Federal Court of Australia

Cayzer v Phoslock Environmental Technologies Ltd (Privilege Dispute) [2026] FCA 800

ORDERS

THE COURT ORDERS THAT:

1.    Within seven days, the first respondent produce to the applicant in unredacted form all final, interim and draft copies of the Project Echo, Project Hollow and FTI reports and their annexures, including each of the documents identified in the following table:

2.    Within 21 days, the fourth respondent produce to the applicant in unredacted form the documents responding to categories 8, 9 and 10 of the 15 August 2025 orders that were subject to claims of whole or part legal professional privilege made by the first respondent, excluding:

(a)    documents that are subject to claims of confidentiality and/or whistleblower protection and/or claims of legal professional privilege made by the fourth respondent; and

(b)    parts of documents that are subject to claims of confidentiality and/or whistleblower protection and/or claims of legal professional privilege made by the fourth respondent.

3.    The first respondent pay the applicant’s costs of his interlocutory application lodged for filing on 13 May 2026.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

STEWART J:

Introduction

1    Phoslock Environmental Technologies Ltd, the first respondent, is listed on the Australian Securities Exchange. On 12 August 2020, and subsequently, whistleblower allegations were made to Phoslock management about serious irregularities in its Chinese operations which, if true, amounted to fraud and corruption on a significant scale. Naturally, Phoslock responded by investigating the allegations, including by appointing external consultants for that purpose.

2    Now, in a securities class action against Phoslock based on the allegation that Phoslock misled the market in relation to its Chinese operations, Phoslock claims legal professional privilege over some of the draft reports and reports produced by those external consultants as the product of their investigations, as well as the copies of the documents that were gathered in those investigations. The applicant challenges those privilege claims, essentially submitting that the documents were produced for a variety of purposes of which the purpose of obtaining legal advice has not been established to have been the dominant purpose.

The facts

3    As mentioned, the whistleblower allegations were first made on 12 August 2020. The allegations were made during the audit of Phoslock’s 2020 financial statements by KPMG Audit, Phoslock’s then auditors. KPMG is the fourth respondent in the proceeding.

4    On 18 August 2020, Phoslock engaged a team within KPMG’s forensic division, KPMG Forensic, to establish the facts in connection with the whistleblower allegations about the conduct of Ms Zhou, an employee of one of Phoslock’s subsidiaries in China. That engagement was named Project Echo. The letter of engagement recorded the essentials of the allegations.

5    The allegations concern Ms Zhou’s appointment and financial conduct within Phoslock’s Chinese subsidiary. In essence, it was alleged that she was appointed as Vice President despite lacking relevant professional, financial or management qualifications, apparently because she was related to Mr Zhang, a Phoslock director. The allegations further suggested that she withdrew funds, directed false accruals and inflated accounts payable so that balances could be withdrawn without detection. They also concerned questionable transactions with a company apparently associated with Mr Zhang, including unnecessary purchases or consulting contracts, and the prepayment of labour costs to a vendor without a signed contract.

6    The Project Echo engagement letter set out three phases of work. Phase 1 involved planning, scoping and preliminary interviews and the development of a tailored investigation plan for Phase 2. Phase 2 was to be a detailed investigation, and Phase 3 was to provide a KPMG report setting out the work performed and KPMG’s findings and recommendations.

7    It is apparent that Project Echo was seen as adjacent to and supportive of the ongoing annual audit. In that regard, Phoslock’s Managing Director and Chief Executive Officer, Lachlan McKinnon, told KPMG that Phoslock wanted “the focus to be on auditing the financial accounts from China, explaining the unsubstantiated payments made and behaviours surrounding Ms Zhou”. Mr McKinnon also said that he had reiterated to KPMG that “this must be audit [f]ocused and aimed squarely at sorting out our accounts”.

8    On 1 September 2020, KPMG Forensic produced a draft Project Echo report which was provided to the chairperson of Phoslock’s Audit Committee. That too demonstrates that the dominant purpose of Project Echo was an audit purpose.

