Rinehart v Rinehart

[2015] NSWSC 1201

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Rinehart & Anor v Rinehart & Anor [2015] NSWSC 1201

Hearing dates:

23, 24 June 2015

Decision date:

28 August 2015

Jurisdiction:

Equity

Before:

White J

Decision:

Refer to paras [110] and [111] of judgment.

Catchwords:

PRACTICE AND PROCEDURE – application for preliminary discovery – plaintiffs are two beneficiaries under a trust – first plaintiff succeeded the first defendant as trustee of the trust – shares held on trust entitled holder to dividends calculated on a certain basis – whether plaintiffs may have claims in respect of underpayment of dividends, inducing breach of contract, breach of trust, knowing involvement in a breach of trust, and breach of director duties – whether plaintiffs would have standing to bring potential claims against the former trustee and a third party – whether information obtained by plaintiffs to date is sufficient for them to decide whether or not to bring proceedings – whether plaintiffs made reasonable enquiries – held that an order for preliminary discovery should be made in respect of most categories sought by the plaintiffs

 

TRUSTS AND TRUSTEES – parties to suits – current trustee gave an undertaking not to commence proceedings on behalf of the trust – whether proceedings by a beneficiary against a former trustee would be brought on behalf of the trust – whether necessary to show ‘special circumstances’ – whether plaintiffs might be entitled to bring proceedings against a third party – held that the beneficiaries could have standing in their own right to bring proceedings against the former trustee and a third party

  CORPORATIONS – constitutions and articles of association – amendment to constitution – doctrine of unanimous assent – whether members may vary the company’s constitution by a course of dealing despite the formal requirements for amendment not being met – whether the Duomatic principle applies to variations of substantive rights – held that the plaintiffs could not rely on the Duomatic principle in support of their claim for preliminary discovery

Legislation Cited:

Corporations Act 2001 (Cth)
Evidence Act 1995 (NSW)
Iron Ore (Wittenoom) Agreement Act 1972 (WA)
Iron Ore (Wittenoom) Agreement Amendment Act 1972 (WA)

Cases Cited:

Airways Corp of New Zealand v The Present Partners of PricewaterhouseCoopers Legal [2002] NSWSC 521
Alexander v Perpetual Trustees WA Ltd [2004] HCA 7; (2004) 216 CLR 109
Gibbins Investments Pty Ltd v Savage [2011] FCA 527; (2011) 84 ACSR 1
Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207
Hatfield v TCN Channel Nine Pty Ltd [2010] NSWCA 69; (2010) 77 NSWLR 506
Hope Rinehart v Rinehart [2015] NSWSC 205
Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432
Lidden v Composite Buyers Ltd (1996) 67 FCR 560
Morton v Nylex Ltd [2007] NSWSC 562
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2014] NSWCA 323
Re Duomatic Ltd [1969] 2 Ch 365
Vermillion Resources Pty Ltd v Gibbins Investments Pty Ltd [2011] FCAFC 149; (2011) 86 ACSR 246
Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326; (2014) 290 FLR 18
Wright Prospecting Pty Ltd v Hamersley Iron Pty Limited [2013] NSWSC 536
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd (No 9) [2010] WASC 44
Young v Murphy [1996] 1 VR 279

Texts Cited:

JD Heydon & MJ Leeming, Jacobs’ Law of Trusts in Australia, 7th ed (2006), LexisNexis Butterworths
KA Nagorney “A Noble Profession? A Discussion of Civility Among Lawyers” (1999) 12 Georgetown Journal of Legal Ethics

Category:

Procedural and other rulings

Parties:

Bianca Hope Rinehart (1st Plaintiff)
John Langley Hancock (2nd Plaintiff)
Georgina Hope Rinehart (1st Defendant)
Hancock Prospecting Pty Limited (2nd Defendant)

Representation:

Counsel:
C Withers with A Hochroth (Plaintiffs)
B McClintock SC with S Lawrance (1st Defendant)
D Studdy SC with A Shearer (2nd Defendant)
M Izzo (Rio Tinto - Interested Party)
R Hardcastle (Wright Prospecting Pty Limited - Interested Party)

  Solicitors:
Yeldham Price O’Brien Lusk (Plaintiffs)
Speed & Stracey Lawyers (1st Defendant)
Corrs Chambers Westgarth (2nd Defendant)

File Number(s):

2014/353713

Judgment

1. HIS HONOUR:   This is an application for preliminary discovery. The plaintiffs, Bianca Rinehart and John Hancock, are two of four beneficiaries of a trust known as the Hope Margaret Hancock Trust. At the time this application was commenced the first defendant, Mrs Rinehart, was the trustee of that trust. On 28 May 2015 Brereton J appointed Bianca Rinehart as trustee of the trust in place of Mrs Rinehart (Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207).

2. The principal asset of the Hope Margaret Hancock Trust comprises certain shares in the second defendant, Hancock Prospecting Pty Limited (“HPPL”), including a holding of 156 cumulative special shares (sometimes called “CS shares”). Mrs Rinehart is a director and the executive chairman of HPPL. The plaintiffs seek orders that Mrs Rinehart and HPPL be required to produce certain classes of documents for the purpose of assisting the plaintiffs in determining whether or not they should commence proceedings against Mrs Rinehart and HPPL. The plaintiffs’ solicitor, Mr Price, deposed:

“17   The plaintiffs are currently investigating and considering bringing claims for relief of the following nature:

17.1   a claim on behalf of the HMH Trust against HPPL, alleging underpayment of dividends which, by reason of certain provisions in the HPPL Constitution (detailed below), the HMH Trust is entitled to in respect of the CS shares held by it; and/or

17.2   a claim against GHR, alleging inducement of the breach of contract by HPPL and, or in the alternative, a breach of trust, if it is the case that GHR has exercised her control over HPPL to prevent the proper dividends payable on CS shares being paid to the HMH Trust; and/or

17.3   claims against the directors of HPPL pursuant to sections 180-182 of the Corporations Act 2001 (Cth) (Corporations Act).”

3. In oral submissions the plaintiffs’ counsel submitted that a further claim that might be available to the plaintiffs and one they wish to investigate, is whether HPPL might be liable to them for a knowing involvement in a breach of trust by Mrs Rinehart in preventing the payment of proper dividends on the CS shares.

4. The application is made pursuant to r 5.3 of the Uniform Civil Procedure Rules 2005 (NSW). That rule provides:

“5.3 Discovery of documents from prospective defendant

(cf Federal Court Rules, Order 15A, rules 6, 7 and 9)

(1)    If it appears to the court that:

(a)    the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and

(b)    the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and

(c)    inspection of such a document would assist the applicant to make the decision concerned,

the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person’s possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.

(2)    An order under this rule with respect to any document held by a corporation may be addressed to any officer or former officer of the corporation.

(3)    Unless the court orders otherwise, an application for an order under this rule:

(a)    must be supported by an affidavit stating the facts on which the applicant relies and specifying the kinds of documents in respect of which the order is sought, and

(b)    must, together with a copy of the supporting affidavit, be served personally on the person to whom it is addressed.

(4)    This rule applies, with any necessary modification, where the applicant, being a party to proceedings, wishes to decide whether or not to claim or cross-claim against a person who is not a party to the proceedings.”

5. In Hatfield v TCN Channel Nine Pty Ltd [2010] NSWCA 69; (2010) 77 NSWLR 506 McColl JA summarised the principles relevant to an application for preliminary discovery as follows:

“[47]    First, ‘[i]n order for it to ‘appear’ to the Court that the applicant ‘may be

entitled’ to make a claim for relief, it is not necessary for the applicant to show a prima facie or pleadable case’: Morton v Nylex Ltd (at [25]).

[48]    Secondly, while ‘the mere assertion of a case is insufficient … [i]t will be

sufficient if there is reasonable cause to believe that the applicant may have a

right of action against the respondent resting on some recognised legal

ground’: Morton v Nylex (at [25]).

[49]    Thirdly, ‘belief requires more than mere assertion and more than suspicion

or conjecture. [It] is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action’: St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 at 154 [26](d), per Hely J, referring in turn to John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 at [13], [14], [17] and [73], per Emmett J. The use of the word ‘may’ indicates the court does not have to reach “a firm view that there is a right to relief”: Telstra Corporation Ltd v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64 at 79 [58].

[50]    Fourthly, the requirement that the matters set out in r 5.3 of the Uniform

Civil Procedure Rules ‘appear[s]’ to the court to establish an entitlement to an order under the rule may be wider than the requirement in the Federal Court Rules, O 15A, r 6 that there ‘is reasonable cause to believe’: see Panasonic Australia Pty Ltd v Ngage Pty Ltd [2006] NSWSC 399; (2006) 69 IPR 595 at 598 [22] per Young CJ in Eq; Papaconstuntinos v Holmes à Court [2006] NSWSC 945 at [17] per Simpson J; Hornsby Shire Council v Valuer General of NSW [2008] NSWSC 1179 at [33], per Adams J. Nevertheless Hely J's statement in St George Bank (at 154 [26](e)) remains apposite, namely that ‘whilst uncertainty as to only one element of a cause of action might be compatible with the “reasonable cause to believe” required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe’.

[51]    Fifthly, ‘the question posed by [r 5.3(1)(a)] … is not whether the applicant

has sufficient information to decide if a cause of action is available against the prospective respondent [but] … whether the applicant has sufficient information to make a decision whether to commence proceedings in the court. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences’: St George Bank (at 154 [26](f)) (emphasis in original); see also Morton v Nylex (at [33]). Thus application of the rule will not be precluded by the fact that the applicant already has available evidence establishing a prima facie case for the granting of relief, as there might be matters of defence which could defeat a prima facie case: Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 at [41], per Lindgren J, referred to with approval by the Full Federal Court (French J, Weinberg J and Greenwood J) in Telstra Corporation Ltd (at 80 [60]).

[52]    Sixthly, as Hely J said in St George Bank (at 153 [26](a)), ‘the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case’.

…

[86]    What constitutes ‘reasonable inquiries’ is a question of fact, to be considered in all the circumstances of the particular case, which includes the relationship (if any) between the applicant and the prospective defendant (Steffen v ANZ Banking Group [2009] NSWSC 666 at [15], per McDougall J) and, I would add, the relationship (if any) between the prospective defendant and any source of information.”

