Case: AWB Limited v Honourable Terence Rhoderic Hudson Cole [2006] FCA 571
Outcome: discussed
argued before me, the case focused on three issues. The first issue is whether AWB has established its claim that legal professional privilege attaches to each of the documents that remain in contest. The only head of privilege that AWB relies on is the privilege that attaches to documents brought into existence for the dominant purpose of obtaining or giving legal advice. In AWB Limited v Honourable Terence Rhoderic Hudson Cole [2006] FCA 571 ( 'AWB v Cole' ), I held that litigation privilege was not available to protect documents brought into existence in contemplation of the Commission and none of the parties has disputed that decision. AWB has not contended that legal professional privilege is available solely because documents were brought into existence in contemplation of inquiries being undertaken by the PSI or by the IIC. The second issue is whether, assuming privilege attaches, that privilege has been waived by virtue of AWB's disclosure of the gist or substance of certain legal advices which it obtained. I will have to determine whether waiver should be imputed to AWB as a matter of law and, if so, what is the extent of that waiver. The Commonwealth contends that the waiver extends to all documents that relate to Project Rose and Project Water. The third issue is whether legal professional privilege attaches to documents that came into existence in connection with AWB's settlement of a claim by GBI for a rebate of approximately US$2 million on account of the fact that earlier shipments of wheat by AWB had been contaminated by iron filings ('the iron filings claim'). The Commonwealth contends that the iron filings claim is inextricably linked with the Tigris transaction, in that the prices for wheat contracts A1670 and A1680 were inflated to cover both the amount of the iron filings claim and the repayment by GBI of the debt which it owed to Tigris. It said that AWB proposed to pay the iron filings claim directly to Alia as an addition to inland transport fees, but spread over several contracts. The Commonwealth argued that the inflation of the contract prices to cover the iron filings claim was concealed from the United Nations and that it involved a contravention of the United Nations' sanctions. In these circumstances, the Commonwealth contends that AWB cannot maintain its claim to privilege over the legal advice it obtained in relation to the iron filings claim as that advice was obtained in furtherance of a fraud, wrongful conduct or sham transaction. I reviewed the relevant authorities and extracted the principles which govern legal advice privilege in my decision in AWB v Cole at [60]-[63] and [85]-[110]. I adhere to what I said in that case. I do not propose to engage in a lengthy discussion of the authorities concerning legal advice privilege in these reasons for judgment, other than to the extent necessary to address the arguments advanced by the parties. The general principles that I consider relevant to the disposition of this case can be summarised as follows: The Commonwealth contended that Project Rose and Project Water were purely factual investigations and therefore should not be regarded as attracting any legal professional privilege. In advancing this contention, the Commonwealth tended to assume that factual investigations by lawyers, such as a review of documents and interviews of persons involved in the matter under investigation, can be separated from the ultimate legal advice given by the lawyers as a result of their factual investigation. Leaving aside any question of waiver, this seems to be an unduly narrow approach to the scope of legal advice privilege. In my view, it finds no support in the authorities. In recognition of the fact that legal professional privilege is a fundamental common law right, the courts have eschewed an overly narrow or technical approach to the identification of communications or documents that fall within the scope of legal advice privilege. As I said in AWB v Cole at [127] [133], the legal advice limb of the privilege extends beyond material that is literally a communication, or a record of a communication, of legal advice or instructions. In Propend at 569, Gummow J said that the privilege extends to any document prepared by a lawyer or client from which one might infer the nature of the advice sought or given. The principle extends to internal documents or parts of documents of the client, or of the lawyer, reproducing or otherwise revealing communications which would be covered by privilege: Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1992] 2 Lloyd's Rep 540 at 540 per Saville J. In Three Rivers , the relevant legal context consisted of a commission of inquiry into the part played by the Bank of England in the collapse of the Bank of Credit and Commerce International SA. The House of Lords upheld the Bank of England's claim that legal advice privilege attached to documents that had been generated for the purposes of providing information to the Bank's legal advisers to enable them to prepare submissions and evidence, and to advise on the nature, presentation, timing and content of the Bank's responses to the inquiry. Relevant passages from the speeches in the House of Lords are extracted in my decision in AWB v Cole at [92] [96]. The Commonwealth contended that AWB had failed in its attempt to prove legal professional privilege because it had not adduced any proof as to AWB's dominant purpose in seeking or obtaining legal advice. AWB largely relied upon evidence given by in-house and external lawyers involved in the particular communications at issue. The Commonwealth submitted that evidence proving the lawyer's understanding of the purpose of the particular communication and that he or she was giving legal advice affords no evidence of the client's dominant purpose. There is no real substance in this criticism. Dominant purpose must be determined objectively, but it is not uncommon for the relevant purpose to be established by evidence given by the maker of the statement or another person responsible for commissioning the relevant document or bringing it into existence, such as a solicitor: see