a large public company,’” says Schweizer. “I think the downside could be in how it’s interpreted, and the fact that it isn’t a bright-line test.”

Meanwhile, Schweizer believes corporate counsel may need to spend ?some time educating outside counsel if they wish to get the most out of the ?proportionality principle. Simply put, some lawyers seem unwilling to embrace the new rules. For them, the notion of coming to the table with the opposition for collaborative discussions goes against their litigation instincts, viewing it as giving up too much in terms of strategy. This mindset means in-house counsel need to make sure lawyers are on board with the new approach. “I’ve in the past sent papers to outside counsel to have them take a look at, and have discussions about it,” says Schweizer. “If I know there’s somebody in that lawyer’s firm who is maybe a little further along in their thinking on this issue, I sometimes ask them to speak to one of their partners or someone else in the group who might know where I’m coming from a little bit more.”

The rules have certainly put the spotlight on in-house document retention. Tom Donovan, a partner at Cox & Palmer’s Halifax office, notes Nova Scotia’s new rules make clear that an inadequate record-keeping system is not an excuse when it comes to disclosure. He believes someone will eventually lose out based on that rule, so his firm is encouraging clients to take a proactive approach to maintaining documents. Unfortunately, many of them appear to be unwilling to invest adequately in those efforts. But that’s certainly not the case for all. He points out that many construction companies have begun putting relevant documents in litigation databases from the outset, due to the high volume of litigation that surrounds most development projects.

Meanwhile, even those lawyers — whether in-house or outside counsel — who are on board with proportionality are finding the new rules have at times thrust them into uncharted waters. Many have been caught off guard by the way in which some courts are incorporating the principle more broadly than expected. Derek Ricci, a litigation partner at Davies Ward Phillips & Vineberg LLP in Toronto, represents Domino’s Pizza of Canada Ltd. in an ongoing matter against Solutions with Impact Inc., which is seeking $2 million in a contract dispute. He was surprised by Master Donald Short’s decision in January 2010 to incorporate proportionality in a ruling on a motion for separate discovery of witnesses. Neither he nor opposing counsel raised the issue, and Ricci admits the thought never occurred to him, as it was his impression that proportionality would be aimed almost solely at production of documents. Yet Short spent 20 of his 73 paragraphs in the decision explaining how the new rules applied to the examination for discovery motion.

Short ruled in Ricci’s favour in that case, but the example demonstrates the need for all counsel to get up to speed on the new rules to avoid being blindsided. With that in mind, Ricci sees the potential for the principle to close the gap between deep-pocketed litigants and their less well-off opponents, making it all the more important to think through proportionality early on. “It’s sort of the flipside of the coin,” he remarks. “If it’s going to reduce obligations and costs on smaller files, then the opposite could also be true on multi-hundred-million-dollar lawsuits. Where the stakes are very high, you might have to go further in your document production than you otherwise would.”

While there have been several decisions like Short’s in Canada’s courts since the new rules have come into play, there so far have not been reports of an explosion of motions in battles over proportionality and discovery plans. It’s impossible to say why that is, but Davis’ Friedman believes it’s because the principle is working — litigants know their demands must be proportionate.

Regardless, corporations defending a case now have the luxury of identifying what data could be relevant to the matter, and can proceed by ranking what is most important to finding a resolution. Their counsel can prepare arguments to the other side and outline what information is proportionate in the context of the particular case. “That’s how it’s affected deep-pocket players,” explains Friedman. “It’s given the companies that have a lot of money the ability to say, ‘OK, you can’t say to me, just because I’m a $100-million business, I have to do e-discovery that’s going to cost $1 million.’ That’s simply not defensible anymore. I’m entitled to look at this specific case, the issues in this case, what’s needed to resolve this case, various burdens on my company — not just costs, but privacy issues, confidential information, the time of my IT staff and my operations people in doing this — into the balance of whether you deserve to get it or not.”

At the end of the day, that means Friedman’s clients are no longer being forced to effectively pay ransom and settle cases because it’s cheaper than litigating. So while uncertainty is a reality right now when it comes to certain aspects of proportionality, the new rules have helped turn the tide on the tidal wave of discovery requirements that threatened to create long-term disparities in Canada’s civil courts.

The online version of this story has been changed to clarify the amount of costs received by Manulife in its case involving proportionality.

  • Gordo

    Ken Dougan
    I went to university with Gordo while I was in Graduate School at the U of M. He is a very intelligent and thoughtful individual. I proud to say I know him.