Hancock v Rinehart

1. [1]

   HIS HONOUR: These proceedings concern the administration of a trust called the Hope Margaret Hancock Trust (“the Trust”), created by a deed of settlement made on 27 December 1988 by the late Langley George Hancock (“Mr Hancock”) and amended by deed of amendment dated 24 August 1995 ("the Trust Deed"). The first defendant Georgina Hope Rinehart (“Mrs Rinehart”) - Mr Hancock’s daughter - is the trustee of the Trust. The plaintiffs John Langley Hancock and Bianca Hope Rinehart, the second defendant Ginia Hope Frances Rinehart and the third defendant Hope Rinehart Welker are the children of Mrs Rinehart and the beneficiaries of the Trust. In this judgment, for convenience and without intending any undue familiarity or disrespect, I shall refer to Mrs Rinehart’s children by their first names. The fourth defendant Hancock Prospecting Pty Limited (“HPPL”) is a company, a 24% shareholding in which is the Trust’s only asset of significance, and the ultimate holding company of the fifth defendant Hope Downs Iron Ore Pty Limited (“HDIO”), whose interest in an iron ore mining project at Hope Downs underlies the value of the Trust property.

The Trust

1. [2]

   Under the Trust Deed, Mr Hancock was the trustee of the Trust during his lifetime; Mrs Rinehart became trustee upon his death in March 1992. Prior to Mr Hancock’s death, the Trust held 3000 A class ordinary shares (representing 50% of the total issued ordinary shares) and 333 cumulative special shares (representing 50% of the total issued cumulative special shares) in HPPL, which had been transmitted to Mr Hancock from the estate of his late wife Hope Margaret Hancock. Upon his death, under clause 4 of the Trust Deed, the trustee stood possessed of such of those shares as comprised 17.7% of the total issued ordinary shares (which corresponds to 1062 of the A class shares) and 17.7% of the total issued cumulative special shares (corresponding to 118 of those shares) for Mrs Rinehart absolutely. Under clause 5, the income from the balance of the shares was to be applied by the trustee “for the education, advancement and benefit of the children of Mrs Rinehart”. Under clause 6, the Trust was to vest on the date on which the youngest of Mrs Rinehart’s surviving children attained the age of 25 years (which would have been 6 September 2011), whereupon the trustee was to stand possessed of the shares to which Mrs Rinehart had not become entitled under clause 4 (which by deduction ought to have been 1938 A class shares – representing 32.3% of the issued ordinary capital - and 215 cumulative special shares), for Mrs Rinehart’s children.

2. [3]

   The deed of amendment of 24 August 1995 amended the Trust Deed extensively by inserting additional powers, discretions and protections for the trustee, but did not alter its substantive provisions.

3. [4]

   The Trust property now comprises 1407 of the 3000 A class shares, 51,584 D class preference shares, and 156 cumulative special shares, in HPPL. Just how its shareholding came to be 1407 A class and 156 cumulative special shares, rather than 1938 and 215 respectively, is not explained by the evidence, but was not the subject of any issue in the proceedings. In round terms, the assets of the Trust are said to be worth about $5 billion.

4. [5]

   The Trust’s only income of significance is dividends paid by HPPL in respect of those shares. In 2010-11, the Trust received dividends of $2,468,312; in 2011-12, $1,571,496 and in 2012-13, $3,498,423. The Trust made distributions to the beneficiaries of $1,589,473 in 2010-11, $1,286,570 in 2011-12, and $3,554,998 in 2012-13.

Hancock Prospecting Pty Limited (HPPL)

1. [6]

   Prior to 2006, the shares in HPPL were held, as to 1593 A class shares, 3000 B class shares and 510 cumulative special shares by Mrs Rinehart in her own right; as to 1407 A class shares and 156 cumulative special shares by Mrs Rinehart as trustee of the Trust; as to 168,416 D class preference shares by 150 Investments Pty Ltd; and as to 51,584 D class preference shares by HMHT Investments Pty Limited. Mrs Rinehart held all the shares in 150 Investments in her own right, and all those in HMHT Investments as trustee of the Trust.

2. [7]

   Since 2006, HMHT Investments’ 51,584 D class preference shares have been transferred to Mrs Rinehart as trustee of the Trust; 150 Investments’ 168,416 D class preference shares have been converted to J class preference shares; and 150 Investments has issued a preference share to Consolidated Distributions Pty Ltd, the shares in which are held by Mrs Rinehart, Northern Investments Nominees Pty Ltd (in which Mrs Rinehart holds all the shares), and four wholly owned subsidiaries of Northern Investments. Thus Mrs Rinehart is the ultimate beneficial owner of all the shares in HPPL, other than those she holds on trust for the Trust.

3. [8]

   The A and B class shares in HPPL entitle their holders to vote at a general meeting of HPPL. Thus of the voting shares, the Trust’s 1407 A class shares represents about 24%, while Mrs Rinehart’s 1593 A class and 3000 B class shares together amount to approximately 76%.

The Hope Downs Deed

1. [9]

   By mid to late 2004, a dispute had emerged between Mrs Rinehart and John in connection with the Trust and the entitlements of the beneficiaries. By letters dated 24 May 2004 and 7 October 2004, John complained that Mrs Rinehart had not provided him with the Trust accounts and that no distributions had been made from the Trust, and stated that he would seek orders for the removal of Mrs Rinehart as trustee.

2. [10]

   On 1 April 2005, all of the parties to the current proceedings (with the exception of HDIO) signed a “Confidential Deed of Obligation and Release” (“the 2005 Deed”), which was intended to settle the dispute John had raised. By clause 3, John gave broad releases to all other parties, including an agreement that he would not:

3. [11]

   By clauses 5, 6 and 7, it was agreed that John would be paid a lump sum:

4. [12]

   Provision was made for John to receive certain further moneys and other benefits.

5. [13]

   However, the 2005 Deed did not in fact bring to an end disputes between Mrs Rinehart and John, and only days after executing the 2005 Deed, John on 12 April 2005 filed a notice of intention to be heard in proceeding CIV 1327 of 2005 in the Supreme Court of Western Australia (“the WA Proceedings”) and subsequently, on 11 July 2005, filed a notice of intention to be joined as a party to those proceedings. The grounds set out in his notice included an allegation that Mrs Rinehart had breached her duty as trustee of the Trust by “failing to provide John Langley Hancock full documentary disclosure of management of the Trust”. On 29 September 2005, John applied to be joined as a party to the WA Proceedings, and sought “an order to substitute the Trustee of the Hope Margaret Hancock Trust … with my own nominee, and for further orders for the full disclosure and delivery up of the accounts and documents of the Trust”. He stated that he made the request because, inter alia:

6. [14]

   In August 2006, all of the parties to the present proceedings, except John and HDIO, signed a “Confidential Settlement Deed” (“the Hope Downs Deed”). The parties to the Hope Downs Deed reaffirmed and ratified the 2005 Deed. Clause 6, entitled “Releases”, provides as follows:

7. [15]

   Clause 7, headed “Undertakings”, provides as follows:

8. [16]

   Clause 8, entitled “GHR Control of HPPL”, provides as follows:

9. [17]

   Clause 11, headed “Plea in Bar”, is as follows:

10. [18]

    Clause 13, headed “Parties not to assist prosecution of claims”, provides:

11. [19]

    On 13 April 2007, all parties to the current proceedings, other than HDIO, executed a further deed (“the 2007 Deed”) which had the effect of making John a party to the Hope Downs Deed. By clause 3 of the 2007 Deed, all of the parties thereto ratified and confirmed the Hope Downs Deed.

12. [20]

    On the same date, John, Mrs Rinehart and HPPL executed a “Confidential Settlement Deed” (“the 2007 CS Deed”), which referred to the 2005 Deed and the Hope Downs Deed, and conferred certain further benefits on John, on condition that he execute the Hope Downs Deed. It also recited that all lineal descendants of Mrs Rinehart (including the plaintiffs) were required to enter into prenuptial arrangements so as to ensure that ownership and control of shares in HPPL remains with them and their descendants.

13. [21]

    On or about 20 April 2007, John’s application to be joined as a party to the WA Proceedings was dismissed by consent.

14. [22]

    On 10 August 2009, all of the parties to the current proceedings executed a deed styled “Deed of Further Settlement” (“the 2009 Deed”), which recited John’s agreement to “forgo any legal claims against … [the Trust] or its Trustee”, and referred to the 2005 Deed, the 2007 CS Deed and the Hope Downs Deed, and to John’s agreement that he was not to receive any further distributions from the Trust prior to vesting, and that the application of funds under the Trust was irrelevant to him.

The Hope Downs Joint Venture Agreement

1. [23]

   Meanwhile, on 16 March 2006, HDIO, Hamersley WA Pty Ltd (“Hamersley HD”) (a wholly owned subsidiary of Rio Tinto Limited (“Rio”)) and Hamersley HMS Pty Ltd (“Hamersley HMS”) (also a wholly owned subsidiary of Rio), entered into a written agreement called the Hope Downs Joint Venture Agreement (“the HDJVA”), by which HDIO sold to Hamersley HD a 50% interest in an iron ore mining project at Hope Downs in the Pilbara (“the Hope Downs Project”), and HDIO and Hamersley HD entered into an unincorporated joint venture in equal shares for the purposes of, inter alia, exploration of the area for iron ore and, if so decided, expansion of mining operations. Hamersley HMS was appointed manager of the venture.

2. [24]

   The HDJVA contains the following recitals:

3. [25]

   Clause 13.3(a) provides as follows:

4. [26]

   The term “Hancock Family Group Members” is defined in clause 1.1 to mean:

5. [27]

   “Lineal Descendants” is defined to mean “any and all direct line descendants from the blood of Mrs Georgina Hope Rinehart”.

6. [28]

   Cl 13.3(b) provides as follows:

7. [29]

   The remainder of clause 13.3 comprises provisions relating to a Hancock Change of Control, the effect of which is to permit HDIO to suspend the provisions for a period of 95 days after receiving notice from Hamersley, in order to reverse the change of control.

8. [30]

   At the time of the HDJVA, as now, all the shares in HDIO were held by Hancock Minerals Pty Limited (“Minerals”), which in turn is wholly owned by HPPL.

9. [31]

   More or less contemporaneously with the HDJVA, certain amendments – explained in more detail below - were made to the constitution of HPPL, which had the effect of restricting the transferability of its shares to Hancock family group members (“the 2006 Amendments”). The validity of these amendments became, at a relatively late stage, an issue in the proceedings.

September 2011

1. [32]

   The current proceedings were precipitated by a letter from Mrs Rinehart dated 3 September 2011 – 3 days before the Trust was due to vest - to the beneficiaries of the Trust, sent at her request by the chief financial officer of HPPL, Mr Jay Newby. By the letter Mrs Rinehart represented to the beneficiaries that the trust’s tax advisors, PricewaterhouseCoopers, had provided advice confirming that upon vesting, each beneficiary would become liable to pay CGT on the value of the Trust estate to which they became entitled, which would be “very substantial”; that the shares could not be sold to a non-Hancock family group member or encumbered; and that the vesting of the Trust and the consequent CGT liability would therefore lead to the bankruptcy of each beneficiary, with serious consequences and disabilities for them. She then informed them that these consequences could be averted by her extending the vesting date, but that she would do so only if they executed a deed poll, covenanting not to seek to query or challenge any act or omission of Mrs Rinehart in relation to the Trust, and undertaking that if they intended to enter into marriage or a marriage-like relationship they would enter into a cohabitation or nuptial agreement excluding their partner from any claim in respect of the Trust, HPPL or HDIO.

2. [33]

   However, as documents ultimately obtained by the plaintiffs by discovery and subpoenas in the course of these proceedings would establish, Mrs Rinehart and Mr Newby had no such advice in respect of CGT; while it may not have been entirely unequivocal, the advice they had obtained was to the effect that CGT would not be payable upon the mere vesting of the Trust. Moreover, the dispatch of the letter was intentionally delayed, so that the beneficiaries would have only one business day in which to obtain any professional advice they might require to consider their response. Indeed, Mrs Rinehart instructed Mr Newby to defer sending the letter until after Ginia had left New York to travel – thus further limiting her ability to obtain appropriate advice and increasing the pressure on her to succumb to its demands.

3. [34]

   After the 3 September 2011 letter was sent, Mr Newby sought to persuade John of its accuracy, in that CGT would be payable on vesting, and to convince him to sign the deed proposed by Mrs Rinehart. He also pressed Bianca to sign the deed to avoid bankruptcy, and told her that she would have a tax liability of $142 million if the Trust vested on 6 September 2011. On 4 September, Mrs Rinehart, by a further deed of amendment, deleted and replaced clause 6 of the Trust Deed, so as to extend the vesting date of the Trust to 1 July 2068. However, the beneficiaries were not told of this, and Mrs Rinehart and Mr Newby continued to press them to sign the proposed deed before 6 September 2011, ostensibly in order to avoid bankruptcy.

The proceedings

1. [35]

   These proceedings were initiated on 5 September 2011, by summons filed in the names of Hope (then the first plaintiff and now the third defendant), John (now the first plaintiff), Bianca (now the second plaintiff), and Ginia (formerly the fourth plaintiff and now the second defendant). The summons originally claimed the following substantive relief:

2. [36]

   That day, I made, ex parte, orders as follows:

3. [37]

   Although the Registrar in due course executed a deed pursuant to order 3, when the proceedings returned before the court the Court was informed that Mrs Rinehart had already, on 4 September 2011, prior to the above order being made, executed a variation of the Trust Deed so as to extend the vesting date of the Trust to 2068. Ginia asserted that she never gave instructions for the proceedings, and on 21 September 2011 I made orders, by consent, that she be removed as a plaintiff, and be joined as second defendant. On 7 October 2011 the remaining plaintiffs were granted leave to file an amended summons, claiming relevantly the following substantive relief:

4. [38]

   Thus the plaintiffs primarily claimed removal and replacement of Mrs Rinehart as trustee of the Trust - essentially on the ground that, in connection with giving consideration to the extension of its vesting date in September 2011, she so misconducted herself as to demonstrate unfitness to retain the office of trustee. At the core of this were allegations that, as the vesting date approached, she misrepresented to the beneficiaries that they would incur capital gains tax liabilities with catastrophic financial consequences for them unless she exercised her discretion to extend the vesting date, but also informed them that she would so exercise her discretion only if they gave her a release in respect of the whole of her past and future trusteeship, and they entered into nuptial agreements with their respective partners - thereby placing immense pressure on the beneficiaries in order to obtain benefits for herself as the price of her performing her duties as trustee.

5. [39]

   Subsequently, on 30 April 2012, Mrs Rinehart caused the trust to vest with effect from that date, so that she held the trust property upon trust for John, Bianca, Ginia and Hope absolutely and equally.

6. [40]

   In March 2013, Hope, Mrs Rinehart and HPPL executed two “Deeds of Loan” which provided for Hope to receive $45 million by way of loan from HPPL, in consideration of, inter alia, her undertaking not to support in any way any proceedings against Mrs Rinehart, HPPL or any officer of HPPL; not to act contrary to the interests of HPPL; and to assign to Mrs Rinehart for the longer of the term of the loan and Mrs Rinehart’s lifetime any right to vote she might have or become entitled to in respect of her quarter interest in the HPPL A class shares held by the Trust. Although the loans are notionally repayable over a term of seven years, HPPL and Mrs Rinehart will provide Hope with more than sufficient dividends or gifts or other funds to enable her to repay it, and Mrs Rinehart undertakes to provide in her will sufficient funds for Hope to repay any outstanding balance. However, it is an event of default if Hope fails to observe any of the covenants or conditions in the deed of loan (such as the restraint on assisting prosecution of claims), whereupon HPPL may demand immediate repayment. While Hope does not concede that this amounted to a “settlement” with Mrs Rinehart, she thereupon ceased to be a plaintiff, was joined as third defendant, and filed a submitting appearance. One consequence of this was to inflict on the remaining plaintiffs the requirement to change their solicitors and counsel.

7. [41]

   On 19 August 2013, the plaintiffs amended their pleading (pursuant to leave granted on 30 July 2013) to add a cause of action impugning the 2006 Amendments to the HPPL constitution, in conjunction with which HPPL and HDIO were joined as fourth and fifth defendants.

8. [42]

   It is not necessary to recount the numerous interlocutory applications, and appeals, that were brought in the course of proceedings; they will be apparent from the record if necessary. It suffices to say that virtually every step in the proceedings was vigorously contested, and in particular Mrs Rinehart repeatedly sought to have the proceedings stayed or summarily dismissed.

9. [43]

   The proceedings were set down for final hearing to commence on 8 October 2013. However, on 1 October 2013, counsel for Mrs Rinehart – who had served no evidence that accounted for, explained or justified what had occurred in September 2011 - announced that, for the purposes of (WA) Trustees Act 1962, s 77(2)(a), she desired to be discharged, thereby enlivening the court’s power to appoint a new trustee or trustees under that section. That day, the Court, with the consent of all parties, formally noted:

10. [44]

    In conjunction with the last of those matters, on that occasion Mrs Rinehart emphasised that her replacement should be one of her “lineal descendants”.

11. [45]

    The issues that then remained for determination in the proceedings were:

    1. (1)

       Whether amendments made in 2006 to the constitution of HPPL should be declared ineffective insofar as they relate to the shares held by Mrs Rinehart as trustee of the Trust, on the footing that Mrs Rinehart’s consent to them was a fraud on a power;

    2. (2)

       The appointment of a replacement trustee;

    3. (3)

       Ancillary relief, in the nature of access to trust documents and the taking of accounts; and

    4. (4)

       Costs, including whether Mrs Rinehart is entitled to be indemnified out of the trust property.

12. [46]

    The October 2013 hearing (“the first hearing”) proceeded, in respect of the first, third and fourth of those issues. Because of the late development of Mrs Rinehart’s resignation, the defendants were not in a position to propound a replacement trustee. While a proposal was announced on behalf of Ginia which evolved in the course of that hearing and subsequently, in due course became the proposal advanced by the defendants, it was complex and insufficiently mature to enable proper consideration at that stage. HPPL and HDIO desired an opportunity to adduce expert evidence as to the impact on HPPL and the Trust of appointing a non-Hancock family group member. The plaintiffs withdrew their nomination of one Mr Carter, but their belated renomination of Bianca was too late to enable it to be considered with fairness to the defendants. Accordingly, the proceedings were adjourned for further hearing, and the hearing resumed on 24 June 2014 to consider the selection of a replacement trustee (“the second hearing”).

Evidentiary issues

1. [47]

   At the second hearing, the evidence tendered at the first remained before the Court, and additional affidavit, oral and documentary evidence was tendered. Much of the documentary evidence tendered was ruled on in the course of the hearing, but towards the end of the second hearing, there remained in dispute the tender of a number of documents, almost all of them included in the court bundle. Essentially, the dispute was whether they fell within classes of documents that I had ruled would in principle be admitted. Rather than spending the remaining available time on those evidentiary issues, the parties were directed to prepare and exchange a Scott Schedule including the defendants’ objections and the plaintiffs’ responses. The schedule was prepared in the form of a 268-line chronology, and ultimately included a summary of what the plaintiffs contended the document established, Mrs Rinehart’s comments and objections, and the plaintiffs’ responses. On Mrs Rinehart’s behalf, objection was taken to some 185 documents – including many that had already been admitted, and some of which had been tendered on behalf of Mrs Rinehart at the first hearing. To the extent that they were not already in evidence, I have admitted all those documents (with one exception), essentially for the reasons advanced in the plaintiffs’ responses. While, as I held in the course of the second hearing [Hancock v Rinehart [2014] NSWSC 860], Mrs Rinehart having announced her intention to resign, there is no longer an issue in these proceedings whether she committed breaches of trust or misconducted herself so as to warrant her removal, there are live issues as to her capacity and propensity, after her replacement as trustee, to endeavour to retain at least some control or influence in respect of the Trust, to influence its administration, and to overbear her successor. Those issues inform the context in which a replacement trustee may have to operate, and the characteristics which such a trustee may require. Many of the disputed documents are relevant to the contention that Mrs Rinehart will go to extraordinary lengths to retain control of or influence over the Trust. Further, as one of the objections advanced to the appointment of Bianca as replacement trustee was that she lacks impartiality and has aligned herself with John, and preferred her interests in the litigation to her relationship with her sisters, the plaintiffs are entitled to endeavour to explain Bianca’s conduct by showing why she has prosecuted the litigation as she has, which includes establishing the conduct of her mother to which she responded. Many of the disputed documents are relevant to the contention that Bianca was compelled to take the action she did to protect her interests and those of the Trust.

2. [48]

   Those conclusions accord with the views that I expressed in two judgments given in the course of the hearing, Hancock v Rinehart [2014] NSWSC 844 and [2014] NSWSC 860. In addition, documents that reveal the events and communications surrounding the nominations of the various trustee companies and how they were elicited are relevant to the independence and competence of those companies as potential replacement trustees.

3. [49]

   The exception is item 10 in the schedule – an email from Bianca of 16 August 2006 concerning the Hope Downs Deed (CB Supp, pp 6608-6611) – which, in light of the abandonment of the objection to Bianca on the ground that she refused to acknowledge that she was bound by the Hope Downs Deed, and its remoteness in time, is not relevant, and is rejected.

4. [50]

   As well as embracing Mrs Rinehart’s objections, HPPL and HDIO objected to a handful of additional documents. Some were not pressed (CB7 Conf, pp 1131-1134, 1135-1137, 1138-1140, 1226-1228, 1231-1235 and CB Supp, pp 6847-6849), and are not admitted. The others the subject of objection are admitted, essentially for the reasons advanced in the plaintiffs’ responses.

5. [51]

   Objections were also taken by Ginia, which overlap those taken by Mrs Rinehart, and the subject documents are admitted, again essentially for the reasons advanced in the plaintiffs’ response. Insofar as Ginia objected generally to documents relied on as explaining Bianca’s institution and maintenance of the proceedings, this was inconsistent with her position at the second hearing, when her counsel Mr McHugh SC said:

6. [52]

   Finally, before turning to the issues, it should be noted that the proceedings are brought in this court’s cross-vested jurisdiction of the Supreme Court of Western Australia, and the substantive law of Western Australia – including in particular (WA) Trustees Act 1962 – is applicable.

7. [53]

   The first major remaining issue concerns the validity of the 2006 Amendments to the constitution of HPPL, which imposed restrictions on the transferability of shares in HPPL. The plaintiffs contend that the amendments are not effective in respect of the shares held by the Trust. Originally, this issue arose in circumstances where the plaintiffs were proposing the appointment of a non-Hancock family group member as replacement trustee, which at least arguably might have offended the HPPL constitution as amended by the 2006 Amendments and resulted in the Trust being divested of its shares. As the plaintiffs now propose the appointment of a Hancock family group member, and as all parties appear to accept that in any event the transmission of shares to a new trustee (as distinct from a transfer) does not offend the constitution, this aspect of the issue assumes less significance than previously. Indeed, HPPL and HDIO submitted that the plaintiffs’ claims in respect of the 2006 Amendments were relevant only if the Court were minded to appoint a non-Hancock family group member as trustee of the Trust, and that otherwise there would be no utility in the relief sought in respect of the 2006 Amendments. But that is not necessarily so: as will appear, the effect of the 2006 Amendments is to limit in significant ways the transferability and realisability of the Trust’s only asset, being its shareholding in HPPL, and the constraints are not confined to the identity of the trustee. Thus the validity of the 2006 Amendments may well have enduring consequences for the Trust and its ability to realise its interest in HPPL, regardless of the identity of the replacement trustee.

The effect of the 2006 Amendments

1. [54]

   Before the 2006 Amendments, HPPL’s constitution contained articles governing the transfer of shares (in particular, articles 35 to 43), the effect of which was that (a) shares could be transferred to other members of the family, including both immediate and more distant relatives (such as nieces and nephews) of members, and companies in which members and/or such relatives held a controlling interest (article 42); (b) shares could be transferred to persons selected by the directors, or to existing members (article 35); (c) otherwise, a member proposing to transfer a share was required to give notice to HPPL that they desired to do so, thereby appointing the company agent for sale of the subject share (article 36), whereupon HPPL would have 28 days to find a member or other person of their choice willing to purchase at fair value (article 37), and if HPPL was unable to do so, the member could then sell and transfer the share to any person at any price (article 40) – although, as is typical in closely held companies, the directors retained a discretion to refuse to register a transfer to a new member (article 43).

2. [55]

   On 15 March 2006, the members of HPPL agreed to a special resolution amending the constitution by making the 2006 Amendments, which relevantly involved:

   1. (1)

      a new definition of “Hancock Family Group Member”, which includes only Mrs Rinehart and “direct line descendants from the blood” of Mrs Rinehart (Personal Members), as well as executors, trustees in bankruptcy, and personal representatives and trustees of an estate of a Personal Member (Personal Representative Members) (article 2). This definition excludes, amongst others, spouses of Mrs Rinehart or her descendants, and any adopted children either of Mrs Rinehart or of her descendants, who were eligible transferees under the earlier form of the constitution, and who were within the definition of “Hancock Family Group Member” in and for the purposes of the HDJVA, so that a transfer to them would not trigger the HDJVA “change of control” provision. Thus this amendment narrowed, further than the HDJVA, the class of eligible transferees.

   2. (2)

      a provision that only a person who is a Hancock Family Group member is entitled to hold and control a share in the company (article 36(a)), provided that any member that was a trustee or a body corporate as of the effective date may continue to hold a share (article 35(f));

   3. (3)

      a restriction on the ability of Personal Members to transfer their shares, except (i) by will to another Personal Member (article 36(h)); (ii) by declaration of trust, provided that all beneficiaries of the trust are Hancock Family Group Members (and none pays any valuable consideration for their interest), and provided also that the trustee is a Hancock Family Group Member (article 36(i)); or (iii) by following the pre-emptive “transfer notice” procedure described below;

   4. (4)

      a right of pre-emption to existing members, so that a member proposing to transfer shares must give a transfer notice to the company (which notice is also deemed to be given if a member purports to transfer a share to a non-Hancock Family Group Member, or otherwise than in accordance with the articles, or purports to encumber a share), the effect of which is to appoint the company agent for sale of the shares at the price fixed in the transfer notice or, at the option of the purchaser, by the Auditor as the fair value (article 37(a)), whereupon the directors shall offer the subject shares first to all other existing members as nearly as may be in proportion to the existing shares held by them respectively (article 37(b)), and if such offers are not accepted in full within 14 days, then as to the residue secondly to those members who accepted the first round offer (article 37(e)); and any remaining shares in respect of which the second round offer has not been accepted within 14 days shall be bought back by the company in accordance with the provisions of the (CTH) Corporations Act 2001 (article 37(g)). The company is obliged to ensure that member approval of such buy-back is obtained and the buy-back is given effect to within 90 days of receipt of the transfer notice, with the terms of the buy-back agreement determined by the company, for which purpose the transferor is deemed to have appointed the company as its agent for the purpose of executing the buy-back agreement (article 37(h)).

