Hancock v Rinehart: Dynasty Style Feud Abated

Thursday 4 June 2015 @ 11.32 a.m. | Corporate & Regulatory | Legal Research | Taxation

Recently in Hancock v Rinehart [2015] 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.

Nature of the Proceedings

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:

  • The Hope Margaret Hancock Trust was established in 1988 by Lang Hancock, with Mrs Rinehart appointed as the trustee and her children the beneficiaries.
  • The children were supposed to get their share of the money in September 2011, when the youngest turned 25. However, this did not eventuate.
  • Four days before the eldest daughter (Ginia's) birthday, Mrs Rinehart wrote to her children explaining the trust was set to vest, but warning them that they would be bankrupted if they took their money due to capital gains taxes.
  • The children then asked for evidence, which was not provided and subsequently the children began court proceedings.
  • Three of the children (John, Hope and Bianca) also accused their mother of changing the trust in 2006 to prevent them from being able to take their shares until 2068 - something their mother denies.

[For a full and more detailed article on the background see Gina Rinehart family trust feud explained - ABC News.]

The Outcome - Appointment of a Trustee

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:

  • the wishes of the persons by whom the trust was created (expressed or implicit in the trust instrument/deed). Note: ". . . such wishes need not be express, and may be inferred from the terms of the trust, or the identity or description of the original trustee";
  • - ". . . a trustee should not be appointed with a view to promoting the interests of some of the beneficiaries in opposition either to the wishes of the settlor or the interests of the other beneficiaries". A consideration aimed at avoiding conflict of interest which is said to be ". . . reflected in the court’s preference not to appoint a beneficiary, or the relative of a beneficiary, as trustee." Note: though that the courts general preference ". . . is not an absolute rule" and may be:

". . . 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

  • whether the appointment of the trustee would promote or impede the execution of the trust.

[See paragraphs [121]-[124] 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:

  • the triggering of certain pre-emptive rights under a joint venture agreement adversely effecting the interests of the Trust;
  • subversion of the purpose of the managing/ custodian trustee dichotomy through not providing a proper separation between them;
  • requiring payment of substantial remuneration to the trustee reducing the amount available for distribution to the beneficiaries; and
  • not alleviating concerns that Mrs Rinehart's may exert influence over the trustee company.

For the proposal to appointment Bianca as trustee, Justice Brereton found the following advantages:

  • the appointment would not trigger any pre-emptive rights prejudicial to the interest of the Trust;
  • she would act voluntarily and take no remuneration;
  • she had demonstrated the ability to assert the rights of the Trust against Mrs Rinehart;
  • her consent to act as trustee was unconditional; and
  • she was prepared to accept any conditions the court might impose on her appointment.

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)).

The Outcome - Fraud Issue

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.

Results From the Case

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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