By Albert Monichino QC *
I INTRODUCTION
1. In Rinehart v Hancock Pty Ltd (‘Hancock’)i Australia’s apex court, the High Court of Australia, recently considered the proper approach to the interpretation of arbitration agreements. Whilst the ‘liberal presumptive approach’ articulated by Lord Hoffmann in Fiona Trust ii is followed in the UK and Singapore iii, this approach has received a cooler reception in Australia. Indeed, Australian intermediate appellate courts have adopted contrary positions regarding whether Fiona Trust should be applied. These conflicting positions were at centre stage in Hancock with the New South Wales Court of Appeal (‘NSWCA’) and the Full Court of the Federal Court of Australia (‘FCAFC’) applying divergent approaches to the interpretation of the same arbitration clause. Thus, it was hoped that the High Court would clarify whether Fiona Trust should be followed in Australia but, ultimately, the Court left the question unresolved.
II FACTS
2. Hancock involved a long-running family dispute between, on one side, Mrs Gina Rinehart and certain companies in the Hancock Group,iv and, on the other, two of her children, Bianca Rinehart and John Hancockv (‘the Siblings’). vi The dispute, which attracted extensive media coverage in Australia, was described by the FCAFC as ‘one between a mother and her children, about the destruction of a family relationship under the crushing weight of wealth’.vii
3. The facts of Hancock are complex. For present purposes it is sufficient to say that:
- In 1992, Mrs Rinehart was the trustee of the HMH Trust and HFMF Trust of which her children (including the Siblings) were the sole beneficiaries.
- The main assets of each trust were certain companies within the Hancock Group, including HFMF and HRL, which owned valuable mining tenements.
- In the mid-1990’s, HFMF and HRL (which Mrs Rinehart had no financial interest in) transferred three mining tenements to HPPL, a Hancock Group company that Mrs Rinehart held a majority interest in.
- These tenements were subsequently transferred to other companies in the Hancock Group in which Mrs Rinehart had a major financial interest but in which the Siblings had no financial interest (‘Third-Party Companies’).
- Mrs Rinehart was a director of all of the relevant companies.
4. In 2006, the Siblings, Mrs Rinehart and certain Hancock Group companies (including HPPL, HFMF and HRL) entered into the Hope Downs Deed. The Deed was intended ‘to quell ongoing disputes as to title concerning mining tenements’.viii The Deed required the Siblings to give releases of claims and undertakings not to sue Mrs Rinehart or the Hancock Group Companies that were party to the deed (which did not include the Third-Party Companies).
5. Clause 20 of the Hope Downs Deed also provided for alternative dispute resolution, including arbitration, and was drafted in relatively narrow terms. It provided:
6. In 2014, after nearly a decade of litigation in the New South Wales courts on distinct claims involving the Hope Downs Deed, the Siblings initiated separate litigation in the Federal Court of Australia against their mother and, inter alia, HPPL.x
7. The Siblings sought relief for breach of trust and removal of Mrs Rinehart as an officer of the Hancock Group companies and as trustee of the respective trusts. They also sought declarations that the Hope Downs Deed (and various associated deeds), and the arbitration agreements contained within them, were void.
8. Mrs Rinehart and HPPL applied under s 8(1) of the CAA for an order that the proceeding be stayed and that the parties be referred to arbitration, pursuant to the arbitration agreements contained in the several deeds. They argued that the matters before the Federal Court fell within the scope of the arbitration agreements and that the releases and bars to future action contained in the several deeds provided a complete defence to the Siblings’ claims. The Third-Party Companies also sought a stay of the Federal Court proceedings on the grounds that they were deemed parties to the arbitration agreement because they were claiming ‘through or under’ HPPL.
9. The Siblings resisted the stay application on the grounds that the deeds were void (and therefore incapable of referring the parties to arbitration pursuant to s 8(1) of the CAA because they had been procured through wrongful conduct by Mrs Rinehart and HPPL (‘Validity Claims’).xi In contrast, the Respondents countered that the Validity Claims fell within the scope of the several arbitration agreements.
