Hancock v Rinehart

[2015] NSWSC 646

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:	Hancock v Rinehart [2015] NSWSC 646
Hearing dates:	8, 9, 10, 11, 14 October 2013, 24, 25, 26, 27 June 2014
Date of orders:	28 May 2015
Decision date:	28 May 2015
Jurisdiction:	Equity Division
Before:	Brereton J
Decision:	See paragraph 383
Catchwords:	EQUITY - trusts and trustees - powers, duties, rights and liabilities of trustees – exercise of powers – fraud on power - whether in consenting to alteration of constitution of company in which trust is shareholder, trustee was motivated by improper collateral purpose EQUITY - trusts and trustees - trustees - their appointment, dismissal, estate, etc – where trustee desires to be discharged – selection of replacement trustee – relevant principles and considerations – whether court should appoint a beneficiary as trustee EQUITY - trusts and trustees - powers, duties, rights and liabilities of trustees – respective functions of managing trustee and custodian trustee EQUITY - trusts and trustees - applications to the court for advice and authority – whether court has power to confer authority on trustee to amend trust deed EQUITY - trusts and trustees - powers, duties, rights and liabilities of trustees – duty to account – whether release of duty contrary to public policy – effect of statute of limitations EQUITY - trusts and trustees - powers, duties, rights and liabilities of trustees – duty to produce trust documents – nature of beneficiary’s right
Legislation Cited:	(CTH) Corporations Act 2001, s 50AA; s 136(2), s 140(2)(c) (NSW) Trustee Act 1925, s 81 (QLD) Trusts Act 1973, s 19 (UK) Trustee Act 1925, s 57 (WA) Limitations Act 2005, s 26 (WA) Trustees Act 1962, s 7, s 14, s 15, s 21, s 77, s 89
Cases Cited:	Armitage v Nurse [1998] Ch 241 Ashrafinia v Ashrafinia (No 4) [2014] NSWSC 676 Askham v Barker (1853) 17 Beav 37; 51 ER 945 Barry v Borlas Pty Limited & Ors [2012] NSWSC 831 Burrows v Walls (1855) 5 De G M & G 233; 43 ER 859 Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 Canwest Global Communications Corp v Australian Broadcasting Authority (1997) 71 FCR 485; (1997) 147 ALR 539; (1997) 24 ACSR 405 Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129 Chapman v Chapman [1954] AC 429 Christensen v Christensen [1954] QWN 37 Commissioner of Taxation v Sidney Williams (Holdings) Ltd (1957) 100 CLR 95 Cowan v Scargill [1985] Ch 270 Dawson v Dawson (1737) 1 Atk 1; 26 ER 1 Doss v Doss (1843) 3 Moo Ind App 175; 18 ER 464 Equiticorp Industries Ltd v ACI International Ltd [1987] VR 485 Ex parte Conybeare's Settlement (1853) 1 WR 458 Ford v Princehorn; Estate of Ford [2012] NSWSC 1165 Fraser v NRMA Holdings Limited (1994) 52 FCR 1 Futter v Revenue and Customs [2013] UKSC 26; [2013] 2 WLR 1200 Glencore International AG v Takeovers Panel (2006) 151 FCR 77 Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (in prov liq) (1990) 3 ACSR 183 Hancock v Rinehart [2013] NSWSC 1352 Hancock v Rinehart [2014] NSWSC 844 Hancock v Rinehart [2014] NSWSC 860 Hespe v Surfers Paradise Forests Ltd (1985) 10 ACLR 182 Hindle v John Cotton Ltd (1919) 56 Sc LR 625 Hobkirk v Ritchie (1934) 29 Tas LR 14 Hotung v Ho Yuen Ki [2002] 3 HKLRD 641 How v Earl of Winterton [1896] 2 Ch 626 Howard Smith Ltd v Ampol Ltd [1974] AC 821 In re Downshire Settled Estates [1953] 1 Ch 218 IRC v Silverts Ltd [1951] 1 All ER 703 James N Kirby Foundation v Attorney-General NSW [2004] NSWSC 1153; (2004) 62 NSWLR 276 John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 Johnstone v Johnstone (1902) 2 SR(NSW) Eq 90 Jones v Dunkel (1959) 101 CLR 298 Juul v Northey [2010] NSWCA 211 Kelly v Kelly [2005] WASC 42 Kolotex Hosiery (Australia) Pty Ltd v Commissioner of Taxation (Cth) (1973) 130 CLR 64 Kolotex Hosiery (Australia) Pty Ltd v Commissioner of Taxation (Cth) (1975) 132 CLR 535 Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 Ku-Ring-Gai Municipal Council v The Attorney-General (1954) 55 SR (NSW) 65 Letterstedt v Broers (1884) 9 App Cas 371 Low v Bouverie [1891] 3 Ch 82 McDonald v Ellis [2007] NSWSC 1068 Meinertzhagen v David (1844) 1 Coll 335; 63 ER 444 Mendelssohn v Centrepoint Community Growth Trust [1999] 2 NZLR 88 Mendes v Commissioner of Probate Duties (Vic) (1967) 122 CLR 152 Miller v Cameron (1936) 54 CLR 572 Mills v Mills (1938) 60 CLR 150 Mulherin v Quinn Villages Pty Ltd [2007] QSC 231 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 Ngurli Ltd v McCann (1953) 90 CLR 425 NSW Medical Defence Union v Crawford (1993) 31 NSWLR 469 O’Rourke v Darbishire [1920] AC 581 Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457 Pitt v Holt; Futter v Futter [2011] EWCA Civ 197; [2012] Ch 132; [2011] All ER (D) 101 (Mar) Pope v DRP Nominees Pty Ltd [1998] SASC 6933 Public Trustee (Qld) v Opus Capital Ltd [2013] QSC 131 Re Baillie [1928] VLR 171 Re Bowmil Nominees Pty Ltd [2004] NSWSC 161 Re Brockbank [1948] Ch 206 Re Brooke Bond & Co Ltd’s Trust Deed [1963] Ch 357 Re Crawshay [1948] Ch 123 Re Cunningham's Settled Estates (1909) 27 WN(NSW) 28 Re Dion Investments Pty Ltd [2013] NSWSC 1941 Re Dion Investments Pty Ltd [2014] NSWCA 367 Re Ferrett's Trusts (1894) 6 QLJ 183 Re Flavelle [1969] 1 NSWR 361 Re Grace [1955] QWN 81 Re Grant [2013] NSWSC 1603 Re Greenfield (No 2) (1909) 12 GLR 22 Re Guibert’s Trust (1852) 16 Jur 852 Re Harrison’s Trusts (1852) 22 LJ Ch 69 Re Hill’s Trusts [1874] WN 228 Re Kay [1927] VLR 66 Re Londonderry’s Settlement [1965] Ch 918 Re Neeve [1956] QWN 21 Re Paroz [1956] QWN 37 Re Philips New Zealand Ltd [1997] 1 NZLR 93 Re Roberts (1983) 20 NTR 13; (1983) 70 FLR 158 Re Sharpe (unreported, FCA, Drummond J, 11 December 1992) Re Simersall (1992) 35 FCR 584 Re Simmonds [1954] QWN 3 Re Tempest (1866) LR 1 Ch App 485 Re Walker, Summers v Barrow [1901] 1 Ch 259 Rinehart v Hancock [2013] NSWCA 326 Rinehart v Welker [2012] NSWCA 95 Rinehart v Welker [2012] NSWCA 95 Saul v Lin (No 2) [2004] NSWSC 332; (2004) 60 NSWLR 275 Saunders v Vautier (1841) Cr & Ph 240; 49 ER 282 Schmidt v Rosewood Trust Pty Ltd [2003] UKPC 26; 2 AC 709; 3 All ER 76 Spellson v George (1987) 11 NSWLR 300 Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004; (2006) 64 ATR 325 Tiger v Barclays Bank [1951] 2 KB 556 UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (unreported, Supreme Court of Victoria, 13 May 1998, Chernov J, BC9801738) Vatcher v Paull [1915] AC 372 W P Keighery Pty Ltd v Commissioner of Taxation (1957) 100 CLR 66 Waddell v Patterson (1865) 2 WW & A'B Eq 36 Wallace v Wallace (No 2) (1899) 24 VLR 893 Walters v Ryan [1933] NZLR 821 Waterhouse v Waterhouse (1998) 46 NSWLR 449 Welker v Rinehart (No 10) [2012] NSWSC 1330 Welker v Rinehart (No 2) [2011] NSWSC 1238 Wells v Wily [2004] NSWSC 607; (2004) 50 ACSR 103 White v Lady Lincoln (1803) 8 Ves 363; 32 ER 395 Wong v Burt [2004] NZCA 174; [2005] 1 NZLR 91 Zheng v Wallace [2015] NSWSC 3
Texts Cited:	Ford & Lee, Principles of the Law of Trusts Meagher, Gummow & Lehane, Equity Doctrines and Remedies 4th ed (2002) Young, Croft and Smith, On Equity R Geddes, C Rowland & P Studdert, Wills, Probate and Administration Law in New South Wales
Category:	Principal judgment
Parties:	John Langley Hancock (first plaintiff) Bianca Hope Rinehart (second plaintiff) Gina Hope Rinehart (first defendant) Ginia Hope Frances Rinehart (second defendant) Hope Rinehart Welker (third defendant) Hancock Prospecting Pty Ltd (fourth defendant) Hope Downs Iron Ore Pty Ltd (fifth defendant)
Representation:	Counsel: C Withers w N Zerial & A Hochroth (plaintiffs) N Hutley SC w B. McClintock SC, C Bova & J Hutton (first defendant) RG McHugh SC w PW Flynn (second defendant) M Deutsch (solicitor) (third defendant) DB Studdy SC w C Colquhoun (fourth & fifth defendants)   Solicitors: Yeldhams Price O’Brien Lusk (plaintiffs) Corrs Chambers Westgarth (first, fourth & fifth defendants) Gadens Lawyers (second defendant) Deutsch Miller (third defendant)
File Number(s):	2011/285907

