24 May, 2019
Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13
What you need to know
- The High Court of Australia ruled that claims concerning the validity of deeds containing arbitration agreements fell within the scope of the arbitration agreements themselves.
- In reaching its decision, the High Court favoured a contextual and purposive approach to the construction of the arbitration clauses the subject of the appeal, and found it unnecessary to consider the correctness of the approach in Fiona Trust.
- The High Court noted that the principles in Fiona Trust may assume less significance for courts in Australia, given that arbitral clauses such as that recommended by UNCITRAL are in different and arguably wider terms.
- The decision continues a line of authority that is consistent with the Australian courts' liberal and pro-arbitration approach to the interpretation of arbitration agreements.
Ashurst’s team led by Partner Georgia Quick, together with Justin Gleeson SC, Jonathon Redwood, and Danielle Forrester of counsel acted for the Australian Centre for International Commercial Arbitration (ACICA) which intervened as a friend of the court in the proceedings. Vannin Capital provided ACICA financial support.
Background
In October 2014, Bianca Rinehart and John Hancock commenced proceedings against Gina Rinehart and other respondents in the Federal Court of Australia. They alleged that the other parties had diminished the assets of trusts of which they and their two siblings are beneficiaries.
The appeals before the High Court of Australia concerned an interlocutory application brought by Gina Rinehart and others for an order pursuant to s 8(1) of the Commercial Arbitration Act 2010 (NSW) that the matters the subject of the proceedings be referred to arbitration (and that the proceedings be permanently stayed).
The interlocutory application relied on a number of arbitration agreements in deeds entered into between one or both of Ms Rinehart and Mr Hancock and their counterparties: the Deed of Obligation and Release, the Hope Downs Deed, and the April 2007 Deed (Deeds). Each of the Deeds contained an arbitration agreement in similar terms to clause 20 of the Hope Downs Deed that provided for confidential arbitration "[i]n the event that there is any dispute under this deed".
Ms Rinehart and Mr Hancock sought declarations that the Deeds were void against them (which were described in the appellate decision as the "validity claims"). The question before the primary judge was whether the validity claims were subject to the arbitration agreements (i.e. whether the validity claims were disputes "under [the Deeds]"). The primary judge held that they were not within the scope of the arbitration agreement.
The Full Court of the Federal Court of Australia (Allsop CJ, Besanko and O'Callaghan JJ) disagreed. It held that clause 20 of the Hope Downs Deed should be given a liberal interpretation and ordered that the proceedings be stayed. The Full Court considered in detail the decision of the House of Lords in Fiona Trust & Holding Corporation v Privalov [2008] 4 All ER 951. That case is the leading authority on the interpretation of arbitration agreements in other pro-arbitration common law jurisdictions, such as England and Wales, Hong Kong and Singapore. In it, Lord Hoffman said that the construction of an arbitration agreement "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" unless there is clear language to suggest that some disputes were intended to be excluded.
Issues before the Court
The appellants, Ms Rinehart and Mr Hancock, argued that the Full Court's interpretation of the words "any dispute under this deed" was too broad. They said that the broad interpretation adopted rendered the words incapable of being distinguished from the words "a dispute in connection with this deed". Their contention was that the Full Court's interpretation "obliterates real distinctions between different words and phrases."
The respondents, including Mrs Rinehart, argued that the appellants' approach to the interpretation of the arbitration agreements created the inconvenience of having possible disputes being heard in two forums. They argued that the construction of an arbitration agreement should be governed by ordinary principles of contractual construction, the consequence of which is to give the language of the clause a liberal construction based on the context of the relationship between the parties.
ACICA was granted leave to intervene and made written submissions as a friend of the Court. It submitted that the approach of the House of Lords in Fiona Trust was consistent with the orthodox application of principles in Australian contract law in the context of the integrated statutory framework for domestic and international arbitration in Australia. The framework was said to assume that all parties to arbitration agreements within that framework are presumed to have intended that all possible disputes are to be dealt with in the one forum. ACICA further submitted that any narrower statement of Australian law risks placing it at odds with other common law and Model Law jurisdictions in the Asia-Pacific region.
The Court's decision
The Court dismissed the appeals. Kiefel CJ, Gageler, Nettle and Gordon JJ delivered a joint judgment with which Edelman J agreed (except on a different issue in a cross-appeal).
