There’s much more to Gina Rinehart’s brutal courtroom drama than the battle to determine who controls more than $3 billion worth of assets in the Margaret Hope Hancock Trust, which was set up by Gina’s father Lang Hancock in 1988.
Court documents released yesterday reveal that Gina and her companies have promised to pay 25% of the net cash flow of the huge Hope Downs iron ore mine in the Pilbara to her four children. The mine, which is operated by Rio Tinto, is believed to produce around $700 million cash a year.
The first payments under the confidential “Hope Downs Agreement” of 2006 were due to be earned from September 6, 2011 and made in December 2011. But nothing has yet been handed over to John Langley Hancock, Bianca Hope Rinehart and Hope Rinehart Welker (who are trying to remove their mother as trustee of the trust), or to the youngest daughter Ginia Hope Rinehart (who has sided with her mother in the legal battle).
Annual payments from the trust should now amount to tens of millions of dollars a year, but the Rinehart children claim they have been starved of cash.
It is highly likely that Gina Rinehart will now argue that no payment is due, since her lawyers are already claiming that three of her children have breached the agreement by taking legal action.
It’s not clear what led to the original 2006 “confidential settlement”, but it’s likely the money was intended to buy peace and privacy and keep any disputes about the trust under wraps.
What is also clear from the documents is that Gina Rinehart and her son John had been fighting since 2003 over control of the trust — which owns roughly one sixth of Hancock Prospecting Pty Ltd (HPPL) — so the family war dates back almost a decade.
In September 2003, John wrote a letter to Rinehart’s lawyer, Terry Solomon, on letterhead of the “Chairman’s Personal Assistant”, complaining he would have to wait almost 10 more years for his youngest sister Ginia to reach 25 before he would get his share of the trust income. That same day he wrote another letter, copied to Gina, accusing her of using “her control of the trust as a tool of power over her children”.
By May 2004, John had engaged a firm of Perth lawyers who couriered a legal letter to Gina outlining his main concerns: that she had not been making distributions from the trust (ie: not paying him any money); that she refused to make distributions unless he “followed her direction on other matters”; and that she had moved assets out of the trust and charged expenses to it illegitimately. The letter demanded she step aside as trustee, “to avoid what would inevitably be a public dispute”.
By April 2005, after a series of such letters and escalating threats to make the dispute public, Rinehart and the Hancock Group had settled with John and agreed to make a series of payments to him, including cash of $398,125, cash of $1 million if the Hope Downs project was floated to the public or became cash positive, and an income of $115,000 a year if he found employment (or $70,000 a year if he did not). In return, John was to drop any claim against Rinehart, Hancock Group or the trust and stay silent.
But five months later, in September 2005, the family was at war again, with John seeking an order in the WA Supreme Court to have Gina removed as trustee.
Why the peace deal fell apart is not clear, because key sections of John’s affidavit (and other documents) have been redacted by the court. Nor do we know why his three siblings then made their own confidential settlement in August 2006 (the Hope Downs Agreement).
But in 2007, John and Gina made peace once more, and John signed up to the deal that had already promised his siblings 25% of the cash flow from Hope Downs after September 2011. That’s the money — many millions of dollars — which is now owing.
In the current court action, which will be heard in open court unless the Appeal Court orders it to go to arbitration, the three eldest Rinehart children are seeking a declaration that Gina is guilty of misconduct as trustee and that therefore should be removed.
*More at The Power Index: Paul Barry explains the background to the Rinehart dispute