The volume and type of electronically stored information ("ESI") retained by corporations has increased exponentially in recent years, creating a range of challenges for corporations developing formal records retention policies. While certain types of records must be retained for a fixed period as determined by legislation, many documents are not subject to a specified retention period. Retention then becomes a matter of business need and risk mitigation. In addition, the expanding scope of legal privacy considerations requires corporations to ensure that ESI is handled carefully and generally imposes a legal obligation to destroy personal information after a certain period of time. To further complicate matters, a "litigation hold" obligation requires a corporation to retain relevant documents when litigation is reasonably anticipated. This concept is typically expanded to recognize a broader “legal hold” obligation that is triggered in contemplation of relevant legal or regulatory processes beyond litigation such as audits, investigations, and other regulatory proceedings. Litigation holds also have important ramifications in the context of cross-border litigation where it may be necessary to ensure that a records retention policy ensures consistency and compliance with the laws of both jurisdictions. The failure to ensure that a corporation's records retention policy takes into account legal hold obligations may result in the imposition of a variety of penalties and sanctions.
Discovery and disclosure is a fundamental aspect of litigation in the United States and Canada. The US addresses ESI through the Federal Rules of Civil Procedure, and in each state individually. The definition of ESI is generally expansive and open-ended, however, it is often a hotly contested issue. Unlike in the US, Canadian jurisprudence relating to the preservation of ESI is very limited in spite of its importance. The rules governing documentary production in Canada are determined only by the provinces. While there is little variation between the provinces, the laws are limited to the extent that they were drafted in the context of a paper-based environment. These rules are supplemented by the Sedona Canada Principles, a best practices guideline for e-discovery.
The obligation to preserve documents arises immediately upon a reasonable contemplation of litigation. In both Canada and the US, once a party reasonably anticipates litigation, the organization must suspend the operation of its routine retention-destruction policy and impose a legal or litigation hold to ensure the preservation of relevant documents. Accordingly, records retention policies that include schedules identifying time periods for the routine retention and destruction of various types of records will be always be subject to legal/litigation holds. In some circumstances, the obligation can precede the formal commencement of an action.
Parties to litigation must ensure that all electronic documents relevant to specific litigation, including their metadata, are collected and preserved. The existence of litigation (or reasonably anticipated litigation) triggers certain obligations for an organization with respect to any documents, both paper and electronic, within its "possession, custody or control." The scope of documentation subject to the litigation hold is guided by the principle of proportionality. Parties must only preserve and produce documents that are "reasonably accessible in terms of cost and burden." A litigation hold encompasses three discrete obligations, as set in the Sedona Canada Principles:
(a) the obligation to preserve potentially relevant documents; (b) the obligation to disclose all relevant documents in an affidavit of documents; and (c) the obligation to produce copies of relevant documents that are not privileged.
The failure to preserve documents subject to a litigation hold can be considered gross negligence and may have serious consequences in both Canada and the US. Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation. The failure to preserve documents is punishable by a variety of sanctions ranging from adverse evidentiary inferences, dismissal of an action, and allegations of professional misconduct. In the US, the most serious consequences can be criminal when the disobedient responding party has knowingly destroyed or concealed any record with the intent to obstruct an investigation, and can lead to fines and/or imprisonment for up to 20 years.
Generally, a litigation hold plan should be incorporated into a company’s records retention policies before litigation is contemplated and discovery request letters received. One of the initial proactive steps that counsel should take is to develop an e-discovery plan which takes into account how relevant documents will be collected and preserved, where they will be stored, and who will be responsible for their collection when the need arises.