Australia: AWB: Scope Of The ‘Fraud Exception’ To Legal Professional Privilege

Last Updated: 15 November 2006
Article by Paul Wenk and Emily Peverill


In the recent case of AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234 (AWB case), among other things, Justice Young considered the scope of the ‘fraud exception’ to legal professional privilege.

Justice Young held that 10 documents over which the Australian Wheat Board (AWB) claimed legal professional privilege were not privileged as a consequence of the fraud exception.

Justice Young’s reasoning confirms that the fraud exception to legal professional privilege encompasses fraud, criminal activity and actions taken for illegal or improper purposes, and also extends to ‘trickery’ and ‘shams’.

The AWB case serves to clarify the scope of the fraud exception to legal professional privilege, and may have the effect of broadening the application of the fraud exception.The case further illustrates the need for lawyers (including in-house lawyers) to be vigilant about the circumstances in which privilege is sought to be utilised.


Legal professional privilege protects confidential communications between a lawyer and client. It is widely accepted that communications between a lawyer and a client which facilitate a crime or fraud are not protected by legal professional privilege. This principle is commonly known as the fraud exception to legal professional privilege.

The AWB case makes it clear that the fraud exception ‘encompasses a wide species of fraud, criminal activity or actions taken for illegal or improper purposes and extends to ‘trickery’ and ‘shams’.1 The fraud exception is based on public policy grounds. Accordingly, it is sufficiently flexible to capture a range of situations where the protection of confidential communications between a lawyer and client are not in the public interest. Communications will not be privileged where there is prima facie evidence of dishonesty or an improper purpose.

In the AWB case, Justice Young found that 10 documents over which the AWB claimed privilege were not privileged, as they were brought into existence in furtherance of a dishonest purpose—namely the inflation of prices in two contracts for wheat to extract money from the United Nations’ escrow account. Their aim was to utilise that money to pay the Grain Board of Iraq (GBI) via the mechanism of inland transportation fees. In finding that the documents were not privileged, Justice Young stated that the transaction was ‘deliberately and dishonestly structured … to work a trickery on the United Nations … and contrary to public policy’.2


The AWB case arose from notices to produce documents under section 2(3A) of the Royal Commissions Act 1902 (Cth). The AWB sought declarations that approximately 900 documents were protected from production to the commission by legal professional privilege.

The documents span a period of years from about 2002 to 2006. Over that period the AWB was involved in a number of investigations concerning its sales of wheat to Iraq under the United Nations’ Oil-For-Food Programme. The AWB conducted two internal investigations and was exposed to a number of external investigations during that time.

The AWB’s internal investigations included a review of matters concerning The Tigris Corporation Limited (Tigris). Among other things, it was contended that AWB and Tigris entered into a transaction whereby the AWB agreed to inflate the prices in two contracts for supply of wheat to GBI.

It was contended that the inflation was a means of extracting funds from the United Nations’ escrow account so as to repay a debt of approximately US$8 million which GBI owed to Tigris and to provide the AWB with the funds (approximately US$2 million) to make a payment to GBI (through a related transportation company: Alia), in relation to allegedy contaminated wheat previously sold to GBI under the Oil-For-Food Programme (the iron filings claim).

The AWB agreed to pay GBI in settlement of the iron filings claim in about October 2002. Ultimately, the payments were never carried into effect because the invasion of Iraq intervened.


General principles

It is widely accepted that communications between a lawyer and a client which facilitate a crime or fraud are not protected by legal professional privilege. While the principle is commonly referred to as the fraud exception to legal professional privilege, Justice Young considered that ‘this does not capture its full reach’.3 Rather, ‘the principle encompasses a wide species of fraud, criminal activity or actions taken for illegal or improper purposes’ and extends to ‘"trickery" and "shams"’.4 In a legal context, a ‘sham’ refers to a series of actions which ‘take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences’.5

Justice Young emphasised that the fraud exception is based on public policy grounds. Accordingly, the exception is flexible enough to capture a range of situations where the protection of confidential communications between a lawyer and a client would be contrary to the public interest.

