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MR JUSTICE VINELOTT
PRACTICE AND PROCEDURE – EVIDENCE:- Computer based data of a organization – Access to portions of it pursuant to a court order – How treated
TECHNOLOGY AND TELECOMS – COMPUTER
VINELOTT J. read the following judgment.
At an earlier stage in these proceedings, I heard an application by the third to the eleventh defendants seeking access to the computer database which forms part of the business records of the second plaintiff (“C.M.L.”). After reading a considerable volume of evidence and hearing argument, I stated summarily the conclusion that I had reached, which was that the database, so far as it contains information capable of being retrieved and converted into readable form, is a document within the meaning of R.S.C., Ord. 24 of which discovery must be given, but that the defendants were not entitled to unrestricted access to C.M.L.’s computer database (so far as the information recorded on it is relevant to the issues in the action and does not fall within the scope of any privilege from production). The court has a discretion as to the extent to which inspection and copying of documents disclosed on discovery is to be permitted and in the context of a computer database, this discretion can only be exercised in the light of expert evidence as to the extent of the information available on-line or from backup systems, archival or history files, the extent to which materials stored in history files can be recovered with or without reprogramming, the extent to which reprogramming and transferring data to the on-line system might damage the history files of the computer, and the extent to which recovery of information and any necessary reprogramming might disrupt the conduct of the plaintiffs’ business.
In the light of that indication of my views, there were meetings between the computer experts employed by Price Waterhouse, the accountants engaged by the plaintiffs, computer experts employed by Coopers Lybrand Deloitte, the accountants engaged by the third to eleventh defendants, and computer experts employed or engaged as outside consultants by the plaintiffs.
After a further hearing agreement was reached as to the information that could and should be made available to the defendants either in the form of hard copy or on diskettes or by electronic transfer to Coopers’ own computer. I understand that despite some minor disagreements, one of which had to be resolved in a further application to the court, these arrangements have worked satisfactorily. However, I have been asked to set out my conclusions and the reasons for them more fully as a preliminary to hearing argument as to the way in which the costs of the application should be borne.
Before doing so, I should I think say something about the context in which this question first arose. It is best illustrated by reference to one of the claims in the action, the claim that the first and second defendants while they were managing directors of C.M.L. and of the first plaintiff (“Derby”) and after C.M.L. had been acquired by others of the plaintiff companies – the plaintiff companies together comprise the Salomon group – entered into transactions with other companies or entities in which they had an interest direct or indirect without disclosing their interests to the parent of the Salomon group.
The companies and entities with which C.M.L. and Derby so dealt are described in the statement of claim as “the related parties” and transactions in this category are described as “the related party transactions.” The plaintiffs claim that the first and second defendants and the related parties are accountable for any profit made by the related party transactions and they also claim to trace these profits into the hands of one or more of the other defendants. A schedule attached to the statement of claim sets out details of the related party transactions – which are, for the most part, transactions on the forward commodity markets and in foreign exchange. These details are taken from customer lists recorded in the database of C.M.L.’s and Derby’s computers. However, these details do not contain a comprehensive account of all dealings with the related parties. An entry in a customer list showing a balance due to a related party is in most instances the sum of a number of, for instance, forward purchases and forward sales of a commodity which have been “netted off” to give the balance shown as due on the customer list. The details can only be reconstructed from other underlying information – in particular, difference accounts which show all transactions which have been included and netted off in the entries shown in the customer list.
In October or November last, the third to tenth defendants instructed Coopers to carry out an inquiry into, amongst other things, these claims, and to write a report. At the time when I heard the original application, reports by Coopers and by Price Waterhouse were due to be exchanged on 2 May. There had been discussions in or before September 1989 between the solicitors acting for the parties, Lovell White Durrant for the plaintiffs, Hopkins & Wood for the thirst and second defendants, and Allen & Overy for the other defendants, as to the extent to which discovery by the plaintiffs was complete and whether the defendants were entitled to have access to C.M.L.’s computer. The plaintiffs’ solicitors were not willing that the defendants should have unrestricted access to the computer database and an offer by them to supply Hopkins & Wood with an electronic copy of the relevant on-line database on a diskette was not acceptable to Hopkins & Wood.
Towards the end of September, Lovells, Allen & Overy and Hopkin & Wood negotiated an interim discovery agreement under which, as a provisional measure and without prejudice to the defendants’ claim that the plaintiffs had not complied with their obligation to give full discovery, the plaintiffs agreed to provide copies or printouts of the information stored in C.M.L.’s computer.
