British American Tobacco Australia Services Ltd v Cowell

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No.8121 of 2001

BRITISH AMERICAN TOBACCO AUSTRALIA SERVICES LTD.
	Appellant
v.
ROXANNE JOY COWELL, as representing the estate of ROLAH ANN McCABE deceased	Respondent

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JUDGES:	PHILLIPS, BATT and BUCHANAN, JJ.A.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	26, 27, 28, 29 August and 2 and 3 September 2002
DATE OF JUDGMENT:	6 December 2002
MEDIUM NEUTRAL CITATION:	[2002] VSCA 197

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Courts – Practice and procedure – Discovery – Destruction of documents by defendant when litigation anticipated but not yet commenced against it – Documents destroyed only after legal advice taken – Whether the advice was proper – Defects in affidavit of documents – Whether order striking out the whole of the defence justified.

Evidence – Legal professional privilege – Waiver – Actual waiver in respect of request for advice and letter of advice – Whether privilege waived by imputation in respect of documents reaching back many years – Test for imputed waiver.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr. A.J. Myers QC with Mr. D.F.R. Beach SC and Mr. S.A. O’Meara	Corrs Chambers Westgarth
For the Respondent	Hon. T.E.F. Hughes QC with Mr. J.T. Rush QC Mr. J. Gordon and Mr. B.F. Quinn	Slater & Gordon
For Brian Thomas Wilson	Mr. T.F. Bathurst QC with Mr. P.M. Wood	Freehills

THE COURT:

This is an appeal from judgment given in the Trial Division on 11 April 2002 in favour of the plaintiff against the defendant for the sum of $700,000 for damages plus interest and costs. Rolah Ann McCabe was plaintiff and British American Tobacco Australia Services Ltd. was defendant. Judgment was given, in substance, in consequence of an order made on 25 March 2002 striking out the defence of the defendant “save in so far as it relates to the question of damages”. An assessment by a jury followed and hence the judgment given on 11 April. In the notice of appeal filed on 23 April 2002 and amended on 1 May, reference is made both to the order of 25 March and to the judgment of 11 April, but the argument on appeal focussed entirely on the order made on 25 March, striking out the defence. An earlier application by summons filed on 5 April 2002 for leave to appeal against that order was not pursued, obviously because the interlocutory order made on 25 March was overtaken by the judgment for damages given 11 April and the appeal as of right that followed.[1]
[1]On 3 May 2002 the Court of Appeal made consent orders in relation to the application for leave to appeal which inter alia consolidated the application and the appeal as of right.

Introduction and summary

The plaintiff’s claim was for damages, both general and exemplary, for personal injury allegedly sustained by her through smoking the cigarettes of the defendant and its predecessors. The defendant came into existence in September 1999 when W.D.& H.O. Wills (Australia) Limited (hereinafter referred to as “Wills”) merged with Rothmans of Pall Mall (Australia) Limited. Wills was itself in existence between September 1958 and March 2000, being in turn the successor to the British-Australasian Tobacco Company Limited, which was in existence between 1950 and August 1958. It is convenient to follow the course adopted by the parties in argument, of referring to “the defendant” as encompassing the relevant entity from time to time, unless there is some need to differentiate.

Born on 23 September 1950, the plaintiff was seriously ill with lung cancer and had only a brief life expectancy at the time this proceeding was heard and determined in the Trial Division. (Regrettably she died after the appeal was argued.) The plaintiff commenced the proceeding by filing a writ on 26 October 2001 and on 9 November, by consent, an order was made for a speedy trial. There were then numerous hearings of interlocutory applications and a number of further orders were made, including on 6 December 2001 an order for limited discovery. In late December 2001 the judge to whom the case had been allocated for pre-trial management fixed a trial date of 18 February 2002. A range of pre-trial issues being still unresolved, in particular with respect to discovery and the admissibility of documents, five days, commencing on 30 January 2002, were allocated to resolve those issues. As recorded subsequently by the judge (in his reasons for judgment of 22 March), his Honour made it clear at the time to the parties that, so far as possible, he wanted to resolve issues concerning the admissibility of documents before the jury was empanelled.

On 24 January 2002, counsel for the plaintiff told the judge that the plaintiff wished to make a new application in lieu of the applications which had been listed for hearing on 30 January. The judge permitted the plaintiff to substitute, for those applications, an application by summons filed on 25 January seeking an order that the defendant’s defence be struck out. The summons was supported by an affidavit sworn on 25 January by Mr. Peter Gordon, of Slater & Gordon, the solicitors acting for the plaintiff. That affidavit was initially objected to on the ground that it contained matters of opinion and was argumentative, but during the argument that followed on the application the affidavit was accepted, the judge recorded, “as a reasonable summary of the contentions advanced on behalf of the plaintiff [and] as to the significance of the many exhibits which were attached to it”. There were indeed many exhibits to that affidavit and they included a number of documents which had apparently been found by Mr. Gordon in depositories of documents at Guildford, in England, and in Minnesota in the United States.[2]
[2]These depositories were first mentioned at the directions hearing on 14 November 2001 by Mr. Gordon: see paragraph [34] below. They were also mentioned in his affidavit of 18 December 2001 (in paragraph 3) and again in his affidavit of 25 January (in paragraphs 4(b) and 9).

Although the defendant was later to complain that it lacked particulars of the allegations upon which the plaintiff based its summons of 25 January, it is plain enough from Mr. Gordon’s affidavit of 25 January that the plaintiff was complaining at least that the defendant had failed to comply with the order for discovery of 6 December “in that the deponent fails to identify adequately the details concerning the documents which are said to have been lost or destroyed” and had failed to depose to investigations made or the sources of knowledge, information and belief as to the fate of those documents: see para.6 of the affidavit of 25 January. The plaintiff was complaining too (according to Mr. Gordon's affidavit) about “the conduct of the defendant in relation to the destruction of documentary evidence [which] was part of a document management policy, the predominant purpose of which was the destruction of documentary evidence discoverable by and damaging to the defendant in litigation such as the present case”. This was described (in paragraph 10) as opinion formed by the deponent and the rest of the affidavit set out to justify that opinion by reference to inquiries made and documents perused. Mr. Gordon relied in his affidavit upon the failure of the defendant to state plainly what documents had been destroyed to submit, argumentatively, that the plaintiff and the court had been misled by the defendant.

The affidavit of 25 January ran to some 19 pages and 41 paragraphs (many of them subdivided) and the defendant responded by itself filing, first, a number of affidavits sworn on 29 January 2002: an affidavit of Malcolm Nicholson, who was for a time the defendant’s audit manager and who spoke about the document retention policies and procedures of the defendant; an affidavit of Michael John Brian Joseph Harrison, who was for a time the records manager of Wills; an affidavit of Graham Franklin Maher, also an employee of Wills and an in-house solicitor who had much to do with the litigation commenced earlier by Mrs. Cremona against the defendant ("the Cremona litigation") and the destruction of documents after the conclusion of that litigation; and an affidavit of Glenn David Eggleton, a member of the law firm of Clayton Utz. These affidavits were soon followed by others: a further affidavit of Mr. Maher, sworn on 31 January, and one of Mr. Harrison, sworn on 1 February. The defendant too exhibited an array of documents to meet the plaintiff’s application and many of the deponents were cross-examined.

One of the difficulties facing both sides, and of course the judge, was the need for urgency because of the plaintiff’s ill-health. As the judge said in his subsequent reasons for judgment:-

"The hearing of this application has been conducted in the unfortunate and urgent context of the plaintiff’s terminal illness. That consideration caused me to raise with counsel the possibility that the trial should proceed to verdict, with resolution of the present application being considered, if it remained relevant to do so, after verdict was delivered. Counsel for the defendant supported that suggestion, but counsel for the plaintiff urged that I not adopt that course, contending that the plaintiff’s prospects of a fair trial had been irretrievably damaged. Having heard submissions, I concluded that I should deal fully and immediately with this application. However, as anticipated, it has become necessary to vacate the trial date. In the event that the plaintiff were to die before verdict then a successful verdict for damages for the benefit of the estate would not include general or exemplary damages and pecuniary loss damages would be significantly restricted[3]”.

[3]See s.29(2) Administration and Probate Act 1958. An exception to these limitations, but only with respect to dust-related conditions, was introduced by the insertion of sub-s.(2A) in 2000.

No doubt it was because of this urgency that the application was permitted by his Honour to evolve as it proceeded, with the result that it was not until the seventh day of the hearing (according to the defendant’s present submission) that plaintiff’s senior counsel articulated the grounds upon which the plaintiff put the application. They were these[4]:-
[4]AB5 1737-8 incorporating later oral corrections: and see the Appellant’s Summary para.48.

“1.The conduct of the defendant its servants and agents, including its solicitors, in the destruction of documents relevant or potentially relevant to apprehended litigation has created circumstances where this plaintiff is unable to obtain a fair or proper trial.
2.The defendant by the conduct of its servants and agents in the course of this proceeding –
(i) by statements of counsel to the court
(ii)by correspondence from the defendant’s solicitors to the plaintiff’s solicitors
(iii)by affidavits filed on its behalf in court –

has misled the plaintiff and the court as to the true position concerning the existence of documents relevant to this claim.
3.The failure of the defendant to comply with orders of the court made 6/12/01 in relation to discovery and the failure of the defendant to comply with Rule 24.04 of the Rules of Procedure.
4.The failure of the defendant having regard to the conduct referred to in paragraphs 1, 2 and 3 to respond positively to the request for further [categories] contained in the letter of Slater & Gordon to Clayton Utz dated 4 January 2002[5].”

All this, claimed the plaintiff’s counsel, had caused “severe prejudice to the plaintiff”. The plaintiff relied upon what was “comprehensively detailed in the affidavit of Peter Gordon sworn 25 January 2002”.

[5]AB3 766, PG10 tab 36.

In the end, the hearing of the application, which had earlier been estimated to last for one or two days[6], occupied some 15 sitting days, during which even more documents went into evidence. In the course of the hearing, on 6 February, the judge ruled that the defendant, by exhibiting to an affidavit upon which it relied two letters of advice from firms of solicitors[7], had waived privilege as to legal advice received by it from "early in 1990" concerning the handling and destruction of documents. This was after argument by the parties over a notice to produce served by the plaintiff on 31 January 2002[8] on the defendant and two subpoenas duces tecum served upon the defendant's solicitors Clayton Utz and upon Mallesons Stephen Jaques ("Mallesons") who had been helping the defendant with discovery. As a result of his Honour's ruling, many letters and memoranda of advice from solicitors, which otherwise would not have gone into evidence, became exhibits on the application. [9]
[6]AB10 3629 line 11.
[7]The affidavit in question was that sworn by Mr. Maher sworn on 29 January 2002 and the exhibits were GFM 3 and GFM 4: AB 4 1191, 1226, 1251. The topic is dealt with later in detail under the heading "The rejection of the claim to privilege".
[8]AB5 1460-1, 1644.
[9]On 13 February 2002, another ruling was made that the defendant had waived legal professional privilege, this time in relation to what was called the Stowe memorandum: see paragraph [133] below.