   5. (5)

      In the event of a buy-back, the company may in its sole discretion pay the consideration owed to the member, which shall be interest free, over a period of time in instalments, from “free available cash flow” (excluding any cash flow that is from time to time committed to third party financing, required to pay taxation liabilities, required to meet expenditure in the normal course of business and required to pay dividends as may be declared from time to time) (article 37(i)). In such a case the buy-back agreement is to contain a schedule of payments (which may be altered from time to time by the company acting reasonably having regard to the free available cash flow from time to time), but irrespective of when the consideration is to be paid, the buy-back is to be effected within 7 days of member approval and 90 days of the transfer notice (article 37(j)(ii)).

3. [56]

   Corporations Act, s 140(2)(c), provides that a member of a company is not bound by a modification of the corporate constitution made after the date on which they became a member that imposes or increases restrictions on the right to transfer the shares already held by the member, unless that member agrees in writing to be bound. The special resolution purported to serve both as a special resolution amending the constitution pursuant to Corporations Act, s 136(2); and also as a consent of each of the members to the proposed restrictions on the shares, as required by Corporations Act, s 140(2). Mrs Rinehart signed the special resolution in four capacities: first, as a director of HMHT Investments, which then held 51,584 D class preference shares; secondly, as a director of 150 Investments, which then held 168,416 D class preference shares; thirdly, in her own right, as holder at that time of 1,593 A class shares, 3,000 B class shares, and 510 cumulative special shares; and, fourthly, as trustee for the Trust, as holder at that time of 1,407 A class shares and 156 cumulative special shares. The plaintiffs contend that the consent purportedly given by Mrs Rinehart qua trustee to the special resolution was void as a fraud on her power as trustee to exercise rights in respect of the Trust’s shares, and accordingly that the amendments are not effective as against the Trust.

Fraud on a power

1. [57]

   A power must be exercised in good faith for the purpose for which it was given, and not for an ulterior purpose - whether for the benefit of the trustee or otherwise - not contemplated by the instrument creating the power [Vatcher v Paull [1915] AC 372, 378 (Lord Parker); Cowan v Scargill [1985] Ch 270, 288D (Megarry VC)]. A “fraud on a power” is an exercise of a power for such an extraneous purpose; in this context, the term “fraud” does not necessarily involve conduct which would ordinarily be described as dishonest or immoral [Vatcher v Paull, 378; Re Crawshay [1948] Ch 1234]. Such an exercise of power for an extraneous purposes is invalid and void, as Dixon J said in Mills v Mills (1938) 60 CLR 150 (at 185):

2. [58]

   The doctrine applies to the exercise by a trustee of a discretion. In Pitt v Holt; Futter v Futter [2011] EWCA Civ 197; [2012] Ch 132; [2011] All ER (D) 101 (Mar), Lloyd LJ said (at [96]):

3. [59]

   While, on appeal, the Supreme Court acknowledged that the issue of fraud on a power was a “difficult question” which might need to be revisited, it did not otherwise cast doubt on Lloyd LJ’s above exposition [Futter v Revenue and Customs [2013] UKSC 26; [2013] 2 WLR 1200, [61]]. And in Wong v Burt [2004] NZCA 174; [2005] 1 NZLR 91, the New Zealand Court of Appeal explained:

4. [60]

   In determining whether a power has been exercised for an extraneous or ulterior purpose, the Court determines first, as a matter of law, for what purpose or purposes the power may properly be exercised and secondly, as a matter of fact, whether the purpose for which the power was in fact exercised was within the category of permissible purposes [Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129, [112]]. In ascertaining the purpose for which the power was in fact exercised, the Court is concerned with the state of mind of the trustee and is informed by the surrounding circumstances, as was explained by the Privy Council in Howard Smith Ltd v Ampol Ltd [1974] AC 821 (at 835, citing Hindle v John Cotton Ltd (1919) 56 Sc LR 625, 630-631 (Viscount Finlay)):

5. [61]

   In that respect, the burden of proof is born by those who allege a fraud on the power [Askham v Barker (1853) 17 Beav 37, 44; 51 ER 945, 948 (Romilly MR); see also NSW Medical Defence Union v Crawford (1993) 31 NSWLR 469, 485-6 (Kirby P)]. However, the crucial question is simply whether the power (or discretion) was exercised bona fide for a proper purpose, and an answer that it was not does not depend in every case on proof of what the extraneous purpose was, so long as it can be established that the power was not exercised bona fide for the purpose for which it was conferred. In other words, it may be discernible that the power (or discretion) could not have been exercised bona fide for a proper purpose, without proving for what collateral purpose it was in fact exercised.

Is the case open on the pleadings?

1. [62]

   In essence, the plaintiffs’ “fraud on a power case” was that Mrs Rinehart qua trustee consented to the 2006 Amendments not bona fide in the interests of the Trust, but for the purpose of conferring on herself directly or indirectly the ability to acquire the Trust’s shares in HPPL in the event that she was removed and replaced as trustee and, more particularly (by article 37(i)), to deny the beneficiaries the ability to realise their beneficial interest for value. The first defendant objected that no such case – and particularly in respect of article 37(i) – was available on the pleadings.

2. [63]

   Paragraph 81 of the third further amended statement of claim, under the heading “The First Defendant’s Purpose in Causing the 2006 Amendments to be made to the HPPL Constitution”, alleged that:

3. [64]

   Paragraph 82 pleaded that in order for the restrictions on the transfer of HPPL shares provided for in the 2006 Amendments to be binding on the first defendant as trustee of the Trust, she had to provide her consent in writing to them (referring to Corporations Act, s 140(2)). Paragraph 83 pleaded that she did so by purporting to execute the special resolution in her capacity as trustee of the Trust on 15 March 2006.

4. [65]

   Paragraph 84 pleaded that in executing the special resolution and in relying upon the terms of the amended HPPL constitution in these proceedings, the first defendant breached and continued to breach the irreducible core of her duties as trustee by failing to act in the best interests of the beneficiaries of the Trust, particulars whereof were in substance that the 2006 Amendments imposed restrictions on transfer of the shares and gave powers to the first defendant as trustee to control whether the beneficiaries could ever take a distribution and restricted their ability to compel due administration, and in particular:

5. [66]

   Paragraph 85 was as follows:

6. [67]

   Paragraph 101 pleaded that by reason of having been procured in breach of trust, the 2006 Amendments insofar as they affect the HPPL shares held by the first defendant as trustee of the trust were “void, invalid and of no effect” to the extent that they precluded a new third party trustee from being registered as holder of the trust’s shares and provided for the suspension of voting rights attached to shares vested in such a trustee.

7. [68]

   In her defence, Mrs Rinehart denied paragraph 81 of the third further amended statement of claim, admitted paragraph 82 (in addition referring to her answer to paragraph 84), and admitted paragraph 83. In answer to paragraph 84, she denied the paragraph and said that (i) the 2006 Amendments were necessary to protect the HDJVA and to progress the joint venture and its financing, (ii) that the 2006 Amendments were procured in good faith and not for any improper or collateral purpose, (iii) that the 2006 Amendments and the consequential ability to protect and maintain the HDJVA “very substantially enhanced the value of the Trust property”, and (iv) by reason of those matters, the 2006 Amendments were in the best interests of, and for the benefit of, HPPL and its members as a whole, and the beneficiaries of the trust.

8. [69]

   It is true that nowhere does the plaintiffs’ pleading specifically use the term “fraud on a power”. However, paragraph 81 pleads Mrs Rinehart’s alleged purpose. Paragraphs 84 and 85 allege that her performance of the function (referred to in paragraphs 82 and 83) of consenting to the 2006 Amendments on behalf of the Trust via the special resolution was in breach of trust. Paragraph 101 pleads that on that basis, the 2006 amendments were void, invalid and of no effect to the extent that they precluded a new third party trustee from being registered as holder of the trust’s shares and provided for the suspension of voting rights attached to shares vested in such a trustee. Mrs Rinehart’s defence specifically asserted that the 2006 Amendments were procured in good faith and not for any improper or collateral purpose. In my view, despite the absence of the phrase “fraud on a power”, it was patent on the pleadings that the validity of the 2006 Amendments was impugned on the basis that in consenting to them Mrs Rinehart was not acting bona fide in the interests of the trust but was actuated by an extraneous and improper purpose, including those referred to in paragraphs 84 and 85. Paragraph 84 specifically particularised the failure to provide for the beneficiaries to be assured of fair value for their shares in the event of a buy-back. It is notable that it was in response to paragraph 84 that Mrs Rinehart specifically pleaded that her purpose was proper.

9. [70]

   Mr Hutley SC’s submissions for Mrs Rinehart seemed to proceed on the basis that, having alleged that her purpose was the scheme pleaded in paragraph 81 – which he characterised as the alleged “cunning plan” - the plaintiffs could succeed only by establishing each and every element of that scheme. However, the plaintiffs have to establish only so much of what they have alleged as is necessary to support a conclusion that the power was not exercised bona fide for the purposes for which it was conferred. It matters not that they might fail to establish that every element of the alleged scheme was intended. As it seems to me, it will suffice if they establish that for one or more of the reasons they have pleaded, Mrs Rinehart’s consent qua trustee to the special resolution was not given bona fide in the interests of the Trust. The effect of article 37(i) in providing no assurance of timely receipt of fair value is one such reason.

10. [71]

    Accordingly, the fraud on a power case advanced by the plaintiffs in respect of the 2006 Amendments is not outside their pleaded case, and I would not hold the plaintiffs precluded from maintaining it.

The power and its proper purposes

1. [72]

   (WA) Trustees Act 1962, s 21(1)(e), provides that if securities of a body corporate are subject to a trust, the trustee may concur in any scheme or arrangement for, inter alia, the release, modification or variation of rights, privileges or liabilities attached to the securities, or any of them, in the same manner as if the trustee were beneficially entitled to the securities. Generally speaking, in voting trust shares, a trustee shareholder may properly have regard to the interests of the company and the interests of the beneficiaries, as Carter J explained in Hespe v Surfers Paradise Forests Ltd (1985) 10 ACLR 182 (at 191):

2. [73]

   However, the purpose for which the power may permissibly be exercised may be illuminated by the terms of the trust, and in particular the nature and extent of the trustee’s powers and discretions. In this case, cl 6A(1) of the Trust Deed (General Powers of Trustee) provides that in dealing with the trust fund the trustee has every power as if it was a natural person of full age and capacity and the absolute owner of the trust fund; that the conferring on the trustee of any express power should not be construed in any way to limit those general powers; and that the trustee shall not be required to assign any reason for the exercise of any power. Clause 6A(2) (Trustee’s general powers) provides that the trustee shall have the express powers in the schedule, which include “every power, right, authority, discretion and remedy given to a trustee by the laws of Western Australia in relation to the trust fund” (par 5) - which, as has been seen, includes the power in question here - and the ability to “exercise any power under the deed even if the trustee or any associate of the trustee stands to benefit from or has an interest in the exercise or the power” (par 6(a)). By par 1.3 of the schedule, it was also provided that, subject to any express provision to the contrary in the deed, every power vested in the trustee shall be exercisable at the trustee’s absolute and uncontrolled discretion. Further, cl 7C of the Trust Deed allowed the trustee to act despite other interests.

3. [74]

   None of that would permit the trustee to exercise a discretion otherwise than bona fide for a proper purpose. But it reinforces the principle, taken above from Hespe, that it is not improper for a trustee shareholder – like any shareholder – to have regard not only to the separate interests of the beneficiaries, but to the interests of the company in which the shares are held as a whole - because typically, though not invariably, those interests will coincide; what is good for the company will usually be good for the shareholders (and, where a shareholder is a trustee, for its beneficiaries).

The exercise of the power

1. [75]

   In the absence of direct evidence from Mrs Rinehart as to her purpose in agreeing, on behalf of the Trust, to the 2006 Amendments, the plaintiffs must prove their case by inference from the effect of the amendments and the surrounding circumstances and documents.

2. [76]

   Amongst those circumstances, many tend to support Mrs Rinehart’s contention that the 2006 Amendments were intended by her (1) to ensure that HPPL would not commit a “change of control” event under the HDJVA, thereby (2) to avoid jeopardising its valuable interest in the HDJVA, and thereby (3) to serve the interests of its shareholders, including the Trust. In particular, first, it is striking that the 2006 amendments (adopted on 15 March 2006) were practically contemporaneous with HPPL entering into the HDJVA (made on 16 March 2006). Secondly, on 20 January 2006 HPPL’s solicitors Blakiston & Crabb wrote a letter to Sceales & Co, who were acting for Mrs Rinehart in her capacity as trustee of the Trust, which expressly adverted to that purpose:

3. [77]

   True it is that the detriment said to be associated with a change of control event might in some respects have been overstated in that letter, but the timing and context provides significant support for the view that avoiding putting HPPL’s interest in the HDJVA in jeopardy was a major motivator for the idea of amending the HPPL constitution.

4. [78]

   Thirdly, this purpose was known and evident at the time. On 21 February 2006, Bianca - who was then a director of HPPL and HDIO, and executed the HDJVA on behalf of HPPL and HDIO – signed a letter to HPPL stating:

5. [79]

   Ginia signed a letter to similar effect on the same date. Other contemporaneous correspondence bespeaks a similar purpose.

6. [80]

   The terms of the amendments themselves are not only consistent with, but support, that view. Their practical effect is that a person who is not a Hancock family group member (as defined in the amendments, which definition is admittedly in some respects narrower than that in the HDJVA) cannot become a member of HPPL, with the consequence that HPPL (and its wholly owned subsidiary HDIO) could not cease to be entities wholly owned and controlled by Hancock family group members for the purposes of, and thereby trigger a “change of control” under, the HDJVA. The inter-relationship with the HDJVA and related documents (referred to as “the Transaction Documents”), is reinforced by specific references in articles 37(h) and 42, which relevantly provide (emphasis added):

7. [81]

   It is clear that the HDJVA was perceived to be a very valuable opportunity and investment for HPPL, and thus of benefit to the Trust as a shareholder. It follows that protection of HPPL’s interest in the HDJVA could legitimately be seen as in the interests of the Trust, and that the burden of the restrictions on transferability of shares could be considered justified by the benefits of securing the HDJVA. Such a view is fortified by the strongly expressed view of all parties in the course of these proceedings – albeit at different stages – of the importance in appointing a new trustee of avoiding the risk of triggering the pre-emptive rights under the HDJVA. If in consenting to the 2006 Amendments on behalf of the Trust, Mrs Rinehart was actuated by a desire to avoid the risk of an HDJVA change of control and thereby conserve the interests of the Trust and the company in which it was a shareholder, her purpose would not have been improper.

8. [82]

   Against this, the plaintiffs argue that in significant respects, the 2006 Amendments went well beyond what was necessary to guard against a “change of control” event for the purposes of the HDJVA, in particular in restricting the transferability of shares to a narrower class of Hancock family group members than was required by the HDJVA; in restricting the transfer of shares between Hancock family group members by preventing one from selling their shares to another Hancock family member of their choice and requiring instead that they be offered pro rata to existing shareholders; and in creating a buy-back mechanism under which HPPL was enabled to buy-back shares on terms (including a payment schedule) determined by it, without interest. Those aspects of the 2006 Amendments were not required to ensure that a “change of control” under the HDJVA was not triggered: clause 13.3(a)(i) of the HDJVA provides that Hamersley shall have an option to purchase all of HDIO’s interest in the joint venture on the terms set out in Schedule 5 to the HDJVA at its then current fair value if HDIO “ceases to be an entity wholly owned and controlled by Hancock Family Group Members and/or entities wholly owned and controlled by them”; and in the HDJVA, “Hancock Family Group Members” is defined to mean, relevantly, Mrs Rinehart and her lineal descendants or adopted descendants or the spouse of such person for so long as that person remains a spouse. The narrower definition in the 2006 Amendments (which excludes spouses and adopted children), the requirement that shares must be offered pro rata to existing shareholders rather than to any family member, and the discretion of HPPL to set the terms of any buy-back and payment schedule are not necessary to avoid triggering that provision. The plaintiffs contend that a desire to protect HPPL’s interest in the HDJVA cannot explain or justify those aspects of the 2006 Amendments, and that there must therefore have been an extraneous purpose.

9. [83]

   The plaintiffs argued that the pro rata pre-emptive provisions reflected a scheme by which the beneficiaries would be deterred (by the CGT liability that would be incurred, coupled with the inability readily to liquidate their shareholding to fund such liability) from calling for their shares upon vesting, so that they would be practically confined to receipt of distributions of income, while Mrs Rinehart as the majority shareholder could entrench her control of HPPL and enable her to acquire the trust shares by way of pre-emption in the event that she was removed as trustee of the Trust, on the basis that appointment of a person other than a Hancock family group member as trustee would trigger the pre-emptive rights. Initially, Mrs Rinehart had contended that that was indeed the effect of the 2006 Amendments in the events which transpired in 2011 (although she subsequently accepted that vesting of the Trust property in a non-Hancock Family Group member as trustee would be a transmission, not a transfer, and would not trigger the pre-emptive rights under the constitution). The plaintiffs contended that it should be inferred that that consequence was always intended by Mrs Rinehart, including in 2006.

10. [84]

    However, this seems rather far-fetched. The theory assumes that if Mrs Rinehart were removed, she would be replaced by a non-Hancock family group member, where that was not necessarily probable, let alone inevitable. Moreover, as Mrs Rinehart already held 76% of the shares in HPPL, it was hardly necessary for her to entrench her control of HPPL. I do not consider that theory, in its full elaboration, to be the more probable explanation of the 2006 Amendments, or of those aspects of them that go beyond what was required to ensure that the HDJVA change of control provision was not triggered.

11. [85]

    But rejection of that theory in its full elaboration does not mean that the plaintiffs have failed to prove that the power was not exercised bona fide for the purposes of the Trust. The plaintiffs focussed attention on the effect of article 37(i), under which in the event of a buy-back, the company in its sole discretion may pay the consideration in instalments, interest free, out of free available cash flow, after servicing third party finance, taxation liabilities, expenditure in the normal course of business, and paying to members such dividends as may be declared; and may alter the payment schedule at any time, acting reasonably, having regard to its free available cash flow; although, under article 37(j)(ii), the shares must be transferred to the Company irrespective of when the consideration is to be paid. Thus HPPL has considerable liberty as to when it will pay the buy-back consideration, and this is accentuated by article 35(d), also introduced by the 2006 Amendments, under which the directors can exercise their powers under article 37(i) having “sole regard to the interests of the Company and the interests of the members as a whole, and may disregard any loss or disadvantage that may be suffered by individual members affected by the clauses or an exercise of those powers”, and members “have no right of action against the Directors or the Company for any loss or disadvantage incurred by them as a result, whether directly or indirectly, of the operation of clause 35 to 42 inclusive or of the Directors exercising the powers pursuant to clauses 35 to 42 inclusive”.

12. [86]

    Despite the submissions of Mr Hutley, I see no room for an implication that the buy-back consideration must be paid within a reasonable time. Such an implication would be inconsistent with the provisions of article 37(i) to the effect that HPPL may decide the terms for payment in its sole discretion and that its provisions “do not, and are not to, in any way constrain the Company and its subsidiaries at any time from engaging in any activities, including with respect to any project, development, business or financing, even after a decision has been made pursuant to this clause 37(i) to pay consideration owing under a buy-back from free available cash flow”; and with clause 35(d), which provides that HPPL and its directors can disregard any loss by individual members in exercising its powers, including its powers to determine the terms for payment, and that members have no right of action against HPPL or its directors for any loss they suffer as a result of the exercise of their powers, including to determine the terms for payment. Thus, as the plaintiffs submit, the ability of the company to determine (and vary at its discretion) the payment schedule, without interest, and pay finance costs, business expenditure and dividends in priority, means that when a member would receive payment for their shares is effectively entirely at the discretion of HPPL, and a member has no assurance of timely payment.

13. [87]

    Next, the plaintiffs emphasise that Mrs Rinehart as controlling shareholder would effectively control HPPL’s discretion as to the terms of any buy-back agreement, and any payment schedule, and any variation of it. The first defendant submitted that she would not be entitled to vote on such a determination. Mr Hutley submitted that article 97 meant that Mrs Rinehart could not be involved in such a decision. Article 97 provides:

14. [88]

    But while it was submitted that article 97 addresses a “contract transaction or dealing" between HPPL and a third party in which the director of HPPL may be interested - such as where the HPPL director may be a shareholder in a third party company which has tendered to provide services to HPPL - and not a contract the outcome of which is for the benefit of shareholders, as it seems to me the purport of article 97 is simply to permit directors validly to contract with the company, subject to disclosure of their interest. It is concerned with the validity of directors’ contracts and disclosure of interests, not with voting. Article 97 says nothing at all as to a buy-back agreement between the company and one of the beneficiaries, and nothing as to Mrs Rinehart’s entitlement to vote (as a director) in respect of an agreement to buy-back her own shares.

15. [89]

    Not only does nothing in article 97 prevent Mrs Rinehart from voting in respect of a buy-back agreement with another shareholder, but the question of directors voting on transactions in which they are interested is specifically addressed by article 98, which provides:

16. [90]

    Mr Hutley submitted that, when read with article 97, article 98 merely permits a director who has disclosed an interest in a “contract transaction or dealing" to which article 97 applied, to vote in respect of that "contract transaction or dealing". But whether or not that be so, it does not change the position that nothing precludes or disqualifies Mrs Rinehart from voting in respect of a buy-back agreement between the company and another shareholder, and she would be permitted to vote in respect of a buy-back agreement between the company and herself. Mr Hutley further submitted that article 98 could not affect Mrs Rinehart’s obligation to act bona fide in the interests of the company, but in the context of a buy-back agreement with another shareholder that is of little comfort to the exiting shareholder – the company’s interest will usually be to delay payment as long as possible.

17. [91]

    In my view, therefore, Mrs Rinehart as a director of HPPL would be entitled to vote (and would effectively control HPPL) in respect of the payment schedule under a buy-back agreement with another shareholder – including any of the beneficiaries should they, after calling for a transfer, become shareholders in their own right and seek to transfer their shareholding – and also under a buy-back agreement for any or all of her own shares, although in that case, after completion of the buy-back, she would no longer be entitled to vote on any proposal to alter the payment schedule. In reaching this conclusion, it is unnecessary to rely on the proposition, advanced by the plaintiffs, that Mrs Rinehart’s conduct in 2011 demonstrated that she held the view that "she [was] entitled to exercise her power with respect to any decision about whether to buy-back the shares of a member and, if so, on what terms" and that "a decision was clearly taken in September 2011 that the company would not buy back all of the shares of the beneficiaries on terms that would enable them to meet their capital gains tax liabilities."

18. [92]

    Thus, after the vesting of the Trust, a beneficiary who calls for their shares would be able to realise them only by offering them first pro rata to the other shareholders (which would mean about 80% to Mrs Rinehart and 7% to each other beneficiary), and secondly, if those offers were not accepted in full, to those who had accepted, pro rata, and thirdly, if shares were not sold under those arrangements then have them bought back by the company at valuation but with the consideration payable on terms that would effectively be determined by Mrs Rinehart in the interests of the company - not the exiting shareholder. On the other hand, if Mrs Rinehart wanted to sell some or all of her shares, she would likewise have to offer them pro rata to the other shareholders – the trustee or, if they have called for their shares, the beneficiaries – and if the shares were not purchased by them then ultimately have them bought back by the company at valuation, on terms that would effectively be determined by her in the first instance, but which could be varied by the remaining shareholders after completion.

19. [93]

    Thus article 37(i) has the practical effect of reducing the ability of a beneficiary to call for and realise the value of his or her share of the Trust property, and conferring on Mrs Rinehart the ability, through her control of HPPL, to determine the terms on which a former member would be paid for his or her shares in HPPL, while preserving her ability to pay herself dividends and meet her own expenses before paying the former member for his or her shares. In effect, the position of the beneficiaries is rendered one in which, other than distribution of such income as may be available, their ability to realise the value of their beneficial interest is, even after vesting of the trust, at the whim of Mrs Rinehart. These features were not necessary to avoid the risk of triggering an HDJVA change of control. And the very broad discretion to determine and vary the payment schedule, and the exclusion of any rights to complain and remedy, leave the position in respect of a buy-back very favourable to the company and disadvantageous to an exiting shareholder. Given Mrs Rinehart’s controlling position in the company, these effects of the 2006 Amendments raise a legitimate question as to what motivated her consent to them.

20. [94]

    However, the circumstance that the effect of the 2006 Amendments is in at least some respects adverse to the beneficiaries and favourable to Mrs Rinehart’s interests does not of itself mean that her decision to agree to them on behalf of the Trust was not a bona fide exercise of the power for proper purposes: as was stated in Wong v Burt (at [30]), while, if the power is exercised with the intention of benefiting some non-object of the discretionary power, the exercise is void, on the other hand, if there is no such improper intention, even although the exercise does in fact benefit a non-object, it is valid.

21. [95]

    An important matter of context is that in 2006 the Trust had not vested - indeed vesting was still some years away – let alone had any beneficiary called for his or her vested share. The only ordinary shareholders were Mrs Rinehart personally, as to 76%, and qua trustee of the Trust, as to the balance.

22. [96]

    Another important matter of context is that in reality, all the protagonists – including the beneficiaries - saw their participation in HPPL (and the HDJVA) as a long term venture, in which they perceived the long term benefits to outweigh the attractions of early realisation of their interests. This is manifest from the attitude adopted by all parties to the risk of triggering a change of control under the HDJVA, which has significantly influenced their respective positions as to selection of the replacement trustee. Thus increased restrictions on transferability and realisability during the currency of the HDJVA were not calculated to preclude a course of action that any one of them was otherwise likely to adopt.

23. [97]

    In that context, the substitution of a pro-rata right of pre-emption for the ability to transfer to any family member who was willing to purchase does not bespeak an intention to deter the beneficiaries, after vesting, from calling for their shares or, having done so, endeavouring to realise them. Such rights of pro-rata pre-emption are not at all uncommon in closely held companies, and have as one of their purposes preventing the disproportionate accumulation of voting power. Importantly, the restrictions on transfer, pre-emptive rights and buy-back provisions apply equally in respect of Mrs Rinehart’s personal shareholding, should she ever wish to sell, as they do in respect of the Trust’s shareholding. Thus should she wish to sell, her shares would be offered to the Trust (or the beneficiaries, if they had become registered, pro rata), which effectively requires that she deal equally with all the beneficiaries and not favour any one of them. If that offer does not result in the acquisition of all the shares she proposes to sell, then they would be bought back by the company, and while in the first instance she might be able to control the terms of the buy-back agreement and payment schedule, as soon as her shares were transferred (within 90 days of the transfer notice), the remaining shareholders could vary the payment schedule.

