This is an application by Bianca Rinehart, the trustee of the Hope Margaret Hancock Trust ("the Trust"), for judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) ("the Act") and, alternatively, s 92 of the Trustees Act 1962 (WA) ("the WA Act"). Mr C. Withers and Mr P.R Gaffney of counsel appear for Bianca on this application.
The two matters upon which the trustee seeks advice is whether she would be justified in defending proceedings brought against her (as trustee) in the Federal Court by Hancock Prospecting Pty Ltd ("HPPL") and in bringing proceedings against her mother, Mrs Gina Rinehart "Gina". HPPL is a company owned and controlled by Bianca's mother, and two directors of HPPL, Mr Tadeusz Watroba ("Mr Watroba"), and Mr Jay Newby ("Mr Newby").
The broad background to the disputes which give rise to the proposed proceedings and the existing Federal Court proceedings is complex but can be gleaned from [1] to [34] of the decision of Brereton J in Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207 ("the Trustee judgment"), in which his Honour gave reasons for his decision to appoint Ms Bianca Rinehart ("Bianca") as trustee of the Trust to replace Gina who had shortly before the hearing resigned as trustee of the Trust.
The beneficiaries of the Trust are Bianca, John Hancock ("John"), Hope Rinehart ("Hope"), and Ginia Rinehart ("Ginia").
Bianca has concluded that as trustee she should commence proceedings against Gina, HPPL, Watroba and Newby and she has obtained legal advice as to her prospects of success in those proceedings and the nature of relief which she should seek.
The essence of the claim that she wishes to bring on behalf of the Trust is as follows:
1. That Gina in her capacity as trustee of the Trust owned approximately 24% of the ordinary shares in HPPL (which ownership has now passed to Bianca as trustee of the Trust).
2. Gina exercised control over the management and affairs of the Trust between 27 March 1992 and 28 May 2015. Bianca contends that Gina by various steps increased the level of control.
3. That Gina owned (and owns) in her own right the majority of the shares in HPPL. Gina has at all times been a director of HPPL and controller of HPPL (although Watroba and Newby are and have been directors or alternate directors and Bianca was, until 21 October 2011, also a director of HPPL).
4. The only asset of the Trust is its 24% shareholding in HPPL.
5. That HPPL in the period from 2008 to 2015 (and beyond) made very substantial profits from its holdings of mining tenements in the Pilbara region, Western Australia. The profits for that period are said to be in the order of $5 billion.
6. HPPL was required, by its Articles of Association, to make dividend payments in respect of a class of shares known as Cumulative Special shares ("CS Shares") that were to be not less than a specified amount. These are referred to as the CSS mandatory dividend payments. The CS shares are held in the same proportion as the ordinary shares.
7. HPPL could also make discretionary payments of dividends in respect of all three classes of shares including the CS shares.
8. HPPL, in making mandatory payments, did not include in its royalty calculations specified tenements (the Marandoo Area and the MBM Area), reducing the amounts paid to the two shareholders (i.e. Gina and Gina as trustee).
9. HPPL did not make dividend payments in respect of shares when it should have made them even when it had made provision in its accounts for the payment of some of those dividends (the provisions amount to $500 million: see email of Mr Huang, secretary of HPPL, to Bianca of 28 November 2016, at Exhibit B volume 6 tab 179.)
10. Gina, in breach of her duties as director of HPPL, did not pay regard to the interest of all of the shareholders in the actions that she took or failed to take in the management of HPPL, with the consequence that the beneficiaries of the Trust did not obtain the benefit of what should have been paid to Gina as trustee.
11. It is part of Bianca's case that amendments which were made to HPPL's Articles of Association in 2006 had the effect of rendering the payment of dividends even more significant to the beneficiaries than they would normally be because of the restrictive conditions that were then introduced in respect of the sale of the shares.
12. Gina, in breach of her duties as trustee:
1. Did not take steps to ensure that HPPL did declare dividends
2. Did not take steps to ensure that the correct approach was taken to the CS mandatory dividends
3. Took steps and made decisions in relation to HPPL that were detrimental to the interests of the Trust.
1. Gina procured the payment of accounts and expenses by HPPL that were not for purposes of HPPL, but rather of her own, thus reducing the amount of money available to HPPL and, hence, distribution as dividends to the shareholders, including to Gina as trustee for the Trust.
2. Whilst Bianca accepts that she was until October 2011 a director of HPPL, she contends that she was prevented from acting as a director would normally be able to act.
3. There are claims that Gina, whilst trustee of the Trust, failed to ensure that the Trust was audited in accordance with generally accepted accounting standards.
