Computer Spoliation in Asia
Electronic discovery (EDD*) and the destruction of digital evidence are global issues, affecting more than just North America. Throughout the world, electronic records are ubiquitous, and mushrooming in volume. Any law enforcement investigation in the world – whether a lawsuit, a tax audit, a police inquiry, an arbitration proceeding,
a legislative hearing, an administrative probe or a government inspection – is likely today to seek access to electronic records (email, databases, flash drives, text messages, facebook posts, youtube videos, digital photographs, laptop hard drives, and more).
Naturally, to thwart an investigation, an unscrupulous holder of e-records (ESI) wants to destroy them. In the US, we call that destruction “spoliation” or “obstruction of justice.” Other jurisdictions may use different words for unlawful destruction of evidence, but the general concept of law must be universal. If law enforcement is to function, it must forbid and punish wrongful destruction of electronic evidence.
Many of the leading cases punishing the destruction of computer evidence are American, and to a lesser extent Canadian. But cases are emerging in other countries. . . .
One such case before the Singapore High Court is K Solutions Pte Ltd v. National University of Singapore [2009] SGHC 143. This lawsuit was a contract dispute involving IT services provided by K Solutions (KS) to a university. Under the rules of discovery in the lawsuit, the university sought from KS certain email records, in addition to audio recordings of meetings between KS and university staff.
The court noted that Singapore rules of procedure (Order 24 rule 16(1) of the Rules of Court) require a litigant like KS to disclose relevant records to its adversary, the university. Evidence in this case showed that KS had possessed numerous relevant electronic mail records and audio recordings, which it had not released to the university. Although KS explained that some email records had been destroyed innocently under its policy of retaining e-mail only six months, the court was suspicious. The court believed KS’s email destruction policy should have been suspended because KS knew that litigation was likely. (In other words, using American parlance, KS should have applied a “litigation hold” on the email.)
The court observed that although the rules of procedure do not explicitly forbid a party from destroying records, the rules imply that records should be preserved when litigation is pending or anticipated and that wrongful destruction should be punished.
As the court considered KS’s deletion of email, it noted that KS, during the course of the lawsuit, had also been evasive and untruthful about its records. The court levied severe sanctions against KS, effectively granting judgment against it in favor of the university.
Analysis: From the perspective of any enterprise such as a business, law punishing the destruction of evidence is dangerous. Digital records are destroyed constantly, in the ordinary course of operations. But the law may punish destruction if a legal authority concludes the destruction should have been avoided. In any investigation the authority looks backwards and second-guesses what the defendant did in the past. Retrospection is always how investigations like lawsuits or tax appraisals work. With the benefit of hindsight, an action (or omission) of records management that seemed innocent to the defendant at the time can appear sinister later. All enterprises (US and non-US) therefore need margin for error. The law gives them incentive to be more generous in retaining computer records, especially electronic mail. And the law gives incentive to keep email of important people much longer than six months.
–Benjamin Wright
Mr. Wright serves as a public speaker on e-discovery, e-records management and IT security law. He speaks to professionals groups like Institute of Internal Auditors and SANS Institute.
*What is EDD? Electronic Data Discovery is a relatively new legal term of art. It refers to the process of finding, managing and disclosing electronic records (whether on a tape, a PC, an iPod, a cell phone or whatever device) as required in a lawsuit or legal investigation, such as a regulatory audit.
audio recording
December 30, 2009
March 27, 2009
Documentation for Swap Contracts
Electronic Records of OTC Derivatives Contracts
New financial regulations, when coupled with advancing technology, will force the retention of massive electronic commerce records. Hear what the authorities are saying about the regulation of financial derivatives:
First: Famed economist Hernando de Soto says poor documentation for $1 quadrillion worth of financial derivatives is wreaking havoc on the world economy. "Toxic Assets Were Hidden Assets," Wall Street Journal, 3/25/09, pA13. He calls for much better documentation of derivatives contracts.
Second: Former SEC Chairman Harvey Pitt recommends much new record-keeping and reporting by entities like hedge funds that have not previously been regulated. “Former SEC chief says gather, share more data,” USA Today, 3/27/09 p3B.
Third: To prevent more of the “toxic” assets poisoning today’s financial system, Treasury Secretary Geithner says, “We will require that all non-standardized derivatives contracts be reported to trade repositories and be subject to robust standards for documentation and confirmation of trades, netting, collateral and margin practices, and close-out practices.”
What’s the definition of a “non-standardized derivatives contract?” It’s really just a negotiated contract that allocates risk between two or more parties. It can cover most any kind of risk or possibility, from the risk of a lawsuit to the potential for rain in the Australian Outback. (A derivative can even be "embedded" in an routine commercial contract, such as a sale agreement or a mining agreement.) The scope of this field is breathtaking. Non-standardized derivatives contracts have become a very large, thinly-monitored part of our financial world.
So what’s a complete record of one of these derivatives contracts look like? Would it be a stack of paper, stapled together, with signatures at the end? It could indeed be such a stack of paper.
But . . . let’s think deeper about how contracts are documented these days. As the methods for written business communication – letter, telex, fax, e-mail, instant message and so on -- have grown progressively more cheap and easy, the challenges for documenting complex contracts have risen.
If the derivatives contract were entered in the 1970s, using the practices of the day, a stack of paper, stapled together, would most likely be the form it would have taken. It might have been supplemented with a few paper letters and, once-in-a-blue-moon, a telex or two. (Some court cases enforced telex similar to paper correspondence.)
Then in the 1980s faxes became popular, and the contract might have been a stack of stapled paper, supplemented or amended by several faxes. (We learned years ago that faxes can be legally-binding records, just like paper-written letters.)
Next, in the 1990s e-mail started to become a common form of business communication. Numerous judicial decisions have held e-mail to be legally-binding “signed writings” essentially equivalent to paper letters.
See JSO Associates, Inc. v Price (informal e-mails can constitute signed writings agreeing to hire a broker to sell securities and pay a commission) and Cloud Corp. v. Hasbro (formal paper contract that says it can be amended only by a signed writing is amended by informal e-mails).
The e-mails in a contractual relationship can be very numerous. And they often are not as clearly written as old-fashioned, formal paper contracts were.
Today non-standard derivatives contracts (a.k.a. "swaps," or "custom," "customized," "tailored," "bespoke" or "bilateral" derivatives) can be negotiated, documented, amended, supplemented and interpreted by a dizzying array of electronic communications. Fax and e-mail are probably most common, but instant messages, phone text messages, chat rooms, message boards, social networking channels and voicemail-converted-to-text are rising in usage among busy traders. (Dedicated online marketplaces like Agora-X and 360T provide organized electronic environments for communication and negotiation of over-the-counter derivatives instruments. A brochure for 360T says its secure marketplace supports "Real-time online chat with any requesting counterparty individual.")
In the derivatives world, "novation" (substitution of one counterparty for another) commonly occurs by e-mail.
All this communication can be critical to full documentation for a modern financial contract. In the Lehman Brothers bankruptcy, for example, the administrator digs through mountains of e-mail to figure out what the firm’s rights and obligations were in the over-the-counter derivatives market.