6. The defendants submit that even to the undemanding standard applicable to r 5.3(1)(a) it does not appear that the plaintiffs “may be entitled” to make the foreshadowed claims for relief. They also submit that the plaintiffs have not made reasonable inquiries. They submit that the inquiries the plaintiffs have made provide the plaintiffs with sufficient information to decide whether or not to commence proceedings. They claim that the categories of documents of which the plaintiffs seek preliminary discovery are too broad. Even if preliminary discovery were otherwise appropriate, HPPL submits that if preliminary discovery is ordered it should be subject to a condition for the provision of security for costs of the person against whom the order is made.

7. HPPL submits that the plaintiffs have no standing as beneficiaries of the trust to maintain a claim for relief against it, even if such a claim were available to the trustee (now Bianca Rinehart). The defendants submit that Bianca Rinehart cannot maintain a claim for preliminary discovery in her capacity as trustee by reason of undertakings that she gave to the Court at the time of her appointment that she would not commence or continue proceedings on behalf of the trust, other than for urgent interim relief, without the advice of the Court. Bianca Rinehart did not seek judicial advice that she was justified in continuing these proceedings for preliminary discovery on behalf of the trust. She and John Hancock submit that they are bringing the proceedings for preliminary discovery in their personal capacity with a view to obtaining information to enable them to decide whether or not to make a claim for relief against Mrs Rinehart in their personal capacity, or against HPPL in their capacity as beneficiaries of the trust if Bianca Rinehart cannot sue as trustee.

Rights attaching to the cumulative special shares

8. Clause 3A of the articles of association of HPPL was adopted on 5 November 1970. Clause 3A provides:

“3A.   Notwithstanding any other provision contained in these Articles of Association the following Nine hundred and ninety nine shares of the Company namely, Three hundred and thirty three shares numbered 2001-2333 (inclusive), (to be known hereafter as cumulative special shares numbered C.S. 1-333), Three hundred and thirty three shares numbered 4001-4333 (inclusive), to be known hereafter as cumulative special shares numbered C.S. 334-666) and Three hundred and thirty three shares numbered 7001-7333 (inclusive) (to be known hereafter as cumulative special shares numbered C.S. 667-999) shall hereafter be constituted and known as cumulative special shares and such shares shall have attached to them the following rights and privileges and obligations:-

(A)   each of such shares shall

(1)   … entitle the holder thereof -

…

(2)   … to quarterly cumulative dividends each succeeding one of which shall be equal to that part of the net royalty as defined in sub-clause (B) hereof as is received by the Company during each quarterly period of thirteen weeks applicable to a particular quarterly dividend, multiplied by a fraction comprising a numerator of one and a denominator of Nine hundred and ninety nine, and payable not later than fourteen days subsequent to the quarter day on which the quarterly period applicable to a particular dividend period terminates;

(B)   the net royalty referred to herein shall comprise an amount of not less than one third of all royalties and other payments (herein referred to as ‘the gross royalties’) received by the Company pursuant to agreements shortly described in subclause (H) (1) hereof subject to the prior deduction from such gross royalties of -

(1)   the sum of all amounts paid or payable by the Company pursuant to agreements shortly described in subclause (H) (2) hereof and

(2)   the amount of income tax at the rate then applicable -

(a)   in respect of each quarter of the financial year in which the gross royalties are received by the Company, and

(b)   in respect of corporate income in excess of $10,000 that would be payable by the Company if it were taxable only on an income equal to the gross royalties received during such quarter after deducting -

(i)   the sum of the amounts paid or payable pursuant to the agreements described in subclause (H) (2) hereof, and

(ii)   such part (if any) of the gross royalties as the Company shall be entitled to receive without liability for the payment of income tax thereon,

PROVIDED THAT in the event of the rate of income tax applicable in paragraphs (a) and (b) hereof being increased or decreased in respect of a financial year during the next succeeding financial year the additional or reduced amount of income tax resulting from such increase or decrease shall be deducted from or added to the quarterly payment of the dividend next succeeding the date of such increase or decrease AND IN THE EVENT THAT any such deduction shall exceed such quarterly payment then any excess shall be deducted from any succeeding quarterly dividend or dividends.

(C)   Such shares shall -

(1)   rank for dividends in priority to all other shares;

…

…

(H)(1)   The agreements referred to in subclause (B) hereof are shortly described hereunder and are set out in full in the schedule to these Articles of Association -

(a)   Agreement dated 27th December, 1962 … relating (inter alia) to royalties payable for iron ore sold from mining areas now known as Mineral Lease 4SA and generally called Mount Tom Price; and

(b)   Agreement dated 31st January, 1968 … relating (inter alia) to royalties payable for iron ore sold from a mining area known as Temporary Reserve No. 4053 H and generally called Paraburdoo;

(2)   The Agreements referred to in subclauses (B) and (C) hereof are shortly described hereunder and are set out in full in the schedule to these Articles of Association -

(a)   Agreement dated 22nd October, 1964 between Lloyd Stanley Perron (therein called Perron) and Wright Prospecting Pty. Limited, Hancock Prospecting Pty. Limited, Langley George Hancock, Ernest Archibald Maynard Wright and Hancock and Wright (therein called the prospectors) providing for the acquisition by Perron of a 15% interest in the agreement of 27th December, 1962 with Hamersley Iron Pty. Limited referred to in paragraph (1) (a) of this subclause.

…”

9. The agreement of 27 December 1962 relating to the payment of royalties for iron ore mined or sold from mining areas then known as “mineral lease 4SA and generally called Mount Tom Price” referred to in clause 3A(H)(1)(a) was made between Mr Hancock, Mr Wright, Wright Prospecting Pty Limited (“Wright Prospecting”) and Hancock Prospecting as vendors and three companies, Rio Tinto Management Services (Australia) Pty Limited, Rio Tinto Southern Pty Limited, and Hamersley Iron Pty Limited (“Hamersley Iron”) as purchaser. By that agreement the vendors sold all their right, title and interest in certain “Temporary Reserves” defined as the “Temporary Reserves for iron ore listed in the Second Schedule hereto”. Clause 9 of the 1962 agreement provided for the payment of a royalty of 2.5 per cent in respect of all iron ore produced from the Temporary Reserve land. Clause 10 of the 1962 agreement relevantly provided:

“For the purposes of Clauses 9 … the term ‘the Temporary Reserve land’ shall be deemed to include in addition to the land comprised in the said Temporary Reserves any other land as described in the Third Schedule hereto in respect of which the Purchaser by itself or any subsidiary (within the meaning of that term in the Companies Act 1961 of the State of Victoria) and whether operating alone or in association with or by licence to others obtains Temporary Reserves or other titles or rights to mine iron ore at any time prior to the time of readiness for production.”

10. A number of Temporary Reserves was identified by number and area. The Third Schedule to that agreement stated:

“All those pieces of land delineated and coloured blue on the plan attached hereto and comprising in all an area of approximately 1218 square miles.”

11. The agreement of 27 December 1962, so far as it was set out as a schedule to the constitution of HPPL, did not include the attached plan referred to in the Third Schedule.

12. The agreement dated 31 January 1968 referred to in clause 3A(H)(1)(b) was made between HPPL and Wright Prospecting (together referred to as “Hanwright”) and Hamersley Iron. The agreement was in two parts. Part I was described as “Covering Block 4053H, part of Paraburdoo”. Part II was described as “Covering the remaining blocks and properties mentioned above (to be known as Mount Bruce Reserves)”. Clause 3 of Part I provided that ore won by Hamersley from Block 4053H would be subject to the payment by Hanwright of a royalty of 2.5 per cent “on the same conditions as apply to Hamersley’s present holdings”. Part II headed “Mount Bruce Reserves” provided that Hamersley would form a company to be known as Mount Bruce Mining Pty Ltd the initial shareholdings in which would be 75 per cent Hamersley and 25 per cent Hanwright. Clause 3 of Section A in Part II stated that it was the intention that Mount Bruce Mining issue shares representing 10 per cent of its issued capital to the Australian public. Clause 5 of Section A in Part II provided that ore won by Mount Bruce Mining from the Mount Bruce Reserves would be subject to the payment by Mount Bruce Mining to Hanwright of a royalty of 2.5 per cent “on the same conditions as apply to Hamersley’s present holdings”.

13. It is clear that the royalties payable under Part II of the 1968 agreement in respect of the Mount Bruce Reserves were not the subject of the special dividend rights provided for in clause 3A because clause 3A(H)(1)(b) referred only to the 1968 agreement that related to royalties payable for iron ore sold from Temporary Reserve No. 4053H and generally called Paraburdoo. That was a reference to the royalties payable under Part I of the 1968 agreement.

14. It should be noted that the right of the holders of cumulative special shares to a dividend under clause 3A was for not less than one-third of all royalties and other payments received by HPPL pursuant to the agreements described in clause 3A(H)(1) (subject to the deductions provided for in clause 3A(B)). That is to say, it would be irrelevant to the foreshadowed possible claims for relief that are based upon a possible short payment of dividends if the plaintiffs contended that HPPL had not received all of the royalties to which it was entitled. The entitlement of holders of CS shares to dividends on those shares was to a proportion of the royalties received by HPPL, not a proportion of the royalties payable to HPPL, if there were a difference.

15. Mr Price deposed that in order for the plaintiffs to complete their analysis of the potential causes of action, it was necessary for them to know, first, the amount of the royalties which had been received by HPPL, secondly, the identity of the mining operations covered by the agreements referred to in clause 3A of HPPL’s constitution, thirdly, the amount of royalties received by HPPL from those mining operations and the means by which those royalties were calculated, and fourthly, the amount of the cumulative special share dividends paid by HPPL to the trustee of the Hope Margaret Hancock Trust.

16. I do not think it necessary that the plaintiffs have information as to the means by which royalties received by HPPL from the mining operations covered by the agreements referred to in clause 3A of its constitution were calculated, except insofar as the calculations show how much of the royalties which were received were payable in respect of the production of iron ore the subject of the mining areas identified in clause 3A(H)(1). Otherwise, I accept that the information identified by Mr Price is information that the plaintiffs need in order to ascertain whether they might be entitled to a claim for relief.