24. [98]

    The advices of Blakiston & Crabb and of Mr Myers QC obtained in respect of the propriety of the 2006 Amendments did not refer to or consider Article 37(i), which had not been conceived when those advices were sought and given. However, contemporaneous communications that evidence the evolution of the 2006 Amendments cast light on what motivated article 37(i). An internal email of Blakiston & Crabb of 1 February (Hollingworth to Blakiston) notes that the pre-emption rights (presumably those contained in former articles 36 and 37) had been removed, “as such rights don’t seem relevant in light of the restrictions on transfer”. A draft version of the 2006 Amendments of 10 February 2006 provided for the directors to give a transfer notice to a shareholder who encumbered shares, requiring the transfer of the affected shares to a Hancock Family Group Member at a price equivalent to fair value within a specified time, not to be unreasonable. This was followed by a drafter’s note: “Query whether need a more specific disposal mechanism, eg a method to select which Hancock Family Group Member is to receive the Affected Shares in the event of a dispute”. This was repeated in a draft of 20 February, which was forwarded to Mrs Rinehart under an email which noted:

25. [99]

    Mrs Rinehart responded to that drafter’s query on the same day, “The majority shareholder is to be first offered the Affected Shares and have first right of refusal”. In conformity with that instruction, the next draft (of 2 March) included a proposed clause 37 which would have required that a member proposing to transfer shares give a transfer notice appointing the company agent for sale of the shares at the price specified in the notice (or at the purchaser’s option fixed by the auditor), and provided that upon receipt of the notice the directors were to endeavour to find a member willing to purchase; and a proposed clause 40, providing that if a member willing to purchase could not be found within 28 days, the company must offer the shares to the majority shareholder, and that if the majority shareholder did not purchase the shares, then any remaining shares were to be bought back by the company in accordance with the provisions of the Corporations Act. After the reference to offering the shares to the majority shareholder, there was a drafting note: “Could delete this step and proceed directly to buy-back”.

26. [100]

    The suggestion in the drafting note was apparently accepted, because in the next draft (of 10 March) the concept of the majority shareholder being entitled to a right of first refusal was removed and was replaced by the deemed pro-rata offer to other shareholders, with a buy-back by the company in default. Then, following a “discussion in chambers” on 10 March, a revised version was produced by Blakiston & Crabb on 12 March, which for the first time included a version of clause 37(i), permitting the company to pay the buy-back consideration over a period of time, in instalments, from free available cash flow not otherwise committed to a third party financier or required to pay taxation liabilities.

27. [101]

    Finally, a draft of 13 March contained the more expansive version of clause 37(i) to be found in the final version, providing also for expenditure incurred in the ordinary course of business, and dividends, before “free available cash flow”; and clause 37(h), providing for the company to provide a payment schedule, which could be altered by the company from time to time acting reasonably.

28. [102]

    On 14 March Mr Sceales, who was advising Mrs Rinehart qua trustee, advised:

29. [103]

    What emerges from the contemporaneous communications and drafts is, first, that the 2006 Amendments were plainly triggered by a desire to ensure that (other than existing corporate members) the shareholding was confined to Hancock family group members, so that there was no risk of triggering a change of control event under the HDJVA. Secondly, in the course of developing the amendments, Mrs Rinehart also decided that spouses should be excluded from the definition of Hancock family group member. As the HDJVA permitted spouses only “for so long as that person remains a spouse”, and given the risk of matrimonial litigation in the event of a marriage breakdown, this is consistent with avoiding any risk of triggering a change of control, and does not indicate any ulterior purpose. Thirdly, and for present purposes critically, in the course of developing the amendments, a question arose as to how the transferee of shares to be compulsorily acquired under a transfer notice from a member who encumbered their shares should be selected. While the initial response from Mrs Rinehart was that the majority shareholder should have right of first refusal, this was not pursued, and instead a pro rata pre-emption provision, with a buy-back by the company in default, was adopted – not only in the event of an attempted encumbrance, but in respect of any proposed sale. Then, consideration turned to how the buy-back consideration would be paid, and the outcome appears to have been informed by the view that a buy-back should not be permitted to impinge on the ordinary operations of the company. The plaintiffs sought to contrast this with the terms of payments that would apply in the case of the exercise of the pre-emptive option under the HDJVA (under which the exiting venturer was entitled to receive payment within 120 days of the option being exercised), but the terms agreed between Hamersley and HPPL in that respect are irrelevant to the terms upon which HPPL might be prepared to agree to be bound to buy-back an exiting member’s shares.

30. [104]

    Thus the pre-emption and buy-back provisions emerged in the course of the development of the 2006 Amendments, in response to the perceived necessity to have a means for identifying the transferee of shares to be compulsorily acquired where a shareholder encumbered shares (as so triggered a change of control), and were extended to proposed transfers of shares. The buy-back provision ensured that even if purchasers could not be found, the exiting shareholder would be able to realise their shares. Article 37(i) emerged even later, when consideration turned to how the company would implement a buy-back. Essentially, its purpose is that while providing an assurance for shareholders that there is ultimately a purchaser for their shares if they wish to exit, in the form of a buy-back, it is limited by not requiring disruption of the company’s ordinary activities to fund a buy-back. Viewed in that context, I am unpersuaded that it justifies an inference that Mrs Rinehart’s support for it was motivated by considerations extraneous to what were perceived as the best interests of the company, and of the Trust as a shareholder, in particular to avoid any risk of triggering a HDJVA change of control. As Mr Hutley submitted:

31. [105]

    In reaching this conclusion, I have by no means overlooked the plaintiffs’ forceful submission that Mrs Rinehart’s failure to give testimonial evidence of her subjective intention in executing the special resolution on behalf of the Trust warranted an inference that her evidence would not have assisted her, and that the Court could more confidently draw, from the objective circumstance that the 2006 Amendments conferred an advantage on Mrs Rinehart to the disadvantage of the beneficiaries, the inference that this was her objective [Jones v Dunkel (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361, [63]]. But ultimately the above analysis of the evolution of the 2006 Amendments provides a clear explanation of their purpose, which supports a conclusion contrary to that for which the plaintiffs contend. In those circumstances, a Jones v Dunkel inference does not avail them: even if it be accepted that what Mrs Rinehart could say would not have assisted her, there remains on the evidence a more probable inference that she agreed to the 2006 Amendments because she genuinely considered that it would serve the interests of the Trust as well as the company to remove any risk of triggering an HDJVA change of control, and that article 37(i) was incidental to implementing that purpose.

32. [106]

    In my judgment, therefore, it has not been established that Mrs Rinehart’s power as trustee to “agree in writing to be bound” by the 2006 Amendments, within the meaning of Corporations Act, s 140(2), was exercised other than for a proper purpose.

Other defences

1. [107]

   That conclusion relieves me of the necessity to consider, in as much detail as might otherwise have been appropriate, other matters raised on behalf of Mrs Rinehart by way of defence, and I shall address them but shortly.

Legal advice

1. [108]

   Mrs Rinehart pleaded that she obtained legal advice as to the propriety of the 2006 Amendments, and acted in accordance with that advice. The advice to which she referred was particularised as (a) a memorandum of advice of Alan Myers QC dated on or about 31 January 2006, and (b) a second memorandum of advice of Alan Myers QC dated on or about 11 April 2006.

2. [109]

   Mr Myers’ memorandum of advice of 31 January 2006 refers to a proposed amendment to the constitution of HPPL to confine the transfer of all classes of shares to Hancock family members or family controlled companies. It does not refer to the pre-emptive rights or the buy-back provision, let alone to article 37(i). His second memorandum of advice of 11 April 2006 was given after the 2006 Amendments had been consented to and made (on 15 March 2006), and pertained to the conflict of interest involved in Mrs Rinehart acting as a director of HPPL and her acting as trustee of the Trust in respect of the proposed amendments. It said nothing as to the propriety, from the perspective of the trustee, of the 2006 Amendments.

3. [110]

   Mr Myers QC was instructed only that the proposed amendments would “limit the transfers of all classes of shares in the capital of the company to members of the Hancock family or to companies which are controlled by members of the Hancock family”, and also that restrictions on the transfer of HPPL shares were required by HPPL’s contractual arrangements with Hamersley, which incorporated a change of control provision permitting Hamersley to terminate the agreement if HPPL “ceases to be wholly owned and controlled by Hancock Family Group Members and/or entitles wholly owned and controlled by them”. He was not briefed with any draft of the proposed amendments, and he was not informed that the proposed amendments would go beyond what was required by the arrangements with Hamersley. In particular, he was not informed of the proposed pre-emptive rights, the buy-back provision, or article 37(i).

4. [111]

   Because Mr Myers’ advice did not address the proposed pre-emptive rights, the buy-back provision, or article 37(i), it would have afforded no protection to Mrs Rinehart, had I been prepared to infer an improper purpose in respect of those provisions. But I should record that, contrary to the plaintiffs’ submission, I see nothing sinister in the circumstance that Mr Myers QC was not told of those aspects of the proposed amendments. As will be apparent from the chronology of communications referred to above, they had not been conceived when Mr Myers’ first advice was given on 31 January 2006, and they were not relevant to the issue he was asked to address in his second advice.

Lack of parties

1. [112]

   It was submitted for Mrs Rinehart, and for HPPL and HDIO, that the claim for a declaration that Articles 35-42 were void was deficient for want of parties, in that the parties interested in the constitution included not only HPPL and Mrs Rinehart in her capacity as trustee and in her personal capacity, but also the other shareholders in HPPL, being 150 Investments Pty Ltd and HMHT Investments Pty Ltd, and that the failure to join them meant that the orders sought in that respect could not be made [see John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, [131]-[133]; News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, 523–5].

2. [113]

   The plaintiffs do not contend that the 2006 amendments are not effective insofar as they affect the shares held by Mrs Rinehart in her personal capacity, or by her company 150 Investments (HMHT Investments no longer being a member), but only that the Trust is not bound by them in respect of its shareholding. Even if 150 Investments, which holds only J class preference shares, is a necessary party to a dispute as to whether the 2006 Amendments are binding on the Trust in respect of its Class A and cumulative special shares (the Trust having acquired its D class preference shares after the 2006 amendments), (1) when the allegations concerning the 2006 Amendments were first pleaded, Mrs Rinehart successfully applied to have HPPL and HDIO joined to the proceedings on the basis that they were necessary and proper parties, but did not suggest that it was necessary to join 150 Investments; (2) she was already a party herself; and (3) although 150 Investments has not been joined, Mrs Rinehart is its director and ultimate beneficial owner. In those circumstances, there would be no obstacle to or prejudice in joining 150 Investments as a party, even at this late stage, if it were necessary.

Releases

1. [114]

   It was also submitted that the plaintiffs were precluded from bringing claims in respect of the 2006 Amendments by the releases contained in clause 6 of the Hope Downs Deed. It was said that Bianca and John were aware of the 2006 Amendments, and that Bianca expressly consented to them by her letter of 21 February 2006, mentioned above. However, as elaborated later in these reasons, the releases in the Hope Downs Deed are confined to “claims” that had been made (or discontinued) – and do not catch claims that had not yet been made at the date of that Deed. No claim that the 2006 Amendments were invalid, or that in consenting to them Mrs Rinehart had acted in breach of trust or in fraud of the power, had been made at the time of the Hope Downs Deed. Mere knowledge of, or even consent to, the 2006 Amendments does not equate to a claim that they were invalid.

Consent

1. [115]

   At least originally, it was pleaded that the plaintiffs had consented to the 2006 Amendments, although this does not appear to have been pressed in submissions. Bianca’s letter of 21 February 2006 referred to above has the appearance of such a consent, but the evidence does not reveal any similar consent by John or Hope.

2. [116]

   In any event, there is nothing to indicate that as at 21 February 2006, Bianca had been informed of the proposed pre-emptive rights, buy-back provision or article 37(i). Had I been of the view that an improper purpose was to be inferred in respect of those provisions, the letter of 21 February would not have evidenced consent in respect of them.

Conclusion

1. [117]

   The fraud on a power case advanced by the plaintiffs in respect of the 2006 Amendments to the HPPL constitution is not outside their pleaded case, and I would not hold the plaintiffs precluded from maintaining it. However, it has not been established that, in consenting on behalf of the Trust to the 2006 Amendments, Mrs Rinehart acted in breach of trust or for an improper or extraneous purpose. Accordingly, the Trust is bound by the 2006 Amendments in respect of its shareholding in HPPL. But had I been of the view that an improper purpose was to be inferred in respect of the pre-emptive rights, buy-back provision or article 37(i) contained in the 2006 Amendments, the defences of legal advice, insufficient parties, release and consent would not have availed Mrs Rinehart.

2. [118]

   (WA) Trustees Act 1962 makes provision for the replacement of a trustee by s 77, as follows:

3. [119]

   Until, on the eve of the first hearing, Mrs Rinehart announced her intention to resign the trusteeship, the plaintiffs sought her removal and replacement for misconduct, under (WA) Trustees Act, s 77(2)(b) and/or in the inherent jurisdiction of the court. As Mrs Rinehart’s desire to be discharged has now been stated and formally recorded, it is sufficient to observe that, in those circumstances, the requisite power to appoint a trustee in substitution for her may be found in s 77(2)(a).

General approach to selection of replacement trustee

1. [120]

   The dominant consideration in appointing (and removing) a trustee is the welfare of the beneficiaries [Walters v Ryan [1933] NZLR 821; cf (in relation to removal of a trustee) Letterstedt v Broers (1884) 9 App Cas 371, 386; Miller v Cameron (1936) 54 CLR 572, 575 (Latham CJ), 579 (Starke J), 580-581 (Dixon J); Wells v Wily (2004) 50 ACSR 103; [2004] NSWSC 607, [21]]. In Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88, the New Zealand Court of Appeal said (at 97):

2. [121]

   Three main considerations inform the court in appointing a new trustee [Re Tempest (1866) LR 1 Ch App 485, 487-488 (Turner LJ)], although these are "general guidelines" [Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (in prov liq) (1990) 3 ACSR 183, 185 (Rolfe J)], or “rules of practice”, rather than “hard and fast rules” [Hobkirk v Ritchie (1934) 29 Tas LR 14, 46].

3. [122]

   The first is the wishes of the persons by whom the trust was created, if expressed or implicit in the trust instrument. Such wishes need not be express, and may be inferred from the terms of the trust, or the identity or description of the original trustee.

4. [123]

   The second is that a trustee should not be appointed with a view to promoting the interests of some of the beneficiaries in opposition either to the wishes of the settlor or the interests of the other beneficiaries. This is concerned with avoiding conflict of interest, and is reflected in the court’s preference not to appoint a beneficiary, or the relative of a beneficiary, as trustee [Ex parte Conybeare's Settlement (1853) 1 WR 458; Johnstone v Johnstone (1902) 2 SR(NSW) Eq 90; Re Cunningham's Settled Estates (1909) 27 WN(NSW) 28; Re Roberts (1983) 20 NTR 13; (1983) 70 FLR 158; Saul v Lin (No 2) (2004) 60 NSWLR 275; [2004] NSWSC 332, [9]]. However, this general preference is not an absolute rule. Thus it may be moderated by a contrary intention on the part of the settlor: not infrequently, a settlor or testator may indicate a contrary intention by appointing a beneficiary at the outset, or by limiting the class of those who can be appointed. And it also yields to necessity: the court may appoint a beneficiary (or relative of a beneficiary) if there is no one else suitable or willing to act [Ex parte Conybeare's Settlement; Waddell v Patterson (1865) 2 WW & A'B Eq 36; Re Ferrett's Trusts (1894) 6 QLJ 183; Re Simmonds [1954] QWN 3; Re Neeve [1956] QWN 21; Re Paroz [1956] QWN 37; Re Grace [1955] QWN 81; Re Greenfield (No 2) (1909) 12 GLR 22]. The disinclination to appoint a beneficiary (or relative) has prevailed in cases where it was possible to appoint an independent trustee, where the trustee’s discretions have been such as to create a significant potential for conflicts of interest and duty, and/or where there were additional reasons for considering the beneficiary candidate unsuitable. In Re Tempest itself, the proposed trustee was found to have been proposed with a view to acting in the interests of some only of the beneficiaries and not as an independent trustee for the benefit of all the beneficiaries. In Johnstone v Johnstone, there was ill-feeling between the beneficiary proposed for appointment and other beneficiaries, and no reason why an independent rival nominee could not be appointed. In Re Cunningham's Settled Estates, the trustee had a wide discretion as to investment such that the life tenant (who sought to be appointed) could advantage himself over the remaindermen, and there was no evidence that an independent trustee could not be appointed. In Re Roberts, the Public Trustee, whose conduct had not been unsatisfactory, was willing to continue to act as trustee of a trust for the benefit of the testator’s widow and her children, and the widow admittedly had immediate plans to move out of the jurisdiction. In Saul v Lin (No 2) [2004] NSWSC 332, the new trustee would be in a position to administer the trust in such a way as may benefit the life tenant to the disadvantage of the remaindermen, or vice versa, and there was no reason why an independent trustee could not be appointed.

5. [124]

   The third of the Re Tempest considerations is that in appointing a trustee, regard should be had to whether the appointment would promote or impede the execution of the trust. Ford & Lee, Principles of the Law of Trusts, [8290], suggest that in connection with this, "it would appear that ... the court may wish to ascertain the acceptability of the proposed trustee to the beneficiaries of the trust; for it may well be that their relationship will bear upon the efficiency with which the trust can be carried out". In Wallace v Wallace (No 2) (1899) 24 VLR 893, Hood J said (at 895) that "the court ought not appoint a trustee - there being no reason for it - who is obnoxious to the whole of the cestuis que trustent".

The proposals

1. [125]

   Over the course of the proceedings, the various parties’ proposals in respect of a replacement trustee or trustees evolved and fluctuated. Prior to the first hearing, the plaintiffs had proposed Bianca and John. At the first hearing, they proposed an independent accountant, Mr Carter, and alternatively Bianca. Ultimately, at the final hearing, they proposed the appointment of Bianca, with Mr McGrath as an advisory trustee pursuant to (WA) Trustees Act, s 14.

2. [126]

   Immediately prior to the first hearing, the position of Mrs Rinehart, Ginia, and HPPL and HDIO was that the appointee must be a lineal descendant of Mrs Rinehart – though no particular nominee was identified. In the course of that hearing, however, a proposal was advanced on behalf of Ginia that a professional trustee company be appointed as managing trustee, with a proprietary company - in which the shareholders would be such of the four beneficiaries as might elect to take up a shareholding, and the sole director would be a nominee of the managing trustee - as custodian trustee (pursuant to (WA) Trustees Act, s 15). By the second hearing, this proposal had been further refined, and three trustee companies were proposed for consideration for appointment as managing trustee. For convenience I shall refer to the proposal developed and advanced on behalf of Ginia – which was the only proposal ultimately advanced by any of the defendants - as “the defendants’ proposal”.

3. [127]

   At the outset of the second hearing, Mr Hutley SC, for Mrs Rinehart, objected that various parts of the plaintiffs’ submissions, which related to the conduct of Mrs Rinehart - in particular the events of September 2011 - were irrelevant in the light of her resignation; for reasons explained above in connection with evidentiary rulings, I do not agree. Mrs Rinehart did not seek to make submissions in respect of the selection of her replacement. Mr Studdy SC (for HPPL and HDIO) announced that those defendants no longer pressed their objections, of which notice had been given, to the appointment of Bianca, and wished to be heard only on Ginia’s proposal (for the appointment of a trustee company as managing trustee), which they supported. Mr McHugh SC, for Ginia, announced that grounds 7 (relating to alleged breaches of her duties as a director of HPPL) and 13 (relating to her alleged refusal to accept that she was bound by the Hope Downs Deed) of her objections to Bianca were not pressed; however, Ginia’s other grounds of objection to the appointment of Bianca were maintained. On behalf of Hope, Mr Deutsch confirmed that she submitted to such order as the court might make, but reserved – and subsequently exercised - the right to make submissions, broadly supportive of the defendants’ proposal.

The remaining functions of the trustee

1. [128]

   The advantages and disadvantages of the competing proposals must be seen in the context of the functions that the trustee will be required to discharge. Because the Trust has now vested, those functions no longer include all the broad discretionary powers that the trust deed conferred in the trustee. In particular, the trustee no longer has any discretion to distribute the income or capital of the Trust other than equally between the beneficiaries. Other than receiving and distributing income and (if and when called for) capital, equally between the four beneficiaries, the functions of the trustee are likely to be limited to reviewing the books and records in relation to the past administration of the Trust, taking any action in that respect that may be in the interests of the Trust, and enforcing the rights of the Trust as a shareholder in HPPL. Thus the remaining functions of the trustee are neither extensive, nor onerous; they do not involve such a discretionary component as would enable the trustee to favour one beneficiary over the others; but they do involve at least monitoring, and potentially asserting, the interests of the Trust against the outgoing trustee Mrs Rinehart, and her company HPPL.

The defendants’ proposal

1. [129]

   In using the term “defendants’ proposal” I should not be taken as accepting the plaintiffs’ submission that it “is in substance that of first, fourth and fifth defendants”, if that is intended to involve that Ginia is a mere cypher in propounding it. However, it was embraced by all the defendants and it is patent that all the defendants support it; it requires the co-operation of Mrs Rinehart - which she willingly offers - in relation to such matters as amending the Trust Deed and the constitution of HPPL; and Mrs Rinehart and HPPL have assisted Ginia in aspects of its development, including in sourcing at least two of the proposed managing trustees.

Overview

1. [130]

   The defendants’ proposal is comprehensive, and carefully thought out. The measures required for its implementation are set out in detail in short minutes produced by the second defendant. It is unnecessary to describe every element of it. Broadly, it involves utilising the apparatus provided by (WA) Trustees Act 1962, s 15, to appoint a licensed professional trustee company as managing trustee to exercise the powers and discretions conferred on the trustee under the Trust, together with a special purpose vehicle, having as its only shareholders such of the beneficiaries as choose to take up shares, as custodian trustee to hold the trust property.

2. [131]

   The significance of s 15 is such as to warrant its being set out in full:

3. [132]

   While leaving the ultimate selection of the managing trustee to the Court, the defendants proposed for consideration three licensed professional trustee companies: Australian Executor Trustees Limited (AETL), Equity Trustees Limited (ETL), and National Australia Trustees Limited (NATL).

4. [133]

   The custodian trustee would be a special purpose vehicle JBHG Pty Limited (JBHG), having as its only shareholders such of the beneficiaries as choose to take up shares; its name (for John, Bianca, Hope and Ginia) reflects its intended purpose. Ginia is currently its sole director and shareholder. The proposal involves amendment of JBHG’s constitution so that (1) in addition to Ginia, who is presently a shareholder, the other shareholders will be such of the other beneficiaries of the Trust who elect to take up shares, the shareholding being limited to Hancock family group members (being the beneficiaries or their lineal descendants); (2) unanimity is required for any decision of the members, and for any further alteration of the amended constitution; (3) the company must have one director only, and the initial director of JBHG (following implementation – Ginia is currently the sole director) would be a director of the selected managing trustee company; and (4) the director could be removed and replaced only by unanimous resolution of the members.

5. [134]

   The defendants’ proposal requires two amendments of the Trust Deed.

6. [135]

   The first would empower the beneficiaries, acting unanimously, to remove the managing trustee and/or custodian trustee and appoint replacements. This is intended in order to remove any argument that the Trust is not “controlled” by Hancock family group members, for the purposes of clause 13.3(a) of the HDJVA, and is proposed to be achieved by (1) the Court, pursuant to Trustees Act, s 89, conferring upon the existing trustee (Mrs Rinehart, who notwithstanding her expressed desire to be discharged remains trustee until she is replaced) the power to make an amendment to the Trust Deed to that effect; and (2) Mrs Rinehart undertaking to the Court to exercise the power so conferred, to do so.

7. [136]

   The second proposed amendment to the Trust Deed is to remove the current disentitlement of the trustee to commission or remuneration and provide instead that any managing trustee appointed under s 15 shall be entitled to such commission or remuneration as is agreed between it and any custodian trustee. (In truth, what is required in this respect is not an amendment of the Trust Deed, but an order under s 89 conferring on the custodian and managing trustees power to enter into an agreement for the remuneration of the managing trustee, notwithstanding the terms of the Trust Deed).

8. [137]

   The defendants’ proposal also involves the amendment of HPPL’s constitution, by a special resolution to be made by Mrs Rinehart as the holder of 75% of the shares in HPPL, to enable JBHG to be registered as a shareholder by including it in the definition of “Hancock Family Group Member”, so long as it remains the custodian trustee of the Trust and is wholly owned by Hancock family group members.

9. [138]

   The defendants’ proposal assumes that Mrs Rinehart will remain trustee immediately prior to implementation, and is dependent upon her cooperation. The Short Minutes contain provisions, including undertakings by Ginia and by Mrs Rinehart, to take the steps required of them to enable implementation, and provisions that are intended to allow a smooth transition, and to preserve the status quo and safeguard the interests of the beneficiaries as various steps in the proposal are being implemented.

Issues with the defendants’ proposal

1. [139]

   The defendants’ proposal is said to provide the advantages of having a licensed, independent professional trustee company perform the trustee’s functions, while avoiding any appreciable risk of triggering a “change of control” under the HDJVA. Its chief benefits are said to be (1) independence of the trustee, in that in contrast to the plaintiffs’ proposal to appoint Bianca as trustee, it involves a trustee which is impartial and has no particular ties to any beneficiary; (2) competence of the trustee, in that- each of AETL, ETL and NATL is a licensed trustee company and a substantial entity with personnel who are experienced in managing trusts, and may be expected to bring experience and professionalism to the role, while there is no such expectation if Bianca were to be appointed; (3) statutory protections for the beneficiaries, which would not be available if Bianca were appointed trustee (or for that matter if Mr McGrath were appointed as a managing trustee, which was an alternative suggested by the plaintiffs if the court were otherwise inclined to adopt the s 15 apparatus); and (4) that it involves no appreciable risk of triggering Hamersley’s pre-emptive rights under clause 13.3 of the HDJVA.

2. [140]

   Many of these supposed advantages are disputed by the plaintiffs. In particular, there are issues, in respect of the proposal generally, whether it will avoid appreciable risk of triggering Hamersley’s pre-emptive rights under clause 13.3 of the HDJVA (including whether the Trust Deed can be amended, under s 89, in the manner proposed by the defendants), and if so the significance of that risk; and whether it provides an appropriate degree of separation between the managing trustee and the custodian. Then, in respect of each of the three nominated trustee companies, there are issues as to (1) independence, and ability to resist foreseeable pressure, from the outgoing trustee Mrs Rinehart; (2) competence; (3) unconditional consent; and (4) costliness.

