McCabe v British American Tobacco Australia Services Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

MAJOR TORTS LIST

No. 8121 of 2001

ROLAH ANN McCABE	Plaintiff
v
BRITISH AMERICAN TOBACCO AUSTRALIA SERVICES LIMITED	Defendant

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JUDGE:	Eames J
WHERE HELD:	Melbourne
DATES OF HEARING:	24, 30-31 January, 1, 4-8, 11-13, 25-27 February, 1 March 2002
DATE OF JUDGMENT:	22 March 2002
CASE MAY BE CITED AS:	McCabe v British American Tobacco.
MEDIUM NEUTRAL CITATION:	[2002] VSC 73	First Revision 12 April 2002

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Discovery – application to strike out defence - destruction of documents by defendant before proceedings issued and at a time when no other proceedings on foot - whether documents destroyed at a time when litigation was anticipated – purpose for the destruction of documents - whether failure to comply with orders for discovery - abuse of process –obligation of candour in discovery process – whether plaintiff denied a fair trial – defence struck out - R.S.C Orders 24.02, 24.05.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J. Rush QC, Mr J. Forrest QC, Mr J. Gordon	Slater and Gordon
For the Defendant	Mr J. Ruskin QC, Mr J. Middleton QC, Mr D. Beach SC, Mr S. O’Meara	Clayton Utz

Table of Contents

The 1985 Document Retention Policy............................................................................................ 6

The 1990-1992 review of the Document Retention Policy.......................................................... 8

The Clayton Utz Strategy of 1990.................................................................................................. 13

The Advice of Allen Allen & Hemsley, 1990.............................................................................. 20

The Australian proceedings........................................................................................................... 25

A Multitude of Lawyers.................................................................................................................. 26

The Post-1992 Document Retention Policy................................................................................. 29

(a) The Record Managers’ Training and Education Workbook........................................... 30
(b) The Staff Handbook.............................................................................................................. 32

The Scope of a Hold Order............................................................................................................. 34

A Strategy to Confine Plaintiffs to documents in the public Domain.................................. 35

Destroyed Documents Pre-1998.................................................................................................... 36

Creation of a Cremona Data Base................................................................................................. 39

The Scope of the Cremona Data Base.......................................................................................... 41

1998: The Cancellation of the Hold Order and Implementation of the Document Retention Policy.............................................................................................................................................................. 44

What Documents were Destroyed in March/April 1998?......................................................... 55

Inadequate Discovery: The deficiencies of the Affidavit of Documents........................... 57

(A) The categories identified for discovery.............................................................................. 57
(B) The Affidavit of Documents................................................................................................ 59

A Matter of Interpretation.............................................................................................................. 63

Misleading conduct? - The pre-trial directions hearings......................................................... 65

(A) The grounds of complaint.................................................................................................... 65
(B) The correspondence between the solicitors...................................................................... 66
(C) Was the destruction of documents properly disclosed in affidavits?........................... 67
(D) The Chalmers’ affidavit of 6 December 2001.................................................................... 68
(E) The Namey Affidavits of 10, 17 and 21 December 2001.................................................. 71
(F) The Namey Affidavit of Documents of 14 January 2002................................................. 71
(G) The submissions of counsel................................................................................................. 79

Intention............................................................................................................................................ 87

Anticipated proceedings................................................................................................................. 90

Findings............................................................................................................................................. 93

Prejudice – Denial of a fair Trial................................................................................................... 98

The Warehousing of documents................................................................................................. 109

The Law............................................................................................................................................ 114

What outcome for this application?............................................................................................ 127

Conclusion and Orders................................................................................................................. 132

HIS HONOUR:

Counsel for the plaintiff have made application by summons dated 25 January 2002 for an order that the defendant’s defence be struck out and for supplementary or alternative orders. The grounds on which the relief is sought were set out in writing and were supported by affidavit evidence of the same date from Mr Peter Gordon, of Slater & Gordon, solicitors for the plaintiff. Although the affidavit was initially objected to, on the basis that it contained opinion evidence, it has been accepted during argument as a reasonable summary of the contentions advanced on behalf of the plaintiff as to the significance of the many exhibits which were attached to it.

The grounds for the application may be summarised as follows:

(i)The destruction of potentially relevant documents by the defendant, at a time when litigation was apprehended, has rendered it impossible for the plaintiff to have a fair trial;
(ii)The defendant, through counsel, solicitors and deponents to affidavits, has misled the court and the plaintiff as to the true situation concerning documents discoverable in the trial;
(iii) Failure, contrary to Rule 20.02 of the Rules of the Supreme Court to comply with an order of discovery made 6 December 2001;
(iv)Failure to agree to further discovery sought by the plaintiff by letter dated 4 January 2002;
(v)The conduct in items (i) to (iv) caused severe prejudice to the plaintiff;
(vi)The plaintiff relies on the material advanced in the affidavit of Mr Gordon.

The application raises novel points which are of significant public importance, and serious allegations of impropriety have been advanced in submissions before me.

The plaintiff commenced her claim by writ issued on 26 October 2001. The plaintiff claims compensatory, general and exemplary damages for personal injuries. The defendant has sought trial by jury. The plaintiff, who was born on 23 September, 1950 is seriously ill with lung cancer and has a life expectancy of, at best, months, possibly only weeks. On 9 November 2001, by consent, an order for a speedy trial was granted, and the case was allocated to me for pre-trial management. There have been numerous hearings of applications relating to interlocutory matters. In late December 2001 I fixed the date of trial as 18 February 2002. A range of pre-trial issues remained unresolved, in particular with respect to discovery and the admissibility of documents. I set down five days for hearing, commencing 30 January 2002, to resolve those issues. I made it clear to the parties that, so far as possible, I wanted to resolve issues concerning the admissibility of documents prior to the jury being empanelled.

On 24 January 2002 counsel for the plaintiff advised that they wished to make a new application in lieu of the applications which had been listed to be heard on 30 January 2002. I permitted the plaintiff to substitute the present strike-out application. Mr Gordon’s affidavit annexed a number of documents which have apparently been located in depositories of documents in the USA. The defendant, responding by way of a number of affidavits, has exhibited and filed a range of documents in answer to the application, and I have heard the evidence of witnesses on the issues. The application extended over sixteen days and a substantial number of documents were exhibited. Having regard to the tendering by the defendant of two letters of advice from firms of solicitors I ruled that the defendant had waived privilege as to legal advice received by it from 1998 concerning the handling and destruction of documents. Pursuant to that Order many letters and memoranda of advice from several firms of solicitors became exhibits on the application.

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.[1]
[1]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 section (2A) in 2000.

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 defendant is the successor to W.D. & H.O. Wills (Australia) Limited (hereafter referred to as “Wills”), which was in existence between September 1958 and March 2000. Wills, in turn, was the successor to The British-Australasian Tobacco Company Limited which was in existence between 1950 and August 1958. In the course of these reasons I will refer to the “defendant” as encompassing the relevant manifestations of the defendant as at the time of events under discussion. Unless appropriate to do so, I will not differentiate as between those companies. The defendant company came into existence in September 1999 when Wills merged with Rothmans of Pall Mall (Australia) Limited.

From 1959 Wills had been a subsidiary of British Tobacco Company (Australia) Limited, which underwent several name changes, including AMATIL Limited and Coca-Cola Amatil Limited. In 1989 Wills and some other subsidiaries were separated from Coca Cola Amatil Limited, and were purchased by British-American Tobacco Company Limited (hereafter referred to as ‘BATCO’), which is based in England and remains the parent of the present defendant company.

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 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.

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.

It is the contention of the plaintiff, in this application, that the defendant and its predecessor, Wills, since 1985, have followed a strategy designed to deny to any litigant access to documents to which the litigant would have been entitled and which would be of importance to the outcome of such proceedings. It is contended that the strategy employed in Australia was devised and overseen by Australian, British and American lawyers employed by or engaged by the respective BAT companies in each country. The strategy was designed to confine any plaintiff’s case to documents in the public domain and to destroy or hide the existence of documents of which the defendant had knowledge which were damaging to the defendant’s interests but which were not in the public domain. The plaintiff contends that the strategy involved the destruction of thousands of documents and, so it was submitted, required that the fact of such destruction, and its extent, not be disclosed. In the event that the process and extent of destruction became public knowledge, the strategy envisaged that an innocent motive for its occurrence would be advanced, and be plausible, but the true and primary motive for the destruction would be denied. The strategy, so it was submitted, contemplated the inappropriate application of privilege to many documents which had not been destroyed and the establishment and location of data bases of documents, controlled by lawyers, for the purpose of litigation but contrived to not be in the possession, custody or power of the defendant for the purpose of discovery.

It is submitted on behalf of the plaintiff that implementation of the strategy was accompanied by the misleading of the Court, and of the plaintiff’s advisers, by correspondence tendered in court, by affidavits filed at court, and in submissions made to the Court. Counsel for the plaintiff submit that the plaintiff has suffered irremediable prejudice by the defendant’s actions, for which the only remedy is that the defence should be struck out and the trial proceed as an assessment of damages.

The defendant denies each of these accusations, and, whilst admitting that many documents have been destroyed which may have been relevant to the plaintiff’s case, contends that documents were destroyed at a time when no litigation was before the court or was anticipated. The defendant contends that it was perfectly lawful and proper for it to have destroyed those documents in those circumstances, and it did so in accordance with legal advice and pursuant to an appropriate document management policy, the purposes of which were both innocent and appropriate, and which had not been implemented for some eight years while proceedings were on foot. The defendant contends that the destruction of documents was by series only, no attempt being made to identify and preserve individual documents which might have been helpful to the company in the defence of any proceedings. The defendant contends that far from implementing the policy for purposes of harming the case of later litigants it retained a large volume of research and scientific reports which were more likely to be harmful to the cause of the defendant than to be favourable.

It is necessary to set out the history, development and influences on the defendant’s Document Retention Policy in some detail.

The 1985 Document Retention Policy

The litigation in this case is not the first of its kind in Australia. The evidence I have heard on this application shows that as early as 1985 the defendant anticipated what its Australian solicitors, Clayton Utz, said would be “a wave of litigation”. In response to that threat vast resources were allocated to readying the defence of any such claims. Clayton Utz, as the defendant’s solicitors, took steps to devise a legal strategy, and did so with very close assistance of lawyers from the United Kingdom and USA who had performed a similar advisory role for tobacco companies in those countries. From the outset, the vital importance of documents in any litigation, and the danger which discovery of documents posed for the defendant, were fully appreciated by senior employees and officers of the defendant, and by its lawyers.

In an affidavit sworn 29 January 2002, Malcolm Nicholson, Area Audit Services manager of the defendant and a member of the Records Review Team since 1993, deposed that since the early 1970s the defendant had some form of Document Retention Policy governing the disposal and storage of the multitude of documents generated within the organisation. In the 1970s, however, the only written document which set out the policy was, he believed, of about one or two pages in length. Mr Michael Harrison, a retired executive of the company, gave evidence before me and produced a one page set of instructions concerning documentation, which he said was consistent with the policy document which had been in existence from at least 1954. To that page were attached a number of pages dealing with the timetable for destruction of specific categories of documents. It is a very modest document in comparison to versions produced in 1985 and later.

