DOJ FILES PRAECIPE ON BATAS “DOCUMENT RETENTION” RULING

May 31, 2006 2:08 pm by Gene Borio

UPDATED TO INCLUDE LINK TO JUDGE KESSLER’S ORDER #880.

The DOJ has directed Judge Kessler’s attention to yesterday’s Australian court ruling on BAT Australia’s (BATAS) “document retention policy.” The ruling strongly meshes with DOJ’s characterization of it as a document destruction policy meant to limit BATAS’s liability should incriminating documents come to light. The Dust Diseases Tribunal ruling was based in large part on Fred Gulson’s DOJ testimony–which Judge Kessler heard in a closed courtroom, but which the judges in the McCabe case (where the policy, outlined in the infamous “Foyle Memorandum” first surfaced) did not. The ruling lambastes BAT in the nicest legal terms, and threatens to open up all the BAT Group companies’ secret document troves. It also indicates that Philip Morris, Rothmans and RJR were well-versed in BATAS’s policy, as evidence indicates the companies acted jointly on suspect documents in Tobacco Institute of Australia meetings.

Peter Keisler and Stephen Brody point out the court’s ruling that:

“’the terms of the policy appear to be so contrived that BATAS may secure legal sanction for the stated policy, while nevertheless selectively destroying prejudicial documents’”;

“and (3) that communications made by BATAS to its lawyers seeking legal advice concerning destruction of documents pursuant to the Document Retention Policy were ”

“;communications in furtherance of the commission of a fraud within the meaning of s125.;”

Judge Kessler, on the advice of the Special Master, has deferred judgment on BATAS’ claims of privilege for certain documents, including the Foyle Memorandum. DOJ filed the entire 46-page ruling in (Re Mowbray) Brambles Australia Ltd. v. British American Tobacco Australia Services Ltd., hoping Judge Curtis’ evidence and reasoning may change her mind.

NOTES ON THE AUSTRALIAN CASE

Here is Judge Jim Curtis’ Brambles backgrounder:

2 The late Alan Mowbray, a motor mechanic, contracted lung cancer in 2001 and died on 23 January 2002. His wife sued Brambles, his former employer, in negligence, asserting that the cancer was caused by asbestos fibres contained in the brake pads upon which he worked in this employment. On 27 February 2002 Brambles consented to the entry of judgment in favour of Mrs Mowbray in the sum of $200,000.

3. Brambles, asserting that Mr Mowbray’s cancer was also caused by cigarettes manufactured by BATAS, which he smoked between 1946 and 2000, seek from BATAS contribution to the judgment, and/or compensation pursuant to either sS(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 or s7SAE of the Trade Practices Act 1974.

The Judge found strong correspondences between the testimonies of Mr. Gulson, Mr. Welch (TIA) and Jeffrey Wigand (in USA v. PM).

The Judge’s orders could disclose documents, and document policies as they apply across BAT’s entire range of companies. In addition, since Philip Morris, Rothmans and RJR were members of the TIA, and apparently took an active part in BATCo’s “document retention policy,” actively deliberating on whether documents should be destroyed or saved, there could be some fallout among these companies too.

SELECTED JUDGE’S COMMENTS

55. Mr Gulson also says that he personally introduced the lawyers to the staff at Pagewood. This is direct evidence which has not been challenged or contradicted. In the absence. of evidence from BATAS, I find it difficult to understand how it was thought necessary that three English lawyers attend a scientific library to implement a Document Retention Policy which only permitted destruction of documents which were not “valuable business documents”. If BATAS was not selectively destroying scientific documents prejudicial to its position in future litigation, how is it that lawyers rather than scientists were assigned to judge the value of research material? This may be explained at the trial, however the evidence of Mr Gulson gives rise to an obvious inference that has not yet been rebutted by BATAS. . . .

56. I am persuaded on the present state of the evidence that BATAS in 1985 drafted or adopted the Document Retention Policy for the purpose of a fraud within the meaning of s125 of the Evidence Act. . . .

57. In the absence of evidence to the contrary, I infer that legal advice to the effect that destruction of documents pursuant to the terms of the policy was not contrary to law, was integral to the decision by BATAS to persist with its policy of selective destruction. That advice gave BATAS the confidence that, in the event that the terms of policy were revealed, those terms would give a potential litigant no cause for legal complaint, nor clue as to the manner in which the policy had been implemented. I find that the communications made for the purpose of obtaining that advice were communications in furtherance of the commission of a fraud within the meaning of s125. . . .

68. I believe the evidence of Mr Wigand to be relevant. That evidence is inconsistent with BATAS, as a subsidiary of BATCo, maintaining an independent and innocent document retention policy administered non-selectively. It is corroborative of the evidence of Mr Gulson that the Document Retention Policy of BATAS was created by BAT Industries and distributed to its subsidiaries including BATAS for consistent implementation.80. It is apparent that this annexure does not constitute the whole of the “Policy of Document Retention/Destruction”. The “Records Management Manual” is obviously a discrete document which identifies particular work groups and contains the relevant document retention schedules. . . .

75. As to what happened to scientific reports discovered in Cremona after the hold order was lifted, Mr Holborow gave this evidence: (page 272)

Q. So are you able to say whether in fact in relation to scientific. documents documents that are [destroyed] only if pursuant to a series?

A. I would believe that to be the case but I mean in general most of the scientific reports and things they have they kept because they kept. them as a valuable business document and it would only be space where they would destroy them.

Q. For reasons of space?

A Yes.

Q. I am just a bit confused. I thought you said that all of the documents in the Cremona list were imaged?

A. Yes, they were.

Q So if they were destroyed it was not for reasons of space?

A. The images were destroyed as I’ve sworn to here in that same paragraph 45. The balance of Cremona including the CD with images were destroyed

Q. That could not have been for reasons of space.

A. No

. . .

81. BATAS now accepts that, in light of the amendments to the statement of claim, the previous orders for discovery oblige it to discover documents which relate to the Document Management Policy instituted in 1992.

JUDGE’S ORDERS

90. I make the following orders:

(I) The Cross Defendant on or before 14 June 2006 file and serve a Supplementary List of Documents:

(a) Identifying by title, date and author any original or copy reports, papers, articles, research notes or other records of a scientific nature in respect of which a claim for privilege is made;

(b) Describing by nature and date any document or group of documents referring to any of the documents described in (a) above;

(c) Specifying any provision of Part 3.10 of the Evidence Act under which the privilege is claimed to arise;

(d) Containing a solicitors certificate;

(e) Containing an affidavit complying with Part 23 of the Supreme Court Rules.

(2) The Cross Defendant on or before 14 June 2006 file and serve a verified List of Documents identifying any document in respect of which a claim for privilege is made which is the original or a copy of any document listed on Part 2 of the Lists of Documents filed by the Cross Defendant filed on 2 May 2005 and 7 April 2006.

(3) The Cross Defendant on or before 14 June 2006 file and serve a Supplementary List (or Lists) of Documents complying with Part 23 of the Rules:

(a) Discovering documents relevant to the issues raised by paragraphs 25A - 25L of the Fifth Amended Cross Claim.

(b) Discovering the documents being the pleadings and lists of documents filed and/or served in the proceedings identified in the Cross Defendants’ Lists of Documents filed on 15 April 2005 as Gallagher, Cremona, Jakob Stelzer, Hodgson, Frieda Stelzer, Durkin, Nixon, McCabe and Nash, and in the List of Documents dated 6 April 2006 as Gallagher, Hodson, Wright, McCabe and Durkin.

(c) Otherwise complying with the Rules.

(4) The Cross Defendant make such requests and do such things as may be reasonably necessary to obtain from companies within the BAT Group and the Tobacco Institute of Australia:

(a) Any document relevant to any issue in these proceedings which was but no longer is within the possession, custody or power of the Cross Defendant;

(b) Any document relating to nicotine bearing date or brought into existence prior to 1964;

(c) Any document relating to both smoking and lung cancer bearing date or brought into existence prior to 1964.

(5) The Cross Defendant on or before 14 June 2006 discover copies of all communications with companies within the BAT Group of companies and the Tobacco Institute of Australia relating to Order (4).

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Text and links for the following documents follow:

US Praecipe on Australian BATAS ruling, May 31, 2006

Kessler Order 880 on BATAS Docs, Feb. 23, 2005

Dust Diseases Tribunal Ruling on BATAS Documents, May 30, 2006

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US Praecipe on Australian BATAS ruling, May 31, 2006

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

PHILIP MORRIS USA INC., et al.,

Defendants.

