Rinehart v Rinehart

Judgment

1. THE COURT: The applicant, Ms Bianca Rinehart, seeks leave to appeal from interlocutory orders made by Ward CJ in Eq (the primary judge) on 14 February 2020, and consequential costs orders made on 23 March 2020. The underlying proceeding (2017/86718) was commenced by the applicant in her capacity as trustee for the Hope Margaret Hancock Trust (HMH Trust) on 21 March 2017. We will refer to the applicant as "Bianca" without intending any disrespect. As trustee of the HMH Trust, the applicant holds 24% of the shares in the second respondent, Hancock Prospecting Pty Ltd (HPPL). The remaining 76% of HPPL's shares are owned by the first respondent, Ms Gina Rinehart, who is also the Executive Chairman of HPPL and was trustee of the HMH Trust until 28 May 2015.
2. The challenged orders referred the disputes the subject of the underlying proceeding, other than a claim for relief under Corporations Act 2001 (Cth), s 247A, to arbitration and stayed the balance of that proceeding, including the application under s 247A (the s 247A Application, also referred to as "motion (ii)" filed on 27 April 2017) and an application by Bianca to restrain the first and second respondents from seeking a stay or referral of the proceeding to arbitration (the Anti-Arbitration Application, also referred to as "motion (viii)" and the "unconscionability motion" by the primary judge). The latter motion was filed on11 June 2019.
3. In the underlying proceeding Bianca as trustee of the HMH Trust makes claims against the first respondent for declaratory and other relief in relation to alleged breaches of duty as trustee of the HMH Trust and as a director of HPPL and oppressive conduct, relating principally to the payment or non-payment of dividends by HPPL in the period from 2010 to 2015, and the alleged misuse of HPPL's corporate funds. The relief sought includes orders regulating the ongoing conduct of the affairs of HPPL and the exercise of voting power by the first respondent as majority shareholder in HPPL.
4. As is already noted, the principal orders referring the parties to arbitration were made on 14 February 2020: Rinehart v Rinehart [2020] NSWSC 68. The applicant challenges orders 1, 2, 3 (in so far as it relates to motions (ii) and (viii)), which provide: "(1) Pursuant to s 8(1) of the Commercial Arbitration Act (NSW) and s 8(1) of the Commercial Arbitration Act (WA), refer the parties to arbitration of the disputes the subject of this proceeding other than the claim for relief pursuant to s 247A of the Corporations Act 2001 (Cth). (2) Stay the balance of the proceeding pending determination of the arbitration of the disputes so referred to arbitration in accordance with order 1. (3) Stay the following motions pending the determination of the said arbitration: notice of motion filed on 27 April 2017 by Bianca (referred to in these reasons as motion (ii)); … [and] notice of motion filed on 11 June 2019 by Bianca (referred to in these reasons as motion (viii))."
5. The consequential costs orders were made on 23 March 2020: Rinehart v Rinehart (No 2) [2020] NSWSC 235. The challenged orders provide: "(7) Order Bianca Hope Rinehart, as trustee for the Hope Margaret Hancock Trust, to pay the costs of the defendants of, and incidental to, the second defendant's amended notice of motion dated 15 July 2019 and filed on 16 July 2019, and the first defendant's amended notice of motion dated 26 June 2019 (including the hearings of 23 May 2017, 27-28 August 2018, and 15-19, 23 and 25 July 2019), such costs to be paid on an indemnity basis and to be payable forthwith. … (9) Order that the existing costs orders made in favour of the second defendant in respect of its application to set aside a notice to produce issued to it by Bianca Hope Rinehart, as trustee for the Hope Margaret Hancock Trust (see Rinehart v Rinehart [2019] NSWSC 759) be varied such that the costs be payable forthwith."
6. As the primary judge observed at J[10], the underlying proceeding is "but one of a number of curial and arbitral proceedings that have been commenced across the country over more than a decade" involving the same parties, raising similar issues and which are at various stages of completion. Relevantly for present purposes, by February 2020 those arbitral proceedings included the "French Arbitration", in which complaint is made by Bianca and her brother as to the non-payment of dividends by HPPL in accordance with cl 5 of the Hope Downs Deed (J[11]); and the "Martin Arbitration" in which a claim is made against the first respondent and HPPL by Bianca in her personal capacity that she and her siblings are entitled to the beneficial ownership of the Hope Downs mining tenements, the legal owner of which is HPPL (J[106]).
7. In her written submissions, the applicant identifies 9 questions which arise in relation to her application for leave to appeal. Those questions do not uniformly correspond with grounds 1 to 9 as proposed in the draft notice of appeal. However for the purpose of dealing with the application for leave it is convenient to focus on those questions (and the applicant's contentions) which are as follows: 1. (the Party Issue): Did her Honour err in addressing Bianca's contention that the Hope Downs Deed was not binding on Bianca in her capacity as trustee? The applicant says: yes, her Honour erred in failing to decide whether Bianca was a party in her capacity as trustee and instead leaving that question to the arbitrator. 2. (the Overruling Issue): Did her Honour err in finding that Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13 (Rinehart HCA) had impliedly overruled Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95 (Rinehart NSWCA)? The applicant says: yes. 3. (the Clause 20.2 Construction Issue): Did her Honour err in applying the construction of cl 20.2 of the Hope Downs Deed articulated in Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 (Rinehart FCAFC)? The applicant says: yes, Rinehart NSWCA was binding and, in any event, the construction in Rinehart FCAFC was erroneous. 4. (the Arbitration Agreement Issue): Did her Honour err in finding that, save for the s 247A Application, the matters in the proceeding were covered by the arbitration agreement? The applicant says: yes, her Honour's view to the contrary was driven by her Honour's erroneous construction of cl 20.2. 5. (the Arbitrability Issue): Did her Honour err in failing to find that Bianca's claims were not arbitrable because there was a sufficient element of public interest in them being resolved in the exercise of judicial power? The applicant says: yes. 6. (the Section 247A Stay Issue): Did her Honour err in deciding to stay Bianca's s 247A Application? The applicant says: yes, inter alia, the effect of her Honour's decision was substantially to destroy the application. 7. (the Abuse of Process Issue): Did her Honour err in finding that, if there had not been a referral to arbitration, a stay of the proceeding was warranted because the maintenance of the proceeding was an abuse of process? The applicant says: yes, her Honour should not have opined on whether there was an abuse of process once her Honour had decided to refer the matter and, in any event, there was no basis for her Honour's conclusion. 8. (the Anti-Arbitration Application Referral/Stay Issue): Did her Honour err in deciding to refer to arbitration (or otherwise stay) Bianca's application to restrain Gina and HPPL from seeking a referral to arbitration? The applicant says: yes, her Honour's decision destroyed the benefit of the application. 9. (the Costs Issue): Did her Honour err in making costs orders? The applicant says: yes, the costs orders were based (inter alia) on the erroneous conclusion that there was an abuse of process.