9    Phoslock initially claimed legal professional privilege in respect of the draft Project Echo report, but that claim was subsequently rightly abandoned.

10    On 9 September 2020, Phoslock communicated with its solicitors, Arnold Bloch Liebler (ABL), for the first time in relation to the whistleblower allegations. The evidence does not reveal when ABL was formally engaged or what it was engaged to do, or what it said that it required in order to do whatever it was engaged to do.

11    On 14 September 2020, Mr McKinnon stated to Mr Dougall of KPMG Forensic that ABL would be engaged “for any ongoing work on Project Echo”. Mr Dougall then wrote to Mr McKinnon saying that KPMG would “complete work on Project Echo today and all work (and reporting) will be under the new engagement (Project Hollow) going forward”.

12    On 15 September 2020, ABL engaged the KPMG Forensic team for Project Hollow. KPMG Forensic’s engagement letter for Project Hollow is addressed to ABL. Relevantly, it includes the following:

(1)    It acknowledges that KPMG is to provide investigation services to ABL in its “capacity as legal advisors to Phoslock”. It states that KPMG understands that ABL is providing legal advice to Phoslock and its directors in relation to their director’s duties and compliance with the law, “including FATCA requirements”. The reference to “FATCA requirements” is not understood since that would ordinarily be understood to be a reference to the Foreign Account Tax Compliance Act in the United States.

(2)    The nature of the allegations that KPMG was to investigate is set out in almost identical terms to what was set out in the engagement letter for Project Echo.

(3)    In the section of the engagement letter dealing with the scope of the engagement, it is stated that the purpose of the engagement is to establish the facts in connection with the allegations in order that ABL “can provide legal advice to Phoslock”. The scope of the investigation that is then set out is essentially the same as that set out in the later part of Phase 1 and in Phase 2 of the Project Echo letter of engagement. It does have an additional aspect, which is “[l]iaison with lawyers, law enforcement, auditors and other relevant parties as required during the course of the investigation”.

13    Ms Ford of ABL explains in her affidavit that KPMG was engaged by ABL to provide investigation services to establish the facts in connection with the allegations that were the subject of Project Echo. She says that the engagement of KPMG Forensic under Project Hollow was “in order for ABL to provide legal advice to [Phoslock]”. The engagement was to lead to the production of a report setting out KPMG’s work performed, findings and recommendations, referred to as the “Project Hollow Report”.

14    Ms Ford says that the Project Hollow Report directly formed part of the factual substratum that informed ABL’s legal advice” that she and Mr Wenig of ABL gave to Phoslock. Ms Ford was herself involved in the finalisation of the KPMG engagement letter and in advising Phoslock during KPMG Forensic’s engagement by ABL in September 2020 and thereafter.

15    On 17 September 2020, the ASX announced to the market that the securities of Phoslock would be placed in trading halt at the request of Phoslock “pending it releasing an announcement”.

16    On 21 September 2020, Phoslock published a market announcement to the ASX. It stated that an ongoing independent investigation initiated by the Chairman and Managing Director had “revealed certain accounting irregularities” relating to Phoslock’s China operations. It stated that the investigation, “being undertaken by KPMG’s forensic accounting division”, followed suspected accounting irregularities discovered during the audit process for the half year ended 30 June 2020. It stated that the company would seek to maintain the voluntary suspension of trading until the investigation and the resulting KPMG report was completed and the impact of any irregularities was quantified.

17    The next day, 22 September 2020, Phoslock engaged FTI Consulting (China) Ltd (FTI) to, among other things, investigate and resolve audit and governance issues in Phoslock’s China business including to initially preserve assets. Those included Phoslock’s bank accounts and documents and devices housed in Phoslock’s Beijing office. FTI was also to provide audit support for queries raised by KPMG Audit in respect of Phoslock’s China business.

18    On 24 September 2020, KPMG Forensic produced a draft Project Hollow Report.

19    On 30 September 2020, the ASX published a market announcement about Phoslock. The announcement included that KPMG was “progressing its independent investigation into accounting irregularities relating to [Phoslock’s] China Operations and will provide its report to the Audit Committee when complete”.

