The lawyer who knew too much
The lawyer who knew too much
Shredding scandals are landing lawyers - and other professionals - in ethical quandaries worthy of a John Grisham novel.
Many years ago, when I was a fresh faced graduate, I was working through some discovered documents with a client in an important case. It was late at night, and we were the only two in the offices. It was intimidating being so junior and going through these documents with a member of the senior management of the client. I came across a document of theirs which seemed to contradict their evidence and pointed it out to them. They acknowledged that it didn't look good for their case. Their next question scared me a little. "What if I hadn't found it?" they asked.
On 2 August this year, the Australian Financial Review reported that the State Attorneys General had agreed to put in place "tough new rules" to ensure that lawyers do not help clients who want to destroy evidence. This report links the anti-shredding rules to Rolah McCabe's court case which resulted in a substantial award against a tobacco company. This case hinged on the destruction of documents and has been reported in depth in Image & Data Manager magazine over the past few issues.
The move is probably also influenced by the revelations from the US that company executives and individuals consulting to companies have destroyed documents in the face of the possibility of litigation or investigation.
In the US examples, the main problem which is being typified is the fundamental conflicts of interest that managers and consultants are exposing themselves to. Where the economy begins to overheat there is a strong incentive upon the players within the economy to make minor extensions above and beyond prudent business practice in order to keep up with the other players in the economy and to fully capitalise on the opportunities which are presented to them by the market. Over time, these minor extensions compound to such an extent that some companies become very exposed to even slight variations in market conditions. In some cases, the hyperextension is done on wildly optimistic assumptions about the continued growth of the market. Where the market stops growing, as it must do sooner or later, the house of cards that has been created over a number of years can collapse remarkably quickly. Years of incrementally moving away from prudent management decisions can come back to haunt a company with shocking rapidity. Often in these situations, the same management who lauded the stock market for valuing up their stocks (based on increasingly spurious and, in some cases, completely fantastical valuation methods), now realises what a complete bunch of jackasses they have been and feel a cold wave of fear, if not terror, about the impending (and, in hindsight, logical and necessary) consequences of their actions.
As one of these executives there are usually two avenues you can pursue in such a situation. The first is to come clean and accept the consequences, as unpalatable as they might be. The second is to try your luck once again. Several years of riding the market on its way up may have boosted your confidence. You might see it as unfair that your predecessor managed to get away with so much and you are now left holding the baby. Perhaps you are a gambler or maybe you're just plain dishonest. Heck, your company has already gone to the dogs, what have you got to lose? You try to destroy any evidence that people might rely on in prosecuting you.
The legal system requires a level of faith and trust in order for it to operate effectively. The law recognises this to some extent and encourages the involvement of independent third parties - professionals such as accountants, auditors and lawyers to play important roles in the conduct of a company and verifying the actions of the company. They allow the balance of the community to have some faith and trust in the statements of that company.
In the case of lawyers, while they are required to act in the best interests of their clients, they are also bound by overriding duties as officers of the court. This means, for example, if a lawyer knows that their client is guilty, they cannot enter a plea of "not guilty" on behalf of their client (any lawyer you see doing this on TV is acting unethically and would be liable to being struck off). If their client instructs them to do so or if their client insists on them misleading the court, the lawyer must cease to act on behalf of that client. In many cases, this is the reason lawyers cease representing their clients at short notice in the middle of proceedings. Sometimes it's because their client is not paying them but in others it is because their client is asking them to do something which is unethical. In the vast majority of cases, this is how it works. The lawyer declines to do the unethical.
Where a professional acts for a number of small clients, each of which contributes only a small part of that professional's income, it is much easier for that professional to decline those instructions, especially where what is asked of them is a clear breach of their ethical obligations. So what about the other end of the spectrum where the professional has, for a very long time, pursued a relationship with a major corporate account and that corporate account provides them with a sizeable proportion, if not with the whole, of their income? What if the request is something which is not clearly a breach of the ethical rules, but dances into the grey area at its edges?
Lawyers are already under an obligation to not take part in the destruction of documents which are relevant to a court case. Indeed, they are required to set out all of the discovery obligations to their client and, in the extreme case, they are required to cease to act for a client who wishes to submit a discovery list which they know to be incorrect. If they fail to comply with these obligations or actually participate in misleading the court, they can be found to be in contempt of court and exposed to significant fines and even to a gaol term. In practice this will result in them losing their livelihood. That is, they already have everything to lose.
The rules have, as at the time of writing, only been proposed. They have not been drafted or released so it is only possible to speculate on their effect. It is clear that such rules can add clarity to a lawyer's obligations for advice in relation to documents. However, given the strength of existing sanctions it is unclear what they will add by way of deterrence. It is also unclear why they are being restricted to lawyers. One would have thought that it would be appropriate to put these obligations on other professionals as well, if not to management in general. We can only hope that, in addition to specific anti-shredding rules targeted at lawyers, there is also some attempt to address the structural causes which are at the root of the document destruction problem.
Post script: What happened in my case? I observed that the document had in fact been found, so the question was moot. "It's an ethical thing is it?" they said. I nodded. The document was discovered and made available to the other side. It turned out to be irrelevant to the outcome of the case.