4. There are claims against Mr Watroba and Mr Newby. As against Mr Watroba, who is an executive director of HPPL, the claim is that he did not seek to prevent, and was complicit in, Gina's alleged contraventions of the Corporations Act including the decision not to pay dividends and to calculate the dividends payable on the exclusion of the particular tenements: see [628], [629] and [632] of the draft statement of claim. The claim against Mr Newby, who is the Chief Financial Officer of HPPL, is that he was involved with Gina's breach of duty as trustee, and in respect of payments made by HPPL for purposes that were not proper purposes of HPPL, but rather for Gina's benefit: see [211], [213], [630] and [633] of the draft statement of claim.
The proposed claims can therefore be categorised as:
1. A claim that HPPL, in breach of its obligations to the trustee, has not paid dividends that should have been paid.
2. A claim that Gina, as trustee, breached her fiduciary duties to the beneficiaries by failing to ensure that HPPL paid dividends that ought to have been paid, and by instructing HPPL, her "alter ego", to take steps that would deny to the beneficiaries the benefit of dividends which should have been paid or declared.
3. A claim that Gina has procured the payment of amounts that were not legitimate expenses of HPPL and has breached duties owed by her to HPPL. For claims of that kind Bianca would require leave of the Court pursuant to s 237 of the Corporations Act 2001 (Cth) and would need to establish that there is no prospect that HPPL will itself bring such proceedings, which requirement is unlikely to present an obstacle in this case.
4. Claims against Mr Watroba and Mr Newby relating to various of the matters covered in (a), (b) and (c).
There is an interrelationship between [7(b)], [7(c)] and [7(d)] because Bianca claims that the payment of monies by HPPL for extraneous expenditure is evidence supporting the proposition that HPPL could well have afforded to make larger dividend payments than were in fact made.
There are currently on foot, or dormant, a number of other related proceedings, namely:
1. Proceedings in the Federal Court brought by HPPL against Bianca as trustee, relating to the CS share mandatory dividends. By those proceedings HPPL seeks to establish that the approach taken by it to the determination of the mandatory dividends payable is correct. It is those proceedings, which I shall call "the CSS proceedings", to which Bianca is a respondent and wishes to defend.
2. Proceedings in the Federal Court brought by Bianca and John against Gina and HPPL claiming that Gina misconducted herself as trustee of the Trust and in her capacity as director and controlling mind of HPPL and related companies, which I shall call "the first Federal Court proceedings". These proceedings also raise questions relating to the Hancock Family Memorial Foundation Trust ("the HFMF Trust") and the alteration of Gina's shareholding in HPPL from 51% to 76%. In relation to what is known as the Hope Downs Deed, Brereton J had held that the Deed did not, by its terms, prevent Bianca and John from bringing the proceedings to remove Gina as trustee: Welker & Ors v Rinehart & Anor (No. 2) [2011] NSWSC 1238 and an appeal was rejected in Rinehart v Welker [2012] NSWCA 95.
3. Arbitration proceedings were commenced by Bianca and John in their own right against HPPL in relation to the failure of HPPL to make payments under the Hope Downs Deed. The arbitrator is Mr Fitzgerald QC. Bianca and John claim that this arbitration, which I shall refer to as "the Fitzgerald arbitration", has been abandoned by the parties and overtaken by their claims in the first Federal Court proceedings.
4. Arbitration proceedings commenced by HPPL against Bianca and John claiming that Bianca and John's attempt to have Gina ousted as trustee of the Trust constituted a breach of a deed known as the Hope Downs Deed. The arbitrator in that matter was Mr Lindgren QC. Mr Withers submits that given that Brereton J did not accept that the Hope Downs Deed prevented Bianca and John seeking Gina's removal and that, in any event, Gina resigned and has been replaced as trustee, that arbitration, which I shall refer to as "the Lindgren arbitration", is a spent force.
5. Proceedings in the West Australian Supreme Court brought by Wright Prospecting against HPPL in which Wright Prospecting alleges that Hope Downs is a partnership asset. Wright Prospecting has joined Bianca and John to those proceedings because of the possibility that Bianca and John, rather than HPPL, are the beneficial owners of the partnership share.
6. Proceedings in this Court brought by Bianca, as trustee for the Trust, in which she claims that Gina has failed to hand over all of the trust documents obtained by her from the period that she was trustee of the Trust. The matter was heard by Brereton J and his Honour has reserved judgment.
In the first Federal Court proceedings HPPL contended that the disputes, the subject of those proceedings, should all be referred to arbitration in accordance with an arbitration clause in the Hope Downs Deed. Bianca and John resisted that application, in part because they contended that the Deed was not caught by the Commercial Arbitration Act 2010 (NSW), but also because they contended that the Deed should be set aside on various grounds, including unconscionable conduct on the part of Gina. Her Honour Gleeson J decided that the Hope Downs Deed was governed by the Commercial Arbitration Act but also held that the case fell within the proviso of s 8 of the Commercial Arbitration Act requiring or permitting the Court to determine whether the Hope Downs Deed was binding on Bianca and John: see Rinehart v Rinehart (No 3) [2016] FCA 539. The 'proviso hearing', as it has been described, did not proceed however because HPPL has appealed the decision of Gleeson J. Bianca and John filed a Cross Appeal asserting that the Trial Judge had erred in treating the Hope Downs Deed as falling within the Commercial Arbitration Act. That appeal, I was informed, was heard a few weeks ago and judgment was reserved.
