Rinehart v Hancock Prospecting Pty Ltd; Rinehart v Rinehart [2019] HCA 13
On appeals from the Full Court of the Federal Court, the High Court held that the arbitral clauses in a family's deeds of settlement, read in their context, covered claims that misconduct had procured them, and by majority that alleged knowing recipients of mining tenements from parties to one deed, whose defence rested as an essential element on those parties' beneficial title, could have claims against them stayed under section 8(1) of the Commercial Arbitration Act 2010 (NSW).
What the court decided
Two trust beneficiaries sued Mrs Rinehart, the alleged trustee, together with Hancock Prospecting Pty Ltd (HPPL), a Hancock Group company, and others [1]–[2], [4]. They alleged breaches of trust and other duties [5]. The respondents relied on several deeds, three of which, made between April 2005 and April 2007 and including the Hope Downs Deed, were in issue [8]. Mrs Rinehart sought a referral to arbitration under section 8(1) of the Commercial Arbitration Act 2010 (NSW) (the NSW Act) [6].
It was not disputed that the NSW Act applied although the deeds pre-dated it, and the joint reasons of Kiefel CJ, Gageler, Nettle and Gordon JJ did not resort to separability or kompetenz-kompetenz [13]. They noted that the NSW Act has been enacted in substantially the same form in each State and Territory [13].
Clause 20 of the Hope Downs Deed provided for confidential mediation and then arbitration of "any dispute under this deed" [39]. The other two deeds contained arbitral clauses in relevantly similar terms [10]. The appellants did not deny signing the deeds but said their assent had been procured by misconduct, and they sought declarations that the deeds were void as against them (the validity claims) [11]. The primary judge held that the validity claims were outside the clauses, reading "under this deed" narrowly [15]. The Full Court gave the clause a liberal interpretation and stayed the proceedings [16].
The Court unanimously dismissed both appeals with costs [50], [83]. These clauses, construed in context, included the validity claims, so a House of Lords decision favouring a broad presumptive reading did not need to be considered [21]. A critical object of the Hope Downs Deed was confidentiality about the Hancock Group, the trusts, the family dispute and the deeds [46]. The joint reasons found it inconceivable that a person in the parties' position would have expected validity claims to be decided in open court rather than confidentially [48].
On the cross-appeal, three other companies sought a stay as persons claiming "through or under" a party to the Hope Downs Deed, within section 2(1) of the NSW Act [57]. They allegedly received tenements from HPPL and another group company knowing of a breach of trust [58].
The joint reasons granted special leave and allowed the cross-appeal [81]. They treated Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332; [1990] HCA 8 as the leading authority on "through or under" [61]. An alleged knowing recipient that invokes, as an essential element of its defence, the alleged trustee's beneficial title claims through or under the alleged trustee as a party to the arbitration agreement [66]. Here the companies relied on the transferors' rights under the Hope Downs Deed to pass title free of the appellants' claims [79].
Edelman J agreed that special leave should be granted but would have dismissed the cross-appeal with costs [104]. His Honour concluded that the New South Wales Parliament, by using the formula "claiming through or under a party", did not intend to depart from privity of contract [84]. On his Honour's analysis, the companies defended an independent claim on their own rights [102], a view the joint reasons rejected [79].
In the cross-appeal, the Court set aside orders 5, 6 and 8 of the Full Court and in their place stayed the proceeding pending any arbitral reference or until further order, with a separate order staying the claims against a further company, Mulga Downs Investments Pty Ltd, on the same terms [81]. The new orders also made the appellants pay the moving parties' costs of the interlocutory application of 24 December 2014 and, so far as it concerned its paragraph 9, of the application of 3 November 2014, and the costs of the Full Court appeal including the leave application, in each case subject to Mulga Downs Investments Pty Ltd paying the costs of whether it was a party to the arbitration agreement under section 2 [81]. The appellants were also liable for the costs of the cross-appeal [82].
Why it matters
Read in context, a general arbitral clause in a settlement deed can extend to claims attacking the deed's validity [21], [26]. The joint reasons accepted that some cases may turn largely on the language of the clause [26]. Drafters should say expressly whether disputes about a deed's validity go to arbitration.
A non-party alleged to have received property from a party to the arbitration agreement in breach of trust, and whose defence rests as an essential element on that party's title or releases, may claim through or under it, at least where the claimant and the transferor agreed to arbitrate the dispute about that title [66], [73], [77], [79]. A stay must be sought no later than the first statement on the substance of the dispute, so it may precede a defence, though the joint reasons said the primary judge could have, and probably should have, ordered the defences to be filed before deciding the application [6], [71]. The joint reasons left open guarantees, other securities and wider third party questions [78]. The decision is on the NSW Act, and readers should check the current text of the Commercial Arbitration Act 2011 (Vic) [13].
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.