The hearing of the application to strike out the defence began on 30 January and ended on 1 March 2002. On 22 March, his Honour announced his decision, delivering comprehensive and detailed reasons for judgment. His Honour concluded, inter alia, that there had been non-compliance by the defendant, in many respects, with the order for discovery made on 6 December 2001 and that, through the implementation of its "document retention policy", the process of discovery in the case had been subverted by the defendant and its solicitors with the deliberate intention of denying a fair trial to the plaintiff, a strategy which had been successful. Accordingly, an order was made striking out the defence, leaving the proceeding undefended save on the issue of damages. By appealing, the defendant challenged the judge’s findings and his conclusions, claiming that the order striking out the defence should never have been made and in consequence the judgment for damages should be set aside and the matter remitted for trial. For her part the plaintiff contended[10] that there were two bases for the order made below and that, although overlapping, each was independently capable of sustaining the order striking out the defence: that is to say, non-compliance with the order for discovery as found by his Honour and, secondly, the destruction of documents deliberately with the view to denying a fair trial to any plaintiff in litigation like the present against the defendant.
[10]Respondent's Outline of Submissions paras.3, 4, and 5.

Before us, the oral argument on this appeal (and we distinguish the second appeal which was heard immediately afterwards) occupied six sitting days. We heard not only argument from the parties (to whom we shall continue to refer as plaintiff and defendant), but also (in support of the appeal) argument on behalf of Brian Thomas Wilson, a solicitor whose conduct was much criticised by the trial judge. Leave to Mr. Wilson to make submissions had been granted on 26 July last. In addition to the oral argument, we had from both plaintiff and defendant comprehensive summaries and from them and Mr. Wilson very lengthy and detailed submissions[11] and then, near the conclusion of oral argument and as Mr. Myers rose to reply, we were handed yet a further 29-page document containing the defendant’s submissions in reply. Coupled with the eleven A4 folders which constitute the appeal book, this vast array of paper makes a daunting task for an appellate court.
[11]In the Appellant's Outline of Submissions the reference to later paragraphs (after 348) of the reasons for judgment used numbers which were different by one from those appearing in the reasons for judgment as reproduced in the Appeal Book, volume 11. In this judgment the paragraph numbers are as they appear in the Appeal Book.

His Honour’s reasons for judgment alone occupy more than 130 pages and they explore in great detail the issues that fell for determination and the evidence concerning them. There were, however, four main areas of disputation and it is convenient to identify them now: (1) the order for discovery, being in the main that which was made on 6 December 2001, and whether and to what extent there had been default by the defendant in compliance (including whether such compliance as there was had been misleading); (2) the defendant’s document retention policy, as it was called, and the destruction of documents by the defendant from time to time under that policy (according to the defendant); (3) prejudice to the plaintiff in consequence of the defendant's actions; and (4) the appropriate order in all of the circumstances.

It is appropriate at the outset to acknowledge that the task facing his Honour was considerable, given the complexity and the novelty of the application as it evolved during argument and the pressure for a speedy determination which was met by his Honour's delivering judgment with great expedition. With great respect, however, we think that his Honour fell into significant error in relation to the first and second of the four issues just identified, and as well on the waiver of legal professional privilege, and for reasons to be explained it follows that the order striking out the defence was not justified and the appeal should be allowed.

Preliminary application

When the appeal was called on for hearing, and as foreshadowed in correspondence during the previous week, counsel for the respondent made immediate application for access to certain documents the existence of which had recently been disclosed to it. According to an affidavit of Mr. Gordon, sworn on 23 August 2002, the finding of these documents had been notified to the respondent’s solicitors because of the subpoenas that had been served on 31 January 2002 on the two firms, Clayton Utz and Mallesons[12] (both of which were by 23 August the former legal advisers of the defendant).
[12]As mentioned already in paragraph [9].

According to Mr. Gordon's affidavit, it was on 14 August 2002, and by letter from Minter Ellison (the firm now acting on behalf of Clayton Utz), that the plaintiff's solicitors were informed that Clayton Utz had recently found certain documents believed to fall within the ambit of the subpoena served on 31 January 2002. At the same time, said Minter Ellison, the defendant was claiming legal professional privilege over the documents. On 15 August, Mr. Gordon was told by Minter Ellison that Clayton Utz had found the subject documents during July and that, in view of the claim to privilege, the rest was a matter for the defendant. When Mr. Gordon wrote to the defendant’s present solicitors on 16 August, seeking access to the documents, they replied that the subpoena was “no longer a current order of the Court” and repeated that the defendant claimed privilege.

Again according to Mr. Gordon's affidavit, on 22 August 2002 the plaintiff's solicitors were informed by Mallesons that certain documents had been found recently - in May last - which that firm had failed to produce in answer to the subpoena served on 31 January 2002. Enquiry of the defendant did not advance the matter; for when asked it said, through its solicitors, that, while Mallesons had told it of the position in early June, it considered the matter of compliance with the subpoena to be a matter for Mallesons. On 23 August Mallesons sent the documents to the Court in a sealed envelope marked “privilege”, under cover of a letter informing the Court that the defendant claimed legal professional privilege in respect of the documents.

In relation to both sets of documents, Mr. Rush, who had carriage of the argument for the plaintiff on this aspect before us, sought an order that the plaintiff be given access to these two sets of documents forthwith, and notwithstanding the claim to legal professional privilege. As foreshadowed by Mr. Gordon in his affidavit, the plaintiff relied upon the trial judge’s ruling on 6 February 2002 that privilege had been waived in respect of the period from "early 1990 to late 1998". But this was the subject of challenge on the appeal and it seemed to us altogether inappropriate that we should make an order giving effect to his Honour’s ruling when the correctness of the ruling had yet to be determined. Moreover, Mr. Rush sought access to the documents, he told us, for the purpose of learning whether these documents, too, supported the conclusions of the trial judge - and again that approach seemed to us inappropriate when the first question for us on this appeal was whether, on the material before him, his Honour had fallen into error as claimed by the defendant. Indeed, Mr. Rush conceded that, if these further documents tended to support his Honour’s conclusions, they would only serve to reinforce the plaintiff’s arguments on the appeal, yet Mr. Rush was unable to cite any authority in which the respondent had been permitted to rely upon “fresh evidence” to support a judgment under appeal. Finally, it may well be, as the defendant’s solicitors contended in correspondence, that each subpoena was anyway “no longer a current order of the Court”. After all, the subpoena was an order of the Court for the production of documents at trial and the trial was well and truly over. We mention the point, but there is no need to decide it.

In all the circumstances, we simply dismissed the application made by Mr. Rush when it was made to us at the outset of the hearing, our reasons being apparent in the course of our discussion with counsel at the time. We dismissed the application without prejudice to its being renewed if and when the plaintiff might think it appropriate thereafter. So far as we could see then, unless and until we decided that there was error below, the question of further documents could only be an unnecessary complication. Whether such documents would be relevant in considering what orders should be made in substitution for the orders made below if and when we decided that those orders should be set aside, was another matter and one upon which we were not prepared to embark before the hearing of the appeal. There is therefore no need to say any more at this stage about the preliminary application, save to record this: that the application was not thereafter renewed.

The context

Turning then to the matters debated on appeal, we say something first about the issues raised by the proceeding itself and about the defendant's document retention policy and its implementation generally, for the purpose of giving context to the complaints made by the plaintiff about the defendant's compliance, or non-compliance, with its obligations to discover and about the destruction of documents.

The plaintiff filed and served her statement of claim with the writ on 26 October 2001 and it suffices for present purposes to adopt the description of that pleading in the judge’s reasons for judgment (paragraph 7):-

“The plaintiff’s statement of claim alleges that from her early teens (having commenced smoking at age 12) she became addicted to cigarettes manufactured by the defendant, and that as a result of that addiction and the properties of the cigarettes, she contracted lung cancer. The plaintiff alleges that the defendant, itself or through its predecessor and affiliated companies, knew that cigarettes were addictive and dangerous to health, and by its advertising targeted children to become consumers. The plaintiff alleges that the defendant, knowing the dangers of addiction and to health of consumers, took no reasonable steps to reduce or eliminate the risk of addiction or the health risks, and ignored or publicly disparaged research results which indicated the dangers to health of smoking.”

The defence was filed on 21 November 2001 and again we draw on the reasons for judgment (paragraph 10) for this description of the defence:-

“In broad terms, the defence denies that the plaintiff’s illness is causally related to cigarettes, asserting that the majority of smokers do not contract lung cancer. As to the plaintiff’s allegation that the defendants’ cigarettes were addictive, the defendant, whilst acknowledging that some persons may find it difficult to quit smoking, denies the allegation, and asserts that smoking is a behaviour of choice, and does not impair the ability of a smoker to assess the risks of smoking and to make an informed decision. As to the plaintiff’s allegation that the defendant between 23 September 1950 and 1992 knew or ought to have known about the risk of lung cancer and the addictive effect of nicotine, the defendant joins issue and expressly pleads, by par 5(d), that:
‘the defendant did not have any knowledge about the risk of lung cancer or any difficulty associated with quitting smoking which was not in the public domain.’”

The allegations about the plaintiff’s own smoking were not admitted and the allegations of duty and breach were denied. Nor did the defendant admit that the plaintiff first became aware of injury when she was diagnosed with lung cancer on 31 July 1991. Loss and damage were put in issue.

After dealing with the plaintiff’s allegations, the defence continued by alleging that before commencing to smoke and throughout the period during which she smoked (which was alleged by the plaintiff to be from about 1962 when she was 12 years old until 1992), the plaintiff was aware that smoking could cause lung cancer and other fatal diseases and undertook the risk voluntarily. As the judge put it (in paragraph 11):-

"The defendant pleads that from a time prior to 1962 the Australian community was informed that smoking could cause lung cancer, and other diseases, and that it could be difficult to quit smoking, and that there was extensive legislative regulation of tobacco advertising and health warnings - among other matters - and there was legislation prohibiting the sale of tobacco to minors. The defendant pleads that it had entered into agreements with governments relating to such matters, including tar and nicotine levels. The defence asserts that the plaintiff voluntarily assumed the known risks of contracting cancer, those risks having been the subject of warnings over many years.”

After so describing the pleadings, the judge summed up in relation to the issues in this way (paragraph 12):-

"It is clear that the plaintiff’s case against the defendant will direct attention to the question of what was known to the defendant as to the risks of smoking, the addictive properties of cigarettes, the considerations and knowledge which bore upon the defendant’s decisions as to the manufacturing process, and advertising campaigns concerning its products, and, in particular, its knowledge as to the consumption of cigarettes by children. It is also clear that contemporaneous and historical documents held by the defendant relating to scientific research, not only that held in the public domain but also research conducted by scientists acting on its behalf, on behalf of other tobacco producers, and also research conducted by outside agencies on behalf of the defendant or the tobacco industry, would be of very great importance to the plaintiff’s case. Equally important might be any internal memoranda reflecting the defendant’s response to such research and its knowledge and actions as to relevant issues.”

So much may be accepted for the purposes of this appeal. As we apprehend it, it was not in dispute before us that what might be relevant at trial, depending upon the way in which the plaintiff put her case, went beyond such scientific research as was in the public domain and extended also to research within the bosom of the defendant and its associated tobacco producers. At all events, we are prepared to accept that for present purposes.