I have no doubt that the Document Retention Policy which was put in place did have some quite legitimate management and administrative purposes and benefits, and the documents contained much material relevant to such functions. I am, however, entirely satisfied that the primary purpose of the development of the new policy in 1985 and subsequently was to provide a means of destroying damaging documents under the cover of an apparently innocent house-keeping arrangement. When regard is had to the background material relating to the origins of the new policy, and the critical role played by litigation lawyers in its development and implementation, it is clear that the post-1985 policy documents reflect the acute consciousness of their authors (and explain their attempts to disguise the fact) that the Document Retention Policy was primarily directed towards the risks of litigation.

In 1985 the defendant turned attention to the prospects of litigation in Australia, and to the potential for the defence of any such litigation to be prejudiced by the disclosure of embarrassing documents. The firm of Clayton Utz was engaged to advise the company as to that issue and on 30 December 1985 a written Document Retention Policy came into effect. Mr Eggleton of Clayton Utz, who gave evidence before me, denied that his firm had drafted that policy, and it seems that a draft was first written by one Mr R. N. Paton, the in-house solicitor for Amatil Limited, but there is no doubt that the draft was considered and approved by Clayton Utz prior to its implementation. The firm also gave advice as to other strategies, including the enhancement and expansion of claims of legal professional privilege, with the same objective of minimising the prospect of any plaintiff gaining the benefit of damaging documents. As I will shortly discuss, a solicitor, Andrew Foyle, from the English firm Lovell White Durrant, was engaged by BATCO for purposes of addressing policy on document handling. He produced a memorandum setting out the development of the Document Retention Policy, which expressed the clear understanding that it was Clayton Utz that was responsible for the critical terms of the policy formulation.

I have not been shown a document which is agreed to comprise the 1985 written policy, but in legal advice written by Brian Wilson, a partner of Clayton Utz, dated 29 March 1990 (to which I will shortly refer), he noted that at page one there were a series of statements inserted into the document which asserted innocent purposes for the destruction of documents, under broad headings of cost efficiency, litigation support and sabotage prevention.

The 1990-1992 review of the Document Retention Policy

By 1990 the adequacy of the Document Retention Policy was being questioned by Wills. In a letter dated 23 March 1990 sent from F.T. Gulson, legal counsel and secretary of Wills, to Brian Wilson of Clayton Utz, Gulson said that it was opportune to review and amend the policy. He said that BATCO (i.e. the UK parent corporation) was conducting a similar review as to its own Document Retention Policy. Stating that he did so “in recognition of our close and direct association with BATCO”, Gulson enclosed a memorandum written by Andrew Foyle, a solicitor with Lovell White Durrant, U.K. solicitors, acting for BATCO, whom Gulson said had been retained to advise generally on product liability litigation “and, in particular, in relation to the current Document Retention Policy”. Gulson noted that Nick Cannar, legal counsel of BATCO, would soon be visiting Australia with respect to the policy review, and Gulson sought Wilson’s advice as to specific questions which Foyle had raised in his memorandum.

Counsel for the plaintiff place great emphasis on the terms of the Foyle memorandum, and it requires careful consideration. I will highlight some passages from it. In the first place, Foyle was not in doubt as to the origins of the new policy. He wrote:

“Wills' current document retention policy was introduced on the 30th December 1985 at a time when the tobacco companies in Australia anticipated the possibility of product liability litigation, although no case had actually been brought against any company. Clayton Utz had previously been instructed to take steps to prepare the Industry, and Wills in particular, for litigation. One of their first actions was to review the document retention policy of the Company, hence the new policy.”

Foyle said that what was required from Clayton Utz was “a strategy for handling the documents issue in litigation”, and he also posed a series of questions on which specific advice was required.

Foyle noted the American and Australian experience of the “enormous man hours” which discovery obligations caused any company involved in litigation. As I will later discuss, he made it clear that destruction of sensitive documents had already been taking place. Foyle wrote:

“Details of how the policy was implemented by the Research Department are given in the note of AWF’s meeting (ie Foyle’s) with Graham McGregor and Tas Wilson on 17 November 1989. The note also describes the type of research undertaken by Wills, the documents which they have received from BATCO and the information which their employees have about the BATCO research. A copy of that note is attached”.

Foyle expressed the concern of BATCO that because Wills had had access to sensitive BATCO research documents, through a computer link to England, that might lead to the discovery of the BATCO documents in any Australian proceedings, and also documents of other Group companies. He expressed particular concern about “summaries of the Janus reports”. No documents meeting that description have been produced in discovery in these proceedings. I do not know what they were or whether they would fall into any of the categories of discovery which I ordered.

Foyle identified a range of problems which he said the current policy posed. Among the problems were the following (the reference to “SRG” is to Wills’ Scientific Research Group):

“(a)The wording of policy (coupled with timing of its introduction) might lead to the inference that the real purpose of the policy was to destroy sensitive smoking and health documents.
(b)Aspects of the implementation of the policy might support that inference, for example the immediate destruction of the unpublished enclosures to the SRG letters.
(c)The retention of a set of the BATCO research reports means that a plaintiff will have access to much sensitive BATCO research. The information in the reports is enough to prompt searching questions about the underlying research policy and also questions about what follow up action was taken by BATCO in the light of the research results.
(d)The retention of the BATCO reports might encourage a plaintiff to seek discovery of BATCO's documents, either by asserting that Wills has control over documents in the possession of BATCO, or by using the Hague Convention. The research reports might enable a plaintiff to frame a Hague Convention request for documents with the requisite degree of specificity and/or to identify the BATCO employee from whom oral testimony is required.
(e)Wills access to the BATCO computer gives them the de facto right to details of results of BATCO's research. The summaries of the reports which are on the database are sufficiently informative to be of real interest to a plaintiff's lawyer.
(f)The knowledge that Wills' senior scientists have of BATCO research could rule them out as a witness at any trial in Australia.”

Before setting out the detailed questions on which Clayton Utz’ advice was required, Foyle made the following observations:

“1.It is understood that the destruction of documents now or in the past by Wills contravenes no law or rule in Australia and that, in that sense, Wills can do what it likes with its documents. Presumably, if a court disapproved strongly of the destruction of the documents, then it might draw adverse inferences from that fact.
2.It should be assumed that Wills' documents (what is in them and what has happened to them) will be a matter of great interest to a plaintiff's lawyer in a product liability action. How Wills responds to questions about its documents will require careful thought, especially because of the implications which the answers may have for the BAT group as a whole. It would be sensible, therefore, to assess the nature and extent of any problems which the current document retention policy may pose and to take appropriate remedial action now, rather than wait for the litigation to begin. Generally, what is needed is a strategy for handling the documents issue in litigation.”

He asked:

“1.To what extent is there a risk that the destruction of documents in accordance with the 1985 retention policy will cause the Court to apply the adverse inference principle, taking into account:
(a) the wording of the policy,
(b)the circumstances prevailing at the time it was introduced (e.g. whether product liability actions had been threatened against Wills or the industry generally),
(c)the extent to which Wills will need to claim privilege for documents produced in 1985 and later, on the grounds that the documents were produced in contemplation of anticipated proceedings.”

Foyle sought advice about the adverse inferences or other consequences or sanctions which might flow from Wills destroying documents under the 1985 policy. He expressed particular anxiety that the Document Retention Policy itself, and Clayton Utz’ advice as to “whether certain types of documents should be retained or destroyed”, might also be discovered. I will address that anxiety in a later section of these reasons.

As to the special concern about BATCO research, Foyle wrote:

“(d)Might BATCO's documents be more at risk? For example might the Court order Wills to retrieve from BATCO copies of the BATCO documents destroyed by Wills.”

Foyle then asked:

“3.Should changes be made to the way in which the policy is currently being applied, for example, in relation to the SRG documents?
4.What should be done about the copies of the BATCO research reports held by Wills? In this connection:
(a)Would the continued retention of these reports compromise Wills' position via a vis the destruction of its other documents?
This question should be answered on the basis of the information given in this memorandum on the content of the reports. If more information is needed it can be supplied by LWD. It would be undesirable for Clayton Utz to seek information from Wills about the reports.

(b)Is there any reason why Wills should not now destroy its copies of most of the reports, if the motive for doing so were that the information in the reports is not relevant to Wills' Current "research mission"?

(c)Would the termination, or the restriction, of Wills's access to the reports database on the BATCO computer cause any problems?

(d) Does the Caudwell threat affect the position?

5.Would implementation of the proposed new retention policy hinder or help Wills' position on the documents issue?”

The reference to “LWD” no doubt meant the firm Lovell White Durrant. I will discuss “the Caudwell threat” later.

Although he did not respond to every specific question posed by Foyle, Mr Wilson of Clayton Utz did suggest a strategy. The evidence before me demonstrates that the strategy then devised has been followed, with modifications and additions, since 1990, and was being followed at the time of the hearings before me.

As may be seen, Foyle identified problems with the existing Document Retention Policy and sought advice as to a strategy which might be put in place with respect to sensitive documents. As Eggleton acknowledged in his evidence, sensitive documents were those which might assist a plaintiff’s case or harm the defendants’ case.

The “note” referred to in Foyle’s memorandum (see par [25] above), has not been produced. It is obviously a document which would be of particular interest to the plaintiff, and would bear on the question whether the Affidavit of Documents adequately dealt with the question of documents which had been destroyed.

The Clayton Utz Strategy of 1990

By letter dated 29 March 1990, under the signature of Brian Wilson, a partner of Clayton Utz, a response was given to the questions raised in the Foyle Memorandum. The advice had been primarily the product of legal research conducted by John Oxland, another partner of Clayton Utz, but it was Wilson who proposed the strategy.

Wilson wrote to Gulson, Legal Counsel and secretary for Wills, as follows:

DOCUMENT RETENTION POLICY
We refer to your letter dated 23 March, 1990 attaching a memorandum on the above topic by Andrew W. Foyle of Lovell White Durrant. In it you asked us to answer the specific questions raised in the memorandum and make any comments we deem appropriate. We now do so.
1.To what extent is there a risk that the destruction of documents in accordance with the 1985 retention policy will cause a Court to apply the adverse inference principle taking into account:

(a) the wording of the policy,
i

(b)the circumstances prevailing at the time it was introduced, and
(c)the extent to which Wills will need to claim privilege for documents produced in 1985 and later?

A risk as to the application of the adverse inference principle may be more shortly described as a risk of contempt of court. That risk was dealt with by the High Court of Australia in Lane v. Registrar of Supreme Court of New South Wales (1981) 35 ALR 322 as follows (at 332):

"It was submitted on behalf of the respondent that conduct otherwise lawful can amount to contempt of court if done with a particular intention. That is correct, but the intention must be to do something likely to interfere with the course of justice.