Judgment

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.

Background

The Trust

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.

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.

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.

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)

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.

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.

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

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.

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:

… bring or make any other claim or proceeding against [any other party to the 2005 Deed] that is any way connected with or incidental to the matters the subject of this Deed or any earlier claims.

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

in lieu of any further distributions of any moneys whatsoever … from the [Trust] prior to the date of vesting of the [Trust]…

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

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:

(g) On numerous occasions the most recent being late 2003, I asked my mother to (sic) for full disclosure of trust accounts and management records and documentation and she has refused to provide them. From early 2004 through to early 2005 my lawyers continued to ask for these documents and their requests have been refused.

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:

Each party hereto both in its own right and in any representative capacity hereby:

(a)   releases and discharges each of the other parties hereto now and in the future from any Claims;

(b)   irrevocably covenants not to take any proceedings against any of the other parties to this deed in relation to any matter arising in any jurisdiction, in respect of the Claims;

(c)   withdraws and forever abandons any and all allegations made against any of the other parties to this deed in respect of or arising (in whole or in part) directly or indirectly out of:

(i)   the Proceedings and any of the other Claims;

(ii)   the subject matter of the Proceedings;

(iii)   any claim relating to an undertaking given or costs orders made in the Proceedings;

wherever and whenever arising, whether;

(iv)   known or unknown at the time of execution of this deed;

(v)   presently in contemplation of such parties; or

(vi)   arising under common law, equity, statute or otherwise.

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

Each of the parties to this deed undertakes with each of the other parties to this deed:

(a)   that they will not at any time do, nor attempt to do nor encourage, nor assist in any way any other party or third party to do anything which could have an adverse impact on the Hancock Group’s rights under:

the Services and Commingling Agreement entered into or which may subsequently be entered into between Hamersley Iron Pty Ltd and members of the Hancock Group;

or any of the documents entered into by the Rio Tinto Group and the Hancock Group in respect of the Hope Downs Joint Venture;

or under any of the financing arrangements entered into by members of the Hancock Group in respect of the Hope Downs Joint Venture;

(b)   not to challenge the right of any member of the Hancock Group to any of the Hancock Group Interests at any time;

(c)   not to take any steps at any time which would result in HPPL ceasing to be wholly owned and controlled by Hancock Family Group Members, including without limitation any change to the Trustee in contravention of the provisions of this Deed; and

(d)   not to Disparage at any time;

(e)   subject to the rights of HPPL under the Deed of Loan not to challenge the rights of any of GHR, JLH, BHR, HGRW or GHFR who execute this Deed to any of their right title or interest in any of the Hancock Group or in any trust in which they or any member of the Hancock Group is a beneficiary.

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

The parties hereto acknowledge that GHR by her direct ownership of the share capital of and voting power in HPPL, has control of HPPL and without limiting in any way the legal and other rights of GHR in that regard whether at law or in equity or pursuant to the Constitution of HPPL, the parties hereto acknowledge that during her lifetime GHR shall maintain full ongoing control and management of HPPL and that GHR shall accordingly have the continuing right during her lifetime at her election from time to time to maintain or relinquish or re-establish herself as the chairman on an executive or non-executive basis as she in her sole discretion shall decide of HPPL.

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

On and from the Effective Date each party may plead this deed in bar to any Claim or proceeding the subject of a release in this deed PROVIDED HOWEVER that nothing in this clause shall prevent any party from enforcing the provisions of this deed, the Porteous Settlement Deed, the Deed of Obligation and Release or Deed of Loan.

