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The High Court clarifies when arbitration clauses keep disputes confidential in Rinehart/Hancock decision
The High Court’s decision in the high-profile Rinehart/Hancock dispute highlights the importance of drafting clear arbitration clauses if they are to be effective in keeping disputes between the parties out of the public eye.
- When a party wants to set aside a contract for invalidity and the contract contains an arbitration clause, ordinary principles of contractual interpretation dictate whether the dispute will remain private.
- Parties should not rely on a presumption that the existence of an arbitration clause will prevent a dispute about validity being heard by a court in every case.
- If arbitration is the parties’ desired form of dispute resolution, the importance of confidentiality and the intention of the parties to avoid litigation before the courts (by referring disputes to arbitration) should be made clear in the terms of the contract.
- That said, in cases of uncertainty, it is now more likely than not that a court will find that all disputes between the parties to a contract containing an arbitration clause should be determined at arbitration.
On 8 May 2019, the High Court handed down its judgment in the ongoing five-year Rinehart/Hancock arbitration and litigation dispute. This is the first time the High Court has had the opportunity to clarify the correct approach to determining whether a dispute as to the validity or enforceability of a deed is a dispute arising ‘under’ the deed or ‘hereunder’ within the meaning of an arbitration clause in the deed.
The High Court decided in favour of enforceability and validity questions being determined at arbitration and out of the public eye – but the question will always need to be determined with reference to the specific context and surrounding circumstances in which the parties’ contract has arisen.
Background to the dispute
In October 2014, Bianca Rinehart and John Hancock (Appellants), commenced proceedings in the Federal Court against their mother, Gina Rinehart, and various entities controlled by Gina Rinehart, including Hancock Prospecting Pty Ltd (Respondents), alleging mismanagement of trust assets and other breaches of trust in relation to trusts under which the Appellants were beneficiaries (Primary Claim).
Between 2003 and 2010, the parties entered into various deeds which contained arbitration clauses providing that any dispute concerning the parties would be resolved by arbitration rather than court proceedings. The exact wording of the arbitration clauses differed in each of the deeds, with some of the deeds requiring, very broadly, disputes ‘arising out of, relating to or in connection with’ the deeds to be referred to arbitration and other deeds containing more limited language, requiring only disputes ‘under this deed’ or ‘hereunder’ to be referred to arbitration.
The Appellants also alleged that the deeds were void, including as a result of the non-disclosure of all material facts by the Respondents and lack of negotiation at arms’ length (Validity Claim).
The Respondents made separate interlocutory applications to the Federal Court, seeking orders that the Appellants’ underlying proceedings be stayed on the basis that the Primary Claim and the Validity Claim fell within the scope of the arbitration clauses and therefore required determination by an arbitrator, not a court.
First instance decision
At first instance, Gleeson J ordered a separate trial of the Validity Claim to the extent it related to the validity of the deeds that required disputes ‘under this deed’ or ‘hereunder’ to be referred to arbitration.
Gleeson J held that the terms ‘under’ or ‘hereunder’ were incapable of extending to a dispute as to the underlying enforceability or validity of the deeds, as distinct from a substantive claim arising from the performance by the parties of their obligations concerning the deeds. On the other hand, Gleeson J held that the broader terms requiring disputes ‘arising out of, relating to or in connection with’ the deeds to be referred to arbitration was capable of extending to an enforcement or validity dispute.