Civil Action No. v. : 99-2496 (GK)

Next Scheduled Court Appearance: None Scheduled

UNITED STATES’ PRAECIPE REGARDING RECENT AUSTRALIAN TRIBUNAL JUDGMENT SUBMITTED IN SUPPORT OF:

(1) THE SPECIAL MASTER’S CRIME-FRAUD RECOMMENDATION IN REPORT AND RECOMMENDATION #155; AND

(2) THE UNITED STATES’ OBJECTIONS TO REPORT AND RECOMMENDATION #172

The United States respectfully submits this Praecipe to alert the Court to the May 30, 2006 decision of the Dust Diseases Tribunal of New South Wales, (Re Mowbray) Brambles Australia Ltd. v. British American Tobacco Australia Services Ltd. [2006] NSWDDT 15 (attached as Ex. 1). After receiving evidence that included the trial testimony of Frederick Gulson in United States v. Philip Morris USA, the Tribunal found, inter alia, that: (1) “BATAS in 1985 drafted or adopted the Document Retention Policy for purpose of a fraud within the meaning of s125 of the Evidence Act”; “the terms of the policy appear to be so contrived that BATAS may secure legal sanction for the stated policy, while nevertheless selectively destroying prejudicial documents”; and (3) that communications made by BATAS to its lawyers seeking legal advice concerning destruction of documents pursuant to the Document Retention Policy

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were “communications in furtherance of the commission of a fraud within the meaning of s125.” (Re Mowbray) (Ex. 1) at ¶ 56, 57.

The United States requests that the Court consider the decision of the Tribunal in support of the Special Master’s Crime-Fraud Recommendation in Report and Recommendation #155 concerning the Foyle Memorandum and in support of the United States’ Objections to the Special Master’s recommendations on the five categories of documents considered by the Special Master in R&R #172 and identified by the Court in Order #880 (on which the Court deferred judgment as to BATAS’s claims of privilege).

Respectfully submitted,

PETER D. KEISLER

Assistant Attorney General

_____________/s/_______________________

STEPHEN D. BRODY (D.C. Bar No. 459263)

Acting Director, Tobacco Litigation Team

Civil Division, Torts Branch

United States Department of Justice

Post Office Box 14524

Washington, D.C. 20044-4524

Telephone: (202) 616-4185

May 31, 2006 Attorneys for Plaintiff United States of America

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Kessler Order 880 on BATAS Docs, Feb. 23, 2005

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

PHILIP MORRIS USA INC.,

f/k/a PHILIP MORRIS INC., et al.,

Defendants.

Civil Action No. v. : 99-2496 (GK)

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ORDER #880

Before the Court is Report and Recommendation #172 (”R&R #172″) of the Special Master, addressing the United States’ Second Motion to Compel the Production of Documents Withheld by British American Tobacco Australia Services Limited (”BATAS”) on Grounds of Privilege or Other Protection. Upon consideration of R&R #172, the United States’ Partial Objection thereto, BATAS’s partial objection thereto, and the United States’ and BATAS’s respective oppositions to and replies in support thereof, and the entire record herein, and for the reasons stated below, the Court adopts in part R&R #172.

In Report and Recommendation #155, the Special Master recommended that the Court find that BATCo had waived any privilege over the Foyle Memorandum and, in the alternative, that the crimefraud exception to the attorney-client privilege applied to BATCo. See R&R #155, at 45. In R&R #172, the Special Master recommended

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that the Court uphold BATAS’ assertions of privilege over the Foyle Memorandum and other documents addressing BAT document retention policies and reject application of the crime-fraud exception to BATAS, based on the same facts presented in R&R #155. In Order #879, the parties have been ordered to submit supplementary briefing on the crime-fraud exception. Because that briefing may be helpful to the Court in deciding the issues raised here, the Court will defer ruling as to those five categories of challenged documents in R&R #172 relating to document retention policies.1 As to all other documents addressed in R&R #172, the Court adopts the Special Master’s recommendations.2 To that end, it is hereby:

—–

1 The five categories are:

(a) CDs 61, 211 (July 1990 letter from Allen Allen & Hemsley to Frederick Gulson containing legal advice on document retention issues);

(b) CDs 62, 172, 192 (March 29, 1990 letter of advice from Clayton Utz to Frederick Gulson);

(c) CDs 176, 177, 179, 199 (May 16, 1990 letter from Frederick Gulson to Allen Allen & Hemsley requesting legal advice on document retention issues);

(d) CDs 178, 189, 190, 191, 200, 201 (March 23, 1990 letter from Frederick Gulson to Clayton Utz requesting legal advice on record management issues and attaching the Foyle Memorandum); and

(e) Cd 63 (undated memorandum of legal advice prepared by Clayton Utz).

2 In its Partial Objection to R&R #172, the Government does not object to any of the Special Master’s findings as to privilege. Rather, the Government objects only to the Special Master’s recommendation that the crime-fraud exception not apply to BATAS.

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ORDERED that the parties submit within five (5) days a joint proposed order for R&R #172 in accordance with the rulings herein.

February 23, 2005

__/s/_____________________________

Gladys Kessler

United States District Court Judge

Copies served upon: Counsel of record by ECF

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Dust Diseases Tribunal Ruling on BATAS Documents, May 30, 2006

Dust Diseases Tribunal of New South Wales

CITATION: (Re Mowbray) Brambles Australia Ltd v British American Tobacco Australia Services Ltd [2006) NSWDDT 15

PARTIES: Brambles Australia Ltd (formerly known as Brambles Holdings Ltd)

British American Tobacco Australia Services Ltd

MATTER NUMBER(S): 176/2001/1

JUDGMENT OF. Curtis J at 1

CATCHWORDS: Dust Diseases Tribunal :- Orders for further Discovery

Uniform Civil Procedure Rules 2005

LEGISLATION CITED: Law Reform (Miscellaneous Provisions) Act 1946, s5(l)(c)

Trade Practices Act 1974, s75AE

Supreme Court Rules, Prt 23 r3

Evidence Act 1995, ss 75, 118, 119, 125

CASES CITED: Attorney-General for Northern Territory (1985) 1.8 CLR 500;

Telstra v Australis Media Holdings (1997) 41 NSWLR 346;

Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49;

Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 222;

Kang v Kwan [2001] NSWSC 698;

ATH Transport v JAS (International) [2002] NSWSC 956;

United States of America v Philip Morris USA Inc;

Bray v F Hoffman-La Roche Ltd [2002] FCA 243;

Commissioner of Federal Police v Propend (1996-1997) 188 CLR 501;

Reg v Bell;

Ex parte Lees (1980) 146 CLR 141;

McCabe v British American Tobacco Services Australia Ltd [20021 VSC 73;

British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524

DATES OF HEARING: 20&21/04/2006; 15,16,17 & 24/05/2006

DATE OF JUDGMENT DELIVERY: 30/05/2006

LEGAL

REPRESENTATIVES:

FOR APPLICANT ON THE MOTION: Mr D L Williams SC and Mr G J Parker and Mr I L Griscti instructed by Ebsworth &Ebsworth

FOR RESPONDENT TO THE MOTION: Mr J E Middleton QC with Mr M F Wheelahan SC and Mr A T Broadfoot instructed by Corrs Chambers Westgarth

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Dust Diseases Tribunal of New South Wales

Matter Number DDT 176 of 2001/1

(Re: Mowbray)

Brambles Australia Ltd (formerly known as Brambles Holdings Ltd)

(Cross Claimant)

V

British American Tobacco Australia Services Ltd +

(Cross Defendant)

30 May 2006

CURTIS J

RULING (No 8).

1. This ruling addresses a motion by Brambles Australia Ltd (Brambles) that British American Tobacco Australia Services Ltd (BATAS) make further discovery of documents relevant to the proceedings.

Background

2 The late Alan Mowbray, a motor mechanic, contracted lung cancer in 2001 and died on 23 January 2002. His wife sued Brambles, his former employer, in negligence, asserting that the cancer was caused by asbestos fibres contained in the brake pads upon which he worked in this employment. On 27 February 2002 Brambles consented to the entry of judgment in favour of Mrs Mowbray in the sum of $200,000.

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3. Brambles, asserting that Mr Mowbray’s cancer was also caused by cigarettes manufactured by BATAS, which he smoked between 1946 and 2000, seek from BATAS contribution to the judgment, and/or compensation pursuant to either sS(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 or s7SAE of the Trade Practices Act 1974.