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

Each party severally covenants with each of the other parties to this deed that he, she or it will not advance, cause, procure, finance, support, encourage or otherwise assist or facilitate in any way (except on compulsion of law including, but not limited to, service of a subpoena) directly or indirectly the advancement, institution or prosecution of any Claim the subject of a release in this deed.

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.

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.

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

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

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.

24. The HDJVA contains the following recitals:

A.    HDIO has agreed to sell, and Hamersley HD has agreed to purchase, a 50% interest in the Hope Downs Project on the terms provided for in the Co-operation Agreement between them and certain other parties dated 1 July 2005.

B.    HDIO and Hamersley HD have also agreed to enter into an unincorporated joint venture following completion of the transactions contemplated in the Co-operation Agreement with Participating Interests as follows:

(a)   HDIO 50%; and

(b)   Hamersley HD 50%.

C.    The parties have further agreed to a number of associated issues as between them including terms on which infrastructure arrangements are to apply in respect of Joint Venture Operations.

D.    HDIO and Hamersley HD have agreed to appoint Hamersley HMS as the first Manager on and subject to the terms of this Agreement and the Management Agreement.

25. Clause 13.3(a) provides as follows:

Except in the case of a change in control of a Joint Venturer arising from the exercise of a power of sale by a Permitted Chargee Receiver (the procedure and requirements for which are governed by clauses 13.6 and 14.4), a Joint Venturer shall have an option to purchase all of the Participating Interest of another Joint Venturer (a Sold Venturer) on the terms set out in schedule 5 at its then current Fair Value and the parties will comply with their obligations under that schedule if:

(i)   in the case of HDIO, it ceases to be an entity wholly owned and controlled by Hancock Family Group Members and/or entities wholly owned and controlled by them (a Hancock Change of Control);

(ii)   in the case of Hamersley HD, it ceases to be a Wholly Owned Subsidiary of [Hamersley Holdings Limited]; or

(iii)   in the case of any other Joint Venturer (not being Hamersley HD or HDIO), the company which was the Ultimate Holding Company of the Joint Venturer at the time the Joint Venturer acquired its Participating Interest, ceases to be the Ultimate Holding Company of the Joint Venturer.

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

(a)   Mrs Georgina Hope Rinehart and her Lineal Descendants or adopted descendants or the spouse of any such person for so long as that person remains a spouse; and

(b)   any personal representative, trustee in bankruptcy, or executor or trustee of a deceased estate appointed to deal with, manage or administer the affairs and assets of a person referred to in paragraph (a) (HFGM Representative), to the extent that HFGM Representative is acting in his or her capacity as a HFGM Representative.

For the avoidance of doubt, it does not include any person to whom a HFGM Representative may assign or otherwise transfer any shares or other assets unless he or she is a person referred to in paragraph (a).

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

28. Cl 13.3(b) provides as follows:

The Sold Venturer will be taken to have granted to each of the other Joint Venturers which is not a Defaulting Party or a Withdrawing Party (if more than one other Joint Venturer wishes to exercise the option, in the proportions that their respective Participating Shares bear to the aggregate of their Participating Shares or, in any other proportions as those other Joint Venturers may agree) (the Purchasing Parties), an option to purchase the whole (but not part) of the Sold Venturer Participating Interest at a price equal to its Fair Value and on the terms set out in schedule 5 and the parties will comply with their obligations under that schedule if, subject to paragraphs (f) and (h), within 90 days of the last Joint Venturer becoming aware of the event that triggered the application of paragraph (a), any Purchasing Party elects to obtain a determination of the Fair Value of the Participating Interest of the Sold Venturer in accordance with item 2.2 of schedule 5. Subject to paragraphs (f) and (h), if no such election is made within the 90 day period, the option referred to in paragraph (a) and this paragraph (b) shall lapse. In addition, if the option to purchase the Participating Interest of the Selling Party is not exercised in accordance with item 2.2 of schedule 5, the option shall lapse.

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.

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.

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

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.

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.

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

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:

1. An order pursuant to section 90 and or section 94 of the Trustees Act 1962 (WA) varying the Deed of Settlement made 27 December 1988 by Langley George Hancock as amended by Deed of Amendment dated 24 August 1995 (“The Trust Deed") by varying clause 6(a) to read "the date on which the youngest of the children of Mrs Rinehart, or the survivor or survivors of them, attains the age of TWENTY SIX (26) years".

2. In the alternative, an order directing Gina Hope Rinehart prior to midnight on 5 September 2011 (Western Australian Standard time) to vary clause 6(a) of the Trust Deed by varying clause 6(a) by deed to read "the date on which the youngest of the children of Mrs Rinehart, or the survivor or survivors of them, attains the age of TWENTY SIX (26) years".