Thus it may be lawful for one man to advise another to take a holiday in Brazil, but the giving of the advice may constitute a contempt of court if the advice is given for the purpose of keeping the witness out of the way to avoid service of a subpoena.

An intention to interfere with the administration of justice is not necessary to constitute a contempt; the critical question is whether the act is likely to have that effect, but the intention with which the act was done is relevant and sometimes important" (emphasis added)[2] .
[2]The emphasis was given by Wilson.

Destruction of documents is prima facie lawful, as Andrew Foyle himself indicated when he wrote at p 5 of his memorandum:

"It is understood that the destruction of documents now or in the past by Wills contravenes no law or rule in Australia and that, in that sense, Wills can do what it likes with its documents."

Destruction must, however, not conflict with statutory requirements as to the retention of certain documents for certain periods. Those statutory requirements were set out in our letter dated 13 December, 1985 to Mr R.N. Paton, the in‑house solicitor for Amatil Limited. The letter itself was referred to in the 1985 retention policy statement: see page 2, criterion 6.
Destruction must also not fall foul of the law laid down in Lane's case above: Registrar of Supreme Court of New South Wales v. McPherson [1980] 1 NSWLR 688. Applying that law, there is no doubt that destruction per se is likely to have the effect of interfering with the administration of justice. This is subject, however, to the test of intention, and also to the fact that the High Court in Lane's case was dealing with a situation where litigation was in esse and not merely contemplated.

Wills' destruction of documents has not occurred during litigation in relation to which those documents might be relevant. If it had, that would be extremely strong evidence of an intention "to do something likely to interfere with the course of justice": Lane's case above.

The destruction has occurred, instead, in a situation where litigation has been, and still is, contemplated. But it can be said that it has not occurred only because of that fact and in order adversely to affect the litigation. This is where the wording of the 1985 retention policy statement becomes important. The following quotes from page 1 serve to explain the motivation for destruction:

."to ensure that our previous good management practices are maintained"

."to ensure that our document retention policy is maintained at the most efficient level"

."indiscriminate and unnecessary retention of documents involves ever increasing and costly space requirements"

."enormous man‑hours and other overheads involved in sifting through superfluous documents in order to locate records actually required in ... litigation"

."under our legal system documents may be required ... on short notice under order for discovery or subpoena. Therefore the objective is to retain only necessary material"

."the more unnecessary documents are retained the less control there is over secure storage of necessary records and hence the greater the potential risk of industrial sabotage.”

The above quotes show the motivation for destruction to be threefold: cost efficiency, litigation support, and sabotage prevention. In our view, they are clear evidence of an intention which is the complete opposite of an intention "to do something likely to interfere with the course of justice". This positive intention cancels out the negative impression created by destruction per se.

We feel, therefore, that there is little, if any, risk of contempt of Court. We would be of the same opinion if we were asked to advise on the proposed BAT Industries' retention policy statement for research documents. That statement also clearly displays a positive intention to do something likely to support the course of justice, saying inter alia (at page 1):

"In all cases ... the policy [of destruction] should not be applied to research documents in respect of which and for so long as local lawyers advise that destruction of these documents is precluded".

2.What consequences or sanctions might result if the Court applied the adverse inference principle? For example:

(a)What unfavourable inferences of fact might the Court make against Wills?

The obvious unfavourable inference of fact would be that Wills had something to hide which could very well be detrimental to its chances of success in litigation brought against it. What that something was might then be inferred from the mere fact of destruction of documents.

Suppose, for example, that a Wills' research report showed a very strong association between passive smoking and lung cancer and the report was destroyed by Wills when sued by a person with lung cancer who claimed his/her disease was caused by passive smoking. It might be inferred from the fact that Wills had destroyed research reports that at least one of them tended to support the Plaintiff's case.

(b)Is there a risk that the Court could order the disclosure of documents which might otherwise be privileged (eg Clayton Utz's documents)?
There is. In dealing with the possible loss of legal professional privilege in his book Law of Evidence in Australia (Legal Books, 1987), Peter Gillies considered three leading cases and then wrote:

"Together these cases recognise that legal professional privilege will be lost where the public interest in the preservation of the fundamental processes of justice demands that the privilege give way. Such situations where the more general public interest outweighs the public interest in privileged communications between lawyer and client are potentially numerous, and cannot be specified in advance."

(c)Even if Clayton Utz's documents and work product are not at risk, is there a risk that they might be required to disclose information about the document retention policy in affidavit (such as an affidavit verifying Wills' discovery) or other evidence?

Yes ‑ except that an affidavit verifying discovery is sworn by a client and not the client's solicitor, who merely certifies that an explanation of the law's requirements for disclosure has been given to the client.

(d)Might BATCO's documents be more at risk? For example, might the Court order Wills to retrieve from BATCO copies of the BATCO documents destroyed by Wills?

Yes.

3.Should changes be made to the way in which the policy is currently being applied, for example in relation to the SRG documents?

We cannot answer this question definitively, as we do not know how the policy is currently being applied. We have not been provided with the details of implementation "given in the note of AWF's meeting with Graham McGregor and Tas Wilson on the 17th November, 1989": see Andrew Foyle's memorandum at page 1, paragraph 3.

However, if the policy is being applied in accordance with the "Suggested Criteria" on page 2 of the 1985 retention policy statement, then we would guess that no changes need be made.
4.What should be done about the copies of the BATCO research reports held by Wills?

We feel that they should be dealt with in the same way that the originals are to be dealt with under the proposed BAT Industries' retention policy statement for research documents.

(a)Would the continued retention of these reports compromise Wills' position vis‑a‑vis the destruction of its other documents?

If the continued retention of research reports tended to show that the destruction of Wills' other documents was carried out with the intention "to do something likely to interfere with the course of justice", then obviously the retention would compromise Wills' position. However, we find it difficult to imagine such a tendency arising.

(b)Is there any reason why Wills should not now destroy its copies of most of the reports, if the motive for doing so were that the information in the reports is not relevant to Wills' current "research mission"?

On balance, no ‑ although it would be better if the motivation included litigation support in the sense discussed earlier.

(c)Would the termination, or restriction, of Wills' access to the reports database on the BATCO computer cause any problems?

We cannot see that any legal problems would be created. In fact, legal benefits would probably accrue. In this regard, we refer you to the Advice on Discovery and Privilege given by Mr John M. Stowe QC on 20 June, 1986, and especially to the following statement about material obtained from the computer database established by the Tobacco Institute of America (at page 21):

"Whatever the situation may be in the United States, it is my view that, if the suggested precautions are taken, the electronic material will not be subject to discovery by the Australian companies in relevant proceedings and that privilege will attach to all printouts obtained by the Australian Companies for the requisite purpose by the exercise of skill or selection."

(d) Does the Cauldwell threat affect the position?

We note Andrew Foyle's statement that, while a letter "threatening legal proceedings against Wills was received from a Mr Cauldwell in November, 1989", it is "not yet clear whether Cauldwell intends to take legal action against the company."
We should say that, until litigation is actually instituted, there is little, if any, risk of contempt of court through destruction of documents. In this regard, we refer you back to our consideration of the first question posed in Andrew Foyle's memorandum.

5.Would implementation of the proposed new retention policy hinder or help Wills' position on the documents issue?

We are not sure what proposed new retention policy is being referred to. If it is that in the proposed BAT Industries' retention policy statement for research documents, then we can only think its implementation would help Wills' position on the documents issue.

6.What strategy should Wills adopt for handling such problems as there may be in relation to the documents issue?

We think that the strategy is sufficiently apparent from what we have said so far, especially in answer to the first question posed in Andrew Foyle's memorandum.

7.If the issue of research is important in a product liability action, how will Wills defend its record without its documents?

It will obviously have to rely on the testimony of witnesses.

Is it anticipated that a witness might be called to give
evidence on the subject?
Yes.

If so, who would that witness be?

A witness with knowledge of Wills' research, and an expert witness capable of critically analysing what is said about that research.

Is there a satisfactory alternative to calling an employee who does not have extensive knowledge of group research?

The only alternative would be to call a number of employees whose testimony in the aggregate would show extensive knowledge of group research.

We shall be pleased to participate in any discussion about our answers and comments while Nick Cannar is in Australia, particularly because those answers and comments involve some degree of guess‑work which could probably be cleared up in such a discussion.
Yours faithfully,
CLAYTON UTZ
Brian T. Wilson.

Counsel for the defendant submitted to me that the advice contained in the letter was not only legally correct but was entirely appropriate. It was, I agree, carefully written. In my view, it reflects Wilson’ understanding that sensitive documents had, indeed, already been destroyed, and that had occurred at a time when litigation was anticipated. The letter of advice is couched in terms which suggest that Wilson was very conscious of the fact that he could not guarantee that the Clayton Utz letter might not subsequently be disclosed. Whilst exercising caution for that reason, Wilson was telling Wills that the dire consequences could be avoided if they asserted innocent intention and employed statements of such innocent intention that he was now feeding to them, or had previously, by the terms employed in the policy documents. As the advice makes clear, Wills was given express warning that a programme for the destruction of documents relevant to anticipated litigation, even if no litigation was on foot, could be held to be an interference with the administration of justice, and thus be in contempt of court.

In my view, the reality of what was being advised is reflected by the enigmatic response given to Foyle’s request for a strategy. Wilson answered: “We think that the strategy is sufficiently apparent from what we have said so far, especially in answer to the first question posed in Andrew Foyle’s memorandum”. Indeed, it was clear. The answer to the first question was contained in the passage from Lane’s case which indicated that intention was of great importance. The advice was, in effect, get rid of the documents but claim an innocent intention. Foyle had suggested that the motive might be said to be that the documents were no longer required for the current “research mission”. He highlighted those words, but Wilson suggested a better answer. Eggleton, the only Clayton Utz partner who gave evidence to me, said he did not understand what Foyle could have meant by “research mission”, and I do not think it was a phrase which had any genuine meaning, in this context.

Any doubts as to what was the real message which Wilson was imparting to his client, on behalf of Clayton Utz, is dispelled by notes of a meeting which he attended soon after he wrote his letter and which notes he might have thought were never likely to see the light of day.

On 2 April 1990 a conference was held between Gulson of Wills, Cannar of BATCO, and both Wilson and Oxland of Clayton Utz. Oxland’s notes of the meeting record that the discussion concerned the contents of the written advice dated 29 March 1990. Wilson is recorded as having proffered the following advice:

“Keep all research docs which became part of public domain and discover them.
As to other documents, get rid of them, and let other side rely on verbal evidence of people who used to handle such documents.”

Another handwritten note made by Oxland – also apparently written at the 2 April 1990 meeting – noted the relationship between BATCO, Wills Holdings (“subsidiary”) and WD & HO Wills (Aust) (“Wholly owned”) and records an apparent decision, as follows:

“To shred all docs in Aust more than 5 yrs old (docs will still be available off-shore, though)”.

