Bianca Hope Rinehart trading as trustee of the Hope Margaret Hancock Trust v n/a

This is an application by Bianca Rinehart, the trustee of the Hope Margaret Hancock Trust (“the Trust”), for judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) (“the Act”) and, alternatively, s 92 of the Trustees Act 1962 (WA) (“the WA Act”). Mr C. Withers and Mr P.R Gaffney of counsel appear for Bianca on this application.

The two matters upon which the trustee seeks advice is whether she would be justified in defending proceedings brought against her (as trustee) in the Federal Court by Hancock Prospecting Pty Ltd (“HPPL”) and in bringing proceedings against her mother, Mrs Gina Rinehart “Gina”. HPPL is a company owned and controlled by Bianca’s mother, and two directors of HPPL, Mr Tadeusz Watroba (“Mr Watroba”), and Mr Jay Newby (“Mr Newby”).

The broad background to the disputes which give rise to the proposed proceedings and the existing Federal Court proceedings is complex but can be gleaned from [1] to [34] of the decision of Brereton J in Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207 (“the Trustee judgment”), in which his Honour gave reasons for his decision to appoint Ms Bianca Rinehart (“Bianca”) as trustee of the Trust to replace Gina who had shortly before the hearing resigned as trustee of the Trust.

The beneficiaries of the Trust are Bianca, John Hancock (“John”), Hope Rinehart (“Hope”), and Ginia Rinehart (“Ginia”).

Bianca has concluded that as trustee she should commence proceedings against Gina, HPPL, Watroba and Newby and she has obtained legal advice as to her prospects of success in those proceedings and the nature of relief which she should seek.

The essence of the claim that she wishes to bring on behalf of the Trust is as follows:

The proposed claims can therefore be categorised as:

There is an interrelationship between [7(b)], [7(c)] and [7(d)] because Bianca claims that the payment of monies by HPPL for extraneous expenditure is evidence supporting the proposition that HPPL could well have afforded to make larger dividend payments than were in fact made.

There are currently on foot, or dormant, a number of other related proceedings, namely:

In the first Federal Court proceedings HPPL contended that the disputes, the subject of those proceedings, should all be referred to arbitration in accordance with an arbitration clause in the Hope Downs Deed. Bianca and John resisted that application, in part because they contended that the Deed was not caught by the Commercial Arbitration Act 2010 (NSW), but also because they contended that the Deed should be set aside on various grounds, including unconscionable conduct on the part of Gina. Her Honour Gleeson J decided that the Hope Downs Deed was governed by the Commercial Arbitration Act but also held that the case fell within the proviso of s 8 of the Commercial Arbitration Act requiring or permitting the Court to determine whether the Hope Downs Deed was binding on Bianca and John: see Rinehart v Rinehart (No 3) [2016] FCA 539. The ‘proviso hearing’, as it has been described, did not proceed however because HPPL has appealed the decision of Gleeson J. Bianca and John filed a Cross Appeal asserting that the Trial Judge had erred in treating the Hope Downs Deed as falling within the Commercial Arbitration Act. That appeal, I was informed, was heard a few weeks ago and judgment was reserved.

In support of the application for judicial advice I have received extensive documentation, including a confidential and privileged memorandum of advice of Mr Bret Walker SC and Mr Gaffney of counsel, which is accompanied by a detailed schedule of evidence relating to each paragraph of the proposed Statement of Claim. Bianca relies on this memorandum in forming the view that it is in the best interests of the Trust that she bring the proposed proceedings and defend the CSS proceedings: see Bianca’s affidavit of 9 March 2017.

Section 63(1) of the Act provides:

The approach to be taken to applications for judicial advice was laid down by the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (“Macedonian”) see [67] – [74] but particularly [70] – [74], which I set out:

A trustee is not required to seek advice by s 63 of the Act but can do so if there is any concern that the beneficiaries of the trust (or some of them) might claim that the commencement and maintenance of proceedings by the trustee, or the defence of proceedings against the trustee by a third party, would constitute a breach of trust. I do not regard s 92 (1) of the WA Act as involving any different test, and I shall proceed to consider the matter as an application under s 63 of the Act.

Relevant to the present application is the fact that the Court, in appointing Bianca as trustee, required, and obtained, an undertaking (see [383] of the Trustee judgment) that she would:

The two matters on which Bianca seeks advice are matters relevant to the administration of the Trust and involve a matter germane to the interests of the Trust, which would be sufficient in my view, but the undertaking required of her by the Court puts it beyond doubt that Bianca is entitled to seek, and should be given, judicial advice on the matters upon which she seeks advice.