The Need for the Discovery

Brambles in its cross-claim relevantly pleads (and I summarise) that:

(a) Nicotine is addictive;

(b) Mr Mowbray was, by smoking BATAS products, addicted to nicotine;

(c) BATAS, by reason of health and medical studies in the public domain, its own researches and investigations, and researches and investigations available to it from related corporate entities, at all relevant times knew that its products were addictive and otherwise physically harmful;

(d) BATAS concealed its own research and investigations as to these matters;

(e) BATAS, incompatibly with its own knowledge, made public statements that denied• or called into question, evidence that tobacco smoke was addictive or harmful;

(f) Because BATAS knew of, and could modulate, the pharmacologically addictive effect of nicotine in its products, and

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failed to minimise that effect, Mr Mowbray’s addiction constituted physical harm intentionally inflicted upon him by BATAS.

5. It is apparent from such pleading that Brambles have assumed the burden of proving certain actual knowledge on the part of BATAS as to the health risks of smoking so as to contrast that knowledge against the manufacturing and marketing activities, and the public utterances of BATAS.

6. In Brambles’ assertion, much of the material evidencing knowledge on the part of BATAS is to be found, not in the public domain, but, rather, exclusively in the, records of BATAS. Further, proof that BATAS had actual knowledge of information in the public domain may consist of evidence that copies of the relevant scientific material are, or once were, to be found within the records of BATAS.

Discovery to Date

7. On 7 November 2002 the Tribunal made orders pursuant to Part 23 r3 of the Supreme Court Rules that BATAS discover documents in these proceedings. Although the order did not so specify, it is common ground that the order required discovery of every document relevant to the facts asserted by Brambles in its pleadings. The task of discovery was mammoth and discovery proceeded thereafter by discovery of successive tranches of documents.

Existing documents

On 29 March 2005 Mr Peter Holborow, the company secretary of BATAS, swore the affidavit required by Supreme Court Rules

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Pt23 r3(5)(b) that, having made reasonable inquiries, he believed that, with the exception of an identified class of documents whose relevance had not yet been determined, there were no nonprivileged documents relevant to the proceedings which were then in the possession, custody or power of BATAS other than those listed in the annexure to his affidavit.

Privileged documents

9. On 15 April 2005 Mr Holborow swore a similar affidavit to the effect that, other than documents described generically in the list annexed to his affidavit (and some documents whose relevance had not yet been determined), there were no privileged documents relevant to the proceedings which were then in the possession custody or power of BATAS. The annexed list described the privileged documents with no more particularity than as communications or documents passing between Wills [a former name of BATAS and its lawyers in respect of eight identified litigated matters, and otherwise communications or documents passing between Wills, four named firms of solicitors, “counsel”, and Wills’ internal lawyers for the dominant purpose of Wills obtaining legal advice in relation to “Anticipated Litigation” or “Legal Advice” generally.

Lost or destroyed documents

10. On 29 April 2005 Mr Holborow swore a further affidavit to the effect’ that, excepting documents whose relevance had not yet been determined, there were no documents other than those identified in the list annexed which once were, but were no longer, in the possession custody or power of BATAS. The

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annexed list did not distinguish between documents which were lost and those s had been destroyed.

11. Mr Holborow later swore supplementary affidavits, which appropriately categorised the documents the relevance of which had not earlier been determined.

A Pleading Amendment by Brambles

12. On 17 May 2006 in the course of this hearing, Brambles by leave amended its cross-claim, so as to allege that BATAS pursuant to so-called “Document Retention Policies” (again in summary):

(a) Intentionally destroyed prejudicial documents, both scientific and internal, relevant to its knowledge of issues in these proceedings with the purpose of placing those documents beyond the reach of litigants and to avoid having to give discovery or inspection of them;

(b) Placed prejudicial documents in the hands of third parties and beyond the power of BATAS upon the understanding that such documents may be retrieved by BATAS by the grace and favour of the third party, again with the same purpose (described colloquially as warehousing).

(c) Placed prejudicial documents in the hands of lawyers under cover of spurious requests for legal advice so as to permit a claim for privilege, again with the same purpose (privileging).

(d) Falsely asserted an innocent housekeeping explanation for destruction of prejudicial documents so as to prevent adverse inferences from arising in relation to that destruction.

13. These allegations are not new. They were the subject of evidence given in McCabe v British American Tobacco Australia Services Ltd [2002] VSC 73, and reviewed by the Victorian Court of Appeal in British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524: They were the subject of statements served by Brambles upon BATAS and tendered in support of the present application.

The Utility of Further Discovery

14. If the allegations now pleaded are made out at trial, the present extent of discovery will not have assisted Brambles in:

(a) Identifying those documents wilfully destroyed rather than lost, so that the extent of any adverse inference may be informed by the content of a document where that content may be otherwise established.

(b) Identifying those documents presently included within the present generic list of documents in respect of which a claim for privilege is made, so that the claim for privilege over a particular scientific document may be challenged, and the document admitted into evidence to prove that the mind of BATAS had been informed by its content.

(c) Identifying the existence and content of documents, lost to the present corporate memory of BATAS, but provided by BATAS to third parties who have agreed to grant access to BATAS on a grace and favour basis. That is, the warehoused documents.

(d) Gaining access to, and tendering in evidence, documents which evince what is said to be the true nature of the “Document

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Retention Policies” in support of a submission that strong adverse inferences may be drawn from the intentional destruction of prejudicial documents.

15. In support of its entitlement to further orders, Brambles relies first, on the rules, and secondly, upon evidence in support of further orders not otherwise provided for by the rules. This evidence relates to events occurring during operation of the BATAS Document Management Policy as it existed between 1985 and 1992, and to further events occurring during operation of a different BATAS Document Management Policy instituted in 1993.

Relief available pursuant to the Rules

16. Rule 6 of the Dust Diseases Tribunal Rules provides that Part 23 of the Supreme Court Rules 1970 as it was before the promulgation of the Uniform Civil Procedure Rules 2005 regulates orders for discovery in the Tribunal. Relevantly, Part 23 r3(6) provides that the list of documents shall:

(b) include a brief description by reference to nature and date (or period) of each document or documents, and in the case of a group, the number of documents in that group,

(d) identify any document or documents which is claimed to be privileged…

17. Brambles assert that the list of privileged documents discovered by BATAS does not comply with this rule because of its lack of particularity. It may be accepted that where there are large number of documents a judgment as to what is a convenient

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description and enumeration must take into account practicalities and the costs of discovery (Ritchiets Supreme Court Procedure 2512). It may also be accepted that descriptions of groups of documents in terms which are extremely general inhibit the ability of the opposing party to assess and challenge the claim for privilege.

18. However, any conclusion as to whether the content of a list sufficiently complies with the rule must depend upon various factors including the extent to which, in the interests of justice between the parties, the nature of the issues in dispute override the practical difficulties and cost of more detailed identification of documents. To that extent the whole of the evidence called in this application is relevant to a determination as to whether, in the circumstances of the case, the present list of discovered documents constitutes sufficient compliance with Pt .3 r3(6).

Events occurring during the operation of the BATAS Document Management Policy 1985-1992

Evidence of Frederick Gulson

19. Mr Gulson was the Company Secretary and in-house solicitor to BATAS between October 1989 and November or December 1990 when the company was known as W.D. & H.O. Wills Australia Ltd. He has given evidence before me and two written statements by him have been tendered. The first of those comprises a transcript of evidence he gave in the matter of United States of America v Phillip Morris USA Inc. I set out extracts from that evidence (emphasis added):

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(Page 9) Q: What was the Document Retention Policy?

A: It was the official title for what was more commonly known as the “Document Destruction Policy “. The Policy was a program to ensure that all sensitive documents, all documents that if made public or discovered in litigation could potentially damage Wills, or Wills’ affiliate companies in the BAT group, were sanitised,

Q: What do you mean by sanitised?

A: Destroyed or otherwise made undiscoverable.

Q: What was the purpose of the Document Retention Policy?

Answer: The purpose of the Document Retention Policy was twofold, to protect the litigation position of Wills, and to. protect the litigation positions of other BAT Group companies, especially our US affiliate Brown and Williamson, by ensuring that potentially damaging documents would not be discovered from Australia.

(Page 12) Q: Who implemented the Document Retention Policy?

A: The Legal Department had responsibility for implementing the Document Retention Policy. As the only counsel in the Legal Department it was my responsibility.

Q: Was this unusual?

A: Yes, very. In every other organisation that I had been a part of document retention issues had been the responsibility of the audit or accounting departments, if there was any discrete document retention policy at all.

