Retention of Records
Many factors influence how long you should retain, store and destroy business documents.
The varied professional areas that your firm is surrounded with is a guide in itself to the appropriate timescale in which files should be stored and retained.
In some scenarios, for example a complex transaction or where your opinion could be subjective, it is natural to assume that those papers should remain accessible for longer than first anticipated.
The Limitation Act 1980 is often referred to by professional firms, and most adopt the view that files should be kept for at least six years. From experience the majority of claims tend to arise within this window of time.
When the four month period during which a claim form issued on the last day of the limitation period remains valid for service, and any additional extensions that may be granted by the court are accounted for, it seems logical to recommend retaining documentation for at least seven years.
There is a greater likelihood of claims in some fields being brought in under the longstop section under 14B of the Limitation Act 1980.
Countless times we’ve witnessed the courts consider the ‘date of loss’ and ‘date of knowledge’ in deciding when to start the metaphoric limitation clock ticking. The trend of late has been in favour of the adviser (Pegasus Management Holdings SCA and Ivan Harold Bradbury v Ernst & Young (a firm) and Another  EWCA Civ 181) and therefore the date of advice is often focused upon.
It would, however, be folly not to consider retaining cases which could be judged against the 15 year long stop. Through detailed research, some of our sources have suggested certain files should be kept for more than 15 years.
‘Indefinite retention’ was suggested in respect of partnership agreements, company formation and trusts. In all instances statutory requirements also apply – for an example Regulation 19 of The Money Laundering Regulations 2007 require records relating to customer due diligence to be retained for five years. Retaining due diligence records concurrently with those records to which they relate would seem logical.
Before sending a file off-site, a procedure to review important documents such as deeds is recommended.
If your firm is ceasing to trade, and the acquiring firm is accepting the prior claims liabilities, then transfer of files into their custody and control is entirely appropriate. Your right to future access should not be dismissed and a list of all archived files should be compiled and agreed so that successful recall can be achieved at the critical time of a claim. Alternatively when claim liability is retained by you, continuation of storage arrangements needs consideration. Perhaps another professional firm would accommodate file retention, in physical or electronic form.
Ownership of documents
Having established that certain documents in your possession need not be kept, are you free to destroy what you hold? No. Most files will contain documents which belong to you; however, other content could be owned by your client and in other instances a third party could have possession rights. Consider your role at the time of receipt and before retainer. In holding the documents were you simply acting as an agent for your client/third party and what were their instructions at the outset?
Deciding it is appropriate to destroy documents does not relieve you of a duty to protect client confidentiality; safe data disposal, be it in-house or using a commercial contractor to keep that data away from public places, should remain paramount and integrated into your data handling policy. When reducing storage costs by uploading/saving data electronically, firm rules should be enforced to encourage confidence in being able to locate archived data efficiently that can be relied upon in court.
Legislation does govern the admissibility of documents in court, and being able to satisfy them with the knowledge that a stored document is a true representation of the original should be kept in mind. The process under which documents are managed is equally important to the technology used; both in-house archiving and third party providers must recognise the significance of the British Standard Code - additional information is available.
The topic of file retention is a sprawling one and it is commonsense to also consider the issue of discovering a document or file is missing; does this constitute an incident within the context of your obligations to notify a circumstance under your professional indemnity insurance policy? Even if it does not constitute a valid notification, is there even an extension for loss of documents cover?
Professional clearance to new advisers does arise, but can you apply a requirement and undertaking from the new adviser not to destroy or remove any data on the file which it is impractical to take a copy of, or to return the file to you for replication at your request? Do you consider it appropriate to create a further record of files stored, passed and or destroyed, enabling you to give a credible explanation of the whereabouts of a file if asked?
A professional and considered approach to a topic we’ve visited before should stand you in good stead and please feel free to contact a Lockton Associate for further advice.
From a claims perspective, retention of a file only aids defence of an allegation. The ability to recall a file has only ever aided an insured and their insurer in promptly responding to an allegation of loss arising through professional negligence.
Ben Waterton – partner, Lockton
0117 906 5042
For further information, see section B6 of ACCA's Rulebook on 'retention periods for books, files, working papers and other documents'.