In support of the application for judicial advice I have received extensive documentation, including a confidential and privileged memorandum of advice of Mr Bret Walker SC and Mr Gaffney of counsel, which is accompanied by a detailed schedule of evidence relating to each paragraph of the proposed Statement of Claim. Bianca relies on this memorandum in forming the view that it is in the best interests of the Trust that she bring the proposed proceedings and defend the CSS proceedings: see Bianca's affidavit of 9 March 2017.
Section 63(1) of the Act provides:
(1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.
The approach to be taken to applications for judicial advice was laid down by the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 ("Macedonian") see [67] - [74] but particularly [70] - [74], which I set out:
[70] In particular, trustees who are sued, particularly for breach of trust, may sometimes experience uncertainty about whether they will be able to obtain indemnity as to the costs of their defence under s 59(4) in any event. Perhaps they will if their breach is excused under s 85(2); but they cannot be sure, in advance, that the court's discretionary power to excuse the breach will be exercised in their favour, and one of the matters to be excused is their failure to obtain the court's direction under s 63 or otherwise. This points strongly to the conclusion that an application under s 63 by a trustee sued for breach of trust (including a breach of trust alleged to arise in the very defence of the proceedings) is not to be seen as one which should rarely if ever succeed. Instead it should be seen as a standard instance to which s 63 can in appropriate circumstances apply.
[71] In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs.
[72] It is, therefore, not right to see a trustee's application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust.
[73] The fact that one of the purposes of proceedings for judicial advice is to protect the interests of the trust has particular importance where, as in this case, the trust concerned is a charitable purpose trust. In litigation brought by private persons having a particular view about the terms of a trust, the trustee will ordinarily be joined as a necessary and proper party to the proceedings. Unless some other party will act as contradictor, the burden of defending the suit will fall upon the trustee. If, as will often be the case with a charitable purpose trust, there is no other party that will act as contradictor, the claims made about the terms of the trust will go unanswered unless the trustee can properly resort to the trust funds to meet the costs of defending the litigation. And even if there is another party that will act as contradictor, it is almost always desirable, even necessary, for the trustee to take an active part in the proceedings so that issues are properly ventilated and argued.
[74] A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. In deciding that question a judge must determine whether, on the material then available, it would be proper for the trustee to defend the proceedings. But deciding whether it would be proper for a trustee to defend proceedings instituted about the trust is radically different from deciding the issues that are to be agitated in the principal proceeding. The two steps are not to be elided. In particular, the judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings.
See also [162]-[164] of Macedonian, which I set out:
[162] Although the plaintiffs' submissions take Palmer J to be using the term "sufficient prospects of success" in apposition to an opinion about strength, that is not the way Palmer J used the term. His Honour said:
[80] In a judicial advice application in which the trustee asks whether it is justified in prosecuting or defending litigation, all the Court does is to reach a view as to whether the Opinion of Counsel satisfies it that there are sufficient prospects of success to warrant the trustee in proceeding with the litigation. Counsel's Opinion must address the facts necessary to support the legal conclusions reached and must demonstrate that the propositions of law relied upon for those conclusions are properly arguable. Whether, in the light of Counsel's Opinion, there are "sufficient" prospects of success
249 ALR 250 at 291
calls for another judgment, founded upon such considerations as:
- the nature of the case and the issues raised;
- the amounts involved, including likely costs.
- whether the likely costs to be incurred by the trustee are proportionate to the issues and [the] significance of the case;
- the consequences of the litigation to the parties concerned;
- in the case of a charitable trust, any relevant public interest factors.
[163] Thus Palmer J distinguished the question of whether propositions were properly arguable from the question whether there were "sufficient" prospects. Palmer J then said:
[81] … [Counsel's opinion] specifically addresses the facts relating to the Schedule A Property Issue, amongst other issues. The propositions of law relied upon are properly arguable. I have considered the factors referred to above. While the cost of the litigation is very great, so also is the importance of the litigation to a section of the community. As I have said, the final settlement of the dispute as to the use of the Church, which has already divided the community so bitterly for such a long time, is in the public interest.
[164] Nothing in the foregoing reasoning indicates that Palmer J distinguished between mere "sufficiency" and "strength"; indeed he had earlier stated as a relevant factor "the merits and strengths of the claim against the trust estate".170 Nor does the plaintiffs' submission demonstrate that Palmer J was disabled from reaching the stated assessment by the absence of a defence to the statement of claim (version 8). The contents of counsel's opinion doubtless indicated in general terms what the contents of the defence would in due course be.