3. An order pursuant to s 90 of the Trustees Act varying the Trust Deed by splitting the trust into separate trusts with one trust as to Gina Hope Rinehart's 17.7% interest in the ordinary shares and the cumulative special shares, as referred to in clause 4 of the Trust Deed ("the First Trust "); and a further trust as to the residue of the trust property in favour of the children of Gina Hope Rinehart ("the Second Trust ").

4. An order pursuant to s 7(1)(d) of the Trustees Act removing Gina Hope Rinehart as trustee of the Second Trust.

5. An order pursuant to s 7(2) of the Trustees Act appointing the children of Gina Hope Rinehart as the Trustees of the Second Trust and, pursuant to s 10(1) of that Act vesting the trust property in the new trustees.

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

1. By 4:00pm today Western Australian Time being 6:00pm today Eastern Standard Time the Defendant execute a Deed submitted by the Plaintiffs' Solicitors which has the effect of varying the Trusts contained in the Trust Deed constituting the Hope Margaret Hancock Trust by substituting in clause 6(a) and 6(b) thereof the matter "twenty-five (25) years and one month" for the matter "twenty-five (25) years" in each case.

2. Notice of this Order and the draft Deed may be sufficiently given to the Defendant by email of a PDF thereof to [email protected] and [email protected].

3. Pursuant to s 94(1) of the Civil Procedure Act 2005 (NSW) that upon the Plaintiffs' Solicitors presenting to the Duty Registrar an affidavit sworn by the Plaintiffs' Solicitor that this Order having been served in accordance with the foregoing Order the Defendant has not complied with it, the Deed be executed by a Registrar.

4. Reserve liberty to apply including by telephone in the event of any difficulty arising in the implementation of this order.

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:

3. An order that the Defendant as Trustee of the trust established by the Deed of Settlement made 27 December 1988 by Langley George Hancock ("The Trust") provide to the Plaintiffs:

(a) the accounts of the Trust for the years 1992 to date;

(b) the accounts of Hancock Prospecting Pty Limited for the years 1992 to date.

4. …

5. An order in the Court's inherent equitable jurisdiction removing Gina Rinehart as trustee of the Second Trust.

6. A declaration that the Defendant has misconducted herself in the administration of the Trust within the meaning of s 77(2)(b) of the Trustees Act 1962 (WA).

7. An order pursuant to s 7(2) or s 77(1) and/or s 77(2)(b) of the Trustees Act or in the Court's inherent equitable jurisdiction appointing such of the children of Gina Hope Rinehart as so consent as the Trustees of the Second Trust in substitution for the Defendant and, pursuant to s 10(1) of that Act vesting the trust property in the new trustees.

8. In the alternative to orders 4, 5 and 7, an order pursuant to s 77(1) and (2)(b) of the Trustees Act or in the Court's inherent equitable jurisdiction removing Gina Hope Rinehart as trustee of the Trust and an order pursuant to s 7(2) or s 77 of the Trustees Act appointing such of the children of Gina Hope Rinehart as consent to be the Trustees of the Trust in substitution for Gina Hope Rinehart and, pursuant to s 10(1) of that Act, vesting the Trust Fund in the new trustees.

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.

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.

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.

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.

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.

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:

(a)   That the first defendant desires to be discharged as trustee of the Hope Margaret Hancock Trust;

(b)   That the first defendant consents, in the absence of prior agreement between the parties, to the Court making an order under Western Australia Trustees Act s 77(2) appointing a new trustee in substitution for her;

(c)   That the first defendant wishes to be heard on the identity of such new trustee in the absence of prior agreement thereto.

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”.

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

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. The appointment of a replacement trustee;

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

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

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

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.

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.

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.

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.

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:

a whole lot of material has been admitted in relation to Mrs Rinehart which your Honour has seen over now more than a year her representatives have been eagerly trying to keep out of evidence. Your Honour would be conscious yesterday there was an application to reopen your Honour’s ruling in relation to that topic and I sat silently through that while it proceeded and after it was concluded made the point to your Honour that my client was maintaining the basis against Bianca, which was one of the foundations of your Honour’s ruling.

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.

The 2006 amendments to the HPPL Constitution

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

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).

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. 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. 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. 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. 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. 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)).

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

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):

Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power. It is only one application of the general doctrine expressed by Lord Northington in Aleyn v Belchier: “No point is better established than that, a person having a power, must execute it bona fide for the end designed, otherwise it is corrupt and void.”