Wilson did not give evidence before me. His absence was unexplained. Eggleton, who had been privy to the advice of 29 March 1990 but was not present for the conference of 2 April 1990, said that in preparation for giving evidence he had not spoken to Wilson about this advice. He agreed that if the note accurately reflected the oral advice which Wilson had given, then it was not proper advice for a solicitor to give a client. In their submissions counsel for the defendant have contended otherwise, it being submitted that a company is not acting unlawfully if it shreds documents, even if it did so to damage anticipated litigation, so long as no litigation was actually on foot. Mr Middleton, whilst not conceding any qualification to that absolute right, accepted that if the identity of a proposed litigant was known, and proceedings were about to commence, there might, arguably, be some impediment to the destruction of potentially relevant documents. As to that, I note that Wilson’s oral advice was given at a time when a letter threatening action had been received.

The Advice of Allen Allen & Hemsley, 1990

On 16 May 1990 Gulson, as legal counsel and secretary of Wills, wrote to Mr S.J. Walker of the solicitors Allen Allen & Hemsley seeking advice from that firm, also, as to the Document Retention Policy. He referred to “our meeting with Mr N. B. Cannar, Senior Solicitor for BATCO, whilst he was in Australia”. Gulson noted that at the meeting with Cannar a review of the retention policy was discussed and he observed that the Document Retention Policy “was developed by Clayton Utz for use by W.D. & H.O. Wills (Australia) Limited”, when the company was a subsidiary of AMATIL. Gulson provided various documents to Walker, including a copy of the 1985 policy, a memo from Lovell White & Durrant as to the international and local implications of the policy, and also a copy of the proposed policy to be adopted by BATCO. Additionally, Gulson provided a copy of the advice on the same topic given by Clayton Utz on 29 March 1990.

Gulson then raised a number of issues relevant to advice. Counsel for the plaintiff submit that the issues raised by Gulson demonstrate the true purpose of the new policy, and also demonstrate the fact that the defendant had already destroyed BATCO documents and was anxious to cover up that fact. The passages to which counsel for the plaintiff referred sought advice on the following matters:

“1.The retention by Wills of BATCo’s scientific reports could lead to a plaintiff seeking discovery of other BATCo reports which are not physically in Australia. The plaintiff could allege Wills has effective control over these other documents by virtue of the fact that Wills contributed to the funding of the research or alternatively by citing the Hague Convention. In the event of discovery being permitted, the documents could assist in identifying overseas persons able to give testimony in an Australian action. This risk will increase significantly if an Australian court were to order Wills to retrieve from BATCo copies of the BATCo documents previously destroyed by Wills pursuant to its own Document Retention Policy.
2The potential and substantial problem that would face our major shareholder in the event that any discovery made in Australia of BATCo’s research could be used by future plaintiffs in other jurisdictions especially the USA.
3The retention by Wills on a selective basis of certain reports may highlight the fact that other documents have been destroyed and could well compromise the position of Wills with respect to the practice and operation of the Document Retention Policy.
4Comments or observations that you may have in relation to the writer’s letter and Clayton Utz’s response of 29 March 1990.
5.Any other comments or observations that you may care to make on the Document Retention Policy or discovery.”

Other notes reflect the fact that there was also concern about the computer link between Wills and the BATCO library in the UK. Both the UK and Australian companies (and also its USA affiliate) were anxious that discovery processes in Australia did not lead to the disclosure of research papers held by or received from the UK library. As a result of the concern the computer link with the UK was severed.

In its reply dated 9 July 1990, Allen Allen & Hemsley generally confirmed the advice given two months earlier by Wilson of Clayton Utz. The author, who appears to have been either Stephen Walker or Michael Rose, addressed Gulson’s queries as to the position of Wills if “in any future litigation” an order for discovery was made. The author of the advice first warned that any future litigation would require that Wills identified in a list of discovered documents any BATCO reports of which it previously had custody, and noted that documents were discoverable if they had been in the power of Wills. The letter of advice then proceeded (I omit some sections which do not have any bearing on issues before me):

1.2Whether an Australian Court could order Wills to retrieve from BATCo copies of BATCo documents previously destroyed by Wills pursuant to its Document Retention Policy.
As noted above, Wills could be required to include, in its list of discovered documents, any relevant documents belonging to BATCo which had, at some previous time, been in its possession, but had subsequently been destroyed.
Part 23, Rule 10 of the Supreme Court Rules provides that the Court may order a party to produce for inspection documents that appear, from the list of discovered documents, to be in its ‘possession, custody or power.’ Accordingly, an order for production will not require the production of documents no longer in the possession, custody or power of Wills at the time the order is made.
Although BATCo documents in England may not be the subject of an order for production for inspection, the fact that they have been identified in a list of documents may encourage plaintiffs in Australia to seek access to the documents through the use of Letters of Request.

After discussing whether discovery of BATCO reports in Australian proceedings could be used in proceedings elsewhere (and advising that it would be a misuse of discovery to do so, but could not be ruled out with respect to foreign proceedings) the writer advised:

3.Whether retention by Wills on a selective basis of certain reports would highlight the fact that other documents have been destroyed and compromise the position of Wills with respect to the practice and operation of its Document Retention Policy.
It is, in our view, important that any Document Retention Policy adopted by Wills should be applied consistently. Selective destruction of documents, in a manner inconsistent with the Document Retention Policy, might well lead to an inference that those documents contained material that was somehow damaging to Wills.
In addition, such destruction of documents might be considered a contempt of Court if the Court considered that it was likely to interfere with the course of justice. (Lane v Registrar of Supreme Court of New South Wales (1981) 35 ALR 322).
In our view, no such inference could reasonably be drawn from the routine and non-selective destruction of documents in a manner consistent with the Document Retention Policy.
This question is dealt with extensively by Clayton Utz in their letter of 29 March 1990 at paragraph 1, with which we agree.

4. Letter of Clayton Utz dated 29 March 1990
Clayton Utz have quoted from the Document Retention Policy and have concluded that the policy shows a three-fold motivation for the destruction of documents. Clayton Utz says that this motivation evinces a positive intention which cancels out any negative impression which may be created by the destruction of documents. On this basis, Clayton Utz says that ‘there is little, if any, risk of contempt of Court’.
Although we agree with Clayton Utz’s comments relating to the interpretation of the policy, it does not necessarily follow that there is no risk of an adverse impression being created or of contempt being found. It should be remembered that an aggressive plaintiff, in an application for further discovery or in a hearing itself, could cross-examine Wills’ witnesses about aspects of the policy. In such circumstances, the demeanour of witnesses and frankness of their answers will be most important. Any attempt by Wills’ witnesses to deny an awareness of the fact that document destruction makes things difficult for plaintiffs may lead to those witnesses being disbelieved and adverse inferences being drawn.

In the next section (portion of which I omit), the writer discussed the law of privilege:

4.2 Part 2(b) of Clayton Utz’s letter
We agree with the comments made by Clayton Utz in Part 2(b) of their letter.
It is possible that a court could order the disclosure of Clayton Utz’s documents and other documents which are assumed to be privileged, in circumstances other than those described by Clayton Utz. If a plaintiff were to be particularly aggressive in its attempts to gain access to documents in relation to which privilege has been claimed, it is possible that a court, after examining the documents concerned, could hold that documents which are assumed to be privileged, are not privileged.

The writer then discussed the risk of the Document Retention Policy, itself, being disclosed, a concern which had been reflected in the earlier advice of Clayton Utz, and which, in my opinion, continued to be a significant consideration in the conduct of the defence in the present litigation, including the discovery process:

4.3 Part 2(c) of Clayton Utz’s letter
Clayton Utz’s comments in Part 2(c) of their letter seems to assume that an Affidavit Verifying Discovery is the only affidavit relating to documents which would need to be sworn on behalf of Wills. This is not the case.
If a plaintiff were particularly aggressive in pursing access to Wills’ documents, he or she could, by Notice of Motion, seek orders for further and better discovery. In some circumstances, Wills might choose to resist such an application, relying on evidence of the adequacy of its discovery. If such a course were adopted by Wills, it is possible that Wills’ executives and/or Wills’ legal advisers could be required to give evidence. Such evidence may involve disclosure of information about the Document Retention Policy. Obviously, whether or not Wills would risk such disclosure will depend upon the circumstances of the case in which the issue arises.

The author added further comments on the Clayton Utz advice, and warned that in cutting the computer link to the BATCO research library it should be made to appear that it had been the unilateral decision of BATCO, and did not arise because of the very concerns which actually motivated Wills to so act:

4.4 Part 3 of Clayton Utz’s letter
We do not agree with Clayton Utz’s assessment that no changes need to be made to the way in which the Document Retention Policy is applied. In our opinion, the policy could be improved by the incorporation of the suggestions contained in Part 5 of our letter.

4.5 Part 4 of Clayton Utz’s letter
We agree with Clayton Utz’s comments in Part 4 of their letter. We note that whatever policy is adopted in relation to BATCo research reports, it is essential that that policy be applied consistently.

In relation to Part 4(c) of the letter, we consider it important that the termination, or restriction, of Wills’ access to the BATCo computer data base be built into the BATCo Document Retention Policy and not be referred to in the Wills Document Retention Policy.
It is possible that an adverse inference could be drawn if Wills decided to terminate or restrict its access to the BATCo computer data base. Although there are sound management reasons for introducing a Document Retention Policy in relation to hard-copy documents stored in Australia, it may be more difficult for Wills to establish sound reasons for the modification of access arrangements in circumstances where Wills does not have the responsibility for storage of the data base. Accordingly, termination or restriction of access must be the result of a unilateral decision by BATCo made solely by reference to its own management requirements.

The author then addressed some tactical disadvantages which might arise in a later trial if documents were destroyed. The author did not suggest that some of the difficulties might be overcome by adopting a process of “warehousing” documents, nor did the author address the much greater disadvantage which a plaintiff would experience in the conduct of a trial, if denied relevant research documents. The author wrote:

4.6       Part 7 of Clayton Utz’s letter
If the issue of research becomes important in future legal proceedings, Wills may have to choose between:
¨    settling the proceedings;
¨    relying on BATCo reports brought to Australia and produced with the consent of BATCo;
¨    relying on the oral evidence of Wills’ and/or BATCo witnesses;
¨    relying on the oral evidence of industry experts who may be able to comment on industry-wide research issues.
Obviously, each of the above courses of action has serious drawbacks for Wills and BATCo. Any action taken would depend entirely upon the nature of the proceedings concerned.