Ultimately the Court held that it did not need to consider the principles in Fiona Trust to resolve the appeals, given the "application of orthodox principles of interpretation, which require consideration of the context and purpose of the Deeds": at [18]. The Court further observed that "[t]he approach adopted in Fiona Trust may not assume so much importance for courts in the future given the likelihood that arbitral clauses such as the UNCITRAL Arbitration Clause in different and arguably wider terms are now recommended for use by commercial parties": at [20].
The Court agreed with the approach taken by the Full Court in treating the context and purpose of the Deeds as important to their construction. The Court considered that the "[t]he background to and the purpose of the Deeds, as reflected in their terms, point clearly to arbitral clauses of wide coverage with respect to what was to be the subject of confidential processes of dispute resolution": at [26].
The Court analysed the purpose of each of the deeds, considered the context and timing of entry into each, and concluded that the "quelling of disputes about the title to assets…was of great commercial importance to the prospective arrangements": at [27].
The Court further recognised that confidentiality was a serious concern for the parties in their dealings leading up to the entry into the Deeds: at [32] and [38]. It therefore reasoned that, having regard to the surrounding circumstances and purpose of the Deeds, the parties could not have understood that disputes concerning the validity of the Deeds would be determined in the public spotlight: at [44]. The Court considered this to be especially so with respect to the Hope Downs Deed, a critical object of which was to maintain confidentiality about the intra-family dispute: at [46]. Ultimately, the Court concluded that it was "inconceivable" that a person in the position of the parties to the Hope Downs Deed would have thought that the "validity claims" (that involve allegations of undue influence) would be ventilated in open court: at [48].
What the decision means for arbitration in Australia
The decision resolves significant uncertainty that has persisted since the first instance and appeal decisions were made.
Although the Court did not adopt the approach taken by the House of Lords in Fiona Trust to the interpretation of arbitration agreements, the decision continues a line of authority that is consistent with the Australian court’s liberal and pro-arbitration approach to the interpretation of arbitration agreements.
Accordingly, the decision is likely to be well received by the Australian arbitration community.
Ashurst Partner and ACICA Vice President Georgia Quick offered the following comment:
ACICA takes an active interest in the development of coherent and supportive judicial consideration of arbitration. We were pleased the High Court granted us leave to make written submissions to provide broader context for this important issue. We are pleased with the outcome.
Brenda Horrigan, ACICA President and Partner and Head of International Arbitration at Herbert Smith Freehills, offers her thanks for the pro bono assistance of Ashurst, Mr Justin Gleeson SC, Mr Jonathon Redwood, and Ms Danielle Forrester, and for the financial support of Vannin Capital.
Vannin Capital added:
Vannin Capital was proud to provide financial support to ACICA to allow it to intervene in the proceeding and make its submissions. The decision further establishes Australia as a pro-arbitration jurisdiction and Vannin looks forward to continuing to support the growth of Australia as a desirable venue for international commercial arbitration.
International perspective
Parties engaged in international arbitration may consider that the Court has missed an opportunity to bring Australia into line with what is regarded as the international standard for the interpretation of arbitration agreements. Fiona Trust remains the leading authority for the interpretation of arbitration agreements in the leading arbitral jurisdictions in the Asia-Pacific region: Hong Kong and Singapore. Parties doing business in the region may apprehend that their arbitration agreements will be enforced differently in Australia, whether that be more or less readily.
However, international parties should take comfort in the decision evincing a strong judicial disposition from Australia's highest court to the liberal interpretation of arbitration agreements. Moreover, and particularly in relation to the words "under [the Deeds]", the Court gave an expansive interpretation to the words "through or under" for the purposes of non-parties to arbitration agreements. Taken together, the liberal interpretation of the arbitration agreement and the expansive interpretation of the words "through or under" arguably resulted in giving the scope of the arbitration agreement the subject of the decision its widest possible interpretation. Time will tell whether the decision ultimately results in the Australian courts adopting an even more liberal approach to the interpretation of arbitration agreements than that espoused in Fiona Trust.
For further information, please contact:
Georgia Quick, Partner, Ashurst
georgia.quick@ashurst.com
