Recently in Hancock v Rinehart  NSWSC 646 (28 May 2015) Justice Brereton handed down a decision which at least for now has calmed the legal fight between Australia's wealthiest person, Gina Rinehart, and her children John and Bianca.
Essentially the matter involved proceeding initiated by Mrs Rinehart's children, John and Bianca to remove their mother Mrs Rinehart as trustee of the Hope Margaret Hancock Trust. The children argued their mother should be removed for alleged misconduct in administration of the Trust which is estimated to be worth between $4 and $5 billion. However, before the hearing, Mrs Rinehart agreed to be discharged as trustee and the key issue in the hearing became who should be appointed as the new trustee.
The essential background is as follows:
[For a full and more detailed article on the background see.]
The hearing resulted in the replacement of Mrs Rinehart by her daughter Bianca as the trustee of Hope Margaret Hancock Trust. Further, the Court also dismissed claims that Mrs Rinehart acted improperly by agreeing to amendments to the constitution of Hancock Prospecting Pty Ltd, the shares of which were the Trust's main significant asset.
In reaching his decision and in appointing a trustee, Justice Brereton indicated that the dominant matter for consideration was the welfare of the beneficiaries. The Court has to appoint the person best suited to administer the trust in the circumstances of the matter. The main considerations/ guidelines are:
". . . moderated by a contrary intention on the part of the settlor: not infrequently, a settlor or testator may indicate a contrary intention by appointing a beneficiary at the outset, or by limiting the class of those who can be appointed. And it also yields to necessity: the court may appoint a beneficiary (or relative of a beneficiary) if there is no one else suitable or willing to act . . ."; and
[See paragraphs - of the judgment.]
Justice Brereton then went on to consider the advantages of appointing a licensed trustee company as the managing trustee (proposed by Mrs Rinehart) as against the appointment of the daughter Bianca as trustee.
In favour of appointing a managing trustee, according to Justice Brereton's decision, was that the trustee would be ". . . independent and would bring experience and professionalism to the position". However such was found not to outweigh negatives like:
For the proposal to appointment Bianca as trustee, Justice Brereton found the following advantages:
On the above considerations, Justice Brerton concluded that Bianca would be better-suited to replace Mrs Rinehart as the trustee of the Trust under the Trustee Act 1962 (WA) section 77 (see equivalent sections in Trustee Act 1925 (NSW) section 70 and the Trusts Act 1973 (Qld)).
Regarding the issues of whether certain amendments to the constitution of Hancock Prospecting Pty Ltd had been improperly agreed to by Mrs Rinehart, whose effect restricted the transferability of the shares to maintain control within the Hancock family. Justice Brereton found that on the evidence it was not establish that Mrs Rinehart had acted in breach of the trust or for an improper or extraneous purpose. The amendments to the constitution to which she agreed remain effective and binding, and were made with a desire to ensure that the shareholding in the company was confined to Hancock family group members so as to ensure that there was no risk of triggering a change of control event under the joint venture in which the Trust had interests.
Resulting from the case is a thorough consideration by Justice Brereton of how the Court should balance the competing factors when it has the responsibility for replacing the trustee of a family trust. Further, the case shows the importance of trustees exercising their power "in good faith" in accordance with the purpose for which those powers are given, and not for any ulterior or extraneous purposes.
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Hancock v Rinehart  NSWSC 646 (28 May 2015)
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