Finally, the author offered general advice as to the Document Retention Policy, making it clear that Allen Allen & Hemsley did not have the same knowledge of the policy, and of the documents held by Wills, as was held by Clayton Utz:

5.          The Document Retention Policy
In our opinion, it is difficult to comment upon a Document Retention Policy without detailed knowledge of the corporate structure involved and the types of documents which exist or are likely to be produced. Whatever Document Retention Policy is adopted by Wills, it is important that:
¨    the policy is clear cut and requires as little subjective judgment as possible;
¨    the policy is applied consistently;
¨    compliance with the policy be audited to ensure consistent application;
¨    the policy regulates the distribution, retention and destruction of documents which are prima facie privileged;
¨    the policy applies to electronically-stored information;
¨    care be taken to ensure that sensitive documents, which belong to a class of documents which would be destroyed, do not ‘survive’ because they are attached to, or contained in, documents belonging to another class of documents. For example, policy documents and correspondence (which under the BAT industries policy would be destroyed in one or two years) could ‘survive’ if they were attached to visit reports or minutes of specialist meetings which may be preserved for five years or more.

Should you wish to discuss any of the matters referred to above in greater detail, please contact either Jim Dwyer or Michael Rose of this office.”

Neither Ms Chalmers of Mallesons nor Mr Eggleton of Clayton Utz, who gave evidence before me, were aware of the letter sent by Gulson, or of the reply from Allen Allen & Hemsley. Eggleton ventured that the references by Gulson to destroyed documents was merely hypothetical, but, in my opinion, it is clear that Gulson is addressing a real, not hypothetical, situation. Gulson was not called to give evidence before me.

The advice of Allen Allen & Hemsley was not produced until after all witnesses had completed their evidence in this case. It was not suggested, however, by any witness who was called, that the advice of Allen Allen & Hemsley played any significant role in decisions taken by Wills concerning document destruction.

The Australian proceedings

In November 1990 W.D. & H.O. Wills (hereafter referred to as ‘Wills’) which is the predecessor of the defendant was joined as third party in Supreme Court proceedings brought against CSR Limited by one Gallagher in Western Australia. Gallagher claimed to have suffered chest disease as a result of inhaling asbestos. The third party proceedings raised the question whether cigarettes had caused or contributed to the plaintiff’s condition.

In 1991 proceedings against Wills were brought in the Supreme Court in New South Wales. The plaintiff was David Harrison, and the case was discontinued in March 1998.

In February 1996 proceedings were commenced in the Supreme Court in Victoria by Phyllis Cremona. Those proceedings were discontinued in March 1998.

Class action proceedings were brought in the Federal Court by Michael Nixon and others in 1999. Those proceedings were dismissed before trial, on procedural grounds, in about November 2000. As I have said, the present proceedings were commenced on 26 October 2001.

The Document Retention Policy pursuant to which documents were to be destroyed was suspended by virtue of a “Hold Order” which was imposed from time to time in recognition of the fact that proceedings had been issued against the defendant and either had or would lead to an order for discovery. Such a Hold Order was imposed on 23 November 1990 in response to the Gallagher litigation. Hold Orders were renewed thereafter, in response to each of the court proceedings to which I have referred. Hold Orders continued in place until March 1998.

A Multitude of Lawyers

One outstanding feature of this case is the extent to which, after 1985, the terms of the Document Retention Policy, and the implementation of a program of destruction of documents, were the product of advice, decision and supervision by an army of litigation lawyers, from several countries, and being both retained private practitioners and in-house lawyers. The relationship between the defendant and its retained solicitors was so close that solicitors employed by private firms sometimes became employees of Wills and then continued to work alongside members of their former firm, and employees of one of the legal firms sometimes spent months working on the premises of Wills. Private practitioners and in-house lawyers travelled together to conferences of litigation lawyers, organised by companies in the BAT Group, to discuss litigation tactics.

David Schechter, in-house counsel for BATUS, the USA affiliate, played a very significant role with respect to the Document Retention Policy. In 1990, after the Gallagher litigation commenced, Schechter visited Australia for the purpose of assisting Wills in its defence of the action. He conducted interviews with firms of solicitors to determine who should represent Wills, and selected Robinson Cox in Perth. David Eggleton, a partner in Clayton Utz, met Schechter at that time and deposed that Schechter also interviewed partners from Mallesons Stephens Jacques and played a part in the decision to appoint that firm in Sydney “to represent Wills in future product liability cases”. Schechter returned to Australia from time to time, for such purposes as preparing a submission to legal aid authorities designed to prevent potential litigants obtaining legal aid.

Robyn Chalmers, a partner at Mallesons Stephen Jaques, was engaged by the defendant, Wills, to perform discovery for the Harrison case. She was told by Mary Weir, the in-house counsel for Wills (who was succeeded, later, by Cannar), that she should copy correspondence to Schechter and to Bob Northrip. Northrip was an American Attorney from the Kansas City firm Shook Hardy & Bacon, which specialised in tobacco litigation, and had represented Phillip Morris.

On 4 June 1991 Chalmers had a conference call with David Schechter and Bob Northrip. Her notes record that one or other of those two discussed the prospect of both the Gallagher and Harrison cases being dismissed, or going away, “so that documents can be gotten rid of”. They sought Ms Chalmers’ advice whether they could implement the document retention program if the Gallagher case was over and if Harrison had either gone away or else they concluded that it had no prospects.

Ms Chalmers noted, at the time, that it was said:

“If another case arises and those solicitors become aware that the documents have been destroyed while the Harrison case was on, but before the new case, can they complain about the destruction.”

Ms Chalmers caused a lawyer in her office to conduct research on this question and in her instructions to the researcher queried whether such conduct would be in breach of director’s duties, or would be grounds for exemplary damages. She queried too “ways of getting at head company’s documents” and queried “conspiracy”.

On 21 February 1992 Ms Chalmers was to discover that the question of document destruction had not gone away. In a multi-party phone hook up with Northrip, Andrew Foyle (the UK solicitor), Schechter and Stuart Charfon (a solicitor with BATCO), she recorded discussion under the heading “Dispose of Documents”. She noted Northrip opening by saying that “Pro is you get rid of them”, but the “con” was “plaintiff’s firm may persuade courts to more readily allow discovery from BATCO or order Wills to get other documents or a sanction will be imposed”. Her notes record that he added:

“Aust firms believe both of those will be very difficult. More likely course will say Wills acted improperly and sanction Wills. Greatest sanction would be deny a defence. Also sanctions against the solicitors involved.”

Foyle responded that if the action was not settled or struck out “the solicitors would be in contempt of court if the docs were destroyed. Solicitors under an obligation to ensure clients preserve documents”. Northrip saw the problem as being that the Harrison issues were so broad that a very wide range of documents were covered by its discovery and “can’t destroy enough if it around” (sic). Schechter concluded that option one would be taken , namely to “try to strike out quickly but do not destroy the documents“. Charfon concluded, too, that “On the advice we have we cannot destroy the documents. Very clear advice that documents cannot be destroyed”.

Ms Chalmers told me that she had no doubt that the desire to get rid of documents expressed in those discussions had nothing to do with considerations of space and efficiency, but was related to the danger which the documents posed to the defence of future litigation. She considered, however, that the advice which she had tendered was proper, and had been followed by the client. I agree that she gave proper advice at that time. It is somewhat surprising that British and American lawyers might have been in any doubt as to what was proper in those circumstances.

Eggleton, who said that he played no part in the document retention program, deposed that he saw Schechter four or five times in the next five years and on one occasion, between 1991 and 1995, when he saw Schechter in Australia, upon asking why he was in the country was told that he was here to assist in document issues. I am satisfied that Schechter played an important role in the modification of the policy after 1990.

Although Schechter accepted advice that documents could not be destroyed if proceedings were on foot, the clear inference from the notes as to his attitude at that time, was that once existing proceedings had been concluded the document destruction should proceed. No consideration as to whether further proceedings were anticipated had been considered, let alone been regarded as being a further impediment to such action. In my opinion, the record of those meetings is consistent with the conclusion that it was the actuality of proceedings being on foot that was accepted to be an impediment; anticipated proceedings were never seriously addressed. That reflects, in my opinion, the reality that at all times those who took the decisions about the implementation of the policy regarded future proceedings to be not merely likely, but to be a near certainty. It was that certainty which meant that any opportunity to destroy documents which arose by virtue of the elimination of current proceedings was to be seized upon. Overwhelmingly, it was a policy designed by and implemented by lawyers, being driven by considerations relevant to future litigation.

The Post-1992 Document Retention Policy

The Document Retention Policy was overseen by a group called the Records Review Team. Since 1993 the Records Review Team comprised the defendant’s audit manager (Malcolm Nicholson), the tax manager, and a representative from the defendant’s legal department. In 1998 Graham Maher was the solicitor who represented the defendant’s in-house legal department on the Records Review Team.

After 1992 the Document Retention Policy was to be found in two documents, one being titled the “Records Managers Training and Education Workbook”, and the other being titled “Staff Handbook”. There is some uncertainty as to which documents were operative from 1992 to 1998, and I have seen several versions of the Staff Handbook. The terms used in the different versions are not always identical.

(a) The Record Managers’ Training and Education Workbook

I will deal with the first of the two relevant documents which comprised the policy. Mr Michael Harrison, the former, and now retired, company secretary, was appointed “Records Manager” in late 1991 or early 1992. He identified a lengthy document titled "Records Management Programme – Records Managers' Training and Education Workbook" which was dated March 1992[3]. In his affidavit Harrison said that this document was produced at a conference held in Kuala Lumpur in 1992 and was intended thereafter to be the statement of the Wills document management programme. Nicholson agreed that this document was the applicable Managers' training document as from that date.
[3]This document is Exhibit "MH1" to the affidavit of Harrison sworn 29 January 2002

The document noted the benefits which would flow from "getting people to think before they write or file records" and it was noted that among the benefits which would flow from having a disposal policy was that it would "reduce potential for legal and PR problems and costs". The document noted that fewer records being kept for shorter periods would reduce the potential for problems which would arise, or could arise, if poorly written company documents were made public in court or in the media. It was noted also that "it would also mean a significant reduction in the legal costs associated with a discovery exercise".

In a section titled "legal aspects" it was noted that records may have to be disclosed in a wide variety of cases, in several countries, and the expenditure of time in responding to discovery was said to be considerable, and the costs of such a process would be extremely high. Under a heading titled "Effect on a Law Suit" it was noted that –

"Documents which contain ambiguous or inflammatory remarks or statements which go beyond the expertise of the author can be taken out of context and used to the advantage of the company's opponent in a law suit. The effects of losing a case may include not only the monetary cost of any award against the company but also, potentially, the cost in terms of damage to the company's reputation."

There then appeared a paragraph, paragraph G, page 8, which read as follows:

"Purpose of the records retention program. It should be emphasised that the retention of the records management program is aimed at ensuring that the company retains those records needed for business, legal, tax and audit reasons for the correct time period. That Program is not a way of ensuring destruction of 'damaging' records or retention of 'helpful' records. Records will be treated as series, in large blocks. It is not the intention to 'spring clean' the files to remove or retain records on a selective basis. Any such action would prevent the Program from passing judicial scrutiny."