17. In his affidavit of 1 December 2014 Mr Price deposed that the plaintiffs had been unable to determine what were the current mining operations in respect of which royalty payments were made to HPPL and did not know the amount of the royalties which HPPL had received in respect of relevant mining operations covered by clause 3A of its constitution. The plaintiffs also did not know what were the dividends HPPL had paid to Mrs Rinehart as trustee of the trust in relation to the cumulative special shares that she held on trust.

18. It appears from a company search of HPPL made on 28 November 2014 that the then issued capital of the company consisted of 3,000 A-class shares, 3,000 B-class shares, 666 cumulative special shares, 220,000 D-class preference shares and 168,416 J-class preference shares. Mrs Rinehart held 46.9 per cent of the A-class shares in her capacity as trustee of the trust and held the balance of the A-class shares beneficially. Mrs Rinehart held all 3,000 B-class shares beneficially. She held 156 of the 666 cumulative special shares, representing 23.4 per cent of those shares, in her capacity as trustee for the trust. She held 510 of the cumulative special shares, representing 76.6 per cent of those shares, beneficially. She held 51,584 of the D-class preference shares in her capacity as trustee for the trust. Presumably, although this does not appear from the company search, she held the balance of the D-class preference shares beneficially. A company called 150 Investments Pty Ltd held the J-class preference shares. Mr Price deposed that that was a company ultimately owned by Mrs Rinehart.

19. Clause 123 of the constitution provides in substance that the company in general meeting can declare a dividend out of profits on the recommendation of the company’s directors, provided that the resolution is approved by the holders of not less than 70 per cent of the votes on all shares in the company. Subject to the rights of the holders of shares with special or preferential rights, any dividends may be declared on one or more classes of shares to the exclusion of other classes and at different rates on different classes of shares.

Financial statements available to plaintiffs

20. The plaintiffs have had available to them annual reports of HPPL and of the Hope Margaret Hancock Trust. The financial statements for the trust show that in the years ended 30 June 2011, 30 June 2012, and 30 June 2013, the trustee received dividends from HPPL of $2,646,933, $1,570,078, and $3,455,460. It was common ground that in the year ended 30 June 2014 the trustee received $3,163,962 as dividends from HPPL. The financial statements of the trust do not disclose the class of shares in HPPL on which the dividends were paid.

21. The financial statements of HPPL do not separately identify the royalties received, let alone the mining operations from which royalties were received. The financial statements of HPPL record that it paid dividends in each of the financial years ended 30 June from 2011 to 2014 of $11,288,000, $6,696,000, $14.7 million and $13 million. HPPL’s financial statements also record that in the same financial years the total dividends “provided for or paid” were $12,496,000, $10,302,000, $10.7 million, and $110 million. For the financial year ended 30 June 2014 the note to the financial statements states that the sum of $110 million was “Total dividends provided for (whether or not declared) or paid”. All dividends are described as having been fully franked based on tax paid at 30 per cent.

Enquiries by plaintiffs’ solicitors

22. On 20 December 2013 the plaintiffs’ solicitors, Yeldham Price O’Brien Lusk, wrote to Corrs Chambers Westgarth, who acted for Mrs Rinehart and HPPL, in the then pending proceedings in relation to the plaintiffs’ application for the appointment of a new trustee to the trust. Yeldham Price O’Brien Lusk said that on their analysis of the financial statements of HPPL and of the trust, the trust appeared to have received significantly less than its share of total declared dividends of HPPL. They said that the trust ought to have received 23.45 per cent of the total declared dividends. They noted that the total dividends declared by HPPL were $12,496,000 in the 2010/11 financial year, $10,302,000 in the 2011/12 financial year, and $10.7 million in the 2012/13 financial year and that the dividends paid to the trust were 21.18 per cent, 15.24 per cent and 32.29 per cent respectively of those figures. They sought an explanation.

23. In response, Corrs Chambers Westgarth said that the plaintiffs’ analysis failed to compare like with like because whilst HPPL provided for dividends against its accumulated profits on an accruals basis, that differed from the payment of dividends recorded in its cash flow statements. HPPL paid dividends of $11.288 million, $6.696 million and $14.7 million for the 2010/11, 2011/12 and 2012/13 financial years and the trust’s share of those dividends was 23.45 per cent. Corrs Chambers Westgarth added:

“We also note that despite the trust owning only 23.42% of the Cumulative Special shares (156 out of a total of 666), the dividends have always been allocated based on a 23.45% shareholding, consistent with the shareholding of A class and B class shares and consistent with the terms of the HMHT settlement deed.”

24. Corrs Chambers Westgarth did not explain why, over the three-year period, there was a shortfall of approximately $780,000 between dividends declared and dividends paid.

25. In their letter of 20 December 2013 Yeldham Price O’Brien Lusk said that the annual report of the trust for 2013 included a statement that “Dividends received increased substantially from the corresponding period due to the finalisation of the SP Investments proceedings”. They said that they understood that to be a reference to proceedings brought by SP Investments Pty Ltd against HPPL that had been resolved in about May 2012. In their letter of 23 January 2014 Corrs Chambers Westgarth did not address that matter and did not explain why the pendency of proceedings brought by SP Investments reduced the quantum of dividends that would otherwise have been paid by HPPL in the 2011/12 financial year.

26. Corrs Chambers Westgarth’s letter of 23 January 2014 was signed by Mr Paul McCann, a partner of that firm. It contained statements which cannot be allowed to pass without comment. Mr McCann wrote:

“Any cursory examination of the information on which you have chosen to focus would make it clear that your analysis is disingenuous and mischievous. Either you are attempting to provide a misleading interpretation of the facts, or you and your clients do not understand the basis upon which financial statements in Australia are prepared (and have not bothered to read the relevant accounting policy notes in the financial statements).

…

Reserving your clients’ rights under such circumstances is a shallow and obvious admission of unwarranted greed on the part of your clients (and in one case, their partner).”

27. One of the fundamental ethical duties of a solicitor is to be courteous in all dealings in the course of legal practice (Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW), r 4.1.2 and formerly New South Wales Professional Conduct and Practice Rules 2013 (Solicitors’ Rules) r 4.1.2). If the practice of law is to be regarded as a profession it should go without saying that courtesy should be shown as a mark of respect in dealing with professional colleagues. Discourteous conduct is likely to increase tensions, inflame disputes and bring the administration of justice, in its wider sense, into disrepute. As has been said:

“Civility within the legal system not only holds the profession together, but also contributes to the continuation of a just society … Conduct that may be characterized as uncivil, abrasive, hostile, or obstructive necessarily impedes the goal of resolving conflicts rationally, peacefully, and efficiently, in turn delaying or even denying justice.”

(KA Nagorney “A Noble Profession? A Discussion of Civility Among Lawyers” (1999) 12 Georgetown Journal of Legal Ethics 815 at 816-817, quoted in Riley Solicitors Manual (LexisNexis Online) at [28,010.5]).

28. When such uncivil behaviour comes to the attention of the Court it should be noticed and condemned.

29. Some nine months later Yeldham Price O’Brien Lusk returned to the question of the adequacy of dividends paid by HPPL to the trust. This time they focused on clause 3A of HPPL’s constitution. On 30 October 2014 Yeldham Price O’Brien Lusk wrote to Corrs Chambers Westgarth seeking clarification of the calculation of the royalties from which distributions to the trust had been derived. Yeldham Price O’Brien Lusk stated that it was the plaintiffs’ understanding that a very substantial proportion (if not the vast majority) of the “Other revenue” referred to in HPPL’s financial statements comprised royalties and other payments received pursuant to the agreements described in clause 3A(H)(1) of its constitution. The amounts of “Other revenue” disclosed in HPPL’s financial statements for the 2010/11, 2011/12 and 2012/13 financial years were $126,574,000, $204,983,000 and $322,600,000 respectively. Mr Price of Yeldham Price O’Brien Lusk provided two schedules based on the assumptions either that the “Other revenue” was assumed to be 100 per cent comprised of applicable royalties or 75 per cent of such royalties. They deducted 7.5 per cent (being half of SP Investments’ 15 per cent entitlement to royalties) and calculated, after deducting tax of 30 per cent, the trust’s share (23.45 per cent) of “Other revenue”. These figures substantially exceeded the total dividends received by the trust whether “Other revenue” was assumed to be 100 per cent or 75 per cent of “applicable royalties”. Yeldham Price O’Brien Lusk asked the defendants to clarify the position by:

“9.1   informing us of the precise amount of the royalties payable to HPPL you consider apply to the agreements referred to in clause 3A(H)(1) of the constitution for each of the quarters the subject of the financial years ending 30 June 2011, 2012 and 2013;

9.2   providing a breakdown of those royalties in respect of each of the mining operations the subject of the agreements referred to in clause 3A(H)(1) of the constitution;

9.3   informing us of how the MBM judgment is likely to impact on the cumulative special shares dividends and when it is expected that the damages and interest from the judgment will be distributed to shareholders;

9.4   informing us of the impact on the cumulative special shares dividends on the settlement with SP; and

9.5   providing any further explanation or information which you consider might assist our clients’ understanding of these issues.”

30. The reference to the “MBM judgment” was to the decision of the Court of Appeal in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2014] NSWCA 323.

31. None of the requested information was provided. On 26 November 2014 Corrs Chambers Westgarth, acting for HPPL, simply stated that the calculations made by Yeldham Price O’Brien Lusk were based on substantially incorrect information and assumptions. Corrs Chambers Westgarth said “Your clients often wish to ignore the rights of Rio Tinto Iron Ore to deduct numerous expenses, as our clients have repeatedly advised in the past.” No explanation was given as to how that was relevant to Mr Price’s calculations which were based on published information as to the revenue received by HPPL and contained assumptions as to what that revenue comprised.

Information obtained in the course of proceedings

32. These proceedings were commenced on 1 December 2014. The plaintiffs sought preliminary discovery of documents, including documents created after 1 July 2010, which disclosed the amount of royalties received by HPPL from any iron ore mining operations in the Pilbara region of Western Australia owned or operated by Hamersley Iron, Mount Bruce Mining or any other entity which was part of the Rio Tinto group; documents recording the methodology by which the royalties were calculated; documents which recorded the amount of iron ore extracted from the conduct of the mining operations; and documents which referred to the location of the land which was the subject of the 1962 and 1968 agreements, including the plan and map referred to in the 1962 agreement and the 1968 agreement that are not included in HPPL’s constitution.

