Risk of Evidence Destruction: A $5.7M Reminder from the Courts
The prospect of litigation can be daunting for individuals and businesses unfamiliar with Court proceedings. Even for sophisticated businesspeople, litigation can be made unpleasant by the conduct of counterparties. This is especially true when the other side breaks the rules.
In the recent Ontario Court of Appeal decision SS&C Technologies Canada Corp v Bank of New York Mellon Corporation, 2024 ONCA 675 (“SS&C” and “BNY” respectively) BNY did exactly that. In 1999, SS&C, a behemoth in the financial software and fund administration industry, agreed to provide market pricing data to BNY, a large American bank. Over a number of years, BNY merged and acquired various other banking-related businesses and shared SS&C’s data with them and other affiliated companies. Upon learning that BNY was sharing its market data in breach of their agreement, SS&C’s lawyers wrote to BNY’s senior executives, advising them of the anticipated litigation over the issue and requesting they preserve all communications, documents, and files related to their relationship as well as the provision or sharing of data to any third-parties. Instead of doing so, BNY destroyed a significant volume of relevant documents on the basis that SS&C’s claim was meritless. SS&C then sued and was successful in a claim for breach of contract. SS&C had also sued for “spoliation”, a claim based on the intentional destruction of relevant evidence when litigation is existing or pending. Because SS&C provided BNY with notice of pending litigation, BNY was legally obligated to preserve relevant evidence, even though litigation had not yet formally commenced.
In SS&C v BNY, the Court of Appeal reviewed the law applicable to claims for spoliation and held that a party must prove three elements for a spoliation claim to be proven:
that relevant evidence was destroyed;
that legal proceedings existed or were pending; and
that the destruction was an intentional act indicative of fraud or intent to suppress the truth.
Proving the third element – intent – is often the most difficult barrier to proving spoliation. The Court of Appeal also clarified that there are two parts to intent in spoliation. intent to destroy evidence is not enough; a claim for spoliation must also prove a bad faith desire to prevent the use of the evidence in litigation to suppress the truth, and hence impact the outcome of the litigation.
At trial, the Ontario Supreme Court made no determination on the spoliation claim, however, they drew adverse inferences against the BNY because of their destruction of relevant records. Meaning, the Court made findings against BNY on the assumption that the destroyed records would have been harmful to BNY. Accordingly, SS&C’s claim was actually bolstered by BNY’s failure to follow the rules surrounding the preservation of records.
On appeal, the Court of Appeal found in favour of SS&C and accepted that the agreement only authorized BNY and not its affiliates or custodial entities to access the data. The Court of Appeal also concluded that SS&C had proven its spoliation claim, inferring that evidence the BNY destroyed would have been unfavourable to it. The Court of Appeal also noted that spoliation is dangerous and can result in other, more severe penalties than adverse inferences. Spoliation can lead to a claim for damages as well as unfavourable findings relating to the underlying claim, or even striking a pleading, including a defence. The Court of Appeal also added that the BNY’s conduct bordered on contempt of Court, which itself carries significant penalties up to and including jail time for those involved.
The Ontario Court of Appeal’s decision in SS&C v BNY is a warning to litigants that complying with provincial rules of court is not optional, and that failing to follow the rules can have serious consequences. In this case, it contributed to an award to SS&C totaling roughly $5.7 million USD.
While SS&C is an Ontario case, the same rules apply in Alberta. Here, the Alberta Rules of Court are similar to Ontario’s and parties are under a general obligation to preserve relevant records upon receiving notice of pending litigation. If one party suspects that the other may not comply with that obligation to preserve evidence, there are various remedies available to parties seeking to avoid the situations similar to that faced by the SS&C in SS&C. These include unique, judge-tailored solutions that can be obtained on application to a Court. In extraordinary circumstance, a party may seek an Anton Piller order, which would allow a party to search other parties’ premises and seize documents.
McLennan Ross regularly provides legal advice to individuals and businesses faced with the prospect of civil litigation. While it is never advisable to destroy records that could be considered admissible evidence when litigation is pending, we are well-equipped to provide timely advice with respect to both the records that must be produced and those that are privileged in the course of civil litigation. McLennan Ross also regularly advises clients on the availability of a variety of pre- and post-trial remedies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Connect with the McLennan Ross Commercial Litigation team for assistance.