After Coopers had been instructed, they were unhappy with these arrangements and also with the extent of the plaintiffs’ discovery. In particular they sought details, first, of transactions entered into by C.M.L. and Derby with unrelated parties so that the terms on which they dealt with unrelated parties could be compared with the terms on which they dealt with related parties; and, secondly, of transactions entered into for a period of nine months before negotiations commenced for the sale of C.M.L. to the Salomon group and for a like period after the first and second defendants ceased to be directors of C.M.L. so that they could see whether there had been any difference in the pattern of trading while they were in control of C.M.L. They also found it difficult to reconstruct details of transactions with related parties from the customer accounts which, as I have said, do not show details of transactions which are netted off, even supplemented by the available difference accounts and other underlying documentation. They took the view that the detail on the difference accounts ought to have been recorded in the computer database and that if they had access to the database they might be able to compile a comprehensive list of all transactions over the larger period which they wished to cover more easily and with greater certainty than would otherwise be possible.
Moreover, they took the view that the electronic transfer of the database on to their own computer would greatly facilitate the task of analysing the available information. The process of identifying and tracing the relevant computer printouts and underlying documentation had proved very time-consuming in practice.
It is, fortunately, unnecessary to say anything about the lengthy and on occasions acrimonious exchange of letters which followed Coopers’ first request for access to the computer. Coopers’ specific requests for information were largely, if not wholly, met and Lovells claimed that printouts had been supplied of all information recorded on the database at least so far as accessible by the programmes currently in use. The areas of dispute which remained unresolved when the application was heard were shortly as follows.
(a) It was common ground that a new computer was installed by C.M.L. in October 1980 – that is, at about the time when negotiations for the sale of C.M.L. to the Salomon group commenced. The question on which Coopers wished to satisfy themselves was whether any part of the database of the computer then in use had been transferred to the database of the new computer and, if it had, whether it was capable of being recovered.
(b) Coopers suspected that difference accounts might still be missing. They sought to ascertain whether any of the missing information could be retrieved from the history files.
(c) It was common ground that information recorded in the history files which was capable of being retrieved without extensive reprogramming was limited. However, it was also common ground that the history files included other material which could be retrieved by reprogramming the computer. Coopers were anxious to find out what information was capable of being retrieved by reprogramming (in particular whether further information showing the make-up of month-end snapshots giving the terminal position, where the positions were open positions) could be retrieved, so that they could decide whether it would be practical and useful to reprogramme the computer, bearing in mind that the computer is in everyday use.
(d) Transactions with unrelated parties are very numerous. I was told by Mr. Lyndon-Stanford that the computer printouts would occupy 75 large ring binder files. Coopers took the view that it would facilitate their task of searching for comparables if they could have direct access to the database. It might be then possible to limit the search to relatively few types of trade and relatively few customers.
(e) More generally, Coopers took the view that the task of checking the results and answering queries which arose from their research would be very much eased if they had access to the database. Under the arrangements made before this application was heard, documents, in particular printouts, had to be called for, and there were often delays in finding the relevant document from amongst the 4,000 to 5,000 files that have been disclosed.
Before turning to the question raised by this application, I should, I think, say something about the computer systems from time to time used by C.M.L. I have already mentioned the change to a new computer system in October 1980 when the Salomon group was negotiating the acquisition of C.M.L. The new computer system was based on an I.B.M. System 34 Mini computer. The programmes were supplied by an outside-software firm. A second I.B.M. System 34 Mini computer was added later. In 1984, after the first and second defendants had left C.M.L. one of the I.B.M. System 34 computers was replaced by an I.B.M. System 36. Later the I.B.M. System 36 was upgraded and use of the other I.B.M. System 34 was discontinued. Programmes which ran out the I.B.M. System 34 also run on the I.B.M. System 36. Over the past four years the I.B.M. System 36 has been in the process of being replaced by a new system run on a different computer. No complete record of the programmes in use was maintained and it is not now possible to recreate the programmes in use at any particular time.
During the relevant period four systems were maintained for the money market, foreign exchange, terminal and physical trades, and they were processed each month. Backup files at the month end would be recorded on diskettes which were stored. Selected data was fed into the financial recording system and onto an on-line inquiry system. Month-end data files can be restored from the backup diskettes though not all backup diskettes can now be found and some have deteriorated to the point where restoration of the data damages the diskette reader. The restoration of this data gives rise to another problem. The I.B.M. System 36 will only hold two months’ restored backup data in addition to current operational data, and recreating all the backup data would accordingly take a considerable time. Moreover, often when a file has been recreated further time is needed to reprogramme the system so that current programmes can access the recreated data file while continuing to access current data files.