The HDJVA risk

1. [141]

   A fundamental rationale of the defendants’ proposal is to avoid triggering Hamersley’s pre-emptive rights under the HDJVA. Because she is on any view a Hancock family group member, the appointment of Bianca as trustee would incur no such risk. Accordingly, if the defendants’ proposal were to incur some such risk, that would be a relative disadvantage – although its weight would be affected by the degree and significance of the risk.

2. [142]

   The relevant provisions of the HDJVA – in particular, clauses 13.3(a) and (b), and the definitions of Hancock Family Group Member and Lineal Descendant - have been set out above. The essential question is whether the appointment of one of the trustee companies as managing trustee would have the consequence that HDIO would cease to be “an entity wholly owned and controlled by Hancock Family Group Members and/or entities wholly owned and controlled by them”.

3. [143]

   The plaintiffs submitted that under the defendants’ proposal, HDIO would, at least arguably, cease to be wholly owned and controlled by family group members or entities wholly owned and controlled by them, because its lineage of ownership and control would involve (a) JBHG – which though owned, would not be controlled, by family group members - as custodian trustee, having ownership of the Trust’s shares in HPPL; and/or (b) the managing trustee – which would be neither owned nor controlled by family group members, having control over those shares, and the power to direct the management of JBHG; and/or (c) the Trust itself, which is said for relevant purposes to be an “entity”– which would be legally owned by a non-family group member (JBHG not being Mrs Rinehart or her lineal descendant), and controlled by a non-family group member (the managing trustee not being a Hancock family group member in any sense) - having ownership of the Trust’s shares in HPPL. It was submitted that JBHG would not be “controlled” by family group members (or entities wholly owned and controlled by them) for two reasons: first, JBHG would be subject to the direction of the managing trustee (in accordance with Trustees Act, s 15(2)(c), which provides that “the sole function of the custodian trustee shall be to get in and hold the trust property and invest its funds and dispose of the assets as the managing trustees in writing direct, for which purpose the custodian trustee shall execute all such documents and perform all such acts as the managing trustees in writing direct”; and secondly, because the director of JBHG is not proposed to be a Hancock family group member, but the nominee of the managing trustee. Essentially, the plaintiffs’ argument was, first, that HDIO ceases to be “an entity wholly owned and controlled by Hancock Family Group Members and/or entities wholly owned and controlled by them” if JBHG, or alternatively the Trust (treating the Trust as an entity for the purposes of clause 13.3(a)(i)) is not “controlled” by family group members; and secondly, that under the defendants’ proposal JBHG, or alternatively the Trust, would not be controlled by family group members (but rather by the managing trustee).

4. [144]

   The defendants dispute both steps in that argument: the first, on the basis that once it is established that a family group member controls HPPL (which in turn controls Minerals, and hence HDIO), the “control” requirement is satisfied, so that control of an entity that holds a minority interest in HPPL is irrelevant (and as to the Trust, also on the basis that a trust is not an “entity” to which clause 13.3(a)(i) is capable of applying); and the second, on the basis that the ability to remove and replace the director of JBHG will be retained by its members, who are all family group members, and the managing trustee would not control JBHG, nor the Trust - though it may control management of its trust assets, which is not the same thing - and the proposed amendment to the Trust Deed would give control of the Trust (to the extent that that concept has meaning), through the ability to remove and replace the trustee, to the beneficiaries, who are family group members. Further, it is said that under the rule in Saunders v Vautier (1841) Cr & Ph 240; 49 ER 282, the beneficiaries (all of whom are family group members) may at any time call for transmission of the trust property (being the shares in HPPL), thereby resulting in the termination of the Trust, and that this is indicative of “control” of the Trust. The defendants submitted that their proposal would not trigger clause 13.3(a)(i), because, as to ownership of HDIO, all that would occur is that the Trust’s 24% interest in HPPL, presently held by a family group member (Mrs Rinehart) as trustee, would instead be held by JBHG, which would be an entity wholly owned by family group members, so that HDIO would not cease to be “wholly owned” by family group members; and as to “control”, HDIO is presently controlled by Mrs Rinehart (through her ownership of approximately 76% of the voting shares in HPPL) and this will not change.

5. [145]

   At the outset, it is to be observed that clause 13.3(a)(i) is concerned (relevantly) with ownership and control of HDIO – not of HPPL. Prima facie, and considered in isolation, one might well think that the requirement that HDIO remain “wholly owned and controlled” by family group members and/or by entities that were themselves owned and controlled by family group members, was that all the shares in HDIO had to be held by family group members and/or by entities in which all the shares were held by family group members. However, the definition of Hancock Family Group Members includes only natural persons, and does not include companies, even if they are wholly owned and controlled by natural persons who are members of the Hancock Family Group. All the shares in HDIO were as at the date of the agreement, and are still, held by Minerals - which, being a corporation, is not a family group member – and the shares in Minerals were and are held by HPPL, again not a family group member. Thus on the construction I have just mentioned, HDIO would never have been wholly owned and controlled by family group members or qualified entities. The parties to the HDJVA should be taken to have known of the existing state of ownership and control of HDIO, and to have intended that clause 13.3(a)(i) accommodate it. The use of the words “ceases” to define a triggering event reinforces this. Thus, “ownership” for the purpose of clause 13.3(a)(i) must have contemplated a wider concept than the immediate direct shareholdings.

6. [146]

   All parties accepted that this must be so, though they differed in precisely what that wider concept was. The plaintiffs’ approach focussed on the second limb of the clause – “and/or entities wholly owned and controlled by them”; they submitted that in order for HDIO to be “wholly owned and controlled by Hancock Family Group Members and/or entities wholly owned and controlled by them”, it was necessary to be able to trace the ownership of HDIO back - through all levels of shareholding “entities” - until a Hancock family group member is reached. The defendants’ focussed on the first limb – “an entity wholly owned and controlled by Hancock Family Group Members”; they submitted that “wholly owned” in the first limb of the clause meant “wholly owned, directly or indirectly”, rather than “wholly owned directly”.

7. [147]

   Both those arguments, however, lead generally to the same end, and I am unconvinced that there is an effective, as distinct from a literal, difference between the two, with one qualification. It is inherent in the plaintiffs’ approach that ownership and control by family group members need not be direct, but may be via intermediate entities. It is inherent in the defendants’ approach that one looks not at immediate direct ownership and control, but at ultimate ownership and control. On any view, the existing interposition of Minerals between HPPL and HDIO necessitates that “indirect” ownership and control was contemplated, whether through the first or the second limb.

8. [148]

   The qualification is that the defendants limit their argument to the “ownership” requirement, and do not extend it to control. However, the phrase “wholly owned and controlled by” is a composite one, and I can see no valid reason for dealing with “control” in any manner different from “ownership” in this context. Again, in the extant state of affairs, Minerals has immediate direct control of HDIO, but Mrs Rinehart has ultimate control through her shareholdings in HPPL and the companies that own shares in 150 Investments.

9. [149]

   The background is that Hamersley intended the benefits of the HDJVA to be enjoyed only by the Hancock family. The purpose of the clause is, on the one hand, to require that HDIO be ultimately owned and controlled only by Hancock family group members, while on the other, within those confines, allowing flexibility in the ownership structure. It could make no difference to Hamersley whether or not Hancock family group members wholly owned and controlled HDIO directly, or did so indirectly through interposed companies; nor could it matter to Hamersley how many levels of companies were interposed, so long as ultimate ownership and control resided with Hancock family group members, and so long as family group members ultimately owned and controlled each entity in the chain. This is reflected in clause 13.2(a)(i) of the HDJVA, which provides that HDIO may sell or assign its participating interest to “an entity directly or indirectly wholly owned and controlled by Hancock Family Group Members and/or entities wholly owned and controlled by them” (emphasis added). However, it is noteworthy that the words “directly or indirectly” govern the whole phrase “wholly owned and controlled” – and are not restricted to the words “wholly owned” in the manner in which the defendants propose that clause 13.3(a)(i) should be construed.

10. [150]

    The concept of “ownership” commonly embraces ultimate as well as immediate ownership, as is reflected, for example, in the definition of “wholly owned subsidiary” in (CTH) Corporations Act 2001, s 9 - which has the effect that it includes a subsidiary of a directly owned subsidiary. In my view, what was contemplated by clause 13.3(a)(i) was that ultimate ownership and control must reside in family group members, in much the same way as an ultimate holding company may be said to own and control not only its immediate subsidiaries but also their subsidiaries and so on, even though it has no direct shareholding in those sub-subsidiaries. This could be achieved by family group members directly holding all the shares in HDIO, or by entities wholly (ultimately) owned and controlled by them holding all the shares, or a combination of the two.

11. [151]

    As the defendants acknowledge, on their approach the second limb of the clause (“and/or entities wholly owned and controlled by Hancock Family Group Members”) has little, if any, additional work to do in terms of substantive operation, as what it describes is within the concept of indirect ownership and control implicit in the first limb. They submit that it was included out of an abundance of caution, and is explanatory of the first part of the clause - that is, to make clear that the concept of “owned” encompasses indirect ownership. While the plaintiffs do not embrace this, their argument has practically the same effect – if ultimate ownership and control must be vested only in family group members, then any interposed entities must necessarily themselves be (ultimately) owned and controlled by family group members. The second limb may do no more than reinforce that, to the extent that their ownership and control is via an “entity”, that entity also must be (ultimately) wholly owned and controlled by family group members – but it at least does that.

12. [152]

    The concept of “control” of an entity is concerned with the ability to determine the outcome of decisions of the entity [cf Corporations Act, s 50AA; Glencore International AG v Takeovers Panel (2006) 151 FCR 77, [83] (Emmett J)]. In the context of a company, this ordinarily means the ability to carry a resolution by majority at the general meeting – and thus to determine the composition of the board of directors [Mendes v Commissioner of Probate Duties (Vic) (1967) 122 CLR 152, 161 (Kitto J, with whom Taylor J agreed), 169 (Windeyer J); Fraser v NRMA Holdings Limited (1994) 52 FCR 1, 24 (Gummow J); Canwest Global Communications Corp v Australian Broadcasting Authority (1997) 71 FCR 485, 506; (1997) 147 ALR 539, 559; (1997) 24 ACSR 405 (Hill J); see also W P Keighery Pty Ltd v Commissioner of Taxation (1957) 100 CLR 66; Commissioner of Taxation v Sidney Williams (Holdings) Ltd (1957) 100 CLR 95; Kolotex Hosiery (Australia) Pty Ltd v Commissioner of Taxation (Cth) (1973) 130 CLR 64, 77-78 (Mason J); Kolotex Hosiery (Australia) Pty Ltd v Commissioner of Taxation (Cth) (1975) 132 CLR 535, 572-573 (Gibbs J)]. At an earlier stage of the present litigation, in Welker v Rinehart (No 2) [2011] NSWSC 1238 (at [47]-[48]), I had to consider a reference - in clause 8 of the Hope Downs Deed - to Mrs Rinehart’s “full ongoing control and management of HPPL”. In a conclusion that was not disturbed in Rinehart v Welker [2012] NSWCA 95 (at [146(d)]), I said that ‘control’ normally means the ability to control the board of directors through a majority of the general meeting (at [48]).

13. [153]

    Control is concerned with decision making, rather than proprietorship, and control, like ownership, can be indirect: there are circumstances in which those who have the ability to carry a resolution may become bound to act on the direction of another (for example, a mortgagee). The “control” requirement is directed to the ultimate power to decide how an entity acts, as distinct from beneficial ownership, and also as distinct from the delegated power of directors or officers. Although typically those who wholly own a company will control it, that is not necessarily so: it is not unknown for those entitled to exercise voting power to become bound or accustomed to exercise their voting rights in accordance with the direction of another (as would be the case, for example, if under her settlement with Mrs Rinehart, Hope were bound to vote in accordance with Mrs Rinehart’s direction). In such a case, that other person will “control” the company if he or she has a sufficient accumulation, directly or indirectly, of voting power to carry the general meeting. Thus, not only would clause 13.3(a)(i) be triggered if HDIO ceases to be (ultimately) owned solely by family group members; it would also be triggered if family group members, notwithstanding that they remained the sole owners, ceded the ability to direct a majority of votes at a general meeting to others – for example, pursuant to some agreement by which a majority of shareholders agreed to act upon the direction of a person who is not a family group member.

14. [154]

    In the present context, the clause cannot mean that a single family group member must control HDIO (and/or any intermediate owning entity). It plainly contemplates that HDIO may be owned and controlled by multiple family group members (and/or intermediate owning entities). If HDIO had as its only immediate shareholders the four children, in equal shares, it would still (for the purposes of the clause) be controlled by family group members, notwithstanding that they could agree on nothing, because family group members would, acting together, have the ability to carry a resolution in general meeting. The trigger is if control passes to an outsider, as distinct from one or more family group members.

15. [155]

    The defendants’ argument - that once it is established that a family group member controls HPPL (which in turn controls Minerals, and hence HDIO), the “control” requirement is satisfied, so that control of an entity that holds a minority interest in HPPL is irrelevant – addresses the question of control only at the level of HDIO, and treats the control of any intermediate owning entity as irrelevant. In my view, that argument is not tenable. In clause 13.3(a)(i), “controlled” appears twice – first in connection with HDIO, and secondly in connection with a relevant “entity”. The effect of the second limb is that where an intermediate owner is not a family group member, then it (as well as HDIO) must be both wholly owned and controlled by family group members. The intent is that only family group members have ultimate ownership and control of HDIO, and that while such ownership and control can be indirect, via intermediate entities, any entity in the chain of ownership and control must itself be wholly owned and controlled by family group members. In this respect, it is to be observed that the definition of a Hancock Change of Control in clause 13.3(a)(i) differs from that applicable to Hamersley HD (clause 13.3(a)(ii)) or any other joint venturer (clause 13.3(a)(iii)). In the case of Hamersley HD, the trigger is that it cease to be a wholly owned subsidiary of Hamersley Holdings (and it would be irrelevant if there were a change of ownership of Hamersley Holdings); while in the case of a new joint venturer, the trigger is that the company which was its ultimate holding company when it acquired its interest ceases to be its ultimate holding company. But in the case of HDIO, the trigger is that it ceases to be “an entity wholly owned and controlled by Hancock Family Group Members and/or entities wholly owned and controlled by them”, which directs attention to multiple levels of ownership and control. Thus clause 13.3(a)(i) is triggered not only if HDIO ceases to be wholly ultimately owned by family group members, but also if HDIO, or any intermediate owning entity, ceases to be controlled by family group members. That construction is fortified by the adverb “wholly” – which it was common ground governed the phrase “owned and controlled”, and not just “owned” – the effect of which in this context is that HDIO (and any intermediate owning entity) must be owned and controlled entirely and without exception by family group members.

16. [156]

    Next, there is a question whether the reference to “entities” in clause 13.3(a)(i) includes trusts. While a trust is not a juristic person with a legal personality distinct from that of the trustee and beneficiaries, trusts are often treated and spoken of as if they were discrete entities. Although the HDJVA contains no definition of the term “entity”, there are indicia that it includes a trust. First, clause 1.2 provides that unless the context requires otherwise, “(d) a reference to a person, corporation, trust, partnership, unincorporated body or other entity includes any of them”, which suggests that the word “entity” is used in the HDJVA in a sense that includes a “person, corporation, trust, partnership, [and] unincorporated body”. That list of “entities” closely reflects the definition of “entity” in the Corporations Act, s 9, except that the Corporations Act definition refers to a trustee or trustees as types of entity, while the HDJVA refers to a “trust” itself.

17. [157]

    Secondly, the HDJVA defines “Subsidiary” as follows:

18. [158]

    Thirdly, the use of the term “entity” may be contrasted with, for example, the use of the term “body corporate” in the HDJVA (in the context of the above definition of “Subsidiary”), suggesting that the word “entity” is intended to encompass a broader concept than a body corporate.

19. [159]

    Fourthly, the appearance of a reference to “entities” in clause 13.3(a)(i) – but not, for example, in 13.3(a)(iii) – may be explained by the necessity to accommodate the circumstance that, at the date of the HDJVA, the Trust (which had not then vested and was a discretionary trust) was a shareholder in HPPL, and thus an ultimate owner of HDIO.

20. [160]

    In my view, for the purposes of clause 13.3(a) of the HDJVA, the reference to entities includes trusts. It is then necessary to consider the concepts of ownership and control, in the context of a trust.

21. [161]

    So far as ownership is concerned, there is little difficulty: just as the shareholders in a company may be said to “own” the company, those beneficially interested in the trust are the “owners” of the trust.

22. [162]

    “Control”, in the context of a trust, is a more difficult concept. However, control being concerned with the power to determine how the trust will act, it will rarely be the beneficiaries who “control” a trust. Unless the trust instrument otherwise provides, a trustee is not bound to follow directions given by the beneficiaries – even unanimously [Re Brockbank [1948] Ch 206; Hotung v Ho Yuen Ki [2002] 3 HKLRD 641; Ford & Lee, [1.1530]]. The power of beneficiaries who are collectively absolutely entitled to the trust property to call for transmission of the trust property to them and thus to terminate the trust does not imply a power to direct the trustee [Re Brockbank]. The power to terminate a trust, analogous to the power to wind up a company, is not “control” of the trust while it exists; it does not involve the ability to decide how the trust will act.

23. [163]

    By analogy with the position that a company is controlled by those who have the ability to determine the composition of the board of directors through a general meeting, so may a trust be controlled not necessarily by those who have its day-to-day management (the trustee), but by those who have the ability to control the trustee through the power of removal and replacement (the appointor). But at least where there is no appointor, then it is generally the trustee who can decide how the trust will act, and thus “controls” the trust.

24. [164]

    Thus, to summarise my conclusions on the construction of clause 13.3(a)(i): First, the clause is concerned with ultimate, not immediate, ownership of HDIO (analogous to the position of an ultimate holding company in respect of sub-subsidiaries), and with control not only of HDIO but of any intermediate owning entity. Family group members may have such ownership and control directly, or though entities that they wholly (ultimately) own and control, or by a combination of the two. However, to the extent that their ownership and control is via an “entity”, that entity also must be (ultimately) wholly owned and controlled by family group members.

25. [165]

    Secondly, the “control” requirement is concerned with the ultimate power to decide how the entity acts, as distinct from proprietorship. In the corporate context, it involves the ability, directly or indirectly, to exercise sufficient voting power at general meetings to carry resolutions. Although typically those who wholly own a company will control it, that is not necessarily so, as those entitled to exercise voting power may become bound to exercise their voting rights in accordance with the direction of another, who will then “control” the company. Thus, not only will the clause be triggered if HDIO, or an intermediate owner entity, ceases to be (ultimately) owned solely by family group members; it will also be triggered if a person other than an family group member acquires the ability, directly or indirectly, to direct a majority of votes at a general meeting of HDIO, or of an intermediate owner entity.

26. [166]

    Thirdly, the control criterion (as well as the ownership criterion) applies not only in respect of HDIO but also in respect of every intermediate owning entity. The intent is that only family group members have ultimate ownership and control of HDIO, and that while such ownership and control can be indirect, via intermediate entities, any entity in the chain of ownership and control must itself be wholly owned and controlled by family group members. Clause 13.3(a)(i) is triggered not only if HDIO ceases to be wholly ultimately owned by family group members, but also if HDIO, or any intermediate owning entity, ceases to be controlled by family group members.

27. [167]

    Fourthly, for the purposes of clause 13.3(a) of the HDJVA, the references to entities include trusts: the HDJVA treats a trust as a distinct entity. In the context of a trust, the concept of ownership is concerned with the beneficial interest. A trust is “controlled” by the appointor, where there is one; absent an appointor, the trustee may be said to “control” the trust.

28. [168]

    At the date of the HDJVA, HDIO was wholly owned and controlled by family group members, because (1) it was directly owned by Minerals, which though not a family group member was itself wholly owned and controlled by HPPL, which in turn was owned by Mrs Rinehart (who is a family group member), 150 Investments (which was wholly owned and controlled by Mrs Rinehart), HMHT Investments (which was wholly owned and controlled by the Trust), and the Trust; and although the Trust had not vested at the date of the HDJVA, it seems that the parties to the HDJVA nonetheless regarded it, at least while Mrs Rinehart was the trustee, as wholly owned and controlled by family group members, a reasonable enough position as no one other than family group members had an interest in it, and Mrs Rinehart as trustee, controlled it; and (2) it was controlled by Mrs Rinehart (through her effective control of HPPL and thus of Minerals). Now that the Trust has vested, it is even more clearly “wholly owned” by family group members, namely the beneficiaries. Thus HDIO presently complies with clause 13.3(a)(i) because the whole proprietary interest is ultimately traceable to family group members and no-one else; it is controlled by Mrs Rinehart, a family group member; and all intermediate owner entities – in particular, the Trust – are ultimately owned and controlled by family group members – in the case of the Trust, controlled by Mrs Rinehart as trustee.

29. [169]

    What would change under the defendants’ proposal is that Mrs Rinehart would no longer be the trustee of the Trust, but would be replaced by JBHG (an entity wholly owned by family group members) as custodian trustee, and an independent trustee company as managing trustee. The defendants submit that there is no appreciable risk that clause 13.3(1)(a) of the HDJVA will be triggered by these arrangements, because HPPL (and thus HDIO) would remain controlled by Mrs Rinehart, and would be owned by Mrs Rinehart and JBHG, a company which in turn is wholly owned and controlled by family group members - because only the beneficiaries and their lineal descendants are eligible to be members of JBHG, and acting unanimously, can remove and replace the director; and that the Trust would be “controlled” by family group members, because the proposal involves an amendment to the Trust Deed being made by Mrs Rinehart while she remains trustee to give the four beneficiaries, acting unanimously, the power to remove either or both of the managing trustee and the custodian trustee.

30. [170]

    Under the defendants’ proposal, the only line of ownership that does not trace back to Mrs Rinehart herself is the Trust’s 24% shareholding in HPPL. For reasons already given, the Trust as an entity is, for the purposes of clause 13.3(a)(i), to be regarded as the relevant intermediate owner. All the beneficial interest in the Trust is vested in family group members. Alternatively, if JBHG as legal owner is regarded as the relevant entity, the only persons owning it would be family group members. So there is no difficulty in respect of ownership. It is with “control” of the Trust – or alternatively of JBHG – that difficulties arise.

31. [171]

    In respect of the Trust, this necessitates consideration of the effect of the appointment of managing and custodian trustees under Trustees Act, s 15, which would establish a regime under which the trust property is vested in the custodian trustee, which must get in and hold the trust property, but is bound to invest and dispose of the trust assets as the managing trustee directs, for which purpose the custodian trustee must act on the written direction of the managing trustee. The management of the trust property and the exercise of all powers and discretions exercisable by the trustee are vested in the managing trustee: under s 15(2)(b), “the management of the trust property and the exercise of all powers and discretions exercisable by the trustee under the trust shall be and remain vested in [the managing trustee] … as fully and effectually as if there were no custodian trustee”. Thus the managing trustee makes all decisions of substance, while the custodian trustee merely holds the property, although the custodian trustee retains the right to apply to the court for directions – which will also bind the managing trustee - if it considers that any direction given by the managing trustee conflicts with the trusts or the law, or exposes the custodian trustee to any liability, or is otherwise objectionable; and also to apply to the court for the appointment of a new trustee.

32. [172]

    The role of the custodian trustee under the English statutory equivalent of s 15 has been described as follows [Re Brooke Bond & Co Ltd’s Trust Deed [1963] Ch 357, 363 (Cross J)]:

33. [173]

    The equivalent provision in (QLD) Trusts Act 1973, s 19, was discussed in Public Trustee (Qld) v Opus Capital Ltd [2013] QSC 131 (Dalton J), as follows:

34. [174]

    Accordingly, under the defendants’ proposal, the managing trustee would manage the trust assets - being its 24% shareholding in HPPL – and make all decisions on behalf the Trust, “as if there were no custodian trustee”, subject only to the entitlement of the custodian trustee to seek binding directions from a court. The custodian will not make any decisions in relation to the Trust property, but merely hold the property of the Trust - in this case being its shares in HPPL - and act only in accordance with the directions of the managing trustee, as required by Trustees Act, ss 15(b) and (c). The managing trustee will thus decide how the Trust acts – for example, how it votes its shares in HPPL - unless the custodian trustee applies to the Court for directions pursuant to s 15(2)(e), in which event the custodian trustee and the managing trustee are bound by whatever direction the Court gives. The custodian’s right to approach the court for directions in no sense gives it control of the Trust: while it may be able to have the court review specific decisions of the managing trustee, or even apply to have it replaced, it cannot itself determine the outcome of any decision on behalf of the Trust, or determine how the Trust will act.

35. [175]

    Mr McHugh referred to IRC v Silverts Ltd [1951] 1 All ER 703 for the proposition that control vested not with the managing trustee but only in the custodian trustee, as the registered holder of shares in a company. What Silverts held was that in the context of a company in which shares were registered in the name of a custodian trustee (as, for example, HPPL would be in this case), for the purposes of determining the rights of the members vis-a-vis the company, it was impermissible to go behind the share register; not that in the case of a trust, the powers and discretions of exercising votes must be regarded as reposing in the trustees without regard to the terms of the trust or the rights of the beneficiaries to direct the trustees (at 708F-G). It says nothing about who is to be regarded as controlling the trust.

36. [176]

    Indeed, removing control from the beneficiaries is a key element of the defendant’s proposal. When it was first foreshadowed by the second defendant at the first (October 2013) hearing, Mr McHugh explained:

37. [177]

    And:

38. [178]

    Later, Mr McHugh urged that best solution was “to put the power of decision in relation to the trust in relation to someone who is not one of the family members”. The correlation of the language employed in the passages emphasised in the above extracts with the terminology of the concept of “control” is eloquent testimony that what is sought to be achieved by the defendants’ proposal involves placing someone other than the beneficiaries in “control” (although admittedly, since the first hearing when those statements were made, the proposal has evolved, in particular so as to include empowering the members of JBHG, acting unanimously, to remove and replace the director; and the beneficiaries, acting unanimously, to remove and replace the managing trustee; in due course it will be necessary to consider the efficacy of those aspects of the final version of the proposal).

39. [179]

    Under the defendants’ proposal, the managing trustee would be an independent trustee company, and thus an entity that is neither owned nor controlled by Hancock family group members. Subject to the possibility, to which I will come, of a power of appointment, neither the beneficiaries, nor JBHG, will have the power to dominate or otherwise control how the Trust acts – for example, how it casts its votes in HPPL. In those circumstances, it could not be said that they “controlled” the Trust. Upon replacement of Mrs Rinehart by an independent managing trustee, the Trust would no longer be controlled by family group members.