20    On 8 October 2020, Phoslock published another market announcement to the ASX. It stated that KPMG had reported its preliminary findings into suspected accounting irregularities relating to the China operations. It stated that fraudulent activity had been identified, including false accounting and falsification of invoices, potential improper tax reporting and misappropriation of funds. It stated that further investigations were required “to determine the full extent of these and possibly further irregularities, and to quantify the impact on the company’s finances and accounts”, and that the work was underway. It stated that in addition to the work being undertaken by KPMG, Phoslock had retained “an experienced corporate finance consultant specialising in financial due diligence to be based at [Phoslock’s] China office and provide assistance and support to the company”. I infer that that is a reference to FTI. The announcement summarised the number of aspects of the assistance to be provided.

21    The announcement also stated that Phoslock would “actively investigate and consider its rights in relation to pursuing legal action against individuals and/or entities found to have been involved in any fraudulent activity and to securing the recovery of amounts associated with all irregularities”.

22    On 26 October 2020, Phoslock made a further market announcement to the ASX. It stated that investigations into accounting issues in China were continuing. After referencing its previous announcements on 21 September, 30 September and 8 October, the announcement stated that further investigations had continued to determine the full extent of the irregularities. It reiterated that Phoslock had retained an experienced corporate finance consultant specialising in financial due diligence to be based at Phoslock’s China office to provide assistance and support to the company. The assistance was said to include, but not be limited to:

•    Help with the quantification of losses associated with any malpractice and assistance with related asset recovery;

•    Arrangement of on-site forensic investigations into books and records to prepare for the reconstruction of the company accounts;

•    Recommendations on new procedures and payment protocols; and

•    Interim management of the business and approval of cash payments, including suppliers’ payments, wages and salaries, statutory payments and reimbursements.

23    Ms Ford explains in her affidavit that on 28 October 2020, ABL engaged “a separate team within FTI” to assist ABL in its provision of legal advice to Phoslock. Although the 22 September 2020 engagement letter from FTI identified the FTI team members who would be undertaking the engagement, the later FTI engagement letter did not do so. It is, however, signed by Eddie Lam for FTI who is described as Senior Managing Director and the primary person responsible for the planning, coordination and completion of the engagement. Mr Lam is not one of the named team members in the earlier engagement letter.

24    The FTI engagement letter, which is addressed to ABL and Phoslock, states that FTI was engaged by ABL on behalf of Phoslock “to provide forensic services for the purpose of assisting Counsel in providing legal advice, protected by legal professional privilege”. Under the heading “Purpose and Scope”, it is stated that FTI’s work was to “assist Counsel in its provision of legal advice to Phoslock … by providing privileged consultation and forensic analysis” of aspects of the China business and to perform such other tasks as may be identified and agreed by ABL during the course of the engagement.

25    On 30 October 2020, KPMG provided a further draft Project Hollow report.

26    On 3 November 2020, Matthew Parker, Phoslock’s CFO, wrote to Jason Hai, of Phoslock in China, and copied in Mr Lam and Tao Shen who was working with Mr Lam on the FTI engagement. The email stated that Phoslock had “leveraged FTI consulting China to support the closure of the audit matters”. It further stated that the audit parameters had been extended by KPMG to include FY 2019 to 30 June 2020. It stated that to ensure that the audit review was completed by the allotted deadline, being the end of December, “we” had appointed more resources from FTI. The email then introduced Mr Lam and Mr Shen to Mr Hai, stating that they would lead the review at Phoslock’s China operations. Finally, the email stated that Phoslock had been working with KPMG over a period of time “to get aligned on what is required to clear the audit”. It is to be noted that no one from ABL was copied on the email.

27    On 4 November 2020, Mr Hai replied to Mr Parker, but dropped Mr Lam and Mr Shen off the email chain. He stated that the FTI team had started their work that day. He asked what the scope of the audit was, and in particular whether it was “[o]nly accounting audit like KPMG did before or all kinds of affairs happened?” He asked what the investigation was for and whether he could share everything with FTI.