Leave to appeal

1. It is uncontentious that the applicant requires leave to appeal. There is no appeal as of right against the interlocutory and costs orders of the primary judge. Leave will only be granted where there are substantial reasons to allow appellate review: Australian Securities and Investments Commission v Schlaepfer [2017] NSWCA 247 at [40]. The party seeking leave will usually be required to demonstrate that there is an issue of principle, question of public importance or reasonably clear injustice going beyond something that is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; Be Financial Pty Ltd as trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [33].
2. The applicant submitted that there is a compelling case for leave to be granted, as the grounds of appeal demonstrate that the decisions of the primary judge are more than "arguably wrong" and raise issues of principle and general importance. It is also said that the challenged orders give rise to substantial injustice as they subject the applicant to a lengthy private arbitration process, substantially destroy her s 247A Application and impose liability for "sizeable" costs.
3. We have concluded that leave to appeal should be refused. The grounds of appeal do not raise any dispositive issue of principle or seek to redress any substantial injustice resulting from the orders challenged. The primary judge concluded that if the disputes between the parties had not been covered by the arbitration clause, she would in any event have stayed the underlying proceeding by reason of the "fundamental inconsistency in the maintenance of the two claims as to the beneficial ownership of the mining tenement assets" (J[603]) - they being the claim made in the Martin Arbitration that HPPL holds the Hope Downs mining tenements as constructive trustee for Bianca and her siblings and the claims in the underlying proceeding and the French Arbitration in respect of the non-payment of dividends by HPPL (J[103]). The proposed grounds of appeal, understandably, do not challenge her Honour's conclusion in that respect because it did not support the orders for referral which were made. However it remains relevant to the question whether there would be any utility in granting leave to appeal in circumstances where the outcome would otherwise have been that the prosecution of the underlying proceeding was stayed pending the determination of the issues raised in the French and Martin Arbitrations.
4. In relation to Bianca's s 247A Application, under the existing orders the applicant remains free in one or more of the arbitral processes to seek production of documents of HPPL said to be relevant to issues in those proceedings; and to the extent that there are "particular, limited categories of documents required by Bianca for the purpose of her administration of the HMH Trust as its trustee (other than for the purposes of the prosecution of the claims the subject of this proceeding)", it is open to Bianca in the circumstances outlined by the primary judge (J[36]) to make a separate s 247A application which is not connected to the disputes which have been referred to arbitration.