The defendant was, of course, a large organisation, under whatever name it endured for the time being. As such it generated many documents and it cannot be surprising that for many years there was in place a policy, of one sort or another, with respect to the retention or destruction of documents generated or coming to hand in the course of business and much of the dispute before his Honour over discovery, and particularly the cross-examination of deponents, focused on the defendant’s so-called document retention policy and its implementation. It is important, however, to stress at the outset that while the allegation made was that the defendant had destroyed documents with the intent of defeating the claims of the plaintiff (or, more accurately, litigants like the plaintiff), it was not claimed that there was any relevant destruction of documents after the commencement of this proceeding on 26 October 2001. Rather, the complaint was that documents had been destroyed at a time when litigation was plainly anticipated and deliberately so, with the intent of defeating prospective litigants who, like the plaintiff, would seek damages from the defendant for personal injury occasioned by the smoking of the defendant’s cigarettes.

The plaintiff’s claim that the defendant had wrongly destroyed documents to her prejudice reached back many years to well before the commencement of the instant litigation, and indeed to well before any such litigation against the defendant in Australia. The first such proceeding was instituted in October 1990 against Wills, when Wills was joined as third party in a proceeding brought against C.S.R. Ltd by one Gallagher in the Supreme Court of Western Australia. Mr. Gallagher claimed to have suffered chest disease as a result of inhaling asbestos and the third party proceeding raised the question whether cigarettes had caused or contributed to the plaintiff’s condition. That litigation ended in November 1991[13]. In December 1990, one Harrison commenced a proceeding against Wills in the Supreme Court of New South Wales (“the Harrison litigation”) and in February 1996, Phyllis Cremona commenced her proceeding in the Supreme Court of Victoria (the Cremona litigation). The latter was resolved in February 1998[14] and the Harrison litigation was formally discontinued on 8 April 1998[15]. In March 1999, one Durkin commenced a proceeding in the Federal Court which was later to become the Nixon class action[16]. The class action was dismissed before trial on procedural grounds on 18 December 2000[17] As already noted, the present proceeding was commenced in October 2001.
[13]Appellant’s Chronology p.5, Respondents’ Chronology p.7.
[14]The proceeding was discontinued, according to the Respondent's Outline of Submissions, para. 59: see also Respondent’s chronology p.12.
[15]When notice of discontinuance was filed: AB9 2736. According to the Respondent's Outline, para. 59, that was preceded by an application (at least initiated) by the defendant to have the proceeding dismissed for want of prosecution, notice of motion to that effect being filed on 11 February 1998: AB9 2738.
[16]Respondent’s chronology p.14.
[17]Respondent’s chronology p.15.

According to the evidence, once litigation began in 1990, a “hold order” was put in place by the defendant 's management, requiring "that all records subject to it be kept until further notice", and "overriding the retention periods which would otherwise apply"[18]. Thus, a hold order prevented for the time being the implementation of the document retention policy, lest thereby documents relevant to the litigation be destroyed. Hold orders were reviewed annually but, as the litigation continued, so the hold orders were renewed. The first was imposed on 23 November 1990 and thereafter there was always one in place until the last of these was revoked with effect from 6 March 1998, Mr. Harrison having agreed on 5 March to discontinue his litigation in the Supreme Court of New South Wales[19].
[18]Affidavit of Nicholson 29 January 2002 para.26.
[19]Affidavit of Nicholson, 29 January 2002, paras.29-35; affidavit of Maher, 31 January 2002.

With the ending of litigation (at least for the time being), the defendant saw a “window of opportunity” (as the judge characterised it) with the result that, when the last of the hold orders was revoked in March 1998, a direction went out to implement the document retention policy which, for so many years, had been on hold. At that point it is probable that many documents were destroyed, including many discovered in the Cremona litigation, something of which the judge was particularly critical. The judge found[20] that “the destruction was performed as a matter of urgency” and although it occurred at the time when no litigation was on foot and “after advice had been received from Mallesons that it was lawful to do so”, his Honour found it probable that the defendant “considered that further proceedings were not merely likely, but a near certainty, although it did not know the identity of any proposed litigant”. Indeed, the Nixon class action (in which it appears that Mrs. McCabe herself registered as a group member through Slater & Gordon in September 1999[21]) commenced in March 1999, which led to a new hold order being put in place, on 12 April 1999[22].
[20]Reasons for judgment, paragraph 289 finding 15 (AB11 4043).
[21]Respondent's Chronology p.15, AB10 3370.
[22]That hold order is Exhibit GFM 15 to the affidavit of Mr. Maher of 31 January 2002.

In broad terms the judge accepted the plaintiff's contention that the destruction of documents, both before 1998 and during 1998, had been undertaken by the defendant deliberately for the purpose of defeating prospective litigants, including the plaintiff, and, holding that the defendant had acted improperly in so destroying documents (albeit, as his Honour found, with the advice of its lawyers) and that the plaintiff had thereby suffered irreparable prejudice, he ordered that the defence be struck out. In view of the contrasting submissions made by the parties below on the issue of document retention and destruction (submissions which we shall describe in more detail later on), it is scarcely surprising that the judge’s conclusion on that aspect, once drawn adversely to the defendant, served to colour his consideration of the other questions falling for determination. Indeed, in our opinion the conclusion relating to the improper destruction of documents intruded inappropriately when his Honour considered how far the defendant had complied with the order for discovery and whether, in complying, its conduct had been misleading. None the less it is convenient to turn first to those questions of non-compliance and to consider them separately, the more particularly as the plaintiff contends that, given its nature and extent, non-compliance by the defendant in respect of discovery was sufficient, in itself and without more, to justify the order striking out the defence.

The order for discovery of 6 December

Under Rule 29.04 of Chapter I of the Rules, when a party makes discovery in a proceeding commenced by writ, the affidavit of documents shall identify the documents which are or have been in “possession” (meaning possession, custody or power); enumerate the documents or describe them sufficiently to enable the documents to be identified; and distinguish those which are in possession from those which were but are no longer in possession, the deponent stating when the party “parted with the document and his [or her] belief as to what has become of it”. Any claim to privilege from production should be stated, with the grounds of the privilege. Under Rule 29.05, the court is empowered to make an order for limited discovery “in order to prevent unnecessary discovery”, and, as will be seen, that was the course that in this instance was followed by consent on 6 December.

Before the trial judge the plaintiff set out to establish non-compliance by the defendant with its obligations to make discovery, and in particular to make discovery as ordered on 6 December. No doubt the plaintiff relied upon Rule 24.02 under which, in a case of non-compliance, the court may order, if the party is a defendant, “that his defence, if any, be struck out”, whereupon the defendant is to be taken to be "a defendant who, being required to serve a defence, does not do so within the time limited for that purpose”. In this instance, the judge having found inter alia non-compliance in a number of respects, the defence was struck out save as to loss and damage which in turn led his Honour to give judgment in default of defence under Rule 21.02. We accept the defendant 's submission that, because the order of 6 December 2001 was critical to the plaintiff’s application, it is important to understand how that order came about, and so we say something of that now.

As already recounted, an order for a speedy trial was made by consent on 9 November 2001 and the parties were told then that the trial judge would conduct interlocutory steps preliminary to trial. The first directions hearing was on 14 November, but in the meantime there had been correspondence. After pointing to the apparent delay since instructions had been given “as early as August”, the defendant’s solicitors said that it would be “physically impossible for the defendant to give general discovery” by 19 November and further “without knowing what is alleged about safe or safer cigarettes, conduct and causation” they could not say “how many man hours are likely to be required to provide general discovery”. That was by letter dated 5 November and further particulars of the plaintiff’s allegations in the statement of claim were sought by letter of 6 November. These were directed particularly to the allegations about relevant “knowledge” of the risk of lung cancer and the addictive effect of nicotine. Such knowledge, it was claimed in the letter, “evolved during the period from September 1950 onwards” and in the light of that, and certain reports in the public domain, further and better particulars were sought in 46 specific paragraphs.

This prompted a response, by letter of 7 November, asking whether the letter was to be taken for a formal request for further and better particulars. Issue was taken also with what had been stated by the defendant’s solicitors about the evolutionary nature of knowledge concerning the health risks of smoking and the addictive effect of nicotine. In language which seems to have been stronger than was warranted, the plaintiff’s solicitors wrote thus (referring to British American Tobacco as BAT):-

"Whilst there may have been development of knowledge incrementally in the scientific and medical community about smoking and lung cancer between the 1950’s and the 1990’s, no such development was necessary within the headquarters of your client. It knew of the causal relationship between smoking and cancer to a level of certainty. We hold documents authored by senior employees/directors of the company, including Sir Noel Foley, and Mr W.W. Reid which attest to this fact. ... It is offensive and inappropriate for your client to be making these specious points when its position with respect to knowledge and the connection between smoking and lung cancer from the 1950’s is quite clear.
Likewise with addiction. It is a nonsense for your client to instruct you to refer to the 1964 Surgeon General’s Report when it had secretly acquired details of the results of Project HIPPO from the Batelle laboratories from its associated English company, British American Tobacco Company Limited; which research not only proved the addictive effect of nicotine but the scientific methodology by which such process took place.

Moreover, your client was well aware that prior to publishing the 1964 Surgeon General’s Report, the US Surgeon General sought advice from the BAT Group as to whether it had evidence of the addictive effect of nicotine and the said research was deliberately concealed from the US Surgeon General.”

The letter of 7 November also referred to the Cremona litigation which had come to an end in 1998, concluding with a request for copies “of the following documents, which were listed in your client’s Affidavit of Documents in Cremona and which are clearly discoverable" - and 15 child smoking studies (as they were dubbed in argument before us) were then identified specifically by reference to their respective numbers in the affidavit of documents in the Cremona litigation. The solicitors writing the letter, now acting for the plaintiff in this litigation, had been directly involved as solicitors for Mrs. Cremona in the aftermath of that litigation[23].

[23]In fact they had been instructed on behalf of Mrs. Cremona to sue the solicitors who had been acting for her in that litigation.

Included within this letter of 7 November was a demand made bluntly by the plaintiff’s solicitors that the defendant’s solicitors obtain instructions from their client by way of response to seven questions which were then set out, the solicitors warning that that they would “further insist on any hearing of this matter, that you disclose to the court that you have obtained your client’s instructions in relation to the substantive matters of fact raised in this letter”. They warned too that they would place reliance upon the response “in advising our client as to whether to amend her pleading to make a claim of aggravated damages against the defendant with respect to the fraudulent and/or disingenuous defence of this action”. This was strong language at an early stage, and presumably the letter was not drafted with a view to obtaining co-operation. What is significant for present purposes is that the letter of 7 November displays very considerable awareness on the part of the plaintiff’s solicitors in relation to the issue of the defendant’s alleged knowledge both of the dangers of smoking and of the addictive properties of nicotine - an awareness that was confirmed in the course of the directions hearing that followed.

At the directions hearing on 14 November, Mr. Gordon urged that the trial commence as soon as possible. The further and better particulars being sought by the defendant would be served that day, he said. The discoverable documents of the plaintiff and the particulars were all ready and, as to the further and better particulars otherwise being sought by the defendant, he said, according to the transcript:[24]
[24]AB10 3378-80.

"Your Honour, can I also indicate that the further and better particulars sought by the defendant seek particulars of documents in certain categories. One category, for example, the studies which the plaintiff says the defendant ought to have had regard to, which ought to have put it on notice and did put it on notice that smoking caused cancer, for example – and I will be indicating and do indicate to my learned friend that we also have copies of all of those documents, and in so far as the defendant does not already have them we would be happy to provide copies. But we have reason to believe that the defendant does already have them, so we hope to achieve some economies in that regard.
Likewise, the other compendious documents referred to in the further and better particulars, media comment by the defendant casting doubt or disparaging smoking and health experts over the years, for example, or independent studies on addiction, all of those documents, as well as being referred to in the further and better particulars which will be served today, we have in our office and can supply copies upon reasonable request.”