33. The documents sought also included documents recording the dividends paid by HPPL to the trust in respect of each individual class of shares and documents recording the methodology by which the amount of dividends was calculated.

34. The plaintiffs also sought the production of any defence filed by HPPL in proceedings brought by SP Investments in the Supreme Court of Western Australia and a copy of any document recording the settlement of those proceedings.

35. On 19 December 2014 Mr Price swore a further affidavit in which he endeavoured to calculate from public information released by the Rio Tinto group the quantum of iron ore produced by companies in the Rio Tinto group in the Pilbara region which he considered could have been covered by the royalty agreements referred to in clause 3A(H) of HPPL’s constitution and endeavoured to calculate the amount of royalties that HPPL might have received on the basis of that production having regard to the average iron ore price stated in Rio Tinto’s annual reports or other published information. This was done because the plaintiffs had not received any substantive response to their requests for information.

36. On 17 December 2014 the plaintiffs caused a subpoena to be issued to Wright Prospecting for, amongst other documents, all communications from Rio Tinto referring to or recording or disclosing the amount of royalties paid to the partnership between HPPL and Wright Prospecting for the period from 1 July 2010 to 31 December 2014 pursuant to the 1962 agreement and the 1968 agreement. The subpoena also required the production of full copies, including annexures and attachments, of the 1962 agreement, the 1968 agreement and a 1970 royalty agreement.

37. The defendants sought to have the subpoena to Wright Prospecting set aside. That application was heard and dismissed by Darke J on 10 March 2015 (Rinehart v Rinehart [2015] NSWSC 205). It is probable that the royalty statements provided by Hamersley Iron to HPPL contain the same information as is contained in the royalty statements provided to Wright Prospecting that were produced on subpoena and tendered in these proceedings. However, the plaintiffs are only entitled to use the royalty statements produced on subpoena by Wright Prospecting for the purpose of these proceedings. Without the consent of Wright Prospecting or leave of the Court the plaintiffs would not be entitled to use the information contained in the subpoenaed documents for the purpose of deciding whether or not to commence proceedings against Mrs Rinehart or HPPL.

38. The documents from Hamersley Iron produced by Wright Prospecting set out the amount of royalties paid by Hamersley Iron to “Hancock & Wright” and to “LS Perron” and the manner of their calculation.

39. Following receipt of this material Yeldham Price O’Brien Lusk wrote to the solicitors for HPPL (Corrs Chambers Westgarth) and Mrs Rinehart (Speed and Stracey). They asserted that, based upon the royalty statements provided in the four financial years from 30 June 2011 to 30 June 2014, there was a shortfall of $10,250,431 between the dividends that ought to have been paid under clause 3A of HPPL’s constitution and the dividends actually paid. This calculation was based upon a calculation of one-third of the after-tax royalties payable as dividends on the cumulative special shares and applying the trust’s share of the dividend of 23.45 per cent.

32. On 6 May 2015 Corrs Chambers Westgarth, acting for HPPL, responded to this claim and provided for the first time what on its face could be an explanation for the calculation of the dividends paid by HPPL to the holders of the cumulative special shares. Corrs Chambers Westgarth stated that:

“HPPL has undertaken a detailed analysis reconciling the dividends paid by it on the CS Shares and then paid to the HMHT for the 2010/11-2013/14 financial years. A copy of the reconciliation is attached.

The reconciliation confirms HPPL’s dividend calculations on the CS Shares to be correct and in accordance with Article 3A of the HPPL Constitution, save for a minor and inadvertent human error which appears to have caused an overpayment of CS Share dividends up to October 2012.”

41. Corrs Chambers Westgarth rightly observed that the calculation methodology adopted by Yeldham Price O’Brien Lusk was flawed in that although 666 cumulative special shares are now on issue each such share is entitled to only 1/999 of the dividend calculated in accordance with clause 3A. That is to say, all of the cumulative special shares taken together have an entitlement to two-thirds of one-third of the royalties covered by clause by 3A after deduction for tax.

42. Corrs Chambers Westgarth also said that the calculation made by Yeldham Price O’Brien Lusk wrongly included royalties received from mines called Marandoo and Eastern Range. They said that the Hamersley royalty was paid on five mines, namely Mt Tom Price, Brockman, Paraburdoo, Marandoo and part of Eastern Range but that the constitution of HPPL requires the dividend to be calculated on the basis of the 1962 and 1968 agreements, as varied, which included Mt Tom Price, Brockman and Paraburdoo royalties only. They said that the Marandoo and Eastern Range royalties were paid pursuant to different agreements and were not included in the dividend calculation.

43. Corrs Chambers Westgarth also said that HPPL was required to make retrospective adjustments to the calculations of dividends on the cumulative special shares following the settlement of litigation commenced against it by Perron. They said that the payment to Perron of royalties previously received by HPPL meant that the cumulative special share dividends had previously been overpaid and an adjustment was necessary. Corrs Chambers Westgarth provided an analysis of what they contended were the dividends on the cumulative special shares to which the trust was entitled. That analysis was as follows:

“HPPL – CS Share Dividend analysis

4 Years to 30 June 2014

Note	2010/11	2011/12	2012/13	2013/14
Royalty subject to CS Share dividend Total royalty as per YPOL schedule	91,618,144	90,027,679	83,584,212	120,178,001
Adjusted to royalty Cash basis: Less June (current year) Add June (prior year)	(6,667,726)  6,752,631	(7,024,466)  6,667,726	(6,830,612)  7,024,466	(8,877,413)  6,830,612
Less royalties not included in CS dividend calculation Marandoo royalty Eastern Range royalty	(11,369,339)                    0	(11,716,130)      (514,350)	(12,024,432)   (2,651,661)	(12,804,753) (15,809,385)
Subtotal Discrepancy	(1)	80,333,710 _________	77,440,460 __  _(6,865)	69,101,974 __  (54,424)	89,517,063 _________
Applicable Royalties	80,333,710	77,433,595	69,047,550	89,517,063
CS Share dividend calculation Clause 3A(B) Deduction for tax at 30%	(24,100,113)	(23,230,079)	(20,714,265)	(26,855,119)
Subtotal	56,233,597	54,203,517	48,333,285	62,661,944
Multiplied by one-third	18,744,532	18,067,839	16,111,095	20,887,315
Clause 3A(A)(2) Divided by 999	18,763 (per share)	18,086 (per share)	16,127 (per share)	20,908 (per share)
Multiplied by number of shares 156.175232	(2)	2,930,362	2,824,573	2,518,673	3,265,347
Adjusted to dividend cash basis: Less June quarter (current) Add June quarter (prior)	(771,841) 488,411	(517,887) 771,841	(680,874) 517,887	(782,258) 680,874
Total HPPL dividends due to HMHT Less dividend suspended due to Perron dispute Add reinstatement of dividend Less Perron adjustments	(3)	2,646,932 _________	3,078,527 (1,508,448) _________	2,355,686 1,508,448 (408,674)	3,163,962 _________
Dividends paid to HMH Trust	2,646,932	1,570,079	3,455,460	3,163,962
HMH Trust actual dividends per YPOL schedule Less dividends received from other entities Actual dividends received from HPPL	2,648,312 (1,379) ________ 2,646,933	1,570,078 ________ 1,570,078	3,455,460 ________ 3,455,460	3,163,962 ________ 3,163,962
Check	(1)	1	0	0

Notes:

These discrepancies relate to a change in the basis of the royalty payment due to funds withheld upon the commencement of the Perron litigation. While in isolation they would amount to an underpayment of dividend to HMHT of up to $2,235, while reviewing these calculations HPPL has noted a methodology error prior to this that resulted in an over-allocation of royalties to the mines on which the CS Share dividend is paid. As a result, over time and up to June 2013 it appears that the CS Share dividend has been overpaid.

HMHT holds 156 out of a total of 666 CS Shares in HPPL. However, the CS Share dividend calculation has always proceeded on the basis of the proportions set out in the HMH Trust deed, which specifies 15.633% is for the trust and 17.7% is for GHR. For dividend purposes then, HMHT is paid on the basis of 156.175232 shares. This means HMHT has always received approximately 0.1% more in CS Share dividends than it should, while GHR has received correspondingly less. Over the 4 years set out above, this has resulted in HMHT receiving additional dividends of approximately $12,000.

The Perron settlement resulted in the payment to Perron of royalties that had been previously paid to HPPL in respect of the Brockman mine. Since CS Share dividends had previously been paid on this amount, an adjustment to the dividend for the following period was required.”

Bianca Rinehart’s undertaking

44. As noted above, on 28 May 2015 Brereton J made orders appointing Bianca Rinehart as trustee of the Hope Margaret Hancock Trust in place of Mrs Rinehart. His Honour ordered that within 28 days Mrs Rinehart deliver to Bianca Rinehart all documents of the trust in her possession, custody or power. His Honour noted an undertaking given by Bianca Rinehart that she would:

“(d)   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; and

(e)   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.”

Mrs Rinehart’s obligation to produce trust documents

45. Mr McClintock SC, who appeared with Mr Lawrance for Mrs Rinehart, submitted that if an order for preliminary discovery might otherwise be made, it should in any event be refused on the ground that it might be the case that trust documents to be provided by Mrs Rinehart to Bianca Rinehart would provide sufficient information to enable the plaintiffs to decide whether or not to commence proceedings. However, no evidence was given by or on behalf of Mrs Rinehart to establish that that would be so. I made orders to permit any of the parties to relist the matter for further hearing after Mrs Rinehart was due to produce trust documents pursuant to the orders made by Brereton J, but no party took up that opportunity.

46. Mrs Rinehart had previously taken the position that the solicitors for HPPL should respond to Mr Price’s request for information. On 6 March 2015, her solicitors, Speed and Stracey, advised HPPL’s solicitors, Corrs Chambers Westgarth, that:

“… the only information our client has access to, in her capacity as trustee of the HMH Trust, relevant to the above issue are the attached records created by HPPL and provided to our clients [sic] as trustee of the Trust which detail the dividends paid by HPPL to the Beneficiaries in the years 2011-2014.

