Blockchain law: A "Telegram" to SAFTs: "Beware!"
Robert Schwinger discusses one approach issuers have tried in order to avoid facing securities law requirements: SAFTs.
In this article, we discuss how to manage disclosure in international arbitration in light of the growing volume of electronic data. As the number of electronic devices, applications and other technologies increases, there has been a corresponding explosion in the volume of potentially disclosable data in a dispute. Whilst the disclosure obligations of parties are clearly defined in the context of litigation, international arbitration offers a more flexible approach to disclosure which will often be influenced by the legal jurisprudence of the tribunal.
In addition to traditional information technology (IT) systems which capture and store large quantities of data, new applications and technologies are fuelling exponential growth in data. Mobile devices (from laptops to wearable technology) and other new technologies such as the Internet of Things are increasingly being used by companies and employees, generating significant levels of new data. Cisco Systems is behind an ongoing initiative to track levels of global mobile data. It reports that mobile data traffic has grown 18-fold over the past five years, and grew 63 percent in 2016 alone. In addition to the proliferation of physical devices, companies are increasingly using cloudbased technologies to manage and store data. Such technologies provide access to electronic resources via the internet and facilitate the flow of data between users. In the context of disputes, such data may be disclosable and therefore presents problems to participants of arbitration in terms of access and collection.
The sheer volume of information which may be relevant to any given dispute can present issues for a party to an arbitration both in terms of the extent of data capture which may be required and the cost of managing the disclosure process. As things already stand, disclosure can frequently be the most expensive part of an arbitration, particularly where the process is disputed. Such costs risk further increasing in line with the amount of data. It is therefore important that parties, their counsel and arbitrators understand and consider – at a sufficiently early stage in arbitration proceedings – not only the parties’ disclosure obligations but also processes that might simplify or reduce associated costs.
Arbitration is inherently a more flexible process than litigation. Parties to an arbitration are generally at liberty to agree an approach to disclosure, overseen by the arbitral tribunal. In the absence of (and/or in addition to) the parties’ agreement, arbitrators will be guided by the chosen arbitral rules and the procedural rules of the seat. However, most arbitral rules and arbitration laws afford arbitrators general powers to conduct the arbitration and the disclosure process in the way that they see fit, but without offering any real guidance. In the United Kingdom, for example, the Arbitration Act 1996 simply states that “it shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter”. Such matters include which documents or classes of documents (if any) should be disclosed and at what stage (if at all) in the proceedings.
The IBA Rules on Taking Evidence in International Arbitration (IBA Rules) do offer some non-binding guidance on disclosure and wider evidence issues. In the IBA Rules, “document” is defined very widely to include “data of any kind, whether recorded or maintained on paper or by electronic, audio, visual or any other means.”. However, again much of the IBA Rules guidance on disclosure is either predicated on the parties reaching agreement or confers a wide discretion on the tribunal. The IBA Rules are also generally non-binding as few parties expressly incorporate the IBA Rules into their arbitration agreement.
Given the limited guidance around the disclosure process in arbitration, participants and arbitrators are oftentimes influenced (rightly or wrongly) by the approach to disclosure taken by the courts. As a result, the legal background of the tribunal, the parties and their counsel can heavily influence the scope and extent of disclosure. A commonly cited example of this, is the difference between arbitrators from a common law background and those from a civil law background. Disclosure in common law courts is generally more extensive than in civil law courts where little to no disclosure may be ordered. Approaches to disclosure will differ even within courts of similar legal jurisprudence – e.g. US style discovery is far more extensive than English disclosure. As a result, arbitrators from a civil law background can be perceived as more reluctant to order disclosure than arbitrators from a common law background, and as tending to only accept limited and specific disclosure requests, whereas arbitrators from a common law background may be more amenable to wider-ranging disclosure requests.
But not all arbitrators will be necessarily influenced by the approach of their home courts. In fact, many might consider that antithetical to the very nature of arbitration. So it can be risky to simply assume that an arbitrator’s approach will be aligned with that or her or his home courts.
There have been various tools developed recently that aim to navigate this tricky issue of the uncertain approach of arbitrators to disclosure. GAR has launched GAR-ART, an arbitrator research tool which (for a subscription) offers profiles of arbitrators, including a section in which the arbitrators may state their procedural preferences. It also provides a list of tribunal chairs, coarbitrators and counsel with whom each arbitrator has conducted cases whom parties can contact to obtain up to date feedback on the arbitrator’s approach to conducting arbitration. This is an interesting development for a number of reasons. Firstly, it will be interesting to see how many arbitrators are willing to set out their stalls in this way – many, justifiably, question whether it would be appropriate to do so as their approach will be tailored on a case-by-case basis. Secondly, assuming a sufficient number are willing to disclose preferences, it will be interesting to see what trends develop and whether case management style in fact proves influential in the choice of arbitrator. It will also be interesting to see whether the (seemingly inevitable) feed-back loop occurs – i.e. parties end up influencing, via the selection process, arbitrators’ approach to disclosure.
The difficulties of having limited guidance on disclosure in arbitration are compounded by the confidentiality of and lack of precedent in arbitration – arbitrators are navigating these tricky issues in isolation.