To avoid the burden of discovery in respect of the period of 40 years referred to in the pleading (that is, from 1950 to 1992), Mr. Gordon said that it would be “useful for there to be some discussion in relation to that discovery issue”. But the following factors were relevant, he suggested. First, that the defendant had made discovery in the Supreme Court of Victoria in the Cremona litigation “so the general discovery has been supplied before”. Moreover, continued Mr. Gordon, “There has been extensive tobacco litigation in the United States, health care cost recovery litigation” and in one of those cases, against Phillip Morris and others, the terms of settlement required the defendants, including companies associated with the defendant, to “deposit into document depositories the documents which they hold historically”. One of those document depositories, he said, was in Minnesota and the other in Guildford. He added:-
“We have, in the course of conducting a previous case, a representative proceeding called Nixon, visited the Guildford depository and have collected a large number of documents. Some of those documents are patently documents of the defendant, and we believe it would be valuable, and indeed may relieve the defendant of its obligation of general discovery in this matter, if we were to serve upon the defendant copies of those documents which we say are patently defendant’s documents ... to ascertain the status regarding admissibility and authenticity ...”

Accordingly Mr. Gordon said he would serve a letter enclosing the documents and seeking admissions and in default, would seek to have the judge determine admissibility at a pre-trial stage. And finally, with respect to discovery, Mr. Gordon said he could “negotiate with the defendant a position whereby their obligation of general discovery is replaced by an obligation to provide discovery in discrete categories.” He concluded in this regard:
"Just to place it on record, we would want documents that they are going to rely upon at the trial. ... We would want the Guildford documents to which I have referred. There are certain documents in the Cremona affidavit of documents, particularly the [15 child smoking studies] which we have already asked the defendant for ... and there may be some other categories. If we could reach an agreement with respect to that, your Honour, that would probably do from the plaintiff’s point of view with respect to discovery.”

Nothing could have been plainer but that the plaintiff’s solicitors were content with a limited form of discovery[25] by reference to categories, if agreement could be reached.

[25]Pursuant to R.S.C. Chapter I Rule 29.05.

Consistently with what Mr. Gordon said at the directions hearing on 14 November, a letter was sent on 20 November enclosing “a selection of documents obtained from the document depositories at Guildford and/or Minnesota”. The letter continued[26]:-

"We re-iterate that the plaintiff may be prepared to waive her right to general discovery in this matter if an acceptable arrangement can be made with respect to discovery regarding discrete categories of documents. In this regard we refer to our letter of 7 November and the documents listed therein which were listed in your client’s affidavit of documents in Cremona. Please let us have copies of these documents prior to the next directions hearing in this matter.”

A notice to admit was enclosed with the letter, identifying some 34 documents obtained from the document depositories and seeking admissions from the defendant with a view to the documents going into evidence. These were dubbed "the 34 notice to admit documents".

[26]AB3 699.

By a separate letter dated 20 November the plaintiff identified ten categories of documents in respect of which the plaintiff sought discovery. Although reserving the right to add to or subtract from the categories, it was stated:-

"We re-iterate that if an appropriate agreement can be made regarding these categories, the plaintiff may be prepared to waive her entitlement of general discovery from the defendant”.

Further, when no admissions were forthcoming as sought in the notice to admit, the plaintiff added, by letter dated 23 November, the 34 notice to admit documents as a further category in respect of which discovery was specifically sought. By letter dated 26 November the defendant’s solicitors responded, indicating substantial agreement with the proposal that there be discovery by categories as suggested, but warning that there was still some searching to be done on its part among the some 2,000 or so documents held and which were only partially reviewed at the time of the Nixon class action (that being the class action in the Federal Court which had been dismissed in December 2000[27]). There were also about 900 boxes of documents not so far reviewed, said the defendant's solicitors, and they suggested that there be “tranches of discovery as soon as we are able, the first tranche to be by 17 December.”

[27]As recounted above, in paragraph [25].

By letter dated 26 November the plaintiff’s solicitors added some documents to the existing categories. By letter dated 27 November they responded with some irritation to the proposal of discovery by tranches. They rejected as unacceptable the date 17 December. In the circumstances, it was said, “we seek very limited discovery” and it was surprising (the writer commented) “if your client could not provide discovery within a much shorter time”. The review of the documents, it was suggested, must have occurred for the Cremona litigation and specifically, the writer asked:-

“Why have the documents avoided the processes of the defendant’s internal document handling processes?”.

The response from the defendant 's solicitors was by letter of 28 November, insisting that discovery could only be done by taking a systematic approach. The writer of this letter took umbrage at the suggestion that everything discovered in the Cremona litigation was necessarily discoverable in this litigation, pointing out that the issues were quite different. Mrs. Cremona claimed to have suffered from emphysema and to have smoked different brands of cigarettes from those smoked by the plaintiff in this case. Importantly it was said:

“The documents of which discovery was given were not retained as a discrete group, but were dealt with in accordance with the defendant’s internal document handling processes”.

It was Mr. Travers who wrote this letter for Clayton Utz, and the judge was very critical of the passage just quoted; but if the emphasis in what we have quoted was on the second word “were”, then what is said would appear to be neither more nor less than a reflection of the terms in which the plaintiff’s solicitors couched the question being answered (and which is quoted above[28]). None the less, much was to be made of this wording (which turned up elsewhere too) on the application to strike out the defence.

[28]In paragraph [37]

Meanwhile, on 21 November, the defendant had filed and served its defence denying the duty of care, denying negligence and denying any causal connection between the alleged breach and the plaintiff’s smoking; and pleading voluntary assumption of risk, the absence of causation and the discharge by the defendant of any duty of care owed. On 22 November there had been a directions hearing before the trial judge and the issue of discovery by the defendant was raised again. Plaintiff's counsel had emphasised that one of the documents obtained by the plaintiff’s solicitors from the document depositories was a letter from Clayton Utz dated 13 October 1989 indicating involvement in this type of litigation at the time. This, said counsel, indicated “the strong involvement of this firm in relation to the preparation of these cases” and that unreasonable delay “should not be tolerated”[29]. On 6 December 2001, Robyn Ann Chalmers, of the firm of Mallesons, swore an affidavit filed on behalf of the defendant, in which she explained that Mallesons had been retained as agents to assist the defendant in making discovery in this proceeding, and she deposed to the steps so far taken, and the steps to be taken, in order to make discovery. That affidavit was relied upon by the defendant at the directions hearing on 6 December, when the judge made the order for discovery[30] now at the heart of this dispute.
[29]AB10 3412.
[30]AB1 33-37.

The particular order presently relevant was for discovery according to categories suggested by the plaintiff, but a number of other orders were made at the same time. Thus, an order was made that by 7 December the defendant make available for inspection its annual reports for the years 1957 to 1966 (inclusive)[31] and that by 10 December the defendant file its response to the plaintiff 's notice to admit of 20 November[32]; that by 10 December the defendant make discovery in respect of[33] (and make available for inspection, if still in possession[34]) the 34 notice to admit documents[35]; and that by 17 December the defendant make discovery in respect of[36] (and make available for inspection, if still in possession[37]) the 15 child smoking studies[38]. By paragraph 6 it was ordered that by 17 December "the Defendant make discovery of each of the following categories of documents which it has then identified"[39] and there followed these eight[40] categories of documents, reflecting the earlier correspondence:
[31]Paragraph 3 of the order of 6 December 2001.
[32]Paragraph 7.
[33]Paragraph 4.
[34]Paragraph 5.
[35]See paragraph [35] above.
[36]Paragraph 1 of the order of 6 December 2001.
[37]Paragraph 2.
[38]See paragraph [32] above.
[39]This was apparently understood as meaning “documents which it has then identified in each of the following categories”.
[40]There was no category numbered 7.

"1.All documents upon which the Defendant will rely at the trial and which the Defendant will seek to tender at the trial;
2.All documents of the Defendant or of the other tobacco companies sent to or received by the Defendant, dealing with health advertising, and/or any agreement or course of conduct entered into by the Defendant to refrain from advertising or promoting its cigarettes by reference to the comparative health risk of its cigarettes compared to other manufacturers’ cigarettes;
3.All documents and records relating to the advertising of the Defendant’s cigarettes of the brands ‘Capstan’ and ‘Escort’ between 1958 and 1992, whether or not such documents also relate to the advertising of other brands of cigarettes produced or sold by the Defendant;
4.All advertisements for Capstan and Escort cigarettes displayed, published and/or aired in Victoria between 1958 and 1992;
5.All correspondence between the Defendant and the NHMRC between 1957 and 1965;
6.All correspondence and other documents of or between the Defendant, Brown and Williamson, and/or British American Tobacco, between 1958 and 1969 relating to;
(a) Project Hippo;
(b) research conducted by the Batelle Laboratories;
(c)the pharmacological effect of nicotine on the human body;

(d) the US Surgeon-General;
8.All correspondence between the Defendant and the Tobacco Journal of Victoria and/or the Australian Retail Tobacconist between 1955 and 1965.
9.Any document previously held by the Defendant in categories 2, 3, 5, 6, and 7 above which has been destroyed or otherwise removed from the possession, custody or control of the Defendant.”

And by paragraph 8, it was ordered that by 14 January "the Defendant make discovery of each of [the] categories of discovery in paragraph 6"[41]. The whole of the order made on 6 December 2001 was made by consent. It was categories 2, 6 and 9 in paragraph 6 which were later to give rise to difficulty - although the wording of the order was the plaintiff's, not his Honour's[42]. By a separate order made on 6 December, directions were given, inter alia, for the trial to commence on 18 February 2002.
[41]Apparently thereby drawing a distinction between what the defendant might be able to identify by 17 December (as described in paragraph 6 of the order) and the totality, as described in paragraph 8.
[42]AB10 3497, 3499.
The mounting of the application to strike out

What happened after 6 December must now be described. On 7 December the defendant’s solicitors made available the defendant’s annual reports for the years 1957 to 1966 for inspection, as ordered. On 10 December, they notified the plaintiff’s solicitors that the defendant had none of the 34 notice to admit documents but had “nine documents which are similar although not identical to nine of the documents referred to in the notice to admit”, and copies were provided. On the same day, formal notice was given, in response to the notice to admit, that the defendant disputed each of the facts in the notice to admit and disputed the authenticity of each of the documents identified.

On 10 December John Lancelot Namey, the secretary of the defendant, swore an affidavit for the defendant, deposing on information and belief to the defendant’s discovery process and referring to the identification of the nine similar documents just mentioned and the handling of documents at the conclusion of the Cremona proceeding. He said (in paragraph 11[43]):-

"At the conclusion of the Cremona Proceedings employees from whom original documents had been taken were asked whether they wanted their original documents returned to them. Original documents were returned to those employees who wanted them. Documents that were not returned should have been dealt with in accordance with the then current document retention policy.”

On 17 December Mr. Namey swore another affidavit deposing, on information and belief, to the fact that Mallesons had not been able to locate the 15 child smoking studies and describing, again, the handling of documents discovered in the Cremona proceeding in like terms as before.

