On 8 May 2019, the High Court passed its judgment on the conflict between mining magnate Mrs. Gina Rinehart and her children. It served as a guideline to take the right approach in interpreting the scope of arbitration clauses. There was a number of matters initiated in the lower courts, however the High Court appeal was limited to the issue of whether arbitration clauses in deeds extended to disputes regarding the legality of the actions themselves. The High Court also considered a cross appeal.
Background
Against public threats of legal actions made by John Hancock about Mrs. Rinehart, among others, Mrs. Rinehart’s children executed deeds which contained releases of claims and promises not to make further claims. Mrs. Rinehart’s children later challenged the legality of the actions, claiming that their consent was acquired by misconduct.
Accordingly, each deed included a clause which referred “any dispute under” the deed to confidential arbitration. The question for the High Court’s determination was whether the claims regarding the legality of the actions should be referred to arbitration under the arbitration clauses in the deeds. If this dispute was not to be referred to arbitration, it could be appealed in open court.
Considering this issue in the lower court, the primary judge stated that any claims related to the legality of the actions went beyond the scope of the arbitral clauses, arguing that the words “under this deed” limited the scope of the clause to controversy regarding the operation of each deed, not their validity. At the appeal hearing, the Full Court of the Federal Court disagreed with the primary judge’s formation of the arbitral clauses, finding that the parties intended that a claim regarding the legality of the actions was within the scope of the clauses, which must be interpreted freely.
High Court Decision
The case went on appeal to the High Court, which passed its judgment on 8 May 2019. The High Court supported the conclusion reached by the Full Court, but openly declined to consider the Fiona Trust “presumption” and instead stated it would work on the proper formation of the arbitral clauses by applying orthodox principles of contractual interpretation.
Central to the High Court’s logic was that the deeds should be interpreted against their context and purpose. The Court considered that the fundamental purpose of the deeds was to resolve disagreements about the title to commercial assets and a critical object was to maintain the confidentiality of the affairs of the Hancock Group, certain trusts, the intra-family dispute and the provisions of the deeds themselves. This confidentiality extended to the conflict resolution process contemplated by the arbitral clauses. Against this context and purpose, the High Court found that the background to, and purposes of, the deeds pointed clearly to arbitral clauses of a wide scope that would include disagreements about the legality of the actions. It was said to be “incomprehensible” that parties to the deeds could have thought any challenge regarding their validity would not be the subject of confidential dispute resolution, but would rather be heard and determined publicly in open court. Consequently, the appeals were rejected by the High Court.
The existence of the dispute regarding the scope of the arbitral clauses, and the individualized interpretation approach taken by the High Court to their resolution, means that there will continue to be uncertainty about the type of disputes that are covered by an arbitration clause, because each clause will be interpreted against its context and purpose.
There is no strict rule or assumption that can be applied, but this decision, instead, emphasizes the ongoing need for careful drafting of arbitration clauses in contracts to ensure they are both valid and appropriate in scope. The exact impact of the decision will take some time to be established. Given the broad wording more commonly used in modern arbitration clauses, parties can hope the issue of narrowly worded clauses will become less common into the future.
