Federal Court: August 2026

CORPORATIONS

Tort of misfeasance in public office – whether elements of the cause of action properly pleaded and particularised

In Palmer v Shipton [2026] FCAFC 90, the Federal Court has provided useful guidance on the rarely pleaded tort of misfeasance in public office.

Clive Palmer and a related party had brought proceedings alleging misfeasance in public office against James Shipton, former Chairman of the Australian Securities and Investments Commission (‘ASIC’). The failure to plead material facts capable of supporting that cause of action, after multiple bites at the cherry, led the Court to strike out that claim and refuse leave to replead. The appellate decision of Beach and Abraham JJ, and the separate judgment of McDonald J on the applicable standard of appellate review, provide a useful refresher on the tort and the ways in which pleadings can come unstuck.

Facts

In 2012, Palmer Leisure Coolum Pty Ltd (‘PLC’) announced a takeover bid for The President’s Club Limited (‘TPC’). PLC then failed to make the relevant offers. A Palmer company then complained about TPC to ASIC. ASIC investigated but took no further action.

To add injury to perceived insult, ASIC investigated the takeover bid and, in 2018, commenced criminal proceedings against PLC and Mr Palmer for contravening section 631(1) of the Corporations Act 2001 (Cth) by failing to make an offer for securities in TPC within two months after publicly proposing that takeover.

In September 2019, the Palmer parties wrote to Mr Shipton — then Chair of ASIC — complaining about alleged connections between ASIC and TPC, suggesting that a serious crime had been committed by senior ASIC employees. An ASIC officer reviewed that complaint, found no evidence to support the assertions in the letter, and notified Mr Palmer ASIC was taking no further action.

Mr Palmer and PLC then commenced proceedings alleging misfeasance in public office by Mr Shipton, in respect of the 2019 investigation and the continuation of the criminal proceedings.

At first instance

The first two attempts at pleading were deficient. ASIC applied to strike out significant parts of an amended statement of claim. In response, the Palmer parties sought leave to file a further amended statement of claim (‘FASOC’).

The trial judge found the FASOC failed to plead:

• the alleged ‘conduct’ with sufficient clarity;
• how the conduct alleged was said to be invalid, unauthorised or beyond power; and
• the material facts capable of establishing that Mr Shipton held a state of mind necessary to found the tort of misfeasance in public office.

Striking out the defective parts of the earlier pleading and finding that the fundamental defects remained unremedied in the FASOC, the trial judge refused leave to re-plead, effectively bringing the proceeding to an end. The Palmer parties then rolled the dice and appealed.

Failure to properly plead the allegation

When considering misfeasance in public office, practitioners should take the time to read Kirk JA’s excellent recent judgment in Tsakirios v State of New South Wales [2026] NSWCA 132. As neatly summarised in that case, misfeasance in public office involves a public officer purporting to exercise a public power in a way that was invalid or unauthorised, doing so maliciously, and causing harm to the plaintiff.

The joint judgment of Beach and Abraham JJ identified that this type of claim involves serious allegations concerning both conduct and state of mind that must be pleaded clearly and with specificity. Accordingly, the plaintiff must articulate, by reference to pleaded material facts, exactly what the public officer is said to have done.

The Palmer parties failed in their appeal primarily because the FASOC did not specifically plead the necessary factual or mental elements capable of establishing the tort. While the FASOC was prolix, the only objective primary facts pleaded were that Mr Shipton had received the September 2019 complaint, passed it on to be actioned, and that it had been investigated. Those facts fell ‘far short of what is required to support the scaffold of inferences propping up the Palmer parties’ cases’ (at [85]).

In practice, a sprawling pleading that Mr Shipton was involved in causing and/or supervising and/or directing others to act was insufficient, because the Palmer parties were unable to plead material facts identifying Mr Shipton’s specific role. Rather, the Court warned that this ‘ambulatory and aggregate’ form of pleading, ‘unsupported by any particularisation’, left it uncertain ‘whether the allegation was of personal participation or responsibility for others or even more generally mere oversight arising from Mr Shipton’s position as the then chairman of ASIC’ (at [93]). Such a pleading is evasive, ambiguous and fails to give fair notice of the case to be met.