A trustee is not required to seek advice by s 63 of the Act but can do so if there is any concern that the beneficiaries of the trust (or some of them) might claim that the commencement and maintenance of proceedings by the trustee, or the defence of proceedings against the trustee by a third party, would constitute a breach of trust. I do not regard s 92 (1) of the WA Act as involving any different test, and I shall proceed to consider the matter as an application under s 63 of the Act.
Relevant to the present application is the fact that the Court, in appointing Bianca as trustee, required, and obtained, an undertaking (see [383] of the Trustee judgment) that she would:
(d) not commence or continue proceedings on behalf of the trust in a court, tribunal or arbitration without the advice of the Court provided that this does not preclude the commencement of proceedings for urgent interim relief; and
(e) unless she is of the opinion that in any particular case it would be contrary to the interest of the trust to do so, consult the beneficiaries before seeking the advice of the Court and disclose to the Court the views of the beneficiaries when seeking such advice.
The two matters on which Bianca seeks advice are matters relevant to the administration of the Trust and involve a matter germane to the interests of the Trust, which would be sufficient in my view, but the undertaking required of her by the Court puts it beyond doubt that Bianca is entitled to seek, and should be given, judicial advice on the matters upon which she seeks advice.
Bianca has sought the views of the beneficiaries. John supports the proposed action and defence of the CSS proceedings in the Federal Court. Neither Hope nor Ginia have indicated support or opposition to the course proposed. Bianca has made it clear that she has not provided Hope and Ginia with all the material relevant to her decision to embark on the litigation. Her reasons for not doing so are closely related to the inherent dynamics of the situation in which the Rinehart family finds itself. Bianca fears that any material which is provided to Ginia and Hope is likely to be passed on to Gina. Since Gina is the prospective defendant in the litigation she could thereby be informed as to contents of the memorandum of advice, a highly undesirable outcome from Bianca's point of view and, it can be said, the Trust's point of view.
Bianca did indicate that she would be willing to provide all relevant information to the other beneficiaries if John, Ginia and Hope provided undertakings to the Court that they would not disclose any of the material received to anyone else, but neither Hope nor Ginia indicated a willingness to provide such an undertaking and, in fact, as at the time of the hearing on 2 March 2017 they simply had not responded to the notification sent.
On 2 March 2017, I informed counsel that I required an affidavit from Bianca setting out the steps she had taken to ascertain the other beneficiaries views and attesting to her wish to commence proceedings and defend the CSS proceedings and the basis for that decision. The affidavit was to be provided by Monday 6 March. I also indicated that I would reserve my decision on the application until after I had received that affidavit and considered the matter further.
On Tuesday 7 March, the solicitors for Bianca requested that I relist the matter that day so that counsel could inform me of a further development. Mr Withers and Mr Gaffney appeared at 3:45pm and Mr Withers tendered Exhibit F, which contained, inter alia, a draft affidavit from Bianca, and an email from Ginia to Bianca and Bianca's response to Ginia.
In her email Ginia asserted that she was not aware of what was involved in the application and she also asked for information as to what occurred in Court on 2 March 2017, as well as indicating that she had been told something of what had occurred in Court on 1 March 2017. Bianca's email in response draws attention to the emails she had previously sent to Ginia (and the other beneficiaries) dated 17 November 2017, 13 December 2016, 15 December 2016, 7 February 2017 and 3 March 2017 and also points out that she is surprised to hear from Ginia that "someone has informed you of what they say the Court was told about your position when most of the hearing was conducted in a closed Court and orders have been made restricting the publication of the transcript of the hearing…"
Mr Withers took me to the transcript for 2 March 2017 and drew my attention to what had been said before the Court was closed, and after the Court was closed, concerning the position of the other beneficiaries. Having regard to what Mr Withers said in open Court, at T4.30: "none of the beneficiaries object to the jurisdiction of This Court", it is entirely possible that that statement has been communicated to whoever passed on information to Ginia (whether directly or indirectly, accurately or inaccurately). Given that Brereton J required Bianca to seek judicial advice before commencing proceedings it is hardly surprising that the jurisdiction of the Court to give advice would not be an issue, whatever a person's attitude to the subject matter of the advice sought. I will return to the question of jurisdiction later in these reasons.
In my view Bianca has taken the steps required of her to ascertain the views of the beneficiaries. I proceed upon the basis that the beneficiaries have been adequately advised of the application and have had the opportunity to obtain further information, subject to them providing an undertaking, which undertaking has not been given. I also proceed upon the basis that two of the beneficiaries support the proceedings and that the other two beneficiaries neither support, nor oppose, the commencement of the proceedings.
The amounts involved in the claim are of very significant proportions. If Bianca is correct in her contentions only to the extent of the amount provisioned by HPPL for dividends (and not paid), this would involve an amount of approximately $500 million not paid to shareholders, of which the trustee would receive approximately $120 million. If the wider contentions are made good, the Trust will stand to obtain much larger amounts. The solicitors for Bianca estimate that the costs of the case could be approximately $2 million. Given the history of the litigation to date, and the observations and findings of Brereton J in the Trustee judgment, it is appropriate to assume that the proceedings will be vigorously defended.
