Archbishop Giuseppe Lazzarotto assumed the job of apostolic nuncio in 2008, a role equivalent to the Vatican's ambassador.
He had served in the same role in Ireland but left before the government released an inquiry into sexual abuse in the Dublin archdiocese, the 2009 Murphy Report.
The report criticised Archbishop Lazzarotto for not responding to a 2007 request to provide the inquiry with evidence of abuse.
Colm O'Gorman, a former Irish senator and now the executive director of Amnesty International in Ireland, told the Herald Archbishop Lazzarotto invoked diplomatic immunity, which caused him to drop a lawsuit against the Vatican.
Mr O'Gorman launched the suit against his local diocese and the Vatican's representatives in Ireland, seeking compensation for being repeatedly raped as a teenager by Father Sean Fortune, Ireland's most notorious paedophile priest.
He dropped the suit against the Vatican in 2003 after Archbishop Lazzarotto's lawyers obtained a certificate of diplomatic immunity.
''I was told in no uncertain terms that having secured diplomatic immunity, the nuncio would assert it in court,'' Mr O'Gorman said. ''His lawyers told me that if I pursued the case, they would use that immunity to have it thrown out and then seek full legal costs from me.''
Mr O'Gorman received a financial settlement in the case with his local diocese.
In a written statement, the Australian Catholic Bishops Conference said the church had offered full co-operation with the Irish government inquiry through the Dublin archdiocese.
A spokeswoman did not specifically respond to questions about the use of diplomatic immunity: ''Archbishop Lazzarotto, on behalf of the Holy See, accepted the proposal that the case be discontinued by mutual consent.''
A spokesman for the Apostolic Nunciature in Canberra said the Vatican's representatives had no role in investigating sexual abuse cases.