Bianca has sought the views of the beneficiaries. John supports the proposed action and defence of the CSS proceedings in the Federal Court. Neither Hope nor Ginia have indicated support or opposition to the course proposed. Bianca has made it clear that she has not provided Hope and Ginia with all the material relevant to her decision to embark on the litigation. Her reasons for not doing so are closely related to the inherent dynamics of the situation in which the Rinehart family finds itself. Bianca fears that any material which is provided to Ginia and Hope is likely to be passed on to Gina. Since Gina is the prospective defendant in the litigation she could thereby be informed as to contents of the memorandum of advice, a highly undesirable outcome from Bianca’s point of view and, it can be said, the Trust’s point of view.

Bianca did indicate that she would be willing to provide all relevant information to the other beneficiaries if John, Ginia and Hope provided undertakings to the Court that they would not disclose any of the material received to anyone else, but neither Hope nor Ginia indicated a willingness to provide such an undertaking and, in fact, as at the time of the hearing on 2 March 2017 they simply had not responded to the notification sent.

On 2 March 2017, I informed counsel that I required an affidavit from Bianca setting out the steps she had taken to ascertain the other beneficiaries views and attesting to her wish to commence proceedings and defend the CSS proceedings and the basis for that decision. The affidavit was to be provided by Monday 6 March. I also indicated that I would reserve my decision on the application until after I had received that affidavit and considered the matter further.

On Tuesday 7 March, the solicitors for Bianca requested that I relist the matter that day so that counsel could inform me of a further development. Mr Withers and Mr Gaffney appeared at 3:45pm and Mr Withers tendered Exhibit F, which contained, inter alia, a draft affidavit from Bianca, and an email from Ginia to Bianca and Bianca’s response to Ginia.

In her email Ginia asserted that she was not aware of what was involved in the application and she also asked for information as to what occurred in Court on 2 March 2017, as well as indicating that she had been told something of what had occurred in Court on 1 March 2017. Bianca’s email in response draws attention to the emails she had previously sent to Ginia (and the other beneficiaries) dated 17 November 2017, 13 December 2016, 15 December 2016, 7 February 2017 and 3 March 2017 and also points out that she is surprised to hear from Ginia that “someone has informed you of what they say the Court was told about your position when most of the hearing was conducted in a closed Court and orders have been made restricting the publication of the transcript of the hearing…”

Mr Withers took me to the transcript for 2 March 2017 and drew my attention to what had been said before the Court was closed, and after the Court was closed, concerning the position of the other beneficiaries. Having regard to what Mr Withers said in open Court, at T4.30: “none of the beneficiaries object to the jurisdiction of This Court”, it is entirely possible that that statement has been communicated to whoever passed on information to Ginia (whether directly or indirectly, accurately or inaccurately). Given that Brereton J required Bianca to seek judicial advice before commencing proceedings it is hardly surprising that the jurisdiction of the Court to give advice would not be an issue, whatever a person’s attitude to the subject matter of the advice sought. I will return to the question of jurisdiction later in these reasons.

In my view Bianca has taken the steps required of her to ascertain the views of the beneficiaries. I proceed upon the basis that the beneficiaries have been adequately advised of the application and have had the opportunity to obtain further information, subject to them providing an undertaking, which undertaking has not been given. I also proceed upon the basis that two of the beneficiaries support the proceedings and that the other two beneficiaries neither support, nor oppose, the commencement of the proceedings.

The amounts involved in the claim are of very significant proportions. If Bianca is correct in her contentions only to the extent of the amount provisioned by HPPL for dividends (and not paid), this would involve an amount of approximately $500 million not paid to shareholders, of which the trustee would receive approximately $120 million. If the wider contentions are made good, the Trust will stand to obtain much larger amounts. The solicitors for Bianca estimate that the costs of the case could be approximately $2 million. Given the history of the litigation to date, and the observations and findings of Brereton J in the Trustee judgment, it is appropriate to assume that the proceedings will be vigorously defended.

The submissions of counsel raise a number of preliminary matters to which attention should be given on this application:

I have dealt with [25(1)] and [25(2)].

I am satisfied that this is the appropriate Court from which to seek advice because:

I think it also follows that since the proceedings to have Gina removed were commenced in this Court, and Bianca was appointed by this Court, this Court is also a forum in which the proposed proceedings could be launched, although I shall return to that topic later in these reasons.

In relation to [25(4)(a)] Bianca needs to establish that the claim which she wishes to bring has reasonable prospects of success and is not fruitless: Glassock v the Trust Company (Australia) Pty Ltd [2012] QSC 15 at [14] per Boddice J and Re Atkinson (deceased) [1971] VR 612, p 615 per Gillard J. The Court is not required to investigate the evidence or determine whether the applicant will be successful but the merits and strengths of the claim are relevant: see [162] – [164] of Macedonian.

In relation to [25(4)(b)], insofar as it concerns the defence of proceedings, Bianca needs to establish that there are sufficient prospects of success to justify defending the proceedings.

Mr Withers contends that the additional factors to which the Court will have regard on both limbs (in respect of non-charitable trusts) are:

In cases of this kind it has been the practice of the Court to look for, and where appropriate rely on, a memorandum of opinion from counsel: Castle Hill Joinery and Interiors Pty Ltd (as trustee of Gladstone-Road Trust) [2013] NSWSC 1525, and see Re Lemon Tree Passage & Districts RSL And Citizens Club Co-Operative Ltd (1987) 11 ACLR 796 at 799.

