A paper-shredding scandal likened to a local Enron has rocked Australia’s legal community

Australian firm Clayton Utz is at the heart of the scandal, but Mallesons Stephen Jacques and Lovells are also implicated.
While the similarities to Enron extend only to the use of an industrial shredder and unrelenting press attention, the case is a disaster for Clayton Utz and a blow to the reputations of the Mallesons and Lovells lawyers involved. Mallesons and Clayton Utz deny any wrongdoing and Lovells refused to comment on the matter.
On 11 April, a Melbourne court awarded Rolah Ann McCabe A$750,000 (£280,000) against British American Tobacco (Bat) as compensation for her smoking-related illness.
Bat defended the claim, but Judge Eames struck out the company’s defence on the basis that, with the assistance of its lawyers, BAT had subverted the course of justice by destroying relevant documents. Clayton Utz and BAT have said that they will appeal the decision.
The case has led to calls from the Australian Medical Association for Clayton Utz to be dropped from medical insurers’ panels.
Judge Eames said that BAT had destroyed thousands of incriminating documents and covered its tracks by asserting innocent motives. Other documents were warehoused offshore with third parties. Much of the shredding came after BAT settled an earlier personal injury case with tobacco litigant Phyllis Cremona.
BAT had discovered thousands of documents to Cremona’s lawyers, but when the case settled in 1998 the company used a document management policy first instituted in 1992 to get rid of evidence. When law firm Slater & Gordon issued proceedings for McCabe in 2001 it asked for discovery, but was given only a fraction of the documents made available in the Cremona case.
Judge Eames found that the use of the document management system was a deliberate tactic to hide information on BAT’s awareness of the health risks of smoking and a number of other issues. Destroyed documents included 15 child smoking studies. The judge said: “As early as 1985, the defendant anticipated what its Australian solicitors, Clayton Utz, said would be a ‘wave of litigation’.”
Judge Eames condemned the role of BAT’s lawyers. “From the outset, the vital importance of documents in any litigation, and the danger of discovery of documents posed for the defendant, were fully appreciated by senior employees and officers of the defendant, and by its lawyers,” he said. “Clayton Utz, as the defendant’s solicitors, took steps to devise a legal strategy, and did so with the very close assistance of lawyers from the United Kingdom [Lovells] and the USA [Shook Hardy & Bacon] who had performed a similar advisory role for tobacco companies in those countries.”
The chief executive officer of Deacons’ Australian partnership said of the case: “I personally think it’s a blow to the legal profession, and that doesn’t make me happy whatever the rights and wrongs of the matter were.” He also said that “the perception of the legal profession is diminished”.
Lovells partner John Foyle and Mallesons partner Robyn Chalmers were singled out by the judge for criticism over their respective roles in formulating BAT’s document management strategy.
However, Clayton Utz, as BAT’s primary legal adviser in Australia, has been hit the hardest. The firm is under investigation by the Aust-ralian Competition and Consumer Commission for “misleading, deceptive and unconscionable conduct”. It may also face investigation by the Law Institute of Victoria.
Although many clients have stuck by Clayton Utz, there has been a backlash from the medical community. The Australian Medical Association has called on Australia’s third-largest medical indemnity insurer, the Medical Defence Association, to drop Clayton Utz as its main legal adviser.