I. Background

In Rinehart v Hancock Prospecting Pty Ltd[i] the High Court of Australia was called on to resolve the proper interpretation of an arbitration agreement that had been interpreted in different ways by the New South Wales Court of Appeal (the ‘Court of Appeal’) and the Full Court of the Federal Court of Australia (the ‘Full Court’).

The arbitration clause in question was in the following terms:

In the event that there is any dispute under this deed then any party to his [sic] deed who has a dispute with any other party to this deed shall forthwith notify the other party or parties with whom there is a dispute and all other parties to this deed (‘Notification’) and the parties to this deed shall attempt to resolve such difference in the following manner.

20.1 Confidential Mediation […]

20.2 Confidential Arbitration […]

The clause appeared in several deeds entered into between the parties — relevantly, siblings Bianca Rinehart and John Hancock[ii] and their mother, Gina Rinehart – between 2003 and 2007. At the time, the siblings made public allegations that Mrs Rinehart had breached her obligations as trustee of family trusts of which the siblings were beneficiaries, by misappropriating property of the trusts. The deeds contained releases and bars to future action.

In 2011, the siblings commenced proceedings in the Supreme Court of New South Wales seeking information about the trusts.

Later, in 2014, the siblings commenced separate proceedings in the Federal Court of Australia seeking to remove Mrs Rinehart as trustee of the Hancock Trust and as an officer of the Hancock Group of companies. Mrs Rinehart (and associated company respondents) applied to stay the proceeding pursuant to s 8 of the Commercial Arbitration Act 2010 (NSW). In response, the siblings argued that the arbitration agreements were invalid because they had been procured by misconduct on the part of Mrs Rinehart.

II. Fiona Trust

In arriving at their diametrically opposed conclusions, the Court of Appeal and the Full Court took a different approach to the seminal House of Lords decision in Fiona Trust,[iii] in which Lord Hoffmann (with whom the other Law Lords agreed) declared that the time had come to make a ‘fresh start’ and to discard the sterile semantic debates in the old cases between differences in prepositional phrases such as ‘arising under’, ‘arising out of’ or ‘arising in relation to’ (for example). Instead, a liberal presumptive approach was to be taken to the interpretation of arbitration agreements whereby the interpretation of arbitration clauses should proceed from the assumption that reasonable business people intend their disputes to be determined in a single forum, unless the contract expressly provided otherwise.[iv]

The Court of Appeal rejected the liberal presumptive approach, holding that arbitration clauses should be interpreted by the same rules of construction that apply to other contractual clauses.[v] Adopting the orthodox approach to construction of contracts, the Court held that a dispute as to the validity of the deed was not a dispute ‘under this deed’ and therefore was not a dispute that the parties had agreed to refer to arbitration. Instead, the Court considered that that the phrase ‘under this deed’ limited arbitral disputes to disputes the outcome of which was ‘governed or controlled’ by the deed (which presumed the validity of the deed).

In contrast, in Hancock Prospecting Pty Ltd v Rinehart[vi] the Full Court (Allsop CJ, Besanko and O’Callaghan JJ) expressly endorsed the ‘presumptive liberal approach’ to the construction of arbitration agreements advocated by the House of Lords in Fiona Trust. The Full Court considered that this approach was consistent with earlier Australian decisions, as well as established common law principles of contractual interpretation.[vii] In the context of arbitration agreements entered into for commercial purposes, the Full Court considered that it should be presumed that parties ordinarily intend all aspects of the defined relationship in respect of which they have agreed to submit disputes to arbitration, to be determined by the same tribunal.[viii]

It was a serious matter for the Full Court to depart from the earlier decision of the Court of Appeal, particularly as both cases concerned the interpretation of the very same arbitration clause. As such, it was hoped that the High Court would clarify the approach to the interpretation of arbitration clauses, including whether the ‘presumptive liberal approach’ applied.

III. The High Court Decision

However, the High Court found it unnecessary to consider whether Fiona Trust is good law in Australia. According to the plurality (Kiefel CJ, Gageler, Nettle and Gordon JJ), the appeals could be resolved by application of orthodox principles of contract interpretation, without reference to Fiona Trust: para 18.

In turn, this required consideration of the context and purpose of the deed: para 18. The plurality judgment embraced the Full Court observation that ‘[c]ontext will almost always tell one more about the objectively intended reach of [prepositional] phrases than textual comparison of words of a general relational character’: para 26.[ix]

After succinctly stating the proper approach to contractual interpretation,[x] the plurality readily answered the dispositive question as to whether the particular claims at issue fell within the scope of the arbitration agreements contained in the various deeds at [44]:

It could not have been understood by the parties to these Deeds that any challenge to the efficacy of the Deeds was to be determined in the public spotlight.

That is, the purpose and the context of the several deeds — in particular, the overwhelming desire to quell any future disputes by confidential dispute resolution — demanded an expansive interpretation of the phrase ‘dispute under this deed’.

Accordingly, disputes as to the validity of the several deeds (as well as substantive disputes) were held to fall within the scope of the reference to arbitration, and the appeal from the Full Court was dismissed.

In a separate, concurring judgment (on this issue), Edelman J held that consideration of context was a vital element of interpretation but did not consider it necessary to determine what weight to place on the presumption that parties to an arbitration agreement wish to minimise fragmentation of their disputes: para 83. Thus, his Honour appears to have recognised that the considerations in Fiona Trust were valid.

IV. Comment

It is disappointing that the High Court did not tackle the important policy question of whether Fiona Trust, and the presumptive liberal approach to the interpretation of arbitration agreements, is good law in Australia. This has the unfortunate effect of leaving unresolved a conflict of views between two intermediate appellate courts.

There are strong reasons for supporting a generous approach towards the interpretation of the scope of arbitration clauses. Such an approach has been followed among leading commercial jurisdictions, including Singapore and Hong Kong. It is also strongly supported by leading academic commentators, such as Gary Born. Moreover, such an approach has the salutary benefit of facilitating arbitration.