Various novel approaches to disclosure in litigation are being developed in a number of jurisdictions. In the English courts, judges are actively involved in scoping disclosure at an early stage in proceedings. Parties are obliged to consider and discuss the extent of searches to be made and parties will exchange an Electronic Documents Questionnaire detailing the proposed electronic search terms and date ranges as well as highlighting any potential issues with accessing electronic documents. Early intervention means that any difficulties or disputes over disclosure are aired well before the disclosure exercise commences, with the intention to save time and costs associated with challenges, satellite litigation and demands for multiple repeat disclosure exercises where prior exercises are allegedly inadequate. The English court’s approach to disclosure is also heavily influenced by proportionality – the cost and burden of disclosure must be proportionate to the complexity and value of the dispute. Failure by parties (or indeed counsel) to engage in the process fully or responsibly will be sanctioned, including in costs.
Similarly useful e-disclosure court precedents are available in other jurisdictions. In Canada, some jurisdictions have adopted the Sedona Canada Principles Addressing Electronic Discovery which set out principles for the process of electronic discovery and, like the English approach, emphasize the importance of a proportionality. In Australia, court disclosure processes are increasingly being utilised in arbitration; where a large number of documents may need to be electronically exchanged, parties to arbitration will commonly agree a protocol for discovery of electronic documents, often based on the Federal Court of Australia’s electronic discovery protocol (this is currently being updated) or one of the state Supreme Court protocols.
The influence is not exclusively one-way; Australian litigation is also being influenced by arbitration. The Federal Court’s Commercial and Corporations Practice Note introduced in October 2016 suggests that parties consider using disclosure methods more common to arbitration such as the Redfern schedule and a “memorial”-style process for providing key documents and evidence.
It is important, however, that parties and arbitrators bear in mind that not all aspects of litigation disclosure protocols will be appropriate for arbitration. Arbitration has particular attributes that can present unique problems for the disclosure process. As an example, tribunals generally only have jurisdiction over the parties to the arbitration agreement and not third parties. Where data is held by third parties (such as in a distributed-host cloud system or by an internet service provider), a tribunal will generally not have the power to order disclosure against that third party. In this situation, a party to an arbitration will generally need to seek the assistance of the court, to obtain an order for non-party disclosure. Whether such remedies are available will depend on the procedural law and supervisory courts of the arbitration.
Another important development in litigation, is that many courts are actively embracing technology. “Predictive coding”, a search technology which can be used to identify electronic documents relevant to the dispute, has been in use in US litigation for some time and more recently has been approved for use in the English courts. In Pyrrho Investments Limited and another v MWB Property Limited and others  EWHC 256 (Ch), over 3.1 million electronic documents needed to be reviewed (prior to an automated process of de-duplication that number originally stood at 17.6 million). The judge stated that the cost benefits of technologyassisted review were significant and that, moreover, there was some evidence to suggest that this form of review was more accurate and consistent than a review carried out by humans.
As the volume of data increases, such technologies will become more crucial to reducing the time and cost burden of disclosure – thus, in addition to being the cause of the problem, new technologies might be part of the solution. Arbitrators, counsel and parties to arbitration must also continue to embrace new technology. Indeed, if technology-assisted review is in fact more accurate and efficient, foreseeably at some point it might be negligent not to do so.
It is clear that, in the context of both litigation and arbitration, the sheer volume of data which may be disclosable between parties and which therefore must be dealt with in some fashion will continue to grow exponentially. Arbitrators are in the somewhat unenviable position of having little guidance and almost a complete discretion in respect to dealing with this tricky issue. They have a heavy responsibility of ensuring that an effective but proportionate disclosure exercise is carried out, without incurring unnecessary costs. The key seems to be engaging parties and their counsel at a sufficiently early stage in the arbitration, to agree not only the parties’ disclosure obligations but also what processes or technology might simplify or reduce associated costs. Arbitrators are welladvised to keep abreast of innovations, including those being utilised in courts as well as new legal technologies.
Of course, parties and their counsel must also take responsibility and seek, in the spirit of arbitration, to agree a proportionate approach to disclosure. The flexibility of arbitration means that parties can (at least in theory) save significant time and costs as compared to litigation, but this relies on parties engaging properly to agree the process. Sadly, in practice, disclosure is too often a fertile ground for satellite disputes; in the desire to beat their opponent at all costs, parties and their counsel seem to lose sight of the clear benefits of a consensual process. There might be an argument therefore that arbitrators should wield their case management powers in a stronger, more pro-active way and consider imposing appropriate sanctions where parties are obstructive. The introduction of new arbitrator profiling tools, such as GAR-ART, have the potential to track whether such active case management would prove popular amongst parties. However, obviously there will be an element of a feedback loop – the ability to track arbitrator conduct and what proves popular with parties, means that parties may influence arbitrator conduct in a way that parties cannot influence judges in litigation.
This leads us to perhaps the final piece of the puzzle – the solution may be greater guidance for arbitrators, whether that be binding guidance by arbitral rules or laws, or in the form of more detailed non-binding guidance in respect of e-disclosure protocols which parties can incorporate in their arbitration agreement or later opt into. Parties and counsel are already utilizing court-specific disclosure protocols in arbitration, which suggests that there is a place for greater formal guidance.
Robert Schwinger discusses one approach issuers have tried in order to avoid facing securities law requirements: SAFTs.
The COVID-19 pandemic has resulted in an unusual complex global economic dis-equilibrium where disruption seems to be the only constant.
While capital markets rely on companies to provide timely and accurate information, and investors, shareholders and others rely on companies to provide financial reports that have been through a rigorous audit process, government and regulators in the UK recognise that the COVID-19 pandemic is creating huge challenges for both corporate reporting and audit processes.