Johnston v McGrath in their capacity as liquidators of Hih Insurance (in liq) and ors [2005] NSWSC 1114 (14 October 2005)

Last Updated: 17 November 2005

NEW SOUTH WALES SUPREME COURT

CITATION: Johnston v McGrath in their capacity as liquidators of HIH Insurance (in liq) & ors [2005] NSWSC 1114



CURRENT JURISDICTION:

FILE NUMBER(S): 6644 of 2004

HEARING DATE{S): 14 October 2005

JUDGMENT DATE: 14/10/2005

PARTIES:
Brian Alexander Johnston (plaintiff)
Anthony Gregory McGrath and Alexander Robert Macintosh in their capacity as liquidators of HIH Insurance (in liq) (first defendants)
HIH Insurance Limited (in liq) (second defendant)

JUDGMENT OF: Brereton J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
E Muston (plaintiff)
M Gracie (first defendants)

SOLICITORS:
Dennis & Co (plaintiff)
Blake Dawson Waldron (first defendants)


CATCHWORDS:
PRACTICE AND PROCEDURE - Adjournment - relevant precedent under appeal in Federal Court - whether trial should be adjourned pending outcome of appeal in Federal Court.

ACTS CITED:
Corporations Act 2001 (Cth), s 536A

DECISION:



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION



BRERETON J

Friday 14 October 2005


6644/04 Brian Alexander Johnston v Anthony Gregory McGrath in their capacity as liquidators of HIH Insurance (in liq) & ors

JUDGMENT (ex tempore - revised 7 November 2005)

1 HIS HONOUR: By interlocutory process filed on 12 October 2005 the defendants, who are the liquidators of the second defendant HIH Insurance Limited, move to have a hearing set down to commence in this Court on 21 October 2005 vacated. The plaintiff, Brian Alexander Johnston, is a shareholder in the second defendant. He claims that he acquired his shares as a result of misleading and deceptive conduct or misrepresentation by the second defendant and that he is entitled to damages essentially reflecting the overpaid purchase price of shares, which are said to be in fact worthless. The plaintiff opposes the application for vacation.

2 At the heart of Mr Johnston's case is the contention, disputed by the first defendant, that Mr Johnston's claim is not a claim in the capacity of a shareholder of HIH and is, therefore, not caught by Corporations Law, s 536A, which would subordinate that claim to a claim of creditors who might be called external creditors in HIH.

3 This very question was recently decided in the Federal Court of Australia by Emmett J in Sons of Gwalia Ltd (Administrator Appointed) v Margaretic & Anor [2005] FCA 1305 (15 September 2005). His Honour's decision is strongly supportive of Mr Johnston's case and upholds the principle for which Mr Johnston contends in this case. If his Honour was wrong, then Mr Johnston's case must fail.

4 The significance for Mr Johnston's case of his Honour's decision and the principle for which it stands is illustrated by the attention which it receives in the submissions provided by Mr Gracie, of counsel, for the final hearing of these proceedings, which refer to and analyse at length and in detail the Sons of Gwalia decision, and submits that it should be followed by this Court.

5 There are other issues in the present proceeding, including in particular a question of reliance or causation. That is a question which will be peculiar to the facts of this case. But the plaintiff must succeed both on that question and on the question of principle concerning s 536A if he is to succeed in the case.

6 The Sons of Gwalia proceedings were in fact instituted by the administrators of that company seeking declaratory relief that the claim against the company was not one made in the capacity of shareholder. The unsuccessful applicants have filed appeals to the Full Court of the Federal Court, and their notices of appeal challenge the approach adopted by Emmett J to Corporations Act, s 536A. The appeals are set down for hearing in the Full Court of the Federal Court on 1 December 2005.

7 A cursory reading of Emmett J's decision does not suggest that it is plainly wrong; far from it. Although it was necessary for his Honour to distinguish the judgment of the High Court of Australia in Webb Distributors (Australia) Pty Limited v State of Victoria [1993] HCA 61; (1993) 179 CLR 15, it cannot be said that that distinction is obviously without substance.

8 Mr Gracie in his written submissions in the substantive case has referred to a subsequent judgment of the House of Lords in Soden v British & Commonwealth Holding plc [1997] UKHL 41; [1998] AC 298, which adopts an approach similar to that adopted by Emmett J. As Mr Gracie has pointed out, further support for the approach adopted by Emmett J is to be found in the judgment of Finkelstein J in Re Media Word Communications Limited (Administrator Appointed); Crosbie & Anor v Naidoo & Anor [2005] FCA 51; (2005) 216 ALR 105.

9 I have referred to these matters, because the strength of the grounds of appeal urged in the Sons of Gwalia case are of relevance in considering an application of this type. I would not for a moment want to be taken as suggesting that the point is not an arguable one, and it may well be one on which minds can differ. But, prima facie, there is substantial support for the approach which Emmett J adopted.

10 If, however, the Full Court of the Federal Court were to come to a different view and overturn Emmett J, the case is one in which a question of principle of general application emerges. The construction of s 536A is one of principle. It is, prima facie, one of importance. I am informed that this case is, in effect, a test case, and that there are many shareholders waiting behind Mr Johnston in the wings to bring similar applications. There must, therefore, be some reasonable prospect that whatever happens in the Full Court of the Federal Court, but particularly if the appeal to that Court were to succeed, an application for special leave might well attract success. If that be the case, then adjourning the present hearing may well have the consequence that the matter would not come on for hearing for 18 months to two years hence.

11 In his concise submissions, Mr Muston has referred repeatedly to the interests of the creditors of HIH. In an application of this type, the Court's concern is with the interests of the litigants before it. Not untypically, those interests will be completely opposed. The interests of the creditors are relevant only insofar as they represent the interests of one of the litigants. At least as relevant as the interests of the creditors are the interests of the other potential plaintiffs, whose cases potentially depend on the outcome of this case.

12 Courts often have to decide cases, including cases involving difficult questions of law, when the law is in a state of evolution. In this country, courts of one State or one jurisdiction often have to decide cases when the law in the same area is evolving in other States and other jurisdictions. Sometimes, as Mr Gracie points out, this facilitates the ultimate development of the law, because rather than presenting the Court of last resort with only one piece of litigation in which an issue can be resolved, it may present that Court with a variety of decisions in a variety of jurisdictions enabling more extensive views to be taken into account.

13 As Mr Gracie points out, his client wishes to have his own say on the construction of s 536A, and not leave it to the litigants in the Sons of Gwalia case to argue that issue.

14 Ultimately, the question becomes one of choosing between, on one hand, potentially, but not necessarily, inflicting additional costs on the parties by forcing the matter on now, which might be avoided if it were adjourned to abide the Sons of Gwalia decision; and, on the other hand, inflicting delay on the plaintiffs, who have brought their case, prosecuted it to this point and had it set down for hearing.

15 Neither additional costs nor delay in the resolution of litigation is an attractive proposition. However, generally speaking, a plaintiff who brings a case is entitled to have that case heard and determined on the law as it stands. I see no reason in the context of this case to depart from that general position. Accordingly, I do not accede to the application to vacate the hearing.

16 I order that the interlocutory process filed on 12 October 2005 be dismissed with costs.

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LAST UPDATED: 15/11/2005