[43]AB 1 42.

Also on 17 December, the defendant’s solicitors served on the plaintiff’s solicitors the defendant’s list of documents which was headed “list of documents within agreed categories for discovery identified as at 17 December 2001” and declaring that such was discovery "in accordance with paragraph 6" of the order made on 6 December. The next day, the plaintiff’s solicitors complained about the adequacy of the discovery and proposed that the matter be listed again for further orders. On 18 December Mr. Gordon swore a further affidavit in support of an application for further orders, including an order that the defendant file a further affidavit, that there be cross-examination of the deponents Namey and Chalmers and that the question of the admissibility of the 34 notice to admit documents be determined as a separate question. It was said in this affidavit that “the defendant has employed over many years the policy of destroying its past corporate records”, and a document was exhibited, entitled "Wills Records Management Manual" (Exhibit PG 6).

On 20 December, the defendant's solicitors agreed to add to the categories of documents in respect of which it would provide discovery the three further categories identified by letter from the plaintiff’s solicitors on 14 December, being copies of the defendant's in-house magazine “Smoke Signals” between January 1958 and December 1966; copies of the standard sale agreements between the defendant and its distributors and/or retailers between January 1958 and December 1966; and all correspondence, memoranda and other documentation relating to a survey of the smoking habits of schoolboys conducted at Newcastle Boys High School in 1958. Thus the plaintiff’s solicitors were maintaining the thrust of their request for discovery in specific categories only.

On 21 December there was a further directions hearing at which Mr. Gordon alleged that there had been “what we believe is fundamentally an abuse of processes of this court by the defendant, with respect to matters of discovery”[44]. When detailed, the complaint was that in the first tranche of discovered documents, that supplied on 17 December, there were only “some annual reports and a box of advertisements”; beyond that and the “9 documents which were said to be similar documents to the notice to admit, we say the defendant has effectively discovered nothing”[45]. Nothing, it was said, had been discovered as in the Cremona litigation, notwithstanding, said Mr. Gordon, that he had correspondence from the solicitors once acting for Mrs. Cremona “showing that they actually sent back copies of the discovered documents to this defendant on 2 March 1998”[46]. It was then alleged that “it may well be that the reason that we’ve seen nothing has to do with the Wills Record Management Manual [i.e., Exhibit PG 6 to Mr. Gordon's affidavit of 18 December] which mandates the destruction or suggests the destruction of documents which might [be] of use to an opponent in court”[47] – an allegation which the defendant disputed, and still disputes. The complaint seemed essentially to be that documents discovered in the Cremona litigation were not being discovered in this proceeding (and the difference between the two proceedings was simply not adverted to). By mischance, it seems[48], senior counsel for the defendant had not been shown the affidavit of 18 December, and he was taken by surprise by the attack and, perhaps, its vehemence. The judge warned, however, that "were it to be established that there was a deliberate tactic being adopted of getting rid of all documents as quickly as possible in case someone else asks for them, that would be a pretty alarming situation”[49]. Thus the seeds were sown of the application to strike out.
[44]AB10 3537-8.
[45]AB10 3538.
[46]AB10 3538.
[47]AB10 3539.
[48]Compare AB10 3543.
[49]AB10 3547.

In the end, on 21 December, the trial judge made orders by consent[50], including an order that the defendant file a further affidavit relating to the 15 child smoking studies and the 34 notice to admit documents, and Mr. Namey swore an affidavit accordingly later on that same day. The judge also adjourned until 30 January the plaintiff’s application for an order that the admissibility of the 34 notice to admit documents be determined separately, before trial.
[50]AB1 145-6; see also AB 10 3600-01, Respondent’s Summary para.23.

On 4 January 2002 the plaintiff’s solicitors wrote again, seeking to add to the categories of discovery a further three categories, the third of which was “the further documents discovered in Cremona, contained in the list of documents provided to you in court on 21/12/01; and the documents discovered in Cremona listed in the Schedule attached hereto". That schedule[51] listed 27 documents identified by their respective discovery numbers, it appears, in the Cremona litigation. As for the list of documents said to have been provided in court on 21 December, the defendant’s solicitors denied having this and, upon request, the list was sent on 9 January[52]. This time, by letter dated 14 January the defendant’s solicitors declined to add any of the further categories to its task on discovery, claiming that there would otherwise be “significant extra work” and that there was “no legitimate need” for the further documents. The letter of 14 January harked back to the history of discovery and the agreement that there should be consent orders for limited discovery in order to permit of a timetable for the trial to commence on 18 February.
[51]Now found in AB3 768-769.
[52]AB3 772-774.

On 14 January, the defendant’s affidavit of documents was served, again sworn by Mr. Namey on information and belief. The affidavit provoked an immediate response by letter dated 15 January, in which the plaintiff’s solicitors said[53]:-
[53]AB3 857, PG10 tab 44.

"Yesterday afternoon we received your client’s affidavit of documents which makes clear that virtually all of the documents requested by the plaintiff, and which were discovered by the defendant in the Cremona proceedings, have been destroyed in the last three years.”

In contrast, by letter dated 16 January the defendant’s solicitors pointed out that as to the 15 child study documents, listed in the Cremona affidavit of documents, all have been found to be “readily accessible in the public domain” and a list was attached specifying publication dates. But also on 16 January the plaintiff’s solicitors asserted again “serious concerns” about the defendant’s discovery and stating[54]:-
“Your client’s affidavit of documents can only be interpreted as deposing that there has been a widespread destruction of at least the vast majority (and on one view, all) of documents which were discovered in the Cremona proceeding.”

The response from the defendant’s solicitors, also by letter of 16 January, was that documents which were discovered in the Cremona litigation were returned to employees or they were dealt with “in accordance with the records management policy, which, in practice, means that they were either retained or destroyed” and that there was no way now of knowing “which documents from the Cremona discovery were retained and which were destroyed, except by elaborate enquiry”[55].

[54]AB3 865, PG10 tab 48.

[55]AB3 866, PG10 tab 49.

On 18 January, the plaintiff’s solicitors continued to press for discovery in relation to the three further categories first mentioned on 4 January[56] and for a further affidavit of documents. Again that request to include further categories was rejected and the defendant’s position about the “records retention policy” was stated more fully, the defendant disputing that its policy had ever been according to the document exhibited to Mr. Gordon’s affidavit of 18 December, Exhibit PG 6[57]. By letter dated 21 January, the plaintiff’s solicitors responded to an earlier letter of the defendant's by declaring that two conclusions were now “unavoidable”:-

"1.The defendant has deliberately destroyed evidence, amounting to thousands of documents relating to various issues relevant to its liability in this case, and dating back many years; with the specific intention of preventing litigants against it, and the courts, from access to and/or knowledge of that evidence; and
2the defendant has misled the plaintiff and the Court both in relation to the fact of such destruction of evidence; and in relation to its document handling and document search processes”.

Accordingly, it was said, the plaintiff would make application to the trial judge to have the defendant’s defence struck out.

[56]AB3 766-7, PG10 tab 36.

[57]AB3 890-1, PG10 tab 56.

On 24 January the trial judge was informed by plaintiff’s senior counsel of the proposed application and on 25 January the summons to strike out the defence[58] was filed. Contrary to the usual practice in this State, the summons did not state the ground or grounds on which relief of that nature was sought[59]; it simply claimed an order striking out the defence, an order for the costs of the application and of the proceeding to date on an indemnity basis and such further or other relief as to the Court might seem meet. Mr. Gordon’s affidavit of 25 January was filed on the same day and on 29 January the defendant filed its principal affidavits in answer, being the affidavits of Mr. Nicholson, Mr. Eggleton, Mr. Harris and Mr. Maher[60].
[58]AB 1 180.
[59]Compare Chitty’s Queen Bench Forms (18th ed.) 383-4, Atkin’s Court Forms and Precedents (2nd ed.) vol.15 p.153-6.
[60]See paragraph [6] above.

The determination of non-compliance

What followed was the hearing which commenced on 30 January and extended over some 15 sitting days. There was cross-examination of the defendant’s deponents in this order: Mr. Maher, Mr. Namey, Mr. Nicholson, Ms Chalmers (whose evidence extended over three days, 7, 8 and 11 February) and Mr. Eggleton. Counsel addressed on 25, 26 and 27 February and then there was discussion on 1 March over a further affidavit. As already stated, his Honour announced his decision and gave reasons for judgment on 22 March.

The defendant’s first complaint to us - and it is a real one - was that the plaintiff's application was allowed to evolve, shifting from a complaint in which the emphasis was on the failure of the defendant to give the limited discovery ordered on 6 December to a complaint in which the emphasis was rather on the destruction of documents per se, by the implementation in particular of the defendant's document retention policy which (it was alleged by the plaintiff) existed to provide a cloak of "innocent purpose". It was submitted by defendant's counsel on the appeal that the allegation made by the plaintiff that the defendant had not disclosed that documents discovered in the Cremona litigation might since have been destroyed was subsequently abandoned in favour of an allegation that, while the possibility of destruction had been referred to, there was not full and frank disclosure of the nature and extent of that destruction. Mr. Myers also submitted to us that no allegation that legal advice had been given to show the defendant how to hide documents (by "warehousing" and the like) was made on behalf of the plaintiff before the cross-examination of Ms Chalmers and that no allegation in relation to the severing of the computer link to the relevant document database offshore and the like, was made before the cross-examination of Mr. Eggleton.

There is some force in these criticisms. For example, the complaint that the defendant had been "warehousing" documents to put them beyond the reach of discovery was not mentioned in the particulars belatedly provided by the plaintiff on day 7 of the hearing. But the plaintiff, relying upon the fact that "warehousing” was raised in the cross-examination of Mr. Eggleton and Ms. Chalmers", submitted to us[61] that "the parties [thereafter] proceeded in the application with a fuller understanding of the issue of warehousing and awareness of its relevance to the strike out application”, a submission which surely mirrors the very complaint now made by the defendant. To some extent at least, then, the application was defined “on the run”, as it were, with the result that, despite its efforts to obtain particulars, the defendant was not able, at all events in advance of the hearing itself, to ascertain with any reasonable precision the issues to be determined or the allegations being made against it. This was important because the judge was ultimately critical of the defendant’s failure to call witnesses, a criticism which the defendant now argues was without justification having regard to the basis of the application as first foreshadowed and the material both in support and in answer. The defendant's complaint that the application shifted as the argument developed through cross-examination is germane to another point taken by it (and to which we shall return later): namely, that the plaintiff did not seek to advance its case by reference to contempt of court or interfering with the course of justice[62]. For the moment, however, we deal with the defects in the defendant’s discovery as identified by the trial judge.
[61]Respondent's Outline of Submissions para. 216.
[62]Reasons for judgment para.338.

First and foremost, there was the failure of Mr. Namey in his affidavit of documents, of 14 January 2002, to make any express reference to the destruction of relevant documents. This, said the judge, was a significant omission. His Honour said (in paragraph 172, BATCO being shorthand for the American parent company):-

"It was likely, [counsel] submitted, that all of the scientific reports which emanated from BATCO research, and which had been the subject of the Notice to Admit in this case, had been destroyed well before 1998. The fact of such destruction of documents was not disclosed to Chalmers by Clayton Utz and Wills; thus when she prepared the Affidavit of Documents for Namey to swear it made no reference to the destruction of relevant documents, as it should have. The Affidavit of Documents was seriously deficient in that respect.”