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While I found it unusual, it was consistent with the purpose of Wills Document Retention Policy, since it was actually a document destruction policy. While it was important that the Document Retention Policy appear to be a rote housekeeping measure, of the kind that would normally be run by an audit or accounting department, the purpose of the Document Retention Policy was to protect Wills and the BAT Group from litigation by ensuring that potentially damaging documents were destroyed. In that respect, it made sense that the Legal Department would need to be in charge of Document Retention.

(Page 16) Q: What did the written Document Retention Policy say?

A: I don’t recall the specific language of the Policy. The written document’s primary purpose was to provide cover for the actual document destruction enterprise, to ascribe an innocent housekeeping justification for the widespread destruction of sensitive documents. The Document Retention Policy wasn’t simply the written policy itself, but the corporate knowledge of how the Policy was to be applied apart from the written language. My recollection of the Document Retention Policy comes not from the written document, but how it was explained to me by Nick Cannar {later identified by Mr Gulson as senior counsel for BATCo, the parent company], Andrew Foyle, Brian Wilson, a partner at Clayton Utz, and others, rather than from the document itself since the written document was incomplete in terms of describing the actual workings and purpose of the Document Retention Policy.

Q: What do you mean by incomplete?

A: The Document Retention Policy, as written, required widespread destruction of documents, including the elimination of all scientific reports after a certain time period, but only at certain specified- time periods and without regard to whether a document

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was helpful or harmful. The Document Retention Policy itself - and by that I mean the actual BATCo, BAT Industries, Wills Document Retention Policy, not the piece of paper - was specifically designed to destroy potentially dangerous documents - documents that could be used against the BAT Group in litigation. Because of the possibility that the written Document Retention Policy itself could be discovered, it wasn’t written that way.

(Page 18) Q: Other than the destruction of documents, are you aware of any other aspect of the Document Retention Policy?

A: Yes. Another important component of the Policy was routing of documents through lawyers for the purpose of “privileging” the documents, that some documents should include a notation to the effect of “for the purpose of legal advice” and be routed through a lawyer, so that a document which would not otherwise attract privilege would now attract privilege.

(Page 19) A: The Document Retention Policy was a contrivance designed to eliminate potentially damaging documents while claiming an innocent “housekeeping” intent. While I was uncertain about whether the ruse was legal or not, I knew that it was a ruse and that made me uncomfortable. The! policy didn’t pass the smell test. The whole purpose was to keep evidence out of the courts.

Q. At the time you started working at Wills did you discuss the implementation of the Document Retention Policy with anyone?

A. Yes. It was part of the initial discussion about the Document Retention Policy that I had with Nick Cannar and Andrew Foyle. When I first started, I was told by Nick Cannar that the Document Retention Policy had been implemented by the law firm of Clayton Utz, and

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that all documents at Wills that were potentially damaging to the BAT Group had been destroyed or otherwise put beyond the reach of discovery.

(page 20) Q Why did you come to question the effectiveness of the implementation’ of the Document Retention Policy when you visited Wills Scientific Research Group?

A During the course of this visit, I examined some of the documents in the [scientific] library. What I saw alarmed me, because it was immediately apparent that the Document Retention Policy had not been fully implemented despite assurances to the contrary.

Q How was it apparent?

A. The research facility at Pagewood was where many of the, scientific research reports prepared by our overseas affiliates, including BATCo and Brown and Williamson, as well as our own reports, were kept. Just taking a quick look at the documents, I became fairly certain that these documents included the kind of sensitive smoking and health documents that were supposed to have been destroyed under the policy, so it was clear to me that the policy had not been completely adhered to.

Q. What do you mean by sensitive?

A. That the documents would be damaging to the BAT Group V they ever had to be produced by Wills in smoking and health litigation, or they became public.

Q. How did you know that they were sensitive?

A. I recall that even just reading the titles and skimming the documents, that the subject matter related to the sorts of topics that Nick had said had been taken care

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of. While I’m not a scientist, it seemed pretty clear that these documents shouldn’t have survived the implementation of the Document Retention Policy.

Q. Do you recall what subjects these documents addressed?

A. I don’t remember the specific documents, but they covered a broad range of smoking and health topics including addictiveness of smoking, the relationship between smoking and disease, the use of nicotine technology, among others.

20. In an affidavit of 14 February 2003 Mr Gulson said in paragraph 21 that “it was obvious to everyone in the know what the strategy was. That is, its purpose was to get rid of all the sensitive documents, but do, so under the guise of an innocent housekeeping arrangement and to ensure that all relevant documents that were not destroyed or removed from the jurisdiction were properly privileged. In all cases the purposes (sic) was to ensure that the documents were not discoverable “.

21. BATAS submit that the evidence of Mr Gulson contained within these two documents is inadmissible because, as he concedes, he did not himself destroy any document and his evidence relies upon the hearsay statements of others. I reject this submission. S75 of the Evidence Act 1995 provides:

75 Exception: interlocutory proceedings

In an interlocutory proceeding, the hearsay rule does not apply to evidence if the party who adduces it also adduces evidence of its source.

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22. Mr (Gulson names and identifies the sources of his information as to the Document Management Policy. He has been subjected to cross-examination on his evidence. BATAS has had the opportunity to investigate his claims and call evidence in rebuttal. Further, the hearsay exception created by s75 applies not only to first hand, but to more remote hearsay. The safeguard against unreliability is the discretion reserved by s135 to refuse to admit the evidence if its probative value is substantially outweighed by unfair prejudice (Bray v F Hoffman-La Roche Ltd [2002] FCA 243 at [117] per Merkel J). For reasons apparent in succeeding paragraphs I am not of the view that I should exercise this discretion so as to exclude the evidence.

Excluded evidence of Mr Gulson, s125 of the Evidence Act, and Waiver

23. I had earlier ruled that certain passages in Mr Gulson’s statements be excluded, from the tender as prima-facie the subject of lawyer/client privilege protected by s118 and s119 of the Evidence Act 1995. Brambles now submit that those passages may nevertheless be introduced into evidence by virtue of s125 of the Evidence Act which is in these terms:

125 Loss of client legal privilege: misconduct

(1) This Division does not prevent the adducing of evidence of:

(a) a communication made or the contents of a document prepared by a client or lawyer (or both), or a party who is not represented in. the proceeding by a lawyer, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty, or

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(b) a communication or the contents of a document that the client or lawyer (or both), or the party, knew or ought reasonably to have known was made or prepared in furtherance of a deliberate abuse of a power.

(2) For the purposes of this section, if the commission of the fraud, offence or act, or the abuse of power, is a fact in issue and there are reasonable grounds for finding that:

(a) the fraud, offence or act, or the abuse of power, was committed, and

(b) a communication was made or document prepared in furtherance of the commission of the fraud, offence or act or the abuse of power,

the court may find that the communication was so made or the document so prepared.

(3) In this section:

“power” means a power conferred by or under an Australian law.

24. Mr Middleton, senior counsel for BATAS, has submitted that I ought not yet determine the admissibility of the privileged portions of Mr Gulson’s evidence, nor make findings upon the evidence pressed by Brambles in support of the claim for a s125 exemption to the operation of s118 and s119. This is because further claims for privilege will arise in relation to additional discovery required by Brambles’ pleading amendment. Mr Middleton is however unable to concede that the relief claimed by Brambles is available pursuant to the rules, and I have formed the view that, if he is right on this, findings on the excluded portions

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of Mr Gulson’s evidence are necessary to the further orders for discovery now proposed by Brambles.

25. A preliminary point is taken by BATAS as to the interpretation of the word “fraud” in this provision. As the Australian Law Reform Commission has pointed out (report 38 paragraph 198) certain passages in the judgment of the High Court in Attorney General for Northern Territory v Kearney (1985) 158 CLR 500, may be read as extending the common law crime/fraud privilege exception to communications made, not dishonestly, but for the purpose of preventing another from exercising his rights under the law. After reviewing the authorities, Gibbs J, at page 514, said:

These statements of the principle, and the reason on which it is based, suggest that the exception is not confined to cases of crime and fraud, even in the wide sense in which ‘fraud” has been used in this context, unless the meaning of that word is extended to include anything that might be described as a fraud on justice …. The leading authority for present purposes is the decision of this court in Reg. v Bell; Ex parte Lees. In that case, after an order had been made giving custody of a child to a husband, the wife disappeared taking a child with her. Later she instructed a solicitor to take steps to protect her interest in the matrimonial home, and gave him her address, asking that it be kept secret. It was held that her communication to her solicitor was not privileged. Stephen J said… “One thing is clear. It is that privilege for an address cannot be claimed when its confidentiality was sought, as here, in order to frustrate the processes of law”. Wilson J (with whom Aickin J agreed) said that “it would be odd if the privilege extended to protect communications which were directed against the public interest” …. I considered that the case came within another exception, which might possibly be regarded as an extension of the rule which excludes privilege in the case of crime or

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fraud, but which I inclined to think rested upon an independent foundation. I added “the privilege, which arises only because the public interest requires it, does not exist when it is seen that it would be contrary to a higher public interest to give effect to it”.

