In an information age where most correspondence and documents are stored in an electronic medium – e-mail, computers, instant messaging, Blackberry® devices, and data recorders – it is important for businesses to develop and maintain comprehensive document retention policies. A document retention policy might be considered costly and time consuming but an effective policy can help to avoid potential liability in the face of litigation. Especially in light of the significant reductions in the cost of electronic storage in recent years, courts may have little sympathy with businesses that fail to implement appropriate procedures.

Business managers in Canada and the U.S. should be aware that the rules of civil procedure in both countries contain important rules governing the retention and production of electronic documents. The Sedona Conference Working Group, a U.S. legal think-tank, created a best practices guideline known as the Sedona Principles to assist businesses in developing policies relating to electronic document retention and production. The Principles were updated in 2007 to incorporate developments in case law and amendments to the Federal Rules of Civil Procedure to include new rules on electronically stored information ("ESI").

Responsibility to produce electronic documents

The two landmark U.S. cases that led to the Federal Rules amendments were Zubulake v. UBS Warburg LLC (2003) and Perleman v. Morgan Stanley (2005). The defendants in each case were financial institutions who were found to have wilfully destroyed or withheld e-mail evidence as a result of their failure to comply with a request for ESI:

  1. Zubulake is considered a precedent-setting case on a range of e-discovery issues. The Court in Zubulake held that corporations are responsible for the preservation of electronic data that could potentially be used in future litigation. Previously, courts had imposed less stringent standards on the maintenance of ESI, deeming electronic documents more difficult to preserve than paper documents. However, the Court's decision does not require corporations to preserve all backup tapes, even when it reasonably anticipates litigation. In Zubulake, the Court limited discovery to items that are maintained online and easily searchable. 
  1. Perleman v. Morgan Stanley resulted in a billion dollar verdict against Morgan Stanley for its repeated failure to produce thousands of e-mails in its possession. The decision was overturned by the Florida Court of Appeal in 2007, but serves as a warning to companies regarding their legal obligations with respect to ESI.

More recently in January 2008, sanctions were filed against six U.S. attorneys for failure to comply with an e-discovery request. In Qualcomm v. Broadcom, the attorneys were held responsible for Qualcomm's failure to produce thousands of electronic documents relevant to the patent infringement case against Broadcom.

The Sedona Principles

Canada has its own version of the Sedona Principles, released in January 2008 by the Sedona Conference Canada Working Group. The Sedona Canada Principles Addressing Electronic Discovery are as follows:

  1. Electronically stored information is discoverable.
  2. In any proceeding, the parties should ensure that steps taken in the discovery process are proportionate, taking into account (i) the nature and scope of the litigation, including the importance and complexity of the issues, interest and amounts at stake; (ii) the relevance of the available electronically stored information; (iii) its importance to the court's adjudication in a given case; and (iv) the costs, burden and delay that may be imposed on the parties to deal with ESI.
  3. As soon as litigation is reasonably anticipated, parties must consider their obligation to take reasonable and good faith steps to preserve potentially relevant electronically stored information.
  4. Counsel and parties should meet and confer as soon as practicable, and on an ongoing basis, regarding the identification, preservation, collection, review and production of ESI.
  5. The parties should be prepared to produce relevant electronically stored information that is reasonably accessible in terms of cost and burden.
  6. A party should not be required, absent agreement or a court order based on demonstrated need and relevance, to search for or collect deleted or residual ESI.
  7. A party may satisfy its obligation to preserve, collect, review and produce electronically stored information in good faith by using electronic tools and processes such as data sampling, searching or by using selection criteria to collect potentially relevant ESI.
  8. Parties should agree as early as possible in the litigation process on the format in which electronically stored information will be produced. Parties should also agree on the format, content and organization of information to be exchanged in any required list of documents as part of the discovery process.
  9. During the discovery process parties should agree to or, if necessary, seek judicial direction on measures to protect privileges, privacy, trade secrets and other confidential information relating to the production of electronic documents and data.
  10. During the discovery process, parties should anticipate and respect the rules of the forum in which the litigation takes place, while appreciating the impact any decisions may have in related actions in other forums.
  11. Sanctions should be considered by the court where a party will be materially prejudiced by another party's failure to meet any obligation to preserve, collect, review or produce ESI. The party in default may avoid sanctions if it demonstrates the failure was not intentional or reckless.
  12. The reasonable costs of preserving, collecting and reviewing electronically stored information will generally be borne by the party producing it. In limited circumstances, it may be appropriate for the parties to arrive at a different allocation of costs on an interim basis, by either agreement or court order.

Changes to Canadian civil procedure rules

The Supreme Court of Nova Scotia and the Nova Scotia Court of Appeal recently became the first courts in any province to incorporate the Sedona Principles into their rules of civil procedure. British Columbia is also expected to follow Nova Scotia and amend its rules to adopt the Sedona Principles. The Tax Court of Canada is considering adopting the Principles, as is the Ontario Bar Association and other provincial organizations.

Implementing a document retention policy

One of the goals of creating a document retention policy is to find a balance between satisfying statutory requirements while retaining the ability to periodically dispose of residual ESI. , Depending on the nature of the case, the law mandates specified periods of time for the retention of documents. When in doubt it is best to follow the ultimate limitation period for civil litigation in Ontario, which is 15 years from the day on which the act or omission giving rise to the claim occurred. Businesses will also want to avoid providing more information than is necessary, risking potential exposure to additional liability.

The following are some suggestions for implementing a document retention policy:

  1. Employees and management should be trained on storing and saving electronic information.
  2. A taskforce should be assigned to regularly ensure the policy is being enforced.
  3. In the event of a litigation hold, a policy should be in place to ensure relevant information is not destroyed. A litigation hold refers to a situation where there is threatened or pending litigation and the company orders all information relevant to the litigation to be preserved for possible production.
  4. Ensure the policy meets legal requirements. It is important to note that in addition to the principles discussed above, there are other statutory requirements regarding the retention of records.
  5. Time periods can be created for the retention of particular documents.
  6. An archive system should be created. This will save time and expense in producing documents and make the documents readily accessible when litigation is anticipated.

Ultimately, there is no "one size fits all" approach in terms of how to implement a document retention policy; however, the Sedona Principles are an effective guideline to follow