Avoiding the storm clouds: cloud-based document storage and disclosure obligations

By Elinor Thomas
26 Jun 2014 View Comments

Cloud-based document storage solutions are increasingly used by many different types of businesses because of the benefits of flexibility and cost savings that they offer. It is perhaps inevitable that this increasing use gives rise to specific issues where those businesses become involved in disputes, particularly in the context of the requirement for parties involved in litigation in the English courts to disclose documents that are or have been in their control.

One of the key complicating factors is that cloud storage is usually provided by a third party and located remotely from the business, often in another jurisdiction, in multiple different jurisdictions, or even in changing locations. This means that it may be less straightforward to answer the basic questions that arise in order to comply with disclosure obligations, such as who "controls" the documents and in which jurisdiction. There will also be confidentiality and/or data protection laws in the countries where cloud providers are based that could be breached by the collection of electronic documents from the cloud for disclosure purposes.

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Notably, the English courts' position is that English litigation should be played according to English rules and therefore disclosure obligations must be complied with unless there is a real threat that a foreign law forbidding disclosure will be enforced. Even then, exceptions permitting non-disclosure on that basis are rare.

It is also possible that applications for third party disclosure could be made directly against cloud providers to compel them to provide documents within their control, causing suppliers to be dragged into litigation involving their customers. This will result in suppliers incurring unwanted legal costs and create the possibility of conflicts between court orders and the contractual obligations of suppliers.

Document retention is also an issue given the requirement that parties preserve documents as soon as litigation becomes a possibility. Where documents are stored by cloud providers, there may be a risk of automatic deletion, technology failure, loss of data if the cloud supplier goes out of business or customers simply overlooking the need to inform their cloud supplier immediately that a hold needs to be put on document destruction.

Given the huge volume of data that can potentially be stored in the cloud, as with electronic documents generally, there are also more mundane practical issues in relation to disclosure of cloud documents, such as the best method to conduct a reasonable and proportionate search for relevant documents and the time and cost implications of doing so.

Cloud document storage may actually give litigating parties an advantage in this area if the supplier is able to facilitate access to the documents that allows the use of sophisticated search tools.

The backdrop to this is that a failure to comply with disclosure obligations can have serious consequences for litigating parties, ranging from adverse inferences being drawn that negatively affect a party's case, to, at the most extreme end of the spectrum, the possibility of proceedings for contempt if the failure to comply with disclosure obligations appears deliberate.

At the very least, issues arising from cloud-based document storage can be complicating factors for parties involved in litigation and their suppliers, resulting in an increased risk of satellite disputes surrounding the disclosure process and the attendant increased costs and delays.

However, there are proactive steps that can be taken when entering into cloud contracts and at the outset of litigation to minimise the effect of these factors. Businesses agreeing cloud document storage contracts should ensure that they negotiate contracts that include specific provisions addressing document preservation if litigation arises (including designating points of contact), enabling customers to access and search their documents quickly in the event of litigation, allocating costs (perhaps even providing indemnities in certain circumstances), addressing the risk of third party disclosure applications and dealing with cross border data protection/confidentiality issues.

In particular, customers should seek to choose suppliers who offer services such as the immediate suspension of auto-deletion and comprehensive search functions. Taken at the outset, these simple steps should enable the disclosure process to run more smoothly, for supplier and customer alike.

Elinor Thomas is senior associate at law firm DLA Piper

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