Question 1: the Party Issue

1. The applicant submitted that the primary judge's approach in referring to arbitration the question whether the applicant qua trustee is a party to the Hope Downs Deed was out of step with both Australian and international authorities in which courts have decided for themselves whether a person was party to an arbitration agreement. This was because the validity of the arbitral process depends on the "consensual foundation of arbitration" which requires that the persons subject to arbitration be parties to an arbitration agreement. Accordingly, it was said the question whether the applicant was bound in her trustee capacity was one for the Court to resolve.
2. It is not contested that on its face the Hope Downs Deed is an apparently valid arbitration agreement to which Bianca is a party, being described as such "in her own right or in any representative capacity" and having executed the Deed. Assuming the subject matter of the dispute is within the scope of that agreement, that was sufficient to engage Commercial Arbitration Act 2010 (NSW) (the Act), s 8 (or its Western Australian equivalent) and require that it be referred to arbitration. It is then for the arbitral tribunal to rule on any issues as to its own jurisdiction, including, if necessary, the extent to which it has authority to decide a dispute involving Bianca in her capacity as trustee of the HMH Trust: see s 16 of the Act and Rinehart HCA at [13]. In concluding that the resolution of that issue was within the jurisdiction of the arbitral tribunal the primary judge correctly applied well-established principles.
3. The Australian and overseas authorities cited by the applicant are not concerned with this question (cf Rinehart HCA at [74]). They address the position of a person within the extended definition of "party" in s 2(1) of the Act, being someone who has not executed and accordingly is not privy to the arbitration agreement.
4. Proposed ground 1 which raises this question does not have reasonable prospects of success.

Question 2: the Overruling Issue; Question 3: the Clause 20.2 Construction Issue; and Question 4: the Arbitration Agreement Issue

1. These three questions can be dealt with together as they concern the construction and application of cl 20.2 of the Hope Downs Deed to the disputes in the underlying proceeding. The construction of that clause has already been considered by this Court (per Bathurst CJ, McColl and Young JJA) in Rinehart NSWCA, by the Full Court of the Federal Court (Allsop CJ, Besanko and O'Callaghan JJ) in Rinehart FCAFC, and by the High Court on appeal from the Full Court Decision in Rinehart HCA.
2. The applicant submitted that the primary judge erred in failing to adopt the "governed or controlled" test applied in Rinehart NSWCA. It is said that the High Court did not expressly overrule Rinehart NSWCA and that its conclusions are not inconsistent with that "governed or controlled" test. It is also submitted that the High Court did not expressly adopt the Full Court's broader construction of cl 20.2, which in any case is submitted to be wrong. Had the primary judge applied this Court's earlier construction of cl 20.2 it is contended she should have found that the matters in dispute were not covered by the arbitration agreement.
3. We do not accept the correctness of these submissions. In our view it is not open in light of Rinehart HCA to adopt the narrower construction formulated in Rinehart NSWCA, namely that a dispute was "under" the Deed if its outcome was governed or controlled by the Deed or the subject matter of the dispute invoked some right created by the Deed (Rinehart NSWCA at [125]). Rinehart HCA applied "a broader construction" than that just described. In doing so the plurality noted the holding of the Full Court of the Federal Court that cl 20 should be given "a liberal, not a narrow, interpretation" (Rinehart HCA at [16]). They then identified that interpretation by specific reference to Rinehart FCAFC at [193] where the Full Court said that giving the phrase "any dispute under this deed" some amplitude, one would construe it as including: "a dispute that contained a substantial issue that concerned the exercise of rights or obligations in the agreement, or a dispute that concerned the existence, validity or operation of the agreement as a substantial issue, or a dispute the resolution of which was governed or controlled by the agreement." The plurality then held (Rinehart HCA at [17]) that "the conclusion reached by the Full Court that the validity claims fell within the scope of the arbitral clauses is correct." That holding in our view accepts the correctness of the Full Court's interpretation of the relevant phrase at Rinehart FCAFC [193].
4. The primary judge applied that construction of cl 20.2 (at J[490]-[494]) and is not shown to have erred in doing so.
5. Accordingly proposed grounds 2 and 3, which raise these three questions, do not have reasonable prospects of success.

