Law firm Holding Redlich was retained by NSW Labor from 2008 until August 2019 when the Independent Commission Against Corruption looked into a $100,000 donation handed over by Chinese billionaire Xiangmo Huang in a plastic grocery bag in March 2015.
Last February, ICAC found the money came from Huang, a property developer prohibited from donating to state political parties, and that the origin of the money had been concealed by splitting the amount up between several fake donors.
The funds were handed over at The Eight Modern Chinese Restaurant in Sydney's Haymarket during a community dinner with outreach group Chinese Friends of Labor.
In January 2018, the matter was referred to ICAC by the NSW Electoral Commission which conducted its own investigation into potential breaches of electoral funding law.
In its report, the commission found former NSW Labor MP Ernest Wong acted corruptly to conceal the illegal political donation and then attempted to get one of the fake donors to lie about it.
NSW Labor, in a Federal Court lawsuit filed on December 20, accuses Holding Redlich of breach of contract and negligence after failing to properly advise about or investigate the donations.
"In particular, HR failed to advise on what steps ALP NSW should take on becoming aware that Huang was the suspected donor of the $100,000 cash received in relation to the CFOL Dinner," the party wrote.
If it acted with care and skill, the law firm should have known Huang was a prohibited donor and could have advised Labor so that it accurately responded to notices issued by the NSWEC, the lawsuit claims.
"If HR had not been in breach of contract and/or negligent as aforesaid, the inquiries of HR would have revealed the involvement of Huang and the responses to the notices would have been fulsome, accurate and truthful rather than wrong and misleading," Labor wrote.
"There would have been no requirement for the NSWEC to refer the matter to the ICAC."
Managing partner Ian Robertson is also accused of failing to exercise the reasonable skill and care expected when assisting with both inquiries.
As well as $1.6 million in legal costs the party spent dealing with both the electoral commission and ICAC inquiries, Holding Redlich also faces being hit with the legal costs of current and former Labor employees.
In a statement, Holding Redlich denied the allegations.
"There is no basis to the claim by NSW Labor and Holding Redlich categorically rejects it. It will be strongly defended, and Holding Redlich has retained Allens to act on its behalf," a spokesperson said.
