Australia: Keeping Mum – High Court rules on confidential arbitration clause

WHO SHOULD READ THIS

  • Senior management, corporate officers, individuals negotiating contracts and alternative dispute resolution practitioners.

THINGS YOU NEED TO KNOW

  • Potentially limiting words and phrases in arbitration clauses such as 'under' this deed and 'hereunder' should be treated with additional care to ensure they do not dilute the scope of the clause and lead to litigated proceedings, as occurred in the recent Hancock/Rinehart dispute.

WHAT YOU NEED TO DO

  • Review your existing contracts and arbitration clauses to ensure they are sufficiently broad to be effective in referring disputes to arbitration.
  • Get in touch with our team if you need any assistance.

Handed down on 8 May 2019, the High Court's decision to refer the highly publicised Rinehart/Hancock dispute to arbitration illustrates the fine line between an effective arbitration agreement and an inadequate one that undermines the arbitral process.

Background

Between 2003 and 2010, Mrs Gina Rinehart and her controlled entities entered into various deeds with her children, including her son and daughter, Mr John Hancock and Ms Bianca Rinehart. The general purpose of these deeds was to curb a series of claims and threats of litigation publically made by John Hancock, alleging that Gina Rinehart and her controlled entities had committed a number of financial wrongdoings against her children. Three of these deeds have since become the subject of the current litigation:

  • the confidential Deed of Obligation and Release entered into by John Hancock in April 2005 (Deed of Obligation and Release);
  • the Hope Downs Deed entered into with Bianca Rinehart and her two sisters in August 2006 (Hope Downs Deed); and
  • a further deed entered into with John Hancock in April 2007 in which he adopted the Hope Downs Deed (April 2007 Deed),

(together, the Deeds).

The Deeds each contain an arbitration clause. For example, clause 20 of the Hope Downs Deed provides that '[i]n the event that there is any dispute under this deed' there is to be a confidential arbitration. Clause 9 of the April 2007 Deed and clause 14 of the Deed of Obligation of Release are in similar terms.1

Notwithstanding the terms of the Deeds, in October 2014, Bianca Rinehart and John Hancock (the Appellants) commenced proceedings in the Federal Court against Gina Rinehart and various entities controlled by her (the Respondents). Amongst others, the Appellants made two significant allegations. First, they alleged the Respondents had mismanaged trust assets and committed other breaches of trust in relation to trusts under which the Appellants were beneficiaries (Substantive Claims). Second, the Appellants alleged they were not bound by the Deeds, because their signatures were procured by misconduct and undue influence on the part of Gina Rinehart, Hancock Prospecting Pty Ltd and others. They applied for declarations that the Deeds were void as against them (Validity Claims).

By interlocutory application, Gina Rinehart sought an order pursuant to section 8(1) of the Commercial Arbitration Act 2010 (NSW) (Act) that the proceedings (including both the Substantive and Validity Claims) be dismissed or permanently stayed, and referred to arbitration. Section 8(1) provides:

A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party's first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

Primary decision

At first instance, Gleeson J determined that the Validity Claims were not subject to the arbitral clauses in the Deeds. Her Honour interpreted the words 'under this deed' and 'hereunder' restrictively, finding them to be incapable of extending to a dispute as to the underlying enforceability or validity of the deeds themselves.2 Accordingly, her Honour ordered a separate trial of the Validity Claims, but agreed that the Substantive Claims could be referred to arbitration.3

Full Federal Court decision

The Full Federal Court (Allsop CJ, Besanko and O'Callaghan JJ) unanimously overturned Gleeson J's decision, holding that the arbitration clauses in the Deeds should be given a liberal, rather than a narrow interpretation.4 The Full Court was strongly persuaded by the approach taken by the House of Lords to the construction of arbitral clauses in Fiona Trust & Holding Corporation v Privalov [2007] 4 All ER 951 (Fiona Trust). In Fiona Trust, Lord Hoffman held that the construction of an arbitral clause should:5

...start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal.

Thus, the Full Court construed the arbitration clauses in the Deeds in accordance with the presumption that: 'unless the language makes it clear that certain questions [are] intended to be excluded from the arbitrator's jurisdiction', the entire dispute should be determined in arbitration.6 As such, the Full Court had little difficulty in determining that, after starting with the assumption in Fiona Trust, a liberal reading of the clause 'any dispute under this deed' clearly led to a finding that both the Substantive Claims and Validity Claims were within the scope of the arbitration agreement.

