The news headlines have recently trumpeted concerns regarding the requirements for the destruction and production of records in high-profile trials or inquiries. Maintaining, destroying, disclosing and producing (or failing to produce) records can have significant legal implications.
Rare is the day when the news does not feature a story regarding business records, whether it arises from unauthorized access, inadvertent disclosure, invasion of privacy, demands for access or otherwise. With the ease of copying materials in electronic form and the pervasive use of e-mail, Twitter and texting, the scope of “business” records has grown exponentially. This begs the following frequently asked questions: How long must I keep business records? What records must I keep? In what form must I keep records?
There is no easy answer to those questions in the context of business records. There are specific records requirements in obvious areas, such as income tax and employment, and in almost any area one can think of there are likely to be applicable legislative requirements. In fact, there are more than 14,000 citations in Canadian legislation that identify a requirement to retain records.
In B.C., the Electronic Transactions Act (“ETA”) specifies the types of documents permitted to be kept in electronic form. Under the ETA, a legal requirement that a record be “in writing” is satisfied if the record is (i) in electronic form and (ii) accessible in a manner usable for subsequent reference. The ETA states that such records may be stored electronically if the following criteria are met: (a) the record is retained in the format in which it was created, provided or received or in a format that does not materially change the record, (b) the record will be accessible in a manner usable for subsequent reference by any person who is entitled to have access to the record or who is authorized to require its production, and (c) on provision or receipt of the record, the information, if any, that identifies the origin and destination of the record and the date and time when it was sent or received is also retained.
The good news is that the ETA permits most records to be kept in electronic form, which makes the process simple and inexpensive. However, it is important to note that the ETA also lists a number of documents that cannot be kept electronically, including wills, trusts created by wills, certain powers of attorney and documents that create or transfer interests in land and that require registration to be effective against third parties.
Destruction of Records
In general, three principles govern the destruction of business records: (i) records should be destroyed as a class rather than selectively, (ii) records pertaining to litigation should not be destroyed, and (iii) confidential records should be destroyed in a way that preserves their confidentiality.
Destroy Records as a Class
The maxim omnia praesumuntar contra spoliatorem says that all is presumed against the spoiler. Therefore, those who destroy business records must overcome the inference that the records contained information that would be prejudicial to their case. The leading Canadian case is St. Louis v. R., in which the Supreme Court of Canada held that the “destruction of evidence carries a presumption that the evidence destroyed would have been unfavourable to the party who destroyed it, but that presumption may be rebutted.”
The court went on to say that the presumption could be rebutted if:
- the company had been under no legal obligation to retain the records at the time they were destroyed;
- the records have been routinely destroyed, and destroyed as a class rather than selectively;
- before their destruction the records had been carefully reviewed; and
- the plaintiff had no knowledge of the action when the records were destroyed.
These requirements provide useful guidance in developing policies regarding the destruction of records in a manner that will not be prejudicial.
Check Applicable Rules
It is important to consider the nature of the records in question and to determine whether there are any applicable legislative rules. The requirement for retaining records under the Income Tax Act is six years, so it would be prudent to retain any record that relates to business income or expenses for at least that time. Since businesses are all about revenue and expenses, six years becomes a reasonable rule of thumb.
Establish a Routine and Avoid Being Selective
If records are destroyed as part of a routine process, that will go a long way in eliminating suspicion if important records happen to be destroyed in the ordinary course of the business. The courts have been more tolerant of the destruction of valuable records in circumstances where it was part of a routine practice and an honest mistake was made. Conversely, any destruction of records on an ad hoc basis or for no demonstrably legitimate reason will almost certainly fuel suspicion, even if there was no improper motive. Similarly, treating records by class will help alleviate suspicion and refute any allegation that particular records were destroyed for an improper motive.
Reasonable care should be taken to avoid destruction of records that might, for particular reasons, have ongoing relevance.
While it is not to be expected that all records should be reviewed before being destroyed, some care should be taken to avoid the destruction of records that may have ongoing value. For example, records pertaining to litigation or potential litigation should not be destroyed. A logical system for segregating and classifying records will facilitate their later destruction.
When disposing of records, care should be taken to preserve confidentiality. Paper records should be shredded or incinerated in a manner that ensures that confidential personal and corporate information is protected. It is also worth noting that business records that contain “personal information” are governed by privacy legislation. As a result, organizations that collect and store records containing personal information have an obligation to destroy or make anonymous those records once the purpose for which it was collected has been completed.
Electronic records deserve special attention. Simply executing a delete function on your computer hard drive does not destroy information, it merely makes it somewhat harder to find. You must also recognize that most businesses routinely create back up electronic records that are often stored in secure off-site locations, which makes the task of actually tracing and destroying records extremely difficult.
For those concerned about creating potentially damaging or incriminating records, perhaps the best advice is to avoid creating them in the first place. Remember, when it comes to electronic records, you would be wise to assume that virtually every word of text creates a record that will exist somewhere forever, and you should ask yourself whether your words will reflect well on you if someday published for the world to see.