40. [180]

    In response to the argument that under the defendants’ proposal, family group members would no longer control the Trust, the proposal was amended to include the conferral on Mrs Rinehart as trustee of power to amend the trust deed by inserting a new clause 7B(6), providing in effect that the custodian trustee and the managing trustee may be removed by way of a notice signed by all four beneficiaries, specifying a replacement custodian or managing trustee as the case may be, and annexing a consent. The defendants rely on Trustees Act, s 89, as the source of power for the Court to confer such power on the trustee. This is necessary, because clause 7 of the Trust Deed confers power upon the trustee to vary the Trust only “prior to the Vesting Date”, and provides that “Save as provided in this Clause these presents shall not be capable of being revoked added to or varied and are irrevocable”. Thus the Trust having now vested, the beneficiaries currently have no ability to remove the trustee, short of an application to the court. The proposed amendment would enable the beneficiaries to remove the trustees without approaching the court, and without cause. If such a power to remove and replace the trustee resided in family group members, then – although there are contrary arguments – at least arguably the Trust would be controlled by family group members. Accordingly, whether s 89 would authorise the proposed amendments is an important question: if it would, then at least arguably the defendants’ proposal would not involve family group members ceasing to control the Trust, but if it would not, for reasons already explained, they would cease to control the Trust and clause 13.3(a)(i) would be triggered.

41. [181]

    Trustees Act, s 89, provides as follows:

42. [182]

    The section is modelled on (UK) Trustee Act 1925, s 57, and there are similar (but not identical) provisions in all Australian jurisdictions. In New South Wales, the relevant provision is (NSW) Trustee Act 1925, s 81, which may be narrower in some respects than s 89 of the WA Act, because the NSW section has as preconditions to its exercise that (a) the proposed transaction is expedient in the management of or administration of any property vested in the trustees, and (b) there is an absence of power in the trustee under the trust instrument; whereas s 89 has broader preconditions, namely that the proposed disposition or other transaction (a) is in the best interests of the persons, or the majority of the persons, beneficially interested under the trust; but (b) it is inexpedient or difficult or impracticable to effect the disposition or transaction without the assistance of the Court.

43. [183]

    However, as in New South Wales, so in Western Australia, what the section authorises is an order conferring upon the trustee, either generally or in any particular instance, the necessary power for the purpose of effecting “the disposition or transaction”. The Court’s order does not amend the trust instrument, but confers the requisite power on the trustee despite the terms of the trust instrument. In the present case, what is sought is a power to amend the trust instrument – because the power to remove and replace the trustees is sought to be conferred, not on the trustee, but on the beneficiaries, which does not fall within s 89. Accordingly, the question arises whether the conferral on the trustee of power to amend the trust deed falls within s 89.

44. [184]

    In In re Downshire Settled Estates [1953] 1 Ch 218 (at 245-247), the Court of Appeal (in a passage which, as the Full Court of this Court observed in Ku-Ring-Gai Municipal Council v The Attorney-General (1954) 55 SR (NSW) 65, 73, was not the subject of disapproval by the House of Lords on appeal, sub nom Chapman v Chapman [1954] AC 429) explained that the provision was concerned with the managerial supervision and control of trust property on behalf of beneficiaries, and did not generally permit the rewriting of a trust instrument. The Court said (at 247-248):

45. [185]

    In Ku-Ring-Gai Municipal Council v The Attorney-General, the Full Court referred to Re Downshire with apparent approval, but observed (at 74) that the NSW provision “goes beyond s 57 in some respects”. Those respects were first, that sub-section 81(1)(a) provides that the conditions on which the court can make an order include “adjustment of the respective rights of the beneficiaries”; and secondly, sub-section 81(2) provides that the provisions of sub-section 81(1) “shall be deemed” to empower the court, where it is satisfied that “an alteration” of the trust or trust powers is expedient, to authorise a trustee to do anything which would otherwise be a breach of trust. The WA provision does not contain those additional provisions, and in that respect is narrower [Kelly v Kelly [2005] WASC 42, [62] (Murray J)].

46. [186]

    When the case was argued, the state of the authorities was unclear. A number of cases suggested that amendment of a trust deed was a “transaction” within the provision. These originated with Re Philips New Zealand Ltd [1997] 1 NZLR 93, in which Baragwanath J spoke (at 101) of “the ‘transaction’ by way of amendment”, though his Honour did not say that the amendment itself constituted a “transaction”. In New South Wales, in Re Bowmil Nominees Pty Ltd [2004] NSWSC 161, Hamilton J (at [16]) treated Re Philips as holding that amendment of the trust deed was a “transaction” within the meaning of the New Zealand statute, and held accordingly. A similar view – that amendment of the trust deed was within the definition of a “transaction” for the purposes of s 81 – was taken in James N Kirby Foundation v Attorney-General NSW [2004] NSWSC 1153; (2004) 62 NSWLR 276, [15]-[16] (White J); Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004; (2006) 64 ATR 325, [45]-[46] (Campbell J); Barry v Borlas Pty Limited & Ors [2012] NSWSC 831, [18] (White J); and Re Grant [2013] NSWSC 1603, [32] (Slattery J).

47. [187]

    However, in Re Dion Investments Pty Ltd [2013] NSWSC 1941, Young AJ (as the former Chief Judge and Judge of Appeal had become), expressed the contrary view, in a compelling judgment. His Honour said (at [48]-[51]):

48. [188]

    After referring to Re Downshire as “the leading English authority”, his Honour considered the reasoning in Stein v Sybmore Holdings, and said (at [56]-[59]):

49. [189]

    His Honour also (at [60]) expressed respectful disagreement with White J’s decision in James N Kirby Foundation.

50. [190]

    I do not accept that the difference between view of Young AJ and the earlier decisions is limited to whether “transaction” covers an amendment which is not required for other specific, consequential advantageous dealings, as the defendants submitted was to be inferred from what his Honour said (at [48]). His Honour also said (at [63]): “I cannot make an order under section 81 giving the trustees or other persons entitled power to vary the trust deed by “modernising” it in the way in which the taxation advisers have suggested. However I can approve advantageous dealings which incidentally affect beneficiary rights”. This reflects the position that the section authorises the conferral of power on trustees to enter dealings notwithstanding the terms of the trust, rather than power to amend the trust.

51. [191]

    I am relieved of any requirement further to consider these decisions by the recent judgment – since the present judgment was reserved - of the Court of Appeal in Re Dion Investments Pty Ltd [2014] NSWCA 367, which held that Young AJ was correct in holding that an order empowering a trustee to amend the trust instrument is not authorised by s 81(1), and that alteration of the terms of a trust is not a "transaction" that it is "expedient" be undertaken "in the management or administration of" trust property. The Court disapproved Re Philips New Zealand Ltd and the subsequent Australian cases that held that a "transaction" by way of amendment of a trust instrument may be authorised under s 81(1). As the defendants accepted (in a supplementary communication), I would follow that decision. That is so notwithstanding that I am exercising the jurisdiction of the Supreme Court of Western Australia: as Price J explained, when exercising cross-vested jurisdiction in Zheng v Wallace [2015] NSWSC 3:

52. [192]

    It follows that s 89 does not authorise the Court to make an order conferring on the present trustee power to amend the trust deed in the manner proposed. That aspect of the defendants’ proposal cannot be given effect. Without the proposed amendments, the beneficiaries will not be empowered to remove and replace the managing trustee. In the circumstances that the managing trustee (not a family group member) would have – subject only to a direction of the Court – the ability to decide how the Trust will act, and to direct the custodian trustee, and the beneficiaries do not have power to remove and replace the managing trustee, it is not possible to see how it could be said that the Trust would be controlled by family group members.

53. [193]

    Moreover, as already explained, even assuming that the beneficiaries acting together could, pursuant to the rule in Saunders v Vautier, call for transmission of the trust property to them and thus terminate the Trust, that does not mean that they “control” the Trust, because it involves no control of the Trust while it continues.

54. [194]

    So far I have proceeded on the basis that upon the proper construction of the HDJVA, the Trust is to be treated as the relevant entity. If I be wrong in that respect, the alternative is that JBHG, the custodian trustee, should be treated as the relevant entity.

55. [195]

    In order to endeavour to meet the argument that in circumstances where (as originally proposed) the sole director of JBHG would be nominated by the managing trustee, control of JBHG would not be vested in family group members, the defendant’s proposal was amended to include an alteration of JBHG’s constitution so as to enable the shareholders, by unanimous agreement, to remove and replace the director. Under the revised proposal, JBHG’s constitution, as amended, would give the shareholders, all of whom are family group members, acting unanimously, the power to remove and replace the director – and thus to control the composition of the board. While it is true that unanimity may seem unlikely, clause 13.3(a)(i) does not require that any one family group member have control, but only that one or more family group members, directly or indirectly, together have control. And that would be no different if it be the case, as the plaintiffs suggest, that Hope and Ginia are constrained to act in accordance with the direction of Mrs Rinehart, as she too is a family group member.

56. [196]

    However, while the ability to control the composition of the board is usually an indicium of control, that will not be so if, regardless of the constitution of the board, the company will be bound to act, in the performance of its main functions, on the direction of a third party. As was said in UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (unreported, Supreme Court of Victoria, 13 May 1998, Chernov J, BC9801738) (at 117) (emphasis added):

57. [197]

    JBHG is a special purpose vehicle. Its only intended function is to act as custodian trustee of the Trust. In the performance of its functions as such, it will be bound to act on the direction of the managing trustee, regardless of the composition of its own board. It cannot be said to be controlled by its shareholders even if acting together they can determine the composition of the board, because the board is not capable of deciding how the company will act, but is subject to the direction of the managing trustee.

58. [198]

    Accordingly, even if JBHG and not the Trust is to be regarded as the relevant entity for the purposes of the second limb of clause 13.3(a)(i), JBHG would not be controlled by family group members.

59. [199]

    It is correct that the defendants’ proposal would involve no relevant change to the ownership of HDIO: with the substitution of JBHG for Mrs Rinehart as legal owner of the Trust’s shares in HPPL, the whole ultimate proprietary interest would still reside in family group members, as (1) the only beneficiaries of the Trust are family group members, or alternatively (2) the only shareholders in JHBG will be family group members. Accordingly, under the defendants’ proposal HDIO would remain an entity wholly (ultimately) owned by family group members – Mrs Rinehart and the four beneficiaries of the Trust – and insofar as JBHG as a legal owner is relevant, it would be an entity owned by family group members.

60. [200]

    It is also correct that under the defendants’ proposal, there would be no change in control of HDIO itself: Mrs Rinehart would continue to control HDIO. However, clause 13.3(a)(i) is triggered if any entity in the ownership chain ceases to be controlled by family group members. Under the defendants’ proposal, neither the Trust nor JBHG would be controlled by family group members. Upon implementation of the defendants’ proposal, HDIO, though it would remain controlled by Mrs Rinehart, would be owned by Mrs Rinehart (a family group member), and the Trust or alternatively JBHG – neither being a family group member, but an entity which, though wholly owned by family group members, would not be controlled by family group members. Hamersley’s pre-emptive rights under clause 13.3(1)(a) of the HDJVA would therefore be triggered.

61. [201]

    Moreover, at the very least, those conclusions are seriously arguable, and as the plaintiffs submitted, it is necessary to bear in mind that my decision would not bind the Hamersley interests, who are not party to these proceedings but would have an interest in urging that clause 13.3(1)(a) had been triggered. I cannot know what other arguments Hamersley might advance, and in those circumstances, even if I were inclined to the view that the defendants’ proposal would not trigger the clause, it would be practically impossible to conclude that there was no appreciable risk that the defendants’ proposal would result in a HDJVA change of control event.

The significance of the HDJVA risk

1. [202]

   As I have concluded that the defendants’ proposal would trigger clause 13.3(a)(i) – at the very least, there is a very substantial risk that it would do so - it is next necessary to consider the implications of that risk for the Trust, and in particular what if any detriment the Trust would incur.

2. [203]

   There can be little doubt that Hamersley would seek to exercise the right of pre-emption under clause 13.3(a)(i), should it even arguably arise. Hamersley has already manifested its predisposition to do so when, in February 2013, Mrs Rinehart caused her company 150 Investments, which holds 168,416 shares in HPPL, to issue one preference share to Northern Investments Nominees Pty Ltd, a company then owned and controlled by Jay Newby, an HPPL executive. Hamersley asserted that clause 13.3(a)(i) was triggered, because the issue of the preference share to Northern meant that 150 Investments, which was an intermediate owner entity, was no longer wholly owned by family group members (or alternatively put, HDIO was no longer wholly ultimately owned by family group members), notwithstanding that the preference share issued to Northern had no voting rights, no particular dividend rights and no right to participate in the capital of the company in a winding up. After Hamersley asserted that the clause had been triggered, Mrs Rinehart remedied the situation by acquiring all the shares in Northern and becoming its sole director. As HDIO and HPPL put at the first hearing, Hamersley refused “to accept that the holding of shares on trust by an entity owned and controlled by a non-Hancock Family Group Member did not trigger clause 13.3(a)(i)”. In the words of counsel for Mrs Rinehart at the first hearing, it showed Hamersley’s “taste for terminating this agreement”.

3. [204]

   No contrary evidence of Hamersley’s attitude has been adduced. On 30 May 2014, the plaintiffs sought the defendants’ permission to send a letter in neutral terms - a draft of which was provided - asking Hamersley to indicate whether it would regard the defendants’ proposal as triggering its right of pre-emption and if so, whether it would seek to exercise that right if the proposal were implemented. HPPL and HDIO would not permit those questions to be asked of Rio Tinto. (Mrs Rinehart personally withdrew her initial opposition to that course, but only after her alter egos HPPL and HDIO had refused permission).

4. [205]

   Hamersley’s eagerness to exercise its pre-emptive rights is doubly relevant. First, it shows that Hamersley is likely to try to take advantage of any arguable trigger of those rights. Secondly, it suggests that Hamersley perceives it to be to its commercial advantage to do so, which implies that it would be to the commercial disadvantage of HDIO (and thus HPPL, and the Trust).

5. [206]

   The defendants have not indicated what if any response they propose could or would be made to remedy any change of control within the 90 day period following any notice given by Hamersley that the clause had been triggered, as is permitted by clause 13.3(c)-(h). As it seems to me, it could only be remedied by installing a family group member as trustee, which would leave the ultimate resolution of the issue presently before the court no further advanced.

6. [207]

   The plaintiffs submitted that, in the absence of remediation within the 90-day period, there would at least be prolonged, hard fought and expensive litigation between HPPL/HDIO and Hamersley as to whether clause 13.3(a)(i) had been triggered - which would cover, at least, the various questions relating to its construction, and whether it is triggered by the defendants’ proposal, that have been discussed above. The plaintiffs further submitted that until those issues were resolved, there would be doubt as to whether HPPL/HDIO continued to own their interest in the HDJVA, which might impact HPPL’s banking covenants and thus its ability to do business. However, there is no evidence of what those banking covenants are, nor what would be the impact on HPPL’s business, and I am not prepared to accept that the pendency of litigation with Hamersley would have a relevant impact in that way.

7. [208]

   The plaintiffs also submitted that the costs of conducting such litigation would likely be invoked by HPPL as a basis for ceasing to declare dividends to the Trust while the litigation remained unresolved. (Mrs Rinehart used the pendency of the current litigation as a reason for withholding distributions from the plaintiffs at one stage). However, the Trust’s dividends are at present derived, at least in part, from its cumulative special shares, and as Mr Studdy pointed out, represent a share of HPPL’s royalty stream (under agreements made in 1962 and 1968 respectively with Rio Tinto and Hamersley in respect of Mt Tom Price, and with Wright Prospecting in respect of Paraburdoo), subject to deduction only of amounts payable by HPPL under certain related agreements made respectively in 1964 and 1968, and income tax on the royalties, so that the cost of litigation with Hamersley would not affect the dividend stream which provides the Trust’s income. Accordingly, I do not accept that significant detriment to the beneficiaries would arise merely as a consequence of the litigation with Hamersley that would likely follow implementation of the defendants’ proposal. .

8. [209]

   However, on the view I have taken, HPPL would lose that litigation, as the crucial issues would be resolved in favour of Hamersley. In that event, Hamersley would, in accordance with clause 13.3(a) and (b), be entitled to purchase the whole of HDIO’s interest in the ope Downs Hope Hope Downs venture at a price equal to its “Fair Value” and on the terms set out in schedule 5 of the HDJVA. In other words, HDIO/HPPL’s interest would be converted from an interest in the venture, to its fair value in cash.

9. [210]

   At least from the perspective of the Trust, it is not immediately apparent how this is detrimental. Indeed, in some ways it may well be attractive, as HDIO and HPPL would effectively become a “cashbox”, in which present capital value rather than future income would be available to the Trust. The attitudes of the parties to this risk have fluctuated with their replacement trustee proposals. Thus when, shortly before the first hearing, Mr McClintock SC announced Mrs Rinehart’s intention to resign as trustee, it was her position that her successor should be one of her lineal descendants. At the first hearing, when the plaintiffs were at least contemplating the appointment of an independent trustee (Mr Carter), Mrs Rinehart submitted that exercise of the right of pre-emption would prevent HDIO (and thus HPPL, and the Trust) from realising the full value of the Hope Downs assets, which would be a “disaster”; that if Hamersley exercised the pre-emptive rights “disaster would ensue”, and that the Court should not adopt a course that would give rise to “any” risk that the right would be triggered. Ginia submitted that the Court should “not do anything which imperils the joint venture asset”. HPPL and HDIO submitted that triggering the right of pre-emption would “cause enormous and irreparable damage to HPPL”. Indeed, one of the reasons why the selection of the replacement trustee could not be resolved at the first hearing was that the defendants foreshadowed obtaining and adducing expert valuation evidence to prove the magnitude of the adverse consequences of any exercise of the right of pre-emption.

10. [211]

    On the other hand, while the plaintiffs’ position then was that the appointment of an independent trustee would not trigger clause 13.3(a)(i) (for various reasons which no longer require consideration), they were content to accept any risk that it would do so - because HDIO would receive full and fair value for its interest from Hamersley under the valuation procedures provided for in the HDJVA, so that the beneficiaries would at least receive the full value of their present interest in the Trust assets referrable to HPPL’s interest in the joint venture, which they considered preferable to the status quo with Mrs Rinehart remaining as trustee. In addition, the plaintiffs referred to the opportunity to remedy any change of control within 90 days of Hamersley giving notice.

11. [212]

    At the conclusion of the first hearing, I expressed a tentative view that it would be imprudent to appoint a non-family group member as trustee unless that could be done under an arrangement that would ensure that there was no relevant change of control for the purposes of the HDJVA, and that the 90-day notice period referred to in clause 13.3 did not afford sufficient mitigation of that risk to justify the appointment of a non-family group member as trustee.

12. [213]

    By the June hearing, however, the positions of the parties were reversed. The plaintiffs, who now proposed a family group member, seized on the submissions made by the defendants at the first hearing to stress the dangers of a change of control event; while the defendants, who now proposed the managing/custodian trustee structure, adduced no such valuation evidence as they had previously foreshadowed, and said that they were prepared to accept such risk as their proposal involved in that respect - although the degree of risk as they described it was significantly less than I have found it to be.

13. [214]

    Ultimately, no party adduced any evidence as to the supposed negative impact on HDIO, HPPL or the Trust of any exercise by Hamersley of the right of pre-emption. A valuation to determine fair value would, according to proper valuation principles, have regard to projected future income streams. Exercise of the pre-emptive rights would accelerate, very considerably, the realisation of value for HDIO – and thus HPPL and the Trust – from the HDJVA, when compared with what would occur if HDIO remains “locked in” to the Hope Downs joint venture.

14. [215]

    All that said, there are telling indicia to the contrary. First, there is Hamersley’s apparent enthusiasm to exercise its pre-emptive rights should they arguably arise – as manifested in February 2013. Secondly, there is Mrs Rinehart’s response to that attempt, by remedying the alleged change of control so as to avert the exercise. Thirdly, there are the extensive efforts made, through the 2006 Amendments, to minimise the risk of a trigger. Fourthly, despite the fluctuating positions expressed by the parties in the course of the litigation in this respect, I detect an underlying preference in favour of avoiding the risk. In particular, at the first hearing, while the plaintiffs were prepared to accept the risk of a change of control, if it were the only alternative to the then status quo of Mrs Rinehart as trustee, it was not their preferred outcome; and while at the second hearing Ginia’s position was that any risk, such as it might be, was preferable to the appointment of Bianca, that was based on an assessment that the risk was slight, and not on the footing that it would be held – as I have held – that the defendants’ proposal would indeed trigger the pre-emptive rights; I doubt that the same view would be expressed in the light of that holding. All these matters point to a judgment, by astute commercial parties, that it is contrary to the interests of HPPL, and of the Trust, for Hamersley to exercise the pre-emptive rights under clause 13.3(1)(a). This is consistent with the view, referred to earlier in these reasons, that all the protagonists – including the beneficiaries – have seen their participation in HPPL (and the HDJVA) as a long term venture, in which they perceive the long term benefits as outweighing the attractions of early realisation of their interests. One reason for this, adverted to by Bianca in the course of her cross-examination, is that there are areas of Hope Downs that have not yet been explored, which might well yield as yet unknown value.

15. [216]

    I conclude that exposing HDIO to an exercise by Hamersley of its pre-emptive rights under clause 13.3(1)(a) is contrary to the interests of the Trust, though not to the extent that it could not be contemplated. In other words, while such a risk weighs against the defendants’ proposal, it is a matter of degree; the outcome would not be so “disastrous” for the Trust that the defendants’ proposal would necessarily be rejected even if it had significant countervailing advantages.

The managing trustee/custodian dichotomy

1. [217]

   As has been observed, it is a feature of the defendants’ proposal that the sole director of the custodian JBHG – who could be removed and replaced only by unanimous resolution of the members - would be a director of the selected managing trustee company. The respective roles of the managing trustee and the custodian have already been discussed. The statutory division of responsibility between them gives the custodian trustee a minor but nonetheless important role in being able to place a check on the managing trustee, by seeking the direction of the court in respect of any direction given by the managing trustee which it considers conflicts with the trusts or the law, or exposes the custodian trustee to any liability, or is otherwise objectionable.

2. [218]

   These checks and balances, which are a vital part of the s 15 apparatus, would be seriously compromised if, as the defendants propose, the sole director of the custodian trustee is to be nominated by the managing trustee from among its own directors. (AETL and ETL stipulated that the initial director would be their nominee, and reserved the right to resign if that director was removed, while NATL insisted that at all times the director of the custodian be the nominee of NATL). It is difficult in the extreme to see how an officer or employee of the managing trustee would or could robustly discharge the function of a custodian, for example by seeking a direction from the court in respect of a direction of the managing trustee that was “otherwise objectionable”. The position is said to be justified by the desire of the proposed managing trustees to be assured that, particularly in the early stages, they will have a sensible and co-operative custodian trustee. However, that subverts the role of the custodian trustee, and defeats one of the purposes sought to be achieved by the s 15 apparatus.

3. [219]

   It is true, as Mr McHugh submitted, that if there were a simple independent trustee, that trustee would both hold the property and manage the Trust, and there would be no division of functions. But the fact remains that the proposal effectively circumvents one of the chief purposes and benefits of the s 15 apparatus.

The trustee companies

1. [220]

   As I have foreshadowed, in respect of each of the three nominated trustee companies, there are issues as to (1) independence, not only of the beneficiaries but also of the outgoing trustee Mrs Rinehart, and ability to resist foreseeable pressure from Mrs Rinehart; (2) competence; (3) unconditional consent, and (4) costliness.

2. [221]

   The nominations of the three trustee companies fall for evaluation in the context that (a) the remaining functions of the trustee, the trust having vested, are of limited scope, as discussed above, but include monitoring, asserting and enforcing the rights of the Trust as a shareholder in HPPL; and (b) the annual income of the Trust is in the order of between $2 million and $2.5 million.

3. [222]

   It is undoubtedly a merit of the defendants’ proposal that the managing trustee would not be a beneficiary. The notion of a trustee who is impartial and independent of each of the beneficiaries is highly attractive, both in principle and, in the context of this case, to minimise the risk of further disputation by providing the beneficiaries with some comfort that the trustee is independent and impartial. That could not be achieved through the plaintiffs’ proposal to appoint Bianca. However, in this case it is not only independence from and impartiality between the beneficiaries that is important. There is also a question as to whether the appointee would be able to resist the very considerable degree of pressure and influence that Mrs Rinehart is capable of exerting, and in my judgment is likely to endeavour to exercise, in respect of the ongoing affairs of the Trust. That conclusion is founded on, inter alia, the following.

4. [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.

5. [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.

6. [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.

7. [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.

8. [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.

9. [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.

10. [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.

11. [230]

    I have never seen such pressure exerted, so persistently, on a litigant, as has been apparent in this case.

12. [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.

13. [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.

14. [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]].

15. [234]

    Against that background, it is now necessary to consider individually certain aspects of the nominations of each of the three trustee companies.

16. [235]

    AETL is a licensed trustee company which is owned and controlled by IOOF, a financial services company that is listed on the ASX. If AETL were to be appointed managing trustee of the Trust, Mr Gary Riordan (General Manager, Trustee Services) would be appointed the director of the custodian JBHG. He would be assisted by a number of AETL employees. Two AETL employees, Neil Whitehall Page, and Brendan McMahon, would have day-to-day responsibility for the Trust, although Mr Riordan would be involved in every issue which arose.

17. [236]

    According to Mr Riordan’s oral evidence, while AETL’s original proposal involved a conditional consent, being subject to a period following appointment in which to review and reconsider its position and confirm whether or not it consented, its current position is that the only condition is that adequate indemnities for the managing trustee are in place.

18. [237]

    When pressed, Mr Riordan said that AETL would have no reluctance to bring proceedings in the nature of an oppression suit against HPPL if, for example, it unreasonably reduced dividends; and faced with hypothetical issues with HPPL, said – appropriately - that AETL would seek judicial advice.

19. [238]

    AETL has no apparent connection with Mrs Rinehart. In this sense, it was apparently independent of her, and unaffected by such connections as emerged in the case of NATL and ETL. However, absence of any apparent present connection does not mean that Mrs Rinehart could not acquire or exercise influence over AETL. She could, for example, make a large investment in AETL’s holding company, the publicly-listed IOOF, to acquire such influence. In Mrs Rinehart’s case, I do not regard that at all as a far-fetched prospect.

20. [239]

    The evidence did not reveal that anyone other than Mr Riordan, Mr McMahon and Mr Whitehall Page would have responsibility on behalf of AETL for the functions of the managing trustee – or if there would be such persons, who they were. Thus so far as can be ascertained, the people who would be discharging the functions of the managing trustee on behalf of AETL would be exactly the same people as would be involved in discharging the functions of director of the custodian. There would be no independent scrutiny of the managing trustee by the custodian.