28    Mr Parker replied on the same day. He stated that FTI was required to conduct a full audit of not just the accounting but also the asset allocation, machine condition, safety assessment and environmental footprint. He said that the mandate that had been given to FTI was to make sure that they had a “thorough picture” of Phoslock’s China operation. He said that Mr Hai should consider questions from FTI as if they had been asked by him or Mr McKinnon “as they [are] acting on our behalf”.

29    The following day, 5 November 2020, Mr Parker forwarded the earlier email communications between him and Mr Hai to Mr Shen. In that way, FTI was advised of the scope of their engagement.

30    On 12 November 2020, Phoslock made another market announcement to the ASX. The announcement confirmed that Phoslock had identified fraudulent activity relating to areas including false accounting and falsification of invoices and service contracts, improper tax reporting, potential misappropriation of funds including improper payment of bonuses and undisclosed related party transactions. It explained that in response to those matters, Phoslock had commenced a restructuring of its organisation in China, commenced a comprehensive and systematic review of all current China contracts and contractual arrangements with third parties, commissioned an independent market review of the waterways remediation market in China and implemented changes which would strengthen its financial reporting procedures in China.

31    Once again, the announcement stated that Phoslock continued to investigate and consider its rights in relation to pursuing legal action and that internal reviews were continuing into all projects in China. It stated that specialist consultants were assisting with the reviews and providing support in the ongoing operations of the China business.

32    On 19 November 2020, Phoslock and the Australian Federal Police signed an Investigation Cooperation Agreement which mandated the way in which Phoslock was to cooperate in an AFP investigation.

33    On 7 January 2021, FTI provided a report to ABL and Phoslock pursuant to their 28 October 2020 engagement. Ms Ford explains that the report “directly formed part of the factual substratum that informed ABL’s legal advice” that she and Mr Wenig gave to Phoslock.

34    On 28 January 2021, Phoslock made another market announcement to the ASX. It referenced the investigations into accounting irregularities in China, stating that after KPMG had reported its preliminary findings into suspected accounting irregularities which were announced to the market on 8 October 2020, further investigations were undertaken to investigate the full extent of the irregularities and to quantify the impact on the company’s finances and accounts. It stated that in addition to the work being undertaken by KPMG, Phoslock’s legal team had retained an experienced corporate finance consultant specialising in financial due diligence to be based at Phoslock’s China office “to provide assistance and support to the company”. That assistance was recorded as including, but not being limited to, the same matters set out at [22] above in relation to the 26 October 2020 announcement.

35    On 29 January 2021, Phoslock published its half-year results to 30 June 2020. The directors’ report referenced the accounting irregularities that had been discovered in relation to the company’s China operations. It stated that in response to the identification of those matters, the board had initiated an investigation with the assistance of external advisers described as follows:

•    Forensic review performed by KPMG Forensic team – focused on the Chinese sales organisation (Phoslock (Beijing) Ecological Engineering Technology Co., Ltd (China) “PBEE” and Beijing Ecosystime Environmental Science and Technology Co., Ltd (China) “BEST”).

•    Operational and forensic review performed by FTI – focused on the Chinese manufacturing operations and interim management of all Chinese operations (Phoslock (Changxing) Water Solutions (China) “PWSC”.

36    The report stated that following the KPMG forensic review, the board had identified fraudulent activities relating to areas including accounting and falsification of invoices and service contracts, improper tax reporting, potential misappropriation of funds including improper payment of bonuses, certain payments to third parties where the ultimate beneficiary was unclear, or which were otherwise suspect, and undisclosed related party transactions.

37    On 29 March 2021, Sarah Cain-Frost of the KPMG Audit team completed an updated “Investigation Summary Filenote”. Relevantly, the file note details some of the background to the engagement of KPMG Audit and KPMG Forensic already dealt with above, as well as the extensive cooperation between the two teams. By way of example, Ms Cain-Frost participated in the majority of the interviews with Phoslock China staff. She also attended update calls with the Phoslock management team in relation to the progress of the forensic investigation throughout August to December 2020. That involvement enabled a detailed understanding of the issues noted throughout the forensic review, and a reflection in the audit file of the accounting and audit impacts of the forensic work.