Mitsubishi Electric Australia Pty Ltd v Victoria WorkCover Authority [2002] VSCA 59 ; (2002) 4 VR 332 at [14] ; Grant v Downs at 677 and AWB v Cole at [110]. Toohey and Gummow JJ dissented in separate judgments. Each expressed the view that waiver should not be imputed because the disclosures by Goldberg were made to a third party for a limited and specific purpose. Toohey J said at 110 that the following factors militated strongly against any implied or imputed waiver: first, Goldberg disclosed material to the Society because of a complaint against him on an undertaking by the Society that the contents would be kept confidential; secondly, the disclosure was made in the context of the Society's investigation of a complaint in pursuance of its statutory powers and, consequently, it could be regarded as having been made for the purposes of the Act; and thirdly, the disclosure was confined to the Society. Gummow J said at 123 that, as the disclosures were made in the context of compulsory statutory processes, the circumstances of the case supplied no sufficient reason for depriving Goldberg of privilege, even allowing for the advantage he sought to gain by making the disclosure. The applicable principles are set out in my decision in AWB v Cole at [135] [139]. The authorities draw a distinction between a mere reference to the existence of legal advice, which will not usually amount to a waiver, and cases in which the gist or substance of the legal advice has been disclosed: see Maurice at 481, 488 and 493; Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd [1996] HCA 15 ; (1996) 70 ALJR 603 at 607; Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12; Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360 at 376-377; and Bennett v Chief Executive Officer of the Australian Customs Service [2004] FCAFC 237 ; (2004) 140 FCR 101 (' Bennett' ) at 104-105 [6] [9]. In Propend , the High Court considered whether a charge of improper purpose must be based on evidence that is admissible in the proceeding. The only evidence of alleged illegality before the trial judge in Propend was the sworn information which supported the issue of a search warrant for the relevant documents. The Court held that, while the sworn information was admissible to establish the basis upon which the warrant was issued, it was not admissible to show that the copy documents were not privileged: see at 514 per Brennan CJ, 557 per McHugh J, 576 per Gummow J, 547 per Gaudron J, and 593 per Kirby J. The iron filings claim refers to a claim by GBI for a rebate of US$2,016,133.00 on account of the fact that earlier shipments of wheat by AWB to GBI had been contaminated by iron filings. Lindberg agreed to pay this sum to GBI in settlement of the iron filings claim in about October 2002 during the course of a visit to Bagdad. An email dated 7 November 2002 from Chris Whitwell of AWB ('Whitwell') to Lindberg and others reporting on the trip to Iraq in October 2002 stated that the responsible Iraqi Minister had asked for repayment of the iron filings rebate through the 'inland transport mechanism'. The same email referred to the fact that the Iraqi Minister was seeking cabinet approval for repayment of the Tigris debt. At the outset of this case, the Commonwealth contended that any legal advice that AWB obtained in connection with the Tigris transaction was waived by virtue of AWB's production to the Commission of a partly masked memorandum of 7 February 2003 dealing with the subject of the iron filings payment and Tigris petroleum fee. On the first day of the hearing, AWB announced that it was no longer seeking a declaration of privilege in respect of documents connected with the Tigris transaction which the Commonwealth sought to challenge on the basis of the fraud exception. Subsequently, AWB made it clear that this concession did not extend to six documents relating to the iron filings rebate payment. During the course of the hearing in this Court, AWB produced an unmasked copy of the memorandum of 7 February 2003 and provided it to the Commonwealth. The Commonwealth tendered the memorandum as an exhibit in this proceeding, without any objection from AWB. The memorandum contains a fairly full description of the way in which AWB planned to pay the iron filings claim to GBI. The memorandum, which was sent by Whitwell to Messrs Geary and Long, with copies to Scales, Johnson, Hogan, Johnstone, Cooper, Lyons, Hockey and Thomas, states: AND CONFIDENTIAL memo is in respect to refunding the Grain Board of Iraq the quality rebate of approx USD 2,016,133 through the inland transport payments for the new contract as requested by the Minister of Trade, Iraq. In addition, for the record IS &amp; M has negotiated (through an uplift in price] the recovery of a USD 8.375 million outstanding debt to Tigris by IGB through this contract. AWB will repay this debt back to Tigris less an agreed recovery fee of USD 500 K on a pro rata basis as tonnage is shipped. Overview led by Andrew Lindberg (August 2002) to Baghdad agreed to settle the contamination of the 'Iron Filings' vessels by paying them USD 6 pmt for each vessel total = USD 2,016,133 being approached by Tigris Petroleum AWB and IGB have agreed to allow the new contract to be the conduit for a repayment of USD 8,375,000 owed to Tigris by IGB for a cargo of wheat shipped in 1996. IGB have agreed to raising the contract price by the debt amount and when payments are made under the Letter of Credit AWB will pay Tigris its debt less AWBs recovery fee. have suggested the following during our last two visits. Offsetting the debt against the Outstanding debt to 'Tigris petroleum' (approx USD 8.35 million) Reducing the any new contract price [sic] by the amount of the rebate on a pmt basis Repaying the debt through the provision of aid in some form - Wheat, Health supplies etc. in discussion with the Minister of Trade he has continually , insisted on repayment directly as an addition to the inland transport and said that this was his understanding of the agreement with Andrew Lindberg - Michael Long was present and confirms that this was discussed. Now that the new contract has been concluded ISM need a sign off to organise this payment when shipments start. Issues Possible