The Record Managers' Training and Education Workbook also addressed the question of the creation of new documents, and listed matters which managers should emphasise to staff. One topic appeared under the heading "How sensitive is the information that is to be communicated?" It read as follows (with emphases as shown):

"Whenever they are writing something people should always apply the mental copy rule. That is, they should imagine that the document will be copied to the local news media, to a competitor, to the Government or a potential plaintiff in a court case. They should then ask themselves whether they would still write the letter or memo and, if so, whether they would write it in the same way. Does the wording convey the message intended? Is it vague or ambiguous in any way? It will soon become apparent that verbal communication is often the best way for sensitive information".

There is nothing improper in advising a client against creating new documents which would be embarrassing to disclose in proceedings.[4]
[4]See Matthews & Malek "Discovery", 1992, at par. 11.06.

The March 1992 copy of the Managers' Training Workbook which Nicholson produced before me contained no appendices, but two appendices appear in the copy produced by Harrison. However, in the copy of the 1992 document which Harrison produced to the court, Appendix 1, which related to "Control of Stored Records", was a 1999 version, which has a noticeably different typeface and layout to the rest of the document. Harrison said there had been an earlier version. That was called for by counsel for the plaintiff but the defendant did not produce it.

Appendix 2 contained a paragraph warning that electronic records constituted a "blind spot" for many people, but that it must be understood that the destruction policy applied to electronic copies, too. The paragraph stated:

"There is no point in disposing of a paper record only to find that the same record is still being kept on a computer file or word processing disc, especially if you have a discovery order served on your Company by a court."

(b) The Staff Handbook

As to the second document comprising the policy, Harrison said that when he returned to Australia in June 1992 he created a Staff Handbook which was to complement the first document and which was thereafter modified from time to time[5]. He said that the Staff Handbook which was used after June 1992 (but later modified) was that exhibited behind Tab 31 to the affidavit of Mr Gordon of 25 January 2002, and Nicholson agreed that that Staff Handbook was in effect from 1993 to 1999. He also identified an earlier version dated May 1993[6] as being the document that had applied at that date.
[5]A copy of the 1992 Staff Handbook appears at Tab 31 of Exhibit PG5 to the affidavit of Peter Gordon of 25 January 2002
[6]Exhibit "MNN1" to affidavit of Nicholson dated 29 January 2002

Another version of the Staff Handbook was exhibited by Mr Gordon, of Slater & Gordon, behind tab 30 of Exhibit "PG5" of his affidavit. It bears no date. In that document, in a section titled "What benefits will be derived from the programme?", a number of identified benefits were identified, both for the records creation phase and the records destruction phase. For the records creation and filing phase, one of the benefits read as follows:

"Reduced potential for legal and PR problems
Reductions in the quantity of long term records and improvement in the quality of those produced will mean there is a lower risk that records, which may have to be produced during a court case or which may fall into the hands of the press, will cause problems for the company."

Counsel for the plaintiff concede that there is no authority for the proposition that the court may strike out the defence where proceedings were merely anticipated but had not commenced, but submit that that is probably due to the fact that the situation which has been disclosed in this application is unprecedented. It is submitted that where the requirements of discovery are so significantly disregarded as to prevent a fair trial the court has inherent power to strike out the defence. Counsel cited Coleman v Dunlop Limited (No 2)[32] and Landauer Ltd v Comins & Co (A Firm)[33], two decisions of the Court of Appeal in England.
[32]Coleman v Dunlop Limited (No 2) unreported 20 October 1999, Court of Appeal.
[33]Landauer Ltd v Comins & Co (A Firm), Times Law Reports 7 August 1991, 382.

Coleman v Dunlop Limited (No 2) had been a trial before judge alone. It was a re-trial, the defendant having succeeded at first instance, but the re-trial being ordered after an appeal. In preparation for re-trial it first emerged, and then during the re-trial it became clear, that the defendant had failed to discover all documents relevant to the case. The trial judge heard evidence in purported explanation of that circumstance and concluded that relevant documents had not been discovered, some of which had later been destroyed in a fire (which it seems was accepted to have been accidental). The trial judge struck out the defence on two bases, first, for non compliance with discovery obligations and, secondly, as constituting an abuse of process which made a fair trial impossible. The Court of Appeal upheld the decision on both bases. Judge LJ (with whom Lloyd LJ agreed) noted that striking out of the defence could not have been justified merely by way of punishment, but that the trial judge had concluded that denial of the documents meant that the plaintiff could not receive a fair trial. His Lordship noted that in making that assessment the trial judge had the advantage of the trial having been in progress and the issues having emerged on which the documents would have been relevant. Thus, ”this was not a judge trying to foresee how the case might eventually work out in court”. The trial judge had concluded that the documents “went to the core of the plaintiff’s case and that the deficiencies in discovery could not now be made good”.

In Landauer the Court was concerned with what it held was the first instance where a plaintiff’s claim had been struck out for breach of a discovery obligation. In this case the plaintiff’s destruction of documents was held to have been inadvertent but the Court of Appeal held that where the destruction of documents caused “a real or substantial or serious risk that a fair trial is no longer possible” that would justify striking out. Lloyd LJ, speaking for the Court, observed that the trial judge was “…fully entitled to find that there was a serious risk that essential documents may have been destroyed in this case, as a result of which a fair trial is no longer possible…”, and added:

“While it was accepted that the normal prerequisite for the striking out of an action under Order 24 Rule 16 of the Rules of the Supreme Court for failure to comply with the requirement of discovery of documents was the existence of a real or substantial or serious risk that a fair trial was no longer possible, it might be that cases of contumacious conduct such as the deliberate suppression of a document, would justify striking out even if a fair trial were still possible.”[34]

[34]Landauer Ltd v. Comins & Co., supra, at 382.

Counsel for the plaintiff also relied on a more recent decision of the Court of Appeal in the case of Arrow Nominees Inc v Blackledge[35]. That case concerned a petition for relief under the Companies Act. The respondent prior to trial had sought to have the petition struck out on the basis that its opponent had discovered documents which it knew to be false, thus rendering a fair trial impossible. The trial judge had rejected the application at that stage, but stated that he would consider a further application, if one was made, after he had heard evidence in the trial. The application was renewed at trial, but failed. On appeal, Chadwick, LJ (with whom Ward and Roch LJJ agreed) held:

“I take the view that it was wrong for the judge to allow the petition to proceed once he had reached the conclusion there was a substantial risk that the allegations in relation to the disputed terms of the 1994 agreement were incapable of a fair trial.”

[35]Arrow Nominees Inc v Blackledge [2000] All ER (D) 854, at pars 53-54..

His Lordship added:

“ . . .It would be open to this court to allow the appeal against the judge’s refusal to strike out the petition on that ground alone. But, for my part, I would allow the appeal on a second, and additional, ground. I adopt as a general principle the observations of Mr Justice Millett in Logicrosce Ltd v Southend United Football Club (The Times, 5 March 1988) that the object of the rules as to discovery is to secure the fair trial of the action in accordance with due process of the court; and that, accordingly, a party is not to be deprived of his right to a proper trial as a penalty for disobedience of those rules – even if such a disobedience amounts to contempt or defiance of the court – if that object is ultimately secured, by ‘for example’ the late production of a document which has been withheld. But where a litigant’s conduct puts the fairness of the trial in jeopardy, where it is such that any judgment in favour of the litigant would have to be regarded as unsafe, or where it amounts to such an abuse of the process of the court as to render the further proceeding unsatisfactory and to prevent the court from doing justice, the court is entitled – indeed, I would hold bound – to refuse to allow that litigant to take further part in the proceeding and (where appropriate) to determine the proceedings against him. The reason, as it seems to me, is that it is no part of the court’s function to proceed to trial if to do so would give rise to a substantial risk of injustice. The function of the court is to do justice between the parties; not to allow its process to be used as means of achieving injustice. A litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial has forfeited his right to take part in a trial. His object is inimical to the process which he purports to invoke.
Further, in this context, a fair trial is a trial which is conducted without an undue expenditure of time and money; and with a proper regard to the demands of other litigants upon the finite resources of the court. The court does not do justice to the other parties to the proceedings in question if it allows processes to be abused so that the real point in issue becomes subordinated to an investigation into the effect which the admittedly fraudulent conduct of one party in connection with the process of litigation has had on the fairness of the trial itself. That, as it seems to me, is what happened in the present case. The trial was ‘hijacked’ by the need to investigate what documents were false and what documents had been destroyed.”

In my opinion, the remarks of Chadwick LJ have particular application to the present case.

The plaintiff relied on the power under Rule 24.02 (which gives power to strike out a defence if a party “fails to comply” with an order for discovery) and on Rule 24.05, which is titled “Inherent Jurisdiction”, and reads:

“Nothing in this Order shall affect the inherent power of the Court to dismiss any proceeding for want of prosecution or to order that upon the failure of a party to do any act or take any step which under these Rules he is required to do or take or to comply with an order that he do any such act or take any such step the proceeding shall be dismissed or the defence struck out and that judgment may be entered or that there be judgment accordingly.”

The Court of Appeal decisions cited above were concerned with the equivalent English provisions. Counsel for the defendant contended that neither rule was applicable here. There has not been a failure to comply with any order, it was submitted, merely, at its highest, a defective discovery. In Logicrose Ltd v Southend United Football Club, which was cited with approval in Arrow Nominees, Millet J held, when applying O24 that: “The serious and successful suppression of a material document is a serious abuse of the process of the court and may well merit the exclusion of the offender from all other participation in the trial”[36].
[36]Logicrose Ltd v Southend United Football Club, The Times, 5 March 1988, at p.10.

In my view, those rules do provide power to strike out the defence in the circumstances of this case. In the first place, there has been a failure to comply with the requirement of the order to depose to what had become of documents which had been destroyed. Whilst striking out of the defence might be a severe remedy for such default, the rule would undoubtedly give power to do so for that purpose alone. In this case, the failure to frankly explain what had happened to documents was more than an oversight. It was a very deliberate strategy designed to avoid exposure of the significant level of destruction of documents, and to avoid, in turn, exposure of the broader strategy which had been put in place to deny a fair trial to the plaintiff. The Affidavit of Documents was deceptive or misleading in a number of ways. Documents had been omitted from discovery by virtue of what was an unreasonable interpretation of the terms of the order, which interpretation was intended not to be disclosed voluntarily, so as to enable its correctness to be tested. The failure to disclose what had become of documents was a specific requirement of my order and was important in a case in which documents were central to the plaintiff’s action. I consider that in all of these respects there has been a failure to comply with the order for discovery such as to empower me to make an order under the Rules. That would be so even if the destruction of documents, of itself, was not open to be regarded as constituting a breach of rules relating to discovery by virtue of the fact that it occurred before proceedings were issued.

The question remains whether the undoubted power to strike out a defence by reference to principles governing the obligations of discovery, as discussed above (in particular, the obligation to give full explanation as to destroyed documents), might also apply if the only complaint was that documents had been destroyed at a time when no proceedings were on foot, but where the result was that the plaintiff’s prospects of a fair trial had been diminished or denied.