26. In Cowell the Supreme Court of Victoria said that in some cases, of which they gave examples, ‘It surely cannot be the case that the prospective defendant, learning that litigation was about to be commenced against it, could simply destroy all relevant records bearing upon the principal issue, for the purpose only of defeating the claim when brought against it”. {145].

27. In the light of this authority, a question remains as to whether the provisions of s125, enacted after the judgment in Kearney, are restricted to communications in aid of crime, fraud, breach of contract or tort which involve dishonesty. BATAS submit that any wider test, which calls in aid public policy and impugns conduct not strictly dishonest, but which conduct inhibits another from exercising his rights under the law, would involve vagueness and imprecision as to the quality of the conduct called into question. It argues that such a test should not be adopted because it would inhibit frank communications between lawyers and clients, which, in the public interest, constitutes the rationale for the grant of privilege.

28. The issue is not here without significance. If Mr Gulson is to be accepted, the intentional destruction of documents by BATAS has inhibited the ability of Brambles to exercise its rights pursuant to the discovery process to gain access to documents which informed the mind of BATAS. That destruction was not fraudulent or dishonest if it was unconcealed and professedly

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conducted for the purpose of forensic advantage. Whether such destruction is contrary to the demands of public policy, and if so, whether communications made for the purpose fall within the operation of s125, is another matter.

29. For present purposes I accept the submission by BATAS that, consistently with the decisions in Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 222, Kang v Kwan [2001] NSWSC 698 and ATH Transport v JAS (international) [2002] NSWSC 956, a finding of fraud sufflcient to enliven s125 must involve an element of dishonesty.

30. Nevertheless there may still be room for the operation of a public interest test to defeat a claim for privilege in respect of a communication in furtherance of a purpose designed to frustrate the processes of law. The common law operates independently of the Evidence Act and is not abrogated or modified to accord with the statutory test: Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 at [18]-[28]. I find it unnecessary to determine this question because of the views I have taken on the evidence before me. I accept for present purposes that s125 is to govern the admissibility of the otherwise privileged material, and that a finding of fraud sufficient to enliven s125 must involve an element of dishonesty.

31. In determining the nature of the dishonesty sufficient to trigger the operation of s125 I am guided by the statement by Santow J in Kong v Kwan at [11] that “The range of instances of fraud are not limited to legal fraud in the narrow sense, but [include] as is said in Cross on Evidence by JD Heyden (Butterworths, 1996) at 25,

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148: “all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances”.

32. The question must then be posed; What is the allegation of fraud with which we are presently concerned? It is here legitimate to consider the further evidence of Mr Gulson over which the claim for privilege was upheld.

33. In this evidence Mr Gulson says that when Mr Andrew Foyle, a London solicitor retained by BAT Group, met with him in Sydney in early 1990 to discuss smoking and health litigation and the Document Retention Policy, he expressed his concerns about the Policy and requested Mr Foyle’s advice. In response, Mr Foyle wrote a memorandum which included these passages:

The wording of the 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.

Aspects of the implementation of the policy might support that inference, for example the immediate destruction of the unpublished enclosures to [scientific studies and research notes].

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.

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34. Mr Gulson, in accordance with a suggestion of Mr Foyle, requested advice from Clayton Utz, solicitors, in these terms:

(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.

(3) Should changes be made to the way in which the policy is currently being applied, for example in relation to [certain scientfic documents]?

35. It may be assumed that Clayton Utz were provided with a copy of the written document retention policy. Mr Holborow in his affidavit of 29 April 2005 says that on or about 30 December 1985 Wills’ document policy was reviewed. He also says. that it is likely that between 1985 and 1992 Wills’ policy was in accordance with a document annexed to his affidavit entitled “Amatil Ltd. Policy on Document Retention/Destruction” (Amatil is a former name of BATAS).

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36. This Policy, evidenced by a copy bearing date 29 September 1986, is a model of brevity. It is entitled “Policy On Document Retention/Destruction’. It creates three categories of documents; “statutory “, “contractual documents”, and “valuable business documents”. It instructs staff responsible for ensuring compliance with statutes to comply with those statutes. It states that contractual documents are to be retained for the duration of the contract and for six years thereafter and 12 years thereafter in the case of a deed. The requirements in relation to “valuable business documents” are as follows:

Valuable business documents should be retained only after the document has been carefully reviewed to establish that it is truly valuable, in the sense that the business cannot do without it. Documents should not be retained merely because they might be useful. As a rule of thumb, general correspondence should not be retained for longer than two years. Before destroying files, individual departments should consider, in consultation with a solicitor where necessary, whether the area covered by its contents is prone to disputes or whether the papers might be relevant to any threatened or pending proceedings so as to justify a longer period of retention.

37. What is remarkable about this document is that it replaced in two pages the previous Document Management Policy, which operated from the 1950s to 1985, and which established, in 45 pages of detailed instruction, 14 categories of documents with various mandatory retention and destruction periods within each category. It was in 1992 replaced in turn by a Records Management Program which again contained detailed schedules for retention and destruction of documents.

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38. The 1985 policy established, with the exception of contractual documents, no schedule for retention or destruction of documents. It merely suggested that as a rule of thumb general correspondence should not be retained for longer than two years and that “valuable” business documents should be retained. It suggested that decisions be made in consultation with a solicitor because documents may be relevant to disputes or threatened or pending legal proceedings “so as to justify a longer period of retention” (Emphasis added).

39. This is obviously the Document Retention Policy which troubled Mr Gulson, and which caused him to seek legal advice because of the manner in which the Policy was being implemented by BATAS. I think that Mr Foyle was correct in his assumption that the wording of the policy “might lead to the inference that the real purpose of the policy was to destroy sensitive smoking and health documents” and that “aspects of implementation of the policy might support that inference”.

40. The terms of this “Policy on Document Retention/Destruction” illustrate the problems created for Brambles if BATAS were to have maintained a covert policy of selective destruction of prejudicial documents. ‘What is “necessary material”? What is “a valuable business document”? The words do not reveal, nor do they deny, that, pursuant to the policy, documents may be chosen for, destruction solely because they may assist an opponent in anticipated litigation.

41. Mr Gulson said that Clayton Utz replied to his inquiries in words to the effect that “as long as we could argue that the documents

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being destroyed under the Document Retention Policy were not being destroyed due to litigation concerns, then it was legal”. A sufficiently available construction of this evidence is that the advice was no more than the to effect that “if the documents were being destroyed under a genuine Document Retention Policy and not due to litigation concerns the procedure is not unlawful and no particularly adverse inference arises”.

42. Thereafter a meeting was held between Mr Gulson, Mr Cannar, and two solicitors from Clayton Utz. One of those solicitors kept notes of this meeting. The notes record the following advice: “Keep all research docs which became part of the 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 “. These notes accord with Mr Gulson’s recollection of what was said at the meeting and what he was told as to the practices of document destruction at BATAS.

43. Because of his continuing reservations as to the Document Retention Policy, Mr Gulson sought further advice from Allen Allen and Hemsley solicitors. He says that these solicitors made some recommendations but generally approved of the terms of the Policy. I take this to mean that Allen Allen and Hemsley also advised that if documents were destroyed, not selectively, but pursuant to a genuine Document Retention Policy, that destruction was not contrary to law and limited adverse inferences may be drawn.

44. The sting in Mr Gulson’s evidence is not simply that BATAS destroyed prejudicial documents for the purpose of suppressing

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evidence in anticipated litigation. Whether such destruction is contrary to public policy may be, as I indicated earlier, a moot point. The substance of the complaint by Brambles, and that which, on the present evidence before me, may trigger the operation ‘of s125 of the Evidence Act, is that BATAS dishonestly concealed this purpose by pretence of a rational nonselective housekeeping policy pursuant to which individual documents were not selected for destruction because they may be prejudicial to the company in its defence of any legal proceedings.

45. I should make it plain that BATAS has at all times maintained that its document management policies and practices at no time permitted selective destruction of prejudicial documents. The assertion by Brambles to the contrary remains a live issue for the trial.