21. [240]

    AETL proposed to charge an establishment fee of $275,000 and a minimum annual fee of $825,000. Mr Riordan conceded that he did not have a detailed knowledge of the operation of the Trust, but said that that fee was appropriate having regard to the “unknown risks and unknown activity” that may be involved. He conceded that a trustee of a fixed trust in which there were no discretions remaining to be exercised may have very little to do. However, he pointed to the possibility that upon a review of the Trust following appointment it might be necessary or appropriate to investigate the conduct of the outgoing trustee, and potentially progress that matter. With fees proposed of $1.1 million in the first year, reducing to $850,000 per annum (out of Trust income of between $2 million and $2.5 million), the availability of distributions to the beneficiaries would be seriously eroded. At the very end of his evidence – after cross-examination by Mr Withers and questions from the bench that focused on the proposed fee structure - he suggested that as matters became clearer, discussions with the beneficiaries about an appropriate fee for a fixed trust would be welcome.

22. [241]

    Thus, AETL’s consent to act as trustee can be regarded as unconditional. AETL has no apparent existent connection with Mrs Rinehart, but is not immune from the possibility that she could acquire influence in its decision-making process. The arrangements it proposes provide no division of responsibility between the managing trustee and the custodian, and thus no effective supervision of the managing trustee. The fees it proposes to charge seem quite excessive for the performance of the fairly limited remaining functions of the trustee of this Trust, and it would be contrary to the interests of the beneficiaries to appoint a trustee whose remuneration would have so great an impact on distributions. Mr McHugh submitted that, if this were the only significant objection to AETL, a condition requiring a review of their fees could be imposed – but there is no way of knowing now what if any lower fee structure might be acceptable to AETL.

23. [242]

    Equity Trustees Limited is a licensed trustee company. If ETL were to be appointed managing trustee, Mr Tony Killen, chairman of ETL, would be appointed as the director of JBHG.

24. [243]

    ETL’s consent to act as managing trustee is not unconditional, but remains subject to “due diligence”. This means that if the Court were to select ETL, the question would then be considered by ETL’s due diligence committee, which could conceivably not recommend acceptance of the appointment, in which case it would not be assumed. It may be, as Mr Killen said in re-examination, that the due diligence could be completed in a matter of weeks; and it is clear enough, from its pursuit of the nomination to this point, that it is likely to take up the appointment if selected. But it is possible that it may not.

25. [244]

    Mr Jeff Kennett, a former premier of Victoria, is a member of the Board of ETL. He also has a connection with Mrs Rinehart, the precise scope of which was never disclosed, although there were suggestions that it was a social one, and may have involved Mrs Rinehart offering him a role which he declined. It was Mr Kennett who introduced the opportunity of this prospective appointment to ETL, and he did so at the request of Mr Newby. As things stand, Mr Kennett would be one of the directors of ETL having superintendence of Mr Burns and his team in discharging the functions of managing trustee.

26. [245]

    ETL appeared to have given little consideration to avoiding the impression of a lack of independence by establishing some mechanism to isolate Mr Kennett. Indeed, Mr Killen when asked said “I don’t see what needs to be done about JK”. He explained this “given the governance protocols we have in place and his clear statement of his position here”. He conceded to a point that the plaintiffs might subjectively be concerned that there was nothing in place to prevent decisions of ETL being influenced by Mrs Rinehart through Mr Kennett, but dismissed this as a real possibility because it would involve Mr Kennett breaching his statutory obligations and persuading the rest of the board to do so, which he thought inconceivable. However, to the suggestion that as a result of a relationship between Mr Kennett and Mrs Rinehart, it was possible that without committing egregious breaches of duty, people might be more cautious or more reluctant to take action than otherwise, he said “I suppose that is conceivable, but I think that would be an unwarranted view to take”. Only in re-examination did he suggest various steps that might be taken to address Mr Kennett’s position and isolate him from the Trust, in light of the issues that had arisen.

27. [246]

    Mr Killen said that ETL would be prepared if necessary to bring an oppression suit against HPPL, and was not without the resources to litigate against Mrs Rinehart’s interests. He also said that if ETL concluded that it was in the interests of the Trust to do so, it would take action against the former trustee. After some pressing, he said that they would seek advice from senior counsel, and possibly judicial advice, before doing so.

28. [247]

    Mr Killen’s evidence was to the effect that, if ETL were appointed as managing trustee, its managing director, Mr Robin Burns, would “lead a team of senior managers with multi-disciplinary skills to provide oversight to facilitate the appointment of responsible individual staff to provide the required trustee services”. As best I understand it, that means that Mr Burns will select, lead and oversee the people who will discharge the crucial functions of the managing trustee.

29. [248]

    In a somewhat remarkable development, ETL sought and was granted leave to be represented by counsel during the evidence given by its witnesses, because of “reputational issues”. Although ETL’s National Manager, Private Trusts – Mr Hardy – remarkably did not appear to know what those reputational issues were, it emerged that ETL had failed properly to comply with subpoenas for production served on it in the course of the proceedings, in particular by not producing (until very belatedly, when informed of the failure by the second defendant’s solicitor) a number of emails of 17 October 2011. One of them revealed the role of Mr Kennett in introducing the opportunity and his relationship with Mrs Rinehart - a matter that had not been disclosed up to that point, in the context that Mr Killen had deposed that he had no relationship with and had never had any dealings, direct or indirect, with Mrs Rinehart or any of her companies. Another revealed that Mr Killen seemed to think that it might help ETL’s case for appointment if Mr Kennett were “favourably known to the matriarch”, that is to say Mrs Rinehart. So far as the evidence permits, it seems that Mr Burns – who was not called to give evidence – was the person primarily responsible for this oversight. It may have been innocent, but if so it is most unfortunate that it happened to have the effect of concealing a connection between ETL’s nomination and Mrs Rinehart, via Mr Kennett. Worse, when Mr Burns in May 2014 forwarded the 17 October emails to the second defendant’s solicitor, he excised some of the contents of the original version; Mr Burns wrote to the second defendant’s solicitor:

30. [249]

    While the excisions did not relate to Mr Kennett or Mrs Rinehart, but to the commercial ebullience with which the opportunity was embraced by Mr Burns, and while the propriety of the second defendant’s solicitor led to all these documents, unexpurgated, being ultimately produced, it is disconcerting that the man proposed to lead the ETL team in the managing trustee capacity seems to have seriously entertained the view that in the context of an obligation to produce documents in litigation, he might produce an altered version. Nor were the attempts of Mr Hardy and Mr Killen to downplay the gravity of these matters encouraging; it illustrated how their loyalty to their company and senior employee restrained them from being overtly critical of him. And while Mr Hardy explained that no one individual would have responsibility for the functions of the managing trustee, and that it was an advantage of a licensed trustee company that there were checks and balances, it remains a matter of concern that the man who is to lead the team for the proposed managing trustee has been shown to be less than robustly straightforward when under much less pressure than might be anticipated from Mrs Rinehart. Despite Mr Killen’s eloquent response that on the other side of the ledger is the organisation’s 125 years of history and thousands of satisfied clients, in reality those years of history and satisfied clients are meaningless if the man leading the team today has different values.

31. [250]

    As a director, and chairman, of ETL, Mr Killen is also involved in providing oversight of Mr Burns and subordinate employees. Mr Killen suggested that, in order to maintain separation of the managing and custodian functions, subject to advice yet to be obtained, he might not participate in board deliberations in respect of decisions of the managing trustee. However, it is not apparent where Mr Killen’s allegiance would lie in the event of a conflict of interest between the custodian and the managing trustee. It is difficult to conceive that while chairman of directors of ETL, he might cause JBHG as custodian to apply to the court for a direction under Trustees Act, s 15(2)(e), on the ground that a direction given by ETL as managing trustee was wrong in law or contrary to the trusts or otherwise objectionable.

32. [251]

    Moreover, ETL’s nomination was conditional also on its being entitled to retire if a person other than its nominee were appointed director of the custodian. Mr Killen’s explanation was to the effect that ETL wished to be satisfied of the calibre of any person appointed as director of the custodian, with whom they could satisfactorily work. But that does not sit comfortably with the very limited functions of a custodian, and it bespeaks a failure to comprehend the respective roles of the managing trustee and the custodian and the checks and balances that the s 15 apparatus is intended to provide.

33. [252]

    ETL’s proposed fees are $300,000 to $400,000 per annum – a much more reasonable proposal than AETL, but still a significant impost on trust income of between $2 and $2.5 million per annum.

34. [253]

    Thus, while ETL’s proposed fees are much more reasonable than those of AETL, they would still result in a material reduction in distributions to beneficiaries. However, ETL’s consent is not unconditional – it is possible, if unlikely, that if selected it would, after due diligence, decline appointment. In a context where the approach to it on behalf of Mrs Rinehart was made by Mr Kennett, and not disclosed in the affidavit material; where the documents that revealed the role of Mr Kennett were not produced in compliance with a subpoena but only when the second defendant’s solicitor drew attention to the omission; and where little thought had been given to dealing with Mr Kennett’s position until re-examination, it is not unreasonable for the plaintiffs to entertain concerns as to whether ETL is or would be truly independent of Mrs Rinehart, or able to withstand the pressures that she is capable of bringing to bear. Mr Burns’ conduct in response to the subpoena, his apparent intent to produce an “expurgated” document, his absence from the witness box when it was he who could and should have explained these matters, and Mr Hardy’s and Mr Killen’s reluctance to be critical of him, do not give one confidence that ETL would robustly repel any attempt by Mrs Rinehart to exert influence. And ETL does not appear sufficiently to have allowed for the different and potentially conflicting roles of managing trustee and custodian.

35. [254]

    NATL is a licensed trustee company. It is a wholly-owned subsidiary of the National Australia Bank. If NATL were appointed the managing trustee, Mr Peter Williams, a non-executive director of NATL, would be the director of JBHG.

36. [255]

    NATL’s consent is subject to “detailed review by NATL trustees of the final outcomes of any Court Order”. Mr Williams said that it was possible that new information may come forward which could possibly cause NATL to withdraw its nomination. He said that any astute trustee would take that position. I must say that I would expect a candidate for appointment as trustee in contested proceedings such as these to have made up its mind, acquired such information as it requires, and given an unconditional consent by the time of the hearing.

37. [256]

    The National Australia Bank is Mrs Rinehart’s and HPPL’s senior banker. NATL’s nomination was solicited by Mrs Rinehart and HPPL. While there is nothing inherently sinister in that, the enthusiasm with which NATL pursued the opportunity, and the motives for which it did so, are not without significance. Plainly, it pursued the opportunity as one which it perceived involved securing Mrs Rinehart’s business and favour. A desire to impress its holding company NAB, and the Rinehart/HPPL interests, is manifest. This does not sit comfortably with an appointment in which an essential role will involve scrutinising Mrs Rinehart’s conduct as trustee and potentially bringing action against her, and enforcing the trust’s rights as a shareholder against HPPL. Indeed, in the course of developing the proposal NATL appears to have viewed Mrs Rinehart and her manager, Mr Newby, as its clients. It does not appear to have recognised that Mrs Rinehart was potentially its main adversary.

38. [257]

    Mr Williams said – eventually – that if it appeared that there had been breaches of trust by Mrs Rinehart, NATL would be prepared to sue her, and that such a decision would be made by the independent directors. He also said that if NATL had decided to commence an oppression suit against HPPL and Mrs Rinehart and when about to institute proceedings he received a phone call from Mrs Rinehart or Mr Newby, it would be inappropriate to take the call – although when asked to assume that Hope had assigned her voting rights in HPPL to Mrs Rinehart, he said he would have to take advice.

39. [258]

    Mr Williams gave evidence of arrangements in place that entrusted to the independent directors decision-making on issues where independence from NAB was relevant. NATL presently has five directors, three of whom are non-executive and independent of NAB (Peter Williams, Robin Clements and Neil McKissock). The other directors of NATL are Ms Konstantina Sokaris (who is an employee of NAB) and the chairman Mr Richard Morath who holds multiple directorships within the NAB group. Mr Williams also explained that in recent times the independent directors had dealt with a class action on behalf of NAB shareholders against a parent company. However, this culminated in the following evidence:

40. [259]

    That is hardly comforting to the plaintiffs, as the beneficiaries would then be left with a managing trustee solely controlled by NAB-appointed directors.

41. [260]

    It would be easier to accept the assurances of robust independence were it not for the extraordinary circumstance that – notwithstanding this avowed independence and its manifest importance as an issue in the proceedings – a subpoena for production issued by the plaintiffs to NATL was referred to Mrs Rinehart’s private banker within the National Australia Bank for instructions. No satisfactory explanation for this was ever provided. It illustrates the inherent influence of Mrs Rinehart over the NAB and its subsidiaries, even when she does not seek to exert it. And if that could happen when the question of independence from Mrs Rinehart was so clearly important and under scrutiny, one can only imagine what would happen when it was not.

42. [261]

    Mr Williams’ evidence was that if NATL were appointed managing trustee, the non-executive independent directors would oversee the appointment of appropriate senior staff to be responsible for the day to day management of the Trust, under the head of NATL, Eric Wilson. Those non-executive independent directors include Mr Williams, who will be director of the custodian. How that will enable the custodian to perform its functions (other than to be compliant), and where Mr Williams’ allegiance would lie in the event of a conflict of interest between the managing trustee and the custodian, is not clear.

43. [262]

    NATL’s consent is subject to a condition that the director of JBHG be and remain its nominee. Mr Williams endeavoured to explain this in various ways. He said that NATL’s requirement was that “the relationship be joined at the hip”, so that NATL and the director were not effectively “ostracised and set out on their own”, so that one – in particular the director of JBHG – could not be “put out on an island”. To the suggestion that it would be no concern of NATL if a non-NATL director of JBHG were “put out on an island”, he said:

44. [263]

    In my view, once again, that bespeaks a failure to appreciate the true function of the custodian.

45. [264]

    NATL’s proposed fees of $100,000 per annum plus an hourly rate compare favourably with the other two trustee companies.

46. [265]

    Thus, NATL’s proposed fees are acceptable. But its consent is not unconditional, and it is conceivable that if selected it may nonetheless decline appointment. It is vulnerable to the influence of Mrs Rinehart, through her relationship with its holding company NAB. In those circumstances, it is far from unreasonable for the plaintiffs to doubt that in discharging the functions of managing trustee, NATL would be uninfluenced by the position of Mrs Rinehart and HPPL, their interests and wishes – a doubt that would be amply reinforced by the manner in which the subpoena was handled.

47. [266]

    I have not referred in any detail to the impressive formal qualifications and experience of each of the proposed custodian trustee directors, Mr Riordan (AETL), Mr Killen (ETL) and Mr Williams (NATL), for several reasons. First, I do not doubt that in general terms they have many appropriate qualifications and extensive experience, and it is not in respect of their general qualifications and experience that I have any reservation. Secondly, their qualifications and experience provide no answer to the issues in respect of the proposed appointment of their respective trustee companies to which I have referred. Thirdly, their qualifications and experience are of relatively minor importance in the scheme of things, because the role of the custodian is, as I have said, a relatively limited one.

48. [267]

    I also do not doubt that Mr Riordan, Mr Killen and Mr Williams each genuinely believes that their respective companies would be robustly independent. However, it is not a complete answer to the risk of influence and pressure that the officers and employees of a trustee company would breach their statutory duties if they were to make improper use of their position. That is inter alia because the effects of influence may be subtle and not result in a clear breach of duty, and may simply produce a reluctance to displease Mrs Rinehart. The subpoena saga in the case of NATL is a very clear indication of the sensitivity of the NAB group as a whole to Mrs Rinehart’s interests, and a powerful illustration of her passive influence. I am unpersuaded that Mr Riordan, Mr Killen and Mr Williams comprehend just how much pressure Mrs Rinehart could exert were she minded to do so - and she has demonstrated consistently in these proceedings her preparedness to exert such influence to retain, if indirectly, control of the Trust – or how even in the absence of any overt exercise of influence, a reluctance to incur her displeasure may silently influence the decision-making process.

49. [268]

    Generally, the three trustee companies appeared to have given limited consideration as to how the proposed structure would work in practice. The s 15 apparatus contemplates that there should be two separate minds, but how this would be handled was not clear, and all three companies insisted on having some control over the identity of the director of the custodian. In each case, the second defendant called as a witness the person who would fulfil the role of the initial director of JBHG. While these witnesses were also officers of the relevant trustee company, the officers or employees of the trustee company who would have responsibility for the performance of the managing trustee’s functions – which are much more extensive than those of the custodian - were not called.

50. [269]

    The defendants submitted that this was beside the point, as one of the benefits of a trustee company was that it was not dependent on any particular individual but enjoyed the accumulated resources of the corporate entity. But while much was made of the undoubted accumulated experience of each of the trustee companies – more than a century in the case of AETL and ETL, and all three have extensive portfolios and experience in the management of a wide variety of trusts - in reality that so-called accumulated experience, even over a century, says little as to how the particular individuals who will discharge the company’s functions will act today. The benefit of a trustee company is that it may be expected that its officers and employees will have a degree of professionalism, and that the perpetuity of a corporation avoids the need to find a new trustee upon death or incapacity. But it seems to me that a century of experience as a trustee company says little as to how its officers and employees today would respond to pressure and influence from Mrs Rinehart.

51. [270]

    Evidence from the proposed JBHG director might have been useful had it revealed how the nominee proposed to discharge the function of director of the custodian and, in particular, in what type of event and on what basis he might cause the custodian to seek the advice of the court. However, their evidence did not do that, but focused on the qualifications of their respective companies - which tended to highlight the absence of any real separation of functions between the managing trustee and the custodian.

52. [271]

    It is also clear that the trustee companies were excited by the opportunity to win this business, and eager to do so. I agree that, as Mr McHugh submitted, it is not impermissible for a trustee company – which is also a commercial creature - to express excitement at the prospect of a business opportunity. That the opportunity is perceived as commercially attractive does not speak against their independence. However, what attracts excitement and enthusiasm may inform a judgment as to the prospective trustee’s assessment of and approach to the opportunity. In this case, the appointment is in truth very much a poisoned chalice – appointment as trustee of a trust, the beneficiaries of which are at loggerheads, the assets of which though very substantial are difficult to realise, and the income of which is relatively small, in circumstances where one of the most important functions of the new trustee will be to assess and if necessary enforce the rights of the Trust against one of, if not the, wealthiest person in the land, and her company. If, as seems to have been the case, the commercial excitement was occasioned by the perception that this was an opportunity to win some of Mrs Rinehart’s business and gain her favour, then it was misconceived, and would suggest that the motivation was inconsistent with the true role that this trustee would be required to fulfill.

53. [272]

    Ultimately, in my view, there are serious objections to each of the trustee companies. AETL, although its consent is effectively unconditional and it is less susceptible to – though not immune from – the influence of Mrs Rinehart, could not be appointed because of the unacceptable impact of its proposed fee structure on Trust distributions and thus the interests of the beneficiaries. This would be markedly to the disadvantage of the beneficiaries, particularly those (the plaintiffs) who are not otherwise supported by their mother. As to ETL and NATL, because of Mrs Rinehart’s relationship with Mr Kennett and her (and HPPL’s) connections with NAB, it is not at all unreasonable for the plaintiffs to believe that ETL and NATL respectively would be vulnerable to her influence, even if in fact they are sufficiently robust to resist it, which – particularly in the case of NATL, given the subpoena saga - may be doubted. Their appointment would not give the plaintiffs a trustee in whose robust independence from Mrs Rinehart they could be confident. Moreover, their consents are conditional respectively on “due diligence” or “detailed review by NATL trustees of the final outcomes of any Court Order”, which means that, though it may be unlikely – and I am unconvinced that in the light of this judgment it will remain unlikely – either might decline to accept the appointment. Furthermore, all of the trustee companies insist that the director of the custodian initially be – and NATL insists that it remain – a nominee of the managing trustee, which is quite contrary to the intent of s 15, deprives the custodian trustee of its role of scrutinising and where appropriate questioning decisions of the managing trustee, and exposes the nominee director to a position of conflict.

The plaintiffs’ proposal – Bianca (with an advisory trustee)

1. [273]

   The plaintiffs propose that Bianca be appointed as trustee, and suggested that she have an advisory trustee under Trustees Act, s 14, with whom she would regularly consult - for which purpose Mr McGrath is nominated.

2. [274]

   Bianca’s consent is unconditional. She is prepared to act voluntarily, without remuneration.

3. [275]

   Bianca has deposed that she would welcome the advice of an advisory trustee, and any assistance that he or she may be able to provide in facilitating cooperation and communication between the beneficiaries; that, where it is appropriate to do so, she intends to seek judicial advice; that she is not aware of any reason why she would not be able to discharge her duties as trustee fairly and independently; and that she understands that the terms of the Trust effectively require her to distribute the income and assets of the Trust evenly to all four beneficiaries because they each share an equal one quarter interest in the Trust. She is prepared to be appointed on whatever conditions the Court may consider appropriate, including conditions that would require her to (a) consult regularly with any advisory trustee, including before making any application for judicial advice; (b) consult with the beneficiaries before making any application for judicial advice; (c) disclose to the Court in any application for judicial advice the views of the advisory trustee and the beneficiaries; (d) provide regular statements of Trust assets and accounts to the beneficiaries; (e) confer with and have regard to the beneficiaries in making decisions that may materially impact the Trust; and (f) retain suitably qualified lawyers, accountants and or financial advisors to advise and assist her in managing the affairs of the Trust where necessary.

Objections to Bianca

1. [276]

   Mrs Rinehart eschewed any role – at least an overt one – in determining the identity of her replacement. The objections of HPPL and HDIO to the appointment of Bianca were not maintained (although they made submissions in support of Ginia’s proposal, they withdrew their objections to Bianca). Hope’s was a submitting appearance, and although she made some submissions in general support of the defendants’ proposal, she made no objections to Bianca. Ultimately, the only notified objections to the appointment of Bianca that were pressed were those of the second defendant Ginia – and not all of her fourteen originally notified objections were pressed. The essential objections that were pressed may be grouped as follows: (a) conflict of interest, arising both from her status as a beneficiary, and from the status of her husband as an employee of Rio Tinto; (b) partiality, in particular bias against Ginia; (c) lack of trustee qualities - judgment, understanding of trusteeship, commercial agreements and ownership, and trustworthiness; (d) absence from the jurisdiction, and (e) lack of commitment.

2. [277]

   Bianca is a beneficiary. As discussed above, the court is usually reluctant to appoint a beneficiary as trustee, because of the obvious potential for conflict of interest as a beneficiary with duty as a trustee. Indeed, at an earlier stage of the proceedings I tentatively suggested that one would only consider appointing Bianca if the risk associated with the appointment of an independent trustee were too great. The plaintiffs acknowledge that the court would not ordinarily appoint a beneficiary to act as trustee, but they submit that this is no ordinary case.

3. [278]

   In the earlier discussion of the general rule, I explained that it is not an absolute rule, and its application is influenced by the extent to which there is potential for conflict of interest and duty, the express or implied wishes of the settlor, and the feasibility of appointing a satisfactory independent trustee. In this case, its significance is reduced, for four reasons. First, as explained above, appointment of an independent trustee would trigger Hamersley’s pre-emptive rights under the HDJVA. Secondly, for reasons already given, there are serious objections to the proposed independent trustee companies. Thirdly, because of the limited remaining functions of the trustee, with most if not all of the discretions no longer available, the potential for the trustee to be able to exercise discretions so as to favour some beneficiaries over others is very limited. Fourthly, the settlor’s intent envisaged that the trustee could and would be a beneficiary: Mrs Rinehart was a beneficiary of the Trust from the outset, and under the Trust Deed Mr Hancock was to be the trustee during his lifetime, and Mrs Rinehart after his death.

4. [279]

   It was submitted, however, that there was real potential for, if not actual, conflict, arising from the commercial arrangements into which Bianca and John had entered for the purpose of funding the litigation, and in particular, that John was liable to repay the funder on demand, and that she had guaranteed the loan. It was suggested that, if there were a demand and a requirement to repay, then it may be in her interests (and those of John) to sell HPPL shares for cash speedily (to enable a distribution), which may be contrary to the interests of the Trust as a whole. I accept that there is some potential for conflict between the interests of the various beneficiaries, including Bianca, from time to time, in respect of the timing of realisations. However, there are inherent restraints on the scope for Bianca to exploit such a conflict for her own benefit. One is imposed by the restrictions on transfer in the HPPL articles, so that the transfer price would ultimately be determined by valuation. Another is that it is in the interests of all the beneficiaries to maximise the Trust assets. A third is that the amount required to fund such a liability is a very small fraction of the value of the Trust’s shareholding. Moreover, and decisively, in my view this risk can be mitigated by a condition requiring consent or judicial advice before giving a transfer notice under the HPPL Articles.

5. [280]

   Apart from the potential for conflict between her duty as trustee and her interest as a beneficiary, however, it was submitted that potential for injury to the Trust would arise from the circumstance that Bianca’s husband, Sasha Serebryakov, was a senior executive employee of Rio – the parent company of Hamersley, HPPL’s joint venture partner under the HDJVA. The argument was that it is unrealistic to suppose that Bianca would not discuss affairs of the Trust with her husband, and that while Bianca as trustee would have a fiduciary obligation to the beneficiaries to pursue commercial opportunities in connection with the Trust property solely for the benefit of the Trust, Sasha as a senior executive would have fiduciary obligations to his employer Rio to take advantage of any information or opportunities that came his way in connection with his employment for the benefit of his employer and not for his (or his family’s) own benefit.

6. [281]

   At first sight there appeared to be considerable force in this argument. At one stage, Sasha was proposed by the plaintiffs as a potential replacement trustee, and he has been involved in communicating on behalf of the plaintiffs with other candidates. Bianca has described him as “highly competent” and having “a high level of commercial experience within the mining industry”; she obviously enough regards him as someone who could provide valuable assistance and advice; and she unsurprisingly said, in response to a question whether he had been assisting her in the litigation, “He is my husband, we bounce ideas off each other, of course”. Her subsequent denial that, if appointed, she would consult her husband about the affairs of the Trust, even though honestly proffered now, is an unrealistic stipulation in the context of a marriage. It may be that it is unlikely that Bianca would prefer the interests of her husband’s employer to those of the Trust in which she had a direct substantial interest, but the possibility is neither bizarre nor absurd. It is a fundamental feature of the human condition that ties of emotion and affection can and often do cause people to act other than in their own financial interests, and contrary to the plaintiffs’ submissions this does not depend on “an antiquated, nineteenth century perspective of marriage”, but on the realities of the 21st century. Bianca’s evidence that Sasha is highly ethical and moral – and would place the interests of his family ahead of those of his employer – is of little comfort, not least because it involves an element of inherent inconsistency – why would a person of high morality necessarily prefer the interests of his family to those of his employer if they were in conflict?