10. The operation of the arbitration agreement contained in the Hope Downs Deed (and associated deeds) was the central question in dispute.xii
III EARLIER PROCEEDINGS
11. Shortly before proceedings were initiated in the Federal Court, the New South Wales Court of Appeal (‘NSWCA’) handed down its judgment in the related proceedings brought by the Siblings. The interpretation of cl 20 of the Hope Downs Deed was central to those proceedings. In sum, the NSWCA rejected the liberal presumptive approach to interpreting arbitration agreements as laid down by the House of Lords in Fiona Trust.xiii In that case, Lord Hoffmann famously observed that the fine semantic distinctions drawn in the old cases between relational phrases like ‘under’, ‘in connection with’, arising out of’ and the like ‘reflect[ed] no credit upon English commercial law’.xiv Instead, ‘the construction of an arbitration clause should 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’.xv
12. In contrast, the majority of the NSWCA (Bathurst CJ, Young JA agreeing) held that arbitration clauses should be interpreted by the same rules of construction that apply to other contractual clauses. Applying the traditional Australian approach to the construction of commercial contracts, the Court found that a dispute as to the validity of the deed was not a dispute ‘under this deed’ and therefore was not a dispute that the parties had agreed to refer to arbitration.xvi This was because, in the majority’s view, a dispute ‘under the deed’ involved a dispute about something ‘controlled by the deed’ (which necessarily assumed the deed’s validity).xvii
13. However, in the Federal Court proceedings, the FCAFC held that the proper approach to the interpretation of arbitration agreements was the ‘liberal presumptive approach’ as articulated by Lord Hoffmann in Fiona Trust. Applying that approach, it held that the Validity Claims were disputes that fell within the scope of the reference to arbitration in the several deeds.
14. The FCFCA thus disagreed with the NSWCA, to the point that it considered that the conclusion of the NSWCA was plainly wrong. Australian courts are required to follow earlier decisions of intermediate appellate courts, unless the earlier decision is considered to be ‘plainly wrong ’.xviii Accordingly, it was a very serious matter for the FCAFC to depart from the earlier decision of the NSWCA, particularly as both cases concerned the interpretation of the very same arbitration clause.
IV PROCEEDINGS BEFORE THE HIGH COURT
15. The Siblings appealed to the High Court from the FCAFC. The primary issue was whether the Validity Claims fell within the scope of the relevant arbitration agreements. This required consideration of the proper approach to the construction of arbitration agreements.
16. Despite the diametrically opposed positions taken by the NSWCA and FCAFC regarding the proper approach to interpretation of arbitration agreements, and indeed the interpretation of the identical clause, the High Court found it unnecessary to consider whether Fiona Trust is good law in Australia. According to the majority, Kiefel CJ, Gageler, Nettle and Gordon JJ, the appeals could be resolved by application of orthodox principles of contract interpretation, without reference to Fiona Trust.xix Thus, the majority declined to grapple with the important question of whether the liberal presumptive approach is applicable in Australia.
17. Instead, the High Court held that the orthodox approach required consideration of the context and purpose of the deed. Here, the majority embraced the FCAFC’s observation that ‘[c]ontext will almost always tell one more about the objectively intended reach of [prepositional] phrases than textual comparison of words of a general relational character ’.xx
18. In light of the proper approach to contractual interpretation, xxithe majority held that: ‘[i]t could not have been understood by the parties to these Deeds that any challenge to the efficacy of the Deeds was to be determined in the public spotlight ’.xxii In other words, the purpose and the context of the several deeds — in particular, the overwhelming desire to quell any future disputes by confidential dispute resolution — demanded an expansive interpretation of the phrase ‘dispute under this deed ’.