A number of things may be said of this. First, the comment of the judge was made specifically with reference to the 34 notice to admit documents. All of them, it was supposed, were probably destroyed well before 1998, and thus well before the commencement of this litigation. The destruction of the documents (but not the policy) was relevant and the obligation of the deponent was no doubt to identify when documents, if destroyed, were last in the possession of the defendant and what became of them, to the best of his or her knowledge, information and belief[63]. Plainly the affidavit was silent in that regard. But given the probability, relied upon by plaintiff’s counsel, that the documents had been destroyed, and destroyed well before 1998, it is difficult to see what prejudice was suffered by the plaintiff. The plaintiff’s solicitors were well aware, it is clear beyond a peradventure, of a document retention policy under which documents were either destroyed or retained and the failure to refer to the policy in relation to the 34 notice to admit documents scarcely advanced the case of the plaintiff, or damaged it. Anyway, with regard to the destruction of documents itself the obvious remedy was to order a further affidavit to make plain what otherwise, it seems, appeared to plaintiff's legal advisers to be the high probability.

[63]See for example in Chapter I of the Rules, Form 29B para. 5.

Next, Mr. Namey's affidavit of 14 January, said the judge (in paragraph 177), “presented an incomplete and misleading picture of what had occurred after Cremona”. In his Honour's opinion, the way in which the affidavit had been prepared for Mr. Namey by Ms Chalmers, and in particular the way in which the topics were addressed and emphasised and the use of words, reflected “a very careful attempt to disguise or understate what had occurred to documents after Cremona but without using words which were blatantly untrue”. His Honour called the affidavit “coy”, conveying different meanings to different readers. Again, a number of comments can be made. First, there was no obligation upon the defendant to discover the documents discovered in the Cremona litigation: as was submitted in the correspondence exchanged between solicitors, the issues in the Cremona litigation were different from those in the current litigation and that difference was never really addressed by the plaintiff’s solicitors. Next, the judge’s criticism was of the failure of the deponent to deal properly with documents no longer in possession (as expressly required by paragraph 9 of the order made on 6 December) and plainly that criticism was well founded. As the judge said[64], all of the 15 child smoking studies and many of the 34 notice to admit documents “were known to have been destroyed in 1998” and surely the deponent should have been able to state a belief that that was so. But again, the failure to identify with more particularity what had happened to documents no longer in possession would not have done much to advance the plaintiff’s case or to prejudice it, and the obvious remedy was to require a further affidavit making plain what appeared to be the case.
[64]Reasons for judgment, para. 180, AB11 4007.

It should be remembered, too, that as deponent Mr. Namey was required to speak only to the best of his knowledge, information and belief: the suggestion made at times that Mr. Namey should have undertaken further investigation and made further inquiry is perhaps of doubtful weight. The affidavit was prepared for him by a solicitor apparently familiar with the task in hand. The obligation to “search for and disclose” any missing documents was asserted by reference to Rockwell Machine Tool v. E.P. Barrus(Concessionaires) Ltd.[65] but in that case what led to the remarks of Megarry, J. was this:-
[65][1968] 1 W.L.R. 693, [1968] 2 All E.R. 98 at 99.

"Secondly, it appeared from evidence for the defendants that between the issue of one of the writs in 1963 and the hearing, one of the defendants had been carrying on with its routine process of destroying documents seven years old, even though these probably included documents which ought to have been disclosed on discovery.”

This prompted his Lordship to emphasise that in preparing for trials solicitors bore a great responsibility and heavy burden, not the least of which was discovery. There was a need for solicitors to tell their clients of the scope of discovery, including the requirement that they “search for and disclose to their adversary any document” leading to a train of enquiry that might advance the party’s own case or damage the adversary's. Accordingly (continued his Lordship):–

“ ... it seems to me necessary for solicitors to take positive steps to ensure that their clients appreciate at an early stage of the litigation, promptly after writ issued, not only the duty of discovery and its width but also the importance of not destroying documents which might by possibility have to be disclosed.”[66]

On its face, this admonition did not apply to documents destroyed before the commencement of the proceeding: the question of the obligation of Mr. Namey to “search for and disclose” documents which, as it happened, had long since been destroyed was a different matter. His obligation, as the judge recognised, was to describe documents no longer in possession and to say what had become of them, and to that end, no doubt, to mention their destruction, if such it was.[67]

[66]Emphasis added.

[67]See also reasons for judgment para. 183.

In dealing with the complaint, made by Mr. Gordon in his affidavit of 25 January 2002, that “the defendant had failed to discover documents which it had held at the time of Cremona, and which had been discovered in that case”, counsel for the defendant raised a problem of interpretation of the order of 6 December. Of course, the documents discovered in the Cremona proceeding were not necessarily relevant to the categories of discovery ordered in this action. In Exhibit PG 2 to his affidavit of 25 January, Mr. Gordon listed the documents from the Cremona discovery which, according to him, were relevant to categories of discovery in this case with the result that they should have been discovered; and by way of illustration, he listed 17 reports which appeared, by their titles, to be relevant to the category 6(c) of paragraph 6 of the order for discovery, they being documents of the defendant (it was argued) relating to the pharmacological effect of nicotine on the human body. Defendant's counsel, however, joined issue with this, submitting to the judge that none of those documents were discoverable because they were not documents “of” the defendant, having been written by people who were not employees or agents of the defendant. In short, the defendant submitted that category 6 dealt only with documents "created by" the defendant or passing "between" it and the other two entities named.

It is true that the judge was quick to reject this construction of his order, but, with respect, the problem was not so easily dismissed. A number of considerations support the defendant's position. The expression "documents of and between" itself suggests a meaning of "of" other than simply "held by or belonging to", for not only are documents "held" (whether now or formerly) at the heart of discovery anyway, it is difficult to see what work could then be done by the word "between" - as Mr. Hughes felt constrained, very properly we think, to concede in his submissions to us. Certainly the context afforded by category 2 in paragraph 6 of the order would appear to support the defendant's interpretation of category 6 (for in category 2 the word "of" plainly means "created by"); while in category 9, the expression used is "held by" indicating that that was used when that was meant. On any view it is at the very least difficult to parse the wording of category 6, and so it is relevant that the drafting of these categories was that of the plaintiff’s advisers in the first place; for, given the penalties for disobedience to a court order, that must in itself militate against preferring a construction which differs from that adopted by the party from whom compliance is required - provided always of course that that construction is not beyond argument (as is the case here). And there must be a problem in reading category 6 as dealing with documents formerly held, but no longer held, by the defendant when category 9 deals with that very thing. In short, with respect, it is difficult to see why the expression “of” does not have the meaning attributed to it by Mr. Middleton for the defendant, or at least a meaning like that attributed by him.

Having determined that [the defendant] intentionally destroyed documents to prevent their production, the entry of a default is the appropriate sanction. Deliberate, wilful and contumacious disregard of judicial process and the rights of opposing parties justifies the most severe sanction. ... The policy of resolving lawsuits on their merits must yield when a party has intentionally prevented the fair adjudication of the case. By deliberately destroying documents, the defendant has eliminated the plaintiffs’ right to have their cases decided on the merits. Accordingly, entry of a default is the only means of effectively sanctioning the defendant and remedying the wrong.”[207]

The judge went on to hold that the entry of a default judgment was also warranted in respect of other misconduct on the part of the defendant. It is interesting, however, that the destruction of documents “continued after the commencement of this law suit”, which brings this case closer to the English cases already rehearsed, where conduct, committed during the course of the proceeding, could be regarded as contumacious.

[206]102 F.R.D. 472 (1984).

[207]Emphasis added.

Carlucci may be contrasted with Capellupo v. FMC Corporation[208]. In that case one of three co-plaintiffs suing their employer advised her employer's equal opportunity manager, "during the summer of 1983", that she was “fed up with” the company’s gender-based treatment and that she was contemplating bringing a class action against it accordingly. In October 1983, the company's solicitors “systematically destroyed [the company's] documents relating to ... employment practices and the employee relations department’s personally held records relating to equal opportunity and employee complaints of discrimination”. In November 1983, the company received the plaintiff’s equal opportunity claim. The three plaintiffs sought sanctions against their employer for the alleged intentional destruction of evidence and sanctions were imposed, although summary judgment was refused. District Judge Rosenbaum considered that there was other evidence concerning the company’s liability, if any, and so he ordered the defendant to pay to the plaintiffs an amount equal to twice their costs of the application.
[208]126 F.R.D. 545 (D. Minn. 1989).

In the course of his judgment, the judge said:-

"Sanctions are appropriately levied against a party responsible for causing prejudice when the party knew or should have known that the destroyed documents were relevant to pending or potential litigation. ... This tenet is particularly applicable when a party is on notice that documents in its possession are relevant to existing or future litigation, but still abrogates its duty of preservation.
The Court finds sanctions to be absolutely appropriate in this case. The conduct of the defendant’s officers and employees, both in the destruction of documents and in their efforts to disguise their wrongful acts, are charitably described as ‘outrageous’. ... They have demonstrated a ‘deliberate, wilful and contumacious disregard of the judicial process and the rights of [the] opposing party’:[209] Carlucci, 102 F.R.D. at 486. ...
The Court holds that the defendant’s senior officials and senior employees were on notice of this potential lawsuit and were acutely aware of its subject. Those individuals reacted by instituting a broad program of document destruction. Given these facts, sanctions are more than appropriate.”

As to which sanction should be imposed, his Honour said of striking out:-

“The most severe sanction available to the Court is default and dismissal. This is an extreme measure, reserved only for the most egregious offenses against an opposing party or a court. The Court must consider default and dismissal as a last resort if no alternative remedy by way of a lesser, but equally efficient, sanction is available. See Perkinson, 821 F.2d at 691; Adolph Coors Co. v. Movement Against Racism and the Klan, 777 F.2d 1538, 1542-43 (11th Cir.1985); Alexander, 687 F.2d at 1205-06; Fox, 516 F.2d at 993; EEOC, 690 F.Supp. at 998; Carlucci, 102 F.R.D. at 486.”

[209]Emphasis added.

The foregoing is sufficient to demonstrate how limited is the nature of the authority available. Nothing governs directly, and there are many questions raised (especially by the cases in England) even where the destruction of documents occurs after the commencement of a proceeding, let alone before it. The judge here was disposed to accept a “fair trial” as constituting the relevant criterion, but when documents are destroyed before the commencement of a proceeding, that test is less than helpful. After all, what is a “fair trial”? According to the defendant, there is a fair trial if, according to the rules of court and the obligations of the parties to the court, the court adjudicates upon the documents put in evidence and the oral testimony of the witnesses during the hearing. Of course what is a “fair trial” must inform any test which is adopted, but it cannot stand in place of one.[210]
[210]McHugh, J. has been very critical, more than once, of the concept of “fairness” standing as a criterion: Perre v. Apand Pty. Ltd. (1999) 198 C.L.R. 180 especially at 211-2, Mann v. Carnell (1999) 201 C.L.R. 1 at 40-41 (dissenting). The concept of “fair trial”, particularly when divorced from the way in which a current proceeding is being conducted, is surely capable of attracting like criticism.