…

Having regard to the attached letters and the contents of Mr Price’s two affidavits, and the fact that the relevant documentation is prepared and held by HPPL, we ask that HPPL responds [sic] to the requests made directly.”

I infer that Mrs Rinehart’s position is that documents containing information sought by the plaintiffs were not held by her in her capacity as trustee. There is no evidence as to whether she would take the position that the documents were not in her possession, custody or power in any other capacity.

Plaintiffs’ standing

47. Both defendants took an initial point that neither Mr Hancock, nor Bianca Rinehart in her personal capacity, had standing to bring any of the foreshadowed possible claims against HPPL or Mrs Rinehart. The defendants submitted that the proper plaintiff to sue HPPL for any shortfall in the payment of dividends on the cumulative special shares was the trustee of the trust. Mrs Rinehart submitted that only Bianca Rinehart as trustee could maintain a cause of action against her for allegedly inducing HPPL to breach its contract with the holders of the cumulative special shares by not paying all dividends that were payable. She also submitted that any cause of action against her for alleged breaches of trust would need to be brought by Bianca Rinehart in her capacity as trustee to recover compensation for the benefit of all of the beneficiaries and that such claims could not be brought by Bianca Rinehart in her personal capacity as a beneficiary, nor by Mr Hancock. Whilst Bianca Rinehart would have standing to pursue such causes of action in her capacity as trustee, she could not continue the present proceedings in that capacity without being in breach of the undertaking she gave on accepting her appointment as trustee because she did not seek or obtain judicial advice that she would be justified in continuing these proceedings.

48. The plaintiffs contended that these proceedings were being brought by them in their personal capacity as beneficiaries of the trust. They contended that they might be entitled to relief against HPPL or Mrs Rinehart of the kind indicated in that capacity. They submitted that Bianca Rinehart was continuing the proceeding in the same capacity in which she started it, namely as a beneficiary of the trust. She was not continuing the proceeding as trustee on behalf of the trust. No application was made for judicial advice that she would be justified in continuing the proceeding in her capacity as trustee.

49. Proceeding on that basis, I accept the plaintiffs’ submission that the application should not be dismissed on the ground of absence of standing. Although the trustee would ordinarily be the proper party to sue HPPL for alleged short payment of dividends, the plaintiffs as beneficiaries of the trust could maintain such a claim if the trustee were not ready and willing to maintain the claim (Lidden v Composite Buyers Ltd (1996) 67 FCR 560 at 563-564; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 at 436-437; JD Heydon & MJ Leeming, Jacobs’ Law of Trusts in Australia, 7th ed (2006), LexisNexis Butterworths at [2302]).

50. The defendants submitted that there is no reason to apprehend that Bianca Rinehart as trustee would refuse to institute proceedings against HPPL, if HPPL had not paid the dividends due on the cumulative special shares. However, by reason of her undertaking, Bianca Rinehart could not institute such a proceeding without first consulting all of the beneficiaries and obtaining judicial advice. I was told without objection that two of Mrs Rinehart’s children, who are the other beneficiaries of the trust, have aligned themselves with their mother in litigation brought by the plaintiffs against Mrs Rinehart. It cannot be assumed that Bianca Rinehart would be given judicial advice that she would be justified in commencing proceedings against HPPL or Mrs Rinehart in relation to alleged short payment of dividends in her capacity as trustee of the trust, even if she could demonstrate a prima facie cause of action. The dynamics of family relations and the possibility of adverse costs orders that could adversely affect all beneficiaries might provide a basis for a judge’s declining to make such an order, even if a prima facie cause of action were established. In such a case, it would be at least seriously arguable that the plaintiffs in their capacity as beneficiaries of the trust could maintain the proceedings.

51. HPPL submitted that because the interests of the beneficiaries in the trust assets had vested, a court would require the plaintiffs to take a legal transfer of their proportionate share of the CS shares and bring their claim against HPPL as the legal owners of the shares, or as the person entitled to require the directors to register them as the holders of the shares. No authority was cited for this submission. I do not accept it.

52. First, it cannot be assumed that each of the plaintiffs would be entitled to receive a transfer of a quarter or any particular fraction of the shares held by the trustee. There was no evidence as to whether Mrs Rinehart as the former trustee, or Bianca Rinehart as the present trustee, might have a preferred beneficial interest to the extent of her right of indemnity for or in respect of expenses or liabilities properly incurred in execution of the trust.

53. Secondly, there is no obvious reason as a matter of principle why a beneficiary with a vested interest and absolutely entitled to trust property should be required to exercise his or her assumed right to call for the legal estate rather than bringing proceedings as beneficial owner and joining the trustee. It is at least seriously arguable that a cause of action for breach of contract for short payment of dividends that arose prior to the beneficiary’s acquiring legal title to the shares would not pass to the beneficiary merely by his or her acquiring the legal title to the shares. Such a chose in action would be trust property that could be assigned if the beneficiary called for the legal estate, but it is at least seriously arguable that it would not be the transfer of the legal title to the shares that would enable the beneficiary to sue. There may be considerations, such as taxation, or the beneficiary’s right to rely on the trustee’s investment acumen, that could disadvantage a beneficiary if he or she were required to call for a transfer of the legal estate before being entitled to sue.

54. As for a possible claim against Mrs Rinehart for breach of trust, it is clear that the plaintiffs as beneficiaries would have standing to make such a claim. It is true as counsel for Mrs Rinehart submitted, that Bianca Rinehart as the new trustee would have standing to sue for equitable compensation for prior breaches of trust by Mrs Rinehart. But that does not mean that the beneficiaries would not have standing (Young v Murphy [1996] 1 VR 279 at 281, 285-286, 297, 319). Contrary to the submission of counsel for Mrs Rinehart nothing said by the High Court in Alexander v Perpetual Trustees WA Ltd [2004] HCA 7; (2004) 216 CLR 109 at [55]-[58] indicates that the beneficiaries would not have standing to sue the former trustee for breaches of trust. The High Court was there concerned with claims by beneficiaries against third parties.

Apparent merits of potential claims

55. The defendants submitted that the plaintiffs have not established that they might be entitled to relief because the calculations made by Yeldham Price O’Brien Lusk as to the plaintiffs’ entitlements to dividends based upon the royalty statements obtained on subpoena from Wright Prospecting suffered from two flaws. Once those flaws were corrected, then the alleged shortfall disappeared. The two flaws were, first, that the plaintiffs’ calculations did not discount the net royalties received by a third in calculating the trust’s right to dividends to reflect the fact that each cumulative special share was entitled only to a 1/999 share of the net royalty income and there were 666, not 999, shares on issue. The second flaw was said to be that the royalty statements provided by Hamersley Iron covered royalties payable from mining operations called Marandoo and Eastern Range, neither of which, according to the defendants, was the subject of the right to dividends in clause 3A.

56. I accept the first criticism of the plaintiffs’ calculations. It is clear that only two-thirds of the net royalty (being one-third of the gross royalties received by HPPL pursuant to the agreements described in clause 3A(H)(1) subject to prior deductions in clause 3A(B)) are to be distributed to the holders of cumulative special shares currently on issue. It appears that prior to October 1995 one-third of the cumulative special shares was held by The Hancock Family Memorial Foundation Limited and that those shares were bought back by HPPL as part of a transaction described as a “Debt Reconstruction Deed”. This resulted in the number of cumulative special shares decreasing from 999 to 666. But whilst this explains why the constitution provides that each cumulative special share entitles the holder to dividends of 1/999 of the net royalty as defined in clause 3A(B), it does not support an argument that the constitution should be read as if each cumulative special share is entitled to 1/666 of the net royalty. The constitution was not amended at the time of the reconstruction in October 1995. Even if the common intention of all relevant parties had been that the total amount required to be paid as dividends on the cumulative special shares should not be altered by reason of the reduction in the number of those shares, that could not affect the construction of clause 3A. Nor could the constitution be rectified to give effect to such a common intention if such intention existed (Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326; (2014) 290 FLR 18 at [240]-[260]).

57. The riposte of the plaintiffs was that clause 3A of the constitution could be varied by agreement. The constitution has effect as a contract between the company and each member, between the company and each director (and company secretary) and between a member and each other member, under which each agrees to observe and perform the constitution so far as applicable to that person (Corporations Act 2001 (Cth), s 140(1)). The plaintiffs submitted that preliminary discovery might show a course of dealing from which it could be inferred that all relevant parties had agreed that the dividends payable under clause 3A should be calculated without a further discount for the fact that only two-thirds of the shares originally issued remained on issue. Mr Withers, who appeared with Mr Hochroth for the plaintiffs, submitted that such an amendment by an agreement between the contracting parties could be made without the need for a special resolution. He submitted that if it had been the practice since 1995 for payments on cumulative special shares to be paid “at the 24 per cent rate” the plaintiffs might have a claim to enforce the constitution as so varied. In support of this submission counsel referred to the decision of Gordon J in Gibbins Investments Pty Ltd v Savage [2011] FCA 527; (2011) 84 ACSR 1 at [69]-[77] which it was said supported the possibility of there being an agreement among members to vary a constitution that would be effective, notwithstanding that the formal requirements for amendment of the constitution were not met.

58. In the paragraphs referred to Gordon J considered the principle derived from Re Duomatic Ltd [1969] 2 Ch 365 whereby the unanimous assent of shareholders can in some circumstances bind the company in the same way as a resolution passed at a general meeting. Gordon J noted (at [74]) that whatever its uncertainties, the Duomatic doctrine appears to have limits, including that:

“it has been suggested that it only permits shareholders to vary procedural rights (for example notice requirement), not substantive rights: Herrman [Herrman v Simon (1990) 4 ACSR 81]. However, note the discussion of this requirement in Ford’s 2000, [HAJ Ford, RP Austin and IM Ramsay, Ford’s Principles of Corporations Law, LexisNexis Butterworths, looseleaf] at [7.595]”.

