Family feud over matters of trust
Battle for control of the $5 billion Hancock trust is mired in bizarre twists and troubling allegations, writes Adele Ferguson.
When Gina Rinehart made the bombshell decision last week to stand down as trustee of the multibillion-dollar family trust, little would she know that relatively unknown Adelaide accountant Bruce Carter, who has no blood ties to the family, would be the only nominee left standing.
Then in a shock twist, Carter withdrew his nomination just before he was due to take the stand on Friday afternoon and have the blow torch applied to him by Rinehart's legion of silks.
It wasn't a prospect he had ever looked forward to, given the high-stakes battle over the $5 billion family trust. But when his wife died suddenly after returning from a holiday in Paris just a few days ago, it all became too much for Carter.
It was a decision that wasn't taken lightly and it threw a spanner in the works for Rinehart's estranged son, John Hancock, and daughter Bianca Rinehart. But given the untimely death of his wife, it was entirely understandable.
It leaves both sides up in the air about who will run the trust after Hancock made an equally surprising announcement earlier this week that he would no longer nominate as trustee. It is yet to be seen whether this changes.
The legal battle was begun on September 5, 2011, by Rinehart's third child, Hope Welker, now 28, over the multibillion-dollar Hope Margaret Hancock Trust that Rinehart has been running on behalf of her four children since 1992.
A few days later, Hope's two older half-siblings, Hancock and Bianca, joined the action to have their mother removed as trustee, claiming "deceptive, manipulative and disgraceful conduct" in relation to her management of the trust.
Since the family feud became public, it has been a game of ping-pong as various family members have put forward nominations as replacement trustee, only to later pull out.
To date, three of Rinehart's four children have nominated and withdrawn. Hope was the first, only to withdraw her nomination after pulling out of the legal action against her mother due to financial difficulties and a marriage break-up.
Then came Bianca, who took her place only to withdraw in April, leaving Hancock to nominate himself and an independent Bruce Carter.
But as the trial began, things started to unravel when Hancock made a shock decision to withdraw his nomination and Bianca decided to renominate.
In a statement Hancock said: "I decided to stand down as replacement, in the interests of family harmony, and support Bianca's nomination."
His withdrawal came after iron ore billionaire Andrew Forrest swore an affidavit supporting him as a credible and worthy candidate.
Forrest waded into the fight to support a friend who asked for help at the weekend and also because he felt uncomfortable at the slur the family fight was having on corporate Australia.
What Bianca and John hadn't counted on was that the court would back the argument of their younger sister, Ginia, that such a late change required time to investigate the suitability of Bianca and her past. It was time the court wasn't prepared to give, despite the fact that Bianca had been a board member of a number of family companies from 1998 until 2011.
In another twist, the court then knocked Ginia's proposal for an independent trustee on its head. Ginia's suggestion was that the most suitable way to manage the trust was to appoint an independent trustee such as ANZ Trustees.
Like Bianca's nomination, Ginia's proposal had been submitted too late, leaving Justice Paul Brereton to rule against it on the basis that there wasn't enough time to allow her siblings to investigate her proposal.
Against this backdrop the court has listened to some serious allegations during Rinehart's time as trustee of the family trust. One was that she committed "fraud on power" as she amended the company's constitution when she formed the Hope Downs joint venture with mining giant Rio Tinto in 2006.
Rinehart has denied any wrongdoing and will outline her motives as the trial continues.
A key allegation is that her grand plan was to change the constitution to cement her control of the trust and the Hancock Prospecting family jewels. The trust holds 23.4 per cent of Hancock Prospecting, and the rest is owned by Rinehart.
In a nutshell, the amendments to the constitution were complicated, but they had the effect of locking Rinehart in. They did this by stopping any shareholder in Hancock Prospecting from "transferring shares" in the company to anyone other than a non-lineal descendant of Rinehart. (Previously, shareholders were allowed to transfer the shares to one another.)
The changes also meant that if any shareholder decided to sell their shares, the company automatically had the right to buy them.
Given that Rinehart controls 76.6 per cent of Hancock Prospecting, it meant she had the right to buy them.
Another amendment would make Rinehart's position foolproof. That change stipulated that if the trust was ever run by an independent trustee rather than a family member, the shareholders would be deemed to have offered their shares for sale.
Put simply, if the four children were kept divided, the prospect of having their shares sold from under them if they appointed an independent trustee would be a massive deterrent. It prompted the barrister for John and Bianca, Chris Withers, to argue in the court that the impact of the changes to the constitution was to cause "harm to the beneficiaries of the trust" and give Rinehart a "pre-emptive right" to maintain control.
