E-Discovery: Can the Clients Afford It?

by Glenn A. Smith   January 10, 2009

The traditional rule in common law provinces is that that the producing party is responsible for the immediate costs of the production of its documents to the other party. While British Columbia does expressly address the costs of electronic discovery, in Ontario, Rule 1.03(1) provides that the Rules of Civil Procedure shall be liberally construed to secure "the just, most expeditious and least expensive determination of every civil proceeding on its merits". The cost of documentary discovery under the present regime may easily overwhelm the amount at issue in the litigation. One legal writer has called this the perfect storm.

Cost-shifting in Canada occurs at the end of the litigation, at which time the unsuccessful party may be required to contribute, in whole or in part, toward the costs, including fees and disbursements, of the successful party. These loser-pays rules are not present in the United States, where cost-shifting is frequently used.

The issue of cost allocation in electronic discovery cases has not been clearly resolved in Canada. Principle 12 of the Sedona Canada Principles recommends a collaborative approach when addressing the issue of the costs of e-discovery, and that all "reasonable costs" of producing electronic information should be borne by the responding party, the costs associated with the retention, retrieval, reproduction and review of electronic records can be burdensome. It appears that neither the Ontario Rules of Civil Procedure nor the Supreme Court Rules fully contemplate these cost realities. Rule 1(5) of the British Columbia Supreme Court Rules provides that the object of the Rules is the "just, speedy and inexpensive determination of every proceeding on its merits." The Ontario Rules of Civil Procedure contains a similar provision. In addition, the Ontario and Alberta Rules provide that copies of documents requested for inspection are to be made at the requesting party's expense.

The difficult issue of which party should bear the burden and expense of electronic discovery was addressed by the Saskatchewan Court of Queen's Bench in Bank of Montreal v. 3D Properties. There, the defendant applied to the court for an order requiring the plaintiff bank to produce various documents, including computer records, disks and tapes in or upon which records were kept that related to the action and from which the documents included in the plaintiff's statement of claim originated. The court held that the word "document" included information stored by electronic means and required production subject to the following conditions:

1. The plaintiff will be entitled to first edit out all information contained in or on said "document" that is clearly protected against disclosure as being privileged and confidential;
2. The plaintiff will not be required to alter the format of the data contained in said "document": computer records, discs, and/or tapes. The plaintiff is only obligated to produce copies of same (as edited) to the applicant in its present existing form;
3. All reasonable costs incurred by the plaintiff, including inter alia, searching for, locating, editing, and producing said "documents": computer records, discs, and/or tapes for the applicant shall be at the applicant's cost and expense. An estimate shall first be provided to the Applicant by the plaintiff. The amount thereof, for so many of said documents which it determines it requires as specified by said applicant in writing, shall then be immediately deposited into Court before the plaintiff shall be obligated to produce them for and to the said applicant. The final cost, when determined, shall be paid out of said monies "in Court" or by said monies "in Court" being forthwith supplemented to cover any cost in excess of the said deposit. If any issue arises over what is considered for this purpose to be "Reasonable Costs" same will be settled by me on application, and unless on a date and time consented to, on notice.

   An entirely different result with respect to the allocation of costs associated with electronic discovery was reached by the Manitoba Court of Queen's Bench in Cholakis. The court held that the defendants were responsible for the costs of reviewing and editing the electronic records to remove any irrelevant information that the defendants did not want to disclose to the plaintiff.

   In JDS Uniphase Inc. v. Metconnex Canada Inc. the parties attempted to comply with the Ontario e-Discovery Guidelines in that they discussed the method of exchanging and producing documents in an electronic format. The Plaintiff and Defendant shared the costs and the Defendant applied to recover their half. Master Beaudoin declined, stating that costs would be settled at the end. Master Beaudoin opined that in order to make the interim cost award sought:

   I would require clearer evidence that the production of the database in the revised format was of benefit to both parties in the litigation or to the court or that the costs of the electronic production resulted in a disproportionate burden for one of the parties.

   Canadian Judges therefore do not seem receptive to adopting Sedona Principal 2 instead of relying on the traditional rules, as one judge stated:

   The mere fact that electronic discovery is at issue should not change the rule that the producing party presumptively pays for the production. Cost shifting should be considered only when electronic discovery imposes an undue burden or expense on the producing party. The question usually turns on whether the electronic information is kept in an accessible or inaccessible format, which in turn depends on the type of media used to store the information.

   The Sedona Principles recommend that the interim costs of electronic discovery should be borne by the party producing the documents pending the final disposition of an action. The British Columbia Draft Practice Direction also considers transferring costs of searching for and discovering electronic documents. Generally, the Practice Direction provides that the costs associated with applying the Practice Direction should be included in keeping with Rule 57 of the Supreme Court Rules.

   The issue of e-discovery costs when significant quantities of electronically stored information are involved is a controversial one. The scarcity of Canadian jurisprudence and the inapplicability of American case law to Canadian litigation due to the latter country's loser-pay regime, leaves the status of this issue unsettled.

   In general, the traditional rules of documentary discovery in respect of costs should prevail, requiring the producing party to bear its own expenses of production, in special circumstances. The traditional scope of discovery will have to be narrowed, however, in the context of voluminous ESI, and the courts in Canada will have to consider cost-shifting, if the costs of litigation are to be kept in check.