59. Gordon J did not express any opinion as to whether the Duomatic principle could apply to a variation of substantive rights as distinct from procedural requirements. On appeal (Vermillion Resources Pty Ltd v Gibbins Investments Pty Ltd [2011] FCAFC 149; (2011) 86 ACSR 246) the Full Court of the Federal Court approved of the statement of Meagher JA, with whom Samuels AP and Priestley JA agreed, in Herrman v Simon that the Duomatic doctrine was:

“… a doctrine which goes to formalities and not to substance. If all shareholders want the same substantial result and say so, acting unanimously, that doctrine no doubt applies in order to dispense with any failure to observe formalities but it is not a doctrine which says that substantial rights may be varied.”

(Herman at 4 ACSR at 83; Vermillion Resources at [17].)

60. In so far as the plaintiffs’ submission that they might be entitled to a claim for relief in respect of short payment of dividends depends upon their calculating the trust’s share of the dividends as being 23.43 per cent of one-third of net royalties, as distinct from 23.43 per cent of two-thirds of one-third of the net royalties, this submission should not be accepted.

61. The second alleged flaw in the plaintiffs’ calculations is that the calculations are based upon the whole of the royalties shown in the royalty statements provided by Hamersley Iron, whereas the defendants say that those royalties included a “Marandoo royalty” and an “Eastern Range royalty” that were not the subject of the dividend rights attaching to the cumulative special shares.

62. The statements from Hamersley Iron stated that the payments made “… represent the amount owing to the respective payees under an agreement dated 12th December, 1962 and assignments thereof.”

63. On the face of it this suggests at least the possibility that all of the royalties the subject of the royalty statements provided by Hamersley Iron were payable under the 1962 agreement and hence covered by clause 3A(H)(1)(a). If so, the dividend rights attaching to the cumulative special shares would be based upon all such royalties.

64. The dividend statements provided by Hamersley Iron to Wright Prospecting include statements as to the tonnage of production under headings such as “RAILED T/PRICE”; “RAILED BROCKMAN”; “RAILED MARANDOO”; “RAILED P/DOO” and “MONTH EASTERN RANGES PROD”. The royalty statements from Hamersley Iron do not contain separate revenue figures in respect of such production, nor are royalties separately allocated to Marandoo and Eastern Range.

65. On 19 May 2015 Yeldham Price O’Brien Lusk asked the defendants’ solicitors to supply the primary records upon which the reconciliation set out in schedule A to the letter of 6 May 2015 (quoted at para [43] above) was based and a copy of any working papers supporting the reconciliation. That request was not acceded to.

66. If the dividends paid in the relevant years were paid on the basis of the reconciliation shown in Corrs Chambers Westgarth’s letter of 6 May 2015, then it is likely that there are primary records showing how the royalties attributable to Marandoo and Eastern Range were calculated in determining the amount of net royalties payable under clause 3A of HPPL’s constitution.

67. Irrespective of whether or not the defendants are correct in their contention that the royalties payable in respect of production from Marandoo and Eastern Range are not royalties to which clause 3A applies, I consider that there is reasonable cause to believe that the plaintiffs might have a right of action against the defendants for short payment of dividend, depending on how the claimed deduction from the royalties which apparently were received from Hamersley Iron on account of production from Marandoo and Eastern Range was calculated.

68. Mr Price deposed that it appeared from publicly available judgments that the 1968 agreement referred to in clause 3A(H)(1)(b) of HPPL’s constitution may have been replaced by a later agreement in 1970. He referred in particular to a decision of the Court of Appeal (Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2014] NSWCA 323 at [89]). He also deposed that the website of the Rio Tinto group of companies included three mines, “Paraburdoo”, “Channar” and “Eastern Range” within what is described as “Greater Paraburdoo”.

69. The defendants submitted that Eastern Range was within the area known as Mount Bruce or the “MBM area” and that royalties on production from Eastern Range were payable under the 1970 agreement and not under either the 1962 agreement, nor under the 1968 agreement in respect of iron ore sold from Temporary Reserve No. 4053H and generally called Paraburdoo. They referred to Wright Prospecting Pty Ltd v Hamersley Iron Pty Limited [2013] NSWSC 536 at [16], [24], [98] and on appeal Mount Bruce Mining Pty Limited v Wright Prospecting Pty Ltd [2014] NSWCA 323 at [15]. The defendants submitted that royalties payable in respect of the blocks and properties known as the Mount Bruce Reserves were not “gross royalties” within the meaning of clause 3A(B) because they did not fall within clause 3A(H)(1). Such royalties were payable under the 1970 agreement made before the inclusion of clause 3A in HPPL’s constitution and were not part of the mining area known as “Temporary Reserve No. 4053H and generally called Paraburdoo” as referred to in clause 3A(H)(1)(b).

70. The effect of Mr Price’s evidence was that his internet searches did not enable him to identify the location of Eastern Range. He was cross-examined as to the contents of the two judgments referred to above which indicate that Eastern Range is within the Mount Bruce physical reserves. He had reviewed the judgments but did so to try to understand how the 1970 agreement fitted within clause 3A(H).

71. If the judgments of Hammerschlag J and the Court of Appeal were admissible to prove the facts referred to then I would accept the defendants’ submissions. But they are not.

72. No-one gave evidence for the defendants as to the location of Eastern Range. The judgments of Hammerschlag J and the Court of Appeal referred to above were admitted over objection as being relevant to the issue whether the plaintiffs had made reasonable inquiries. Their admission for that purpose did not make them evidence as to the fact of the location of Eastern Range as being within the Mount Bruce Reserves the subject of the 1970 agreement (Evidence Act 1995 (NSW) s 91).

73. In relation to the royalties in respect of Marandoo the defendants submitted that Hancock Prospecting and Wright Prospecting were only granted rights to make investigations into the iron ore reserves in the mining areas known as Marandoo in 1972. Those rights were granted by the Iron Ore (Wittenoom) agreement between the State of Western Australia and Hancock Prospecting and Wright Prospecting that was ratified by the Iron Ore (Wittenoom) Agreement Act 1972 (WA). Hence it was impossible, so the defendants submitted, that royalties in respect of Marandoo could have been payable under the 1962 or 1968 agreements referred to in clause 3A(H) of the constitution.

74. The Iron Ore (Wittenoom) Agreement Amendment Act 1992 (WA) sets out the terms of an agreement made on 20 May 1992 between the Premier of Western Australia, Hamersley Iron and Hamersley Resources Limited, and Australian Mining & Smelting Limited. The recitals to that agreement record that in 1973 Hancock Prospecting and Wright Prospecting assigned a 50 per cent share in their right, title and interest in the 1972 agreement to Marandoo Mining Co Ltd, a United States company. The recitals record that by an agreement made on 18 October 1990 between Hancock Prospecting, Wright Prospecting, A M & S Mining Limited (later Hamersley Resources, an assignee of Marandoo Mining Co Ltd), Pilbara Port Railroad and Resource Company Limited, The Hancock Memorial Foundation Limited and Hamersley Iron, Hancock Prospecting and Wright Prospecting assigned their right, title and interest in the 1972 agreement (as varied on 15 September 1982) to Hamersley Iron. Counsel submitted that rights with respect to Marandoo were clearly covered by the 1972 Act and the 1992 Amending Act and by the assignment of rights that occurred in 1990. Hence it was submitted that Marandoo had nothing to do with the 1962 and 1968 agreements referred to in clause 3A(H).

75. Again there was no evidence as to the location of the areas from which iron ore was produced that has generated the receipt of royalties described as Marandoo royalties.

76. Mr Price deposed that from a map obtained from a Federal Government website, it appeared that mining operations at Mt Tom Price and “Western Turner Syncline” were within about 20 kilometres of each other, that mining operations called “Brockman Syncline 4” and “Brockman 2” were about 30 to 40 kilometres from “Western Turner Syncline” and that Marandoo was about 40 kilometres from “Mt Tom Price”. The plaintiffs did not know which of those mines extracted iron ore from the land referred to in the 1962 and 1968 agreements. The map referred to shows Marandoo as lying about 40 kilometres to the east-north-east of Mt Tom Price.

77. Whilst I accept the defendants’ argument that it appears from the Western Australian legislation referred to above that the rights were not granted to HPPL and Wright Prospecting in respect of what is called Marandoo until after the 1962 and 1968 agreements, it does not necessarily follow that Hamersley would not be liable to pay royalties under the 1962 agreement. Clause 10 of the 1962 agreement provided that for the purposes of clause 9 (which obliged Hamersley Iron to pay royalties in respect of iron ore produced from the “Temporary Reserve land”) such Temporary Reserve land shall be deemed to include any other land described in the Third Schedule to the agreement in respect of which the Purchaser or any subsidiary, whether operating alone, or in association with others, obtains Temporary Reserves or other titles or rights to mine iron ore at any time prior to the time of readiness for production. The Third Schedule was not available to the plaintiffs but was produced by Wright Prospecting on subpoena. It is not possible to say with any certainty from that schedule whether or not the area known as Marandoo might fall within any of the lands referred to within the Third Schedule. It would have been a simple matter for the defendants to have given evidence about that, but they did not do so.

78. Accordingly, I do not accept that it is clear that the plaintiffs could not have any claim for relief in respect of the non-payment of dividends in respect of royalties described in the schedule to the 6 May 2015 letter as Eastern Range and Marandoo.

79. If the defendants’ submissions are right, nonetheless the plaintiffs need access to documents establishing how HPPL has calculated the amount of royalties derived from those areas that were not included in its dividend calculations. A party may be entitled to preliminary discovery both for the purposes of determining that it does not have a claim for relief as well as for the purpose of seeking to establish that it does.

80. Further, as noted at [24] there has been no explanation for the apparent shortfall or $780,000 between dividends declared and paid over the three-year period from 1 July 2010 to 30 June 2013.

81. The plaintiffs raised two other grounds upon which they said documents should be provided to enable them to determine whether they might be entitled to a claim for relief. The first related to the “Perron adjustments” of $408,674 in the 2012/13 financial year. That adjustment was made after litigation between the Perron interests and Hancock Prospecting and Wright Prospecting. The plaintiffs seek production of the agreement for the settlement of those proceedings to ascertain whether or not the adjustment was in respect of royalties that were payable under the agreement referred to in clause 3A(H)(2)(a), or whether the adjustment was made pursuant to a new agreement made on the settlement of the proceeding. It seems to me that depending upon the terms of settlement, and, perhaps, the construction of the Perron agreement referred to in clause 3A(H)(2)(a), there could be an arguable claim as to whether the amount of the Perron adjustment depicted in the schedule prepared by HPPL is an authorised adjustment under clause 3A.