The public policy basis of the fraud exception was discussed in the High Court case of Kearney.6 The High Court held that legal professional privilege did not attach to legal advice obtained by the Northern Territory Government for the purpose of defeating a claim for native title.

In the UK case of Barclays Bank,7 Lord Justice Schiemann stated that ‘[p]ublic policy does not require the communications of those who misapprehend the law to be privileged in circumstances where no privilege attaches to those who correctly understand the situation.’8

Justice Young discussed the test for determining when the fraud exception to legal professional privilege will apply.

According to Justice Young, for the fraud exception to apply there must be more than ‘a mere assertion or allegation of fraud or impropriety’.9 In considering whether the fraud exception applies, it is not necessary for the court to be satisfied of the relevant impropriety ‘beyond reasonable doubt’ or even ‘on the balance of probabilities’.

His Honour relied on the statements of Chief Justice Brennan in Propend.10 In that case, Chief Justice Brennan stated that for the fraud exception to apply it was necessary to have reasonable grounds for believing that the relevant communication was for an improper purpose.

Chief Justice Brennan also approved the test formulated in O’ Rourke v Darbishire,11 namely that ‘there must be something to give colour to the charge’; ‘the statement must be made in clear and definite terms; and there must be some prima facie evidence that it has some foundation in fact’.

This formulation is commonly known as the ‘prima facie’ test. Justice Young submitted that the ‘prima facie’ test reflects the fact that issues of legal professional privilege are usually dealt with at an interlocutory stage. According to Justice Young, it must also be established, on the same prima facie basis, that a communication which is the subject of a claim for privilege was made in furtherance of, or as a step preparatory to, the commission of the fraud or wrongdoing.

Application in the AWB case

Justice Young’s consideration of the fraud exception to legal professional privilege arose in the context of the iron filings claim12 as discussed above.

Of the 900 documents over which the AWB claimed privilege, 10 documents related to the settlement of the iron filings claim. In the opinion of Justice Young, these 10 documents were brought into existence in furtherance of an improper and dishonest purpose, being the inflation of prices of wheat in two contracts so as to extract money from the United Nations’ escrow account and utilise this money to satisfy the iron filings claim.

In concluding that the 10 documents did not attract privilege, Justice Young found that the transaction was ‘deliberately and dishonestly structured by the AWB so as to misrepresent the true nature and purpose of the trucking fees and to work a trickery on the United Nations’.13 Justice Young considered that ‘[i]t would be contrary to public policy for the privilege to enure in communications of this kind’.14

In the view of Justice Young, the fact that the rebate payments were never actually made to GBI, by virtue of the invasion of Iraq, was immaterial. His Honour considered that the application of the fraud exception will not be prevented so long as there is sufficient evidence that the communications were in furtherance of, or preparatory to, the commission of fraud or impropriety.


1. AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234 at [211].

2. Ibid at [229].

3. Ibid at [210].

4. Ibid at [211].

5. Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471. Justice Young cited Australian Securities & Investment Commission v Mercorella (No 3) [2006] FCA 772 as an example of the denial of legal professional privilege to documents created in furtherance of a sham transaction. In that case, creditors of a managed investment scheme claimed privilege over documents relating to securities obtained from the defendant and certain companies in the scheme. The transactions were allegedly entered into to advance the interests of those creditors over and above the interests of other creditors in the scheme. Mansfield J held that the communications were in furtherance of a sham, and accordingly not privileged.

6. Attorney-General (NT) v Kearney (1985) 158 CLR 500.

7. Barclays Bank plc v Eustice [1995] 4 All ER 511.

8. Ibid at 524.

9. AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234 at [217].

10. Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501.

11. [1920] AC 581.

12. Justice Young separately dealt with issues concerning waiver of privilege in relation to the balance of the 900 documents. In total privilege was found to have been waived in respect of approximately 335 documents (or part thereof).

13. AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234 at [229].

14. Ibid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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