Litigation 101: Document retention for business

Why is document retention important?

In Australia, every business must retain certain documents for specified statutory minimum periods of time and there can be serious consequences for non-compliance.

The implementation of a clear and effective document retention policy is important to not only ensure compliance with such document retention obligations, but also to reduce the risk of adverse rulings in current or future litigation, minimise exposure to possible criminal offences, as well as manage the cost to the business of retaining documents unnecessarily.

How long do businesses need to keep documents?

Although the general rule of thumb is that documents should be preserved for seven years, the obligation to retain documents will vary, depending on:

• the jurisdiction, as document retention obligations are scattered across numerous pieces of Federal, State and Territory legislation;
• the industry in which a business operates; and
• the type of document that has been created.

In certain circumstances, documents must be kept well in excess of the seven years rule of thumb. Further, where documents are relevant to actual or reasonably anticipated litigation, it is important that the documents be retained until the conclusion of the litigation.

Limitation periods are also relevant in determining how long a business should keep records, because they are a guide to the length of time in which a party may bring legal proceedings in relation to a particular matter. They are, however, only a guide because extensions may be available depending on the circumstances.

When does a document need to be retained for legal reasons?

Our flowchart “When does a document need to be retained for legal reasons? ” provides a handy summary of the issues to consider when considering whether a document should be retained. It is important to seek legal advice if you are unclear on your retention obligations, particularly if you consider a dispute is possible.

What is a “document”?

The term "document", in this context, means any record of information, irrespective of the medium upon which the information is stored. A document will, therefore, include anything:

• on which there is writing;
• on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them;
• from which sounds, images or writings can be reproduced; or
• a map, plan, drawing or photograph.

A document retention policy should therefore cover hard copy documents, electronic documents, emails, images, labels, audio recordings and any other records of information.

How should documents be retained?

Documents need not be retained in their original, or native, format so long as:

• the electronic copying and storage of documents originally in hard copy format,, and required to be retained pursuant to a statutory retention obligation complies with the relevant Electronic Transactions legislation;
• documents which are transferred to another format remain admissible if required in future legal proceedings; and
• any metadata associated with electronic documents in their original format which the business wishes, or is required, to retain is not lost when the documents are transferred to another format.

Any method for storing documents should also consider whether personal information contained in those documents should be de-identified to comply with the Privacy Act 1988 (Cth).

What are the key document retention obligations?

A company’s statutory obligations to keep documents may arise in many different contexts, depending on the nature of the company’s business and the industry in which it operates. Certain key obligations for companies, regardless of the type of business, are:

• Financial records: Broadly speaking a company is required to keep financial records for seven years from the date the transaction the subject of the document is completed (section 286 of the Corporations Act 2001 (Cth)). Financial records include:
  • invoices, receipts, payment of money, bills of exchange, cheques, promissory notes and vouchers;
  • documents of prime entry; and
  • working papers and other documents needed to explain the methods by which financial statements are made up and adjustments to be made in preparing financial statements.
• Tax records: A company is required to keep all records relevant to ascertaining the company’s income and expenditure for 5 years after the documents were prepared, obtained or the transaction completed, or, long enough to enable the company’s income tax liability to be assessed (whichever is later) (section 262A of the Income Tax Assessment Act 1936 (Cth)).
• Employee records: A company with employees must keep employee records relating to various specified matters for seven years (section 535 of the Fair Work Act 2009 (Cth)). This includes records relating to basic employment details, pay, leave entitlements, superannuation contributions, termination of employment and situations where a business transfer occurs.

What if the documents are relevant to reasonably anticipated or actual litigation?

In these circumstances, a “hold letter” should be issued by senior management to relevant employees and agents, directing them to segregate and protect from destruction documents and data (both hard copy and electronic) that are, or arguably may be, relevant to the litigation.

If a company is, or reasonably anticipates being, a party to litigation, there may be serious consequences for destroying potentially relevant documents. These include:

• the court drawing adverse inferences from the unavailability of a document;
• an inability to support a claim or defence in the litigation;
• the court striking out the company’s pleading; and
• exposure to criminal liability.

A hold letter will ensure that the company is best placed to defend itself against any subsequent allegations of document destruction.