Question 5: the Arbitrability Issue

1. The applicant submitted that the primary judge erred in holding that her s 247A Application was arbitrable in the sense that it is a dispute capable of settlement by arbitration (J[542]) and not one in respect of which public policy requires that it be quelled in the exercise of judicial power.
2. The applicant also submitted that the primary judge erred in failing to consider and determine her contention that the other claims made in the underlying proceeding were not arbitrable. In that respect it was said that there was a sufficient element of public interest in relation to the claims as to breaches of director's duties, oppression and for the production of information relating to past misconduct, as to warrant each of them being determined in open court.
3. As to the first of these arguments, the question whether the s 247A Application is arbitrable does not arise because that application was held not to be within the scope of the arbitration agreement and accordingly was not referred to arbitration (J[545]).
4. The applicant's remaining argument, which is recorded at J[574], does not appear to have been dealt with by the primary judge. However we accept the force of the respondents' submission that where, as here, some of the claims are arbitrable and to be referred to arbitration, the public interest in avoiding overlapping curial proceedings in which the same issues are raised outweighs any public interest in the affairs of HPPL, a tightly held company, being litigated in open court. Accordingly, this argument is not likely to produce any different outcome for the applicant.
5. For these reasons leave to appeal on proposed ground 4 should be refused.

Question 6: the Section 247A Stay Issue

1. The applicant submitted that the primary judge should not have exercised her discretion to order a stay of the s 247A Application as there were no proper grounds for restraining the exercise of her statutory right as a shareholder to invoke the Court's jurisdiction. The applicant contends that in ordering that the s 247A Application be stayed, the primary judge "erred in multiple respects": 1. First, in failing to take into account the "material" consideration that a stay would likely delay determination of the s 247A Application. 2. Secondly, in failing to address the "mandatory" consideration that the s 247A Application was ready for hearing, with written submissions and evidence all on. 3. Thirdly, in failing to give significant weight to the effect of the stay which was said practically to destroy the benefit of the application. 4. Fourthly, in proceeding on the basis that the subject matter of the application was likely to involve issues similar to those which are raised in the arbitration. 5. Fifthly, in not proceeding on the basis that the effect of the stay would be that "matters of great importance to the company - such as the payment of dividends and the conduct of the Executive Chairman - are now beyond the purview of the Courts".
2. As the decision to stay the applicant's s 247A Application was discretionary, it is only appealable for errors of the kind identified in House v The King (1936) 55 CLR 499; [1936] HCA 40. None of the considerations raised in the applicant's submissions clearly merit characterisation as House v The King errors. It is not obvious that the first and second matters, as assessed by the primary judge, were not taken into account (cf J[541]). The third matter describes an asserted practical consequence of the stay which does not accord with her Honour's assessment of the position; and the fourth matter reflects her Honour's assessment of the likely scope of the s 247A Application which is not shown to be obviously wrong. Each of these matters is discussed below. The final matter disregards the efficacy of the Hope Downs Deed in achieving confidentiality as to the affairs of the relevant companies and trusts. The applicant was a party to that agreement which as the plurality described in Rinehart HCA at [46] was intended to avoid public scrutiny and assure commercial confidence.
3. Whilst accepting that the existing s 247A application was separate from the underlying proceeding, the primary judge considered that the evidence "likely to be adduced in relation to it and the issues to be explored on that application as to the reasonable basis for suspicion of breach of duty, will raise many if not all of the issues the subject of the substantive disputes that are to be referred to arbitration" (J[541]). The primary judge had carriage of the case management of the underlying proceeding for some time and by February 2020 was in a position to make such an assessment (J[539], [540], [545]), and we are not satisfied that assessment was not open. The submission that the effect of the stay would be to destroy the benefit of the application does not bear close analysis. To the extent that the subject matter of the application included documents relevant to the conduct of the claims brought in the underlying proceeding or any of the other arbitral proceedings, it is open to the applicant to seek production of those documents in the arbitral proceedings, as the primary judge observed at J[546]. To the extent that there are particular limited categories of documents required for the purpose of Bianca's administration of the HMH Trust (other than for the purpose of the prosecution of any referred claims) it is still open to her to make a separate and narrower application for access to such documents (J[36]).
4. Leave to appeal on ground 5, which seeks to raise this question, is refused.