The disputed documents

38    Phoslock claims legal professional privilege over, and the applicant disputes the privilege claim, in respect of the following documents:

(1)    all the Project Hollow reports, draft and final, by KPMG;

(2)    all working documents provided to, produced or prepared by KPMG for the purposes of Project Hollow; and

(3)    all reports prepared as part of the FTI investigation.

39    It is common ground that if the privilege claim is upheld in relation to the Project Hollow reports, then it will apply also to the working documents. Also, if the privilege claim fails in relation to the Project Hollow reports, then it will fail also in relation to the working documents.

40    KPMG asserts its own legal professional privilege or whistleblower protection in relation to parts of some of the documents. It says that in the event that Phoslock’s privilege claim fails, then it (KPMG) will require 21 days to review whatever documents are ordered to be produced by it in order to assert those claims. The applicant accepts that approach.

The applicable principles

41    The privilege dispute is concerned with pre-trial disclosure and inspection rather than the adducing of evidence and is therefore to be determined with reference to common law principles rather than the Evidence Act 1995 (Cth): Esso Australia Resources Ltd v Federal Commissioner of Taxation [1999] HCA 67; 201 CLR 49 (Esso) at [17]-[28] per Gleeson CJ, Gaudron and Gummow JJ, [64] per McHugh J (in dissent as to the result), [91] per Kirby J (in dissent as to the result) and [149] per Callinan J. 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; 242 ALR 601 at [5] per Tamberlin, Stone and Siopis JJ. The party claiming the privilege bears the onus of establishing it: Grant v Downs [1976] HCA 63; 135 CLR 674 at 689 per Stephen, Mason and Murphy JJ.

42    The applicable common law test for legal professional privilege is the “dominant purpose” test, ie a communication or document will attract legal professional privilege if it was brought into existence for the dominant purpose of giving or obtaining legal advice or the provision of legal services: Esso at [61] per Gleeson CJ, Gaudron and Gummow JJ and [173] per Callinan J. It is a rule of substantive law, and not merely a rule of evidence, that a person can resist the giving of information or the production of documents which would reveal communications between a client and their lawyer made for the dominant purpose of giving or obtaining legal advice or the provision of legal services, including representation in legal proceedings: Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49; 213 CLR 543 at [9] per Gleeson CJ, Gaudron, Gummow and Hayne JJ.

43    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; 186 CLR 404 at 416 per Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ. See Medibank Private Ltd v McClure [2026] FCAFC 38 (Medibank v McClure) at [22] per Lee J, Wigney and Hespe JJ agreeing.

44    Three relevant consequences are said to follow from that formulation: first, the existence of more than one purpose does not, without more, 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; and thirdly, the inquiry is objective and, while relevant, it is not enough that a party or its officers honestly say, or even honestly believe, that the legal purpose was dominant: Medibank v McClure at [23].

45    The question of purpose must be determined objectively, having regard to the evidence, the nature of the document in question and the parties’ submissions: Medibank v McClure at [24], citing Diawara v National Australia Bank Ltd [2023] FCA 1048 at [10] per Abraham J.

46    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, and one must be careful not to reason as though the assertions of lawyers or officers are dispositive: Medibank v McClure at [25]. The involvement of solicitors does not determine the issue; a document may be “channelled” through solicitors, drafted under a retainer with a firm, and later used in the provision of legal advice, but nonetheless fail to attract privilege if objectively its predominant purpose was something else, or if the legal purpose did not prevail over competing substantial purposes: Medibank v McClure at [26] citing Pratt Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 122; 136 FCR 357 at [45]-[47] per Finn J. Nevertheless, a court should not discount the significance of a formal retainer through lawyers or the role of lawyers in structuring an expert engagement; where a non-lawyer expert is retained through a firm of solicitors under a retainer expressly directed to legal advice and anticipated litigation, that may be a strong indicator that the legal purpose predominates: Medibank v McClure at [59].