There are possibly analogous situations where the law does impose obligations on people before proceedings are issued. The destruction of a document four days before proceedings commenced and in anticipation of receiving a subpoena to produce the documents has been held capable of constituting contempt of court[37]. In Lane v Registrar of the Supreme Court of New South Wales (Equity Division)[38], a decision of the High Court which was discussed in the Clayton Utz advice to Wills, the court recognised that where a person acted with an intention to interfere with the course of justice that could turn conduct which was lawful into conduct constituting contempt of court. McHugh JA in The Prothonotary v Collins[39] observed that their Honours in Lane clearly intended their remarks to apply to acts “likely to interfere with the course of justice as a continuing process”, a concept not far removed from the conduct of a defendant expecting (as this defendant was) to be engaged in continuing litigation by many, but presently unknown, plaintiffs, in various jurisdictions, over many years.
[37]Registrar of Supreme Court v McPherson [1980] 1 NSWLR 688, at 700, 711.
[38](1981) 148 CLR 245, at 258.
[39](1985) 2 NSWLR 573, at 568.

The notion of anticipated proceedings is also well recognised in the laws of privilege Documents relevant to obtaining advice brought into existence “in anticipation or contemplation of litigation” are privileged: See Cataldi v Commissioner for Government Transport[40]. The question in that regard is whether, viewed objectively, litigation can be said to have been reasonably anticipated at the time when the document came into existence: see Grant v Downs[41]. Privilege may be claimed for documents brought into existence when litigation was “reasonably apprehended”[42].
[40]Cataldi v Commissioner for Government Transport [1970] 1 NSWR 65, at 67
[41]Grant v Downs (1976) 135 CLR 674, at 682, 689, per Stephen, Mason, Murphy JJ,.
[42]Collins v London General Omnibus Co [1891-1894] All ER 213.

In my view, it is apt that similar principles with respect to privilege might be applied with respect to discovery. The rationale for legal professional privilege has been said to be that it promotes the public interest in that it facilitates the administration of justice by ensuring that a client will make full and frank disclosure to his solicitor as to all relevant issues[43]. If the client is to gain that protection when proceedings are merely apprehended then a decision not to make full and frank acknowledgment to the court as to relevant issues (such as what became of documents) which occurred when proceedings were contemplated (and to do so for purposes of denying a fair trial to a litigant), and at a time when the client was in receipt of legal advice, might be thought to also reasonably attract sanctions by reference to public policy considerations. As was held in Grant v Downs: “The existence of the privilege reflects, to the extent to which it is accorded, the paramountcy of this public interest over a more general public interest, that which requires that in the interests of a fair trial litigation should be conducted on the footing that all relevant documentary evidence is available”[44].
[43]Grant v Downs, supra, at 685.
[44]Grant v Downs, at 685.

Where, as here, no question of privilege attaches to the destroyed documents the paramount principle that the courts should seek to ensure a fair trial, conducted with reference to all relevant documents, must be the guiding consideration when confronted by a party which has destroyed documents with the purpose of denying a fair trial. If other available steps can be taken so as to ensure a fair trial then the drastic step of striking out a defence would not need to be taken.

The courts have an overriding concern to protect the administration of justice, that concern being reflected in both the Rules and in the common law principles concerning such matters as the criminal offence of perverting the course of justice, and the laws of contempt. An attempt to pervert the course of justice can be committed even though there is no particular case in contemplation by the person committing the offence: see The Queen v Rogerson[45]. Whilst it is recognised that it is a power which should be exercised sparingly, and only when no other available means are available to remedy the situation, the superior courts have an inherent power to stay both criminal and civil proceedings which constitute an abuse of process, where not to do so will result in a trial which is unfair[46].
[45]The Queen v Rogerson (1992) 174 CLR 268, at 280, 293
[46]Williams v Spautz (1992) 174 CLR 509, at 518-519.

The obligation of a solicitor to advise a client as to the client’s duties concerning destruction of documents has been said to arise once litigation is “contemplated”[47], although the learned authors Matthews and Malek assume that “the extreme case” whereupon proceedings might be struck out would arise where documents had been destroyed after proceedings had commenced and where the fair trial of the issues had been rendered impossible by the opposite party [48]. In Andrews’ Principles of Civil Procedure the learned author says that there is some authority for the proposition that the law of contempt of court applies to proceedings which are neither pending nor imminent; it is sufficient that they are merely contemplated[49].
[47]“Discovery”, Matthews & Malek, (1992), at 246;
[48]Ibid, at 246.
[49]“Principles of Civil Procedure”, Neil Andrews, (1994), at pp.290-291.

The extension of the court’s regulatory power to contemplated litigation is well recognised in the United States of America, and pre-dates the tort of spoliation which has applied in many States since 1984[50]. That tort is said to impose a duty of care not to intentionally and in bad faith thwart a person’s right of access to the court, and to enforce a valuable interest in just compensation[51]. Although that tort does not exist in this country the underlying rationale for the principle applied by the American courts could as readily be applied with respect to the rules relating to discovery in this country, in my opinion. Counsel for the defendant reject that suggestion and submit that if there is to be such a remedy then it must be brought about by legislative reform.
[50]Smith v Superior Court 198 Cal.Rptr.829, at 837.
[51]I am indebted to the learned authors Sommers and Seibert for their examination of the American cases, in their article “Intentional Destruction of evidence: Why Procedural remedies are Insufficient” in Vol 78 (1999) Canadian Bar Review, 38ff.

The learned authors Richard Sommers and Andreas Seibert suggest that the tort of spoliation as a means to defeat “pending or potential” lawsuits should be regarded as a form of obstruction of justice entitling a party to summary judgment, particularly in circumstances of mass consumer product liability litigation where the shredding of documents going to the question of the knowledge of product dangers might eliminate internal research and force the plaintiff to debate the question on the basis of public domain documents.

I was referred to Bowmar Instrument Corp v Texas Instruments Inc. a decision of the U.S. District Court for Indiana, which was also cited in the article by Sommers and Seibert. This was not a case concerning the tort of spoliation but was concerned with failure to produce documents under subpoena. The Court was not satisfied that documents had been wilfully destroyed before the lawsuit commenced. In the course of his judgment District Judge Eschbach referred to Societe Internationale v Rogers which was a case concerning an alleged failure to comply with a pre-trial discovery order. The U.S Court of Appeals in that case recognised that proven deliberate conduct of placing documents under the control of another so that there would be legal impediments to their production might justify dismissal of an action. Judge Eschbach held in Bowmar:

“The most extreme legal position taken by the defendant is that the court is powerless to punish the wholesale, wilful destruction of relevant evidence where the destruction takes place prior to the specific court order for their production. Surely this proposition must be rejected . The plaintiffs are correct that such a rule would mean the demise of the real meaning and intent of the discovery process provided by the federal Rules of Civil Procedure.
It has long been recognised that sanctions may be proper where a party, before a lawsuit is instituted, wilfully places himself in such a position that he is unable to comply with a subsequent discovery order. Cf., e.g. Societe Internationale v Rogers 357 U.S. 197, 208-09 (1958). Although a potential litigant is under no obligation to preserve every document in its possession, whatever its degree of relevance, prior to the commencement of a lawsuit, see United States v International Business Machines Corp., 66 F.R.D. 189, 194, some duty must be imposed in circumstances such as these lest the fact finding process in our courts be reduced to a mockery.

The proper inquiry here is whether the defendant, with knowledge that this lawsuit would be filed, wilfully destroyed documents which it knew or should have known would constitute evidence relevant to this case.”

Counsel for the defendant submitted that the American courts are by no means unanimous in their opinion as to the application of the tort of spoliation. The varied opinions are summarised by the Court of Appeal in California in Willard v. Caterpillar Inc.[52] (which cited the decision in Bowmar Instrument Corp with approval):

“Federal courts consider the conduct of a party prior to the commencement of the litigation in determining whether a party’s failure to comply with a production order is willful or in bad faith. If, prior to litigation, a party “‘deliberately courted legal impediments to production,’ “it cannot then be heard to assert its good faith after the expectation is realized. For conduct to constitute ‘courting legal impediments,’ it was not necessary that the actual litigation in which the documents are ordered produced be pending or specifically contemplated. “’Although a potential litigant is under no obligation to preserve every document in its possession, whatever its degree of relevance, prior to the commencement of a lawsuit, … some duty must be imposed in circumstances such as these lest the fact-finding process in our courts be reduced to a mockery.’” (General Atomic Co. v. Exxon Nuclear Co., Inc. (S.D. Cal. 1981) 90 F.R.D. 290, 295-296, 299, 304 [party housed its cartel documents in Canada, whose law precluded their release, in anticipation of antitrust litigation in the United States].) The proper inquiry is whether the defendant, with knowledge that the lawsuit would be filed, willfully destroyed documents which it knew or should have known would constitute evidence relevant to the case. (Wm. T. Thompson Co. v. General Nutrition Corp., supra, 593 F. Supp. at p.1445.)
Finally, at the other end of the spoliation liability continuum, some courts have held there is no liability for failing to preserve documents before a party has notice of their relevance to litigation likely to be commenced. One court noted that the potential for litigation arises at the moment of injury, but the injured party may not contemplate filing a lawsuit. Therefore, discovery sanctions for spoliation of evidence are warranted only if evidence was destroyed when the products liability action was contemplated rather than merely possible. (Iowa Ham Canning, Inc. v. Handtmann, Inc. (N.D. Ill. 1994) 870 F. Supp. 238, 244; and see Akiona v. U.S. (9^th Cir. 1991) 938 F.2d 158, 160-161 [sanctions not warranted unless party had some notice the documents were potentially relevant]; PBA Local No. 38 v. Woodbridge Police Dep. (D.N.J. 1993) 832 F. Supp. 808, 833-834 [no spoliation of evidence where tape recordings at issue were routinely taped over four or five years before litigation commenced].)
These cases demonstrate the ‘common understanding of society’ regarding the wrongfulness of evidence destruction is tied to the temporal proximity between the destruction and the litigation interference and the foreseeability of the harm to the nonspoliating litigant resulting from the destruction. There is a tendency to impose greater responsibility on the defendant when its spoliation will clearly interfere with the plaintiff’s prospective lawsuit and to impose less responsibility when the interference is less predictable.”

[52]48 Cal. Rpts 2d 607 (Cal. App. 5 Dist. 1995) at pages 21-22 (Thaxter, Acting P.J. Harris and Buckley, JJ. concurring).