82. I also consider that the plaintiffs might be entitled to a claim for relief in respect of what HPPL described in the schedule as a suspension of a payment of dividend of $1,508,448 in the 2011/12 financial year.

83. Finally, the plaintiffs argued that they were entitled to preliminary discovery to ascertain the amount of income tax incurred by HPPL in respect of the one-third of gross royalties the subject of clause 3A(B)(2). In my view this submission involved a construction of clause 3A(B)(2) that is not seriously arguable. The deduction under clause 3A(B)(2)(b) is of an amount of income tax that would be payable by HPPL if it were taxed only on an income equal to the gross royalties received during a quarter after deducting, relevantly, any gross royalties that it might be entitled to receive without liability for the payment of income tax, that is, for any gross royalties which might be exempt income. HPPL’s schedule provides for deduction of tax at the company tax rate of 30 per cent. Mr Price’s schedules did likewise. In my view that mode of calculation is in accordance with clause 3A(B)(2) which allows for a deduction of tax at the applicable rate on a hypothetical taxable income that is equal to gross royalties received after the deduction of amounts described in clause 3A(B)(2)(b)(i) and (ii). The clause does not permit any allocation of expenses or overheads that might be payable or incurred by HPPL referable to its receipt of royalties in calculating the amount of income tax that can be deducted in the calculation of dividends.

84. Nonetheless, for the reasons given the plaintiffs have established that they might be entitled to a claim for relief.

Plaintiffs do not have sufficient information

85. The defendants submitted that the plaintiffs had sufficient information to decide whether or not to commence proceedings against either defendant. They submitted that the plaintiffs now have all of the information, including complete royalty statements issued by Hamersley Iron, the full text of the 1962 and 1968 agreements, including the plan and map to the 1962 and 1968 agreements, and information as to how the dividends paid under the trust have been calculated.

86. For the reasons above, I do not consider that the information presently available to the plaintiffs enables them to determine whether or not they should commence proceedings against either defendant in respect of short payment of dividends.

87. Nor is there evidence that the letter of 6 May 2015 written by Corrs Chambers Westgarth contains the methodology that was applied by HPPL in determining the amount of dividends to be paid.

88. Further, without leave of the Court, or possibly the consent of Wright Prospecting, the plaintiffs could not use the information in the documents produced by Wright Prospecting on subpoena for the purpose of deciding whether or not to commence proceedings against either or both defendants. Wright Prospecting would have to be heard on an application for leave and its position in relation to such an application is unknown.

Reasonable inquiries

89. The defendants submitted that the plaintiffs have not shown that they have made all reasonable inquiries to obtain information in relation to which mining tenements fall within the agreements.

90. The making of reasonable inquiries is a precondition to an applicant’s right to preliminary discovery. What inquiries are reasonable depends upon the circumstances of each case. In the present case, counsel for HPPL submitted that the inquiries made by Mr Price on behalf of the plaintiffs were not reasonable because he failed to have regard to statements in the judgment of Hammerschlag J and the Court of Appeal in Wright Prospecting Pty Ltd v Hamersley Iron Pty Ltd and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd that indicated the location of the Eastern Range reserves as being within the Mount Bruce Reserves. HPPL also submitted that the inquiries Mr Price made on behalf of the plaintiffs were not reasonable because he did not investigate the Western Australian legislation referred to above or a decision of the Supreme Court of Western Australia (Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd (No 9) [2010] WASC 44) in which the judge (Murray J) described something of the history of the Marandoo joint venture (at [197] ff).

91. I do not accept that the plaintiffs failed to make reasonable inquiries. Mr Price did in fact read the judgments of the New South Wales Supreme Court and Court of Appeal in Wright Prospecting Pty Limited v Hamersley Iron Pty Ltd. He did not conclude from those judgments that the Eastern Range reserves were within the Mount Bruce Reserves and excluded from the dividend payable under clause 3A. Assuming (which is not proved on the evidence) that that is the fact, any error by Mr Price was not a failure to make reasonable inquiries.

92. I do not consider that reasonable inquiries required Mr Price, as was suggested to him in cross-examination, to do a word search on the website for “Marandoo”.

93. In the circumstances of this case, the plaintiffs made reasonable inquiries by researching available information from the Rio Tinto group, examining the constitution and financial statements of HPPL and by asking the defendants to explain the position. I do not understand why the defendants, if acting reasonably, would not simply have provided the explanations and information the plaintiffs sought. The potential dispute relates to the affairs of a private company controlled by Mrs Rinehart. Her children are the beneficiaries in respect of a minority parcel of shares and the plaintiffs are two of those children. No evidence was adduced for the defendants to explain why the information the plaintiffs sought could not readily have been provided. Nor was there any evidence as to any harm feared if such information had been provided. Instead, the plaintiffs’ inquiries were met with abuse and obstruction. The fact that the defendants can now point to further inquiries the plaintiffs could have made does not indicate that they failed to make reasonable inquiries by those they did make.

94. The defendants relied upon observations I made in Morton v Nylex Ltd [2007] NSWSC 562 at [33]-[34]. That reliance was misplaced. The deficiency in the applicant’s evidence in that case was his failure to lead evidence as to what information had been learned as a result of the inquiries that the applicant had there made, or in what respects the information was deficient so he was unable to decide whether or not to commence proceedings. In the present case, the plaintiffs have given clear evidence as to what they have learned over time and have identified the ways in which the information they have gleaned is insufficient to enable them to decide whether or not to commence proceedings.

Mrs Rinehart’s offer to produce documents

95. Counsel for Mrs Rinehart submitted that the plaintiffs had unreasonably refused to accept an offer from Mrs Rinehart for the production of documents. As noted at para [46] on 6 March 2015 Speed and Stracey advised Yeldham Price O’Brien Lusk that:

“… the only information our client has access to, in her capacity as trustee of the HMH Trust, relevant to the above issue are the attached records created by HPPL and provided to our clients [sic] as trustee of the Trust which detail the dividends paid by HPPL to the Beneficiaries in the years 2011-2014.”

96. The documents referred to were not in fact attached to Speed and Stracey’s letter. By a covering email Speed and Stracey stated that the letter of 6 March 2015 was said to attach a number of:

“confidential and commercially sensitive documents. They are to be provided to the Applicants and their legal representatives on the basis that they are to be kept confidential and not be disclosed without our client’s consent. If, upon receiving the documents, the Applicants or their legal representatives wish to disclose them then our client’s consent, or an order of the Court, will need to be obtained.”

97. Two things may be said about this offer. The first is that preliminary discovery is sought against Mrs Rinehart in respect of any documents that are or were in her possession whether she has or had possession of them in her capacity as trustee of the trust or otherwise. I infer the documents of which she has possession or power go well beyond those identified, that is documents which detail the dividends paid by Hancock Prospecting to the trustee in the years 2011-2014. But in any event, the conditions upon which access to the documents was offered would be such that, if accepted, the plaintiffs would not be able to commence proceedings (if a decision to commence proceedings were taken) without consent of Mrs Rinehart or order of the Court, if the statement of claim by which such proceedings would be commenced disclosed the contents of the documents received. I do not consider that a reasonable condition to impose.

Documents sought

98. By their amended summons the plaintiffs sought production of the following documents:

“1   All documents dated, created, sent or received in the period from 1 July 2010 to date which record or disclose the amount of any royalties received by HPPL from any iron ore mining operations located in the Pilbara region of Western Australia and owned or operated by Hamersley Iron Pty Limited, Mount Bruce Mining Pty Limited or any other entity which is part of the Rio Tinto group (aside from the mining operations conducted by the Hope Downs Joint Venture) and including, for the avoidance of doubt, the mining operations known as:

1.1   Mt Tom Price;

1.2   Western Turner Syncline;

1.3   Paraburdoo;

1.4   Eastern Range;

1.5   Channar;

1.6   Brockman Syncline 4;

1.7   Brockman 2;

1.8   Nammuldi; and

1.9   Marandoo.

2   All documents disclosing or recording the methodology by which royalties payable to HPPL from the conduct of the mining operations referred to paragraph 1 above are calculated.

3   All documents dated, created, sent or received in the period from 1 July 2010 to date disclosing or recording the identity of the entity within the Rio Tinto group who paid the royalties referred to in paragraph 1 above.

4   All documents dated, created, sent or received in the period from 1 July 2010 to date which record or disclose the amount of iron ore extracted from the conduct of the mining operations referred to paragraph 1 [sic] above.

5   All documents dated, created, sent or received in the period from 1 July 2010 to date which record or refer to the location of the land which is the subject of:

5.1   the agreement dated 27 December 1962 between Langley George Hancock, Ernest Archibald Wright, Wright Prospecting Pty Limited (WPPL) and Hancock Prospecting Pty Limited (HPPL) of the first part, Rio Tinto Management Services (Australia) Pty Limited (RTMS) of the second part, Rio Tinto Southern Pty Ltd (RTS) of the third part and Hamersley Iron Pty Limited (Hamersley) of the fourth part (the 1962 Agreement); or

5.2   the agreement dated 31 January 1968 between HPPL and WPPL trading as Hanwright Iron Mines and Hamersley (the 1968 Agreement).

6   [deleted]

7   All documents dated, created, sent or received in the period from 1 July 2010 to date which record or refer to the amount of dividends paid by HPPL to the Hope Margaret Hancock Trust in respect of each individual class of shares held by the Hope Margaret Hancock Trust in HPPL.

8   All documents dated, created, sent or received in the period from 1 July 2010 to date disclosing or recording the methodology by which the amount of dividends paid by HPPL to the Hope Margaret Hancock Trust were calculated, including, for the avoidance of doubt, the following documents:

8.1   a copy of all of the primary records upon which the reconciliation (the Reconciliation) set out in Schedule A to the letter from Corrs Chambers Westgarth to Yeldham Price O’Brien Lusk dated 6 May 2015 (the 6 May letter) is based;

8.2   a copy of any working papers supporting the Reconciliation, including any electronic version of Schedule A to the 6 May Letter in Excel or similar format;

8.3   a copy of any notes, memoranda and records of communications relating to the Reconciliation;

8.4   any documents recording or evidencing whether or not the ‘Total royalty as per YPOL schedule’ in the first line of the Reconciliation in fact reflects the actual royalties received by HPPL;

8.5   any documents recording or evidencing the relevant rate of income tax applicable, and or the amount of income tax paid, in respect of the royalties referred to in the Reconciliation in each respective year.