47    The purpose of a solicitor in commissioning a report is relevant, and often important, but it does not displace the requirement to assess purpose objectively by reference to all the circumstances: Medibank v McClure at [61]. “[T]he law does not accord talismanic significance to a solicitor’s retainer letter … A court must look beyond the retainer language to the practical and institutional role the document was intended to play”: Medibank v McClure at [61].

Consideration

48    It is readily apparent that when the whistleblower allegations were first made, they arose in the context of the audit that was then underway and they were initially dealt with in that context. Further investigations were then formalised in the engagement of KPMG Forensic in Project Echo, but as explained by Ms Cain-Frost, the audit team continued to be intimately involved. There was no involvement of lawyers at that stage. Albeit belatedly, Phoslock was quite right to abandon its claim of legal professional privilege in relation to the Project Echo documents.

49    The engagement of KPMG Forensic in Project Hollow was by the lawyers, ABL. However, on the evidence adduced by the parties I am not satisfied that the dominant purpose of the Project Hollow engagement, and consequently the dominant purpose in creating and/or assembling the working documents and preparing draft and final reports, was the legal professional advice purpose.

50    It is submitted for Phoslock that I am to infer that ABL was actively engaged in the provision of legal advice from its first involvement on 9 September 2020 and thereafter. I accept that ABL gave advice to Pholsock, and I naturally accept Ms Ford’s evidence that the advice given by ABL relied on the reports of KPMG and FTI. Indeed, in a matter as obviously serious as that which was the subject of the investigations – the seriousness of which is demonstrated by the suspension of trading of Phoslock’s securities on the ASX and the many updating market announcements to the ASX – it is entirely to be expected that Phoslock would have involved lawyers from relatively early on and to have sought advice from them on a range of possible matters.

51    However, the evidence does not include the terms of ABL’s engagement, and it does not reveal the nature, subject matter or timing of the advice that was sought or given. Neither does it correlate the scope of the work that KPMG and FTI were tasked to do with any advice that was sought and given. Those matters are all left to inference and conjecture but with very little to go on. As recorded above, Ms Ford states that ABL gave advice and in doing so relied on the KPMG and FTI reports, but so far as the evidence reveals that may have only been advice on one issue given once. It does not establish that the dominant purpose of the production of the reports was for that advice.

52    It is quite apparent that Project Hollow and the subsequent FTI engagement were also for other purposes, that is other than for the provision of legal advice. Notably, those purposes included being able to report to the market and the regulator, to progress the audit and report to the Audit Committee, to find and protect Phoslock’s assets, to deal with employment and other personnel issues in China, to consider and implement a restructuring of the organisation in China, to review all China contracts and contractual arrangements with third parties, to provide support in the ongoing operations of the China business, and so on – the many matters identified in the market announcements and the half yearly report as well as Mr Parker’s 4 November 2020 email to Mr Hai (see [28] above).

53    It is also telling that the Project Hollow engagement so obviously superseded the nascent Project Echo engagement, essentially repeating what KPMG had been tasked to do but had not yet done under Project Echo. The point is that before the involvement of ABL, it was determined that that work was required for non-legal purposes. Once ABL became involved and the engagement of KPMG was then channelled through ABL, those non-legal purposes remained. I accept that there was then also a legal advice purpose, but I do not see any basis on which to conclude that it was the dominant, or the ruling, prevailing or most influential, purpose.

54    As was said in Esso (at [50]), if the most that can be said of the reports in question is that the purposes for which they came into existence included a purpose of obtaining legal advice or assistance, then privilege does not apply. One way of testing that is to ask whether the relevant document or communication would have come into existence irrespective of the obtaining of legal advice: McClure v Medibank Private Ltd [2025] FCA 167 at [181] per Rofe J and the authorities cited there. Given the substantially overlapping scope of the Project Echo and Project Hollow engagements, I conclude that even if it had not been for the interposition of ABL and the seeking of the legal advice, KPMG Forensic and FTI would still have conducted substantially the same investigations and they would have gathered the same materials and produced the same reports. There is nothing to show that the requirement for legal advice from ABL changed anything in that regard.

55    I do not accept, as submitted for Phoslock, that the facts in McClure v Medibank and Singtel Optus Pty Ltd v Robertson [2024] FCAFC 58; 425 ALR 1 are in such contrast to the present case that it cannot be concluded that in the present case the legal purpose was not dominant. In both those cases the companies in question experienced serious cyber-attacks which provoked urgent multi-disciplinary responses. In Medibank v McClure it was said (at [8]) that in the immediate aftermath of the attack, “Medibank’s internal teams, external legal advisers and various technical and communications consultants became engaged in a broad response exercise which was at once legal, technical, regulatory, operational and reputational.” I accept that the scale there may have been different, but the whistleblower’s allegations were very serious and they led to an immediate and broad-ranging response. ABL was not involved for nearly a month after the allegations were made, whereas KPMG was engaged immediately. It does not appear that the legal response was a priority or dominant.

56    I also do not accept that the issues that arose for Phoslock were quintessentially legal in nature, as submitted for Phoslock. Of course, there were legal issues. But as the market announcements and internal correspondence show, there were a variety of other organisational, reputational, regulator, accounting, personnel and commercial issues at stake, as well as completion of the audit. I am not able to infer that the legal issues were such as to amount to the legal purpose being the dominant purpose for the creation and/or assembly of working documents in the investigations or in the preparation of the reports.

57    I accept, as submitted for Phoslock, that one would not expect to see the fact of legal advice having been sought in the market announcements which are by their nature concerned with other matters. Indeed, there may be reasons to be cautious about saying much publicly about what legal advice has been sought or given, as to which TerraCom Ltd v Australian Securities and Investments Commission [2022] FCA 208; 401 ALR 143 serves as a salient example. For that reason, I do not rely on the market announcements to discount the fact of legal advice having been sought, but I do rely on the market announcements for the various other purposes for which the investigations were commissioned. The company is liable to be taken at its word in that regard: see Medibank v McClure at [84].

58    As regards FTI specifically, it is notable that there were communications between Phoslock senior management and the FTI forensic team (ie Mr Lam and Mr Shen) that did not include ABL and which spoke of FTI working to support the closure of the audit matters. They also spoke of FTI supporting the company and having been appointed by the company, with no mention of the lawyers. When Mr Hai asked what the scope of FTI’s “audit” was, he was not referred to any legal advice that was being sought or what ABL’s requirements were. He was told that a “thorough picture” of the China operation was required, including asset allocation, machine condition, safety assessment and environmental footprint. Those matters go well beyond what ABL might have been expected to have had an interest in for the purpose of furnishing legal advice. Also, FTI’s questions were to be treated as coming from Phoslock’s senior management, not from ABL.

59    Phoslock submits that I must infer that there was a heavy involvement of the lawyers in the cooperation arrangements that were reached with the AFP. I accept that, but it is not apparent on the evidence how much of that might have been reliant on the work that was being done by KPMG and FTI. More significantly, the AFP arrangements only came about in late November 2020 when the KPMG and FTI work was already well advanced. It may be that the AFP arrangements took a long time to negotiate and that ABL was therefore involved much earlier than the arrangements were concluded, but I do not know that. As with other matters in relation to the involvement of ABL, Phoslock has not taken the Court into its confidence in that respect.

Disposition

60    In the result, I am not satisfied that any of the disputed documents were created or came about for the dominant purpose of ABL furnishing legal advice. Phoslock’s disputed privilege claims therefore fail. Phoslock must produce the Project Echo, Project Hollow and FTI Consulting documents to the applicant. Insofar as KPMG has those documents in its possession, it must also produce them save that, as explained, it has its own legal professional privilege and whistleblower protection claims in respect of some of those documents.

61    There is no apparent reason why Phoslock should not pay the applicant’s costs of the interlocutory application concerning the privilege dispute. KPMG maintained an essentially neutral stance and did not seek costs. The second and third respondents did not participate in the interlocutory application.

Associate:

Dated:    24 June 2026

SCHEDULE OF PARTIES