December 15, 2021
In a recent case from the United States, the failure to properly implement a legal hold led to a motion for spoliation sanctions.
In Mahboob v. Educ. Credit Mgmt. Corp., Case No.: 15-cv-0628-TWR-AGS (S.D. Cal. Mar. 1, 2021), the plaintiff alleged that the defendant failed to suspend its two-year document retention policy, which resulted in the loss of months of relevant call data and recordings. Countering, the defendant argued that the plaintiff’s motion should be denied due to unreasonable delay.
In the result, the Magistrate Judge granted the plaintiff’s motion for spoliation sanctions, in part. In his reasons, he noted that despite a legal hold being in place, the defendant did not take reasonable steps to preserve the call recordings, by failing to suspend its document retention/destruction policy. Notwithstanding, the Magistrate Judge ruled that the plaintiff was not prejudiced by the deleted call recordings and denied the plaintiff’s request for a jury instruction regarding spoliation.
While no prejudice was found, the Mahboob decision delivers a valuable lesson that also applies in the Canadian context. Principle 3 of The Sedona Canada Principles states: “[a]s soon as litigation or investigation is anticipated, parties must consider their obligation to take reasonable and good-faith steps to preserve potentially relevant electronically stored information.” The Sedona Canada Principles are incorporated into the Ontario Rules of Civil Procedure, by reference.
In practice, Principle 3 means that legal hold obligations do not end with the issuance of a hold notice. Parties with legal hold obligations must take reasonable steps to ensure proper implementation of the hold, including suspension of routine record retention or record destruction policies affecting potentially relevant data. Canadian jurisprudence also makes it clear that, when evidence becomes unavailable, courts will make inquiries into the circumstances, including records management practices and policies.
The case of Johnstone v. Vincor International Inc., 2011 ONSC 6005, provides a good example. In Johnstone, after the defendant was put on notice of legal action, it chose to do nothing about its record retention policies, knowing that they “would possibly lead to the loss of important and relevant documents”. In the end, the court ruled that any prejudice to the defendant resulting from the destruction of evidence was its own doing and not due to any delay on the part of the plaintiff.
In both the U.S. and Canada, the failure to preserve documents can have serious consequences, especially in the context of a successful spoliation claim. While there is no statutory codification of sanctions or remedies for spoliation of electronic records in Canada, as there is in the U.S., Canadian courts have a broad discretion to impose sanctions proportionate to the nature and seriousness of the failure to preserve. Potential remedies include monetary awards, adverse inferences, limitations to claims or defences, default judgment or dismissal of the case.
To date, the most severe penalty imposed by a Canadian court for spoliation was in Brandon Heating and Plumbing (1972) Ltd. et al v. Max Systems Inc., 2006 MBQB 90 (CanLII). There, the plaintiff undertook to preserve hardware and documents that were crucial to the defendant’s case. Despite the undertaking, the plaintiff failed to suspend the normal replacement cycle for the hardware, resulting in the loss of evidence. Ultimately, the plaintiff’s case was dismissed, as the destruction was found to be wilful, and the defendant was prejudiced.
While cases like Brandon Heating are rare, they underscore the fact that parties cannot seek refuge in routine data retention or destruction practices to avoid preservation duties. As contemplated in the Sedona Canada Principles, Comment 11.c. Rebutting the Presumption of Spoliation, records disposal under a reasonable records management policy, and in the usual course of business, is valid and will rebut an inference of spoliation where it occurs in the absence of a legal hold. Once litigation arises or is reasonably anticipated, parties are expected to take affirmative steps to ensure the legal hold is properly implemented and potentially relevant ESI is preserved.