Suppression and private resolution of family trust disputes - the Rinehart family feud

In brief - Plaintiffs seek removal of trustee, who fails to obtain suppression order or stay of proceedings

The case of Welker & Ors v Rinehart [2011] NSWSC 1094 has recently been the subject of headline news around the country due to the high profile of the parties involved, the sheer scale of their wealth and their increasingly bitter war of words.

In addition to providing a glimpse inside a particularly vicious dispute between members of Australia's wealthiest family, the case also raises issues of suppression and the private resolution of family trust disputes.

Vesting date of trust extended by 50 years

Crowned the world's wealthiest woman in the 2012 BRW Rich List, Gina Rinehart’s personal wealth is currently estimated to be just over $29 billion. Much of that wealth has been accumulated through and is held by Hancock Prospecting Pty Ltd (HPPL), which holds stakes in some of Australia’s biggest coal and iron ore mines.

Mrs Rinehart holds 75% of the voting share capital in HPPL. The remaining voting shares, currently valued at approximately $9 billion, have been settled into the Hope Margaret Hancock Trust, which was created by Mrs Rinehart's late father, Lang Hancock. Mrs Rinehart is trustee of the Trust and her children, Bianca, Hope, John and Ginia are its beneficiaries.

The trust was due to vest, or terminate, on 5 September 2011. However, on 3 September 2011, Mrs Rinehart wrote to each of the beneficiaries and informed them that vesting of the trust might expose each of the beneficiaries to a capital gains tax liability of approximately $100 million.

Mrs Rinehart said that as the HPPL constitution prevents the beneficiaries from selling or borrowing against the HPPL shares, vesting might result in their bankruptcy.

Ostensibly to protect them, Mrs Rinehart asked each of the beneficiaries to sign an agreement extending the vesting date of the trust by over 50 years and giving Mrs Rinehart long term control over the trust.

Plaintiffs seek to remove trustee on grounds of misconduct

Alarmed, the beneficiaries made an urgent application to the NSW Supreme Court for an order extending the vesting date of the trust by one year so they could better consider Mrs Rinehart's proposals. An order to this effect was made.

On serving the order, the beneficiaries discovered that Mrs Rinehart had already extended the vesting date of the Trust to 5 September 2058 - meaning it would be another 45 years before the beneficiaries would receive their inheritance. She said she had done so in good faith and by exercising a power available to her in the trust deed.

Bianca, Hope and John, the plaintiffs, then filed an amended claim against Mrs Rinehart, seeking, among other things, the removal of Mrs Rinehart as trustee of the trust on the grounds of misconduct. Ginia, however, decided to support her mother.

Gina Rinehart applies for suppression order

In response, Mrs Rinehart applied for a suppression order under the Court Suppression and Non-Publication Orders Act 2010 (NSW) (CSNPO Act) so as to avoid further details of the dispute becoming public. She argued that the parties were bound by a separate agreement, the Hope Downs Deed, to mediate or arbitrate certain family disputes privately.

She also said that the release of details of the family's wealth would give rise to greater risks of kidnapping and extortion. At first instance, Brereton J made an interim order suppressing details of the case and granted Mrs Rinehart leave to apply to stay the proceedings pending private dispute resolution.

Plaintiffs and media interests challenge suppression order

Mrs Rinehart then applied to the Court of Appeal for a wider and lengthier suppression order. Tobias AJA found that "the administration of justice would be prejudiced" if full details of the allegations made by the plaintiffs were made public pending determination of whether those allegations should be the subject of a confidential mediation or arbitration.

However, the plaintiffs and certain media interests appealed. The full bench of the Court of Appeal found that the suppression orders made to date had "effectively allowed a private agreement as to confidentiality to outflank the purpose of the [CSNPO] Act". The court accepted that "disclosure of the information may be embarrassing to Ms Gina Rinehart", but discharged the suppression orders.

Application to stay the proceedings unsuccessful

Mrs Rinehart's separate application to stay the proceedings was also unsuccessful. The Supreme Court held that the parties had agreed to submit only disputes arising under the Hope Downs Deed to confidential dispute resolution.

The plaintiffs' claim was a claim for the removal of Mrs Rinehart as trustee of the trust on the grounds of misconduct. It was not a dispute which could be said to "invoke, involve, derive from or depend on" the separate Hope Downs Deed.

Mrs Rinehart unsuccessfully appealed this decision. The full bench of the Court of Appeal agreed with the findings of the Supreme Court that there was no obligation on the parties to attend private dispute resolution in these circumstances. Mrs Rinehart's application for special leave to appeal to the High Court on this point was also dismissed in March 2012.

Details of family feud are made public

As prophesied by the Court of Appeal, the subsequent disclosure of the information contained in the court documents has been very embarrassing. Documents produced to the Court were transcribed in newspaper reports, including quotes from emails sent by Mrs Rinehart to her children containing statements seemingly lifted straight from a Hollywood movie script: "Sign up or be bankrupt tomorrow… the clock is ticking. There is one hour to bankruptcy and financial ruin."

The parties then began to trade public barbs by way of press release, with the plaintiffs firing the first shot. They accused their mother of "high-handed and dictatorial" behavior and acting "with gross dishonesty and deceitfully".

Mrs Rinehart responded by labeling the proceedings "offensive" and questioning her children's business acumen, stating that they have never "held any paid position in the resources industry, other than as arranged or paid for" by Mrs Rinehart.

Litigation to proceed as breach of trust action

In May 2012, Mrs Rinehart decided to exercise her power to move the vesting date of the trust back to 30 April 2012, effectively terminating it from that date. The vesting of the trust at least notionally allows the beneficiaries to take ownership of their shares in HPPL, but it seems unlikely that they will immediately capture the wealth in the trust, given the severe restrictions on the use and sale of the HPPL shares.

The litigation will now proceed in the form of a breach of trust action against Mrs Rinehart, but any victory on the part of the plaintiffs from this point may well be hollow.

Regardless of the outcome, the case is a reminder that family trust disputes, particularly those involving public figures or great wealth, will not automatically be immune to public scrutiny - and that great riches and blood ties will not of themselves be sufficient to preserve healthy family relationships.