See also Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457, 511; Ngurli Ltd v McCann (1953) 90 CLR 425, 438-9; 447-8.

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]):

The purported exercise of a discretionary power on the part of trustees will be void if what is done is not within the scope of the power. There may be a procedural defect, such as the use of the wrong kind of document, or the failure to obtain a necessary prior consent. There may be a substantive defect, such as an unauthorised delegation or an appointment to someone who is not within the class of objects. Cases of a fraud on the power are similar to the latter, since the true intended beneficiary, who is not an object of the power, is someone other than the nominal appointee. There may also be a defect under the general law, such as the rule against perpetuities, whose impact and significance will depend on the extent of the invalidity. In re Abrahams Will Trusts and In re Hastings-Bass, decd together show that the effect on an advancement of invalidity by reason of something such as the rule against perpetuities may be such that what remains of the advancement is not reasonably capable of being regarded as for the benefit of the advancee. In that case the advancement will be void, since the power can only be used for the benefit of the relevant person and the purported exercise was not for his or her benefit. That is an example of an exercise outside the scope of the power.

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:

[27] The notion of a fraud on a power itself rests on the fundamental juristic principle that any form of authority may only be exercised for the purposes conferred, and in accordance with its terms. This principle is one of general application.

[28] The particular expression, a "fraud on a power", applies to both a power and a discretion. The word "fraud" here denotes an improper motive, in the sense that a power given for one purpose is improperly used for another purpose.

[30] … The central principle is that if the power is exercised with the intention of benefiting some non-object of the discretionary power, whether that person is the person exercising it, or anybody else for that matter, the exercise is void. If, on the other hand, there is no such improper intention, even although the exercise does in fact benefit a non-object, it is valid. See Vatcher v Paull [1915] AC 372 at 378 per Lord Parker (PC Jersey).

…

[33] As to the effect of a finding of a fraud on a power, it has long been held that where a power is successfully impugned, its exercise is totally invalid (Re Cohen [1911] 1 Ch 37), unless the improper element in the appointment can be severed from the remainder of that appointment (Topham v Duke of Portland [1863] EngR 1051; (1858) 1 De GJ & S. 517; 46 ER 205).

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)):

Where the question is one of abuse of powers, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in discharge of their powers in the interests of the company or were acting from some bye-motive, possibly of personal advantage, or for any other reason.

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?

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.

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:

By causing the 2006 amendments to be made to the Constitution of HPPL, the First Defendant purported to engineer a situation in which:

(a)   None of the beneficiaries of the trust could take a distribution of their shares in HPPL and sell some of those shares to a third party or use those shares as security for a loan in order to enable them to meet any capital gains tax liability arising from the distribution of shares to them;

(b)   In such circumstances, the beneficiaries’ only entitlement would be to receive income received by the Trust from HPPL, in the amounts determined by the First Defendant as controlling shareholder, Chairman and a Director of HPPL, provided that the First defendant, as Trustee of the Trust, decides to distribute such income to the beneficiaries of the Trust;

(c)   In the event that the First Defendant breaches her duties as trustee of the trust and is removed as Trustee and is replaced by a non-Hancock Family Group Member, the First Defendant in her personal capacity and in proportion to her existing shareholding would be offered the opportunity to purchase those shares in HPPL previously held by the First Defendant on behalf of the beneficiaries of the Trust;

(d)   If the First Defendant declines to acquire those shares, they would be compulsorily acquired by HPPL on terms determined by HPPL in its sole discretion and by the First Defendant as controlling shareholder, Chairman and a Director of HPPL;

(e)   The First Defendant could, as controlling shareholder, Chairman and a Director of HPPL, cause HPPL to use its available cash to pay the First defendant dividends, or invest those funds in the development of HPPL’s business activities, or meet HPPL’s expenditures, or remunerate herself as a Director, rather than pay for the shares compulsorily acquired by HPPL as a result of her removal as trustee;

(f)   The First Defendant could, as controlling shareholder, Chairman and a Director of HPPL, cause HPPL to cancel the shares previously held by her on behalf of the beneficiaries of the Trust and thereby increase her ownership of HPPL in amount equalling the proportion of shares the First defendant currently holds in HPPL on behalf of the beneficiaries of the Trust (23.45%), at no cost to the First Defendant;

(g)   In the premises, by breaching her duties as Trustee of the trust and causing herself to be removed as Trustee, the First Defendant would be in a position, if a non-Hancock Family Group Member is appointed as Trustee, to obtain 100% ownership of HPPL and for the beneficiaries of the Trust to lose the 23.45% interest they currently hold in HPPL.