Full Federal Court decision
The Full Federal Court unanimously overturned Gleeson J’s decision, finding that the Primary Claim and the Validity Claim must be determined at arbitration. The Court held that:
- while the phrases, disputes ‘under this deed’ or ‘hereunder’, may be narrower than the phrase ‘arising out of, relating to or in connection with’, that does not mean the former phrases are narrow in their own right;
- in accordance with the decisions of the Full Federal Court in Comandate Marine Corp v Pan Australia Shipping Pty Ltd and the New South Wales Court of Appeal in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways, in any case, an arbitration clause should be read with a ‘sensible presumption’ that the parties do not intend the inconvenience of having possible disputes being heard in two different venues (ie before a court for some disputes and before an arbitrator for others);
- while this does not rise to the level of a strict legal presumption, and it is still necessary to go through the ‘orthodox process of contractual construction’, it is still the case (reflecting an approach that would be taken by reasonable persons in a commercial context) that ‘liberal width and flexibility’ must be given to ‘elastic and general words of the contractual submission to arbitration, unless the words in their context should be read more narrowly’;
- there is ‘little difficulty’ in concluding that a dispute about the very effect of a deed, and the operation of each of its constituent clauses, is one that arises ‘under’ the deed; and
- this construction was reinforced by the particular circumstances of the parties – specifically, in negotiating the deeds, the Appellants and Respondents had a clear desire to quell any further disputes concerning the trusts and to widen, rather than narrow, the likely operation of the deeds (including the scope of the arbitration clauses).
High Court decision
The High Court (Kiefel CJ, Gageler, Nettle, Gordon and Edelman JJ) unanimously dismissed the appeal on this point*. The High Court held:
- the starting position in construing any commercial contract, including one containing an arbitration clause, is to consider ‘the language used by the parties, the surrounding circumstances and the purposes and objects to be secured by the contract’ (with reference to its earlier decision in Electricity Generation Corporation v Woodside Energy Ltd);
- in negotiating and executing the relevant deeds in this case, the parties clearly intended to ‘put to rest’ all issues between them. Notably, the Respondents were in the middle of delicate financing negotiations for their mining operations and all parties proceeded on the basis that strict commercial confidentiality would be maintained in relation to their underlying disputes; and
- accordingly, ‘it could not have been understood by the parties’ that ‘any challenge to the efficacy of the deeds was to be determined in the public spotlight’ – indeed, it was ‘inconceivable’ that the parties intended to have any further dispute determined other than by a private arbitrator outside public scrutiny.
Following the High Court’s decision, the parties will now have to arbitrate all of their disputes.
What does it mean?
Crucially, the High Court emphasised the need to consider the ordinary principles of contractual construction in construing any arbitration clause. Given the expressions ‘under’ this deed and ‘hereunder’ are inherently ambiguous, it is legitimate, consistent with an objective approach to contractual interpretation, to have regard to the specific factual context in which the parties have negotiated and executed the contract.
In the Rinehart/Hancock case, the parties’ clear desire to quell the disputes between them and to have any further disputes which may arise dealt with confidentially was the determinative factor in the High Court finding that the Validity Claim fell within the scope of the arbitration clauses.
It is significant that the High Court did not apply the general ‘presumption’ referred to by the Full Court as to reasonable persons wishing to ‘minimise the fragmentation across different tribunals of their future disputes by establishing “one-stop adjudication” as far as possible’.
At the same time, the High Court did not expressly rule out reliance on such a presumption. Where it is not clear (ie in ‘borderline’ cases where the parties’ commercial intentions are not as readily apparent), the inclusion of an arbitration clause itself is likely to guide a court toward finding that the parties intended for all disputes between them (including a dispute as to enforceability or validity) to be arbitrated, irrespective of the precise terms of the clause.
In any event, parties who wish to have all disputes between them kept out of the public eye are still best to adopt the ‘arising out of, relating to or in connection with’ style of arbitration clause. If the parties wish to ‘carve out’ certain aspects of their commercial arrangements from arbitration, that position should be made crystal clear.
*The High Court also considered a cross-appeal relating to whether some of the respondents could properly be considered to be parties to the deeds. The High Court, by majority (Edelman J dissenting), held that those respondents could at least be considered persons claiming ‘through or under’ parties to the deeds and therefore parties in their own right for the purpose of section 8(1) of the Commercial Arbitration Act 2010 (NSW). This alert is not intended to provide substantive commentary on that separate issue.