As indicated at the outset, it seems to us that there must be some balance struck between the right of any company to manage its own documents, whether by retaining them or destroying them, and the right of the litigant to have resort to the documents of the other side. The balance can be struck, we think, if it be accepted that the destruction of documents, before the commencement of litigation, may attract a sanction (other than the drawing of adverse inferences) if that conduct amounts to an attempt to pervert the course of justice or (if open) contempt of court, meaning criminal contempt (inasmuch as civil contempt comprises wilful disobedience of a court order[211] and will ordinarily be irrelevant prior to the commencement of proceedings). Such a test seems to sit well with what has been said in the United States as well as what has been said in England. Whether contempt, even criminal contempt, is possible before any proceeding has been instituted need not be examined on this occasion. (For instance, in James v. Robinson[212], which did not involve disobedience of a court order, it was said that that there can be no contempt of court before there is any litigation actually on foot, but, as the majority in the High Court pointed out[213], that case concerned only the narrower type of contempt, namely interference with the fair trial of a particular cause.[214]) Certainly, there can be an attempt to pervert the course of justice before a proceeding is on foot, as R. v. Rogerson[215] demonstrates, and that, we think, provides a satisfactory criterion in the present instance. The standard of proof is the civil rather than the criminal standard, bearing in mind also the seriousness of the allegation as required by Dixon, J. in Briginshaw v. Briginshaw[216] (as modified or explained in Neat Holdings Pty. Ltd. v. Karajan Holdings Pty. Ltd[217]). Both attempting to pervert the course of justice and contempt of court (in the relevant sense) are criminal offences, but where a civil sanction is sought a civil standard of proof suffices: Helton v. Allen[218] and Rejfek v. McElroy[219], compare Logicrose per Millett, J.[220] There is considerable force, we think, in Mr. Myers' submission that the rule of law is endangered if intervention by the court, for conduct occurring before the commencement of litigation, were to be grounded otherwise than on illegality, albeit illegality proved to the civil standard.
[211]See for example Miller on Contempt (2nd edn) 2-3, Australasian Meat Industry Employees' Union v. Mudginberri Station Pty. Ltd. (1986) 161 C.L.R. 98 at 106, B.H.P. v. Dagi [1996] 2 V.R. 117 at 169-173.
[212](1963) 109 C.L.R. 593.
[213]At 602.
[214]See and compare Television New Zealand Ltd. v. Solicitor General [1989] 1 N.Z.L.R. 1, where James v. Robinson was not followed.
[215](1992) 174 C.L.R. 268. See also Meissner v. R. (1995) 184 C.L.R. 132 especially at 144.
[216](1938) 60 C.L.R. 336 at 361-2.
[217](1992) 67 A.L.J.R. 170.
[218](1940) 63 C.L.R. 691.
[219](1965) 112 C.L.R. 517.
[220]See paragraph [150] above.

In the present case, the plaintiff did not seek to put her case on the basis either of attempting to pervert the course of justice or contempt of court (as the judge specifically noted[221]) and accordingly, as that was not the case put and considered below, it would not be appropriate to consider it on this appeal. No notice of contention was filed and, although during argument Mr. Hughes made a belated attempt[222] to put the case on the basis of the former, that should not be permitted at this late stage[223]. As defendant's counsel pointed out, had there been such a serious allegation made below, of a criminal offence, the course of the plaintiff's application must have been very different. Those accused (other than the company itself[224]) would have had available to them the protection against self-incrimination and against exposure to penalties; all would have enjoyed the right to silence; the filing of affidavits must have attracted different or at least additional considerations on the defendant's part; and no doubt the judge would not have allowed the application to evolve as it did, over the days of hearing. The application made at the outset by Mr. Middleton for the defendant, that the plaintiff be required to furnish proper particulars of what was being alleged against the defendant, must surely have met with a more favourable response from the judge, and well before day 7.
[221]Reasons for judgment, para.338.
[222]On Thursday 29 August 2002, Mr. Hughes said, in answer to a question from the Bench, that while the destruction of documents before the commencement of litigation could be an attempt to pervert the course of justice, “I don’t need to go so far”. It was not until the next day of hearing (Monday 2 September) that Mr. Hughes said, in relation to the destruction of documents before litigation, that, although the trial judge had not made such a finding, it was open on the evidence to find that what the defendant had done amounted to an attempt to pervert the course of justice, and that we should so find.
[223]In a late submission dated 19 September 2002, made after the conclusion of argument and without leave, the plaintiff referred us to two references to perverting the course of justice, found in the parties’ written submissions below - plaintiff’s submissions para.375 (AB11 3809) and defendant’s submissions para.97 (AB11 3886) - references which were obviously regarded by the judge as of no great significance. See also the exchange with counsel at AB7 2262-3.
[224]The Daniels Corporation International Pty. Ltd. v. A.C.C.C. [2002] HCA 49 at [32].

Accordingly, there being no authority directly in point, we consider that this court should state plainly that where one party alleges against the other the destruction of documents before the commencement of the proceeding to the prejudice of the party complaining, the criterion for the court's intervention (otherwise than by the drawing of adverse inferences, and particularly if the sanction sought is the striking out of the pleading) is whether that conduct of the other party amounted to an attempt to pervert the course of justice or, if open, contempt of court occurring before the litigation was on foot. We say nothing about the drawing of adverse inferences because that is not raised for consideration on this appeal. Nor, for the reason already given, do we express any opinion at all on whether the conduct which was under challenge in this instance, and which the defendant sought to justify by reference to its document retention policy, did or did not amount to an attempt to pervert the course of justice. That it did was not the case raised and considered below and so for the purpose of this appeal it must be taken that at first instance the court was not entitled to impose any sanction on that ground. More particularly it must follow too, contrary to his Honour's conclusion, that the destruction of documents by the defendant in March-April 1998, and before, was not shown to be in breach of any rules relating to discovery in this proceeding.

Prejudice

It was immediately after setting out his more significant findings of fact (in paragraph 289 of the reasons for judgment) that the judge turned to the question of prejudice to the plaintiff, which he subtitled “Denial of a fair trial”. The treatment of prejudice wore two aspects: prejudice by reason of non-compliance by the defendant with its obligations to discover according to the order made on 6 December 2001 and, secondly, prejudice through the deliberate destruction of documents by the defendant over many years (not only in 1998 after the end of the Cremona litigation) for the purpose of prejudicing those who, like the plaintiff, might thereafter commence litigation against the defendant alleging personal injury through smoking. Obviously the two aspects could overlap. As the judge observed at the outset (in paragraph 290 itself):-

"It is impossible to precisely access what documents may have been destroyed in 1998, and earlier, and to what extent there has been a failure to give full and complete discovery as to documents in the categories for which I ordered discovery.”

None the less it is necessary to consider each of the two aspects of prejudice separately, not least because the plaintiff submitted that his Honour saw each as entitling the plaintiff to the relief which was ultimately granted[225]. In fact his Honour put it somewhat differently, saying that, as he saw it, the defendant's failure to comply with the order for discovery was such as to empower him to make an order granting the plaintiff relief under the rules "even if the destruction of documents, of itself, was not open to be regarded as constituting a breach of the rules relating to discovery by virtue of the fact that it occurred before the proceedings were issued"[226]. At the end of the day the judge made the order striking out the defence for all of the reasons given, including both non-compliance with the order for discovery and the wholesale destruction of documents, but (as the plaintiff contended) as his Honour saw it the order could rest upon the former alone[227]. The defendant submits that was error and we agree.
[225]Respondent's Outline of Submissions para.5.
[226]Reasons for judgment para.353, Appellant's Outline of Submissions para.54(c).
[227]See also para.354.

Of course, non-compliance with an order for discovery is the very thing which enlivens the court's power under Rule 24.05 to strike out the defendant's pleading[228]: see also the alternative procedure to like effect in Rule 29.12.1. But whichever route be followed, the granting of the relief prescribed by rule obviously depends upon the nature and extent of the prejudice suffered by the plaintiff in consequence of the defendant's default. As Millett, J. observed in Logicrose, supra, the rules do not exist to punish. Yet in this instance, submitted the defendant, the judge found no prejudice - or no significant prejudice - arising from the defendant's defaults, as found, in complying with the order of 6 December 2001.
[228]Which his Honour no doubt had in mind in considering his options, in para.373.

The 15 child smoking studies provide an example. These were clearly the subject of one paragraph of the order for discovery made on 6 December. According to the judge (in paragraph 291), these studies were “destroyed by the defendant in 1998”, though all of them were “available in the public domain and the defendant has now admitted that it had the documents in its possession at or about the dates they were published”. Accordingly, said the judge, the prejudice to the plaintiff, caused by the destruction of those documents –

“.... must now be confined to the fact that if there were any notations made by servants or agents of the defendant on the copies of the documents such records have been lost. There is no reason to assume that the copies of the documents would have had such notations. There is no evidence before me of such a practice occurring with respect to any documents which have been discovered by the defendant. The prejudice of the loss of those 15 child smoking studies has been substantially eliminated.”

As his Honour then added, the destruction of "any internal documents recording comments or responses to the reports" was a separate issue.

The judge then dealt (in paragraphs 292 and 293) with documents which, it was said by the plaintiff, fell within categories of which discovery had been ordered "and which had been disclosed in the Cremona discovery but were not discovered in this case". His Honour referred in particular to the documents listed by Mr. Gordon in Exhibits PG2 and PG3 to his affidavit of 25 January 2002, but many of the documents so listed were identified as now in the public domain and some fell outside the categories described by the order of 6 December. In part, this was because of the interpretation placed by the defendant on the word “of” in category 6 in paragraph 6 of the order, an interpretation which the judge was prepared to reject - although, as we have said, we are not prepared to join in that rejection. Complaint was made, too, about documents relating to “youth smoking” but, as the judge observed, that was a category not included in the order of 6 December 2001 and "not otherwise agreed to by the defendant”.

The judge dealt next (in paragraph 296) with the document entitled “Interpretation of Leaf Analysis”. This, it was said by the plaintiff, was a report produced by the defendant which, though discovered in the Cremona litigation, had not been discovered on this occasion. A document obtained by the plaintiff’s advisers, dated 1959, suggested that this report was a product of many years’ research by a large team of people employed by the defendant; it was a document of importance, contended Mr. Gordon, “because it reflects a knowledge by the defendant of the pharmacological and addictive effects of nicotine in years before the plaintiff commenced smoking”. The defendant conceded that the document had been destroyed, but it was a document of which, according to Mr. Gordon’s affidavit, he had obtained a copy, and so it is difficult to see what prejudice flowed, unless it be the general prejudice occasioned by the failure of the defendant to refer to the manner of and reason for its destruction.

As to the 34 notice to admit documents, these were considered next (in paragraphs 297ff). The defendant had produced nine similar documents, but none other. Three of the documents had been discovered in the Cremona litigation, but all of them were already in the possession of the plaintiff’s solicitors. As his Honour observed (in paragraph 300), the mere fact that the plaintiff had or could obtain copies of the missing documents “does not eliminate all prejudice which flows from destruction of the defendant’s copies”. In the absence of admissions from the defendant, it must be the harder for the plaintiff to prove the state of knowledge of the defendant. Yet as the judge readily acknowledged, the problems were not insurmountable.