implications for AWB on a corporate governance basis ie/ direct payment to a company with links to the Iraqi regime may be construed to be in contravention of the UN Sanctions. relevant UN Security Council Resolution is 661 (1990). This resolution provides at clause 4: States shall not make available to the Government of Iraq or to any commercial, industrial or public utility undertaking in Iraq any funds or any other financial or economic resources and shall prevent their nationals and any persons within their territories from removing from their territories or otherwise making available to that Government or to any such undertaking any such funds or resources and from remitting any other funds to persons or bodies within Iraq.... except payments exclusively for strictly medical or humanitarian purposes and, in humanitarian circumstances, foodstuffs." summary, this means that the Government of the Commonwealth of Australia would be obliged to prevent AWB Limited from making any remittance of funds to the IGB. Legal opinion in this regard is set out below. does not mean, however, that a payment might not be able to be made which will comply with the terms of the UN Resolutions. As a minimum, if AWB management determines to make the payment, then it should be made in the following circumstances: The payment is made in installments over time and coincides with payments for future shipments of wheat (ie not a lump sum payment); The payments preferably be made to a company other than the IGB and in a jurisdiction other than Iraq; and The payments be recorded as being made as a part of a settlement reached between AWB and IGB, the terms of which contemplated that IGB would agree not to take any action against AWB for the alleged contamination of the 8 vessels in 2002 with iron filings AND would agree to enter into contracts for the purchase of Australian bulk wheat in the future in exchange for a renegotiation of the price on the 8 vessels. we ensure that the above requirements are met, then Legal consider it will be at least arguable that we are not 'making funds or financial resources available to the Iraqi Government'. Instead, we are repaying part of the contract price for the 8 vessels following a re-negotiation of the sale price due to a downgrading of the grain (which potentially contained iron filings). addition to the above the UN Security Council resolutions also require (resolution 986 (1995) clause 8) that the cost of food exports to Iraq must be met by draw down from the UN "escrow account". Furthermore draw down from the escrow account is only allowable under strict conditions. Those conditions include, at clause 8(a)(iii) that the goods to which payment is referable shall have arrived in Iraq. In this case, the goods have already arrived in Iraq and HAVE been paid for in full. However, the Resolutions are SILENT on the procedure for any repayment of part of the price in circumstances where there has been a quality complaint (and a subsequent renegotiation of price). may therefore give us more scope to make the repayment to IGB. if we make payment as outlined above, there is still a risk that the Australian Government and/or the United Nations will take a contrary view on the interpretation of the above mentioned resolutions and declare that AWB has breached the terms of those resolutions by making the payment. This is a commercial and political issue, which AWB's management will need to consider. According to an informal discussion with DFAT any repayment of a quality rebate should be either re-payed through UN ESCROW account or as a contract price reduction however they have not had a full legal argument put in front of them or been told officially. In Public affairs opinion as long as the repayment is legal and could not be seen to be breaking UN Sanctions then we should proceed (with the proviso that we have an independent legal opinion to that effect - see above legal opinion). Affairs also expressed concern that this would not be well received by the UN OIP office and that there was a reasonable chance of them finding out. IS &amp; M on the other hand do not want them involved and feel confident that this issue could be handled without the need for the OIP to be consulted. It has been articulated to us and we have circumstantial evidence that other participants in the OIP program (Russian and Pakistani companies) have had to sort out quality problems in a similar way and it is unlikely either their national governments or the OIP were consulted IS &amp; M feel strongly that a failure to repay the IGB as discussed will lead to serious consequences for AWBs relationship with the IGB. IS &amp; M also believe that failure to refund this agreed debt in this way would have serious implications for the execution of the new contracts. AWBI are aware of all the issues laid out above and in light of the commercial imperative of this situation agree with the recommendation as laid out below. They do however insist that the Managing Director is appraised of the situation. Actions IS &amp; M have received a number of different opinions from different areas of AWB and an informal opinion from DFAT we still feel this issue is a grey area with no prescriptive answers. Based on the opinions we do have and the commercial circumstances surrounding this issue IS &amp; M recommend and seek approval for the following: IS &amp; M is to repay debt as per method outlined in AWBs legal opinion (and requested by the Minister of Trade) directly to Alia Transport in Jordan in instalments. IS &amp; M will also look to obtain written agreement from IGB to the payment in the format agreed by legal however it is not guaranteed. Managing Director only to convey our intentions to the Australian Government at the appropriate time prior to Shipment. The timing of such a disclosure is important and we would recommend that nothing be done until at least Letters of Credit are in place for these contracts. Given that this is unlikely to happen until after a war with Iraq it may allow us a further chance of renegotiation with a new regime. IS &amp; M to finalise as soon as possible a written agreement with Tigris with regard to the settlement of their debt.' [Original emphasis omitted]