Lawyers for the grains exporter told the Federal Court yesterday its defence would include proving that the Department of Foreign Affairs and Trade knew that "transport fees" were going to the Iraqi government while United Nations sanctions were in place.

A barrister for AWB, Matthew Darke, said the 2006 inquiry into the kickbacks scandal headed by Terence Cole, QC, had concluded there was no "direct" evidence the department knew about the fees.

But Mr Cole's investigation "may have been somewhat limited because he concluded it was outside his terms of reference to consider whether any officer of the Commonwealth or the Commonwealth itself had contravened any law," Mr Darke said.

AWB disclosed some of its tactics for the $100 million damages suit yesterday during a pre-trial debate over whether a federal intelligence agency, the Office of National Assessments, was entitled to avoid producing documents to the court on national security grounds.

Justice Lindsay Foster asked if AWB would argue that "these so-called transport fees were a mask for what was in effect a bribe".

"No, because we don't accept that they were in fact a bribe," Mr Darke replied.

"We do say that the department knew they were being paid to [Jordanian transport company] Alia and knew that Alia had a close connection with the Iraqi government," he said.

The investors allege that they suffered losses when the Cole commission exposed the payments. They claim this damage would not have occurred if AWB had not concealed the nature of the payments from officials because ministerial permission for its wheat shipments to Iraq would not have been given.

Officials did know and permission "was granted anyway", Mr Darke said.

Justice Foster asked Mr Darke to speculate whether the shareholders might call "the minister" to give evidence.

Mr Darke said no outline of proposed evidence from "the minister" had been filed. Neither named the former foreign affairs minister Alexander Downer.

Lawyers for the shareholders, who were not involved in yesterday's hearing, have previously told the court they intended to call a senior foreign affairs official, Robert Bowker; a former senior Austrade official, Alistair Nicholas; Alia's general manager, Othman Al-absi; and five former AWB executives.

Justice Foster is expected to rule on whether ONA must produce the documents next week.