As an aside, practitioners with a Queensland practice should note that ‘and/or’ is even more reviled north of the border. See St Clair v Timtalla Pty Ltd (No 2) [2010] QSC 480 where Martin SJA enumerates the deficiencies of that ‘bastard conjunction’ (at [11]–[12]) and PFJV Pty Limited v Bartter Enterprises Pty Limited [2022] QSC 110 (at [16]–[18]).

Aggregating knowledge

Misfeasance in public office is a tort of personal liability. It cannot be established by aggregating the acts and knowledge of various officers; nor can it ‘be built upon a foundation that is a composite of the conduct of a number of individual officers’ (at [83]).

Misfeasance is, moreover, an intentional tort. The gravamen of the cause of action is a knowing abuse of public power. A plaintiff must plead material facts which are capable of demonstrating either that the defendant intended to cause the plaintiff harm or that the defendant knew their conduct was beyond power and would probably cause harm or was subjectively reckless as to such invalidity and likely injury. Whichever element is pleaded, there must be specific facts pleaded to support it.

The Palmer parties did not adequately plead those elements. The pleadings contained assertions that Mr Shipton ‘must have known’ or ‘was recklessly indifferent’, and sought to infer the requisite state of mind from the fact the alleged conduct was said to be unlawful. Yet where the mental element is pleaded as a matter of inference, it is particularly important that the pleadings clearly plead the facts which support the inference. As above, the FASOC did not do so.

Discovery and information asymmetries

This illustrates one of the difficulties with successfully pleading misfeasance. Plaintiffs alleging misfeasance will often face an information asymmetry where they cannot plead facts that they do not know. Whilst any information asymmetry might excuse gaps in a statement of claim for a different cause of action such as negligence, it cannot excuse gaps in pleadings in cases for misfeasance in public office because of the serious nature of the allegations involved.

While the Palmer parties had hoped to discern a viable case for misfeasance against Mr Shipton — through discovery or other interlocutory processes — the aspiration that discovery might assist did not permit an embarrassing pleading to be maintained. Notwithstanding there were facts which might have been in the peculiar knowledge of Mr Shipton, this could not warrant an ‘impermissible fishing exercise’ (at [87]).

Appellate standards of review

The case also traversed interesting questions about the refusal of leave to re-plead and the supporting affidavit required for summary judgment under the Federal Court Rules 2011 (Cth). However, the majority judgment and separate McDonald J judgment are worth reading on the question of the applicable standard of appellate review.

Mr Palmer and PLC contended that each of the questions raised by their grounds of appeal admitted of only one correct answer, so that the ‘correctness’ standard of appellate review is applicable — i.e., the appeal should be allowed if the Full Court would reach a different conclusion from the primary judge on any of those questions, making it unnecessary to demonstrate error of the kind associated with House v The King (1936) 55 CLR 499 (‘House v The King’).

In particular, McDonald J’s short judgment applies the distinction between those two tests, as articulated by the High Court in a series of cases since 2018, to each of the grounds of review. The test of whether the legal criterion applied by the primary judge to reach the conclusion demands a unique outcome (in which case the correctness standard applies) or tolerates a range of outcomes (in which case the House v The King standard applies) is not a bright line. Whether that line is ‘tolerably clear and workable’ (per Gageler J, as his Honour then was, in Minister for Immigration and Border Protection v SZVFW [2018] HCA 30 (at [49])), at least for those not on the High Court, is up for debate in the context of particular interlocutory decisions: but McDonald J bears reading as to how the question can be evaluated.

PRIVILEGE

Legal professional privilege – third party reports – investigations into whistleblower allegations – common law principles

When an ASX-listed company discovers serious allegations of internal fraud or accounting irregularities, the immediate response usually involves a fact-finding investigation. Engaging external forensic accountants is standard practice to determine the extent of the issue. However, protecting the draft and final investigative reports from disclosure in subsequent litigation is a highly contested area of law.