7. [282]

   However, there are good answers to the objection that Bianca’s marriage to Mr Serebryakov may affect her ability to discharge her obligations as Trustee, because he is a Rio employee. First, information concerning Trust affairs that came to Sasha by reason of his marital status would be outside the scope of his fiduciary obligations to his employer, on two counts: it would not be received by him in the course of his employment, and it would be outside the scope of his employment, which is unrelated to Rio’s iron ore interests. Secondly, while much was made of the risk of confidential information coming into his possession, it is difficult to see what sensitive information of a confidential nature of utility to Rio would be received by the trustee. While confidential information of or about its joint venture partner HPPL may well be of utility or interest to Rio, the Trust is merely a shareholder in HPPL, and it is not at all evident that the trustee would receive confidential information of or about HPPL. Information provided by a company to its shareholders is not typically of a confidential character. The possibility that Bianca, in her capacity as trustee, would receive confidential information of or about HPPL which she would not otherwise be entitled to receive (for example, as a beneficiary or a direct shareholder after calling for her shares) is remote. Thirdly, it is not clear how Rio could exploit information relating to the affairs of the Trust, being a minority shareholder in HPPL. If the trustee were desirous of selling shares, Rio is not an eligible purchaser under the HPPL articles. While Rio might theoretically be interested in exploiting an opportunity to acquire HPPL’s interest in the HDJVA, that is not property of the Trust, but of HPPL. Finally, even if there were a relevant risk about confidential information of HPPL becoming available to Rio, that would be a matter for objection by HPPL, which has withdrawn all its objections to Bianca.

8. [283]

   Ultimately, in the context of this trust, the remaining powers of the trustee, the nature of its property, and the information to which Bianca would in any event be entitled as a beneficiary or shareholder, her appointment as trustee in the context of her marriage to Mr Serebryakov would not incur significant additional risk to the Trust.

9. [284]

   After this part of this judgment was completed in draft, but before it was delivered, the plaintiffs communicated to my chambers a request to have the matter relisted, in order to reopen their case to tender evidence that Mr Serebryakov was no longer employed by Rio. The defendants either did not respond, or opposed, that request. As the further evidence, if received, would make no difference to the conclusion I have reached, I did not accede to the application.

10. [285]

    It was submitted that a lack of impartiality on the part of Bianca was manifested by her alliance with her brother John against her mother, Ginia and Hope in these proceedings.

11. [286]

    No conclusion that Bianca would lack impartiality as a trustee is available from her participation in legitimate proceedings against the incumbent trustee. Nor could any such conclusion be drawn from the circumstance that Hope is now one of the defendants – she was of course initially a plaintiff, who joined in bringing the proceedings. Indeed, that the plaintiffs believed that they were acting in the interests of all the beneficiaries is indicated by their initial misjoinder of Ginia also as a plaintiff. While Ginia has resolutely opposed the plaintiffs (initially supporting Mrs Rinehart remaining as trustee), and while the vigour with which this litigation has been prosecuted – and defended, including by or on behalf of Ginia herself - has no doubt occasioned tensions in the personal relationships between the parties, it does not follow that Bianca would not be impartial as a trustee.

12. [287]

    It was also submitted that a conclusion that Bianca was biased against, and harboured animus towards, Ginia in particular, should be drawn from her failure to dissent or disassociate herself from what were said to be her brother and co-plaintiff John’s personal attacks on Ginia. In correspondence with Mrs Rinehart, some of which included Ginia as an addressee, John has described Ginia in degrading and insulting terms, which were fairly characterised by Mr McHugh as contemptuous. Bianca engaged in no such behaviour herself. It is true that Bianca did not tell John to stop saying such things, but she was not party to the communications, and learnt of them only at a later stage. When cross-examined about John’s insults, Bianca did not completely repudiate them – though she said she would not have used the same words - but sought to explain them as not being a personal attack on Ginia, but a manifestation of John’s frustration in attempting to challenge Mrs Rinehart’s determination to leave the family business to Ginia. She admitted that she shared with John “a genuine interest in who will be succeeding my mother”, and that they “would like to see it left in the hands of somebody who is able to make decisions for herself and not be highly influenced, because the potential exists for her to be influenced by somebody in a malicious way and that could have devastating consequences for the family business” - from which it may reasonably be concluded that she shares John’s view that the business should not be left in Ginia’s hands.

13. [288]

    However, neither holding that view, nor declining wholly to repudiate what John had written, does not manifest, on the part of Bianca, such an attitude towards Ginia as would be inimical to her impartial discharge of the functions of trustee. In short, a view that Ginia should not be her mother’s successor does not translate into a lack of impartiality as trustee. I do not accept that the absence of a clear disassociation from John’s comments is suggestive that as trustee, Bianca would be other than impartial in the performance of the (limited) remaining functions of the trustee.

14. [289]

    Although they covered a diverse range of matters, these objections essentially impugned Bianca’s fitness on the ground that she lacked various important qualities of a trustee.

15. [290]

    First, it was submitted that she had demonstrated a profound lack of judgment in propounding John as the replacement trustee in October 2013, when it ought to have been obvious that he was inappropriate, and that this was reinforced by her refusal now to accept as much.

16. [291]

    Bianca was rather reluctant to concede statements she had previously made – in 2004 and 2006 – which reflected very adversely on John’s fitness, but she explained that in circumstances where Hope had withdrawn, a lineal descendant was required, and the chief alternative (at that stage) was leaving Mrs Rinehart as trustee, the options were limited. Moreover, it would be a large step to infer, from Bianca having at one time propounded an unsatisfactory candidate in robustly contested litigation, that she lacks the requisite judgment to discharge the limited functions of this trusteeship once the litigation is over.

17. [292]

    Next, Mr McHugh submitted that it was demonstrated that Bianca did not understand relatively simple commercial arrangements into which she and John had entered for the purpose of funding this litigation. In particular, she did not appear to understand that John was liable to repay the funder on demand, and that she had guaranteed the loan. Further, it was submitted that Bianca demonstrated a surprising lack of understanding of the legal and beneficial ownership of the property in which she resides. However, Bianca was asked for her understanding about these arrangements in cross-examination, without being shown the documents. There was no particular reason for her to familiarise herself with the detail of the loan agreement before giving evidence. The arrangements concerning her residence had been made with her mother and Bianca was not fully aware of the terms of the agreement which regulated them. It was not demonstrated that she did not have the capacity to comprehend such transactions. She is not without commercial experience: she has been a director and employee of HPPL.

18. [293]

    I am satisfied that she does understand the concept of trusteeship and the general concept of fiduciary obligations, and appreciates the functions that she would need to perform if appointed. If, as appeared, she thought that the power to sell the shares resided in each beneficiary and not the trustee, then while not strictly accurate it is, in the context of the trust having vested, not seriously wrong and not disadvantageous to the position of the beneficiaries.

19. [294]

    It was also submitted that Bianca is untrustworthy and prefers her own interests to those of her siblings, such that they cannot have confidence in her as their trustee, and in particular has repeatedly put her own interests in this litigation ahead of her relationships with Hope and Ginia.

20. [295]

    One manifestation of this was said to be that she did not tell Ginia about her marriage to Sasha, of which Ginia only learnt by discovery of a marriage certificate in the course of the proceedings. It was said that this was illustrative of how bad the relationship between Bianca and Ginia was. However, Bianca did not tell any other members of the family about her marriage. I do not see how not informing Ginia that she had married Sasha informs an assessment of her trustworthiness, even in the vernacular: she was under no moral obligation to tell Ginia of her marriage, nor did Ginia trust or rely on her to do so.

21. [296]

    A second manifestation was said to be the demand made by her solicitors from Hope in January 2013, after Hope ceased to be a plaintiff, for repayment of $1.3 million in connection with litigation funding advances. I accept Bianca’s denial that she gave express instructions for that demand to be made. But even if she had, as a plaintiff in these proceedings, Bianca was not bound to act in Hope’s interests – particularly after Hope’s withdrawal. Again, no aspect of “trust”, even in the vernacular, was involved. The demand for repayment in those circumstances – in accordance with the obligations that Hope had undertaken in connection with the litigation funding agreement - does not evince a lack of trustworthiness, nor indicate that as trustee (as distinct from as plaintiff) she would not act in Hope’s interests.

22. [297]

    A third alleged manifestation is more telling. Bianca – contrary to Hope’s request that she do so – did not delete two private electronic conversations between them on WhatsApp in early 2014 and in May to June 2014, and ultimately deployed them in the proceedings, ostensibly to demonstrate that she maintained a good relationship with Hope, and that Hope trusted her. The last of those exchanges, which took place only a few days before the final hearing in June 2014, was initiated by Bianca. It was put to Bianca that she did so with a view to eliciting helpful evidence, in which case it would be understandable if Hope viewed this as a breach of trust, in the non-technical sense.

23. [298]

    I am not persuaded that Bianca’s denial that she deliberately elicited this material should be rejected. In any event, I do not think that such conduct in the context of this litigation is indicative that Bianca cannot be trusted properly and honestly to discharge the functions of trustee, or would prefer her interests to those of her sisters. It is unsurprising that the plaintiffs would seek to obtain some evidence that Hope was, while formally a defendant, in truth supportive of the appointment of Bianca, or at least that they continued to enjoy a good relationship. For better or worse, many personal communications, the authors of which no doubt did not expect to become public, have emerged in the course of these proceedings; those between John and Mrs Rinehart concerning Ginia, in respect of which Bianca was cross-examined by Ginia’s counsel, are examples. Minds might well differ as to whether preserving a communication for use in evidence is untrustworthy in the context of a request to delete or obliterate it – presumably, so that it is suppressed or deniable – rather than preserve the evidence; Bianca’s explanation, that it was more important that the court be informed of the true position and not be misled, might commend itself to many if not most.

24. [299]

    It is convenient to deal at this point with the second defendant’s submissions in respect of Bianca’s credit; although there are few factual issues which depend on credit, a conclusion that she was not an honest witness might well be relevant to her fitness. Mr McHugh submitted that Bianca was an unsatisfactory witness, who was more interested in being an advocate for her case than in giving candid answers; that she was non-responsive and evasive; and that her evidence should not be accepted where it was contrary to the probabilities in the light of other evidence – in particular, that she intends to live in Australia, or did not instigate the WhatsApp exchange with Hope with a view to eliciting evidence for use in the proceedings.

25. [300]

    Bianca was a feisty and wary witness. She was not compliant for the cross-examiner, and she was admittedly determined not to allow what she considered an inaccurate picture of affairs to be painted. She not infrequently gave answers that were not directly responsive, and volunteered material that was uncalled for by the questioner that she thought would assist her case. She sought to anticipate the cross-examiner. She was reluctant to make concessions that appeared potentially adverse, of which the high point would have to be:

26. [301]

    The criticism that she was partial and assumed the role of an advocate is a fair one, and in that sense she was “unsatisfactory”. But it does not follow that she was a dishonest witness, and she was not shown to be so. A party-witness is inevitably partial; although some are better able than others to give the appearance of relative impartiality in the witness box, Bianca was not one of them. I accept her statements of future intention – for example as to what she would not discuss with Sasha, and where she would live – as truthful statements of her current belief and intent, though somewhat lacking in appreciation of the potential realities of the future. I am not satisfied that her denial that she was motivated to contact Hope on WhatsApp by a desire to secure evidence for use in the proceedings was untrue.

27. [302]

    Finally, it is significant, as the plaintiffs emphasise, that neither Hope nor Ginia has deposed or testified that they do not trust Bianca, and Hope – the disclosure of whose email correspondence is the foundation of this objection - has not raised any formal objection to Bianca’s appointment, nor complained about the disclosure of her communications.

28. [303]

    If in the context of this litigation, Bianca has preferred the interests of the plaintiffs over harmony with her sisters, that has to be seen in the context that (as I accept) she believed that in prosecuting these proceedings - in which of course Hope initially joined as a plaintiff - she was acting in the interests of all the beneficiaries. These proceedings have, undoubtedly and understandably, strained relations, particularly between the plaintiffs and Ginia; but it does not follow that Bianca is untrustworthy in a relevant way. It is necessary to ask, in respect of what functions as trustee is it said that Bianca could not be trusted, and to remember that the remaining functions of this trustee are limited and do not involve extensive discretions. Essentially, those functions are to receive the income (and in due course, the capital) and distribute it equally between the four beneficiaries; and to enforce the rights of the Trust against the outgoing trustee and against HPPL. I do not accept that the matters to which the second defendant has pointed justify a conclusion that Bianca cannot be trusted to perform those functions honestly, diligently and fairly. Moreover, two referees who swore affidavits as to her character, repute, business practices, suitability and integrity were not challenged.

29. [304]

    Between 12 August 2011 and 21 December 2013, Bianca spent 26 months in North America and only two months and four days in Australia. Her absences included from 12 August 2011 to 22 February 2012, and 1 April 2012 to 23 September 2012. She has had three different addresses since she returned to Australia in December 2013.

30. [305]

    Bianca’s absences overseas have been largely attributable to Sasha’s employment, which requires him to spend extensive periods outside Australia, sometimes at short notice. They have also been contributed to by her desire to be removed from the environment during the disputation that has been associated with these proceedings, and no doubt the publicity they have attracted. Bianca said that she doubted that she would have to live overseas because of Sasha’s work, and that if she were appointed trustee she would not do so. However, while that may be her genuine position now, there must be some doubt as to its reality in perpetuity, if Sasha’s future employment imposes a competing requirement.

31. [306]

    Originally – before the second hearing - it was suggested that in the event she were trustee, Bianca’s absences overseas would incur for the Trust a substantial risk that she may be or become a “tax resident” of the United States, and/or the Trust to become a “foreign trust”. But this was never elaborated, and no evidence was adduced, nor submission made, to that effect.

32. [307]

    Under Trustees Act, s 7(1)(B), a trustee who remains out of the State (relevantly, WA) for more than a year without having properly delegated the execution of the trust may be replaced by the person having the power to appoint a new trustee under the trust instrument. There being no such person, it would remain a matter for the court. In any event, only a short presence within the jurisdiction will prevent the twelve-month period from running [Re Walker, Summers v Barrow [1901] 1 Ch 259]. Nor will the court necessarily decline to appoint as trustee a person resident abroad [Re Hill’s Trusts [1874] WN 228; Re Kay [1927] VLR 66; Re Baillie [1928] VLR 171; cf Meinertzhagen v David (1844) 1 Coll 335; 63 ER 444; Re Guibert’s Trust (1852) 16 Jur 852; Re Harrison’s Trusts (1852) 22 LJ Ch 69].

33. [308]

    In the absence of any evidence pointing to a tax risk, the risk that Bianca will spend substantial periods outside Australia, while relevant, is – in the light of modern methods of communication and ease of travel, and the nature of the trust property and remaining functions of the trustee of this trust – of slight significance.

34. [309]

    It was submitted that Bianca demonstrated, by her unexplained withdrawal of her nomination in April 2013, only to seek renomination again on the first day of the first hearing in October 2013, a wavering commitment to the role.

35. [310]

    Bianca explained her withdrawal of her initial nomination as a response to Hope’s withdrawal from active participation in the proceedings, on the basis that she needed time to consider her position.

36. [311]

    However, I do not find that indicative of any lack of commitment on her part to the role; to the contrary, her persistence in seeking it in these proceedings, at times in the face of enormous pressure, to which I have already referred, bespeaks the contrary. Unlike the other protagonists, she has been prepared to give sworn evidence and to be cross-examined, and to answer in the witness box the objections raised against her nomination. Unlike two of the three trustee companies, her consent to act is unconditional.

37. [312]

    I reject the submission that Bianca is not committed to the role of trustee.

38. [313]

    The objections that Bianca lacks the requisite judgment, commercial understanding and understanding of trusteeship, and cannot be trusted, to perform the remaining functions of this trustee honestly, diligently and fairly; that she is biased and harbours animus against Ginia; and that she is not committed to the role of trustee, are not sustained. While it is conceivable she that she may spend substantial time out of Australia in the future, that is of very slight significance. While the appointment of Bianca is not without some disadvantages, and it would be preferable, if possible, to appoint an independent trustee rather than a beneficiary, the practical risk of an actual conflict of interest relevant to the discharge of the functions of this trustee is slight, and can be mitigated by the imposition of an appropriate condition requiring consent or judicial advice before selling HPPL shares. It is significant that, although objections were made and pursued on behalf of Ginia, neither Ginia nor Hope has offered any evidence that they hold the view that Bianca would be unable to discharge the duties of trustee, or that they would be unable to communicate and interact with her in connection with the affairs of the Trust, or do not trust her to act in their best interests.

Resolution

1. [314]

   For the purpose of answering the question, who is best suited to administer the trust in the circumstances currently prevailing, the relevant circumstances currently prevailing are that the Trust has vested, the remaining functions of the trustee are limited, and the Trust’s principal asset comprises shares in HPPL - a company controlled by the outgoing trustee Mrs Rinehart, who has resigned in the face of proceedings to remove her for misconduct, but whose conduct manifests a desire to secure the appointment of a trustee acceptable to her. A replacement trustee will therefore need to be sufficiently robust to assert the Trust’s rights as a shareholder in HPPL, and resist attempts by Mrs Rinehart to exert influence.

Who is best suited to administer the Trust?

1. [315]

   The defendants’ proposal is not without advantages, including in particular that the managing trustee will be independent of the beneficiaries; that each of the proposed managing trustees is a licensed trustee company, bringing the benefits of a perpetual corporate trustee, having personnel experienced in managing trusts, and which may be expected to bring experience and professionalism to their role. Any of the proposed corporate trustees is likely to bring a higher level of knowledge and experience to the management of the Trust than Bianca. However, in the context of this trust, despite its capital wealth, the remaining functions to be performed by the trustee are not complex, and while of some it is not of great import that Bianca’s knowledge and experience may be inferior to those of the professional trustees.

2. [316]

   Mr McHugh emphasised that, as each of AETL, ETL and NATL is a licensed trustee company, their appointment would attract statutory protections, which would not apply in respect of Bianca. In particular, reference was made in this respect to the obligation of a licensed trustee company to comply with Corporations Act, Chapter 5D - including s 601SSB(1) (obligation to provide accounts on request, failure to comply being an offence), s 601TAA (schedule of fees to be published and available), and s 601TAB (disclosure to clients of changed fees); (CTH) Corporations Regulations 2001, Chapter 5D; and also with all obligations under the Corporations Act relating to Australian financial services licensees (in particular, s 912A(1)). It was also pointed out that Corporations Act, s 601UAA, provides that an officer of a licensed trustee company must act honestly, and exercise the degree of care and diligence that a reasonable person would exercise if they were in the officer’s position, and not make improper use of their position or information acquired through it; and take all steps that a reasonable person would take in their position to ensure that the trustee company complies, in relation to the provision of traditional trustee company services, with the Act and any conditions imposed on the trustee company’s Australian financial services licence; and that s 601UAB places similar obligations on employees, not necessarily being officers, of licensed trustee companies.

3. [317]

   However, these so-called statutory protections in substance add very little of relevance to the general law obligations of a trustee which would bind Bianca in any event if she were appointed. To the extent that they do go further (such as in respect of disclosure of fees, or compliance with a financial services licence), they are of marginal if any relevance: Bianca would act without remuneration, and would not be acting as a provider of financial services. Ultimately, the availability of the statutory protections in respect of the trustee companies is of little significance.

4. [318]

   Against such advantages as the defendants’ proposal offers, I have concluded, above, that there are serious objections to it and to each of the trustee companies nominated. First, it will trigger Hamersley’s pre-emptive rights under the HDJVA. Secondly, by not providing for a proper separation between the managing trustee and the custodian, it subverts the purpose of the s 15 apparatus. Thirdly, AETL is prohibitively expensive, and ETL and NATL while not so expensive will nonetheless incur remuneration which will reduce the amount available for distributions. Fourthly, ETL and NATL do not provide adequate assurance of independence from and ability to resist the influence of Mrs Rinehart, and there is potential for Mrs Rinehart to acquire influence in AETL through its publicly listed parent company. Fifthly, the consents of ETL and NATL are not unconditional.

5. [319]

   On the other hand, the appointment of Bianca would incur no risk of triggering Hamersley’s pre-emptive rights under the HDJVA. She would act voluntarily, without remuneration, thus not detracting from income available for distribution to the beneficiaries. She has demonstrated the ability robustly to assert the rights of the Trust against the former trustee and against HPPL. Her consent is unconditional, but she is prepared to accept any conditions the court might impose. While her status as a beneficiary presents some risk of a conflict of interest and duty, in the context of this trust and the remaining functions of the trustee, the risks are remote, and can sufficiently be mitigated by imposing a condition that judicial advice or consent be obtained before significant decisions are made (such as giving a transfer notice, or commencing litigation).

The wishes of the beneficiaries

1. [320]

   Two of the four beneficiaries – the plaintiffs – plainly favour the appointment of Bianca. Two at least ostensibly support the defendants’ proposal.

2. [321]

   The plaintiffs’ wish that Bianca be appointed is informed by the view that in the circumstances, it is preferable that the trustee be a person with a proven willingness to repel attempts by Mrs Rinehart to influence it, and to safeguard the interests of the Trust and its beneficiaries, in particular as against Mrs Rinehart and HPPL. In circumstances where they brought and maintained the proceedings, against Mrs Rinehart’s vigorous opposition, to remove her on account of the events of September 2011, and Bianca has been subjected to personal attacks and threats calculated to dissuade her from prosecuting the litigation (and more recently, from maintaining her nomination as trustee), the plaintiffs do not wish the new trustee to be a corporate trustee which has been selected by, or at least with the approval of, Mrs Rinehart, her company or those beholden to or controlled by her. The plaintiffs do not have confidence that the proposed trustee companies will robustly safeguard their interests; the only person in whom they have such confidence is Bianca. Nor do the plaintiffs wish to be locked into a corporate custodian trustee in which – at least as they perceive it – neither Hope nor Ginia would really be at liberty to act and vote freely in their own interests: Ginia would be conflicted by her directorships of companies in the HPPL group and is beholden to her mother by financial dependence; and Hope is constrained by the confidential deeds not to act or vote in a way that adversely affects HPPL, even if to do so would be in the interests of the beneficiaries. Thus the result is likely to be deadlock.

3. [322]

   Hope is a submitting defendant. Her solicitor Mr Deutsch in submissions stated that while Hope maintained her submitting appearance, she continued “at the broad level” to support the defendants’ proposal. However, although in that way she has indicated general support for the defendants’ proposal, Hope has not objected to the appointment of Bianca, nor made any submissions adverse to Bianca.

4. [323]

   I do not accept the submission of Mr Withers that I should infer that Hope in truth supports and prefers the appointment of Bianca. Mr Deutsch was correct in submitting that the evidence did not make good the plaintiffs’ submission to the effect that Hope has complete faith in and clearly trusts Bianca. While the WhatsApp conversations between Hope and Bianca show continuing contact, relationship and familiarity between Hope and Bianca, they do not go so far as to demonstrate support for Bianca’s appointment. But it is also significant that no submission was made on Hope’s behalf that she did not trust Bianca, and that, as will be seen, none of the reasons advanced for her “general” support of the defendants’ proposal involved anything adverse to Bianca.

5. [324]

   Hope has given no evidence to enable her reasons for the preference expressed on her behalf for the defendants’ proposal to be explored and tested. Insofar as her reasoning is reflected in Mr Deutsch’s submissions, three reasons may be identified. First, that an independent trustee, as opposed to a family member, affords the best prospect of avoiding further disputation. I doubt this; in my view, further disputation is likely regardless of who is appointed trustee, but even if Bianca may be more inclined than an independent trustee to promote it, the risk can be mitigated by requiring that she obtain judicial advice before commencing litigation. Secondly, being conscious that highly competent lawyers for Mrs Rinehart, HPPL and HDIO were comfortable that the defendants’ proposal incurred no significant risk of triggering Hamersley’s pre-emptive rights under the HDJVA, given the calibre of their lawyers she was not going to second-guess their position. That reasoning is somewhat undermined by my conclusion that, contrary to the position adopted by Mrs Rinehart, HPPL and HDIO, and their lawyers, their proposal will trigger the pre-emptive rights. Thirdly, insofar as a professional trustee would incur cost, that has to be balanced against the cost – non-financial as well as financial – of ongoing dispute. Again, that is undermined by my conclusion that there is likely to be ongoing disputation in any event. Moreover, having received $45 million from her mother under the confidential deeds of March 2013, Hope may be rather better able to tolerate a reduction in trust distributions than the plaintiffs, as Mr Deutsch accepted.

6. [325]

   Mr Deutsch submitted that I should regard Hope’s expression of her wishes, through him, as freely made and unconstrained by the terms of the confidential deeds. Clause 9.2(c) of those deeds precludes her from acting against the interests of HPPL, and HPPL has indicated to Hope that it considers the appointment of Bianca would be against its interests. Thus Hope is precluded by the deeds from supporting Bianca’s nomination as trustee - but she is neither obliged to nor precluded from supporting the defendants’ proposal. Thus it is true that, conformably with the deeds, Hope could have remained entirely neutral. I am satisfied that she was not bound or constrained to support the defendants’ proposal, and that her decision to do so was her own, made with the benefit of competent and careful advice given by her solicitor in December 2013 (which was in evidence); but I am also satisfied (from the contents of that advice, and the absence of any evidence to the contrary) that amongst the factors that influenced her against adopting a position of complete neutrality was the knowledge that to do so would incur the displeasure (if not wrath) of the other defendants.

7. [326]

   But the most important considerations in respect of Hope’s expressed wishes are that, notwithstanding that she prefers the defendant’s proposal over the appointment of Bianca, she maintained the position of a submitting defendant; she did not object to the appointment of Bianca, nor suggest that the appointment of Bianca would be “obnoxious” to her; moreover, the weight to be afforded to her wishes is diminished by the flaws, discussed above, in the reasons on which it is said to be based.

8. [327]

   It was said by Ginia’s counsel that her priority was to avoid the appointment of Bianca, even if the appointment of an independent managing trustee involved an element of risk of triggering Hamersley’s pre-emptive rights. Ginia’s apparent reasons for supporting the defendants’ proposal and objecting to the appointment of Bianca have been addressed above, particularly in the context of the objections to Bianca. It follows from my conclusions on those matters that, to a large extent, her reasons are objectively unsound. As to her subjective position, she gave no evidence of her wishes, and while her objections included the allegation that Bianca was biased or held animus against her and was untrustworthy, she gave no evidence to the effect that she would find it intolerable or obnoxious if Bianca were to be appointed, or that she believed that Bianca could not be trusted.

9. [328]

   Mr McHugh submitted that Ginia was not bound by any agreement to act in accordance with her mother’s wishes, and I accept that the evidence reveals no legal constraint on Ginia in that respect. Nonetheless, it cannot be overlooked that Ginia is financially dependent on her mother, and is, at least at present, her anointed successor; in those ways she is beholden to Mrs Rinehart, and is unlikely to take any step that would jeopardise the favour in which she is presently held.

