Electronic records can be central to modern commercial disputes. Emails, databases, transaction records, usage logs, messaging platforms, and other digital information may provide crucial evidence about what occurred between contracting parties. But what happens when one party intentionally destroys, conceals, or fails to preserve relevant evidence once litigation is underway or reasonably anticipated?

In its recent decision in SS&C Technologies Canada Corp. v. Bank of New York Mellon Corp., the Supreme Court of Canada clarified the doctrine of spoliation and the consequences that can follow when relevant evidence disappears. The Court confirmed that once spoliation is established, and the resulting presumption is not rebutted, courts must draw an adverse inference capable of addressing the evidentiary gap created by the spoliating party.

A Commercial Data Dispute Leads to the Supreme Court

The dispute arose from a long-running commercial relationship between a Canadian data provider and a global bank. The data provider supplied specialized pricing information used by financial institutions to value securities.

The parties’ licensing agreement prohibited the bank from sharing, redistributing, or selling the proprietary data to other parties, including subsidiaries and affiliates.

Several years after a related Canadian joint venture terminated its own agreement with the data provider, the data provider discovered that the joint venture had continued receiving its data from the bank. The data provider requested an accounting and asked the bank to preserve information relating to redistribution and revenues. Litigation followed.

Missing Records Complicate the Damages Assessment

At trial, the Court concluded that the bank had breached the licensing agreement by sharing the data with unauthorized affiliated entities. The evidence suggested that proprietary data may have been provided to as many as 65 affiliates over 17 years.

The problem was that records capable of showing the full extent of that use had not been preserved or produced. The trial Court drew adverse inferences against the bank but did not expressly find spoliation. It ultimately used a “rateable approach” to calculate damages for unauthorized sharing with affiliates, resulting in an award of approximately US$5.7 million.

The Court of Appeal Finds Spoliation

Both sides appealed aspects of the damages decision. The Ontario Court of Appeal expressly found that the bank had committed spoliation and upheld the adverse inferences drawn at trial. It also accepted the rateable approach used to calculate damages.

The matter then proceeded to the Supreme Court of Canada, which addressed both the doctrine of spoliation and the adequacy of the damages analysis.

What Is Spoliation?

The Supreme Court described spoliation as the intentional destruction, alteration, mutilation, or concealment of evidence with a view to undermining the truth-finding process in litigation.

Spoliation is treated as a form of abuse of process. The Court emphasized that litigants have obligations to preserve, disclose, and produce documents relevant to litigation.

The issue is especially significant in an era when business information is predominantly electronic. As the Court observed, digital records can be deleted or altered almost instantly, making modern spoliation less visible than traditional physical document destruction.

The Four-Part Test for Spoliation

The Court confirmed that a party alleging spoliation must establish four elements on a balance of probabilities:

1. The evidence was intentionally destroyed, altered, mutilated, or concealed.
2. Litigation was ongoing or reasonably contemplated when the evidence was destroyed.
3. The evidence was relevant to that litigation.
4. It is reasonable to infer that the evidence was destroyed to affect the litigation.

All four elements must be established.

The Court left unresolved whether negligent destruction of evidence can constitute spoliation and whether spoliation should be recognized as an independent tort in Canadian law.

What Happens Once Spoliation Is Proven?

Once spoliation is established, a rebuttable presumption arises that the missing or destroyed evidence would have been unfavourable to the spoliating party. If the spoliator fails to rebut this presumption, it becomes mandatory for the court to draw adverse inferences. While the trial judge retains discretion over the precise content and scope of those inferences based on the facts, the court has no discretion to draw weak inferences that fail to meaningfully level the playing field or fill the evidentiary gap left by the spoliation.

The Court rejected the proposition that proof of spoliation automatically entitles the opposing party to the strongest possible inference. Instead, the inference must meaningfully respond to the evidentiary gap created by the missing evidence.

Why Were the Earlier Adverse Inferences Insufficient?

The Supreme Court concluded that the inferences drawn at trial were too weak to address the bank’s conduct. Millions of data points relating to the use of the proprietary information were unavailable. The bank had been specifically warned to preserve relevant information in contemplation of litigation, but the records were nevertheless destroyed or not produced.

The trial Court’s adverse inferences largely reflected matters already evident from the record. As a result, they left the data provider carrying too much of the uncertainty caused by the missing evidence.

The Supreme Court held that once spoliation is established, the adverse inference must be capable of meaningfully filling the evidentiary gap.

Spoliation Can Lead to Other Remedies

Adverse inferences are not the only possible consequence of spoliation. Depending on the circumstances, courts may consider procedural remedies, evidentiary presumptions, preservation orders, costs consequences, contempt proceedings, or other measures.

The Court identified possible sanctions including striking a claim or defence, making adverse credibility findings, awarding substantial indemnity costs or punitive damages, excluding expert evidence, granting interlocutory relief, or making findings of contempt. The response must remain proportionate to the circumstances.

Spoliation Does Not Eliminate the Need to Prove Damages

Although the bank’s conduct warranted stronger adverse inferences, the Supreme Court also found problems with the damages calculation. Courts may have to assess losses on an imperfect evidentiary record, and damages do not need to be calculated with mathematical precision. However, the Court emphasized that awards must still be grounded in the facts and connected to the loss at issue.

The trial Court’s rateable approach did not adequately account for how many unauthorized entities accessed the data or how often it was used. The methodology effectively treated the breach as though one unauthorized entity had accessed the information once, even though as many as 65 entities may have had access over many years.

The Court also found that the distinction between accounted-for and unaccounted-for data did not necessarily correspond with whether the information had been improperly shared.

The Damages Issue Goes Back to Ontario Superior Court

The Supreme Court allowed the appeal and set aside the damages award. The matter was returned to the Ontario Superior Court specifically for a new assessment of damages on the existing record. The reassessment must incorporate mandatory adverse inferences that properly address the bank’s spoliation, such as concrete findings on how many unauthorized entities accessed the data, the frequency of access, and the value of that use.

What Does the Decision Mean for Commercial Litigants?

The decision provides significant guidance for businesses involved in disputes where electronic records may become relevant. A party’s obligation to preserve evidence can arise before a claim is formally issued if litigation is reasonably contemplated. Routine document-retention practices may therefore need to be reconsidered once a dispute becomes sufficiently serious.

The decision also confirms that intentional destruction or concealment of relevant evidence can materially affect how a court approaches the case. At the same time, adverse inferences must correspond to the evidentiary gap created by the spoliation, and damages must remain grounded in factual findings rather than speculation.

Milosevic & Associates: Toronto Commercial Litigation Lawyers Advising on Complex Business Disputes

Milosevic & Associates represents businesses, shareholders, financial institutions, professionals, and other parties in Toronto and throughout Ontario in commercial litigation and business disputes, including breach of contract claims, complex damages disputes, document preservation and spoliation issues, shareholder disputes, commercial fraud claims, injunctions, and other contested business matters.

If your business is facing a commercial dispute involving missing evidence, contractual losses, or complex documentary issues, contact our team by calling (416) 916-1387 or by reaching out online.