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8 May 20194 minute read

High Court of Australia affirms liberal pro-arbitration approach and the importance of arbitration in confidential disputes

In yesterday’s decision of Rinehart v Hancock Prospecting [2019] HCA 13, the High Court confirmed that arbitration agreements should be interpreted liberally and are to be informed by surrounding circumstances including the purpose and object of the contract in which the arbitration agreement sits.

The case before the High Court arose out of the long-running and high-profile Australian family feud between billionaire Gina Rinehart (Mrs Rinehart) and her two eldest children, Bianca Rinehart (Ms Rinehart) and John Hancock (Mr Hancock) (together, the Appellants), over the administration of a family trust.

These parties, and other related parties to the litigation, had entered into certain deeds, which each contained an arbitration agreement that provided that disputes "under this deed" or “hereunder” were to be resolved by confidential arbitration.

The Appellants commenced litigation before the Federal Court of Australia and contended that the deeds were void and unenforceable against them. Mrs Rinehart and other parties applied for a permanent stay of that litigation on the basis that the disputes should be referred to confidential arbitration under the deeds. The Appellants contended that the scope of the arbitration agreements did not include disputes as to the validity of the deeds because such disputes where not “under the deed” or “hereunder”.

The Appellants were successful at first instance however that decision was overturned by a unanimous decision of the Full Federal Court. The Appellants appealed that decision to the High Court.

The High Court unanimously dismissed the appeal and confirmed that it was clear that the arbitration agreements in the deeds, “construed in context, include as their subjects the validity claims raised by [the Appellants].”

The High Court applied “orthodox principles of interpretation”, finding that the background to and purposes of the deeds clearly pointed to the arbitral agreements having “wide coverage with respect to what was to be the subject of confidential processes of dispute resolution” (afforded by arbitration). In doing so, the High Court considered the context in which the deeds had been executed, following closely watched and widely reported litigation between the parties, such that one of the deeds in question was intended to address the risk of commercial damage by public statements which might be made by Mr Hancock, and the risk of disclosure of confidential information. In relation to another deed, it was relevant that the “critical object” of that deed was the maintenance of confidentiality about the affairs of the corporate group and the relevant trusts, as well as the intra-family dispute and the provisions of the deeds themselves.

The High Court observed that, in the circumstances, 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”, and that it was “inconceivable” that the parties would have thought that claim as to the validity of the deeds were to be heard and determined publicly in open court.

Although the High Court did not need to consider the broader integrated statutory framework for international and domestic arbitration which implements the UNCITRAL Model Law on Commercial Arbitration, the Court did note that the approaches taken by courts in interpreting the scope of arbitration agreements “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.”

The Model UNCITRAL Arbitration Clause provides that “[a]ny dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force.”

The High Court also allowed a cross-appeal, finding that certain companies that were not parties to the deed were “parties” within the meaning of the relevant domestic arbitration statute. That aspect of the decision is not discussed in this article.