Control Alt Liability: The SCC Weighs in on Destroyed Evidence
By Aliyyah Khan
The Supreme Court of Canada recently weighed in on a significant case involving SS&C Technologies Canada Corporation (SS&C) and the Bank of New York Mellon Corporation (BNY), delivering a unanimous decision that has important implications for how digital evidence is handled in litigation. The case, SS&C Technologies Canada Corp. v. Bank of New York Mellon Corp.[1], highlights the serious consequences of failing to preserve evidence, and clarifies the legal framework for spoliation.
The Heart of the Dispute: Unauthorized Data Sharing
The conflict began when SS&C, a provider of market pricing data, entered into a contract with Mellon Trust Financial, which later merged to become BNY. The agreement stipulated that the “Client” was a single legal entity, Mellon Trust, and not a broader corporate group. However, BNY was found to have breached this contract by redistributing SS&C’s data to its affiliates, including CIBC Mellon, even after CIBC Mellon’s own agreement with SS&C had terminated in 2011.
SS&C discovered this unauthorized sharing in 2016 and subsequently sued BNY in 2017. Crucially, SS&C demanded that BNY preserve all related communications, documents, and files, particularly those showing how the data was redistributed and to whom. Despite these demands, BNY refused to preserve the information, and records, including those created after the preservation demand, were destroyed. The issues of spoliation and the resultant difficulties of crafting damages award were at the heart of this case.
Spoliation: A Serious Breach of Litigation Conduct
The most impactful aspect of the Supreme Court’s decision revolves around spoliation. The Court affirmed that spoliation occurs when a party intentionally destroys, alters, mutilates, or conceals evidence with the aim of subverting the truth-finding process during litigation. The Court went on to discuss the policy underpinning of this doctrine, stating that engaging in spoliation runs contrary to two central tenets of justice: the establishment and maintenance of a fair trial process and the quest for truth.
The Court outlined a four-part test to establish spoliation:
- The evidence must have been intentionally destroyed, altered, mutilated, or concealed;
- Litigation must have been ongoing or reasonably contemplated at the time of destruction;
- The evidence must have been relevant to that litigation; and
- There must be a reasonable inference that the destruction was intended to affect the litigation.
Once all elements are proven on a balance of probabilities, spoliation is established and a rebuttable presumption arises: the lost evidence would have been unfavorable to the party responsible for its destruction. If this presumption is not rebutted, then the presumption becomes mandatory and an adverse inference must be drawn. The spoliator may bring evidence to narrow the scope of adverse inferences drawn against it.
In this case, the Supreme Court found that BNY had indeed committed spoliation because it failed to preserve and produce usage records after preservation demands were made and litigation was reasonably contemplated. These missing records were vital, as they would have revealed the extent of the unauthorized data sharing and use. BNY did not provide an explanation for the data’s destruction, thus failing to rebut the presumption that the evidence would have been unfavorable.
Remedies for Spoliation: Context is Key
The Supreme Court emphasized that the remedy for spoliation must be contextual and designed to fill the evidentiary gap created by the missing evidence. It rejected a rigid “maximum penalty” approach, noting that courts have discretion to determine the best remedy. The adverse interferences worked to attempt to fill the evidential gap insofar as practical, to undo some of the prejudice caused, to ensure the proper functioning of the court’s fact-finding role and to remedy the abuse of the court’s process.
The court noted that in crafting additional remedies, the court may find the following non-exhaustive list of considerations relevant:
- The spoliator’s level of culpability;
- The intention or reason behind the destruction of the evidence;
- The prejudice to the non-spoliating party; and
- The impact of the destruction of evidence on the court’s ability to fairly dispose of the issues.
Beyond the adverse inferences themselves, other potential remedies and sanctions include costs, contempt findings, injunctions, exclusion of evidence, or even striking claims or defenses.
Damages: Back to the Drawing Board
While the lower courts found BNY liable for breach of contract and spoliation, their approach to damages was ultimately rejected by the Supreme Court. The trial judge’s “rateable approach” to damages, which attempted to balance the parties’ positions, was deemed legally and factually flawed because it was unsupported by the evidence and understated the true scope of the breach.
The Supreme Court clarified that damages must be directly linked to the evidence and the actual breach, with the goal of providing full compensation. Consequently, the matter was sent back to the Superior Court solely for a new quantification of damages, with the possibility of additional expert evidence on pricing.
What This Means for Litigants and Litigation
This decision from the Supreme Court of Canada serves as a critical reminder for all organizations, especially in our digital age, about the importance of robust litigation hold policies and evidence preservation.
- Serious Consequences: Spoliation is not merely a procedural misstep. It is a serious act that can lead to adverse inferences and significant penalties.
- Not an automatic win: While proving spoliation is serious, it doesn’t automatically guarantee a win for the non-spoliating party. Instead, it primarily impacts evidentiary presumptions and the remedies available to address the harm caused by the missing evidence.
- Digital Evidence: The case underscores the need for clear and effective strategies for preserving electronically stored information as soon as litigation is reasonably anticipated especially when a party is called upon to preserve the information.
- Open Questions: In the absence of full submissions, the Court left important questions open, such as whether negligent destruction of evidence can constitute spoliation and whether spoliation can be recognized as an independent tort. These areas may see further development in future cases.
This ruling reinforces that Canadian courts will not tolerate attempts to subvert the truth-finding process through the destruction of evidence. It’s a powerful message about accountability and the integrity of the legal system.