The submissions of counsel raise a number of preliminary matters to which attention should be given on this application:
1. Has Bianca complied with the undertaking?
2. Is the matter one suitable for judicial advice?
3. Is this Court the appropriate Court in which to seek advice?
4. What does Bianca have to establish to enable the Court to advise that she is justified in (a) bringing the Supreme Court proceedings and (b) defending the CSS proceedings?
5. Is the Supreme Court the appropriate Court in which to bring proceedings?
I have dealt with [25(1)] and [25(2)].
I am satisfied that this is the appropriate Court from which to seek advice because:
1. It was this Court in which the proceedings to have Gina removed as trustee were heard and this Court which appointed Bianca.
2. Brereton J required Bianca to provide an undertaking to "the Court" that she would obtain advice of "the Court" before commencing proceedings and the reference to "the Court" is one which I take to be a reference to this Court.
3. This Court has heard the trustee's application for documents (see [9(6)].
4. The Trust's accountants are based in New South Wales, and the CSS proceedings have been commenced in the NSW Registry of the Federal Court (rather than the Perth Registry).
5. None of the beneficiaries have objected to the jurisdiction of this Court to hear the application for advice, although they have been made aware of the application.
I think it also follows that since the proceedings to have Gina removed were commenced in this Court, and Bianca was appointed by this Court, this Court is also a forum in which the proposed proceedings could be launched, although I shall return to that topic later in these reasons.
In relation to [25(4)(a)] Bianca needs to establish that the claim which she wishes to bring has reasonable prospects of success and is not fruitless: Glassock v the Trust Company (Australia) Pty Ltd [2012] QSC 15 at [14] per Boddice J and Re Atkinson (deceased) [1971] VR 612, p 615 per Gillard J. The Court is not required to investigate the evidence or determine whether the applicant will be successful but the merits and strengths of the claim are relevant: see [162] - [164] of Macedonian.
In relation to [25(4)(b)], insofar as it concerns the defence of proceedings, Bianca needs to establish that there are sufficient prospects of success to justify defending the proceedings.
Mr Withers contends that the additional factors to which the Court will have regard on both limbs (in respect of non-charitable trusts) are:
1. The nature of the case and the issues raised
2. The amount involved including likely costs
3. The proportionality of the costs likely to be incurred by the trustee and the significance of the case
4. The consequence of the litigation to the parties concerned.
: See Robert Peter Campbell ATF the Joan Macpherson Trust and the Banandra Pastoral Settlement Trust [2016] NSWSC 1751 per Sackar J at [35] - [38] discussing the comments of Palmer J in Macedonian, which the High Court set out at [162] and [164] with approval.
In cases of this kind it has been the practice of the Court to look for, and where appropriate rely on, a memorandum of opinion from counsel: Castle Hill Joinery and Interiors Pty Ltd (as trustee of Gladstone-Road Trust) [2013] NSWSC 1525, and see Re Lemon Tree Passage & Districts RSL And Citizens Club Co-Operative Ltd (1987) 11 ACLR 796 at 799.
I have had regard to the joint advice of Mr Walker SC and Mr Gaffney. It is a detailed advice which, not only considers the case to be advanced on behalf of Bianca, but also gives consideration to matters likely to be raised by the defendants. Coupled with the very detailed draft Statement of Claim and the appendix to the advice prepared by counsel, which reflect a consideration by them of the evidence in support of each allegation (including a draft expert report relevant to the appropriate level of dividends payable by HPPL), the advice leads me to accept that Bianca has reasonable prospects for success on the case which she wishes to bring, and in respect of the defence which she wishes to mount. A trustee has an obligation to get in the trust estate: see Re Brogden (1888) 38 Ch D 546; Young v Murphy [1996] 1 VR 279, 281-282 per Brooking J with whom Batt J agreed. There are factual and legal issues which will clearly be in contention, but that is hardly surprising. There are, accordingly, also risks that the CSS proceedings will not be successfully defended, and that the new proceedings will not result in victory for the trustee, with the consequence that Bianca will not only have to meet her legal costs out of the Trust assets, but also meet the costs of the other parties to the litigation. As Macedonian makes clear, the Court on an application for judicial advice is expressing only a view as to whether the trustee is justified in bringing or defending an action. It follows that the Court is not called on to express a view as to the ultimate outcome or indeed as to whether any of the allegations which found the claims or the defence will be made out in the proceedings after due consideration of all of the relevant evidence tendered by the parties. The amounts involved if Bianca is successful on behalf of the Trust are very considerable and the costs estimated, although very large, are not out of proportion to the claims. I am satisfied that it is in the interests of the Trust, and hence the beneficiaries, that the claims which Bianca, having had the benefit of advice from senior and junior counsel as to her prospects of success, wishes to pursue be pursued, and that the CSS proceedings be defended.
On the issue of whether Bianca is justified in launching the proposed proceedings and defending the CSS proceedings, and, although not determinative, additional support for counsels' views on some of the issues on which they opine can be gained from the findings of Brereton J in the Trustee judgment: in particular [223] - [233] of the Trustee judgment, and [17] of his Honour's judgment on costs, which I set out:
223 First, in 2011, having been advised to the effect that CGT would not be incurred upon the vesting of the Trust, Mrs Rinehart nonetheless (by instructing them to assume that vesting would be a CGT event, when on the advice she had obtained it was not) manipulated Pricewaterhouse Coopers to provide an advice on the basis of an assumption that CGT would be incurred. Then, she used that advice as the basis for her 3 September 2011 letter to the beneficiaries which misrepresented that unless the vesting date of the trust was extended, they would be insolvent with effect from 6 September due to the CGT liability that would (allegedly) be incurred, and informed them that she would extend the vesting date only if they gave her a release in respect of her conduct as trustee, and undertook to enter into nuptial agreements. Next, dispatch of that letter was deliberately withheld until the last minute, so as to minimise the opportunities for the beneficiaries to obtain advice about it or take any legal action, before the deadline. Yet when the letter was sent, Mrs Rinehart already intended to use her power to extend the vesting date, regardless.
224 In the course of the litigation, Mrs Rinehart (with her alter egos HPPL and HDIO) has repeatedly, directly, or through her lawyers, or through other influential connections, sought to deter the plaintiffs from prosecuting it, by measures some of which closely approach intimidation. These commenced shortly after the proceedings were commenced, and continued at least until the eve of Bianca giving evidence at the second hearing. On 8 September 2011, Tad Watroba, a senior officer of HPPL, sent to Bianca an email to the effect that as a director of HPPL, her fiduciary duties mandated that she withdraw her application. On 11 September, Senator Barnaby Joyce sent Hope an email calculated to dissuade her from continuing the litigation. On 19 September, Mr Alby Schultz MP sent an email to Hope to similar effect. On 16 November 2011, Mrs Rinehart sent emails to John and Hope counselling them against verifying the statement of claim and that if they did so "it would be held against you all your life". Similar warnings were conveyed by Mrs Rinehart's solicitors in a letter of the same date. In February 2012, following the failure of her attempts to have the proceedings stayed and suppression orders made, Mrs Rinehart threatened to withdraw ransom insurance intended to be available for the protection of Bianca and her young son. In her capacity as trustee, Mrs Rinehart refused to make any trust distributions to the plaintiffs - for which she proffered various reasons, including that the plaintiffs' pursuit of the litigation was "malicious and ill-advised" - until the plaintiffs brought a motion in December 2013 to compel her to do so.
225 She procured Hope's withdrawal as a plaintiff, by making her "loans" of some $45 million, in consideration for which she also acquired, for her lifetime, such voting rights as Hope might become entitled to in HPPL.
226 After two years of litigation, during which Mrs Rinehart repeatedly sought stays and dismissal of the proceedings, she announced - seven days before the hearing of the application for her removal - that she desired to be discharged. Even after that, and after the nomination of Mr Carter had been withdrawn by the plaintiffs, and after Bianca had renominated herself, and after Ginia had propounded the initial version of the defendants' proposal, the solicitors for HPPL and HDIO sent letters to Bianca on 29 November 2013 to the effect that if she persisted with the litigation and HPPL lost the Hope Downs asset as a result, she would be sued personally, for enormous damages.
227 Then, by letters dated 1 March and 4 April 2014, HPPL and HDIO accused Bianca of "unlawful and dishonest conduct" and "contumelious disregard" for her confidentiality obligations as a director of HPPL, and endeavoured to use those allegations to convince Bianca to withdraw her nomination. These were most grave allegations, and they were raised and pressed in a manner calculated to intimidate Bianca. But no evidence that substantiated them was ever produced, they were abandoned on the eve of the hearing, and Bianca was not cross-examined on the topic.
228 Even after her announcement that she intended to resign as trustee, Mrs Rinehart has taken steps to influence selection of her replacement: she arranged the nomination of NATL, a subsidiary of one of HPPL's principal financiers, and she arranged the nomination of ETL through direct personal contact with its chairman, Mr Jeff Kennett. And on the eve of Bianca giving evidence in the second hearing, Mrs Rinehart had Mr Grant Hackett forward to Bianca an email to the effect that if she gave evidence that she entered the Hope Downs deed under duress, she would be found a liar and should therefore settle the proceedings.
