Companies Have E-Discovery Issues In Arbitration
Though changes in the US Federal Discovery Rules as well as case law such as Zubulake have escalated the Electronically Stored Information (ESI) costs as it relates to electronic discovery or discovery of ESI documents and information (E-Discovery) in the US, Korean companies have remained relatively complacent about it until the Dupont v Kolon case. In the Dupont v Kolon case, Dupont sued Kolon over trade secret misappropriation and requested extensive discovery, including E-Discovery. It became apparent that Kolon failed to save numerous emails that resulted in the Court not only issuing a scathing opinion admonishing Kolon for failing to follow US E-Discovery Guidelines, but also court sanctions and an adverse jury instruction informing the jury that failing to save emails could be interpreted in a negative light- i.e. willful destruction of ESI . The jury award was close to $1 Billion US, which was overturned on other grounds resulting in an out of court settlement. Nonetheless, the Dupont v Kolon case and a few others caught Korean companies off guard as the E-Discovery requirements in the US are very onerous. Failure to properly save emails and other ESI can result in not only court sanctions but loss of the trial.
It appears, that except for a few companies which experience litigation in the US on a regular basis, most Korean companies have tried to shield themselves from E-discovery obligations and costs through arbitration. Though arbitration does decrease exposure to the burdensome and ballooning demands of ESI rules in the US, it does not completely protect companies from ESI requirements and E-Discovery obligations. As more and more jurisdictions grapple with ESI and potential obligations of litigants to properly handle and save ESI, it is becoming apparent that E-Discovery obligations in some form or another are here to stay. Therefore, companies involved in arbitration still need to implement ESI processes to handle discovery issues under arbitration rules.
As Korean companies have increasingly embraced the idea of arbitration as the most preferred method of international dispute resolution, Korean arbitration has become more popular. However, as noted by some arbitration specialists, the arbitration business in Korea is still lagging behind more advanced countries in some respects. Like Singapore and Hong Kong, Korea has a well-established arbitration law, going back to 1966, when it first enacted the Korean Arbitration Act. Like Singapore and Hong Kong, Korea has also one officially recognized arbitral institution - the Korean Commercial Arbitration Board (KCAB) which was officially established in 1970. In fact, Korea has enacted a wide range of mediation procedures within governmental agencies or entities besides the KCAB due to the popularity of arbitration and mediation in Korea. However, as Korean companies increasingly use arbitration as the choice of dispute resolution, it is very possible that they will be blindsided when it comes to E-Discovery and ESI requirements.
For Korean companies facing international arbitration under ICC Arbitration Rules (Rules), the prospect for having to produce ESI documents is quite real. Though the ICC Arbitration Rules do not specifically mention the production of ESI documents and E-Discovery obligations, Article 15 (2) of the Rules requires the arbitral tribunal to “ensure that each party has a reasonable opportunity to present its case”. It appears therefore, that the arbitrators and parties to ICC arbitration must themselves decide how to handle ESI including how many documents and under what circumstances such documents should be produced to establish the case as needed.
Though the arbitral institutions have been rather slow in addressing ESI concerns, in the last few years a number of arbitral organizations have appointed task forces to study issues raised by ESI and to determine to what extent arbitral rules should be amended to accommodate ESI. It should be noted that some arbitral institutions have even decided to amend or already have amended rules to accommodate ESI. Such institutions such as the International Center for Dispute Resolution (ICDR) have guidelines governing and addressing the production of ESI documents. In fact the IBA Rules of Taking Evidence in International Commercial Arbitration (IBA Rules) provides more detailed guidelines which address the production of ESI documents. Therefore, it is apparent that the production of ESI documents may be required in some form. The number and scope of ESI documents pursuant to E-Discovery most likely will be determined by the arbitrators with input from the parties.
ESI greatly expands the number of documents that a party to arbitration or litigation must produce. The number of ESI documents, categories of documents and the numerous locations where such documents maybe located obviously increases the cost of arbitration. It is hoped that the ESI production process is adequately addressed by the arbitrators with attention to fair and efficient management of the arbitral process.
There is no doubt that E-Discovery has become a major problem for non –US companies as well as US companies when litigation takes place in the US. Because of the expansive nature of “discovery in the US”, foreign companies involved in US litigation faces the costly and time consuming burden of providing some form of ESI documents in accordance with the US Federal Rules of Civil Procedure or case law, etc. However, upon reviewing the IBA Rules and various arbitral rule it is clear that ESI documents will also be required in arbitral proceedings. This presents a problem for many Korean companies which do not have a defined ESI Plan.
The dilemma facing Korean companies when dealing with ESI in arbitral proceedings is the scope of ESI documents that may be required in the arbitral proceeding. The scope may depend on the location of the arbitration as well as the governing law. If arbitration is held in the US in accordance with the law of a particular state such as NY, the odds are US licensed lawyers shall either sit on the arbitral proceedings or shall represent the parties in the dispute. US licensed attorneys are more familiar with E-Discovery and the production of numerous ESI documents as well as an “expansive discovery process”. Such arbitrators or arbitration lawyers may demand or expect numerous ESI documents. Arbitration in Europe or elsewhere, especially in Civil Law countries, with limited use of discovery, will most probably require less use of ESI and a more restrictive discovery process.
It is possible that arbitral organizations may adopt the general principles that US and other national courts have adopted with regards to spoliation (destruction) of the evidence as it pertains to ESI. If ESI is negligently or intentionally destroyed in a way that could raise a red flag, it is likely that many arbitral organizations will view that negatively and impose sanctions. Even the arbitral panel could adopt an adverse inference when it comes to the arbitral award.
In either case, Korean companies are now at a crossroads. They can either pretend ESI is not an issue or they can prepare for eventual demand of ESI in arbitration as well as litigation. To be proactive, companies should therefore pay attention to the basic steps of E-Discovery such as:
Only with an adequate E-Discovery Plan in place can Korean companies hope to satisfy E-Discovery demands or related issues presented in arbitration as well as US litigation. This includes not only the implementation of processes that facilitate the easy collection of electronic data but use of experts and ESI systems to assist with the indexing, reviewing and retrieval of ESI documents.
To mitigate legal costs associated with cross border litigation or arbitration, it is highly recommended that Korean companies implement a sound E-Discovery Plan that locates collects and indexes ESI records that may be relevant in future arbitrations as well as litigation. Otherwise companies face the same fate as Kolon and a host of other companies in the US and elsewhere which failed to consider the implications of ESI in todays’ highly technical and electronically communicative world.