Arbitration agreements in Australia following Rinehart v Hancock

Aug 2020

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In 2019, the High Court of Australia (HCA) confirmed in Rinehart v Hancock that orthodox principles of contractual interpretation apply when interpreting arbitration agreements.[1] The HCA determined that arbitration agreements should be construed in context,[2] with consideration of the language used, the surrounding circumstances and the purposes and objects of the contract.[3]

As part of its approach, the HCA declined to consider the application of the Fiona Trust presumption in Australia.[4] That is, the HCA declined to confirm that the construction of arbitration agreements should start from the presumption that parties to the agreement likely intended any dispute arising out of the relationship to be decided by the same tribunal.  In so deciding, the HCA left the conflicting views of recent decisions of two Australian intermediate appellate courts unresolved.[5]

As a result of this decision, two questions remain live in Australian arbitration – how does the Fiona Trust presumption operate in Australia, and what impact does it have on existing arbitration principles?[6]

Case Background

The appeal concerned a dispute involving Gina Rinehart, an Australian mining magnate and, as at the date of writing, Australia’s richest citizen. Two of Gina’s four children,  Bianca Rinehart and John Hancock (the appellants), made substantive claims concerning the conduct of Gina Rinehart, her mineral exploration and extraction company, Hancock Prospecting Pty Ltd, and others (the respondents). The appellants argued that the respondents’ conduct diminished the assets of a trust under which they were beneficiaries. Amongst the issues in dispute, the appellants challenged the validity of various deeds that they had executed, alleging that the respondents had not disclosed all material facts nor negotiated at arms’ length.

The respondents sought to have the matter referred to arbitration on the basis that the deeds in dispute contained arbitration agreements which had been entered into by the parties. In respect of this argument, the HCA upheld the decision of the Full Federal Court of Australia (FCA) that the validity claims fell within the scope of the arbitration agreements and that the matter should be referred to arbitration.

Application of the Fiona Trust presumption

While the decision as to the scope of the arbitration agreement was upheld, the HCA declined to endorse the FCA approach of applying the Fiona Trust presumption.[7] That is, the HCA did not consider the presumption that parties to an arbitration agreement intend to avoid having their disputes split between arbitration proceedings and court proceedings.

This leaves the conflicting views of two intermediate appellate courts unresolved. In Rinehart v Welker, the NSW Court of Appeal declined to apply the Fiona Trust presumption on the basis that it required courts to construe arbitration agreements irrespective of their wording.[8] However, contrary to this approach, the FCA decision determined that the presumption had a role to play before textual analysis,[9] and as an aspect of contextual construction of the agreement.[10]

Comment

While not considered by the HCA, the Fiona Trust presumption remains consistent with the “in context” theory of contractual interpretation endorsed in Rinehart v Hancock.[11] In Fiona Trust, the House of Lords was of the view that the construction of an arbitration agreement should “…start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal”. [12] Lord Hoffman suggested that the presumption should not be applied where “…the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction”[13]. It is evident from these words that the presumption is intended to be rebuttable. The presumption operates within the confines of objective contractual interpretation theory and does not displace the words of the relevant arbitration agreement. As such, the Fiona Trust presumption remains relevant after the Rinehart v Hancock HCA decision, as both a starting point for determinations of the scope of arbitration agreements and as part of the context in construing arbitration agreements.

Furthermore, in interpreting the arbitration agreements “in context”, the HCA gave weight to the intention of the parties. This focus on intention supports the arbitral principles of separability and Kompetenz-Kompetenz. The doctrine of separability treats an arbitration agreement as distinct and separable from the underlying contract.[14] This means that arbitration agreements are subject to attack only on grounds which directly relate to or impeach the arbitration agreement itself.[15] In many respects, the Fiona Trust presumption can be seen as supporting this doctrine. The related Kompetenz-Kompetenz principle enables an arbitral tribunal to review its own jurisdiction.[16] The objective of both principles is to ascertain the parties’ intentions and to give effect to the parties’ choice to arbitrate.[17]

Conclusion

In declining to apply the Fiona Trust presumption, the HCA declined to expressly endorse a pro-arbitration approach and consider broader principles of arbitration, such as the doctrine of separability and the Kompetenz-Kompetenz principle. While the HCA ultimately interpreted the arbitration agreements broadly in this matter, applying the facts of each case to every arbitration agreement may result in more time-consuming disputes regarding the scope of such agreements. Furthermore, the rejection of  explicitly endorsing the presumption is incongruent with the highest appellate courts of other pro-arbitration countries such as Hong Kong, Singapore and the United Kingdom. Nevertheless, the decision ultimately remains consistent with the prevailing approach to arbitration clauses in Australia. In particular, the decision has no significant impact on the doctrine of separability and the Kompetenz-Kompetenz principle.  For the reasons above, the Fiona Trust presumption likely continues to have relevance and applicability in Australian law.

 

[1] Rinehart v Hancock Prospecting Pty Ltd (2019) 93 ALJR 582 (Rinehart v Hancock).

[2] Ibid 8, [27] (Kiefel CJ, Gageler, Nettle & Gordon JJ) & 28 [83] (Edelman J).

[3] Ibid 12, [44] (Kiefel CJ, Gageler, Nettle & Gordon JJ).

[4] Ibid 6, [21] (Kiefel CJ, Gageler, Nettle & Gordon JJ).

[5]Rinehart v Welker (2012) 95 NSWLR 221, [115] & [121] (Bathurst CJ); Hancock Prospecting Pty Ltd v Rinehart (2017) 250 ALR 658, [182] (Allsop CJ).

[6] For an in-depth overview on the topic, see Jay Tseng, ‘Fiona Trust in context: interpreting arbitration clauses following Rinehart v Hancock’ (accessible at Arbitration International: https://doi.org/10.1093/arbint/aiaa004).

[7] Hancock Prospecting Pty Ltd v Rinehart (2017) 250 ALR 658; Premium Nafta Products Limited (20th Defendant) & Ors v Fili Shipping Company Limited (14th Claimant) & Ors [2007] 4 All ER 951 (Fiona Trust).

[8] Rinehart v Welker (2012) 95 NSWLR 221, [120] – [121] (Bathurst CJ).

[9] Hancock Prospecting Pty Ltd v Rinehart (2017) 250 ALR 658, [182] (Allsop CJ).

[10] Ibid, [193].

[11] Rinehart v Hancock, 8, [27] (Kiefel CJ, Gageler, Nettle & Gordon JJ) & 28, [83] (Edelman J).

[12] Ibid [13] (Lord Hoffman).

[13] Ibid.

[14] Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, [224].

[15] Fiona Trust [17].

[16] Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2011] AC 763, [79]-[98] (Lord Collins).

[17] See Jay Tseng, ‘Fiona Trust in context: interpreting arbitration clauses following Rinehart v Hancock’ (accessible at Arbitration International: https://doi.org/10.1093/arbint/aiaa004).

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