High Court

On appeal, the High Court upheld the Full Federal Court's decision, agreeing with their Honours' conclusion, but for different reasons. Notably, the High Court rejected the relevance of Fiona Trust, finding it unnecessary to consider the correctness of Lord Hoffman's approach. Instead, the High Court preferred to rely wholly on the construction of the clause 'by reference to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract'.7

The High Court noted that a critical object of the Hope Downs Deed was the maintenance of confidentiality about the affairs of the Hancock Group (including a number of companies under Gina Rinehart's control), the trusts, the intra-family dispute and the provisions of the Deeds themselves.8 This need for commercial confidentiality was underscored by the fact that highly confidential negotiations were underway amongst the Hancock Group in relation to financing a new joint venture agreement.9 In this context, the parties were essentially agreeing 'to avoid public scrutiny' threatening to jeopardise their commercial endeavours.10 Moreover, at the time the Deeds were drafted, the Appellants and the Respondents were aware that disputes were likely to arise in the future.11 This, in turn, was said by the High Court to indicate that the parties intended to draft an arbitration clause that facilitated a method of dispute resolution of the same level of confidentiality that characterised the Deeds as a whole.12 In their Honours' words:13

It is inconceivable that such a person would have thought that claims of the latter kind, raising allegations such as undue influence, were not to be the subject of confidential dispute resolution but rather were to be heard and determined publicly, in open court.

Thus, the High Court rejected the Appellants' appeal, referring the parties to arbitration in respect of both the Validity Claims and Substantive Claims.

Cross-appeal

A second (albeit less publicised) matter in the dispute was the cross-appeal brought by three of the Respondents, Roy Hill Iron Ore Pty Ltd, Hope Downs Iron Ore Pty Ltd and Mulga Downs Iron Ore Pty Ltd (the Cross-Appellants). The Cross-Appellants sought a stay under section 8 of the Act in respect of claims brought against them by the Appellants, relating to breach to trust and knowing receipt of trust property (being mining tenements) held by the Respondents for the Appellants. The Cross-Appellants, none of which is a party to any of the Deeds, applied to Gleeson J for an order that the claims against them be referred to arbitration. The basis for their request was that each of them was claiming 'through or under' a party to the Hope Downs Deed (Hancock Prospecting Pty Ltd and Hancock Resources Limited), and therefore was a party within the definition of 'party' in section 2 of the Act, which provides:14

"party" means a party to an arbitration agreement and includes:

  1. any person claiming through or under a party to the arbitration agreement, and...

The High Court overturned the decision of the Full Court in allowing the cross-appeal.15 The majority (Kiefel CJ, Gageler, Nettle, Gordon JJ) reasoned that the Cross-Appellants received the mining tenements with knowledge that they were assigned to them in breach of trust. As such, when the Cross-Appellants sought to contest the claim brought against them by the Appellants on the basis there was no breach of trust, the Cross-Appellants took their stand upon a ground which was available to the Respondents and stood in the same position vis-à-vis the Appellants as the Respondents. 16 In other words, since the Respondents and the Appellants are bound by an arbitration agreement applicable to the claim of breach of trust, this claim should be determined as between the Cross-Appellants and the Respondents in the same way as it is determined between the Appellants and the Respondents.17 The Cross-Appellants therefore satisfied the definition of 'party' in section 2 of the Act. However, Edelman J dissented, finding that the 'wide and liberal interpretation' given by the majority to the words 'through or under' was 'antithetical to the global fundamental principle that arbitration is a matter of contract', in respect of which the concept of privity of contract ought to be upheld unless the parties agreed otherwise.18 The majority swiftly rejected Edelman J's approach and references to comparative jurisprudence. Their Honours noted in obiter that despite the international origins of Australia's arbitration legislation, no party made submissions regarding the approach of other jurisdictions and thus, 'attempts to resolve issues raising separate considerations capable of discrete controversy must be eschewed as beyond the boundaries of the resolution of the question of law raised'.19

Conclusion

The High Court's decision in the Rinehart/Hancock dispute highlights the importance of considering and applying the ordinary principles of contract interpretation and construction in drafting an arbitration clause. Potentially limiting words and phrases such as 'under' this deed and 'hereunder' should be treated with additional care to ensure they do not dilute the scope of the clause and lead to litigated proceedings, where the court is likely to publically scrutinise the specific factual context in which the parties negotiated, drafted and signed the contract. Indeed, this is precisely what occurred in the Rinehart/Hancock dispute, despite the parties' initial intentions to keep their disputes away from the public eye.

As is clear from those proceedings, drafting a broad arbitration agreement can be complex. However, most arbitral institutions provide model arbitration clauses in an effort to ensure parties who intend to refer their disputes to arbitration can adopt a tried and tested clause. For example, ACICA's Model Arbitration Clause is:

Any dispute, controversy or claim arising out of, relating to or in connection with this contract, including any question regarding its existence, validity or termination, shall be resolved by arbitration in accordance with the ACICA Arbitration Rules.

Although it may appear cumbersome or verbose, the model clause aims to avoid the type of litigation in the present case by providing a very broad scope to the arbitration agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions