Records retention poses an increasing risk to businesses from the perspective of management and operations. The explosion in the frequency of use and amount of electronic records, including e-mail, has created a need to carefully manage records of all types, lest a company run afoul of the growing number of statutory requirements being enacted, as well as the evolving common law standards. Obviously the risks associated with the increasingly informal use of e-mail communication can create exposure for companies where it did not exist before.
To be prudent, each company should assess applicable statutory requirements. These include time, form and location of records, which may be prescribed by statutes specific to a company’s business lines or generally in the context of company’s business type (e.g., corporation, partnership, trust, etc.). This says nothing of requirements that will cut across many boundaries, such as those imposed by the Income Tax Act. Most statutes provide for sanctions for failure to comply with the requirements.
One of the most typical common law doctrines that arises regarding records retention is the doctrine of spoliation. In short, spoliation is "the destruction or material alteration of evidence, or potentially the failure to preserve property for another’s use as evidence in litigation that is pending or reasonably foreseeable." This doctrine can apply to anyone who knows or ought to know of the significance of the evidence. It may apply to deliberate acts of destruction, as well as to unintentional acts of destruction.
A finding of spoliation may result in an adverse inference against the party who destroyed the evidence. Such a finding may also increase damages and could even potentially render the spoiler’s pleadings to being struck, not to mention the possibility of a contempt of court finding if the records were subject to an active process before the courts.
Courts in the United States have gone the furthest in this respect, including suggesting:
- significant damage awards may be appropriate for the destruction of potentially relevant evidence;
- the duty to preserve arises before litigation commences;
- counsel (both in-house and external litigation counsel) have a duty to ensure documents are preserved;
- counsel have a duty to ensure the client has a document retention and filing plan; and
- counsel may be personally sanctioned for failure to follow the foregoing.
McCarthy Tétrault Notes:
The key to minimizing the risk is to develop a company-wide records retention policy. Without an effective records retention policy, an organization faces numerous risks, such as:
- destroying records that it is required by law to keep:
- keeping records that it is required by law to destroy;
- destroying records that should be kept, based on sound litigation policy;
- exposing itself to allegations of spoliation, potential adverse inferences and costs penalties in litigation;
- exposing itself to litigation costs associated with recovering ‘destroyed’ electronic information; and
- exposing itself to unnecessarily high costs associated with document production during a lawsuit.
When preparing a firm-wide policy for records retention, key considerations include:
- specific retention periods that affect your organization;
- general application statutes and industry-specific statutes;
- form and location for maintaining records, as well as the proper duration;
- offence prosecution times;
- classification of documents included to assist in asserting the protection of privilege;
- breadth of policy (necessary documents are retained, and unnecessary ones are not);
- a cost/benefit analysis;
- clear identification of who will be responsible for ensuring compliance with and enforcement of the policy;
- how the employees will be informed;
- what discretion an employee will have; and
- how this will integrate with other company policies (IT, privacy, security, etc.).
Finally, the policy should address when and how to implement a ‘litigation hold’ to stop any automated destruction of records that the policy would otherwise permit when litigation is anticipated, or is active.