229 At the first hearing, counsel for Mrs Rinehart accepted (notwithstanding her statement only days earlier that her replacement should be a lineal descendant) that her views as to the identity of the replacement trustee were irrelevant. Mrs Rinehart has, however, sought to have her views as to the identity of the replacement trustee taken into account indirectly, through the fourth and fifth defendants, of which she is the controlling mind. Although separately represented (the first defendant by two senior and two junior counsel; the second defendant by senior and junior counsel, and the fourth and fifth defendants by senior and junior counsel), all were funded directly or indirectly by Mrs Rinehart. That this continued at the second hearing, when the only live issue was selection of the replacement trustee, is testament to the resources and effort she was prepared to invest in securing the appointment of a trustee acceptable to her, despite her overt disavowal of interest in that issue.
230 I have never seen such pressure exerted, so persistently, on a litigant, as has been apparent in this case.
231 Mr McHugh submitted that before concluding that an independent trustee might be vulnerable to the influence of Mrs Rinehart, it was necessary to consider the means by which such influence might be exerted, and the risk that it would not be resisted, and that it was not realistic to expect that trustee companies would risk their professional reputation, upon which their livelihood depends, for some perceived nebulous benefit of currying favour with Mrs Rinehart in a manner which involved breaches of their statutory obligations. However, the impact of influence might not involve a clear, or any, breach of statutory or other obligations. As will become apparent, in at least one case the desire to avoid offending Mrs Rinehart's wishes has already resulted in a remarkable decision to consult her personal banker about a response to a subpoena issued in the proceedings. In addition, as Mr Withers, for the plaintiffs, submitted, there is the potential for the quiet influence of money and profit on these companies, quite apart from overt threats.
232 It was submitted that it should not be inferred that Mrs Rinehart would act towards an independent trustee in the manner in which she acted towards the plaintiffs. It is true that there are many who, in the emotional and personal context of family relations, act in a manner in which they would never think to act in a commercial transaction. On the other hand, it might be asked, if Mrs Rinehart was prepared to act as she did towards her children, how much further might she be prepared to go in the case of unrelated corporate entities. She has demonstrated a willingness and ability to influence an organisation that one would otherwise expect to be independent - PricewaterhouseCoopers - to provide an advice in respect of CGT on an assumption about vesting which was contrary to the advice already obtained, and to "sanitise" a version of its advice for provision to the beneficiaries. Regardless of her disavowing any interest in the selection of her replacement, Mrs Rinehart has demonstrated that she is prepared to go to extraordinary lengths to retain control, directly or indirectly, of the Trust, and that she is capable of exerting enormous pressure, and great influence, to do so, and to secure the appointment of a trustee acceptable to her. In my view, there is a very reasonable inference that she would likely attempt to overbear any trustee, including a professional trustee, who acted against her interests.
233 The benefits of overt independence will be lost, not only if the replacement trustee in fact is not sufficiently robust to repel Mrs Rinehart's approaches, but also if the beneficiaries (or some of them) reasonably doubt that it will be uninfluenced by her. Although, because Mrs Rinehart has indicated that she desires to be discharged as trustee, it is unnecessary to consider and decide whether she has committed breaches of trust, in my view, having regard to her conduct in September 2011, her resignation at the last moment in the face of an application to remove her on account of that conduct at a time when she had adduced no evidence to explain it, her ongoing conduct (and that of HPPL and HDIO) in these proceedings as described above, and most particularly to the scope for conflict between the interests of the Trust on the one hand and those of Mrs Rinehart (as former trustee) and HPPL (as the company against whom the Trust may need to assert its rights as a shareholder) on the other, the plaintiffs are entitled to have a replacement trustee who not only is, but also appears to be, completely independent from Mrs Rinehart [cf Global Funds Management (NSW) Ltd v Burns Philp Trustee Co (1990) 3 ACSR 183, 185 (Rolfe J); Pope v DRP Nominees Pty Ltd [1998] SASC 6933, [90]-[94]].
And Hancock v Rinehart [2016] NSWSC 11 at [17]:
17 But that is not the main reason for rejecting the defendants' submissions in this respect. Where a trustee unsuccessfully resists removal - even in the absence of proven misconduct - the trustee may be ordered to pay the costs of any proceedings required to secure the removal and consequent upon it. [11] It is correct that it was unnecessary in the substantive proceedings to characterise Mrs Rinehart as a defaulting trustee; that question ceased to be relevant as a substantive issue by reason of her ultimate voluntary decision to seek to be discharged. However, in circumstances where she did so at the eleventh hour, in the face of an application to remove her on account of her conduct in September 2011, at a time when she had adduced no evidence to explain it, and consented to an order that she pay the costs of the proceedings for her removal on an indemnity basis, it is right to conclude that her resignation represented a recognition and acceptance on her part that the proceedings for her removal would otherwise have succeeded. In turn, that imports that she was responsible for the incurring of the costs of those proceedings; that consequence cannot be escaped by the strategy of removing the issue of breach of trust by a last minute resignation and consent to a costs order. While her admission did not extend so far, in my view it is a necessary incident that she is also responsible for the incurring of the costs of the proceedings to decide who should be her replacement - a view that does not depend on, but is fortified, by her active participation in those proceedings, as described in the substantive judgment.