The recent decision of the Federal Court of Australia in Cayzer v Phoslock Environmental Technologies Ltd (Privilege Dispute) [2026] FCA 800 illustrates the boundaries of legal professional privilege. Merely interposing external lawyers to formally instruct forensic experts will not automatically result in the resulting reports being privileged. Where an investigation serves multiple substantial purposes — such as satisfying auditors, informing market disclosures, or restructuring foreign operations — a court will examine whether the provision of legal advice was truly the dominant, prevailing or most influential purpose if privilege is in contest.

The factual background

The privilege dispute arose within the context of a class action against Phoslock, an ASX-listed company. The applicant alleged it had misled the market regarding its Chinese operations.

Phoslock engaged KPMG’s forensic division to establish the facts surrounding the allegations. This initial engagement was named ‘Project Echo’. The engagement letter outlined three phases: Phase 1 involved planning and preliminary interviews; Phase 2 involved a detailed investigation; and Phase 3 involved the provision of a report detailing findings and recommendations. Phoslock’s MD and CEO informed KPMG that the focus must be on auditing the financial accounts from China and sorting out the company’s accounts. KPMG produced a draft report for Project Echo, which was provided to the chairperson of Phoslock’s Audit Committee, further highlighting its dominant audit purpose.

The interposition of legal advisors: Project Hollow and FTI Consulting

Phoslock communicated with its external solicitors regarding the allegations. Phoslock advised KPMG that its lawyers would be engaged for any ongoing work. Consequently, KPMG advised that all subsequent work and reporting would proceed under a new engagement named ‘Project Hollow’.

The external law firm then formally engaged KPMG for Project Hollow. The engagement letter stated KPMG was to provide investigation services to the law firm in its capacity as legal advisors to Phoslock, to establish the facts so that the law firm could provide legal advice. Despite this framing, the scope of the investigation remained essentially identical to the later phases of Project Echo.

Alongside KPMG, Phoslock also engaged a company, FTI, to investigate and resolve audit and governance issues, and to preserve assets in China. Subsequently, the law firm engaged a separate team within FTI, ostensibly to provide forensic services to assist the law firm in providing privileged legal advice to Phoslock. However, internal emails showed a different operational reality. Phoslock’s CFO emailed management in China, introducing the FTI team and stating that FTI had been leveraged to ‘support the closure of the audit matters’. When a manager in China queried the scope of FTI’s audit, the CFO responded that FTI was required to conduct a full audit encompassing accounting, asset allocation, machine condition, safety assessment, and environmental footprint, to obtain a ‘thorough picture’ of the operation. No one from the law firm was copied in on these critical internal communications determining FTI’s practical scope.

The impact of market announcements

Phoslock made numerous ASX announcements at the time which related to the audit and investigation. For example, it announced the independent KPMG investigation into accounting irregularities. It later announced KPMG had identified fraudulent activity, requiring further investigations to ‘quantify the impact on the company’s finances and accounts’.

The privilege dispute and applicable legal principles

In the class action proceedings, Phoslock claimed legal professional privilege over all draft and final Project Hollow reports by KPMG, all related working documents, and all reports prepared as part of the FTI investigation. The applicant disputed these claims, arguing the documents were produced for a variety of purposes and that obtaining legal advice was not the dominant purpose.

The dispute concerned pre-trial disclosure. As such, the common law principles applied. The Court applied the established ‘dominant purpose’ test, which provides that a document attracts privilege only if it was brought into existence for the dominant purpose of giving or obtaining legal advice or the provision of legal services (Esso Australia Resources Ltd v Federal Commissioner of Taxation [1999] HCA 67 at [17]-[28], [64], [91] and [149]).

The expression ‘dominant purpose’ is used to denote the ‘ruling, prevailing or most influential purpose’ (Commissioner of Taxation (Cth) v Spotless Services Ltd [1996] HCA 34 at 416).   The relevant time at which a claim for privilege in a document is to be determined is the time when the document came into existence (Barnes v Commissioner of Taxation (Cth) [2007] FCAFC 88 at [5]). The party claiming the privilege bears the onus of establishing it (Grant v Downs [1976] HCA 63 at 689)

In the present case, the Court emphasised three consequences of this test, drawing on the Full Court’s reasoning in another recent decision, Medibank Private Ltd v McClure [2026] FCAFC 38. First, the existence of more than one purpose does not automatically defeat privilege, reflecting the reality that documents in a commercial context are often created in circumstances where more than one consideration is operating. Secondly, the mere existence of a legal purpose is insufficient as the legal purpose must predominate. Thirdly, the inquiry is objective and, while relevant, it is not enough that a party or its officers honestly say, or even honestly believe, the legal purpose was dominant.