19. Accordingly, disputes as to the validity of the several deeds (as well as substantive disputes) were held to fall within the scope of the reference to arbitration, and the appeal from the FCAFC was dismissed.
20. In a separate, concurring judgment (on this issue), Edelman J held that consideration of context was a vital element of interpretation but did not consider it necessary to determine what weight to place on the presumption that parties to an arbitration agreement wish to minimise fragmentation of their disputes.xxiii Thus, his Honour appears to have recognised that the considerations in Fiona Trust were valid.
V COMMENT
21. It is disappointing that the High Court of Australia did not tackle the important policy question of whether Fiona Trust , and the presumptive liberal approach to the interpretation of arbitration agreements, is good law in Australia. Nor did the majority endorse the narrow interpretative approach employed by the NSWCA. As a result, the conflict of views between two Australian intermediate appellate courts remains unresolved.
22. There are strong reasons for supporting a generous approach towards the interpretation of the scope of arbitration clauses. Such an approach has been followed among leading commercial jurisdictions, including Singaporexxiv and Hong Kongxxv. It is also strongly supported by leading academic commentators, such as Gary Born.xxvi Moreover, such an approach has the salutary benefit of facilitating arbitration.
* LLM (Cambridge), Chartered Arbitrator, Barrister and Mediator, Immediate Past President of the Australian Branch of the Chartered Institute of Arbitrators. The author gratefully acknowledges the valuable assistance of Alan de Rochefort-Reynolds, MIR (Melb), JD (Melb) in the preparation of this article.
[i] [2019] HCA 13.
[ii] Premium Nafta Products Limited v Fili Shipping Company Limited [2007] 4 All ER 951.
[iii] See, eg, Larsen Oil & Gas Pte Ltd v Petroprod Ltd [2011] 3 SLR 414.
[iv] The Hancock Group included signatories to the Hope Downs Deed, namely HPPL, HML, HFMF, HRL and HMHTI, as well as related third-party companies which were not parties to the Hope Downs Deed (referred to below as ‘Third Party Companies).
[v] Mr Hancock changed his name by deed poll.
[vi] Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442, [134].
[vii] Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442, [134].
[viii] Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442, [77].
[ix] Emphasis added.
[x] Rinehart v Rinehart (No 3) (2016) 257 FCR 310.
[xi] Rinehart v Rinehart (No 3) (2016) 257 FCR 310, [14] – [18] (Gleeson J).
[xii] A second, and subsidiary question (which is not discussed here) involved the ability of the Third-Party Companies to claim ‘through or under’ parties to the agreement pursuant to s 2(1) of the Commercial Arbitration Act 2010 (NSW) (‘CAA’). That section is equivalent to s 7(4) of the Australian International Arbitration Act 1974 (Cth) and s 6(5) of the Singapore International Arbitration Act (CAP 143A).
[xiii] [2007] 4 All ER 951.
[xiv] Premium Nafta Products Limited v Fili Shipping Company Limited [2007] 4 All ER 951, [12] (Lord Hoffman).
[xv] Premium Nafta Products Limited v Fili Shipping Company Limited [2007] 4 All ER 951, [13] (Lord Hoffman).
[xvi] Rinehart v Welker (2012) 95 NSWLR 221, [121].
[xvii] Rinehart v Welker (2012) 95 NSWLR 221, [125].
[xviii] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, [135].
[xix] Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13, [18].
[xx] Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13, [26] quoting Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442, [193].
[xxi] Referring to Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [35] (French CJ, Hayne, Crennan and Kiefel JJ).
[xxii] Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13, [44].
[xxiii] Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13, [83].
[xxiv] Larsen Oil & Gas Pte Ltd v Petroprod Ltd [2011] 3 SLR 414, [19].
[xxv] Klöckner Pentaplast GmbH v Advance Technology [2011] HKEC 941, [17].
[xxvi] Gary B Born, International Commercial Arbitration (Kluwer, 2nd ed, 2014) 1319.