When is it safe to destroy your documentation?

ITIC is frequently asked to advise Members from different jurisdictions who have been requested to produce their files. Usually, it is because their principals have a dispute with another party and their lawyers wish to consider the Member’s files for evidence which could assist in the preparation of a case; equally, it could be because the Member himself is facing a claim in respect of a matter which occurred several years previously.

It is self evident to state that any business must develop a system for the maintenance and ultimate disposal of its business records. In the light of the Enron saga, unusual or inconsistent destruction of documents, contrary to, or in the absence of, an existing record retention policy could even lead to a finding, (or at least, an inference) of bad faith.

Indeed, a duty to preserve such documentation is owed by an agent to his principal. There are no clear rules but, in general, you have a duty to preserve documents created in the course of your duties so that you can, if necessary, subsequently make them available to your principal. Put simply, keeping documents can prevent you from receiving a claim for your failure to retain them if this failure causes a loss to your principal.

The question that arises is when is it safe to destroy documentation. The answer is that it depends on the limitation/timebar period which exists in local jurisdictions.

Members in England and Wales or those who enter agreements based on the laws of England and Wales, either on their own account or on account of their principals, should be aware that the limitation period for actions in contract and tort is six years from the date on which the cause of action arose. A claim form must be issued within that time for it to be valid. It may not, however, be served until after the limitation period has expired and it is for this reason that ITIC advises these Members to destroy documentation only after seven years from the completion of a transaction. The extra year is a safety net to protect Members from valid claims which are not served until after the expiry of the limitation period. The situation is the same in Australia, New Zealand, Singapore and most other jurisdictions based on English common law.

In the United States, recent legislation has criminalised the intentional destruction, alteration and/or concealment of documents under certain circumstances. This is not to say that US courts require businesses to preserve every last scrap of paper for decades, simply on the basis of the possibility that a particular document could be relevant to unforeseeable proceedings. However, besides various federal laws which require companies to maintain documents in relation to employees for set periods, most limitation periods expire after six years and so again the basic rule of thumb is that documents may be destroyed after seven years from the date of completion of the transaction.

Of course, the time bar situation is quite different in civil law jurisdictions. For example, in negligence actions in Spain, there is a one year time bar, whereas, in contractual claims, the time bar is fifteen years. Therefore, if the same logic were to be applied, Spanish Members should keep their documents for sixteen years.

In France, claims in contract and in tort against ship agents are subject to a statutory one year time bar. However, the time bar for actions by tax authorities is three years, so it would be normal for French ship agents to preserve their documents for four years. Ship brokers, and other marine professionals, are not subject to any statutory regime so they are subject to the common law time limit of ten years.

The German Commercial Code stipulates that documents should be kept for either six or ten years. Those which should be maintained for ten years include accounting documents, balance sheets, inventories and other company books, while documents created in the course of one’s business activities, such as contracts, offers and fixtures and related correspondence, including file notes, letters and e-mails, and documents created in relation to any litigation, should be maintained for six years. Members involved in litigation in Germany should be aware that, under certain circumstances, a party may substantiate its allegations merely by relying on the allegation that the opponent possesses the relevant document. If the document is one that should have been maintained under the German Commercial Code and the opponent cannot produce it, the Court has the discretion to consider the allegation as proven.

The above advice is produced for general guidance only. Members should always seek advice from the Club and from a local lawyer to clarify the position in each individual case.

ITIC would like to thank the following for their contribution to this article:

• George M Chalos-Fowler, Rodriguez & Chalos, NY, USA
• Bertrand Courtois-Courtois & Finkelstein, Paris, France
• Falk Fischer-Claas W Brons, Bremen, Germany
• Alistair Irving-Pandi Services, Wellington, New Zealand
• Loo Dip Seng-Ang & Partners, Singapore
• Jose-Felix Perez Tolosa-Actio XXI, Bilbao, Spain
• Barton Phillips, Thomas Miller, Sydney, Australia