In Moody Kiddell & Partners Pty Ltd v Arkell  FCA 1066 Jagot J summarised the principles which apply to the striking out of pleadings where relevant evidence is deliberately destroyed to avoid discovery. At  her Honour set out the relevant principles which include the following (fn 1):
- Non-compliance with an order for discovery enlivens the power to strike out the pleadings of a party.
- The power to deny a person the right to rely on their pleading, in whole or part, is exceptional and to be exercised sparingly given the drastic nature of the remedy.
- The power exists not to punish the party in default but to ensure the proper administration of justice, in particular to ensure the capacity for a fair trial to be held.
- The power exists whether or not the conduct of the party in default was blameworthy or delinquent, but the intention of the party in default is relevant both to a finding of abuse of process and to the drawing of inferences about the potential significance of the destroyed material to the issues in the case.
- A fair trial does not mean one that is ideal or perfect as trials may be fair even if documents are missing.
- The key consideration to the fairness of the trial in this context requires an assessment of the nature and extent of the prejudice to other parties by reason of the default.
- The question of prejudice involves an assessment of the significance of the destroyed material to the proceeding even allowing for the capacity to draw adverse inferences against the party in default.
- The remedy must be responsive and proportional to the prejudice of the non-defaulting parties. Judicial indignation at the affront to justice involved must not be given effect.
The respondent Mr Brooke was a former employee of Moody Kiddell & Partners (MKP), a brokerage service for equipment finance. MKP alleged, inter alia, that during Mr Brooke’s employment (as a broker) and for a period of 12 months afterwards he used MKP’s list of clients to entice those clients to give their business to him and another respondent Broolend Pty Ltd, a company established by Mr Brooke. MKP sued Mr Brooke and Broolend; Mr Brooke was sued for breach of his contract of employment and a confidentiality deed which included a restraint of trade.
MKP sought an order that the defence of Mr Brooke and Broolend be struck out in its entirety as an abuse of process of the Court, on the basis that Mr Brooke had deliberately destroyed documents relevant to issues in dispute and which ought to have been discovered.
The Court found that Mr Brooke had deliberately installed and used file shredding software after the commencement of proceedings and after he knew that he had discovery obligations and had been told by his solicitors not to destroy documents, for the substantial purpose of destroying material likely to be adverse to certain aspects of his defence (at ).
This finding was reinforced by evidence that Mr Brooke had carried out searches on Google asking:
- whether “Guttman 35” file shredding (which involves 35 overwrites of information) was better than Department of Defence file shredding (which only involves 8 overwrites of information);
- “what happens if you don’t comply with a court order” and “what happens if you don’t comply with a federal court order” (at ).
It was also found that Mr Brooke ran the file shredding software knowing that his computers were required for production during the two days before the required production date (at ).
There was sufficient evidence for the Court to be satisfied that whilst it was possible that MKP might be able to run particular parts of its case there was a “real and substantial risk” that it would not be able to do so by reason of Mr Brooke’s deliberate conduct which the Court inferred was intended to have that very consequence (at ).
The extent of the destruction of the documents, and their direct relevance to particular issues in dispute, pointed to a well-founded concern that Mr Brooke’s conduct had caused substantial prejudice to MKP’s capacity to a fair hearing of its claims (at ).
Accordingly the Court was satisfied that Mr Brooke’s conduct constituted an abuse of the process of the Court (at ).
However the Court was not satisfied that the destruction of the documents prejudiced MKP’s capacity to prosecute other parts of its claim:
“Given that the remedy of striking out any part of a pleading is draconian, and only to be exercised in exceptional circumstances, with the exercise to be responsive and proportionate to the prejudice to the other party, I am unable to see any basis for striking out any part of the defence other than the part to which the missing documents are directly relevant …” (at 37])
The Court observed that the drawing of inferences adverse to Mr Brooke was insufficient to ensure a fair hearing to both parties. To ensure a fair hearing the Court struck out those paragraphs of the defence to which the missing documents were directly relevant (at ).
Whilst the facts of this case are exceptional, standard discovery obligation letters and warnings to clients may be reinforced by drawing attention to the potential consequences for a claim or defence, if relevant documents are found to have been intentionally destroyed.
- Referring to Arrow Nominees Inc v Blackledge  EWCA Civ 200; British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524;  VSCA 197; Clark v State of New South Wales (2006) 66 NSWLR 640;  NSWSC 673; Clark v State of New South Wales  NSWCA 139, and Palavi v Radio 2UE Sydney Pty Ltd  NSWCA 264.