Bloomberg News

Rinehart Changed Trust Rules for Her Own Benefit, Lawyer Says

October 09, 2013

Hancock Prospecting Chairman Gina Rinehart

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

Gina Rinehart, the richest woman in the Asia Pacific region, changed the rules governing her children’s $4 billion trust in 2006 for her own benefit and not her children’s, breaching her duty as trustee, a lawyer said.

Christopher Withers, an attorney representing John Hancock, 37, and Bianca Rinehart, 36, who sued to remove their mother from managing the trust in 2011, asked a judge at the start of a trial in Sydney yesterday to invalidate the changes and name a replacement trustee.

The changes adopted by Gina Rinehart’s closely held Hancock Prospecting Pty governing the trust, which holds almost a quarter of the mining company’s shares, prohibit non-family members from owning the stock or managing the holdings. A declaration from the court that the changes weren’t valid would let Rinehart’s children sell shares to outsiders or borrow against them.

The changes “could never have been in the interest of the beneficiaries,” Withers said. “By exercising that power for that purpose, Mrs. Rinehart sought to confer a benefit to herself.”

Gina Rinehart won’t be required to appear in court for the trial, with the case to be argued by lawyers on written submissions.

Her eldest daughter Bianca Rinehart yesterday offered to replace her mother in managing the trust fund in an unsuccessful bid to end the two-year family dispute.

Ongoing Distractions

The offer was rejected by Gina Rinehart’s youngest daughter Ginia, who has sided with her mother, allowing the trial in New South Wales Supreme Court to start.

Justice Paul Brereton said he’d first listen to Withers’s opening statement before issuing a ruling on whether Bianca should be considered as a potential trustee. Gina Rinehart has argued that Hancock Prospecting would inevitably suffer from ongoing distractions or difficulties from hostile trustees.

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.

Seeking Capital

A final resolution will help lift the uncertainty that has surrounded Hancock Prospecting 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.

The changes Gina Rinehart made in 2006 also included a requirement for the children to enter into prenuptial agreements to prevent non-family members from gaining ownership of HPPL shares. She had said the changes were necessary to move ahead with a joint venture with Rio Tinto Group to develop the Hope Downs mine in Western Australia.

“There’s no evidence to support that,” Withers said.

John Hancock, who had earlier nominated himself and Adelaide businessman Bruce Carter, now favors his sister Bianca to manage the trust, Withers told the court.

Independent Trustee

Ginia Rinehart, at 27 the youngest sibling, sought to have an independent trustee named, determined by either ANZ Trustees, a unit of Australia and New Zealand Banking Group Ltd., or National Australia Trustees, a unit of National Australia Bank Ltd., her lawyer Richard McHugh said.

ANZ Trustee is a unit of a senior lender to HPPL, Withers objected.

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.

Brereton yesterday ordered HPPL to disclose 49 documents the company claimed were privileged, relating to legal advice it got in instituting changes to the constitution as well as documents relating to HPPL’s joint venture with Rio Tinto in developing the Hope Downs mine.

The judge also ordered Gina Rinehart to pay her children’s legal costs relating to the request to remove her as trustee.

Sheep Farm

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.

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.

The case is John Langley Hancock v. Gina Hope Rinehart. 2011/285907, New South Wales Supreme Court (Sydney).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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