Question 7: the Abuse of Process Issue

1. The applicant challenges the primary judge's finding at J[603], and summarised at J[32], that the continuation of the underlying proceeding "involving overlapping issues and inconsistent claims for relief (and premised on inconsistent positions albeit raised in different capacities)" would, and did, amount to an abuse of process.
2. As the applicant accepted in oral argument, abuse of process was only one of the two separate and alternative bases on which the primary judge would otherwise have stayed the whole of the proceeding. The other was "as a matter of case management" because of the "striking overlap between the factual allegations in [the] various proceedings and the inconsistent bases on which relief [was] sought" in those proceedings (particularly as to who is the beneficial owner of the Hope Downs mining tenements) (J[31]).
3. Proposed ground 6, which raises this question and challenges the finding of abuse of process, does not make any challenge to that alternative basis for justifying a stay of the whole of the proceeding. It follows that proposed ground 6 does not address any issue which is necessarily dispositive of an appeal from the order referring the underlying proceeding to arbitration or the first and second respondents' contention that the proceeding should otherwise have been stayed pending the determination of the French and Martin arbitrations. For that reason leave to appeal on this ground is refused.
4. This conclusion makes it unnecessary to consider in any detail the applicant's submission that there was no abuse of process because the claims made by Bianca in her personal capacity as to the ownership of the Hope Downs mining tenements are not inconsistent with the claims made by her in the underlying proceeding as trustee of the HMH Trust. It is said there was no relevant inconsistency because HPPL could have paid the dividends claimed out of profits generated by assets other than the mining tenements which the applicant says are held by HPPL as constructive trustee. It is sufficient to note that the primary judge's analysis of the relevant inconsistency focuses on the allegations made in the separate court and arbitration proceedings as to whether HPPL is the legal and beneficial owner of the Hope Downs tenements, and does not descend into any analysis of the extent to which those mining tenements did or did not produce substantially all of HPPL's revenue in the financial years from 2010 to 2015.

Question 8: the Anti-Arbitration Application Referral/Stay Issue

1. This question as formulated suggests that the primary judge referred the determination of this notice of motion to arbitration. Her Honour did not do so. Rather she stayed the determination of this application which sought to restrain the first and second respondents from seeking a referral to arbitration on grounds which include that the arbitration agreement does not extend to Bianca in her capacity as trustee of the HMH Trust. Proposed ground 7 challenges the order staying the hearing of the Anti-Arbitration Application.
2. This motion was not dealt with by the primary judge when deciding the first and second respondents' application for referral to arbitration. Her Honour declined to do so because the issues which it sought to raise went to the jurisdiction of the arbitral tribunal and accordingly were matters for it to determine if the subject matter of the underlying proceeding was referred to arbitration. The applicant identifies no error of the kind in House v The King in her Honour's decision to defer dealing with this application, which was plainly correct.
3. Furthermore, the applicant has suffered no prejudice by reason of the decision not to hear this application because she remains free to challenge before the arbitral tribunal the scope of its jurisdiction, and on the grounds sought to be relied on in the Anti-Arbitration Application.
4. Accordingly leave to appeal on ground 7 is refused.

Question 9: the Costs Issue

1. In her costs judgment the primary judge found that certain conduct of the applicant was so unreasonable as to justify the order for indemnity costs. That conduct was in prosecuting (but not commencing) the underlying proceeding - which gave rise to overlapping issues and inconsistent claims for relief - following receipt of HPPL's solicitor's letter of 13 April 2017 (which drew attention to the making of inconsistent claims across different jurisdictions), and in the absence of judicial advice that as trustee of the HMH Trust she was justified in doing so and in continuing to resist the first and second respondents' application for referral to arbitration and the stay of the underlying proceeding (Costs J[145], [146], [148], [152], [156]).
2. None of the above matters in terms depended on the characterisation of the applicant's conduct in continuing the proceeding as amounting to an abuse of process. That is a sufficient basis for rejecting the challenge sought to be made to the indemnity costs order on proposed grounds 8 and 9, as the applicant's submissions are principally based on an assertion that the costs order was in turn dependent on such a finding. No submission is made that there was any House v The King error in her Honour taking those matters into account and regarding them as sufficient to justify the costs order made.
3. For these reasons leave to appeal on proposed grounds 8 and 9 is refused.

Conclusion

1. In the result we make the following orders: 1. Dismiss the summons for leave to appeal; 2. Order the applicant pay the respondents' costs of the summons.

Amendments 22 September 2021 - [18], fourth sentence - changed "it" to "they" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 September 2021