The purpose of a corporation in procuring a document must be determined by reference to the totality of the evidence, including objective features and contemporaneous documents.

The Court noted that channelling a document through solicitors via a formal retainer does not automatically attract privilege if its predominant purpose was objectively something else. While a formal retainer expressly directed to legal advice is a strong indicator that the legal purpose predominates, the solicitor’s purpose in commissioning a report does not displace the requirement to assess the dominant purpose objectively against all circumstances.

The Court’s consideration: purpose beyond legal advice

The Court did not accept Phoslock’s privilege claims. While acknowledging the external lawyers undoubtedly provided legal advice to Phoslock and relied on the KPMG and FTI reports to do so, the Court held the legal advice purpose was not dominant.

A significant evidentiary failure on Phoslock’s part was the absence of evidence detailing the terms of the law firm’s engagement, or the nature, subject matter, and timing of the specific advice sought or given. The Court observed Phoslock left these critical matters to inference and conjecture.

Conversely, the objective evidence overwhelmingly demonstrated multiple other substantial purposes for the investigations. The ASX announcements and internal emails proved the investigations were required to report to the market and regulators, progress the audit, protect assets, deal with personnel issues, and restructure the Chinese organisation.

The Court concluded Project Hollow obviously superseded the nascent Project Echo engagement, essentially repeating work that was initially deemed necessary for non-legal audit purposes. The interposition of the law firm into this workflow did not erase these entrenched non-legal purposes. Applying the ‘irrespective’ test, the Court found that, even if legal advice had not been sought, KPMG and FTI would still have conducted substantially the same investigations and produced the same reports.

The Court also distinguished the facts from recent cyber-attack cases like (see, e.g., Singtel Optus Pty Ltd v Robertson [2024] FCAFC 58). In those cases, legal teams were involved immediately in a multi-disciplinary crisis response. In Phoslock’s case, KPMG was engaged immediately for audit reasons, and the law firm was not involved for nearly a month. Consequently, the legal response did not appear to be the priority or dominant driver of the document creation.

Regarding FTI, the internal communications instructing them to audit machine conditions, safety assessments, and environmental footprints went well beyond what external lawyers would require to provide legal advice. FTI’s instructions were explicitly described as coming from Phoslock management, not the law firm. As a result, the Court ordered Phoslock to produce all disputed documents to the applicant in unredacted form.

Key takeaways for practitioners

The decision provides practical instruction for legal practitioners advising corporate clients during internal investigations. It underscores that courts will assess the true nature of an engagement, looking past the formal structure of legal retainers.

First, drafting robust retainer letters between external lawyers and forensic experts is not sufficient on its own to secure legal professional privilege. While a necessary administrative step, the formal retainer cannot mask the objective reality of how the investigation is being utilised by the business.

Secondly, practitioners must exercise careful control over internal corporate communications regarding the investigation. When C-suite executives instruct staff that external consultants are acting on behalf of management to finalise audit matters, without reference to legal counsel, the foundation for a privilege claim is often compromised.

Thirdly, there must be alignment between corporate public relations and legal strategy. Detailed ASX announcements that boast of external experts being deployed for business continuity, interim management and financial reconstruction will be seized upon by future litigants to prove legal advice was a secondary consideration.

Finally, practitioners must ensure their evidentiary case is comprehensive. Failing to detail the nature, timing and scope of the legal advice actually provided leaves the court unable to draw the necessary inferences to establish the legal purpose was the ruling and prevailing influence over the creation of the documents.

Hugo Wilesmith is a barrister at Alinea Chambers and Talitha Fishburn is a barrister at 4 Wentworth Chambers.