McGrath and passenger Kori Jeffcoat received significant injuries but Mr Hall died at the scene.
The IPCA found that the officer was unable to catch up to the Subaru before the crash occurred and was never close enough to the car to be able to signal the driver to stop.
The officer therefore was not engaged in a 'pursuit' as defined in police policy.
IPCA head Sir David Carruthers said: "This was an accident caused by the actions of Mr McGrath, who was driving dangerously and in excess of the blood alcohol limit for a person of his age. Mr McGrath's actions resulted in the tragic loss of life of one of his passengers."
Following the accident McGrath was charged with manslaughter, dangerous driving causing injury and driving with excess blood alcohol.
McGrath pleaded guilty and was sentenced to five years in prison with a non-parole period of two years. He was also disqualified from driving for five years.
Mr Hall's death was the subject of a post on Cameron Slater's WhaleOil blog which sparked outrage when Slater called Mr Hall "feral".