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.

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:

(f)   Failed to provide for the beneficiaries of the trust, once they receive a distribution of their shares in HPPL, to receive an amount representing the fair value for those shares in the event those shares are subsequently bought back by HPPL pursuant to clauses 37(g) and 37(h) and to receive such amount on or around the date the shares are acquired by HPPL.

66. Paragraph 85 was as follows:

Further, in purporting to execute the Special Resolution and in relying upon the terms of the amended HPPL Constitution in these proceedings, the First Defendant breached the irreducible core of her duties as Trustee by preferring her own interests to those of the beneficiaries of the Trust.

Particulars

Paragraphs 74-81 above are repeated.

The 2006 Amendments were intended by the First Defendant:

(a)   To ensure that the First Defendant continued, indefinitely, to control 100% of the voting shares in HPPL after the vesting of the Trust;

(b)   To prevent or substantially impede the beneficiaries of the Trust from enforcing the due administration of the Trust after the vesting date of the Trust by purporting to cause the beneficiaries of the Trust to forfeit their beneficial interest in HPPL shares in the event the First Defendant is removed as Trustee of the Trust and replaced by a third party trustee; and

(c)   To ensure that the First Defendant continued, indefinitely, to control 100% of the voting shares in HPPL in the event the First Defendant is removed as trustee of the Trust by removing the voting rights attached to shares in HPPL held by any new Trustee that is not a Hancock Family Group Member; and

(d)   To provide the First Defendant with a right of pre-emption in proportion to her existing shareholding in relation to any sale of shares by any existing member of HPPL.

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.

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.

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.

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.

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

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):

Unaided by authority which deals with the trust relationship created by s 42(12) of the Code I am of the view that such a trustee is empowered to vote trust shares at a general meeting of the company and to vote those shares at his discretion in the way which he believes bona fide to be in the best interests of the company and of his beneficiary. As a general rule what is seen to be in the best interests of the company will be best for the shareholders.

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.

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

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.

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. Proposed Amendment of the Articles

HPPL wishes to amend its Articles in order to confine the transfer of all classes of shares to Hancock family members or family-controlled companies, ie, to prevent the transfer of any class of shares to non- family members or companies. This is because, pursuant to a change of control clause in the proposed Services and Commingling Agreement (Hope Downs) (‘Agreement’) between HPPL and Hamersley Iron Pty Ltd (‘HI’) and related companies, if a Hancock Project ‘ceases to be wholly owned and controlled by Hancock Family Group Members and/or entities wholly owned and controlled by them’, then HI may terminate the Agreement in respect of the relevant mine. This Agreement is being prepared to reflect the intent of a concept which was agreed to between HPPL and HI when those parties negotiated what was effectively a heads of agreement in June 2005. This trigger on transfer was agreed to as a result of it being a condition of HI’s offer to HPPL. HI requested the trigger as it maintained the terms of its offer to HPPL were personal to the Hancock family and if they transferred any of their interest to an outside party then HI might not wish a third party to enjoy the benefits of what HI had agreed to grant to HPPL.

HPPL believes that is in the best interests of HPPL and its shareholders to amend its Articles to prevent the transfer of any class of shares outside the Hancock family and family-controlled companies. If a transfer to a non-Hancock family member was to occur and as a consequence HI was to exercise its right to terminate the Agreement, then HPPL’s subsidiary Hope Downs Iron Ore Pty Ltd (‘HDIO’), that is a joint venturer with HI in Hope Downs, would have its share of the ore mined from Hope Downs stranded at the mine site as the Agreement provides for the rail transport, processing and loading onto ships of the ore. With the Agreement terminated it would not be long before HDIO would be in financial difficulty thereby leading to its default under its joint venture.

Since the proposed amendment to the Articles would introduce transfer restrictions to which the existing shareholders of HPPL were not subject when they acquired their shares in the company, the proposed amendment requires the express written consent of all the existing shareholders of HPPL pursuant to section 140(2) of the Corporations Act 2001 (‘Act’). This requirement is in addition to the requirement that HPPL obtain approval by special resolution to amend its Articles (see section 136(2) of the Act), but it seems that all shareholders of HPPL can give their written consent for the purpose of section 140(2) of the Act and section 249A of the Act (written resolutions of proprietary companies with more than 1 member) in the same document.

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.

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:

Hope Downs

As a director of Hancock Prospecting Pty Ltd (HPPL), I am familiar with the Rio Tinto agreements relating to Hope Downs and I am therefore aware of the necessity for HPPL Articles to be changed to restrict transfer of shares in HPPL to Hancock Group Family Members (lineal descendants of the Chairman, including myself) which arises under those agreements.