The concept of litigation as warfare, so that the adversarial system requires little or no commitment by the combatants to notions of a fair trial, was considered by the learned author of Wigmore, in contending for full force to be given to the inference that can be drawn from the fact of document destruction. The learned author stated:

“The existence of a contrary view seems to be due chiefly to two distinct influences. One of these is the general tendency at common law to regard litigation as a sport of high quality, and to concede to the parties the right to hamper and obstruct their opponents, so far as may be, by the retention of such casual advantages (including the possession of documents) as chance has placed in their hands at the outset. This spirit has been totally discountenanced at the present day by the statutes which almost universally have given the power of forcing an opponent to disclose beforehand his documentary evidence, and have thus radically condemned the gaming theory of the British common law”[53].

[53]“Evidence in Trials at Common Law”, J.H Wigmore, (1979), Vol 2, p.228.

As I have said, counsel for the defendant contend, in effect, that only legislative reform will deny a company in the position of the defendant the right to engage in what Wigmore might have deprecated as being “the sport of high quality” of the destruction of documents in anticipation of litigation. In my opinion, the rules relating to discovery which I have cited, above, are not so inadequate, and the inherent powers of the Court are not so deficient, that, in the event that no alternative course is reasonably open to remove the unfairness, the court must require a plaintiff to participate in an unfair trial and seek to obtain a verdict, in those circumstances, against a defendant whose actions rendered the trial unfair.

What outcome for this application?

In The Ophelia[54] the Judicial Committee of the Privy Council held:

"If anyone by a deliberate act destroys a document which, according to what its contents may have been, would have told strongly either for him or against him, the strongest possible presumption arises that if it had been produced it would have told against him; and even if the document is destroyed by his own act, but under circumstances in which the intention to destroy evidence may fairly be considered rebutted, still he has to suffer. He is in the position that he is without the corroboration which might have been expected in his case."

[54]The Ophelia [1916] 2 AC 207 at 229

Wigmore identifies two distinct inferences which may be drawn from the destruction of a document. In the first place, the destruction of a document may be regarded as demonstrating a consciousness of the weakness of the party’s cause, in general, and from that consciousness may be inferred the fact itself of the cause’s lack of truth and merit[55]. The second inference which may arise is that the specific document is unfavourable to the cause of the party who has destroyed it. For the latter inference to be raised there must be some evidence of the contents of the destroyed document[56].
[55]“Evidence in Trials at Common Law”, J.H. Wigmore (1979) vol 2, par 277.
[56]Ibid, par 291.

Counsel for the plaintiff submit that the benefit of such presumptions is severely diminished if the title and contents of the destroyed documents are not known, and while a general presumption still applies, its force is likely to be insufficient to compensate for the destruction of the documents.

Counsel for the plaintiff have strongly submitted that the plaintiff’s case has been so prejudiced by the deliberate program of document destruction that she has been denied a fair trial, and that, in the absence of knowledge of the documents which have been destroyed, to merely rely on the drawing of adverse inferences is insufficient remedy to right the wrong of the deliberate conduct engaged in by the defendant. The defendant, they submit, has taken a course of action knowing full well the risks it ran, including the risks of being held in contempt of court and of having the defence struck out. The defendant proceeded nonetheless, and sought to hide its conduct by misleading the plaintiff’s advisers and the court.

I have concluded that the defendant’s actions have caused prejudice to the plaintiff and denied her a fair trial. Is that a matter which can be corrected by other means, short of striking out the defence?

Should I refuse this application the plaintiff may well succeed in her action and obtain a verdict from the jury. I have no doubt that the plaintiff is not bereft of all weapons with which to prosecute her claim. The plaintiff can no doubt lead a substantial body of evidence, both documentary and oral, through both expert and lay witnesses. The plaintiff has available to her what I believe must be a considerable body of documentary evidence held in the public domain. All of that evidence might be sufficient to satisfy a jury as to the plaintiff’s claims, and to reject the defences raised in the pleadings.

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.

There are other steps which might be taken which could ameliorate some of the prejudice which the plaintiff now faces if her trial were to proceed. A new order for discovery could be made, and, by removing any possibility of the words of the order being misconstrued, might produce further documents. Upon production of new documents an order permitting further interrogatories might be made. These steps would all take time, and no doubt there would be debate as to the terms and appropriateness of any such orders. Whilst these steps might improve the plaintiff’s position at trial, they would not cure the prejudice.

In order to remove the unfairness of the trial the plaintiff would place reliance on the inferences discussed above, and having regard to the material which is available to the plaintiff by virtue of this application, the inferences would be likely to have a powerful attraction to a jury. But they may not. The defendant would seek to persuade the jury that other explanations are open and that they should not draw any adverse inference. The defendant in choosing to destroy documents did so in the face of advice that these inferences might be drawn against it. It must be assumed that the defendant regarded the damage which the defence would suffer if the inferences were drawn against it, as being outweighed by the extent of the damage which it would suffer if the plaintiff had access to the documents. Permitting the trial to proceed in those circumstances could not remove the prejudice suffered by the plaintiff.

Once it is concluded, as I have concluded, that the plaintiff has been denied a fair trial, in circumstances which cannot be adequately redressed, then in my opinion there is no point in attempting to quantify the extent of the unfairness. A trial is either fair or it is not. Unless all unfairness which the defendant has created can now be removed then a verdict by the jury in favour of the plaintiff would not demonstrate that the unfairness in the trial had been eliminated, but merely that the plaintiff had succeeded despite the unfairness of her trial. If it is necessary for me to be satisfied that there would remain a substantial risk of injustice to the plaintiff if the trial proceeds[57], even after further orders are made in an attempt to alleviate her disadvantage, then I am so satisfied.
[57]See the passage of the judgement of Chadwick LJ, cited above, from Arrow Nominees Inc v Blackledge. In Logicrose Ltd v Southend United Football Club Ltd (cited with approval in Arrow Nominees) Millet J allowed the trial to proceed only when he was satisfied that there was “no risk of injustice”.

I do not consider that prejudice could have been removed entirely were the trial to proceed and were I make attempts, as discussed above, to ameliorate the prejudice suffered by the plaintiff. That being so, I have concluded that it would be an inappropriate course to adopt, to permit the trial to proceed, whether or not such a trial was by jury or by judge alone.

The fact that the plaintiff might well overcome the prejudice to a fair trial which the defendant has created is no answer, in my opinion, to this application. Success under those circumstances would merely demonstrate that the plaintiff’s claim had merit. The defendant’s decision to destroy documents was predicated on the fact that a claim brought by a plaintiff at a later time might well have merit and could succeed unless steps were taken to deny a fair trial to the plaintiff. Failure of a claim where a plaintiff had been denied a fair trial, could never be shown to be a just result.

The delay in frankly acknowledging the destruction of documents in this case has meant that the trial date has been vacated and a month has been lost on that account alone. Furthermore, none of the pre-trial evidentiary issues which had originally been listed for hearing have yet been addressed. If steps are taken by way of new orders for discovery and interrogatories the trial will be even further delayed. It is now accepted on both sides that having regard to the issues and evidence that emerged in this application the estimated duration of the trial must be revised. What at one time was expected to be a trial of about five weeks duration would now, I estimate, take twice as long, if not longer. On the medical evidence placed before me, which I have no reason not to accept, there is a serious risk that the plaintiff would not survive a trial of that duration. A trial confined to an assessment of damages would be considerably shorter[58].
[58]In response to my suggestion that a trial confined to damages might itself be very lengthy, counsel for the plaintiff undertook that if the defence was struck out the plaintiff would not seek to lead or rely on evidence as to the destruction of documents, for purposes of the assessment of damages.

Delay is something which can only benefit the defendant, and severely prejudice the plaintiff. I recognise that it was plaintiff’s solicitors who decided to bring this action at the time they did, and, as was pointed out by counsel for the defendant, the delay between the time when the plaintiff must first have instructed her solicitors and the commencement of proceedings is unexplained.

The plaintiff’s solicitors were first engaged by her at a time when she had been one of those registered as a participant in the Nixon class action. That action was withdrawn in early 2000, when the Federal Court ruled adversely as to jurisdiction. From at least that time the plaintiff’s solicitors had access to depositories of documents produced by tobacco companies and held in Minnesota and Guilford. The list of 34 documents in the Notice to Produce primarily was drawn from those depositories. The proceedings were commenced on 26 October 2001, and the plaintiff’s advisers sought an early trial, a trial being listed for 18 February 2002. Whilst Mr Gordon has deposed that it was his expectation that the Cremona discovery documents would have been able to be readily produced and admitted by the defendant, the plaintiff’s advisers must have been prepared for the possibility that the defendant would not make any concessions towards the proof of the plaintiff’s case. I have regard to those considerations.

The plaintiff’s ill health, unfortunate as her situation is, could not justify an order being made which denied justice to the defendant. Her ill-health, however, is a relevant consideration. It is appropriate that this consideration should not be disregarded, having regard to the fact that the defendant, when contemplating further litigation at the time of the decision to destroy documents, must have known that any such litigant was likely to be a person with a serious, probably life-threatening, illness.

Conclusion and Orders

The civil litigation system is an adversarial process, but it is a process governed by rules which the judges must administer. The formal rules of procedure complement and acknowledge the inherent powers of the Court which apply with the overriding objective of ensuring that parties to litigation receive a fair trial. Central to the conduct of a fair trial in civil litigation is the process of discovery of documents. That process is particularly important where documentary evidence is likely to be both voluminous and critical to the outcome of the case, and where access to documents is very much dependent on the approach adopted by one party and its advisers. For a fair trial to be assured in such circumstances the approach which that party must adopt may well conflict with its self-interest. The party which controls access to the documents must ensure that its opponent is not denied the opportunity to inspect and use relevant documents, and it must disclose fully and frankly what has become of documents which have been in its possession, custody or control.

In my opinion, the process of discovery in this case was subverted by the defendant and its solicitor Clayton Utz, with the deliberate intention of denying a fair trial to the plaintiff, and the strategy to achieve that outcome was successful. It is not a strategy which the court should countenance, and it is not an outcome which, in the circumstances of this case, can now be cured so as to permit the trial to proceed on the question of liability. In my opinion, the only appropriate order is that the defence should be struck out and judgment be entered for the plaintiff, with damages to be assessed.

I will hear the parties as to costs, and consequential orders. I will also require submissions as to the appropriate forum for the assessment of damages. Rules 24.02, and 24.05, read together with Rule 21.02, Rule 51.01 and Rule 47.02, suggest that the assessment of damages should be conducted by a Master, unless otherwise ordered.

On 6 March 2002 I made an order pursuant to s.18(1)(c) of the Supreme Court Act 1986 prohibiting, until further order, publication of a report of the proceedings on this application. My reasons for decision on that application indicate that the primary reason for my Order was the fact that the strike-out application was a pre-trial interlocutory proceeding in a case where trial was to be by jury. My concern was that publication, at that time, might inhibit empanelment of an unbiased jury. That order was opposed by counsel representing media interests. Subject to any submissions of counsel, the assessment of damages will not now, it seems, be conducted by a jury. Thus, the basis for the suppression Order would appear to have been removed. I will, however, hear the parties and other persons interested in the maintenance or cessation of that order.

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[2002] VSC 73

22 March 2002