46. The Victorian Court of Appeal said in Cowell at [168] that “When the court is asked to draw adverse inferences, two important factors to be weighed are intent and content: intent of the offending party and content of the evidence”. If a party randomly destroyed a prejudicial document pursuant to an innocent corporate policy of ordered destruction of records, the highest inference that may possibly be drawn is that the document did not assist its case. A more adverse inference may be drawn if the document is selectively destroyed for the very purpose of ensuring that it is not put into evidence in anticipated litigation.

47. It may be that a party is entitled to destroy documents solely because those documents! assist an opposing party in anticipated litigation. I do not here decide that question. However, to adopt

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that course and, by sham and contrivance, intentionally conceal the fact from the opposing party for the purpose of avoiding a greater adverse inference than might otherwise be available, would not only be unfair, it would be dishonest.

48. I accept that to a large extent the evidence of Mr Gulson is vague and consists of his impressions, interpretations and conclusions as to what he was told. I also accept that the standard of proof required when dishonesty is alleged must take into account the importance of the evidence to the proceedings and the gravity of the matters alleged.

49. The evidence of Mr Gulson is vitally important to Brambles in the present application.. Without that evidence it can establish no ground for discretionary relief in a case which will rely extensively upon the discovery process.

50. An interlocutory finding that, upon the only evidence presented, BATAS has selectively destroyed documents for the purpose, of avoiding discovery does not necessarily impugn the conduct or the advice of its solicitors. Upon a view of similar evidence taken by the Victorian Court of Appeal those solicitors merely told BATAS that destruction of prejudicial documents was not contrary to law if it was effected pursuant to a legitimate Document Management Policy. Further, there is no legal impediment to solicitors receiving documents forwarded to them by clients with purported requests for legal advice. If no copy of the document exists because of a dishonest purpose on the part of the client, no privilege attaches to the document in the hands of the solicitors (Commissioner of Federal Police V Propend (l996

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1997) 188 CLR 501 per McHugh J at 546 and Gummow J at 570). As I have attempted to make clear, the relevant dishonesty alleged is that of BATAS, not that of its legal advisers.

51. Attacks were made on the credit of Mr Gulson in cross-examination. He conceded that at one time, by artificial or sham transactions, he took control of a company of which he was a shareholder in order to sue a former director and, controller of the company for breach of fiduciary duty owed to the company. Without these transactions he and other shareholders had no standing to sue in relation to losses suffered directly by the company and indirectly by themselves. The suit was successful and the company recovered damages. He also conceded that after his separation from BATAS he caused his solicitors to write to BATAS claiming that he had been wrongfully dismissed and seeking damages. He did not pursue that claim. I do not accept the submission by BATAS that these matters tend to make it unsafe and unsatisfactory to accept the evidence of Mr Gulson.

52. Mr Gulson’s evidence stands uncontradicted. He has not yet been tested by a contrary version of events. Mr Middleton QC for BATAS in cross-examination of Mr Gulson did not directly put to him that his evidence was untruthful, unreliable, or actuated by malice. Nor did he suggest that the persons named by Mr Gulson did not explain to him the actual workings and purpose of the Document Retention Policy. In particular he did not suggest to Mr Gulson that Nick Carmar, who he identified as “senior counsel at BATCo “, did not say to him that “all documents at Wills that were potentially damaging to the BAT Group had been destroyed or ‘otherwise put beyond the reach of discovery” (page 20) or that

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Mr Cannar did not tell him that “there were instructions under the Policy that some documents should include a notation to the effect of ‘for the purpose of legal advice” and be routed through a lawyer, so that a document which would not otherwise attract privilege would now attract privilege”.

53. There may be good reasons why BATAS has not yet joined issue with, and called evidence to contradict, Mr Gulson, however I must determine the proceedings now before me on the evidence now before me.

54. Mr Gulson said that he personally attended upon the scientific library of BATAS at Pagewood for the purpose of checking whether the Document Retention Policy had been there implemented and there came across what he described as “sensitive smoking and health documents that were supposed to have been destroyed under the policy”. He further said that after he told Mr Cannar of the circumstance “At Nick Cannars’ direction Lovells sent a team of three lawyers to Australia for the express purpose of going to the Scientific Research Group library at Pagewood to ensure the implementation of the Document Retention Policy . . . ”

55. Mr Gulson also says that he personally introduced the lawyers to the staff at Pagewood. This is direct evidence which has not been challenged or contradicted. In the absence. of evidence from BATAS, I find it difficult to understand how it was thought necessary that three English lawyers attend a scientific library to implement a Document Retention Policy which only permitted destruction of documents which were not “valuable business

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documents”. If BATAS was not selectively destroying scientific documents prejudicial to its position in future litigation, how is it that lawyers rather than scientists were assigned to judge the value of research material? This may be explained at the trial, however the evidence of Mr Gulson gives rise to an obvious inference that has not yet been rebutted by BATAS.

Findings of fact relevant to s125

56. I am persuaded on the present state of the evidence that BATAS in 1985 drafted or adopted the Document Retention Policy for the purpose of a fraud within the meaning of s125 of the Evidence Act. Those passages of Mr Gulson’s evidence in respect of which privilege is claimed refer to communications made in respect of legal advice upon that Policy. The terms of the policy would appear to be so contrived that BATAS may secure legal sanction for the stated policy, while nevertheless selectively destroying prejudicial documents. Those terms permitted BATAS to determine that which was a “valuable business document” entirely without scrutiny or chance that it may be later held accountable to some objective measure contained within the policy. A claimant in subsequent litigation could not compare the identity or content of documents destroyed against the text of the Document Retention Policy to prove that the documents were not destroyed pursuant to. the dictates of that policy. Such proof could raise an inference that the destruction of documents was selective and in aid of a forensic advantage, rather than an orderly administration of a policy instituted for the legitimate purpose of records management.

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57. In the absence of evidence to the contrary, I infer that legal advice to the effect that destruction of documents pursuant to the terms of the policy was not contrary to law, was integral to the decision by BATAS to persist with its policy of selective destruction. That advice gave BATAS the confidence that, in the event that the terms of policy were revealed, those terms would give a potential litigant no cause for legal complaint, nor clue as to the manner in which the policy had been implemented. I find that the communications made for the purpose of obtaining that advice were communications in furtherance of the commission of a fraud within the meaning of s125.

58. In this circumstance it is unnecessary to decide whether BATAS has waived its privilege in relation to the evidence of Mr Gulson.

John St Vincent Welch

59. John St Vincent Welch was the Chief Executive Officer of the Tobacco Institute of Australia between January 1991 and April 1992. His written direct examination in the matter of United States of America v Philip Morris USA Inc is an exhibit to the affidavit of Mr Vorbach sworn 21 March 2006

60. The Tobacco Institute of Australia was the creature of the four Australian tobacco companies, Wills, Phillip Morris, Rothmans and RJ Reynolds. The member companies funded the Institute and the Chief Executives of the. four companies met approximately once a month to discuss industry issues and decide policy. Every Institute policy came directly from the member companies.

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When Mr Welch took up his appointment he was shown a written document which constituted the Institute’s Document Retention Policy. In his examination the following exchanges occurred:

(page 7,)Q: What was the policy?

A: The Document Retention Policy was two-fold, First, when we were in receipt of documents that were potentially damaging to the industry and/or the member companies once they’d been read they were to be destroyed. Second, where there were. documents that were favourable to the industry’s position, and not potentially damaging once having been read, to retain them.

(page 10) Q: How did you or other members of the Tobacco Institute of Australia determine what documents should or should not be destroyed? A: Certain decisions were easy to make and routine. Some documents from the member companies would explicitly say “read and destroy”, so those would simply be shredded after reading. All drafts of correspondence and documents were destroyed Other decisions, such as determining which. documents were potentially harmful, to the industry, were more difficult In those instances one would consult with the government and public affairs officers of the member companies or others such as Clayton Utz and Stephen Klotz. There also would be occasions where I would get instructions from a member company to determine whether the Tobacco Institute of Australia possessed a certain document, and if so, to destroy it.

Q: What was the primary factor in determining whether or not a specific document should be destroyed?

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A: Whether the document would be damaging in litigation positions, legislative positions, or public affairs positions.

(page 1]) Q: Was there any formal procedure for discussing whether a document was sensitive and therefore should be destroyed?

A: Generally, there would simply be informal discussion of a document with the appropriate individual. However, sometimes whether a document should or shouldn’t be destroyed would be put on the agenda for meetings with the member companies, then raised at meetings, where the potential danger of the document would be discussed and a decision made on whether or not the document should be destroyed. At the conclusion of the meeting, the agenda that mentioned the document would also be destroyed.