I am therefore happy to ratify and confirm the Board's decision to approve the changes to the Articles of Association of HPPL which implement the restrictions on transfer of HPPL shares as referred to in the agreements with Rio Tinto on Hope Downs.

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

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):

345. “Proceedings” is defined as follows:

(whether existing or discontinued or the subject of disputed discontinuance) mean Supreme Court of Western Australian action numbered CIV 1327 of 2005 the parties to which are the HMH Trust and GHR and to which JLH is seeking to be joined.

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.

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):

1.   I make this affidavit in support of my request of this Honourable Court for an order to substitute the Trustee of the Hope Margaret Hancock Trust (“the Trust”) with my own nominee, and for further orders for the full disclosure and delivery up of the accounts and documents of the Trust.

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.

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.

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.

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

Period since 30 August 2006 - accounts rendered

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

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.

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

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)].

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

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).

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].

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.

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.

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.

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.

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:

16 In his Notice of Intention to be joined as a party and to make cross-application filed in those Proceedings on 11 July 2005, [John] sought removal of the trustee on the ground, inter alia, that she had not provided him with trust documents. However, he did not make a claim in those Proceedings for production of such documents. There is no evidence of any such claim having been made, and accordingly such a claim has not been released under cl 6(a) of the Hope Downs Deed.

17 In the present proceedings, the plaintiffs claim an order for production of the trust documents and accounts. This claim is made independently of the claim for removal, and does not involve any allegation of breach of trust, or of an anterior failure to produce them. It does not depend on or refer to or repeat or raise in any way the allegation, such as it was, made in the earlier proceedings, of failure to produce documents. It does not relate to, but stands independently and separate from, any matter arising in respect of the “Claims” (within cl 6(b) of the Hope Downs Deed), nor is it an allegation in respect of or arising (in whole or part) directly or indirectly out of the Proceedings (within cl 6(c)). As Bathurst CJ has pointed out [Rinehart v Welker [2012] NSWCA 95, [126]], “In the present case the respondents by their respective statements of claim seek orders that GHR provide information concerning the Trust, relying on their entitlements as beneficiaries”.

18 The relevant claim in the earlier proceedings, which was released by the Hope Downs Deed, was not one for production of documents. The relevant claim in these proceedings, for production of documents, does not allege an anterior failure to produce them and does not depend on establishing any breach of trust, let alone one prior to the Hope Downs Deed. That claim is not caught by the releases.

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.

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.

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

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.

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.

Summary of conclusions

369. My conclusions may be summarised as follows.

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.

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.

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.

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.

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.

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.

369. 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).

370. 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.

371. 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.

372. 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.

373. 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.

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

375. 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

383. The Court orders that:

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:

1. provide regular statements of Trust assets and accounts to the beneficiaries;

2. retain suitably qualified lawyers, accountants and or financial advisors to advise and assist her in managing the affairs of the Trust where necessary;

3. not sell, or give a transfer notice in respect of, any of the Trust’s shares in the fourth defendant Hancock Prospecting Pty Limited, without either the consent of all the beneficiaries of the Trust, or the advice of the court;

4. not commence or continue proceedings on behalf of the Trust in a court, tribunal or arbitration without the advice of the court, provided that this does not preclude the commencement of proceedings for urgent interim relief;

5. unless she is of the opinion that in any particular case it would be contrary to the interests of the trust to do so, consult the beneficiaries before seeking the advice of the court and disclose to the court the views of the beneficiaries when seeking such advice.

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

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. For the purposes of such account:

1. Within 42 days (or such further period as the court may on application allow), the first defendant file and serve her detailed account, verified by affidavit, of all moneys and property received and disbursed by her (and any other person on her behalf) in respect of the property of the Trust, and of her dealings and transactions therewith, specifying in respect of each payment and receipt the date and amount thereof, to whom it was made or from whom it was received, and the purpose or account for or to which it was paid or received as the case may be;

2. The items of such account be numbered consecutively;

3. The plaintiffs have liberty to apply, within 21 days of the service of such accounts, to examine the first defendant viva voce or upon interrogatories in respect of the accounts;

4. Within 28 days after service of the accounts or within 28 days after the conclusion of any examination referred to in paragraph (c), the plaintiffs file and serve their surcharges falsifications and objections (if any) thereto;

5. The proceedings be adjourned to a date to be fixed for further directions in respect of the inquiry into the account.

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

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

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Decision last updated: 18 June 2015