The first question raised by this application is whether the database of a computer’s on-line system, or which is recorded in backup files, is a document within the meaning of Order 24. An analogous question came before Walton J. in Grant v. Southwestern and County Properties Ltd  Ch 185. The question there was whether a tape recording of a telephone conversation was a document. In Beneficial Finance Corporation Co. Ltd. v. Conway  V.R. 321, McInerney J. had held that it was not, on the ground that although a tape recording records information and serves a function corresponding to that of a document, it is not a document because the information is not capable of being visually inspected. Walton J. took the opposite view and pointed to the absurdity of the conclusion that if two parties to litigation recorded a conversation, one on a tape recorder and one in shorthand, the one record would and the other record would not be discoverable, though both were ways of recording the same conversation and, although if the second were written in a private shorthand system, both would need a key before the message could be read. He said  Ch. 185, 197:
“the mere interposition of necessity of an instrument for deciphering the information cannot make any difference in principle. A litigant who keeps all his documents in microdot form could not avoid discovery because in order to read the information extremely powerful microscopes or other sophisticated instruments would be required. Nor again, if he kept them by means of microfilm which could [not] be read without the aid of a projector.”
I respectfully adopt that statement of principle. It must, I think, apply a fortiori to the tape or disc on which material fed into a simple word processor is stored. In most businesses, that takes the place of the carbon copy of outgoing letters which used to be retained in files. Similarly, there can be no distinction in principle between the tape used to record a telephone conversation in Grant. v. Southwestern and County Properties Ltd., which was an ordinary analogue tape on which the shape of sound waves is, as it were, mimicked by the pattern of chemical deposit on the tape, and a compact disc or digital tape on which sound, speech as well as music, is mapped by coordinates and recorded in the form of groups of binary numbers. And no clear dividing line can be drawn between digital tape recording messages and the database of a computer, on which information which has been fed into the computer is analysed and recorded in a variety of media in binary language.
The question in this case is not, I think, whether the datatbase is a document but as to the circumstances in which and the means by which a party seeking discovery is entitled to inspect and take copies of that document. In the simple case of a word processor, if I am right in my conclusion that the memory or database of the word processor is the original document, the court must have power to permit the party seeking discovery to inspect the word processor’s memory by reading from the console or screen or by taking hard copy in any case where there is a real doubt whether the printouts supplied comprise a complete and accurate copy of all relevant and non-privileged information stored on the word processor’s memory.
However, when information is stored in the memory or database of a word processor or computer, the inspection and copying of the “document” gives rise to problems which the courts have not previously encountered. Some of the difficulties which have arisen in this case and which are likely to occur with increasing frequency in the future are as follows.
(a) Even when the relevant material is on-line and capable of being shown on screen or print out, some means will have to be found of screening out irrelevant or privileged material. The party seeking discovery cannot be allowed simply to seat himself at his opponent’s computer console and be provided with all necessary access keys.
(b) There may be material on the computer which is not accessible by current programmes but which can be retrieved by reprogramming. Prima facie the powers of the court would extend to requiring that the computer be reprogrammed so as to enable the relevant information to be retrieved. Otherwise an unscrupulous litigant would be able to escape discovery by maintaining his records in computerised form and altering current programmes when litigation was in prospect so that information previously retrievable could not be retrieved without reprogramming. Of course questions may then arise as to who bears the cost of any necessary reprogramming and whether it can be done without affecting current programmes.
(c) If, as will often be the case, the computer is in daily use, the question may arise – it arose acutely in the instant case – whether access can be arranged, in particular whether any necessary reprogramming can be done or whether information stored in the archival or history files can be retrieved, without unduly interrupting the necessary everyday use of the computer.
(d) Safeguards may have to be embodied in order to ensure that tapes or diskettes which may have deteriorated in storage are not damaged by use and that the use of them does not damage the computer’s reader. In the instant case, the condition of some diskettes was such that read once they would be unreadable or only partially readable a second time and the uses of some old diskettes in fact caused damage to the computer’s reader.
(e) In some cases it may be possible for the database to be copied by transfer on to a diskette or tape or directly on to another computer. If that is done the material may be capable of being analysed in ways which were not originally contemplated. Provision may have to be made for the results of any such analysis, and printouts made, to be made available to the other party in good time so that he is not taken by surprise at the trial. In the instant case agreement was recently reached for the provision of further experts’ reports dealing with information gleaned from parts of the plaintiffs’ computer database which was transferred to Coopers’ computer.
These are some of the problems likely to be encountered. However, these problems arise not at the initial stage of discovery when disclosure must be made of the extent of relevant information recorded in a computer database, but when application is made for production for inspection and copying of a document. It is clear in the light of the decision of Court of Appeal in Dolling-Baker v. Merrett  1 W.L.R. 1205 that the court has a discretion whether to order production and inspection and that the burden is on the party seeking inspection to satisfy the court that it is necessary for disposing fairly of the case or cause or matter or for saving costs. At that point the court will have to consider, if necessary in the light of expert evidence, what information is or can be made available, how far it is necessary for there to be inspection or copying of the original document (the database) or whether the provision of printouts or hard copy is sufficient, and what safeguards should be incorporated to avoid damage to the database and to minimise interference with everyday use if inspection is ordered.
As I have said, in the instant case the experts were able to agree the extent of the information available and the extent to which it could be restored and transferred to magnetic tape or diskette and, in the light of their reports, a programme was agreed.
Costs in cause.