Q: Were there any classes of documents that were destroyed more often than others under the Document Retention Policy?

A: All drafts of documents were destroyed under the Policy. Any document specifically marked ‘read and destroy” would be destroyed under the Policy. Otherwise, the largest clasp of documents destroyed under the policy were scientific documents considered potentially harmful to the member companies.

(page 12) Q: Were there scientific documents that were destroyed public documents, available outside of the member companies, or private documents, that wouldn’t have otherwise been available to those outside the member companies?

A: Both.

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Q: Why would there be concern that a public document could be potentially dangerous if others outside the member companies already had it?

A: Some of the public documents had sensitive notations or handwritten notes on them that were considered potentially dangerous, and therefore required their destruction. In addition it was considered imprudent to be in possession of potentially dangerous documents.

Q: Do you recall whether any of the documents that you received from the member companies came from the overseas affiliate or parent companies?

A: Yes. Most of the scientific documents came from the member companies overseas affiliate or parent companies. At the time the issues in Australia were so sensitive the industry in Australia and overseas cooperated and worked very closely.

62. Mr Welch gave direct evidence of document destruction. He said that there were two shredders in the office and that documents were destroyed “on a daily basis”.

63. This evidence of Mr Welch has not yet been challenged. He was not required for cross-examination. The sole objection to evidence was on the ground of relevance. I believe it to be relevant. The evidence is in general terms corroborative of the evidence of Mr Gulson. Membership of the Tobacco Institute of Australia and. active participation in its affairs in the circumstances described by Mr Welch, was incompatible with the maintenance by BATAS of an independent and non-selective document retention policy.

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64. The submission by BATAS that Mr Welch in oral evidence in United States of America v Philip Morris USA Inc conceded that the members of the Tobacco Institute of Australia only sent to the Institute information and research in the public domain, such as published articles and PhD theses, is not to the point. An inference arises on this evidence that by destruction of material in the public domain, (reserving the practical question of the extent to which a PhD thesis is public), the members of the Tobacco Institute of Australia sought to conceal the fact that the minds of its members were informed by that material.

Dr Jeffrey Wigand

65. Dr Jeffrey Wigand was Vice President of Research and Development at Brown and Williamson, the subsidiary of BATCo in America, between 1989 and 1993. His written direct examination in the matter of United States of America v Philip Morris USA Inc is an exhibit to the affidavit of Mr Vorbach of 21 March 2006.

66. Dr Wigand described the sharing of research, and the cost of that research, at a Research Centre at Southampton, England, among the various BAT Group companies including Wills, and Brown and Williamson. He said that after a meeting in New York City in January 1990 BATCo lawyers revised the cost sharing agreement. He said this:

Q: Why was the cost sharing agreement revised?

A: The meeting in New York City in January 1990 grew out of a concern related to the discoverability of scientific documents in the United States. At the

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meeting in New York, the lawyers, predominantly. Nick Cannar of BATCo and Kendrick Wells of Brown and Williamson, discussed how the cost sharing agreement could be used to protect scientific documents from production in U S litigation. Cannar stated that he did not want controversial documents created by BATCo or other companies within the BAT Group produced in American litigation. So, Cannar and Wells agreed that the cost sharing agreement would be revised to specifically state that BATCo owned the documents that it created and that it could demand them back at any time. So, for example, the thought was that if lawsuits in the United States were seeking documents created by the Fundamental Research Centre, then BATCo could demand all copies of the documents back from the United States and Brown and Williamson would be saved from having to produce them in litigation.

67. Dr Wigand said that “Group-wide policies were set by BAT Industries, and each operating component within the BAT Group was expected to follow the policy”. He also said that he was told by Nick Cannar that before the minutes of scientific meetings could be circulated, they would be reviewed by the lawyers and, if necessary, those lawyers would remove contentious information and that it was a common practice within Brown and Williamson for him to be asked to return documents without copying them so that they could be destroyed.

68. I believe the evidence of Mr Wigand to be relevant. That evidence is inconsistent with BATAS, as a subsidiary of BATCo, maintaining an independent and innocent document retention policy administered non-selectively. It is corroborative of the evidence of Mr Gulson that the Document Retention Policy of BATAS was created by BAT Industries and distributed to its subsidiaries including BATAS for consistent implementation. It

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is also corroborative of Mr Gulson’s assertion that it was Nick Cannar of BATCo who explained to him the operation of the document retention policy.

Findings of fact relevant to the operation. of the BATAS Document Management Policy 19851992

69. I find that on the evidence of Mr Gulson, Mr Welch, and Dr Wigand presented on this application, Brambles has sufficiently discharged an onus of demonstrating, prima facie, that it can make good the allegations pleaded in the amended statement of claim summarised in paragraph 11 above. In that circumstance the list of discovered documents in respect of which a claim for privilege is made is not sufficiently particular to comply with the provisions of Pt 23 r3(6). If I am wrong in that, the circumstance of the case justify orders pursuant to Pt2 r1 of the Uniform Civil Procedure Rules 2005 for the further conduct of proceedings.

Events occurring during the operation of the BATAS Document Management Policy after 1992

Evidence of Mr Harrison

Mr Harrison, who became the Records Manager of Wills in early 1992, gave evidence in McCabe. His evidence appears in the judgment in that matter, which is tendered in these proceedings. This evidence is admissible pursuant to s75 of the Evidence Act 1995. Mr Harrison there said that the purpose and intent of the Wills Record Management Policy in operation from that time was consistent with an extract from a booklet produced to him which read as follows:

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Purpose of Records Retention Program. It should be emphasised that the intention 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.

Mr Holborow

71. Before swearing his affidavits of discovery Mr Holborow informed himself from enquiries made to record managers within BATAS. He was told that after 1992 a written Document Management Policy identified persons responsible for particular groups of records, and set out in schedules various periods during which nominated groups of documents were to be retained. “It might be two years it might be five years, it might be seven years, might be held indefinitely. In accordance with those times the workgroup manager is meant to go and get rid of the documents.”

72. Mr Holborow said that as a result of his inquiries he believed that scientific documents were destroyed only by series and age in accordance with such a schedule. (Transcript 261266, 268, 271)

73. On 26 October 1990 a Third Party Notice issued against Wills in the matter of Gallagher. A hold order was then put in place by the company to prevent the destruction of documents. This hold order remained in place until March/April 1998 when proceedings in the subsequent matter of Cremona were discontinued. A new

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hold order was imposed on the 12 April 1999 when fresh proceedings were instituted in Durkin. It is common ground that almost all of the documents discovered in Cremona were destroyed between April 1998 and April 1999.

74. Mr Holborow gave evidence that when the Cremona hold order was lifted, Mr Nick Cannar, then legal counsel to BATAS, said “we can lift the hold order so therefore we go back to retention the normal retention schedules and therefore it is back to normal business process” (transcript page 265).

75. As to what happened to scientific reports discovered in Cremona after the hold order was lifted, Mr Holborow gave this evidence: (page 272)

Q. So are you able to say whether in fact in relation to scientific. documents documents that are [destroyed] only if pursuant to a series?

A. I would believe that to be the case but I mean in general most of the scientific reports and things they have they kept because they kept. them as a valuable business document and it would only be space where they would destroy them.

Q. For reasons of space?

A Yes.

Q. I am just a bit confused. I thought you said that all of the documents in the Cremona list were imaged?

A. Yes, they were.

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Q So if they were destroyed it was not for reasons of space?

A. The images were destroyed as I’ve sworn to here in that same paragraph 45. The balance of Cremona including the CD with images were destroyed

Q. That could not have been for reasons of space.

A. No

76. At page 274 of the transcript this further evidence is recorded;

Q. If they were destroyed it was pursuant to a policy?

A. To the retention schedules, your Honour, yes.

Q. The retention schedule would have been available to those persons charged with their destruction?

A. Destruction, yes. As I said before there were certain reports or certain things that the scientists called a valuable business document which they would have retained indefinitely and they certainly would have been discovered.

Q. But otherwise the persons charged with their destruction were following a written policy?

A. Correct.

Q. Is that the policy you cannot find?

A. The policy we have, the backing schedules I can’t find.

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Q. So that the persons charged with destruction of the documents would have had that at the time but they do not have it now?

A. Yes, that’s certainly I haven’t found-.

Q Have those schedules themselves been destroyed?

A. I don’t know, they’re certainly lost.

. . .

Q You mentioned articles or reports of a valuable scientific nature, I may not have your words quite correct But was it your understanding that such documents were retained indefinitely?

