When Purpose Blurs, Protection Disappears: The Lesson of Esso v Commissioner of Taxation
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Published: 10 November 2025 | Reviewed: 4 December 2025
(3-minute read)
The High Court showed how easily privilege unravels when legal and commercial purposes overlap without clear structure.
Hundreds of internal documents lost their legal confidentiality because no one could prove they were created mainly for legal advice, not mixed purposes.
What Happened
Esso Australia faced a major tax dispute. The Commissioner of Taxation demanded internal reports, memos and working papers. Esso refused, saying they were protected by legal professional privilege. Earlier courts applied a strict rule: privilege existed only if the document’s sole purpose was legal advice. That test made little sense in modern organisations where legal, commercial and operational purposes often overlap.
The High Court agreed. It adopted the dominant purpose test, allowing privilege where the main purpose of a document was legal advice or litigation, even if other purposes existed.
But Esso still lost many of its documents. The problem was not dishonesty. It was structure. Esso could not show which documents were created for legal reasons and which ones had mixed drivers. Without clear boundaries, purpose became impossible to prove.
The human reality is simple: privilege is not just a legal rule; it is a product of clarity in how work is organised.
The Legal Principle
The High Court confirmed that:
privilege applies when the dominant purpose of a communication is legal advice or litigation
mixed-purpose documents may qualify, but only if the main purpose is legal
purpose is assessed objectively, not by what people later wish to claim
organisations must maintain structures that separate legal work from business work
Plain-language translation: legal confidentiality survives only when the purpose behind documents is visible and provable.
The Structural Problem This Judgment Reveals
Esso did not fail because its lawyers made an error. It failed because the organisation treated legal and commercial work as one blended stream. Reports for operations, tax strategy and legal advice travelled together. Once mixed, the purpose behind them could not be separated.
This is the structural risk the case exposes:
when roles blur, purposes blur, and once purpose blurs, privilege slips away.
That risk appears today in email chains mixing legal questions with business planning, or internal reports written jointly for compliance, strategy and advice. People rarely intend to waive privilege. It simply dissolves when the structure makes the underlying purpose indistinguishable.
A helpful comparison is found in Hidden Risks in the Traditional Model under Understand the Risks, where role-blending quietly shapes outcomes long before anyone notices.
When roles mix, purpose disappears.
Two-Lawyer Model
Esso shows that privilege does not fall apart because someone made a mistake. It falls apart because the structure did not keep legal purpose separate from other motives.
The same risk exists in litigation. When one lawyer handles both settlement and courtroom work, documents can mix commercial thinking with legal advice. Strategies merge. Notes blend. Purpose becomes unclear.
The Two-Lawyer Model prevents that drift. Clean Law manages settlement, cost safety and strategic timing. A separate courtroom lawyer manages advocacy. Each role stays defined. Each purpose stays distinct.
This structural separation protects more than cost. It protects the integrity of privileged documents. Advice created for legal purposes remains pure, not diluted by multiple streams of thought.
In the logic of Esso, clear roles keep purpose provable.
Learn more at: Two Lawyer Model
What Australians Can Take Away
The Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49 decision is not about large corporations. It is about how easily anyone can lose the protection of privilege when legal and commercial thinking merge inside the same workflow.
If the purpose behind a document cannot be proved, the privilege protecting it cannot survive. Clarity must exist before the dispute, not after it.
Privilege begins with structure, not secrecy.
By Nicky Wang
Principal Solicitor
Legal Liaison Ltd (trading as Clean Law)
Prepared in accordance with public-interest governance,
annual Law Society trust-account audits, and ACNC-reported standards.
Disclaimer: This page is intended to provide general information only and is not legal advice. The contents may not reflect the most current legal developments and do not take into account your individual circumstances. You should not act or refrain from acting on the basis of this information without obtaining legal advice tailored to your situation.
