Rinehart Conduct on Trial in Kids’ $4 Billion Trust Suit
By Joe Schneider – Oct 9, 2013 12:41 AM ET
Gina Rinehart, after a two-year court battle to strip her of control of her children’s $4 billion trust fund, capitulated last week. Her son and one of her three daughters now want a judge to determine who will replace her.
A trial began in New South Wales Supreme Court in Sydney today, after family talks over who should succeed the richest woman in the Asia-Pacific region as trustee failed. Gina Rinehart won’t be required to appear in court, with the case to be argued by lawyers on written submissions.
Gina Rinehart, chairwoman of Hancock Prospecting Pty., has argued that Hancock Prospecting would inevitably suffer from ongoing distractions or difficulties from hostile trustees. Photographer: Ron D’Raine/Bloomberg
A final resolution will help lift the uncertainty that has surrounded Gina Rinehart’s company Hancock Prospecting Pty for the past two years, said Michael Adams, head of the School of Law at the University of Western Sydney. The company is in the midst of talks to raise funds for a A$10 billion ($9.4 billion) mining project in Western Australia.
“From a business view, her stepping aside will enable the company to have a much stronger focus” and removes uncertainty as it seeks to raise capital, Adams said in a phone interview.
Gina Rinehart, 59, built the iron ore and coal company she inherited from her father Lang Hancock into an $18.4 billion fortune, making her the 40th richest person in the world, according to the Bloomberg Billionaires Index. Her children’s trust holds about 24 percent of the shares in Hancock Prospecting, or HPPL.
The billionaire, who’d maintained she needed total control of the company to press ahead with capital raising and joint venture talks, last week offered to step down from managing the trust in a bid to end the lawsuit.
John Hancock, 37, and Bianca Rinehart, 36, want the judge to declare that Gina Rinehart committed misconduct in administering the trust. They also want the court to declare invalid changes she made in 2006 to a constitution governing the affairs of the trust, boosting their case for an outsider to succeed her.
The changes Gina Rinehart made required any future trustee to be her direct descendant and included a requirement for the children to enter into prenuptial agreements to prevent non-family members from gaining ownership of HPPL shares.
John Hancock, who had put himself forward as a candidate and also nominated Bruce Carter, an Adelaide businessman and chairman of shipbuilder ASC Pty and deputy chairman of Skycity Entertainment Group Ltd., today proposed Bianca take over management of the trust, his lawyer Christopher Withers told the court.
Ginia Rinehart, at 27 the youngest sibling who has sided with her mother in the family feud, opposed the nomination and sought to name an independent trustee, her lawyer Richard McHugh said. Justice Paul Brereton said he would rule later on the request for Bianca’s nomination.
Gina Rinehart has argued the company “would inevitably suffer from ongoing distractions with or difficulties from hostile trustees.”
Together with Hope Rinehart Welker, 28, John Hancock and Bianca Rinehart sued their mother in September 2011 after she sought to delay the trust’s vesting date from that month to 2068. They accused her of misconduct by falsely threatening them with bankruptcy from capital gains taxes. Hope withdrew from the suit in March.
Correspondence made public during the lawsuit showed Jay Newby, HPPL’s chief financial officer, sought to eliminate any doubts from advice given by PriceWaterhouseCoopers LLP about whether the children would be liable for the capital gains taxes.
John Hancock had later obtained advice from the Australian Taxation Office that the children wouldn’t be liable. Gina Rinehart deliberately gave them just three days notice to sign documents extending the vesting date of the trust, his lawyer said.
The family fortune originated in 1952 when Lang Hancock discovered iron ore deposits in the Hamersley Range, which bordered his sheep farm at Mulga Downs in Western Australia. His grandson also claims that Gina Rinehart has reduced her children’s holdings in HPPL.
“Mrs. Rinehart, not the plaintiffs, has grown the value of the trust substantially,” her lawyer Paul McCann said in an August 2011 statement. “The growth in value would not have occurred without years of hard work and effort by my client.”
From the start of the lawsuit, Gina Rinehart has tried repeatedly to have it dismissed and to keep details of the dispute private.
Justice Brereton in October 2011 rejected her first bid to throw out the lawsuit and order that the dispute be resolved in private mediation.
Gina Rinehart battled to keep documents in the lawsuit sealed to Australia’s highest court, which on March 9, 2012, refused to hear her appeal of a ruling allowing public access to the filings. That resulted in the release of more than 800 pages of documents, including an e-mail from Australian lawmaker Barnaby Joyce, who had urged the children to drop the lawsuit.
Gina Rinehart, Ginia and HPPL tried as recently as last month to again have the lawsuit dismissed and have the dispute resolved by an arbitrator. Supreme Court Justice Patricia Bergin rejected the request on Sept. 18. A two-judge panel of the New South Wales Supreme Court of Appeal in Sydney last week denied Ginia’s request for a hearing.
Gina Rinehart repeatedly urged her children to drop the lawsuit, writing to Hope Welker on Sept. 9, 2011, “Enough is enough, your ill-considered action is now also causing media attention and jeopardizing the lives of our family.”
She followed up later the same day, writing in an e-mail: “Just in case you didn’t already know, it’s now on AAP, Dow Jones and Bloomberg” adding the media are “dying” for another circus.
The billionaire’s lawyer Bruce McClintock, in announcing Rinehart’s offer to step down as trustee Oct. 1, said that too much of her time had been diverted by the “unnecessary litigation.”.
“My client’s gone,” he reiterated a day later before an appeals court panel. “She’s departed the scene.”
The case is John Langley Hancock v. Gina Hope Rinehart. 2011/285907, New South Wales Supreme Court (Sydney).
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