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Johnston v McGrath

Johnston v McGrath

Case [2005] NSWSC 1183 23 November 2005

Unconscionable Conduct

Winding Up & Liquidation

Client Legal Privilege

Consumer Law

Corporate Law & Governance

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CITATION:
Johnston v McGrath & Ors [2005] NSWSC 1183

HEARING DATE(S): 21/10/05, 25/10/05

JUDGMENT DATE :

23 November 2005

JUDGMENT OF:
Gzell J

DECISION:
Claim for damages under Trade Practices Act 1974 (Cth), s 82 not made out as loss not occasioned by the misleading and deceptive conduct and appeal from liquidators' proof of debt dismissed. Claim would have been postponed as Corporations Act 2001 (Cth), s 563A applies to transferee shareholders as well as subscriber shareholders. Client legal privilege in statement not lost.

CATCHWORDS:
TRADE PRACTICES - Consumer Protection - Whether misleading and deceptive conduct of HIH Insurance by misrepresentation overtaken by subsequent press statements to the contrary - Whether plaintiff's failure to heed press statements a novus actus interveniens - CORPORATIONS - Winding up - Appeal from liquidators' rejection of proof of debt - Whether claim for damages under Trade Practices Act 1974 (Cth), s 82 for inducement to enter on-market purchase of worthless HIH shares a debt due in a person's capacity as a member and postponed to all other creditors under Corporations Act 2001 (Cth), s 563A - EVIDENCE - Client Legal Privilege - Whether privilege in statement provided to solicitor for purpose of drafting an affidavit to which no reference made in the affidavit is impliedly waived by the reading of the affidavit

LEGISLATION CITED:
Trade Practices Act 1974 (Cth)
Corporations Law
Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)
The Building Societies Act 1986 (Vic)
Companies (Victoria) Code
Companies Act 1862
Insolvency Act 1986 (UK)
Evidence Act 1995

CASES CITED:
Henville v Walker (2001) 206 CLR 459
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 27
Pavich v Bobra Nominees Pty Ltd (1988) 10 ATPR 46-039
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
Ford Motor Co of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522
Tanning Research Laboratories Inc v O’Brien (1989-1990) 169 CLR 332
Sons of Gwalia Ltd v Margaretic [2005] FCA 1305
Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 1
Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24
Soden v British & Commonwealth Holdings Plc [1998] AC 298
Re Pyramid Building Society (in liq) (1991) 6 ACSR 405 at 407
Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317
Trevor v Whitworth (1887) 12 App Cas 409
Ooregum Gold Mining Co of India v Roper [1892] AC 125
Oakes v Turquand (1867) LR 2 HL 325
Tennent v City of Glasgow Bank (1879) 4 App Cas 615
Re Addlestone Linoleum Co (1887) 37 Ch D 191
Crosbie v Naidoo (2005) 216 ALR 105
Peek v Gurney (1873) LR 6 HL 377
Cadence Asset Management Pty Ltd v Concepts Sports Ltd [2005] FCA 1280
Attorney-General (NT) v Maurice (1986) 161 CLR 475
Amalgamated Services Pty Ltd v Marsden [2000] NSWCA 63

PARTIES:
Brian Alexander Johnston - Plaintiff
Anthony Gregory McGrath & Alexander Robert Mackay Macintosh (In…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Johnston v McGrath

Details

AGLC: Johnston v McGrath [2005] NSWSC 1183
Case: [2005] NSWSC 1183
Decision Date: 23 November 2005

CaseChat Overview and Summary

In the matter of Johnston v McGrath, the respondent, as liquidator of HIH Insurance, opposed a proof of debt submitted by the appellant, Johnston, who sought damages for losses incurred from the purchase of HIH shares induced by misleading and deceptive conduct of HIH Insurance. The Federal Court of Australia was tasked with determining whether Johnston's claim for damages under the Trade Practices Act 1974 (Cth), section 82, constituted a debt due in Johnston's capacity as a member and, therefore, was subject to postponement under the Corporations Act 2001 (Cth), section 563A. Additionally, the court needed to consider whether Johnston's failure to act on press statements issued by HIH Insurance that contradicted earlier misleading conduct could be considered a novus actus interveniens. Lastly, the court examined whether the client legal privilege in a statement provided to Johnston's solicitor for the purpose of drafting an affidavit was waived when the affidavit was read.

The court found that the misleading conduct by HIH Insurance was a significant factor in Johnston's decision to purchase the shares, and the subsequent press statements did not negate this initial impact. The court held that Johnston's failure to act on the contrary press statements did not break the chain of causation for the claim of misleading and deceptive conduct. Regarding the classification of Johnston's debt, the court determined that the claim for damages under section 82 of the Trade Practices Act was not a debt due in Johnston's capacity as a member and was not subject to postponement under section 563A of the Corporations Act. The court also found that Johnston's client legal privilege was not waived by the reading of the affidavit, as the statement provided to the solicitor was for a specific purpose and was not referenced in the affidavit.

The court's decision was that the liquidator's rejection of Johnston's proof of debt was incorrect. The court allowed Johnston's appeal and ordered that the liquidator accept the proof of debt as valid. The liquidator was further directed to pay Johnston's costs of the appeal.

Orders