A. Yes, barring space capacity type thing, so they kept a number of l don’t know journal type reports and if the filing cabinet filled up then they’d look to make spaces.

Q. You say, do you, that the document retention policy required the valuable scientific reports going back for many years to be kept.

A. Again I don’t know, I’m relying on what I’ve been told and the scientists would call it a valuable business document, certainly not be, and I don’t know whether it was or not, but that’s what they would keep, and it would be retained in the library.

77. Mr Holborow, in his affidavit of 29 April 2005, said that BATAS Document Management Policy which commenced in 1993 or 1994 is the document behind Tab I in the annexures to his affidavit. That document is entitled “Wills Records

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Management Program-Staff Handbook”. (Wills is a former name of BATAS) The Handbook commences by posing and answering questions such as “What are records? “, “What is records management?” and “Why is it important to Wills? “.

78. In answer to the question: “What are the program policies?” the text sets out a series of generalities including the statements that records are to be destroyed within three years unless a specific reason is identified for longer retention, and that records identified in an “Approved Retention Schedule” as having long or permanent retention periods should be stored in the most appropriate and cost effective way.

79. Contained within a section entitled “Glossary Of Terms” is the following entry: “Records Management Manual’ and this description:

A book containing all the Policies and Procedures for a Company Records Management Program, together with copies of the General Schedule (q.v). It is arranged in Sections (one for each work group) which are numbered (as shown on the Control List (q.v.)), with the pages within each Section numbered sequentially.

Another entry in the glossary of terms, “Archives”, states that

“In the Program the term Archives is used to mean those records that are effectively kept forever because of their administrative, organisational, historical or informational value, not, as it is sometimes used, to mean stored records”

A further entry, “Records Disposal” contains this text:

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“Normally refers to the process by which, those records identified or the Retention Schedules (q.v) are destroyed after they have reached the end of their “lifespan”. The Retention Schedules will indicate) where appropriate) the methods of destruction for confidential records. Disposal can also refer to the process of ensuring that those records identified as Permanent (q. v.) And those with long retention periods are “disposed of’ to storage, either for a finite time or on a permanent basis.”

80. It is apparent that this annexure does not constitute the whole of the “Policy of Document Retention/Destruction”. The “Records Management Manual” is obviously a discrete document which identifies particular work groups and contains the relevant document retention schedules. The annexure contains no further description or information as to the content of documents described as “Archives” nor does it contain the document described as the “Approved Retention Schedule”.

81. BATAS now accepts that, in light of the amendments to the statement of claim, the previous orders for discovery oblige it to discover documents which relate to the Document Management Policy instituted in 1992. In that circumstance I think it unnecessary to make interlocutory findings based upon the evidence of Mr Holborow when the events of which he speaks will be central to an important issue at the trial.

What orders are appropriate?

Privileged documents

82. The substance of the first complaint by Brambles in relation to the present list of privileged documents is that it cannot from that

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document identify scientific documents which may have informed of mind of BATAS and which are now subject to a claim for privilege. A sufficient remedy is an order which limits further discovery to scientific documents. I do not believe that BATAS should be put to the trouble and expense of identifying legal. advices or correspondence in respect of which privilege is claimed with any more particularity than is revealed in the current list.

83. Mr Holborrow said in evidence that BATAS holds various lists which would permit more particular discovery of some documents in respect of which privilege is claimed. I do not know the extent to which these lists will obviate the clerical burden of giving further discovery. If further discovery cannot be completed within time limited by the order, BATAS may approach the Tribunal with evidence of practical difficulties and request an extension.

84. A further complaint by Brambles is that BATAS has not specifically discovered the pleadings and lists of documents filed in the matters of Gallagher, Stelzer, Hodgson, Durkin, Nixon, McCabe and Wright. Where Brambles may legitimately compare the lists of documents discovered and the issues in those cases with the present case, I believe further order is warranted.

Lost or destroyed documents

85. In the course o, submissions Mr Middleton usefully made this concession: For the purposes of this proceeding only, the cross defendant admits that, in the absence of any evidence to the contrary at trial, the Tribunal is entitled to infer that any

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document described by the cross defendant in its list of documents as being lost or destroyed, has been destroyed.

86. This concession permits the Tribunal, in respect of any document on BATAS’ discovered list, to draw any such inference as may be available against BATAS had it listed that document as “destroyed”. There is now no utility in further order that BATAS separately list documents as “lost” or “destroyed”

Existing documents

87. Brambles, through its own researches, has identified documents which, it asserts, were very probably once in possession, custody or power of BATAS. The documents are not mentioned at all in the discovered lists of BATAS. Brambles desires an order that BATAS specifically discover these documents. When part of Brambles’ case is that BATAS has intentionally destroyed enormous quantities of documents, and kept no record, or an inadequate record, of that destruction, I think further order is pointless. Brambles will no doubt suggest possible inferences to be drawn from facts proved at the trial.

Documents in the possession, custody or power of companies within the BAT Group of companies

88. It is apparent from the evidence that companies within the BAT Group shared scientific material. Mr Holborow has not yet extended his inquiries to documents controlled by other entities within the group. I believe an order in terms sought by Brambles is appropriate in the circumstances.

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Generally

89. In order that it may arm itself to challenge any further claims for privilege, Brambles seeks an order that BATAS file and serve an affidavit- of a responsible officer identifying the “anticipated litigation” set out in the privilege lists of Discovered Documents. In the unique circumstances of this case I believe that such an order is appropriate.

Orders

90. I make the following orders:

(I) The Cross Defendant on or before 14 June 2006 file and serve a Supplementary List of Documents:

(a) Identifying by title, date and author any original or copy reports, papers, articles, research notes or other records of a scientific nature in respect of which a claim for privilege is made;

(b) Describing by nature and date any document or group of documents referring to any of the documents described in (a) above;

(c) Specifying any provision of Part 3.10 of the Evidence Act under which the privilege is claimed to arise;

(d) Containing a solicitors certificate;

(e) Containing an affidavit complying with Part 23 of the Supreme Court Rules.

(2) The Cross Defendant on or before 14 June 2006 file and serve a verified List of Documents identifying any document in respect of which a claim for privilege is made which is the original or a

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copy of any document listed on Part 2 of the Lists of Documents filed by the Cross Defendant filed on 2 May 2005 and 7 April 2006.

(3) The Cross Defendant on or before 14 June 2006 file and serve a Supplementary List (or Lists) of Documents complying with Part 23 of the Rules:

(a) Discovering documents relevant to the issues raised by paragraphs 25A - 25L of the Fifth Amended Cross Claim.

(b) Discovering the documents being the pleadings and lists of documents filed and/or served in the proceedings identified in the Cross Defendants’ Lists of Documents filed on 15 April 2005 as Gallagher, Cremona, Jakob Stelzer, Hodgson, Frieda Stelzer, Durkin, Nixon, McCabe and Nash, and in the List of Documents dated 6 April 2006 as Gallagher, Hodson, Wright, McCabe and Durkin.

(c) Otherwise complying with the Rules.

(4) The Cross Defendant make such requests and do such things as may be reasonably necessary to obtain from companies within the BAT Group and the Tobacco Institute of Australia:

(a) Any document relevant to any issue in these proceedings which was but no longer is within the possession, custody or power of the Cross Defendant;

(b) Any document relating to nicotine bearing date or brought into existence prior to 1964;

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(c) Any document relating to both smoking and lung cancer bearing date or brought into existence prior to 1964.

(5) The Cross Defendant on or before 14 June 2006 discover copies of all communications with companies within the BAT Group of companies and the Tobacco Institute of Australia relating to Order (4).

(6) The Cross Defendant on or before 14 June 2006 file and serve an Affidavit by an officer of the Defendant having knowledge of the facts so far as they are known to the Cross Defendant setting out in detail all steps taken by the Cross Defendant to comply with Order (4).

(7) The Cross Defendant file and serve on or before 14 June 2006 an Affidavit of an officer of the Cross Defendant having knowledge of the facts so far as they are known to the Cross Defendant identifying the “anticipated litigation” set out in the privileged Lists of Discovered Documents.

91. I will hear the parties on costs.

Mr D L Williams SC with Mr G J Parker and Mr I L Griscti instructed by Ebsworth and Ebsworth appeared for Brambles Australia Ltd, Applicant on the Motion

Mr J E Middleton QC with Mr M F Wheelahan SC and Mr A T Broadfoot instructed by Cons Chambers Westgarth appeared for British American Tobacco Australia Services Limited, Respondent to the Motion

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