The foregoing is sufficient to indicate the way in which his Honour approached the question of prejudice flowing from non-compliance by the defendant with the order for discovery made on 6 December. We think it fair to conclude that in the end he found little, if any, prejudice as a consequence of non-compliance considered independently of the more general problem of the destruction of documents before the commencement of the litigation. After dealing with the latter in detail, the judge returned to the former (in paragraph 353), before concluding, as already mentioned[229], that such non-compliance was sufficient in itself to support the order to strike out the defence.
[229]See paragraph [177].

In paragraph 353, the judge referred expressly (and apparently by way of summation) to these faults and omissions: the “failure [of the defendant] to comply with the requirement of the order to depose to what had become of documents which had been destroyed”; that the affidavit of documents was “deceptive or misleading in a number of ways”; and that documents had been omitted from discovery “by virtue of what was an unreasonable interpretation of the terms of the order”. These were all complaints of the plaintiff and, having already considered them to a greater or lesser extent earlier in this judgment, we do not repeat what we said then. Suffice it to say now that, as indicated there, none of the matters mentioned here, whether taken separately or together, justified an order striking out the defendant's pleading; the prejudice, such as it was, was simply not so severe as to require, or indeed to warrant, that step. A further order for discovery, a further affidavit of documents, a further affidavit in explanation, any of these might have been justified in order to make express that which, in his Honour’s opinion, had not yet been stated, even if the failure to state it was (as he suggested) “more than an oversight” and rather the result of a "very deliberate strategy" - an opinion which flowed, not simply from the failure to state that documents had been destroyed but from the implementation of the policy which his Honour found (without justification) had been put in place with a view to masking what was happening, on the advice of the solicitors.

It was this last, it seems to us, which led the judge to make the order striking out the defence. The prejudice from the destruction of documents was seen as very considerable, as his Honour made plain in the following (in paragraph 309):-

"It is, of course, to be kept in mind that whilst I am satisfied that thousands of documents were destroyed in 1998, an untold number was destroyed before that date, and for the same purpose. I have no doubt that many BATCO documents which the defendant held were destroyed after 1985, and there seems little doubt (as Foyle’s ‘note’ would have confirmed) that many research documents of Wills’ own Research Unit were destroyed, too. Furthermore, the prejudice to the plaintiff might be immense by virtue of the deliberate destruction of just one document, which might have been decisive in her case. It would be interesting to know, for example, how many of the Cremona documents had been rated 5 (a ‘knockout’ blow for the plaintiff) and how many of those had been discovered in this case. The dilemma, stressed by counsel for the plaintiff, is that they can not now know, at least not by virtue of cross examination of any of the witnesses who were called on this application, whether they have been denied such documents. The people who would be likely to know whether such documents were destroyed might be thought to be people such as Wilson, Cannar, Schechter, Northrip, Travers and Kinross. Whilst their unexplained absence leads to the inference that their evidence would not have been helpful to the defendant, that does not relieve the plaintiff’s anxiety that she may have been denied at least one ‘knockout’ document, if not many.”

These comments lose significance if, as already concluded, the defendant was not shown to have been in breach of any obligation in destroying documents before the commencement of this proceeding – or, more accurately, any relevant obligation as the matter was argued. With relevant prejudice then limited to the consequences, such as they were, of non-compliance with the order of 6 December, there was not sufficient ground for striking out the defence.
Remedy

There is little more to be said about the remedy employed by the judge in this instance to grant relief to the plaintiff. It should be mentioned, however, that his Honour gave consideration, as might be expected in such a thorough judgment, to alternative remedies. He said (in paragraph 373):

"I have considered whether the appropriate course might be not to strike out the defence but to permit the trial to proceed, after appropriate orders had been made for further discovery and interrogatories, and such other directions as may be appropriate. That might enable me to assess during the running of the trial whether the prejudice to the plaintiff by the destruction of documents had been reduced or exacerbated. I considered, too, whether I could make orders restricting or denying the defendant the right to contest certain issues on which it was shown that documents had been destroyed. Quite apart from the fact that I doubt that I have power to make such orders for issues-based sanctions in the face of objection by the defendant (and the defendant has given no indication that it would make any evidentiary concessions in this case), it would be impossible, in my view, to differentiate between the issues in this trial so as to determine which issues should be subject to such an issues-based order and which would not. Indeed, the plaintiff’s contentions as to all of the liability issues in the case are likely to have been prejudiced by the destruction of documents.”

First, we do not share his Honour’s hesitation about the power to make what he called “orders for issues-based sanctions”, whether or not “in the face of objection by the defendant”. Rule 24.02 empowers the court specifically to strike out a defence for default in complying with an order to give particulars, for discovery or inspection or for answers to interrogatories, and in our opinion the power to strike out the whole includes power to strike out part only. With respect, we see no reason, in the wording of the rules at least, why the judge might not have made an order restricting or denying the defendant’s right to contest certain issues if in relation to those issues there was prejudice of such a type as to require that remedy.

In the cases to which reference has already been made[230], we have seen that, in considering the remedy to be applied, efforts were made to relate the destruction of the documents in question to the issues raised in the case. There was no such attempt made in this instance. But surely the defaults of the defendant in making discovery, such as they were, and the destruction of documents more generally, were not relevant to the allegations that the plaintiff smoked cigarettes, that she had done so for 40 years, that she had lung cancer and that the cancer was, in her case, related to the smoking. All of these were matters upon which she should have been required to make proof and yet the judge simply made an order by which the plaintiff was relieved of that need. By striking out the defence in all respects save loss and damage, all other allegations in the statement of claim were taken to be admitted and so it became unnecessary for her to prove even that she had smoked, let alone smoked the defendant’s cigarettes. It is true that when it came time to assess damages an offer was made on behalf of the plaintiff to prove that she had been smoking for 40 years and defendant’s counsel said that that would not be necessary; but of course it was not necessary because the allegation in the statement of claim was already admitted by virtue of the order for striking out. In our opinion, there was no justification, even if the judge’s criticisms of the defendant were accepted, for relieving the plaintiff from the need to prove anything in respect of her claim save damage. The remedy should have been related more directly to the prejudice seen to have been suffered. With respect, the remedy adopted[231] was out of proportion to the wrong, even if the judge’s criticisms of the defendant’s conduct, both in relation to the order for discovery and the destruction of documents more generally, were to be accepted.
[230]In paragraphs [146]ff.
[231]As described by the Full Court in Exell v. Exell [1984] V.R. 1 at 9, striking out a defence is a “Draconian result” and should not be ordered “save in the most exceptional circumstances, or, as a last resort”.

In not dissimilar vein, the defendant submitted that, while the judge did not identify the issue or issues in the case in respect of which the plaintiff was prejudiced, the arguments of the plaintiff below were put in relation to the defendant’s knowledge between 1950 and 1992 about the risk of lung cancer and the addictive effect of nicotine and in relation to the defence of volenti. As for the second, the defendant contended that the plaintiff had failed to establish any prejudice resulting from the destruction of the defendant’s documents; for ultimately the issue of volenti would depend upon the knowledge of the plaintiff as to the risks and consequences of smoking and whether she had accepted such risks or consequences. Documents that the defendant might have had prior to destruction could not be directly relevant to the plaintiff’s actual knowledge and belief which she would have to prove. Documents in the public domain were one thing; documents in the private possession of the defendant were altogether different.

As for the defendant’s knowledge between 1950 and 1992 about the risks of lung cancer and the addictive effect of nicotine, we return to the initial proposition that the plaintiff sought only discovery which was limited to certain categories, the contents of which were framed by the plaintiff’s own legal advisers. The history of the application for the order made on 6 December has been earlier rehearsed, from which it can be seen that questions of knowledge on the part of the defendant were put to one side. It was said by the plaintiff’s solicitors that they already had the documents upon which they relied to show the relevant knowledge[232]. That was the context in which his Honour should have weighed the consequences for the plaintiff of the destruction of documents if, as the defendant contends, prejudice was asserted by reference to the issue of knowledge; yet that was not the approach taken in the reasons for judgment. There is no need, however, to pursue that further: the point to be emphasised is the need, in a case like the present, to weigh the effect of the alleged destruction of documents in respect of the issues in the proceeding, in order that the remedy be not out of proportion to the prejudice occasioned. However understandable it may have been, given the considerable pressure under which the judge was proceeding, the order his Honour made was not sufficiently related to the deficiencies, such as they were, in the defendant’s discovery.
[232]See paragraph [34] above.

Conclusion

For these reasons, we consider that the order made on 25 March 2002 was erroneous - and we say that notwithstanding that the order was made in the exercise of discretion. In so far as it rested upon non-compliance by the defendant with the order for discovery made on 6 December 2001, such prejudice as was occasioned by the defendant’s neglects or defaults did not warrant or require an order which left the defendant without any defence save as to quantum. In so far as the order rested upon the destruction of documents both before 1998 and in March-April 1998 after the end of the Cremona litigation and the Harrison litigation, his Honour’s findings were, we think, flawed in relation to the criticism he levelled at legal advisers and what he saw to be the “devising” of a “strategy” to enable the defendant deliberately to destroy disadvantageous documents while at the same time claiming “innocent” purpose. Those findings were flawed, with respect, not merely in the construction placed by his Honour upon the documents to which he referred, but also in allowing reference to those documents by over-ruling the defendant’s claim to legal professional privilege. Nor, in our view, was the defendant shown to be in breach of any relevant obligation not to destroy documents before the commencement of the proceeding, given that the plaintiff did not rest her case on either an attempt to pervert the course of justice or contempt of court. We do not say what the result would have been had such an allegation been made, because that was not the case put below and it was not the case considered by his Honour. Furthermore, if the defendant had been in breach of some obligation by destroying documents, the remedy imposed in this instance was, we think, out of proportion to the ill, in the sense that it was not related to the issues affected by the destruction of documents. Had it been so related, it could have led to no more than an order striking out certain paragraphs of the defence; it would not have led to an order striking out the defence altogether save only as to loss and damage.

In all the circumstances, we are clear that the appeal should be allowed, the order striking out the defence set aside and the judgment given for damages set aside in consequence. In addition, we would as matter of form (though both have already been carried into effect) set aside the two orders for production of documents made on 6 and 13 February 2002, the first being the direct consequence of his Honour's overruling the defendant's claim to legal professional privilege that was made in response to the notice to produce served on it on 31 January 2002 and the subpoenas served on the two firms of solicitors on the same day. We would order that the plaintiff do deliver up forthwith to the defendant the documents so produced and any copies made by the plaintiff. Despite the misfortune for the defendant that the contents of some of these documents have now been published to the world at large by means of the internet and the international media, it should be declared, we think, that privilege in relation to such documents, if otherwise properly claimed, has not been waived either expressly or by implication as held by the judge on 6 February. The like is true in relation to the Stowe advice, the object of the ruling on 13 February. The filing of any further affidavits could serve no useful purpose now, for they could scarcely tell the plaintiff anything beyond that which has been so fully canvassed in relation to discovery. Accordingly we think that the proper exercise of discretion by this Court dictates that the plaintiff's application by summons on 25 January 2002 be simply dismissed and the proceeding as a whole remitted to the Trial Division for a new trial. That will, of course, be in the light of any change of parties needed since the death of Mrs. McCabe herself. Immediately before delivering these reasons for judgment, we ordered that one of the two persons named as executors in her will be appointed to represent the estate of the deceased plaintiff and that the appointee be made respondent accordingly, but that was for the purposes of the appeal only.

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[2002] VSCA 197

6 December 2002