(Emphasis added.)
I should note that Mr Withers tendered, on the application, an email dated 1 March 2017, received by Bianca on 1 March, which is in response to Bianca's email to HPPL of 6 February 2017 and marked Exhibit E. The email is from Mr Jabez Huang, the company secretary of HPPL. Mr Withers submitted that I should infer that the email was sent at the time it was sent with the expectation that Bianca would tender the email, and so that it would come to the Court's attention.
Bianca's email of 6 February 2017 to Mr Huang complained about HPPL's failure to answer many questions and provide documentation. The response of 1 March is lengthy and refers to earlier emails of HPPL of 1 February 2017 and HPPL's lawyers of 24 January 2017, 9 November 2016 and 1 December 2016.
There are several themes in the various items of correspondence by, or on behalf of, HPPL, which can be summarised:
1. Bianca, as trustee, is a shareholder of HPPL and not entitled to material or documents that are the province of management and administration of the Company.
2. HPPL has provided a lot of information to Bianca in the past.
3. There are historical matters on which HPPL relies, such as the Hope Downs Deed and the unfinished Lindgren arbitration, which HPPL asserts affects its obligations to make dividend payments.
4. That Gina has greatly enhanced the worth of HPPL by sagacious management and considerable effort and, hence, the shares held by Bianca as trustee, and that Bianca (and John) appear to be ungrateful for the work and effort that Gina has invested in HPPL. The payments they have received have been significant.
5. There is a suggestion that HPPL would be willing to consider a reasonable compromise on certain aspects relating to the Hope Downs Deed.
6. That the payment of increased dividends to Bianca, as trustee, compared to what was paid previously to Gina, as trustee, is totally coincidental.
7. That HPPL has, at all times, acted appropriately in relation to the shareholders.
The emails raise matters which will very likely be the subject of the litigation. The question of the appropriateness of HPPL's conduct (as well as Gina's conduct) is the subject matter of counsels' memorandum of advice. The correspondence also underscores that there is likely to be a contest over each and every significant item of property held by HPPL that Bianca contends has been used for the private benefit of Gina, such as an apartment on a cruise ship, a pastoral property, a penthouse in Sydney and a number of other residential properties. It does not seem necessary for Bianca to succeed on each and every item about which complaint is made, since the fact of expenditure is relevant for an additional reason, as I have mentioned, but it will be necessary for her, and those advising her, to have access to all relevant material before an assessment can be made as to whether her assertions as to improper expenditure are correctly made or not.
On the question of the adequacy of HPPL's disclosure to Bianca, I note that in Rinehart & Anor v Rinehart & Anor [2015] NSWSC 1201 White J said at [93]:
93 In the circumstances of this case, the plaintiffs made reasonable inquiries by researching available information from the Rio Tinto group, examining the constitution and financial statements of HPPL and by asking the defendants to explain the position. I do not understand why the defendants, if acting reasonably, would not simply have provided the explanations and information the plaintiffs sought. The potential dispute relates to the affairs of a private company controlled by Mrs Rinehart. Her children are the beneficiaries in respect of a minority parcel of shares and the plaintiffs are two of those children. No evidence was adduced for the defendants to explain why the information the plaintiffs sought could not readily have been provided. Nor was there any evidence as to any harm feared if such information had been provided. Instead, the plaintiffs' inquiries were met with abuse and obstruction. The fact that the defendants can now point to further inquiries the plaintiffs could have made does not indicate that they failed to make reasonable inquiries by those they did make.
His Honour's comments suggest, I think, that the issue of what ought to be provided to Bianca as trustee may well be affected by the fact that this is a private company controlled by the beneficiaries' mother with effectively only two shareholders, but once litigation has commenced the question of what information HPPL was required to provide to Bianca will, in any event, very likely become far less significant.
Whilst I am of the view that Bianca is justified in bringing the proposed proceedings, and resisting the CSS proceedings, I should indicate a concern that I have in relation to the forum in which they should be addressed. There are currently on foot the CSS proceedings in the Federal Court, and also the first Federal Court proceedings. I think it is highly desirable that all issues concerning HPPL be heard in the one Court at the one time, if that is possible. I accept that the outcome of the appeal in the Federal Court may have a significant bearing on the question of how, and where, the proposed proceedings should be heard. I am conscious that Bianca may be advised to launch proceedings in the Supreme Court of New South Wales sooner, rather than later, to avoid any limitation defence being raised, with consideration being given, thereafter, to the issue of the appropriate forum, but by expressing my view on the two questions posed for judicial advice, I do not wish to be taken as expressing any view as to the forum in which the proceedings should ultimately be heard.
[2]
Amendments
22 March 2017 - Paragraph in cover sheet amended.
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Decision last updated: 22 March 2017
Parties
Applicant/Plaintiff:
Bianca Hope Rinehart trading as trustee of the Hope Margaret Hancock Trust