At this point an auditor could independently value the shares at "fair value", but they could be purchased over any length of time. Withers said in court: "The beneficiaries have no right of redress against the company and no right to sue the company or director if the repurchase is to their disadvantage ... the first defendant is rewarded for a breach of trust."
He said this was not the way the constitution was intended.
The children have never been close. John and Bianca had a different father from Hope and Ginia, which created complications and a bitterness that worsened as the children grew up and apart.
The rift was intensified by the fact that the four children were educated in different schools around the world and some were given more privileges than others, depending on who was in or out of favour with their mother at different times. It meant that bonding between the siblings became all the more difficult. Even before the falling out in 2011 there had been few family reunions.
Most Christmases, birthdays and Mother's Days have come and gone without the presence of all four children and their extended families in the same room with their mother. Whether Gina has been too busy to organise such events or decided it was in everyone's interests to keep them apart, the brutal reality is there have been few opportunities for the Rinehart/Hancock clan to get together.
Given the changes to the constitution and the insistence that Rinehart prefers a lineal descendent to run the trust, it is difficult to imagine how that can happen without third-party intervention such as the court.
At this point in the trial Hancock is the most obvious candidate, yet his mother has made it clear she thinks he is "unsuitable" given that he has spoken to the media when he shouldn't have.
Greg Milton, the Englishman who was married to Rinehart for eight years from 1973 to 1981 and is the father of John and Bianca, said in a recent interview with Fairfax Media that he sees the case as a fight that "appears to be continuing a vendetta against [his] children for no valid reason except [that their] mother may have something personal against me or want roles and privileges for her second set of children [Hope and Ginia, fathered by Frank Rinehart] to the detriment [of John and Bianca]. It's amazing John can withstand that sort of pressure."
Milton got divorced in 1981 and agreed he wouldn't see John and Bianca, who were 4 and 5 at the time, until they were adults. "I am personally disgusted that my children are now having to fight the Office Machine [a term he uses to describe the entourage of lawyers and accountants who do Rinehart's bidding], as I had to, to receive what Lang intended them to have as a matter of course."
The trust was due to vest on September 6, 2011, when Ginia turned 25. It is worth at least $5 billion, which would make all of the children billionaires in their own right.
But they have had little access to their inheritance since Rinehart took over from Lang as trustee when the children were minors.
The court fight revolves around Rinehart's decision as trustee to demand the voting rights to the children's shares in return for extending the vesting date of the trust from September 6, 2011, to 2068 on the basis that they would be made bankrupt by a massive capital gains tax bill. Hancock obtained a ruling from the Australian Tax Office in 2012 that said the beneficiaries would not face a capital gains tax on the trust vesting. This means no bankruptcy threat.
It is a case that has been pitched as mother versus son, then mother versus daughter and sister versus sister. It is about power and control. As Hancock said recently: "My hope is my mother is just doing this to apply the blowtorch and see what my melting point is."
Meanwhile, Rinehart has painted herself as the biggest victim in the ongoing war, with her lawyer telling the court on Friday that she had been so selfless that she could not retire or pour her billions into philanthropy.
There will be a number of discussions over the weekend in a bid to find a resolution before the trial resumes next week. If not, its fate with be in the court's hands.
Hope Welker, 28
The first of Gina Rinehart’s two children with the late Frank Rinehart, who was 65 when he married the then 28-year-old Gina. Hope, who has two children, originally sided with her half-siblings, but withdrew from the legal action this year due to financial problems and a broken marriage.
THE DEFENDANTS THE PLAINTIFFS
Ginia Rinehart, 27
The youngest child, her 25th birthday in September 2011 — the date at which the trust was supposed to vest — kicked off the feud. Ginia sided with her mother and is now considered the heir-apparent. Her engagement to Ryan Johnston recently ended.
Gina Rinehart, 59
One of the richest women in the world manages Hancock Prospecting and has been running the Hope Margaret Hancock Trust on behalf of her four children since 1992.
Bianca Rinehart, 37
Bianca, who has one child, was the successor to the family business after John's departure. Involved in the business from 1998 but withdrew from full-time employment in 2008, and stepped down from all company boards in 2011 after joining the legal action against her mother.
John Hancock, 38
Gina Rinehart’s oldest child, the first of two with Englishman Greg Milton, who she married at 19 and divorced eight years later. John, a father-oftwo and the heir apparent until the falling-out with his mother, believes Lang Hancock wanted him to take over the family business.
The $5 billion trust at the centre of the feud. Named after the late Hope Hancock, wife of Lang, who set up the trust in 1988 for his grandchildren’s “education, advancement and benefit”. The trust owns almost 25 per cent of Hancock Prospecting, and was meant to vest in September 2011.