10. [329]

    Accordingly, two of the four beneficiaries – the plaintiffs – clearly support the appointment of Bianca. One – Hope – prefers the defendants’ proposal, for reasons that are of dubious validity, but does not object to the appointment of Bianca. The fourth – Ginia – propounds the defendants’ proposal and objects to Bianca, but has not given evidence that she would find Bianca intolerable or obnoxious. No statement adverse to Bianca has been made on behalf of Hope, and Ginia has not been prepared to depose to any inability to trust or rely on Bianca. In conspicuous distinction from Bianca, neither of the beneficiaries who support the defendants’ proposal has been prepared to enter into the witness box to explain or justify her position and enable their reasons to be tested. On balance, the weight of the wishes of the beneficiaries favours the appointment of Bianca.

Advisory trustee

1. [330]

   (WA) Trustees Act, s 14, provides for a trust to be administered with an advisory trustee appointed by order of a court. By s 14(3), where a trustee acts with an advisory trustee, the trust property is vested in the trustee, called the “responsible trustee”, “who shall have the sole management and administration of the estate and its trusts as fully and effectually as if he were the sole trustee”. The responsible trustee may consult with the advisory trustee on any matter relating to the trusts or the estate, and the responsible trustee may follow and act on that advice without being liable for anything done or omitted by the trustee by reason of the trustee following that advice or direction. If the responsible trustee is of the opinion that the advice or direction of the advisory trustee conflicts with the trusts or any rule of law, or exposes him or her to any liability, or is otherwise objectionable, the trustee may apply to the court for directions (s 14(d)).

2. [331]

   Accordingly, the chief significance of the appointment of an advisory trustee is to confer protection on the responsible trustee if he or she acts in accordance with the advice of the advisory trustee.

3. [332]

   The plaintiffs proposed that Mr McGrath of McGrath Nicol be appointed advisory trustee. Mr McGrath is prepared to serve on whatever terms and conditions the Court considers appropriate to ensure the due administration of the Trust and the protection of each of the beneficiaries’ interest in the Trust. He proposes to charge $750 per hour plus GST.

4. [333]

   Mr McGrath was not cross-examined. His independence was not questioned, but his suitability was. He is an insolvency practitioner, with extensive experience in the external management of companies. While he has served as a trustee, that was in the context of an insolvency administration.

5. [334]

   Mr McHugh submitted that Mr McGrath should not be appointed as advisory trustee, because it was not apparent how his experience as an insolvency practitioner would usefully inform administration of this trust, and it was undesirable to cloak the trustee with the protection of s 14 for acting upon his advice. (As an alternative, the plaintiffs had proposed Mr Finkelstein QC, who indicated a willingness to be appointed subject to first meeting with the beneficiaries. His experience and qualifications would have better suited him for the role than Mr McGrath, but Ginia having declined to meet with him, there was no unconditional consent).

6. [335]

   It is no reflection on Mr McGrath or Mr Finkelstein QC that I have concluded that, if Bianca is to be the trustee, the s 14 machinery of an advisory trustee should not be engaged. Ginia (and perhaps Hope) will be more comforted if Bianca is required to obtain judicial advice, rather than the advice of an advisory trustee, in order for her decisions to be protected.

Conclusion

1. [336]

   While Bianca’s appointment is not ideal, in particular because she is a beneficiary, with consequent potential for a conflict of interest and duty, and that she does not have the knowledge and experience of a professional trustee, it is far less unsatisfactory than the alternatives [cf Ashrafinia v Ashrafinia (No 4) [2014] NSWSC 676 (Slattery J)]. Her appointment also accords with where the predominant weight of the wishes of the beneficiaries lies. For those reasons, Bianca is better-suited than any of AEDTL, ETL or NATL to administer this Trust in the prevailing circumstances. I would have reached this conclusion, even if I had not concluded that the defendants’ proposal would trigger Hamersley’s pre-emptive rights. However, if Bianca is to be the trustee, the s 14 machinery of an advisory trustee should not be engaged. Ginia (and perhaps Hope) will be more comforted if Bianca is required to obtain judicial advice, rather than the advice of an advisory trustee, in order for her decisions to be protected.

2. [337]

   I turn now to the plaintiffs’ claims for ancillary relief by way of orders for the taking of an account of the Trust, and for the production of trust documents.

Accounts

1. [338]

   The plaintiffs seek orders for the taking of an account of the Trust, in common form. A plaintiff who seeks the remedy of an account must prove that the defendant is an accounting party, and that the plaintiff is entitled to some (uncertain) sum from the defendant [Juul v Northey [2010] NSWCA 211, [185]; Mulherin v Quinn Villages Pty Ltd [2007] QSC 231; Re Sharpe (unreported, FCA, Drummond J, 11 December 1992), [5]; Meagher, Gummow & Lehane, Equity Doctrines and Remedies 4th ed (2002) LexisNexis (at [25-025]), citing Doss v Doss (1843) 3 Moo Ind App 175, 196-7; 18 ER 464, 472 (Dr Lushington)].

2. [339]

   In the relation of trustee and beneficiary, the trustee is an accounting party. It is a fundamental obligation of a trustee to keep and render to the beneficiaries a full and candid record of their stewardship, including all appropriate financial accounts [Burrows v Walls (1855) 5 De G M & G 233; 43 ER 859, 866 (Cranworth LC); Low v Bouverie [1891] 3 Ch 82, 99 (Lindley LJ); Armitage v Nourse [1998] Ch 241, 261 (Millett LJ); Waterhouse v Waterhouse (1998) 46 NSWLR 449, 494 (Windeyer J)]. That duty to account encompasses a duty to keep records, a duty to report to the beneficiaries and/or the court, and a duty to pay amounts the trustee is obliged to pay to the beneficiaries [Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26, [42]].

3. [340]

   Except where an account on the wilful default basis is sought – and it is not sought here – a beneficiary’s entitlement to an account does not depend on alleging or establishing any default or breach of trust. As Powell J (as he then was) put it in Spellson v George (1987) 11 NSWLR 300 (at 315-316):

4. [341]

   The only defences to a claim for accounts in common form, where liability to account is established, are (1) release, (2) that the defendant has already rendered proper accounts and the amount due has been paid, or (3) settled accounts [Dawson v Dawson (1737) 1 Atk 1; 26 ER 1; Young, Croft and Smith, On Equity, [16.1340]].

5. [342]

   Mrs Rinehart does not – and could not in the context of the relationship of trustee and beneficiary - dispute that she is liable to account to the beneficiaries. However, she resists the order for an account on three bases: first, she says that she is not obliged to render accounts for the periods prior to 30 August 2006, with effect from which dates the beneficiaries are said to have released their claims for an account; secondly, she says that she has rendered proper accounts for the period since then; and thirdly, she invokes the limitation period in (WA) Limitations Act 2005, s 26.

Period prior to 30 August 2006 - release - the Hope Downs Deed

1. [343]

   Mrs Rinehart has admittedly not rendered accounts to the beneficiaries for the period prior to 30 August 2006 – the date of the Hope Downs Deed - but contends that that deed had the effect of releasing any claim for accounts prior to that date. As will be recalled, by clause 6 of the Hope Downs Deed, each party thereto (a) released and discharged each other party “now and in the future from any Claims”, (b) covenanted not to take any proceedings against any other party in relation to any matter arising in any jurisdiction in respect of the Claims, and (c) withdrew and forever abandoned any and all allegations made against any other party in respect of or arising (in whole or in part) directly or indirectly out of the Proceedings and any of the other Claims and the subject matter of the Proceedings.

2. [344]

   The first question is whether, as was submitted for Mrs Rinehart, a claim for an account was within the “Claims” referred to in – and thus released by - the Hope Downs Deed. In clause 1.1 of the Hope Downs Deed, “Claim” is defined to mean (emphasis added):

3. [345]

   “Proceedings” is defined as follows:

4. [346]

   In the course of these proceedings, it has repeatedly been held that clause 6(a) of the Hope Downs Deed released only claims that were "in existence or discontinued" - that is, claims that had been made or abandoned – as at its effective date [Welker v Rinehart (No 10) [2012] NSWSC 1330, [16] (Brereton J); Rinehart v Welker [2012] NSWCA 95, [137] (Bathurst CJ; McColl and Young JJA agreeing)]; Hancock v Rinehart [2013] NSWSC 1352, [115]-[130] (Bergin CJ in Eq); leave to appeal refused Rinehart v Hancock [2013] NSWCA 326, [4]-[10] (Macfarlan and Meagher JJA)]. Thus it must be ascertained whether a claim for accounts had been made as at the date of the Hope Downs Deed. The plaintiffs submitted that the remedy of account had not been sought prior to the Hope Downs Deed, and thus that no claim for that remedy had been released.

5. [347]

   While I respectfully agree with Bergin CJ in Eq (at [122]) that the Deed was intended to release only “consummate claims and not inchoate claims” and not to release “circumstances or conduct that may ground a claim but that had not yet been formulated into a claim”, it is clear from par (d) of the definition of “Claim” that for those purposes a claim will have been sufficiently made if it was articulated in John’s draft affidavit prepared for the WA Proceedings. John’s draft affidavit included the following (emphasis added):

6. [348]

   While the plaintiffs submitted that a request for “full disclosure” of the accounts and documents of the trust is not a claim for the remedy of account, in my view the above paragraph includes a claim for orders for the full disclosure and delivery up of, inter alia, the accounts of the Trust. That is indistinguishable from a claim for the remedy of account, which requires the trustee to perform its duty by producing and vouching its accounts. This conclusion is fortified by the context: it is plain that the intent was to effect a release of all claims to scrutinise Mrs Rinehart’s management of the trust up to the date of the Deed.

7. [349]

   The plaintiffs submitted that their cause of action arose, at least in part, from events subsequent to the Hope Downs Deed, namely Mrs Rinehart’s conduct in September 2011 and her failure to pay distributions to the Plaintiffs in 2012 and 2013. However, a claim for accounts in common form merely enforces the trustee’s obligation to account that arises out of the relation of trustee and beneficiary, and does not depend on alleging or establishing any breach or default. And even if events that have occurred since the Hope Downs Deed were relevant to ordering an account, they do not impinge on the effect of the release contained in that Deed.

8. [350]

   The plaintiffs also submitted that if the Hope Downs Deed had the effect of precluding the beneficiaries from requiring an account, it would to that extent be void as against public policy for ousting the beneficiaries' right to due administration of the trust, liability to account being an essential ingredient of a trustee’s irreducible core obligations. I accept that the obligation to account cannot be excluded; but once that obligation has become the subject of a dispute, it is not contrary to public policy to settle the dispute on the basis that no accounts or further accounts need be provided for a past period. By the Hope Downs Deed, the plaintiffs for valuable consideration settled claims – including claims in respect of non-compliance with the obligation to account - up to the date of the Deed, by releasing those claims. It is not contrary to public policy to recognise and give effect to that settlement.

9. [351]

   Accordingly, claims for accounts up to 30 August 2006 were released by the Hope Downs Deed.

Period since 30 August 2006 - accounts rendered

1. [352]

   Mrs Rinehart contends that she has rendered proper accounts for the period since the Hope Downs Deed.

2. [353]

   Mrs Rinehart relies on provision to the beneficiaries of audited annual financial statements of the Trust for the years ending 30 June 2007 through to 30 June 2012 as discharge of her obligation to account. However, this misconceives the nature of a trustee’s obligation to account. The provision of annual financial statements, albeit audited, does not equate to the provision of the accounts to which beneficiaries are entitled. A trustee’s accounts must show, individually, each receipt and payment, supported by vouchers (although oral evidence of disbursements may be allowed in the absence of vouchers) [White v Lady Lincoln (1803) 8 Ves 363; 32 ER 395; Christensen v Christensen [1954] QWN 37; Ford v Princehorn; Estate of Ford [2012] NSWSC 1165, [31] (White J); R Geddes, C Rowland & P Studdert, Wills, Probate and Administration Law in New South Wales (LBC 1996), [85.02]; Ford & Lee, [9.4010]]. Annual financial statements are a summary of receipts and payments and do not disclose each individual receipt and payment. Neither a statement showing each receipt and payment, nor the underlying primary records, have been produced. Mrs Rinehart has not rendered accounts such as would entitle her to resist an order for accounts.

3. [354]

   That provides sufficient basis for concluding that there should be an order for accounts after the date of the Hope Downs Deed.

Limitations Act

1. [355]

   Although I have held that the claim for an account before the date of the Hope Downs Deed has been released, there is a further basis for holding that the plaintiffs are not entitled to an account in respect of the period before 5 September 2005, being six years prior to the commencement of these proceedings. (WA) Limitations Act 2005, s 26, provides that an action for an account cannot be commenced if the limitation period for the cause of action that is the basis of the duty to account has expired. The cause of action that is the basis of the duty to account is founded on the mere relationship of trustee and beneficiary. All the ingredients of the cause of action existed from the moment of the creation of the trust – since although the trust was not vested, the discretionary beneficiaries had a right of due administration. The consequence is that at any time the beneficiaries have a cause of action for accounts, but only in respect of the preceding six years [How v Earl of Winterton [1896] 2 Ch 626; Re Flavelle [1969] 1 NSWR 361, 365 (Helsham J)].

2. [356]

   However, assuming that the limitation defence is available although it has not been pleaded, no limitation period would bar a claim for an account in respect of the period from 5 September 2005.

Production of Trust Documents

1. [357]

   The plaintiffs seek an order that Mrs Rinehart produce, for the years 1988 to date, the books and records of the Trust, including the accounts of the Trust, all resolutions executed by the Trustee authorising the transfer of property, and all documents referred to in paragraph 58 of the third further amended statement of claim (which lists some 16 categories of trust documents).

2. [358]

   A trustee is obliged to allow the beneficiaries to inspect the trust accounts and documents [Re Simersall (1992) 35 FCR 584, 589 (Gummow J); Spellson v George (1987) 11 NSWLR 300, 315-6 (Powell J)]. Upon retirement, a trustee must deliver the accounts and documents of the trust to the new or continuing trustee [Tiger v Barclays Bank [1951] 2 KB 556].

3. [359]

   The category of “trust documents” in respect of which this obligation applies has not been comprehensively defined [Re Londonderry’s Settlement [1965] Ch 918, 938 (Salmon LJ)]. But they include at least documents containing or evidencing the terms of the trust, documents relating to the trust property, and the accounts of the trust.

4. [360]

   There are some exceptions. Documents relating to the trustees’ defence of proceedings brought against them by the beneficiaries will, at least ordinarily, be documents of the trustees personally, not trust documents. And at least in the absence of an action impugning their good faith, trustees may be permitted to withhold documents which evidence their confidential communications and considerations, as they are not obliged to disclose their reasons [Re Londonderry’s Settlement [1965] Ch 918, 933 (Harman LJ)]. But it seems to me that these beneficiaries being of full age and capacity and the trust having vested, they – and the new trustee – are entitled to inspect all trust documents, including those that record the decisions of the trustee.

5. [361]

   Mrs Rinehart has provided some trust documents to the plaintiffs, but only annual financial statements (not the underlying primary records), and only in respect of the period following August 2006, on the footing that any claim to inspect documents before that date has been released by the Hope Downs Deed.

6. [362]

   As already explained, the accounts that a trustee must keep – and which the beneficiaries are entitled to inspect - are not limited to annual financial statements, but include the vouchers and receipts for each payment and receipt. The beneficiaries are undoubtedly entitled to inspect all accounting documents of the Trust, including the primary vouchers and receipts.

7. [363]

   In Welker v Rinehart (No 10) [2012] NSWSC 1330, I held (at [16]-[18]) that a claim for production of trust documents had not been made at the time of, and was thus not released by, the Hope Downs Deed:

8. [364]

   That judgment was upheld in the Court of Appeal [Rinehart v Welker [2012] NSWCA 95]. However, neither my judgment, nor that of the Court of Appeal, adverted to the reference in John’s draft affidavit to a claim for “further orders for the full disclosure and delivery up of the accounts and documents of the Trust”. As it now appears, at the time of entering into the Hope Downs Deed, John had not only complained about the lack of provision of trust documents as one of the reasons that Mrs Rinehart should have been removed from her position as trustee of the Trust, but he had, in his draft affidavit, stated a claim for orders for production of those documents. Given the reference in the definition of “claim” to that draft affidavit, it seems to me indisputable that a claim for delivery up of the trust documents had been made, and that such claim was released by the Hope Downs Deed.

9. [365]

   But while to that extent the statement in the No 10 judgment requires modification, the Hope Downs Deed released only claims that had been made (or discontinued) – and not claims that had not yet been made. The trustee’s ongoing obligation to allow inspection of trust documents in the future was not released. It is inherent in the concept of trust documents that they are trust property [O’Rourke v Darbishire [1920] AC 581; Re Londonderry’s Settlement [1965] Ch 918; Schmidt v Rosewood Trust Pty Ltd [2003] UKPC 26; 2 AC 709, 734-5; 3 All ER 76; McDonald v Ellis [2007] NSWSC 1068, [46] (Bryson J)]. The fact that a previous dispute about production has been settled on terms that no further documents need be produced does not preclude a later request to inspect all trust documents, and what date they happen to bear is beside the point; if they are trust documents, and in the trustee’s control, the beneficiary is entitled to inspect them. Even though a claim for production of documents was made in the WA Proceeding, which has been released, the present claim for production is not the same claim, but a new claim founded on the ongoing obligation of the trustee to allow inspection of trust documents, which has not been released. While the Hope Downs Deed released Mrs Rinehart from the then existing claim for production of trust documents (and any related allegation of breach of duty), it did not release her from the ongoing obligation, so long as she remained trustee, to permit the beneficiaries to inspect all trust documents, and (should she cease to be trustee) to deliver all trust documents to her successor – regardless of their date.

10. [366]

    Accordingly, the plaintiffs are entitled to inspect, and the new trustee is entitled to delivery up of, all trust documents, of whatsoever date. I will make an order in the terms sought by the plaintiffs, but reserve liberty to Mrs Rinehart to apply to be relieved from producing any particular document on the ground that it is one to which the plaintiffs and the new trustee ought not be entitled.

Costs

1. [367]

   On 9 October 2013, I made an order by consent that Mrs Rinehart pay the plaintiffs’ costs of their application to remove her as trustee of the Trust on an indemnity basis, and not be entitled to indemnity from the Trust in respect of those costs or her costs of the proceedings in relation to that issue.

2. [368]

   There remain for consideration the costs of the remainder of the proceedings, being the issues addressed in this judgment. The parties should be afforded an opportunity to address that question in the light of this judgment.

3. [369]

   My conclusions may be summarised as follows.

4. [370]

   The fraud on a power case advanced by the plaintiffs in respect of the 2006 Amendments to the HPPL constitution is not outside their pleaded case, and they are not precluded from maintaining it. However, it has not been established that, in consenting on behalf of the Trust to the 2006 Amendments, Mrs Rinehart acted in breach of trust or for an improper or extraneous purpose. Accordingly, the Trust is bound by the 2006 Amendments in respect of its shareholding in HPPL.

5. [371]

   Under clause 13.3(a)(i) of the HDJVA, the control criterion (as well as the ownership criterion) applies not only in respect of HDIO but also in respect of every intermediate owning entity. The word “controlled” appears in the clause twice – first in connection with HDIO, and secondly in connection with an intermediate owning “entity”. The effect of the second limb is that where an intermediate owner is not itself a family group member, then it (as well as HDIO) must be both wholly owned and controlled by family group members, so that while the ultimate ownership and control of HDIO by family group members can be indirect, via intermediate entities, any entity in the chain of ownership and control must itself be wholly owned and controlled by family group members. Clause 13.3(a)(i) is triggered not only if HDIO ceases to be wholly ultimately owned by family group members, but also if HDIO, or any intermediate owning entity, ceases to be controlled by family group members.

6. [372]

   Under the defendants’ proposal, the managing trustee, which would be an entity that is neither owned nor controlled by Hancock family group members, would have – subject only to a direction of the Court – the ability to decide how the Trust will act, and to direct the custodian trustee. Neither the beneficiaries, nor JBHG, would have the power to dominate or otherwise control how the Trust acts. Section 89 does not authorise the Court to make an order conferring on the present trustee power to amend the trust deed, and without the proposed amendment, the beneficiaries would not be empowered to remove and replace the managing trustee. In those circumstances, the Trust would not be controlled by family group members. Thus, upon replacement of Mrs Rinehart by an independent managing trustee, the Trust would cease to be controlled by family group members, and HDIO, though it would remain controlled by Mrs Rinehart, would be owned by Mrs Rinehart (a family group member) and the Trust - or alternatively, JBHG - neither of which is a family group member, but an entity which, though wholly owned by family group members, would not be controlled by family group members. Hamersley’s pre-emptive rights would therefore be triggered. While that is not in the interest of the Trust, it is not fatal to the defendants’ proposal, but a matter of degree.

7. [373]

   For the purpose of answering the question, who is best suited to administer the trust in the circumstances currently prevailing, the relevant circumstances are that the Trust has vested; the remaining functions of the trustee are limited; and the Trust’s principal asset comprises shares in HPPL - a company controlled by the outgoing trustee Mrs Rinehart, who has resigned in the face of proceedings to remove her for misconduct without having provided any account or explanation for the matters complained of against her, but has gone to extraordinary lengths to retain control, directly or indirectly, of the Trust, and to secure the appointment of a trustee acceptable to her, and demonstrated that she is capable of exerting enormous pressure, and great influence, to do so. There is a very reasonable inference that she would likely attempt to overbear any trustee, including a professional trustee, who acted against her interests. A replacement trustee will therefore need to be sufficiently robust to assert the Trust’s rights as a shareholder in HPPL, and to resist attempts by Mrs Rinehart to exert influence.

8. [374]

   The defendants’ proposal has the advantages that the managing trustee will be independent of the beneficiaries; and that each of the proposed managing trustees is a licensed trustee company, bringing the benefits of a perpetual corporate trustee, which may be expected to bring experience and professionalism to their role. However, in the context of this trust, the remaining functions to be performed by the trustee are not complex, and while of some it is not of great import that Bianca’s knowledge and experience may be inferior to those of the professional trustees. The statutory protections applicable in respect of licensed trustee companies in substance add very little of relevance to the general law obligations of a trustee which would bind Bianca in any event if she were appointed.

9. [375]

   Moreover, there are serious objections to the defendants’ proposal and to each of the trustee companies nominated. First, it will trigger Hamersley’s pre-emptive rights under the HDJVA. Secondly, by not providing for a proper separation between the managing trustee and the custodian, it subverts the purpose of the s 15 apparatus. Thirdly, AETL is prohibitively expensive, and ETL and NATL while not so expensive will nonetheless incur remuneration which will reduce the amount available for distributions. Fourthly, ETL and NATL do not provide adequate assurance of independence from and ability to resist the influence of Mrs Rinehart, and there is potential for Mrs Rinehart to acquire influence in AETL through its publicly listed parent company. Fifthly, the consents of ETL and NATL are not unconditional.

10. [376]

    On the other hand, the objections that Bianca lacks the requisite judgment, and understanding, and cannot be trusted, to perform the remaining functions of this trustee honestly, diligently and fairly; that she is biased against Ginia; and that she is not committed to the role of trustee, are not sustained. While it is conceivable that she may spend substantial time out of Australia in the future, that is of very slight significance. The appointment of Bianca would incur no risk of triggering Hamersley’s pre-emptive rights under the HDJVA. She would act voluntarily, without remuneration, thus not detracting from income available for distribution to the beneficiaries. She has demonstrated the ability robustly to assert the rights of the Trust against the former trustee and against HPPL. Her consent is unconditional, but she is prepared to accept any conditions the court might impose. While her status as a beneficiary presents some risk of a conflict of interest and duty, in the context of this trust and the remaining functions of the trustee, the risks are remote, and can sufficiently be mitigated by imposing a condition that judicial advice or consent be obtained before significant decisions are made (such as giving a transfer notice, or commencing litigation).

11. [377]

    Two of the four beneficiaries clearly support the appointment of Bianca. Hope prefers the defendants’ proposal (for reasons that are of dubious validity) but does not object to the appointment of Bianca. Ginia propounds the defendants’ proposal and objects to Bianca, but has not given evidence that she would find Bianca intolerable or obnoxious. No statement adverse to Bianca has been made on behalf of Hope, and Ginia has not been prepared to depose to any inability to trust or rely on Bianca. Neither of the beneficiaries who support the defendants’ proposal has been prepared to enter into the witness box to explain or justify her position and enable their reasons to be tested. The balance of the weight of the beneficiaries’ wishes favours the appointment of Bianca.

12. [378]

    For those reasons, Bianca is better-suited than any of AETL, ETL or NATL to administer this Trust in the prevailing circumstances. I would have reached that conclusion even had I not concluded that the defendants’ proposal would trigger Hamersley’s pre-emptive rights under the HDJVA.

13. [379]

    However, the s 14 machinery of an advisory trustee should not be engaged. Ginia (and perhaps Hope) will be more comforted if Bianca is required to obtain consent or judicial advice, rather than the advice of an advisory trustee, in order for her decisions to be protected.

14. [380]

    Although claims for accounts up to 30 August 2006 were released by the Hope Downs Deed, for the period since then provision to the beneficiaries of audited annual financial statements which do not disclose each individual receipt and payment does not discharge the trustee’s obligation to account. The plaintiffs are entitled to an account in common form from the date of the Hope Downs Deed.

15. [381]

    The plaintiffs are entitled to inspect, and the new trustee is entitled to delivery up, of all trust documents, of whatsoever date.

16. [382]

    An order has previously been made, by consent, that Mrs Rinehart pay the plaintiffs’ costs of their application to remove her as trustee on an indemnity basis, and not be entitled to indemnity from the Trust in respect of those costs or her costs of the proceedings in relation to that issue. The parties should be afforded an opportunity to address the costs of the remainder of the proceedings in the light of this judgment.

Orders

1. [383]

   The Court orders that:

   1. (1)

      Pursuant to (WA) Trustees Act 1962, s 77(2)(a), the second plaintiff Bianca Hope Rinehart be appointed trustee of the Hope Margaret Hancock Trust (“the Trust”) in place of the first defendant Georgina Hope Rinehart who wishes to be discharged, upon her undertaking to the Court that she will:

   2. (2)

      Pursuant to (WA) Trustees Act, s 78, the assets and property of the Trust vest in the said Bianca Hope Rinehart as such trustee.

   3. (3)

      The first defendant deliver up to the second plaintiff within 28 days all documents of the Trust in her possession custody or power, including all those referred to in paragraph 3 of the claims for relief in the third further amended statement of claim.

   4. (4)

      The first defendant have liberty to apply to be relieved from order 3 in respect of any particular document or class of documents.

   5. (5)

      An account be taken of the property of the Trust for the period 1 September 2006 to date, including of all transactions entered into by the first defendant in her capacity as trustee of the Trust.

   6. (6)

      For the purposes of such account:

   7. (7)

      Claim 8BD in the third further amended statement of claim be dismissed.

   8. (8)

      The proceedings be adjourned to a date to be fixed for the question of costs.