I have had regard to the joint advice of Mr Walker SC and Mr Gaffney. It is a detailed advice which, not only considers the case to be advanced on behalf of Bianca, but also gives consideration to matters likely to be raised by the defendants. Coupled with the very detailed draft Statement of Claim and the appendix to the advice prepared by counsel, which reflect a consideration by them of the evidence in support of each allegation (including a draft expert report relevant to the appropriate level of dividends payable by HPPL), the advice leads me to accept that Bianca has reasonable prospects for success on the case which she wishes to bring, and in respect of the defence which she wishes to mount. A trustee has an obligation to get in the trust estate: see Re Brogden (1888) 38 Ch D 546; Young v Murphy [1996] 1 VR 279, 281-282 per Brooking J with whom Batt J agreed. There are factual and legal issues which will clearly be in contention, but that is hardly surprising. There are, accordingly, also risks that the CSS proceedings will not be successfully defended, and that the new proceedings will not result in victory for the trustee, with the consequence that Bianca will not only have to meet her legal costs out of the Trust assets, but also meet the costs of the other parties to the litigation. As Macedonian makes clear, the Court on an application for judicial advice is expressing only a view as to whether the trustee is justified in bringing or defending an action. It follows that the Court is not called on to express a view as to the ultimate outcome or indeed as to whether any of the allegations which found the claims or the defence will be made out in the proceedings after due consideration of all of the relevant evidence tendered by the parties. The amounts involved if Bianca is successful on behalf of the Trust are very considerable and the costs estimated, although very large, are not out of proportion to the claims. I am satisfied that it is in the interests of the Trust, and hence the beneficiaries, that the claims which Bianca, having had the benefit of advice from senior and junior counsel as to her prospects of success, wishes to pursue be pursued, and that the CSS proceedings be defended.

On the issue of whether Bianca is justified in launching the proposed proceedings and defending the CSS proceedings, and, although not determinative, additional support for counsels’ views on some of the issues on which they opine can be gained from the findings of Brereton J in the Trustee judgment: in particular [223] – [233] of the Trustee judgment, and [17] of his Honour’s judgment on costs, which I set out:

I should note that Mr Withers tendered, on the application, an email dated 1 March 2017, received by Bianca on 1 March, which is in response to Bianca’s email to HPPL of 6 February 2017 and marked Exhibit E. The email is from Mr Jabez Huang, the company secretary of HPPL. Mr Withers submitted that I should infer that the email was sent at the time it was sent with the expectation that Bianca would tender the email, and so that it would come to the Court’s attention.

Bianca’s email of 6 February 2017 to Mr Huang complained about HPPL’s failure to answer many questions and provide documentation. The response of 1 March is lengthy and refers to earlier emails of HPPL of 1 February 2017 and HPPL’s lawyers of 24 January 2017, 9 November 2016 and 1 December 2016.

There are several themes in the various items of correspondence by, or on behalf of, HPPL, which can be summarised:

The emails raise matters which will very likely be the subject of the litigation. The question of the appropriateness of HPPL’s conduct (as well as Gina’s conduct) is the subject matter of counsels’ memorandum of advice. The correspondence also underscores that there is likely to be a contest over each and every significant item of property held by HPPL that Bianca contends has been used for the private benefit of Gina, such as an apartment on a cruise ship, a pastoral property, a penthouse in Sydney and a number of other residential properties. It does not seem necessary for Bianca to succeed on each and every item about which complaint is made, since the fact of expenditure is relevant for an additional reason, as I have mentioned, but it will be necessary for her, and those advising her, to have access to all relevant material before an assessment can be made as to whether her assertions as to improper expenditure are correctly made or not.

On the question of the adequacy of HPPL’s disclosure to Bianca, I note that in Rinehart & Anor v Rinehart & Anor [2015] NSWSC 1201 White J said at [93]:

Whilst I am of the view that Bianca is justified in bringing the proposed proceedings, and resisting the CSS proceedings, I should indicate a concern that I have in relation to the forum in which they should be addressed. There are currently on foot the CSS proceedings in the Federal Court, and also the first Federal Court proceedings. I think it is highly desirable that all issues concerning HPPL be heard in the one Court at the one time, if that is possible. I accept that the outcome of the appeal in the Federal Court may have a significant bearing on the question of how, and where, the proposed proceedings should be heard. I am conscious that Bianca may be advised to launch proceedings in the Supreme Court of New South Wales sooner, rather than later, to avoid any limitation defence being raised, with consideration being given, thereafter, to the issue of the appropriate forum, but by expressing my view on the two questions posed for judicial advice, I do not wish to be taken as expressing any view as to the forum in which the proceedings should ultimately be heard.