Johnston v McGrath

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.