Electronic discovery not far off for HK amid global financial scandals
Updated: 2013-11-06 06:57
By Andrew Mak(HK Edition)
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Discovery is a process whereby parties to civil litigation will disclose documents by way of a list so that the other side can look at them if they so wish. The process is efficient and leads to quick disposal of justice. With the seemingly never ending probes into key players in financial markets, the scale of investigation and discovery resulting in civil litigation does not appear to have influenced the integrity of the discovery process.
Following the most recent probes, including that into the Libor rigging scandal, we now have, on a global scale, a probe into the manipulation of foreign exchange rates. This time, its impact on the discovery process may well be very different.
To begin with, the foreign exchange market is largely unregulated. It's apparently the market of the largest scale in terms of trading volume. The daily volume in global foreign exchange accounts for about $5.3 trillion. The UK's Financial Times had reported that the Libor probe had, so far, led to the dismissal of dozens of traders, while four banks and an inter-dealer broker have been fined a total of $3.5 billion.
It has also been reported that, besides the UK, authorities in Switzerland, Hong Kong and the US have similarly begun preliminary investigations into whether some of the world's biggest banks had rigged the foreign exchange market, which is used by millions of companies, institutional funds and retail investors.
What is now known is this. First of all, other crucial benchmark rates in the mostly unregulated market are set based on transactions made during short windows of 60 seconds for the largest currencies. The regulators are investigating if traders had colluded to move these benchmarks.
Secondly, although none of them has been formally accused of wrongdoing, about six of the leading banks in the foreign exchange market - from the leading reserve currency, the US dollar, to smaller currencies that are being traded - have been approached by regulators.
The worrying signs in litigation are clear. Recently, it was reported that Sir Philip Hampton, chairman of the UK's majority state-owned Royal Bank of Scotland (RBS), had played down the chances of taxpayers ever receiving a profit on the bank's 45 billion investment. One reason given was the mounting costs of litigation and customer compensation.
Further, Sir Philip had reportedly said that more than half of the 45 billion that was pumped into RBS had been eroded by "irrecoverable" losses.
All these mean that there's yet another potential time bomb for a new financial crisis. It has the potential for a large litigation risk in terms of administrative action against regulators, civil action by investors against the banks, and even criminal litigation. In civil litigation, our adversarial system has been efficiently dealing with complicated cases when each party would present its best case. Discovery of documents is limited in scale. However, an investigation into such a market points to an investigative process to be followed by potential litigation, meaning the days of electronic discovery is not far off. Hong Kong's lawyers must be prepared for this.
In relation to electronic discovery, we need to train lawyers to make them fluent in the IT and network architecture, so that the pretrial conference can lead to agreements on what electronically-stored information is discoverable. Secondly, there's also the need to guard against excessive or expensive e-discovery requests, except when the respondent does not deserve it. Due to the large amount of information, there is also the need for a procedure to settle claims when electronically-stored information is handed over to the requesting party. Thirdly, there must be protection against undue impositions on non-parties. All these are examples of the complexity that our civil litigation system faces, and which should lead to a structured way to resolve disputes over electronic document production.
The author is a HK barrister and chairman of the Hong Kong Bar's Special Committee on Planning and Policy.
(HK Edition 11/06/2013 page1)