Attorney-General George Brandis may have acted corruptly, Labor has said, following reports the federal government agreed to a secret deal allowing the Western Australian government to pursue compensation from the collapse of a company despite legal issues with their plan.

According to a report in The West Australian, the arrangement was scuttled by a High Court submission from former solicitor-general Justin Gleeson, SC, said to be the pivotal moment in the breakdown of his relationship with Senator Brandis and eventual resignation last month.

The Coalition government had agreed to support the WA Liberal government's pursuit of $1 billion from Alan Bond's failed Bell Group, the report says, subsequently instructing Mr Gleeson to reflect this position when WA's legislation was challenged in the High Court. But the Australian Taxation Office, separately seeking to claw back $300 million, also asked him to act for them in the dispute.

It was this submission, contending that the legislation was inconsistent with federal tax law – the line of argument the Attorney-General had promised would be disregarded – which demolished WA's plan and caused them "to think the Commonwealth had acted in bad faith".