8A   The following documents dated, created, sent or received in the period from 1 December 1995 to date:

8A.1   a copy of any documents recording or evidencing how the dividends paid pursuant to Article 3A of the HPPL Constitution have been historically calculated;

8A.2   any documents which record or refer to the construction of Article 3A of the HPPL Constitution which has been applied by HPPL in calculating the amount of dividends payable to the Hope Margaret Hancock Trust, including any documents relevant to whether or not the construction propounded in the 6 May letter has ‘always’ been applied by HPPL:

8A.3   any board minutes and board papers which record or refer to each of the subject dividend payments.

8B   The following documents:

8B.1   the royalty agreements referred to in the 6 May letter through which the Marandoo and Eastern Range royalties are said to be payable to HPPL;

8B.2   any documents recording or evidencing whether or not royalties from the Marandoo and Eastern Range mines are subject to Article 3A of the HPPL Constitution.

9   Any defence of HPPL filed in Supreme Court of Western Australia proceedings numbered CB3074 of 2010 (SP Proceedings).

10   A copy of any document recording the settlement of the SP Proceedings.

In this schedule:

(a) ‘document’ has the meaning given in the Evidence Act 1995 (NSW);

(b)   for the avoidance of doubt, references to documents dated, created, sent or received in a period ‘to date’ means documents dated, created, sent or received in the period up until the date these orders are made.”

99. Because the holders of the cumulative special shares are only entitled to dividends calculated by reference to the royalties received by HPPL, rather than the royalties payable to HPPL (if there is a difference), I initially doubted whether the plaintiffs could have preliminary discovery of documents disclosing the methodology by which royalties payable to HPPL were calculated, or disclosing the amount of iron ore extracted from the conduct of the mining operations (paras 2 and 4 of the amended summons). However, the royalty statements provided by Hamersley Iron to Wright Prospecting which were the subject of the subpoena, and which contain such information, may well be relevant for the purpose of identifying how much of the royalties paid to HPPL were payable in respect of the mining operations known as Eastern Range and Marandoo that may not be covered by clause 3A of HPPL’s constitution. It is a reasonable inference, and I did not understand the contrary to be disputed, that Hamersley Iron would have sent the same royalty statements to HPPL. I think the plaintiffs are entitled to be able to have regard to the entirety of those royalty statements in determining whether or not they should commence proceedings in respect of any shortfall in the payment of dividends. The royalty statements would be caught by the categories 1, 2, 3 and 4. On further consideration I consider that orders for preliminary discovery as sought in those paragraphs should be made. I also think that orders for preliminary discovery for the documents referred to in paragraphs 5 and 7 should also be made.

100. In paragraph 6 of their summons the plaintiffs had sought production of a copy of the plan referred to in the third schedule to the 1962 agreement and the map forming appendix A to the 1968 agreement. That paragraph was deleted from the amended summons. I infer it was deleted because that plan and map were provided by Wright Prospecting on subpoena. But the plaintiffs would not be entitled to use those documents produced by Wright Prospecting without leave of the Court, or possibly the consent of Wright Prospecting, for the purpose of deciding whether to commence proceedings in respect of any shortfall in the payment of dividend. I think an order should also be made as originally sought in paragraph 6 of the summons.

101. I do not accept that the plaintiffs should have preliminary discovery of the documents sought in paragraph 8.5 of the amended summons. The relevant rate of income tax is a matter of legislation. I do not accept that it is a reasonable construction of clause 3A that there might need to be some form of audit to ascertain what deductions might be claimable in respect of the receipt of the royalties for the purpose of calculating dividends.

102. Having regard to my conclusions at [56]-[60] the plaintiffs are not entitled to the documents sought in para 8A, save for the documents referred to in para 8A.3 for the period from 1 July 2010.

103. The other documents sought in the amended summons should be provided.

Security for costs of production

104. Rule 5.8 relevantly provides that on an application for an order for preliminary discovery the Court may make orders for costs including orders in respect of the costs of making and serving any list of documents and of producing any documents for inspection. Such costs are recoverable in the same way as costs and expenses incurred by a person required to produce documents pursuant to a subpoena (Airways Corp of New Zealand v The Present Partners of PricewaterhouseCoopers Legal [2002] NSWSC 521 at [12] per Simpson J).

105. Counsel for HPPL submitted that any order for preliminary discovery should be made subject to the provision of security in such amount as was agreed, or, failing agreement, as determined by the Registrar. Alternatively, HPPL sought the opportunity to make an application for security.

106. I do not agree. The defendants adduced no evidence that the obtaining of the documents sought would create any difficulty. It appears from the schedule to the letter of 6 May 2015 that the documents should readily be to hand.

107. Having regard to the plaintiffs’ position as 50 per cent beneficiaries of the trust and having regard to what the defendants accept to be the trust’s share of the dividends, I see no reason to apprehend that the plaintiffs would not be in a position to satisfy an order for costs of complying with the order for preliminary discovery. There is no evidence that would justify an order for security.

108. The application for preliminary discovery was conducted as adversarial litigation. The plaintiffs will be entitled to their costs of the proceedings. The defendants will be entitled to their reasonable costs and expenses in giving the preliminary discovery. Such costs and expenses are not to include the costs and expenses that have been incurred in defending this application, even though steps taken in defending the application may have identified the documents that will be required to be produced.

109. There will be liberty to the defendants to apply for an order for payment of their costs and expenses of complying with the orders for preliminary discovery.

Conclusion and orders

110. For these reasons I propose to make the following orders:

1.    The defendants give discovery and produce for the inspection of the plaintiffs the following documents as are within their possession or which have been in their possession and are within their power:

1   All documents dated, created, sent or received from 1 July 2010 which record or disclose the amount of any royalties received by HPPL from any iron ore mining operations located in the Pilbara region of Western Australia and owned or operated by Hamersley Iron Pty Limited, Mount Bruce Mining Pty Limited or any other entity which is part of the Rio Tinto group (aside from the mining operations conducted by the Hope Downs Joint Venture) and including, for the avoidance of doubt, the mining operations known as:

1.1   Mt Tom Price;

1.2   Western Turner Syncline;

1.3   Paraburdoo;

1.4   Eastern Range;

1.5   Channar;

1.6   Brockman Syncline 4;

1.7   Brockman 2;

1.8   Nammuldi; and

1.9   Marandoo.

2   All documents disclosing or recording the methodology by which royalties payable to HPPL from the conduct of the mining operations referred to in paragraph 1 above are calculated.

3   All documents dated, created, sent or received from 1 July 2010 disclosing or recording the identity of the entity within the Rio Tinto group who paid the royalties referred to in paragraph 1 above.

4   All documents dated, created, sent or received from 1 July 2010 which record or disclose the amount of iron ore extracted from the conduct of the mining operations referred to in paragraph 1 above.

5   All documents dated, created, sent or received from 1 July 2010 which record or refer to the location of the land which is the subject of:

5.1   the agreement dated 27 December 1962 between Langley George Hancock, Ernest Archibald Wright, Wright Prospecting Pty Limited (WPPL) and Hancock Prospecting Pty Limited (HPPL) of the first part, Rio Tinto Management Services (Australia) Pty Limited (RTMS) of the second part, Rio Tinto Southern Pty Ltd (RTS) of the third part and Hamersley Iron Pty Limited (Hamersley) of the fourth part (the 1962 Agreement); or

5.2   the agreement dated 31 January 1968 between HPPL and WPPL trading as Hanwright Iron Mines and Hamersley (the 1968 Agreement).

6   A copy of:

6.1   the plan referred to in the third schedule to the 1962 Agreement; and

6.2   the map forming Appendix A to the 1968 Agreement.

7   All documents dated, created, sent or received from 1 July 2010 which record or refer to the amount of dividends paid by HPPL to the trustee of the Hope Margaret Hancock Trust in respect of each individual class of shares held by the Hope Margaret Hancock Trust in HPPL.

8   All documents dated, created, sent or received from 1 July 2010 disclosing or recording the methodology by which the amount of dividends paid by HPPL to the trustee of the Hope Margaret Hancock Trust were calculated, including, for the avoidance of doubt, the following documents:

8.1   a copy of all of the primary records upon which the reconciliation (the Reconciliation) set out in Schedule A to the letter from Corrs Chambers Westgarth to Yeldham Price O’Brien Lusk dated 6 May 2015 (the 6 May Letter) is based;

8.2   a copy of any working papers supporting the Reconciliation, including any electronic version of Schedule A to the 6 May Letter in Excel or similar format;

8.3   a copy of any notes, memoranda and records of communications relating to the Reconciliation;

8.4   any documents recording or evidencing whether or not the ‘Total royalty as per YPOL schedule’ in the first line of the Reconciliation in fact reflects the actual royalties received by HPPL.

8A   Any board minutes or board papers which record or refer to dividends paid or provided for by HPPL from 1 July 2010.

8B   The following documents:

8B.1   the royalty agreements referred to in the 6 May Letter through which the Marandoo and Eastern Range royalties are said to be payable to HPPL;

8B.2   any documents recording or evidencing whether or not royalties from the Marandoo and Eastern Range mines are subject to Article 3A of HPPL’s Constitution.

9   Any defence of HPPL filed in Supreme Court of Western Australia proceedings numbered CB3074 of 2010 (SP Proceedings).

10   A copy of any document recording the settlement of the SP Proceedings.

2.    Give liberty to the defendants to apply for an order for payment of their reasonable costs and expenses in complying with order 1.

3.    Order that the defendants pay the plaintiffs’ costs of the proceedings.

4. The Court Book and exhibits are to be returned forthwith and are to be dealt with in accordance with Practice Note No. SC Gen 18 para [28].

111. I will hear the parties on the question of the time by which the defendants should be required to comply with order 1.

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Amendments

28 August 2015 - Para 72: "agreement" added after 1970 in last sentence.